Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~December 31, 2020~~September 30, 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. ~~159,167,434~~152,682,166 shares of the issuer’s common stock were outstanding as of ~~December 31, 2020.~~September 30, 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 nine months ended December 31, 2020 and 2019	3

		Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 31, 2020 and 2019	4		Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2021 and 2020	3

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

		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2020 and 2019	6		Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021	5

		Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019	8		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended September 30, 2021 and 2020	6

		Financial Notes	9		Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020	8

		Note 1 - Significant Accounting Policies	9		Financial Notes	9

		Note 2 - Investment in Change Healthcare Joint Venture	11		Note 1 - Significant Accounting Policies	9

		Note 3 - Held for Sale	12		Note 2 - Held for Sale	10

		Note 4 - Restructuring, Impairment, and Related Charges	14		Note 3 - Restructuring, Impairment, and Related Charges	11

		Note 5 - Income Taxes	17		Note 4 - Income Taxes	14

		Note 6 - Redeemable Noncontrolling Interests and Noncontrolling Interests	18		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	15

		Note 7 - Earnings (Loss) per Common Share	20		Note 6 - Earnings (Loss) per Common Share	17

		Note 8 - Goodwill and Intangible Assets, Net	21		Note 7 - Goodwill and Intangible Assets, Net	18

		Note 9 - Debt and Financing Activities	23		Note 8 - Debt and Financing Activities	20

		Note 10 - Pension Benefits	25		Note 9 - Pension Benefits	22

		Note 11 - Hedging Activities	25		Note 10 - Hedging Activities	22

		Note 12 - Fair Value Measurements	28		Note 11 - Fair Value Measurements	25

		Note 13 - Commitments and Contingent Liabilities	30		Note 12 - Commitments and Contingent Liabilities	27

		Note 14 - Stockholders’ Equity (Deficit)	34		Note 13 - Stockholders’ Equity (Deficit)	32

		Note 15 - Segments of Business	38		Note 14 - Segments of Business	36

2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

3	3	Quantitative and Qualitative Disclosures About Market Risk	63	3	Quantitative and Qualitative Disclosures About Market Risk	60

4	4	Controls and Procedures	63	4	Controls and Procedures	60

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION

1	1	Legal Proceedings	64	1	Legal Proceedings	61

1A	1A	Risk Factors	64	1A	Risk Factors	61

2	2	Unregistered Sales of Equity Securities and Use of Proceeds	64	2	Unregistered Sales of Equity Securities and Use of Proceeds	61

3	3	Defaults Upon Senior Securities	64	3	Defaults Upon Senior Securities	62

4	4	Mine Safety Disclosures	65	4	Mine Safety Disclosures	62

5	5	Other Information	65	5	Other Information	62

6	6	Exhibits	66	6	Exhibits	63

		Signatures	67		Signatures	64

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended September 30,				Six Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues	Revenues	$	62,599	$	59,172	$	179,086	$	172,516	Revenues	$	66,576	$	60,808	$	129,250	$	116,487
Cost of sales	Cost of sales	(59,448)		(56,139)		(170,235)		(163,829)		Cost of sales	(63,224)		(57,808)		(122,866)		(110,787)
Gross profit	Gross profit	3,151		3,033		8,851		8,687		Gross profit	3,352		3,000		6,384		5,700
Operating expenses		(2,291)		(2,535)		(6,625)		(6,779)
Selling, distribution, general, and administrative expenses										Selling, distribution, general, and administrative expenses	(2,669)		(2,237)		(4,901)		(4,334)
Claims and litigation charges, net	Claims and litigation charges, net	(8,067)		0		(7,936)		(82)		Claims and litigation charges, net	(112)		—		(186)		131
Goodwill impairment charges	Goodwill impairment charges	0		(2)		(69)		(2)		Goodwill impairment charges	—		(69)		—		(69)
Restructuring, impairment, and related charges	Restructuring, impairment, and related charges	(155)		(136)		(271)		(204)		Restructuring, impairment, and related charges	(32)		(60)		(190)		(116)
Total operating expenses										Total operating expenses	(2,813)		(2,366)		(5,277)		(4,388)
Operating income										Operating income	539		634		1,107		1,312
Other income, net										Other income, net	139		71		182		98
Loss on debt extinguishment										Loss on debt extinguishment	(191)		—		(191)		—

Total operating expenses		(10,513)		(2,673)		(14,901)		(7,067)
Operating income (loss)		(7,362)		360		(6,050)		1,620
Other income (expense), net		54		26		152		(15)
Equity earnings and charges from investment in Change Healthcare Joint Venture		0		(28)		0		(1,478)
Interest expense	Interest expense	(55)		(64)		(165)		(184)		Interest expense	(45)		(50)		(94)		(110)
Income (loss) from continuing operations before income taxes		(7,363)		294		(6,063)		(57)
Income tax benefit (expense)		1,189		(47)		1,011		111
Income (loss) from continuing operations		(6,174)		247		(5,052)		54
Income from continuing operations before income taxes										Income from continuing operations before income taxes	442		655		1,004		1,300
Income tax expense										Income tax expense	(132)		(28)		(158)		(178)
Income from continuing operations										Income from continuing operations	310		627		846		1,122
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	0		(5)		(1)		(12)		Loss from discontinued operations, net of tax	—		—		(3)		(1)
Net income (loss)		(6,174)		242		(5,053)		42
Net income										Net income	310		627		843		1,121
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(52)		(56)		(152)		(163)		Net income attributable to noncontrolling interests	(43)		(50)		(90)		(100)
Net income (loss) attributable to McKesson Corporation		$	(6,226)	$	186	$	(5,205)	$	(121)
Net income attributable to McKesson Corporation										Net income attributable to McKesson Corporation	$	267	$	577	$	753	$	1,021

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	$	(39.03)	$	1.06	$	(32.28)	$	(0.60)	Continuing operations	$	1.71	$	3.54	$	4.82	$	6.26
Discontinued operations	Discontinued operations	0		(0.03)		(0.01)		(0.06)		Discontinued operations	—		—		(0.02)		—
Total	Total	$	(39.03)	$	1.03	$	(32.29)	$	(0.66)	Total	$	1.71	$	3.54	$	4.80	$	6.26
Basic	Basic									Basic
Continuing operations	Continuing operations	$	(39.03)	$	1.06	$	(32.28)	$	(0.60)	Continuing operations	$	1.73	$	3.56	$	4.87	$	6.31
Discontinued operations	Discontinued operations	0		(0.02)		(0.01)		(0.06)		Discontinued operations	—		—		(0.02)		(0.01)
Total	Total	$	(39.03)	$	1.04	$	(32.29)	$	(0.66)	Total	$	1.73	$	3.56	$	4.85	$	6.30

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Diluted	Diluted	159.5		179.7		161.2		183.1		Diluted	155.8		163.2		156.9		163.2
Basic	Basic	159.5		178.7		161.2		183.1		Basic	154.1		162.0		155.1		162.0

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In millions)

(Unaudited)

Three Months Ended December 31, Nine Months Ended December 31,
2020 2019 2020 2019
Net income (loss) $ (6,174) $ 242 $ (5,053) $ 42
Other comprehensive income, net of tax
Foreign currency translation adjustments 107 43 181 55
Unrealized gains (losses) on cash flow hedges (12) 8 (36) 33
Changes in retirement-related benefit plans 24 0 16 96
Other comprehensive income, net of tax 119 51 161 184
Comprehensive income (loss) (6,055) 293 (4,892) 226
Comprehensive income attributable to noncontrolling interests (77) (66) (113) (161)
Comprehensive income (loss) attributable to McKesson Corporation $ (6,132) $ 227 $ (5,005) $ 65


	Three Months Ended September 30,				Six Months Ended September 30,
	2021		2020		2021		2020
Net income	$	310	$	627	$	843	$	1,121

Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	(48)		41		(24)		74
Unrealized gains (losses) on cash flow hedges	8		(19)		8		(24)
Changes in retirement-related benefit plans	2		(9)		4		(8)
Other comprehensive income (loss), net of tax	(38)		13		(12)		42

Comprehensive income	272		640		831		1,163
Comprehensive (income) loss attributable to noncontrolling interests	(43)		75		(93)		(36)
Comprehensive income attributable to McKesson Corporation	$	229	$	715	$	738	$	1,127

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


		December 31, 2020		March 31, 2020			September 30, 2021		March 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	3,577	$	4,015	Cash and cash equivalents	$	2,151	$	6,278
Receivables, net	Receivables, net	18,877		19,950		Receivables, net	20,140		19,181
Inventories, net	Inventories, net	19,211		16,734		Inventories, net	19,342		19,246
Assets held for sale	Assets held for sale	15		906		Assets held for sale	3,086		12
Prepaid expenses and other	Prepaid expenses and other	688		617		Prepaid expenses and other	861		665
Total current assets	Total current assets	42,368		42,222		Total current assets	45,580		45,382
Property, plant, and equipment, net	Property, plant, and equipment, net	2,518		2,365		Property, plant, and equipment, net	2,222		2,581
Operating lease right-of-use assets	Operating lease right-of-use assets	1,955		1,886		Operating lease right-of-use assets	1,768		2,100
Goodwill	Goodwill	9,511		9,360		Goodwill	9,473		9,493
Intangible assets, net	Intangible assets, net	2,980		3,156		Intangible assets, net	2,385		2,878

Other non-current assets	Other non-current assets	2,513		2,258		Other non-current assets	2,173		2,581
Total assets	Total assets	$	61,845	$	61,247	Total assets	$	63,601	$	65,015

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)	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	$	36,509	$	37,195	Drafts and accounts payable	$	38,922	$	38,975
Short-term borrowings		152		0

Current portion of long-term debt	Current portion of long-term debt	777		1,052		Current portion of long-term debt	39		742
Current portion of operating lease liabilities	Current portion of operating lease liabilities	384		354		Current portion of operating lease liabilities	348		390
Liabilities held for sale	Liabilities held for sale	14		683		Liabilities held for sale	2,337		9
Other accrued liabilities	Other accrued liabilities	4,094		3,340		Other accrued liabilities	4,429		3,987
Total current liabilities	Total current liabilities	41,930		42,624		Total current liabilities	46,075		44,103
Long-term debt	Long-term debt	6,467		6,335		Long-term debt	5,946		6,406
Long-term deferred tax liabilities	Long-term deferred tax liabilities	773		2,255		Long-term deferred tax liabilities	1,352		1,411
Long-term operating lease liabilities	Long-term operating lease liabilities	1,747		1,660		Long-term operating lease liabilities	1,605		1,867
Long-term litigation liabilities	Long-term litigation liabilities	8,067		0		Long-term litigation liabilities	7,146		8,067
Other non-current liabilities	Other non-current liabilities	1,846		1,662		Other non-current liabilities	1,564		1,715
Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,292		1,402		Redeemable noncontrolling interests	—		1,271
McKesson Corporation stockholders’ equity (deficit)
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 December 31, 2020 and March 31, 2020, respectively		2		2
McKesson Corporation stockholders’ deficit						McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding						Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized and 275 and 273 shares issued at September 30, 2021 and March 31, 2021, respectively						Common stock, $0.01 par value, 800 shares authorized and 275 and 273 shares issued at September 30, 2021 and March 31, 2021, respectively	2		2
Additional paid-in capital	Additional paid-in capital	6,847		6,663		Additional paid-in capital	7,311		6,925
Retained earnings	Retained earnings	7,595		13,022		Retained earnings	8,812		8,202
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,503)		(1,703)		Accumulated other comprehensive loss	(1,665)		(1,480)

Treasury shares, at cost, 114 and 110 shares at December 31, 2020 and March 31, 2020, respectively		(13,418)		(12,892)
Total McKesson Corporation stockholders’ equity (deficit)		(477)		5,092
Treasury shares, at cost, 122 and 115 shares at September 30, 2021 and March 31, 2021, respectively						Treasury shares, at cost, 122 and 115 shares at September 30, 2021 and March 31, 2021, respectively	(15,031)		(13,670)
Total McKesson Corporation stockholders’ deficit						Total McKesson Corporation stockholders’ deficit	(571)		(21)
Noncontrolling interests	Noncontrolling interests	200		217		Noncontrolling interests	484		196
Total equity (deficit)	Total equity (deficit)	(277)		5,309		Total equity (deficit)	(87)		175
Total liabilities, redeemable noncontrolling interests, and equity (deficit)	Total liabilities, redeemable noncontrolling interests, and equity (deficit)	$	61,845	$	61,247	Total liabilities, redeemable noncontrolling interests, and equity (deficit)	$	63,601	$	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 December 31, 2020
Common Stock Additional Paid-in Capital Other Capital Retained Earnings Accumulated Other Comprehensive
Loss Treasury Noncontrolling
Interests Total
Equity (Deficit)
Shares Amount Common Shares Amount
Balances, September 30, 2020 273 $ 2 $ 6,780 $ 0 $ 13,890 $ (1,597) (112) $ (13,185) $ 200 $ 6,090
Issuance of shares under employee plans — — 16 — — — — (2) — 14
Share-based compensation — — 51 — — — — — — 51
Payments to noncontrolling interests — — — — — — — — (41) (41)
Other comprehensive income — — — — — 94 — — — 94
Net income (loss) — — — — (6,226) — — — 41 (6,185)
Repurchase of common stock — — — — — — (2) (231) — (231)
Cash dividends declared, $0.42 per common share — — — — (67) — — — — (67)
Other — — — — (2) — — — — (2)
Balances, December 31, 2020 273 $ 2 $ 6,847 $ 0 $ 7,595 $ (1,503) (114) $ (13,418) $ 200 $ (277)

Nine Months Ended December 31, 2020
Common Stock Additional Paid-in Capital Other Capital Retained Earnings Accumulated Other Comprehensive
Loss Treasury Noncontrolling
Interests Total
Equity (Deficit)
Shares Amount Common Shares Amount
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
Issuance of shares under employee plans 1 — 55 — — — — (26) — 29
Share-based compensation — — 110 — — — — — — 110
Payments to noncontrolling interests — — — — — — — — (134) (134)
Other comprehensive income — — — — — 200 — — — 200
Net income (loss) — — — — (5,205) — — — 120 (5,085)
Exercise of put right by noncontrolling shareholders of McKesson Europe — — 3 — — — — — — 3
Repurchase of common stock — — — — — — (4) (500) — (500)
Cash dividends declared, $1.25 per common share — — — — (203) — — — — (203)
Other — — 16 — (6) — — — (3) 7
Balances, December 31, 2020 273 $ 2 $ 6,847 $ 0 $ 7,595 $ (1,503) (114) $ (13,418) $ 200 $ (277)


	Three Months Ended September 30, 2021
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount				Common Shares					Amount
Balances, June 30, 2021	274	$	2	$	7,057		$	8,618	$	(1,627)	(119)	$	(14,579)	$	484	$	(45)
Issuance of shares under employee plans, net of forfeitures	1	—		40			—		—		—	(1)		—		39
Share-based compensation	—	—		43			—		—		—	—		—		43
Payments to noncontrolling interests	—	—		—			—		—		—	—		(40)		(40)
Other comprehensive loss	—	—		—			—		(38)		—	—		—		(38)
Net income	—	—		—			267		—		—	—		43		310
Repurchase of common stock	—	—		171			—		—		(3)	(451)		—		(280)


Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(2)		(2)
Cash dividends declared, $0.47 per common share	—	—		—			(74)		—		—	—		—		(74)
Other	—	—		—			1		—		—	—		(1)		—
Balances, September 30, 2021	275	$	2	$	7,311		$	8,812	$	(1,665)	(122)	$	(15,031)	$	484	$	(87)


	Three Months Ended September 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, June 30, 2020	272	$	2	$	6,711		$	13,384	$	(1,735)	(110)	$	(12,916)	$	207	$	5,653
Issuance of shares under employee plans, net of forfeitures	1	—		18			—		—		—	—		—		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		$	13,890	$	(1,597)	(112)	$	(13,185)	$	200	$	6,090

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 December 31, 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, September 30, 2019 272 $ 3 $ 6,573 $ (2) $ 11,965 $ (1,704) (92) $ (10,353) $ 210 $ 6,692
Issuance of shares under employee plans — — 11 — — — — — — 11
Share-based compensation — — 30 — — — — — — 30
Payments to noncontrolling interests — — — — — — — — (39) (39)
Other comprehensive income — — — — — 41 — — — 41
Net income — — — — 186 — — — 45 231
Repurchase of common stock — — — — — — (3) (500) — (500)
Cash dividends declared, $0.41 per common share — — — — (73) — — — — (73)
Other — — — — (3) — — — (5) (8)
Balances, December 31, 2019 272 $ 3 $ 6,614 $ (2) $ 12,075 $ (1,663) (95) $ (10,853) $ 211 $ 6,385

Nine Months Ended December 31, 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 — 89 — — — — (17) — 72
Share-based compensation — — 90 — — — — — — 90
Payments to noncontrolling interests — — — — — — — — (115) (115)
Other comprehensive income — — — — — 186 — — — 186
Net income (loss) — — — — (121) — — — 130 9
Repurchase of common stock — — — — — — (14) (1,934) — (1,934)
Cash dividends declared, $1.21 per common share — — — — (221) — — — — (221)
Other — — — — (3) — — — 3 0
Balances, December 31, 2019 272 $ 3 $ 6,614 $ (2) $ 12,075 $ (1,663) (95) $ (10,853) $ 211 $ 6,385


	Six Months Ended September 30, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury				Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount								Common Shares		Amount
Balances, March 31, 2021	273	$	2	$	6,925	$	8,202	$	(1,480)		(115)		$	(13,670)	$	196	$	175
Issuance of shares under employee plans, net of forfeitures	2	—		111		—		—			—		(60)		—		51
Share-based compensation	—	—		76		—		—			—		—		—		76
Payments to noncontrolling interests	—	—		—		—		—			—		—		(79)		(79)
Other comprehensive loss	—	—		—		—		(15)			—		—		—		(15)
Net income	—	—		—		753		—			—		—		82		835
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		178		—		(170)			—		—		—		8
Repurchase of common stock	—	—		21		—		—			(7)		(1,301)		—		(1,280)
Reclassification of McKesson Europe AG redeemable noncontrolling interests	—	—		—		—		—			—		—		287		287
Reclassification of recurring compensation to other accrued liabilities	—	—		—		—		—			—		—		(2)		(2)
Cash dividends declared, $0.89 per common share	—	—		—		(139)		—			—		—		—		(139)
Other	—	—		—		(4)		—			—		—		—		(4)
Balances, September 30, 2021	275	$	2	$	7,311	$	8,812	$	(1,665)		(122)		$	(15,031)	$	484	$	(87)


	Six Months Ended September 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 adjustments: 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, net of forfeitures	1	—		39			—		—		—	(24)		—		15
Share-based compensation	—	—		59			—		—		—	—		—		59
Payments to noncontrolling interests	—	—		—			—		—		—	—		(93)		(93)
Other comprehensive income	—	—		—			—		106		—	—		—		106
Net income	—	—		—			1,021		—		—	—		79		1,100
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		3			—		—		—	—		—		3
Repurchase of common stock	—	—		—			—		—		(2)	(269)		—		(269)

Cash dividends declared, $0.83 per common share	—	—		—			(136)		—		—	—		—		(136)
Other	—	—		16			(4)		—		—	—		(3)		9
Balances, September 30, 2020	273	$	2	$	6,780		$	13,890	$	(1,597)	(112)	$	(13,185)	$	200	$	6,090

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Nine Months Ended December 31,
2020 2019
OPERATING ACTIVITIES
Net income (loss) $ (5,053) $ 42
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation 237 239
Amortization 429 452
Goodwill and other asset impairment charges 236 113
Equity earnings and charges from investment in Change Healthcare Joint Venture 0 1,478
Deferred taxes (1,520) (387)
Credits associated with last-in, first-out inventory method (115) (114)
Non-cash operating lease expense 264 276
Loss from sales of businesses and investments 50 8
Other non-cash items 67 534
Changes in assets and liabilities, net of acquisitions:
Receivables 1,500 (1,044)
Inventories (2,046) (689)
Drafts and accounts payable (1,240) (929)
Operating lease liabilities (291) (287)
Taxes 184 11
Litigation liabilities 8,067 0
Other 403 17
Net cash provided by (used in) operating activities 1,172 (280)
INVESTING ACTIVITIES
Payments for property, plant, and equipment (293) (242)
Capitalized software expenditures (134) (96)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired (33) (97)
Proceeds from sales of businesses and investments, net 325 6
Other (75) 20
Net cash used in investing activities (210) (409)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 5,455 15,852
Repayments of short-term borrowings (5,303) (13,743)
Proceeds from issuances of long-term debt 500 0
Repayments of long-term debt (1,030) (8)
Common stock transactions:
Issuances 55 89
Share repurchases, including shares surrendered for tax withholding (526) (1,951)
Dividends paid (209) (222)
Other (118) (271)
Net cash used in financing activities (1,176) (254)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (77) 27
Net decrease in cash, cash equivalents, and restricted cash (291) (916)
Cash, cash equivalents, and restricted cash at beginning of period 4,023 2,981
Cash, cash equivalents, and restricted cash at end of period 3,732 2,065
Less: Restricted cash at end of period included in Prepaid expenses and other (155) 0
Cash and cash equivalents at end of period $ 3,577 $ 2,065


	Six Months Ended September 30,
	2021		2020
OPERATING ACTIVITIES
Net income	$	843	$	1,121
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation	148		154
Amortization	265		285
Goodwill and long-lived asset impairment charges	127		104

Deferred taxes	(18)		(35)
Credits associated with last-in, first-out inventory method	(46)		(104)
Non-cash operating lease expense	152		172
Loss (gain) from sales of businesses and investments	(101)		1
European businesses held for sale	470		—
Other non-cash items	381		17
Changes in assets and liabilities, net of acquisitions:
Receivables	(2,311)		981
Inventories	(1,164)		(1,396)
Drafts and accounts payable	1,431		(1,305)
Operating lease liabilities	(186)		(185)
Taxes	40		(58)
Litigation liabilities	151		—
Other	(12)		207
Net cash provided by (used in) operating activities	170		(41)

INVESTING ACTIVITIES
Payments for property, plant, and equipment	(186)		(174)
Capitalized software expenditures	(93)		(91)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(4)		(8)
Proceeds from sales of businesses and investments, net	179		9
Other	(53)		(14)
Net cash used in investing activities	(157)		(278)

FINANCING ACTIVITIES
Proceeds from short-term borrowings	3,020		5,303



Repayments of short-term borrowings	(3,020)		(5,303)
Proceeds from issuances of long-term debt	498		—
Repayments of long-term debt	(1,636)		(5)
Payments for debt extinguishments	(184)		—
Common stock transactions:
Issuances	111		39
Share repurchases	(1,272)		(248)
Dividends paid	(134)		(140)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(1,031)		(49)
Other	(246)		2
Net cash used in financing activities	(3,894)		(401)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		(63)
Net decrease in cash, cash equivalents, and restricted cash	(3,863)		(783)
Cash, cash equivalents, and restricted cash at beginning of period	6,396		4,023
Cash, cash equivalents, and restricted cash at end of period	2,533		3,240
Less: Restricted cash at end of period included in Prepaid expenses and other	(382)		(149)

Cash and cash equivalents at end of period	$	2,151	$	3,091

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 with 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 further 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. On December 27, 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021, which enhances and expands certain provisions of the CARES Act. These legislative acts are not expected to have a material impact on the Company’s consolidated financial results.

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

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

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

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

Recently Adopted Accounting Pronouncements

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

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

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

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

~~Allowance for Credit Losses:~~ Upon the adoption of ASU 2016-13 in the first quarter of 2021, the Company began using the Current Expected Credit Losses ("CECL") methodology to determine an allowance for credit losses related to financial assets measured at amortized cost. The Company considers historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance. Trade accounts receivable represent the majority of the Company's financial assets, for which an allowance for credit losses of $221 million was included in Receivables, net on the Condensed Consolidated Balance Sheet as of December 31, 2020. Changes in the allowance were not material for the three and nine months ended December 31, 2020.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

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

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

Until the separation of its interest in the Change Healthcare 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 nine months ended December 31, 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 nine months ended December 31, 2019.

The Company recorded its proportionate share of loss from its investment in Change Healthcare JV of $28 million and $75 million, respectively, for the three and nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2020 and the three months ended December 31, 2019. Fees earned from the TSA were $18 million for the nine months ended December 31, 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 years ended March 31, 2019 and 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 0 receivable recognized as of December 31, 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 as the relevant periods are audited by tax authorities. 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 long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less 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 ~~$15~~$3.1 billion and $2.3 billion, respectively, at September 30, 2021 and $12 million and ~~$14 million, respectively, at December 31, 2020 and $906 million and $683~~$9 million, respectively, at March 31, 2020. These amounts at March 31, 2020 primarily consisted of the majority of the Company’s German pharmaceutical wholesale business described below. This disposal group had been recorded as assets and liabilities held for sale since the third quarter of 2020 through its contribution to a joint venture in the third quarter of 2021. ~~Based on its analysis, the~~The Company determined that the 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.

~~German Pharmaceutical Wholesale Joint Venture~~European Divestiture Activities

On ~~November 1, 2020,~~July 5, 2021, the Company ~~completed its previously announced transaction with Walgreens Boots Alliance (“WBA”) whereby the majority~~entered into an agreement to sell certain of its businesses in the European Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German ~~pharmaceutical wholesale~~headquarters and wound-care business, ~~was contributed to~~part of a ~~newly formed~~shared services center in Lithuania, and its ownership stake in a joint venture in ~~which McKesson has~~the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a ~~30% noncontrolling interest.~~

~~Consideration received included a receivable amount~~purchase price of ~~$43 million, primarily related to~~€1.2 billion (or, approximately $1.4 billion) adjusted for certain items, including cash, net debt and working capital adjustments, and ~~net debt adjustments from WBA, and~~reduced by the ~~30% interest in the newly formed joint venture. At the transaction date, the carrying~~ value of the ~~equity investment~~noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. The transaction is anticipated to close within the next twelve months, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of September 30, 2021, the E.U. disposal group, consisting of $3.1 billion of assets and $2.3 billion of liabilities primarily within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for sale” in the ~~joint venture was~~Condensed Consolidated Balance Sheet.

During the three and six months ended September 30, 2021, the Company recorded atcharges totaling $491 million to remeasure the E.U. disposal group to the lower of its carrying value or fair value ~~which~~less costs to sell. These charges also included impairments of individual assets, such as certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole. The remeasurement adjustment includes a $226 million loss related to the accumulated other comprehensive income balances associated with the E.U. disposal group. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was ~~measured using inputs~~based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that ~~fell~~fall within Level 3 of the fair value hierarchy. The carrying value of the investment in the joint venture was NaN as of December 31, 2020. The joint venture also assumed a note payable to the Company in the amount of approximately $291 million as of the transaction date, which was paid to the Company in the third quarter of 2021.

1210

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

In conjunction with the contribution, the Company recorded a loss of $47 million (pre-tax and after-tax) in operating expenses in the three months ended December 31, 2020. In addition to this amount, the Company recorded charges of $10 million (pre-tax and after-tax) in the three and six months ended September 30, 2020 and $282 million (pre-tax and after-tax) in the three and nine months ended December 31, 2019 to remeasure the assets and liabilities held for sale to fair value less costs to sell. These charges were included within operating expenses in the condensed consolidated statements of operations. The ~~Company’s measurement of the fair value of the disposal group was based on estimates of~~ total consideration to be received by the Company as outlined in the contribution agreement between the Company and WBA. As a result of finalization of working capital amounts contributed and other adjustments, the Company may record additional gains or losses in future periods; however, these adjustments are not expected to have a material impact on the Company’s consolidated financial statements.

The Company accounts for its interest in the joint venture as an equity method investment within the International segment. The Company does not provide for losses on the investment as the Company has no guaranteed obligations for the joint venture to fund losses and is not otherwise committed to providing further financial support for the investee. If the joint venture subsequently generates income, the Company will only recognize its share of such income to the extent it exceeds its share of the previously unrecognized losses. As such, the Company has not recognized its proportionate share of earnings for the intervening period from the transaction date to December 31, 2020.

Following the completion of the transaction on November 1, 2020, there were 0 assets or liabilities of the German pharmaceutical wholesale joint venture classified as held for sale on the Company’s consolidated balance sheet. Total assets and liabilities of the ~~German pharmaceutical wholesale joint venture~~E.U. disposal group that ~~were classified as~~have met the classification of held for sale onin the Company’s ~~consolidated balance sheet as of March 31, 2020, were~~Condensed Consolidated Balance Sheets are as follows:


(In millions)	~~March 31, 2020~~September 30, 2021
Assets
Current assets
Receivables, net ~~and other current assets~~	$	~~548~~1,298
Inventories, net	~~478~~886
Prepaid expenses and other	113
~~Long-term~~Property, plant, and equipment, net	301
Operating lease right-of-use assets	88224
Intangible assets, net	279
Other non-current assets	348
Remeasurement of assets of ~~business~~businesses held for sale to fair value less ~~costs~~cost to sell(1)	~~(272)~~(370)
Total assets held for sale	$	~~842~~3,079

Liabilities
Current liabilities
Drafts and accounts payable	$	~~450~~1,398
Current portion of long-term debt	4
Current portion of operating lease liabilities	34
Other accrued liabilities	40449
Long-term debt	15
Long-term deferred tax liabilities	~~166~~48
Long-term operating lease liabilities	198
Other non-current liabilities	184
Total liabilities held for sale	$	~~656~~2,330

(1)~~Includes~~Excludes charges related to the ~~effect~~impairment of individual assets, which are primarily comprised of a $113 million impairment of internally developed software recorded directly against the gross value of the assets impacted.

On November 1, 2021, the Company announced an agreement to sell its retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited for purchase consideration of £325 million (or, approximately $3$438 million). The transaction is anticipated to close during the fourth quarter of 2022, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals. Beginning in the third quarter of 2022, the U.K. disposal group will be reflected in the Company’s 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 the Company estimates will result in a charge of between $700 million and $900 million, primarily related to the inclusion of ~~favorable cumulative foreign currency translation adjustment~~the accumulated other comprehensive income balances into the carrying amount of the U.K. disposal group. While this range reflects the Company’s best estimate as of ~~March 31, 2020.~~

the date of this Quarterly Report on Form 10-Q, actual charges could differ based on operating results, changes in foreign exchange rates, and other factors prior to closing of the transaction.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

4.3. Restructuring, Impairment, and Related Charges

The Company recorded restructuring, impairment, and related charges of ~~$155~~$32 million and ~~$271~~$190 million during the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and ~~$136~~$60 million and ~~$204~~$116 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019.~~2020.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 $105 million to $125 million, of which $104 million of charges were recorded to date. The Company recorded charges of $14 million and $27 million, respectively, during the three and nine months ended December 31, 2020 and $14 million and $34 million, respectively, during the three and nine months ended December 31, 2019, consisting primarily of employee retention expenses, severance, accelerated depreciation, and long-lived asset impairments. The relocation was substantially complete in January 2021 and the estimated remaining charges primarily relate to lease costs.

~~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 ~~$310~~$180 million to ~~$320~~$280 million for ~~these programs,~~this initiative, consisting primarily of ~~which $288 million~~exit related costs, accelerated depreciation and amortization of ~~charges were recorded to date.~~long-lived assets, and asset impairments. The Company recorded charges of ~~$17~~$15 million and ~~$53~~$110 million, respectively, ~~during~~in the three and ~~nine~~six months ended December 31, 2020 and $20 million and $59 million, respectively, during the three and nine months ended December 31, 2019, consisting primarily of employee severance, accelerated depreciation expense, and project consulting fees. The Company anticipates these additional programs willSeptember 30, 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.

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 $64 million of charges were recorded to date. The Company recorded charges of $9$1 million and ~~$50~~$7 million, respectively, in the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and $27 million and $41 million, respectively, in the three and six months ended September 30, 2020, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. The initiative is ~~expected~~anticipated to be substantially complete ~~by the end of 2021~~in 2022 and estimated remaining charges primarily consist of accelerated amortization of long-lived assets, facility and other exit costs, and employee-related costs.

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


	Three Months Ended September 30, 2021
(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate (1)		Total
Severance and employee-related costs, net	$	—	$	(1)	$	1	$	(2)	$	1	$	(1)
Exit and other-related costs (2)	2		1		—		1		6		10
Asset impairments and accelerated depreciation	8		—		1		2		12		23
Total	$	10	$	—	$	2	$	1	$	19	$	32

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Fiscal 2021~~


	Six Months Ended September 30, 2021
(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions (1)		Medical-Surgical Solutions (1)		International (2)		Corporate (1)		Total
Severance and employee-related costs, net	$	2	$	(1)	$	1	$	10	$	1	$	13
Exit and other-related costs (3)	4		2		2		15		27		50
Asset impairments and accelerated depreciation	16		17		5		36		53		127
Total	$	22	$	18	$	8	$	61	$	81	$	190

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

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

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

Restructuring, impairment, and related charges during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2020 consisted of the following:


		Three Months Ended December 31, 2020													Three Months Ended September 30, 2020
(In millions)	(In millions)	U.S. Pharmaceutical		International (1)		Medical-Surgical Solutions		Prescription Technology Solutions		Corporate (2)		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International (1)		Corporate (2)		Total
Severance and employee-related costs, net	Severance and employee-related costs, net	$	3	$	2	$	(3)	$	0	$	7	$	9	Severance and employee-related costs, net	$	6	$	—	$	3	$	3	$	4	$	16
Exit and other-related costs (3)	Exit and other-related costs (3)	3		5		1		0		6		15		Exit and other-related costs (3)	4		—		(1)		5		7		15
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	0		9		0		0		7		16		Asset impairments and accelerated depreciation	—		—		1		27		1		29
Total	Total	$	6	$	16	$	(2)	$	0	$	20	$	40	Total	$	10	$	—	$	3	$	35	$	12	$	60

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

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

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

Nine Months Ended December 31, 2020
(In millions) U.S. Pharmaceutical
International (1)
Medical-Surgical Solutions Prescription Technology Solutions
Corporate (2)
Total
Severance and employee-related costs, net $ 10 $ 22 $ 0 $ 0 $ 31 $ 63
Exit and other-related costs (3)
8 12 3 0 20 43
Asset impairments and accelerated depreciation 0 40 1 0 9 50
Total $ 18 $ 74 $ 4 $ 0 $ 60 $ 156

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

~~(2)Represents costs associated with the operating model cost optimization efforts and with the relocation of the Company’s corporate headquarters described above.~~

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

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Fiscal 2020~~

~~Restructuring, impairment, and related charges during the three and nine months ended December 31, 2019 consisted of the following:~~

Three Months Ended December 31, 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 $ 7 $ 1 $ 1 $ 0 $ 7 $ 16
Exit and other-related costs (5)
0 3 5 0 13 21
Asset impairments and accelerated depreciation 0 2 0 0 3 5
Total $ 7 $ 6 $ 6 $ 0 $ 23 $ 42

~~(1)Represents exit costs associated with a disposition and costs related to 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.~~

~~(3)Primarily represents costs associated with a growth initiative which included a reduction in workforce, facility consolidation, and store closures. These~~these initiatives were substantially completed in the year ended March 31, ~~2020.~~2021.

~~(4)~~Represents costs associated with the operating model cost optimization efforts described above. Additionally, includes costs associated with a growth initiative, substantially completed in the year ended March 31, 2020, which included a reduction in workforce and facility consolidation.

~~(5)~~(3)Exit and other-related costs primarily include project consulting fees.


		Nine Months Ended December 31, 2019													Six Months Ended September 30, 2020
(In millions)	(In millions)	U.S. Pharmaceutical (1)		International (2)		Medical-Surgical Solutions (3)		Prescription Technology Solutions		Corporate (4)		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International (1)		Corporate (2)		Total
Severance and employee-related costs, net	Severance and employee-related costs, net	$	9	$	5	$	2	$	0	$	23	$	39	Severance and employee-related costs, net	$	7	$	—	$	3	$	20	$	24	$	54
Exit and other-related costs ~~(5)~~(3)	Exit and other-related costs ~~(5)~~(3)	0		9		9		0		36		54		Exit and other-related costs ~~(5)~~(3)	5		—		2		7		14		28
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	0		8		1		0		8		17		Asset impairments and accelerated depreciation	—		—		1		31		2		34
Total	Total	$	9	$	22	$	12	$	0	$	67	$	110	Total	$	12	$	—	$	6	$	58	$	40	$	116

(1)~~Represents exit~~Primarily represents costs associated with ~~a disposition~~the U.K. operating model and ~~costs related to~~cost optimization efforts described above, and an operating model and cost optimization initiative which was substantially completed in the ~~relocation of the Company’s corporate headquarters described above.~~year ended March 31, 2021.

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

~~(3)Primarily represents costs associated~~initiative and with ~~a growth initiative which included a reduction in workforce, facility consolidation, and store closures. These~~the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed in the year ended March 31, ~~2020.~~2021.

~~(4)~~Represents costs associated with the operating model cost optimization efforts and with the relocation of the Company’s corporate headquarters described above. Additionally, includes costs associated with a growth initiative, substantially completed in the year ended March 31, 2020, which included a reduction in workforce and facility consolidation.

~~(5)~~(3)Exit and other-related costs primarily include project consulting fees.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The following table summarizes the activity related to the restructuring liabilities associated with the Company’s restructuring initiatives for the ~~nine~~six months ended ~~December 31, 2020:~~September 30, 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	18		74		4		0		60		156		Restructuring, impairment, and related charges	22		18		8		61		81		190
Non-cash charges	Non-cash charges	0		(40)		(1)		0		(9)		(50)		Non-cash charges	(16)		(17)		(5)		(36)		(53)		(127)
Cash payments	Cash payments	(24)		(24)		(19)		(1)		(64)		(132)		Cash payments	(9)		(1)		(4)		(14)		(13)		(41)
Other	Other	0		(1)		0		0		2		1		Other	—		—		—		(6)		(6)		(12)
Balance, December 31, 2020 (2)		$	23	$	75	$	6	$	0	$	28	$	132
Balance, September 30, 2021 (2)														Balance, September 30, 2021 (2)	$	16	$	4	$	2	$	71	$	68	$	161

(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 ~~December 31, 2020,~~September 30, 2021, the total reserve balance was ~~$132~~$161 million, of which ~~$101~~$95 million was recorded in ~~Other~~“Other accrued liabilities, ~~and $31~~” $36 million was recorded in ~~Other~~“Liabilities held for sale,” and $30 million was recorded in “Other non-current ~~liabilities.~~

~~Long-Lived Asset Impairments~~

During the third quarter of 2021, the Company recognized charges of $115 million to impair certain long-lived assets within the Company’s International segment. These charges primarily related to long-lived assets associated with the Company’s retail pharmacy businesses in Canada and Europe and were due to declines in estimated future cash flows partially driven by a revised outlook regarding the impacts of COVID-19. The Company used both an income approach (a discounted cash flow (“DCF”) method) and a market approach to estimate the fair value of the long-lived assets.

During the third quarter of 2020, the Company recognized charges of $94 million to impair certain long-lived assets within the Company’s International segment. These charges primarily related to long-lived assets associated with the Company’s retail pharmacy businessesliabilities” in the U.K. and Canada due to declines in estimated future cash flows driven by government reimbursement reductions and lower than expected growth in both prescription volume and sales of non-prescription goods, respectively. The Company used both income (DCF) and market approaches to estimate the fair value of the long-lived assets.

The fair value of the long-lived assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information. Refer to Financial Note 12, “Fair Value Measurements,” for more information on nonrecurring fair value measurements.Condensed Consolidated Balance Sheet.

5.4. Income Taxes

During the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ the Company recorded ~~an income tax benefit of $1.2 billion and~~ income tax expense of ~~$47~~$132 million and $28 million, respectively. During the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ the Company recorded an income tax ~~benefit~~expense of ~~$1.0 billion~~$158 million and ~~$111~~$178 million, respectively. The ~~Company~~Company’s reported an income tax ~~benefit rate of 16.1%~~rates were 29.9% and ~~an income tax expense rate of 16.0%~~4.3% for the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively and ~~income tax benefit rates of 16.7%~~15.7% and ~~194.7%~~13.7% for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. Fluctuations in the Company’s reported income tax rates are primarily due to non-cash charges related to remeasuring the value of its E.U. disposal group held for sale, changes ~~within~~in the mix of earnings between various taxing jurisdictions, and discrete items recognized in the ~~quarters, including~~quarters.

During the ~~impact~~second quarter of ~~an intercompany sale of intellectual property during~~2022, the ~~nine months ended December 31, 2020, and impairment~~Company recorded non-cash pre-tax charges totaling $491 million primarily to remeasure the E.U. disposal group to the ~~Company’s investment in the Change Healthcare JV, decreasing pre-tax income, for the nine months ended December 31, 2019. The charge for opioid-related claims~~lower of ~~$8.1 billion ($6.7 billion after-tax),~~its carrying value or fair value less costs to sell, as described ~~further~~ in Financial Note ~~13, “Commitments and Contingent Liabilities,~~2, “Held for Sale.” ~~unfavorably impacted the~~The Company’s reported income tax ~~benefit~~ rates for the three and ~~nine~~six months ended ~~December 31, 2020. Income~~September 30, 2021 were unfavorably impacted by this due to the non-deductible nature of the majority of these charges for income tax ~~benefit (expense) for~~purposes.

During the ~~three and nine months ended December 31, 2019 included~~second quarter of 2022, the Company recognized a net discrete tax benefit of ~~$24~~$55 million ~~recognized in connection with~~primarily related to a ~~planned divestiture~~decrease in the ~~Medical-Surgical Solutions segment and $21 million recognized~~global intangible low-tax income (“GILTI”) in ~~connection with an agreement executed in December 2019 to settle all opioid-related claims filed by 2 Ohio counties.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

its 2021 U.S. Federal income tax return.

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, ~~was recognized~~which reduced the Company’s reported income tax rates by 16.0 percentage points and 8.1 percentage points for the ~~nine~~three and six months ended ~~December 31,~~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.

During the three and nine months ended December 31, 2019, 0 tax benefit was recognized for the pre-tax impairment charge of $282 million for the remeasurement of assets and liabilities held for sale to fair value related to the formation of a new German pharmaceutical wholesale joint venture within the Company’s International segment. Refer to Financial Note 3, “Held for Sale,” for more information on this transaction which closed on November 1, 2020.

As of ~~December 31, 2020,~~September 30, 2021, the Company had ~~$1.5~~$1.7 billion of unrecognized tax benefits, of which ~~$1.4~~$1.3 billion would reduce income tax expense and the effective tax rate if recognized. ~~The increase of $497 million during~~During the ~~three~~six months ended ~~December 31, 2020 in unrecognized~~September 30, 2021, the Company recognized a net discrete tax benefit ~~is mainly due to uncertainty in connection with the deductibility~~ of ~~Opioid related litigation and claims. Because many of the uncertainties associated with any potential settlement arrangements or other resolution of opioid claims, including provisions~~$97 million primarily related to ~~deductibility, have not been finalized, the actual amount~~statute of ~~the tax benefit related to uncertain tax positions may differ from these estimates. Refer to Financial Note 13, “Commitments and Contingent Liabilities,” for more information.~~limitation expirations in various taxing jurisdictions. During the next twelve months, ~~it is reasonably possible that~~ the ~~Company’s~~Company does not anticipate any material reduction in its unrecognized tax ~~benefits may decrease by as much as $93 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.~~claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for ~~2016 through~~2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2013 through the current fiscal year.

6.5. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s redeemable noncontrolling interests primarily ~~relate~~related to its consolidated subsidiary, McKesson ~~Europe AG (“McKesson Europe”).~~Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of ~~$11~~$8 million during the three months ended June 30, 2021, and $10 million and ~~$32~~$21 million during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2020, ~~respectively, and $11 million and $33 million during the three and nine months ended December 31, 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 ~~nine~~pendency of the Appraisal Proceedings, such amount was paid as specified 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 six months ended ~~December 31,~~September 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 six months ended September 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 December 31, 2020, and~~remaining shares owned by the three and nine months ended December 31, 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” in 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 ~~December~~March 31, ~~2020,~~2021, the carrying value of ~~redeemable noncontrolling interests of~~ $1.3 ~~billion approximated the maximum redemption value of $1.3 billion, and at March 31, 2020, the carrying value of $1.4~~ billion exceeded the maximum redemption value of $1.2 ~~billion. At December 31, 2020~~billion and ~~March 31, 2020,~~ the Company owned approximately 78% ~~and 77%, respectively,~~ of McKesson Europe’s outstanding common shares.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 discussed above, after June 15, 2021 noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. At September 30, 2021, the Company owned approximately 95%, of McKesson Europe’s outstanding common shares. The Company’s noncontrolling interest in McKesson Europe ~~which were $200 million and $217 million at December 31, 2020 and March 31, 2020, respectively,~~will be included in the ~~Company’s Condensed Consolidated Balance Sheets.~~sale of the E.U. disposal group, as discussed in Financial Note 2, “Held for Sale.” The Company allocated ~~a total of $41~~$43 million and ~~$120~~$82 million of net income to noncontrolling interests during the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and ~~$45~~$40 million and ~~$130~~$79 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, respectively.

Changes in redeemable noncontrolling interests and noncontrolling interests for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 were as follows:


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, June 30, 2021	$	484	$	7
Net income attributable to noncontrolling interests	43		—

Reclassification of recurring compensation to other accrued liabilities	(2)		—
Payments to noncontrolling interests	(40)		—


Other	(1)		(7)
Balance, September 30, 2021	$	484	$	—


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2021	$	196	$	1,271
Net income attributable to noncontrolling interests	82		8
Other comprehensive income	—		3
Reclassification of recurring compensation to other accrued liabilities	(2)		(8)
Payments to noncontrolling interests	(79)		—
Exercises of Put Right	—		(983)
Reclassification of McKesson Europe redeemable noncontrolling interests	287		(287)
Other	—		(4)
Balance, September 30, 2021	$	484	$	—

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

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, September 30, 2020 $ 200 $ 1,265
Net income attributable to noncontrolling interests 41 11
Other comprehensive income 0 25
Reclassification of recurring compensation to other accrued liabilities — (11)
Payments to noncontrolling interests (41) 0
Other 0 2
Balance, December 31, 2020 $ 200 $ 1,292


(In millions)	(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests		(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2020		$	217	$	1,402
Balance, June 30, 2020						Balance, June 30, 2020	$	207	$	1,414
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	120		32		Net income attributable to noncontrolling interests	40		10
Other comprehensive loss	Other comprehensive loss	0		(65)		Other comprehensive loss	—		(151)
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—		(32)		Reclassification of recurring compensation to other accrued liabilities	—		(10)
Payments to noncontrolling interests	Payments to noncontrolling interests	(134)		0		Payments to noncontrolling interests	(50)		—
Exercises of Put Right		—		(49)

Other	Other	(3)		4		Other	3		2
Balance, December 31, 2020		$	200	$	1,292
Balance, September 30, 2020						Balance, September 30, 2020	$	200	$	1,265

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Changes in redeemable noncontrolling interests and noncontrolling interests for the three and nine months ended December 31, 2019 were as follows:~~

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, September 30, 2019 $ 210 $ 1,384
Net income attributable to noncontrolling interests 45 11
Other comprehensive income 0 10
Reclassification of recurring compensation to other accrued liabilities — (11)
Payments to noncontrolling interests (39) 0
Other (5) 3
Balance, December 31, 2019 $ 211 $ 1,397

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2019 $ 193 $ 1,393
Net income attributable to noncontrolling interests 130 33
Other comprehensive loss 0 (2)
Reclassification of recurring compensation to other accrued liabilities — (33)
Payments to noncontrolling interests (115) 0
Other 3 6
Balance, December 31, 2019 $ 211 $ 1,397


(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	—		(90)
Reclassification of recurring compensation to other accrued liabilities	—		(21)
Payments to noncontrolling interests	(93)		—
Exercises of Put Right	—		(49)
Other	(3)		2
Balance, September 30, 2020	$	200	$	1,265

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~~

Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Less than 1 million of potentially dilutive securities for the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021 and ~~nine months ended December 31, 2019 was calculated by excluding~~approximately 2 million of potentially dilutive securities for the three and six months ended September 30, 2020 were excluded from the ~~denominator~~computation of ~~the~~diluted earnings per common share ~~computation due to their anti-dilutive effects.~~as they were anti-dilutive.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended September 30,				Six Months Ended September 30,
(In millions, except per share amounts)	(In millions, except per share amounts)	2020		2019		2020		2019		(In millions, except per share amounts)	2021		2020		2021		2020
Income (loss) from continuing operations		$	(6,174)	$	247	$	(5,052)	$	54
Income from continuing operations										Income from continuing operations	$	310	$	627	$	846	$	1,122
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(52)		(56)		(152)		(163)		Net income attributable to noncontrolling interests	(43)		(50)		(90)		(100)
Income (loss) from continuing operations attributable to McKesson Corporation		(6,226)		191		(5,204)		(109)
Income from continuing operations attributable to McKesson Corporation										Income from continuing operations attributable to McKesson Corporation	267		577		756		1,022
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	0		(5)		(1)		(12)		Loss from discontinued operations, net of tax	—		—		(3)		(1)
Net income (loss) attributable to McKesson Corporation		$	(6,226)	$	186	$	(5,205)	$	(121)
Net income attributable to McKesson Corporation										Net income attributable to McKesson Corporation	$	267	$	577	$	753	$	1,021

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	159.5		178.7		161.2		183.1		Basic	154.1		162.0		155.1		162.0
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Restricted stock units		0		1.0		0		0
Stock options										Stock options	0.2		—		0.2		—
Restricted stock units (1)										Restricted stock units (1)	1.5		1.2		1.6		1.2
Diluted	Diluted	159.5		179.7		161.2		183.1		Diluted	155.8		163.2		156.9		163.2

Earnings (loss) per common share attributable to McKesson: (1)
Earnings (loss) per common share attributable to McKesson: (2)										Earnings (loss) per common share attributable to McKesson: (2)
Diluted	Diluted									Diluted
Continuing operations	Continuing operations	$	(39.03)	$	1.06	$	(32.28)	$	(0.60)	Continuing operations	$	1.71	$	3.54	$	4.82	$	6.26
Discontinued operations	Discontinued operations	0		(0.03)		(0.01)		(0.06)		Discontinued operations	—		—		(0.02)		—
Total	Total	$	(39.03)	$	1.03	$	(32.29)	$	(0.66)	Total	$	1.71	$	3.54	$	4.80	$	6.26
Basic	Basic									Basic
Continuing operations	Continuing operations	$	(39.03)	$	1.06	$	(32.28)	$	(0.60)	Continuing operations	$	1.73	$	3.56	$	4.87	$	6.31
Discontinued operations	Discontinued operations	0		(0.02)		(0.01)		(0.06)		Discontinued operations	—		—		(0.02)		(0.01)
Total	Total	$	(39.03)	$	1.04	$	(32.29)	$	(0.66)	Total	$	1.73	$	3.56	$	4.85	$	6.30

(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.

Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Approximately 2 million of potentially dilutive securities for the three months ended December 31, 2019 were excluded from the computation of diluted net earnings per common share as they were anti-dilutive.

8.7. 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 the 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 ~~nine~~three and six months ended ~~December 31,~~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~~this reporting unit within the International segment. This impairment charge is included ~~under the caption,~~in “Goodwill impairment charges” in the Condensed Consolidated Statements of Operations. At December 31, 2020, the balance of goodwill for the reporting units in Europe was approximately NaN and the remaining balance of goodwill in the International segment primarily relates to one of its reporting units in Canada.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company evaluates 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 for 2021 did not indicate any impairment of goodwill.

~~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 4 0 0 4
Acquisition accounting, transfers and other adjustments 0 0 0 2 2
Disposals (1) 0 0 0 (1)
Impairment charges
0 (69) 0 0 (69)
Foreign currency translation adjustments, net 67 148 0 0 215
Balance, December 31, 2020 $ 3,990 $ 1,526 $ 2,453 $ 1,542 $ 9,511


(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
Goodwill acquired	—		—		—		4		4



Foreign currency translation adjustments, net	(9)		—		—		(15)		(24)
Balance, September 30, 2021	$	3,954	$	1,542	$	2,453	$	1,524	$	9,473

Information regarding intangible assets is as follows:


		December 31, 2020							March 31, 2020							September 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	$	3,972	$	(2,318)	$	1,654	$	3,650	$	(1,950)	$	1,700	Customer relationships	12	$	3,241	$	(2,017)	$	1,224		$	3,739	$	(2,269)	$	1,470
Service agreements	Service agreements	10	859		(402)		457		994		(480)		514		Service agreements	10	1,082		(542)		540			1,081		(513)		568
Pharmacy licenses	Pharmacy licenses	26	503		(240)		263		492		(232)		260		Pharmacy licenses	22	308		(209)		99			497		(244)		253
Trademarks and trade names	Trademarks and trade names	12	922		(379)		543		808		(242)		566		Trademarks and trade names	12	872		(394)		478			925		(394)		531
Technology	Technology	5	149		(118)		31		175		(111)		64		Technology	3	136		(116)		20			150		(122)		28
Other	Other	5	255		(223)		32		273		(221)		52		Other	7	255		(231)		24			254		(226)		28
Total	Total		$	6,660	$	(3,680)	$	2,980	$	6,392	$	(3,236)	$	3,156	Total		$	5,894	$	(3,509)	$	2,385	(1)	$	6,646	$	(3,768)	$	2,878

(1)Excludes net intangible assets of approximately $279 million related to the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” This amount was included under the caption “Assets held for sale” in the Condensed Consolidated Balance Sheet as of September 30, 2021. Amortization of these assets ceased upon reclassification to Assets held for sale in the second quarter of 2022.

Amortization expense of intangible assets was ~~$108~~$84 million and ~~$320~~$182 million during the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and ~~$113~~$106 million and ~~$343~~$212 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, respectively. Estimated amortization expense of these assets is as follows: ~~$96~~$167 million, ~~$371~~$242 million, ~~$272~~$230 million, ~~$254~~$225 million, and ~~$251~~$192 million for the remainder of ~~2021~~2022 and each of the succeeding years through ~~2025~~2026 and ~~$1.7~~$1.3 billion thereafter. All intangible assets were subject to amortization as of ~~December 31, 2020~~September 30, 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)	December 31, 2020		March 31, 2020		(In millions)	September 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		$	0	$	700
4.75% Notes due March 1, 2021		0		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	360		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	918		1,100
0.90% Notes due December 3, 2025	0.90% Notes due December 3, 2025	500		0		0.90% Notes due December 3, 2025	500		500
1.30% Notes due August 15, 2026						1.30% Notes due August 15, 2026	498		—
7.65% Debentures due March 1, 2027	7.65% Debentures due March 1, 2027	167		167		7.65% Debentures due March 1, 2027	150		167
3.95% Notes due February 16, 2028	3.95% Notes due February 16, 2028	600		600		3.95% Notes due February 16, 2028	343		600
4.75% Notes due May 30, 2029	4.75% Notes due May 30, 2029	400		400		4.75% Notes due May 30, 2029	197		400
6.00% Notes due March 1, 2041	6.00% Notes due March 1, 2041	282		282		6.00% Notes due March 1, 2041	220		282
4.88% Notes due March 15, 2044	4.88% Notes due March 15, 2044	411		411		4.88% Notes due March 15, 2044	255		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	733		662		0.63% Euro Notes due August 17, 2021	—		704
1.50% Euro Notes due November 17, 2025	1.50% Euro Notes due November 17, 2025	729		659		1.50% Euro Notes due November 17, 2025	703		700
1.63% Euro Notes due October 30, 2026	1.63% Euro Notes due October 30, 2026	611		552		1.63% Euro Notes due October 30, 2026	588		587
3.13% Sterling Notes due February 17, 2029	3.13% Sterling Notes due February 17, 2029	639		557		3.13% Sterling Notes due February 17, 2029	602		627

Lease and other obligations		272		174
Lease and other obligations (4)						Lease and other obligations (4)	251		270
Total debt	Total debt	7,244		7,387		Total debt	5,985		7,148
Less: Current portion	Less: Current portion	777		1,052		Less: Current portion	39		742
Total long-term debt	Total long-term debt	$	6,467	$	6,335	Total long-term debt	$	5,946	$	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.

(4)Excludes current and long-term debt of approximately $4 million and $15 million, respectively, as of September 30, 2021 related to the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Liabilities held for sale” in the Condensed Consolidated Balance Sheet as of September 30, 2021.

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. Debt outstanding totaled ~~$7.2~~$6.0 billion and ~~$7.4~~$7.1 billion at ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020,~~2021, respectively, of which ~~$777~~$39 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 ~~December 3, 2020,~~August 12, 2021, the Company completed a public offering of ~~0.90%~~1.30% Notes due ~~December 3, 2025~~August 15, 2026 (the ~~“2025~~“2026 Notes”) in a principal amount of $500 million. Interest on the ~~2025~~2026 Notes is payable semi-annually on ~~June 3rd~~February 15th and ~~December 3rd~~August 15th of each year, commencing on ~~June 3, 2021.~~February 15, 2022. Proceeds received from this note issuance, net of discounts and offering expenses, were ~~$496~~$495 million. The Company utilized the net proceeds from this note for general corporate purposes.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The ~~2025~~2026 Notes, which constitutes a “Series,” are an unsecured and unsubordinated obligation of the Company and rank equally with all of the Company’s existing, and from time-to-time, future unsecured and unsubordinated indebtedness outstanding. The ~~2025~~2026 Notes are governed by materially similar indentures and officers’ certificates as those of other Series issued by the Company. Upon required notice to holders of notes with fixed interest rates, the Company may redeem those notes at any time prior to maturity, in whole or in part, for cash at redemption prices. In the event of the occurrence of both (1) a change of control of the Company and (2) a downgrade of a Series below an investment grade rating by each of Fitch Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, an offer must be made to purchase the ~~2025~~2026 Notes from the holders at a price equal to 101% of the then outstanding principal amount of the ~~2025~~2026 Notes, plus accrued and unpaid interest to, but not including, the date of repurchase. The indenture and the related officers’ certificate for the ~~2025~~2026 Note, subject to the exceptions and in compliance with the conditions as applicable, specify that the Company may not consolidate, merge or sell all or substantially all of its assets, incur liens, or enter into sale-leaseback transactions exceeding specific terms, without lenders’ consent. The indentures also contain customary events of default provisions.

During the three and nine months ended December 31, 2020, the Company retired its $700 million total principal amount of notes due on November 30, 2020 at a fixed interest rate of 3.65% upon maturity. On ~~December 1, 2020,~~July 17, 2021, the Company redeemed its ~~4.75% $323~~0.63% €600 million (or, approximately $709 million) total principal ofEuro-denominated notes, originally due on ~~March 1,~~August 17, 2021, prior to maturity. ~~These~~The notes were redeemed at par value using cash on ~~hand~~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 ~~proceeds~~“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 ~~offering discussed above.~~at a redemption price equal to 100% of the principal amount and premiums of $182 million, plus accrued and unpaid interest of $14 million. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment. As a result of the redemption, the Company incurred a pre-tax loss on debt extinguishment of $191 million, which included premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred totaling $9 million.

Revolving Credit Facilities

~~McKesson maintains~~The Company has a Credit Agreement, dated as of September 25, 2019 (the “2020 Credit Facility”), that provides a syndicated $4$4.0 billion five-year senior unsecured credit facility ~~dated as of September 25, 2019, as amended (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 nine months ended December 31, 2020 and 0 amounts outstanding as of December 31, 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 no borrowings during the three and six months ended September 30, 2021 and 2020 and no amounts outstanding as of September 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 ~~covenants~~covenant which ~~obligate~~obligates the Company to maintain a maximum ~~debt~~Total Debt to ~~capital~~Consolidated EBITDA ratio, as defined in the ~~2020 Credit Facility, along with other customary investment grade covenants.~~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. ~~As of December 31, 2020,~~At September 30, 2021, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in Euro with a committed amount of $8$7 million and an uncommitted amount of ~~$183~~$116 million as of ~~December 31, 2020.~~September 30, 2021. Borrowings and repayments were not material during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ and amounts outstanding under these credit lines were not material as of ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020.~~2021.

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Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. During the ~~nine~~six months ended ~~December 31, 2020 and 2019,~~September 30, 2021, the Company borrowed ~~$5.5~~$3.0 billion and ~~$15.9~~repaid $3.0 billion ~~respectively,~~under the program. During the six months ended September 30, 2020, the Company borrowed $5.3 billion and repaid $5.3 billion ~~and $13.7 billion, respectively,~~ under the program. At ~~December~~September 30, 2021 and March 31, ~~2020~~2021, there were ~~$152 million of commercial paper notes outstanding with a weighted average interest rate of 0.21%. At March 31, 2020, there were 0~~no commercial paper notes outstanding.

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~~10.~~9. Pension Benefits

The net periodic expense for defined benefit pension plans was $4approximately $2 million for the three and six months ended September 30, 2021 and $7 million and $14 million for the three and six months ended September 30, 2020, respectively.

Cash contributions to these plans were $3 million and $17 million for the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and ~~$16~~$4 million and ~~$151~~$11 million for the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, respectively.

Cash contributions to these plans were $8 million and $19 million for the three and nine months ended December 31, 2020, respectively, and $120 million and $132 million for the three and nine months ended December 31, 2019, respectively. The three and nine months ended December 31, 2019 included a cash payment of $114 million from the executive benefit retirement plan. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and expected life expectancy.

~~During~~As part of the three months ended December 31, 2020, the Company derecognized $187 million of pension liabilities included in liabilities held for sale and $24 million of accumulated other comprehensive loss, net of tax, related to its German pharmaceutical wholesale business contributed to a joint venture,E.U. disposal group, as discussed in more detail in Financial Note 3,2, “Held for ~~Sale.~~Sale,”

~~On May 23, 2018, the Company’s Board of Directors (the “Board”) 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 paymentsliabilities of approximately ~~$49~~$108 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~~included under 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~~caption “Liabilities held 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 and a pre-tax settlement charge of $105 million was recorded during the second quarter of 2020. Settlement charges were included within Other income (expense), netsale” in the ~~condensed consolidated statement~~Condensed Consolidated Balance Sheet as of ~~operations for the nine months ended December 31, 2019 as a result of the termination of the Plan.~~September 30, 2021.

~~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.

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.

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Non-Derivative Instruments Designated as Hedges

At ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020,~~2021, the Company had €1.1 billion and €1.7 billion, respectively, 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. ~~In December 2019, the Company prospectively de-designated from net investment hedges €250 million~~

Table of ~~its Euro-denominated notes which matured in February 2020.~~Contents

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Gains or losses from net investment hedges recorded within Other comprehensive income were ~~losses~~gains of ~~$84~~$33 million and ~~$201~~$11 million during the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and losses of ~~$59~~$83 million and ~~gains of $8~~$117 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, respectively. There was no ineffectiveness in non-derivative net investment hedges during the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020. Ineffectiveness on the Company’s non-derivative net investment hedges during the three and nine months ended December 31, 2019 resulted in losses of $3 million and gains of $26 million, respectively, which were recorded in earnings in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Derivatives Designated as Hedges

At ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020,~~2021, the Company had cross-currency swaps designated as net investment hedges with a total gross notional amount of ~~$999~~$500 million ~~and $1.5 billion~~ Canadian ~~dollars, respectively.~~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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019. In November 2020, cross currency swaps with an aggregate gross notional amount of $500 million Canadian dollars matured and the~~2020. The remaining cross-currency swaps will mature ~~between March 2021 and~~ November 2024.

During the first quarter of 2020, the Company terminated 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 nine months ended December 31, 2019. This gain was recorded in earnings in Other income (expense), net, net in the Condensed Consolidated Statements of Operations.

Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in Other comprehensive income were ~~losses~~gains of ~~$45~~$10 million and ~~$108~~$5 million during the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, respectively, and losses of ~~$20~~$12 million and ~~$11~~$63 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three and ~~nine~~six months ended ~~December 31, 2020 and 2019.~~

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On September 30, ~~2019, the~~2021 and 2020.

The Company ~~entered into~~is a party to 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 nine months December 31, 2020 and 2019~~ were largely offset by the losses recorded in earnings related to these notes. The swaps will mature in February 2023.

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 ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020,~~2021, the Company had cross-currency swaps with total gross notional amounts of approximately ~~$2.6~~$2.4 billion and ~~$2.9~~$2.6 billion, respectively, which are designated as cash flow hedges. These swaps will mature between ~~February~~October 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.

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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~~is being amortized on a straight-line basis as interest expense over the five-year life of the 2025 Notes. The €600 million swaps were terminated in July 2021 and the loss on termination of the swaps recorded in interest expense was not material for the three and six months ended September 30, 2021. Refer to Financial Note 9,8, “Debt and Financing Activities,” for more information.

From September 20, 2021 to October 27, 2021, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with a combined notional amount of $400 million, to hedge the variability of future benchmark interest rates on a planned bond issuance. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $400 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR.

Gains or losses from cash flow hedges recorded in Other comprehensive income were ~~losses~~gains of ~~$14 million and $42~~$11 million during the three and ~~nine~~six months ended ~~December 31, 2020, respectively,~~September 30, 2021 and ~~were gains~~losses of $5$23 million and ~~$40~~$28 million during the three and ~~nine~~six months ended ~~December 31, 2019,~~September 30, 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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019.~~2020. There was no ineffectiveness in the Company’s cash flow hedges for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 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.

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 ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020,~~2021, the total gross notional amounts of these contracts were ~~$13~~$19 million and ~~$29~~$39 million, respectively. These contracts will predominantly mature between ~~January~~October 2021 and ~~October~~December 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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 and ~~2019.~~2020. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

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(UNAUDITED)

During the three and nine months ended December 31, 2019, the Company also entered into a number of forward contracts and swaps to offset a portion of the earnings impacts from the ineffectiveness of the net investment hedges discussed above. These contracts matured through January 2020 and none of these contracts were designated for hedge accounting. In December 2019, the Company entered into a series of forward contracts with a total notional amount of €250 million to offset the earnings impact from its Euro-denominated notes. These contracts and the notes against which they offset matured in February 2020 and were not designated for hedge accounting. Changes in the fair values for contracts not designated as hedges are recorded directly in earnings. During the three and nine months ended December 31, 2019, gains of $3 million and losses of $36 million, respectively, were recorded in earnings within Other income (expense), net in the Condensed Consolidated Statements of Operations.

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


		Balance Sheet Caption	December 31, 2020						March 31, 2020							Balance Sheet Caption	September 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	$	7	$	74	$	1,084	$	112	$	19	$	1,279	Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$	2	$	36	$	838	$	4	$	47	$	826
Cross-currency swaps (non-current)	Cross-currency swaps (non-current)	Other non-current assets/liabilities	85		104		2,776		182		0		3,313		Cross-currency swaps (non-current)	Other non-current assets/liabilities	62		74		2,474		72		92		2,663
Forward starting interest rate swaps (current)	Forward starting interest rate swaps (current)	Other accrued liabilities	0		9		733		0		0		0		Forward starting interest rate swaps (current)	Other accrued liabilities	—		—		—		—		7		704

Forward starting interest rate swaps (non-current)															Forward starting interest rate swaps (non-current)	Other accrued liabilities	3		—		200		—		—		—
Total	Total		$	92	$	187			$	294	$	19			Total		$	67	$	110			$	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	$	0	$	0	$	1	$	2	$	0	$	24	Foreign exchange contracts (current)	Prepaid expenses and other	$	—	$	—	$	1	$	—	$	—	$	29
Foreign exchange contracts (current)	Foreign exchange contracts (current)	Other accrued liabilities	0		0		12		0		0		5		Foreign exchange contracts (current)	Other accrued liabilities	—		—		18		—		1		10
Total	Total		$	0	$	0			$	2	$	0			Total		$	—	$	—			$	—	$	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 December 31, 2020 and March 31, 2020, 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~~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 ~~commercial paper using~~three levels of inputs that may be used to measure fair value as follows:

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

Level 2 - significant other observable market-based inputs.

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

The Company’s long-term debt is carried at amortized cost. The carrying amounts and estimated fair values of these liabilities were $7.2 billion and $8.0 billion at December 31, 2020, respectively, and $7.4 billion and $7.8 billion at March 31, 2020, respectively. 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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~~(UNAUDITED)~~

measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020~~2021 included investments in money market funds of ~~$123~~$361 million and ~~$2.0~~$1.6 billion, respectively, which are reported at fair value. The fair value of money market funds was determined using quoted prices for identical investments in active markets, which are considered to be Level 1 ~~inputs.~~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 September 30, 2021 and March 31, 2021.

Fair values of the Company’s interest rate swaps, foreign currency forward contracts, and cross-currency swaps were determined using observable inputs from available market ~~information. Fair values of the Company’s cross-currency swaps were determined using~~information, including quoted interest rates, foreign currency exchange rates, and other ~~observable inputs from available market information. Fair values of the Company’s interest rate swaps were determined using~~ observable inputs from available market information. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note ~~11,~~10, “Hedging Activities,” for fair value and other information on the Company’s ~~foreign currency~~ derivatives including interest rate swaps, forward foreign currency contracts, and cross-currency swaps.

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(UNAUDITED)

The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry and which ~~have~~had carrying values of ~~$267~~$357 million and ~~$170~~$269 million, respectively, at ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020, respectively.~~2021. These investments primarily consist of equity securities without readily determinable fair values and are included ~~within Other~~in “Other non-current ~~assets~~assets” in the Condensed Consolidated Balance Sheets. InDuring the ~~second quarter of~~three months ended September 30, 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 and are adjusted to fair value at each reporting period. In the third quarter of 2021, 2certain of the Company’s investments in equity securities without readily determinable fair values experienced transactions which resulted in changes in the observable price of those securities. ~~As a result, net~~During the three months ended September 30, 2020, three of the companies in which McKesson held 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 these equity securities, primarily representing unrealized gains on the securities discussed above, were ~~$28~~approximately $97 million and ~~$87~~$104 million for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and $49 million and $59 million for the three and six months ended September 30, 2020, respectively. These net gains were recorded ~~under the caption,~~in “Other income, ~~(expense),~~ net,” in the Condensed Consolidated ~~Income Statements. There were no other material changes in the carrying value~~Statements of ~~these investments during the three and nine months ended December 31, 2020.~~Operations. 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

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 September 30, 2021, the assets and liabilities associated with the E.U. disposal group held for sale were measured at the lower of cost or fair value less cost to sell, as discussed in more detail in Financial Note 2, “Held for Sale." At September 30, 2021 and 2020, 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.” Assets measured at fair value on a nonrecurring basis as of ~~December~~September 30, 2020 included goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment. Refer to Financial Note 7, “Goodwill and Intangible Assets, Net,” for more information. At March 31, ~~2020~~2021, assets measured at fair value on a nonrecurring basis included long-lived assets inof the Company’s International segment and goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment. 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. Refer to Financial Note 4, “Restructuring, Impairment, and Related Charges,” and Financial Note 8, “Goodwill and Intangible Assets, Net,” for more information.

The aforementioned investments in equity securities ~~includes~~of U.S. growth stage companies include the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. These inputs 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 0no liabilities measured at fair value on a nonrecurring basis at ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020.~~2021.

Other Fair Value Disclosures

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

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

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


	September 30, 2021				March 31, 2021
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	5,985	$	6,496	$	7,148	$	7,785

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(UNAUDITED)

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

Restricted Cash

Restricted cash, included within ~~Prepaid~~“Prepaid expenses and ~~other on~~other” in the Company’s Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~December 31, 2020,~~September 30, 2021, primarily consists of $354 million held in escrow related to the initial payment under the proposed settlement agreement for opioid-related claims of governmental entities, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities.” Additionally, restricted cash as of September 30, 2021 and March 31, 2021 includes funds temporarily held on behalf of unaffiliated medical practice groups related to their COVID-19 business continuity borrowings. ~~The~~These 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~~activities and corresponding deposit liabilities associated with these funds have been recorded by the Company within ~~Other~~“Other accrued ~~liabilities on~~liabilities” in the Company’s Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~December~~September 30, 2021 and March 31, ~~2020.~~

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~~(UNAUDITED)~~

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 ~~DCF~~discounted cash flow (“DCF”) model to determine the fair value of ~~its~~ reporting units.

Long-lived Assets

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

The Company utilizes multiple approaches including the DCF model and market approaches for estimating the fair value of intangible assets. The future cash flows used in the analysis are based on internal cash flow projections from its long-range plans and include significant assumptions by management. Accordingly, the fair value assessment of 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, ~~Financial Note 13 to the Company’s 10-Q filing for the quarterly period ended June 30, 2020, and~~ ~~Financial Note 13 to the Company~~’~~s 10-Q filing for the quarterly period ended~~ ~~September 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. Amounts included within “Claims and litigation charges, net” in the Condensed Consolidated Statement of Operations consist of estimated loss contingencies related to opioid-related litigation matters.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

I. Litigation and Claims Involving Distribution of Controlled Substances

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

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

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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. Trial in that case is scheduled to begin on May 3, 2021. 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 December 6, 2021. 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.

The Company is also named in approximately ~~400~~350 similar state court cases pending in 38 states plus Puerto Rico, along with 34 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~~ in the ~~Supreme Court of New York, Suffolk County for a~~ case brought by the ~~New York~~Washington attorney general is scheduled for November 15, 2021; trial in the case brought by the Rhode Island attorney general is scheduled for January 17, 2022; and ~~2 New York county governments, but~~ the ~~trial was postponed~~case brought by Dallas County, Texas, is scheduled to be trial-ready by February 7, 2022. Trial in ~~light of~~ the ~~COVID-19 pandemic. The~~ case brought by the Alabama attorney general ~~is scheduled~~was postponed until April 18, 2022, and the parties continue to goengage in settlement negotiations.

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. If the proposed settlement agreement and settlement process leads to ~~trial in May 2021, as is~~final settlement, the ~~case brought by the Washington attorney general.~~

The Company continues to be involved in discussions with the objective of achieving broad resolution of opioid-related claims of states, their political subdivisions, and other government entities (“governmental entities”). The Company is in ongoing, advanced discussions with state attorneys general and plaintiffs’ representatives regarding a framework under which the 3 ~~largest U.S. pharmaceutical~~ distributors would pay up to approximately ~~$21.0~~$21 billion over ~~a period of~~ 18 years, with up to ~~approximately $8.0~~$7.9 billion to be paid by the Company ~~to resolve claims~~for its 38.1% portion; a minimum of 85% of such payments must be used by state and local governmental entities ~~with more than 90% of the total amount anticipated to be used~~ to remediate the ~~opioids crisis.~~opioid epidemic. Most of the remaining ~~amount~~percentage relates to plaintiffs’ ~~attorneys~~attorneys’ fees and costs, and would be payable over a shorter time period. ~~In addition,~~

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

The proposed agreement 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 is subject to contingencies and will not become effective unless the Company determines that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to be bound by the agreement (or otherwise had their claims foreclosed).

On September 4, 2021, the Company and the 2 other national distributors announced that 42 out of 49 eligible states, all 5 U.S. territories, and Washington, DC, had affirmatively signed on to the proposed ~~framework~~agreement. The attorneys general of Alabama, Georgia, Nevada, New Mexico, Oklahoma, Rhode Island, and Washington have not joined the proposed settlement. The distributors further announced that they had determined that enough states had signed on to the settlement for the proposed agreement to proceed to the next phase. During this phase, which is expected to end on January 2, 2022, each participating state will offer its political subdivisions, including those that have not sued, the opportunity to participate in the settlement. After the conclusion of this period, the Company will have 30 days to determine whether a sufficient number of states and political subdivisions have joined for the settlement to proceed to implementation.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The exact amount that would ~~require~~be due under the ~~three distributors,~~proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against the Company ~~to adopt changes to anti-diversion programs.~~

~~Under~~after the framework, before the distributors determine whether 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 governmental entities that would participate in any such settlement.proposed agreement becomes effective. The ~~framework~~proposed agreement contemplates that if certain governmental entities ~~did~~do not agree to a settlement under the framework, but the distributors nonetheless ~~concluded~~conclude that there ~~was~~is sufficient participation to warrant ~~going forward with~~ the settlement, there would be a corresponding reduction in the amount due from the Company to account for the unresolved claims of the governmental entities that ~~did~~do not ~~agree.~~participate. Those non-participating governmental entities would be entitled to pursue their claims against the Company and other defendants.

Consistent with the terms of the proposed agreement, the Company placed its first annual payment of approximately $354 million, into escrow on September 30, 2021. This amount excludes the proportionate allocation under the proposed settlement for each non-participating state and would be disbursed when and if the proposed agreement becomes effective. Subsequent annual payments would be due on July 15 of each year. The escrow payment was presented as restricted cash within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2021.

On July 20, 2021, the Company announced that it and the 2 other national pharmaceutical distributors had agreed to pay up to $1.2 billion, of which the Company’s portion would be 38.1%, in a settlement with the State of New York and its participating subdivisions, including Nassau and Suffolk Counties, to resolve opioid-related claims. This settlement was negotiated in connection with the broad proposed settlement described above, but provides assurance that New York and its participating subdivisions will receive a settlement amount consistent with their allocations under the broad settlement framework, as well as certain attorneys’ fees and costs. If the broad settlement is finalized, New York and its participating subdivisions will become part of that broader agreement. On September 30, 2021, the Company paid its share of the first annual incremental payment of approximately $35 million to Nassau and Suffolk counties as a settlement of its liabilities over plaintiffs’ legal fees and costs.

On September 28, 2021, the Company and the 2 other national pharmaceutical distributors reached an agreement with the state of Ohio and its participating subdivisions and agreed to pay $881 million to resolve opioid-related claims. This settlement was negotiated in connection with the broad proposed settlement described above, but provides assurance that Ohio 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, Ohio and its participating subdivisions will become part of that broader agreement.

On September 28, 2021, the Company announced that it and the 2 other national distributors had reached an agreement with the Cherokee Nation to pay approximately $75 million over 6.5 years to resolve opioid-related claims, of which the Company’s portion would be 38.1%. This settlement was negotiated in parallel with ongoing negotiations toward a broad resolution of opioid-related claims brought by Native American tribes.

With respect to the West Virginia subdivisions, trial in the case of Cabell County and City of Huntington, occurred in the U.S. District Court for the Southern District of West Virginia, and concluded on July 28, 2021. The outcome of that trial is pending. The claims of certain other West Virginia subdivisions are pending in the federal MDL and before the state Mass Litigation Panel. On September 30, 2021, the Mass Litigation Panel issued an order scheduling trial on the public nuisance claims of certain municipalities against the Company and the two other national pharmaceutical distributors for July 5, 2022.

The Company ~~has concluded~~believes that ~~discussions under that framework have reached a stage at which~~ a broad settlement of opioid claims by governmental entities is probable, and that the loss related thereto can be reasonably ~~estimated as of December 31, 2020. As a result of that conclusion, and its assessment of certain other opioid-related claims, the~~estimated. The Company ~~has~~ recorded a charge of $8.1 billion ($~~6.7~~6.8 billion after-tax) in the fiscal year ended March 31, 2021 related to its share of the global settlement as well as claims of West Virginia municipalities and the Native American tribes. In connection with the matters described above, the Company recorded additional charges of $112 million ($93 million after-tax) and $186 million ($155 million after-tax) in the three and six months ended September 30, 2021 within ~~Claims~~“Claims and litigation charges, ~~net~~net” in the Condensed Consolidated Statements of Operations, in connection with the proposed settlement agreement and other opioid related settlement accruals.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company’s estimated accrued liability for ~~the three and nine months ended December 31, 2020, related to its share~~opioid-related claims of ~~the settlement framework described above,~~governmental entities is as ~~well~~follows as ~~those certain other opioid-related claims. In light~~ of ~~the uncertainty, as described below, of the timing of amounts that would be paid with respect to the charge, the charge was~~September 30, 2021:


(In millions)	September 30, 2021
Current litigation liabilities (1)	$	1,072
Long-term litigation liabilities	7,146

Total litigation liabilities	$	8,218

(1)This amount, recorded in ~~Long-term litigation liabilities~~“Other accrued liabilities” in the ~~Company’s~~ Condensed Consolidated Balance Sheet, ~~as of December 31, 2020. Moreover, in light of the uncertainties described below,~~is the amount ~~of loss that the Company ultimately might incur may differ materially from the amount accrued.~~estimated to be paid prior to September 30, 2022.

~~Discussions with attorneys general and other parties continue.~~ If ~~the negotiating parties agree on terms~~a broad settlement is not reached under the ~~framework for a broad resolution of claims of governmental entities, then those potential terms would need to be agreed to by numerous other state and local governments before an~~proposed agreement, ~~could be accepted by the~~litigation will continue. The Company and finalized. In some cases, discovery has been paused during the parties’ discussions. While the Company continues to be involved in discussions regarding a potential broad settlement framework, the Company also continues to prepare for trial in these pending ~~matters. The Company~~matters, and believes that it has valid defenses to the claims pending against it, and it intends to vigorously defend against all such claims if acceptable settlement terms are not achieved.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Although the vast majority of opioid claims have been brought by ~~U.S.~~ 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, ~~pension~~health and welfare funds, third-party payors, and individuals, as well as 34 cases brought in ~~which the Company has been named as a defendant in Canada.~~Canada (3 by governmental or tribal entities and 1 by an individual). These claims, and those of private entities generally, are not included in the settlement framework for ~~U.S.~~ 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. 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 ~~possible~~ loss reasonably estimable.

Because of the many uncertainties associated with any potential settlement arrangement or other resolution of all of these opioid-related litigation ~~and~~matters, including the ~~uncertainty of the~~uncertain scope of ~~potential~~ participation by governmental entities in any potential settlement under the framework described above, the Company is not able to reasonably estimate the upper or lower ends of the range of ultimate possible ~~loss.~~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.

In December 2019, the Company was served with two qui tam complaints filed by the same two relators alleging violations of the federal False Claims Act, the California False Claims Act, and the California Unfair Business Practices statute based on alleged predicate violations of the Controlled Substances Act and its implementing regulations, United States ex rel. Kelley,19-cv-2233, and State of California ex rel. Kelley, CGC-19-576931. The complaints seek relief including treble damages, civil penalties, attorney fees, and costs in unspecified amounts. On February 16, 2021, the court in the federal action dismissed the second amended complaint with prejudice, and the relators appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit. On June 28, 2021, the court in the state action dismissed the complaint with prejudice, and the relators appealed the dismissal to the Superior Court of California, County of San Francisco.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 States 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. On August 13, 2019, the court granted plaintiffs’ renewed motion for class certification. After class notice and the opt-out period, 9,490 fax numbers remain in the class, representing 48,769 faxes received. On ~~March 5, 2020, McKesson moved to decertify~~October 8, 2021, the Court de-certified the class ~~and moved for summary judgment on plaintiffs’ claim for treble damages. Plaintiffs’ moved for summary judgment on~~citing the ~~same day. On December 24, 2020,~~plaintiffs lacked class-wide proof identifying the ~~court declined to decertify~~manner of receipt; the class but modified the class definition to distinguish between physical faxes (kept in the class) versus online or e-fax recipients (removed from the class). Because the court modified the class definition, the court deferred on ruling on the parties’ cross-motions for summary judgment, and directed the parties to submit a statement agreeing or objecting to the court’s proposal for updated class notice. Due to the COVID-19 pandemic, theOctober 18, 2021 trial date ~~for this case was taken off calendar to be re-scheduled during 2021.~~

On December 29, 2017, 2 investment funds holding shares in Celesio AG filed a complaint against McKesson Europe Holdings (formerly known as “Dragonfly GmbH & Co KGaA”), a subsidiary of the Company, in a German court in Stuttgart, Germany, ~~Polygon European Equity Opportunity Master Fund et al. v. McKesson Europe Holdings GmbH & Co. KGaA~~, No. 18 O 455/17. On December 30, 2017, 4 investment funds, which had allegedly entered into swap transactions regarding shares in Celesio AG that would have enabled them to decide whether to accept McKesson Europe Holdings’s takeover offer in its acquisition of Celesio AG, filed a complaint, ~~Davidson Kempner International (BVI) Ltd. et al. v. McKesson Europe Holdings GmbH & Co. KGaA~~, No.16 O 475/17. The complaints allege that the public tender offer document published by McKesson Europe in its acquisition of Celesio AG incorrectly stated that McKesson Europe’s acquisition of convertible bonds would not be treated as a relevant acquisition of shares for the purposes of triggering minimum pricing considerations under Section 4 of the German Takeover Offer Ordinance. On May 11, 2018, the court in ~~Polygon~~ ~~dismissed the claims against McKesson Europe. Plaintiffs appealed this ruling and, on December 19, 2018, the Higher Regional Court (Oberlandesgericht) of Stuttgart confirmed the full dismissal of the~~ ~~Polygon~~ matter. Plaintiffs filed a complaint against denial of leave to appeal with the Federal Court of Justice (Bundesgerichtshof), which was rejected on November 17, 2020, making the dismissal final and binding. With no further right to appeal, Plaintiffs filed an objection against the decision of the Federal Court of Justice on November 27, 2020, claiming their right to be heard hadhas been ~~violated. On March 15, 2019, the lower court in~~ ~~Davidson~~ ~~similarly dismissed the case. Plaintiffs appealed this ruling and, on October 9, 2019, the Higher Regional Court (Oberlandesgericht) of Stuttgart confirmed the full dismissal of the~~ ~~Davidson~~ ~~matter. On November 13, 2019, Plaintiffs filed a complaint against denial of leave to appeal with the Federal Court of Justice (Bundesgerichtshof).~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

On September 25, 2018, Marion Diagnostic Center, LLC and Marion Healthcare, LLC filed a class action complaint in the United States District Court for the Eastern District of Pennsylvania alleging that the Company and its subsidiary, McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of generic drugs. ~~Marion Diagnostic Center, LLC v. McKesson Corporation, et al.~~, No. 2:18-cv-4137; MDL No. 16-MD-2724. On June 26, 2019, the court granted the Company’s motion to dismiss and authorized plaintiffs to seek leave to amend the claims against the Company. On December 30, 2019, a group of independent pharmacies and a hospital filed a class action complaint alleging that the Company and other distributors violated the Sherman Act by colluding with manufacturers to restrain trade in the sale of generic drugs. ~~Reliable Pharmacy, et al. v. Actavis Holdco US, et al.,~~ ~~No. 2:19-cv-6044; MDL No. 16-MD-2724. The complaint seeks relief including treble damages, disgorgement, attorney fees, and costs in unspecified amounts. The court in~~ ~~Marion Diagnostic~~ ~~ordered dismissal of plaintiff’s complaint with prejudice on November 23, 2020 pursuant to a stipulation of the parties, but without waiving any rights MarionDiagnostic Center, LLC and Marion Healthcare, LLCmay have to participate in a settlement or judgment of any other action in the MDL as a class member.~~vacated.

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 the U.S. Attorney’s Office 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.

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 ~~nine months~~year ended ~~December~~March 31, ~~2020~~2021 and ~~as Other~~in “Other accrued ~~liabilities~~liabilities” in the ~~condensed consolidated balance sheets~~Consolidated Balance Sheet as of ~~December~~March 31, ~~2020.~~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 denied on October 4, 2021.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

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

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

Share Repurchase Plans

Stock repurchases may be made from time to time in open market transactions, privately negotiated transactions, through accelerated share repurchase (“ASR”) programs, or by 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.

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

During the three months ended ~~June~~September 30, ~~2020, there were 0~~2021, the Company repurchased an additional 1.4 million of the Company’s shares for $280 million through open market transactions at an average price per share of $203.20, of which $16 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets for share repurchases ~~made under previously authorized share repurchase programs.~~ that were executed in late September and settled in early October.

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

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. During~~$151.23, of which $21 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets for share repurchases that were executed in late September and settled in early October. There were no share repurchases during the three months ended ~~December 31,~~June 30, 2020.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the Company’s Accumulated other comprehensive income (loss), including noncontrolling interests and redeemable noncontrolling interests, by components for the three and six months ended September 30, 2021 and 2020 are as follows:


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains 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, 2021	$	(1,477)	$	(57)		$	13	$	(106)	$	(1,627)
Other comprehensive income (loss) before reclassifications	(81)		32		⁽²⁾	3		1		(45)
Amounts reclassified to income statement	1		—			5		1		7
Other comprehensive income (loss)	(80)		32			8		2		(38)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	—		—			—		—		—
Other comprehensive income (loss) attributable to McKesson	(80)		32			8		2		(38)

Balance at September 30, 2021	$	(1,557)	$	(25)		$	21	$	(104)	$	(1,665)

(1)Primarily result from the ~~Company repurchased 1.5 million~~conversion of non-U.S. dollar financial statements of the Company’s ~~shares for $231~~operations in Europe and Canada into the Company’s reporting currency, U.S. dollars.

(2)Amounts recorded in the three months ended September 30, 2021 include gains of $33 million ~~through open market transactions at an average price per share~~related to net investment hedges from the Euro-denominated notes and gains of ~~$151.12. The total authorization outstanding for repurchases~~$10 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax loss of $11 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains 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	(47)		5		⁽²⁾	3		6		(33)
Amounts reclassified to income statement	18		—			5		(2)		21
Other comprehensive income (loss)	(29)		5			8		4		(12)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	9		(6)			—		—		3
Other comprehensive income (loss) attributable to McKesson	(38)		11			8		4		(15)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(158)		—			—		(12)		(170)
Balance at September 30, 2021	$	(1,557)	$	(25)		$	21	$	(104)	$	(1,665)

(1)Primarily result from the conversion of non-U.S. dollar financial statements of the Company’s ~~common stock was $1.0 billion at December 31, 2020. In January~~operations in Europe and Canada into the Company’s reporting currency, U.S. dollars.

(2)Amounts recorded in the six months ended September 30, 2021 include gains of $11 million related to net investment hedges from the ~~Board approved an increase~~Euro-denominated notes and gains of ~~$2.0 billion for the authorized share repurchase~~$5 million related to net investment hedges from cross-currency swaps. These amounts are net of ~~McKesson’s common stock.~~

income tax loss of $5 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Other Comprehensive Income (Loss)~~

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

Three Months Ended December 31, Nine Months Ended December 31,
(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)
$ 156 $ 101 $ 363 $ 57
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN (4)
47 0 47 0
203 101 410 57
Unrealized losses on net investment hedges
Unrealized losses on net investment hedges arising during period, net of income tax benefit of $33, $21, $80, and $1 (3)(5)
(96) (58) (229) (2)
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN 0 0 0 0
(96) (58) (229) (2)
Unrealized gains (losses) on cash flow hedges
Unrealized gains (losses) on cash flow hedges arising during period, net of income tax (expense) benefit of $2, $3, $6, and $(7) (12) 8 (36) 33
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN 0 0 0 0
(12) 8 (36) 33
Changes in retirement-related benefit plans (6)
Net actuarial loss and prior service cost arising during the period, net of income tax benefit of NaN, NaN, NaN, and $1 0 0 0 (3)
Amortization of actuarial loss, prior service cost and transition obligation, net of income tax benefit of $2, NaN, $1, and NaN (7)
(2) (2) 0 0
Foreign currency translation adjustments and other, net of income tax expense of NaN, NaN, NaN, and NaN (4)
2 (6) (8) 1
Reclassified to income statement, net of income tax expense of $9, $3, $9, and $35 (8)
24 8 24 98
24 0 16 96
Other comprehensive income, net of tax $ 119 $ 51 $ 161 $ 184


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized 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)		⁽²⁾	(19)		(9)		13
Amounts reclassified to income statement	—		—			—		—		—
Other comprehensive income (loss)	111		(70)			(19)		(9)		13
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	(119)		(1)			—		(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)

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

(2)~~During~~Amounts recorded in the three ~~and nine~~ months ended ~~December 31,~~September 30, 2020 include losses of $83 million related to net ~~foreign currency translation adjustments were primarily due to~~investment hedges from the ~~strengthening of the Canadian dollar~~Euro-denominated notes and Euro against the U.S. dollar from April 1, 2020 to December 31, 2020. During the three and nine months ended December 31, 2019, the net foreign currency translation adjustments were primarily due to the strengthening of the Euro and Canadian dollar against the U.S. dollar, partially offset by weakening of the British pound sterling from April 1, 2019 to December 31, 2019.

~~(3)~~The three and nine months ended December 31, 2020 includes net foreign currency translation adjustments of $20 million and $(41) million, respectively, and the three and nine months ended December 31, 2019 includes net foreign currency translation adjustmentslosses of $12 million ~~and $(1) million, respectively, attributable to redeemable noncontrolling interests.~~

~~(4)The three and nine months ended December 31, 2020 include adjustments for amounts~~ related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit of $25 million.


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized 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)		⁽²⁾	(24)		(10)		40
Amounts reclassified to income statement	—		—			—		2		2
Other comprehensive income (loss)	207		(133)			(24)		(8)		42
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	(61)		(1)			—		(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)

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

(2)Amounts recorded in the six months ended September 30, 2020 include losses of $117 million related to ~~a joint venture, as discussed in more detail in Financial Note 3, “Held for Sale.”~~net investment hedges from the Euro-denominated notes and losses of $63 million related to net investment hedges from cross-currency swaps. These amounts ~~were included in the current and prior periods calculation~~are net of ~~charges to remeasure the assets and liabilities held for sale to fair value less costs to sell recorded within Operating expenses in the Condensed Consolidated Statements~~income tax benefit of ~~Operations.~~$47 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~(5)~~The three and nine months ended December 31, 2020 includes foreign currency losses of $84 million and $201 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 $45 million and $108 million, respectively, on the net investment hedges from cross-currency swaps, and losses on net investment hedges of NaN and $1 million, respectively, attributable to redeemable noncontrolling interests. The three and nine months ended December 31, 2019 include foreign currency losses of $59 million and gains of $8 million, respectively, on the net investment hedges from the €1.70 billion Euro-denominated notes and £450 million British pound sterling-denominated notes and losses of $20 million and $11 million, respectively, on the net investment hedges from cross-currency swaps.

~~(6)~~The three and nine months ended December 31, 2020 include net actuarial gains of $5 million and $3 million, respectively, and the three and nine months ended December 31, 2019 include net actuarial losses of $2 million and $1 million, respectively, which are attributable to redeemable noncontrolling interests.

~~(7)~~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.

~~(8)~~The nine months ended December 31, 2019 primarily reflects a reclassification of losses in the second quarter of 2020 upon 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 nine months ended December 31, 2020 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 September 30, 2020 $ (1,512) $ 6 $ 25 $ (116) $ (1,597)
Other comprehensive income (loss) before reclassifications 156 (96) (12) 2 50
Amounts reclassified to earnings and other 47 0 0 22 69
Other comprehensive income (loss) 203 (96) (12) 24 119
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 20 0 0 5 25
Other comprehensive income (loss) attributable to McKesson 183 (96) (12) 19 94
Balance at December 31, 2020 $ (1,329) $ (90) $ 13 $ (97) $ (1,503)

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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 363 (229) (36) (8) 90
Amounts reclassified to earnings and other 47 0 0 24 71
Other comprehensive income (loss) 410 (229) (36) 16 161
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (41) (1) 0 3 (39)
Other comprehensive income (loss) attributable to McKesson 451 (228) (36) 13 200
Balance at December 31, 2020 $ (1,329) $ (90) $ 13 $ (97) $ (1,503)

~~Information regarding changes in the Company’s Accumulated other comprehensive income (loss) by component for the three and nine months ended December 31, 2019 are as follows:~~

Foreign Currency Translation Adjustments
(In millions) Foreign Currency Translation Adjustments, Net of Tax Unrealized Gains (Losses) on Net Investment Hedges,
Net of Tax Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at September 30, 2019 $ (1,659) $ 109 $ (12) $ (142) $ (1,704)
Other comprehensive income (loss) before reclassifications 101 (58) 8 (6) 45
Amounts reclassified to earnings and other 0 0 0 6 6
Other comprehensive income (loss) 101 (58) 8 0 51
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 12 0 0 (2) 10
Other comprehensive income (loss) attributable to McKesson 89 (58) 8 2 41
Balance at December 31, 2019 $ (1,570) $ 51 $ (4) $ (140) $ (1,663)

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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, 2019 $ (1,628) $ 53 $ (37) $ (237) $ (1,849)
Other comprehensive income (loss) before reclassifications 57 (2) 33 (2) 86
Amounts reclassified to earnings and other 0 0 0 98 98
Other comprehensive income (loss) 57 (2) 33 96 184
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (1) 0 0 (1) (2)
Other comprehensive income (loss) attributable to McKesson 58 (2) 33 97 186
Balance at December 31, 2019 $ (1,570) $ 51 $ (4) $ (140) $ (1,663)

~~15.~~14. Segments of Business

~~Commencing with the second quarter of 2021, the~~The Company ~~implemented a new segment reporting structure which resulted~~reports its financial results 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. All prior segment information has been recast to reflect the Company’s new segment structure and current period presentation.International. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments included 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 to wholesale, institutional, and retail customers in 13 European countries where it owns, partners, or franchises with retail pharmacies and operates through 2 businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology services throughout Canada and includes Rexall Health retail pharmacies. McKesson Europe was previously reflected as the European Pharmaceutical Solutions reportable segmentof CoverMyMeds, RelayHealth, RxCrossroads, and McKesson ~~Canada was previously included in Other.~~Prescription Automation to serve biopharma and life sciences partners and patients. By combining automation and expert navigation of the healthcare ecosystem, RxTS connects pharmacies, providers, payers, and biopharma to address patients’ medication access, adherence, and affordability challenges to help people get the medicine they need to live healthier lives.

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 International segment includes the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 12 European countries where it owns, partners, or franchises with retail pharmacies and operates through 2 businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology services throughout Canada and includes Rexall Health retail pharmacies. In the second quarter of 2022, the Company entered into an agreement to sell the E.U. disposal group and, on November 1, 2021, the Company announced an agreement to sell its retail and distribution businesses in the United Kingdom. Refer to Financial Note 2, “Held for Sale,” for more information.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The RxTS segment brings together existing businesses, including CoverMyMeds, RelayHealth, RxCrossroads, and High Volume Solutions, to serve the Company’s biopharma and life sciences partners and patients, connecting pharmacies, providers, payers, and biopharma. RxCrossroads was previously included in the former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and High Volume Solutions were previously included in Other.

~~Other, for retrospective periods presented consists of the Company’s investment in the Change Healthcare JV, which was split-off from the Company in the fourth quarter of 2020.~~

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


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended September 30,				Six Months Ended September 30,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020		2021		2020
Segment revenues (1)	Segment revenues (1)									Segment revenues (1)
U.S. Pharmaceutical	U.S. Pharmaceutical	$	49,495	$	46,453	$	142,232	$	135,855	U.S. Pharmaceutical	$	53,411	$	48,067	$	103,430	$	92,737
Prescription Technology Solutions										Prescription Technology Solutions	932		668		1,813		1,324
Medical-Surgical Solutions										Medical-Surgical Solutions	3,124		2,533		5,652		4,334
International	International	9,273		9,864		27,365		28,592		International	9,109		9,540		18,355		18,092
Medical-Surgical Solutions		3,054		2,141		7,388		6,100
Prescription Technology Solutions		777		714		2,101		1,969

Total revenues	Total revenues	$	62,599	$	59,172	$	179,086	$	172,516	Total revenues	$	66,576	$	60,808	$	129,250	$	116,487

Segment operating profit (loss) (2)	Segment operating profit (loss) (2)									Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)	U.S. Pharmaceutical (3)	$	635	$	677	$	1,871	$	1,894	U.S. Pharmaceutical (3)	$	760	$	623	$	1,442	$	1,236
International (4)		(71)		(290)		(113)		(229)
Prescription Technology Solutions										Prescription Technology Solutions	128		88		232		156
Medical-Surgical Solutions ~~(5)~~(4)	Medical-Surgical Solutions ~~(5)~~(4)	260		124		536		378		Medical-Surgical Solutions ~~(5)~~(4)	296		187		371		276
Prescription Technology Solutions		114		82		270		280
Other (6)		0		(33)		0		(1,483)
International (5)										International (5)	(146)		(45)		(93)		(42)

Subtotal	Subtotal	938		560		2,564		840		Subtotal	1,038		853		1,952		1,626
Corporate expenses, net ~~(7)~~(6)	Corporate expenses, net ~~(7)~~(6)	(8,246)		(202)		(8,462)		(713)		Corporate expenses, net ~~(7)~~(6)	(360)		(148)		(663)		(216)
Loss on debt extinguishment (7)										Loss on debt extinguishment (7)	(191)		—		(191)		—
Interest expense	Interest expense	(55)		(64)		(165)		(184)		Interest expense	(45)		(50)		(94)		(110)
Income (loss) from continuing operations before income taxes		$	(7,363)	$	294	$	(6,063)	$	(57)
Income from continuing operations before income taxes										Income from continuing operations before income taxes	$	442	$	655	$	1,004	$	1,300

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, less than 7%40% of the ~~International~~RxTS segment’s total revenues, less than 2%3% of the Medical-Surgical Solutions segment’s total revenues, and ~~approximately 38%~~less than 8% 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 ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 includes ~~$11~~$23 million and ~~$115~~$46 million, respectively, and for the three and ~~nine~~six months ended ~~December 31, 2019~~September 30, 2020 includes ~~$66~~$52 million and ~~$114~~$104 million, respectively, of ~~pre-tax~~ credits related to the last-in, first-out (“LIFO”) method of accounting for inventories. The ~~nine~~three and six months ended ~~December 31,~~September 30, 2021 includes $34 million and $46 million, respectively, of cash receipts for the Company’s share of antitrust legal settlements. 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 ~~OSA,~~Opioid Stewardship Act, as ~~further~~ discussed in more detail in Financial Note 13,12, “Commitments and Contingent Liabilities.”

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONCLUDED)~~

~~(UNAUDITED)~~

~~(4)~~(5)The Company’s International segment’s operating loss for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 includes charges of $342 million to remeasure assets and liabilities of the E.U. disposal group to the lower of carrying value or fair value less costs to sell and to impair certain assets, including internal-use software that will not be utilized in the future, as discussed in more detail in Financial Note 2, “Held for Sale.” The three and six months ended September 30, 2021 includes a gain of $59 million related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business. Operating loss for the three and six months ended September 30, 2020 includes restructuring, impairment, and related charges of ~~$131~~$35 million and ~~$189~~$58 million, respectively, ~~driven largely by long-lived asset impairment charges of $115 million~~ primarily ~~related to retail pharmacy businesses in Canada and Europe as well as costs~~ associated with the closure of retail pharmacy stores within the U.K. business, as discussed in more detail in Financial Note 4,3, “Restructuring, Impairment, and Related Charges,” and a ~~second quarter~~ 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 8,7, “Goodwill and Intangible Assets, Net.” ~~Restructuring, impairment, and related charges~~

Table of $100 million and $116 million for the three and nine months ended December 31, 2019, respectively, reflects long-lived asset impairment charges of $94 million primarily related to retail pharmacy businesses in the U.K. and Canada. The segment’s operating loss also includes charges of $47 million and $57 million for three and nine months ended December 31, 2020, respectively, to remeasure to fair value the assets and liabilities of the Company’s German pharmaceutical wholesale business which was contributed to a joint venture as further discussed in Note 3, “Held for Sale.” The Company recognized a fair value remeasurement charge related to the joint venture of $282 million for the three and nine months ended December 31, 2019.Contents

~~(5)~~The Company’s Medical-Surgical Solutions segment’s operating profit for the three and nine months ended December 31, 2020 includes charges totaling $35 million and $49 million, respectively, on certain personal protective equipment and other related products due to inventory impairments and excess inventory.McKESSON CORPORATION

FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

(6)Operating loss for Other for the nine months ended December 31, 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 $28 million and $75 million for the three and nine months ended December 31, 2019, respectively.

~~(7)~~Corporate expenses, net for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 includes ~~a pre-tax charge~~charges of ~~$8.1 billion ($6.7 billion after-tax)~~$149 million primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” Corporate expenses, net for the three and six months ended September 30, 2021 includes charges of $112 million and $186 million, respectively, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 13,12, “Commitments and Contingent Liabilities."” The ~~nine~~three and six months ended ~~December 31,~~September 30, 2021 includes $36 million and $71 million, respectively, and the three and six months ended September 30, 2020 includes $41 million and $84 million, respectively, of opioid-related costs, primarily litigation expenses. Corporate expenses, net for the six months ended September 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 ~~nine~~six months ended ~~December 31, 2020 include net gains of $30~~September 30, 2021 includes $97 million and ~~$89~~$104 million, respectively, and for the three and six months ended September 30, 2020 includes $49 million and $59 million, respectively, of net gains associated with certain of the Company’s equity ~~investments and,~~investments.

(7)Loss on debt extinguishment for the nine months ended December 31, 2019, include settlement charges of $122 million 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 nine months ended December 31, 2020 includes $34 million and $118 million, respectively, and the three and ~~nine~~six months ended ~~December 31, 2019 includes $36~~September 30, 2021 consists of a charge of $191 million on debt extinguishment related to the Company’s July 2021 tender offer to redeem a portion of its existing debt, as discussed in more detail in Financial Note 8, “Debt and ~~$108 million, respectively, of pre-tax charges opioid-related costs, primarily litigation expenses.~~Financing Activities.”

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Table of Contents			MD&A Index

~~Table of Contents~~

McKESSON CORPORATION

FINANCIAL REVIEW

(UNAUDITED)

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

INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS


Section			Page

General			39

Overview of Our Business			39

Executive Summary			40

Trends and Uncertainties			42

Overview of Consolidated Results			47

Overview of Segment Results			52

New Accounting Pronouncements			56

Financial Condition, Liquidity, and Capital Resources			56

Cautionary Notice About Forward-Looking Statements			60

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 United States (“U.S.”) 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 with the second quarter of 2021, which resulted~~report our results 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. All prior segment information has been recast to reflect our new segment structure~~Medical-Surgical Solutions, and ~~current period presentation.~~International. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operating segments on a number of measures, including revenues and operating profit before interest expense and income taxes.

The following summarizes our four reportable ~~segments and the changes made to our reporting structure commencing in the second quarter of 2021.~~segments. 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.


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•U.S. Pharmaceutical~~, previously the U.S. Pharmaceutical and Specialty Solutions reportable segment, continues to distribute~~ 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.

•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.

•Medical-Surgical Solutions provides medical-surgical supply distribution, logistics, and other services to healthcare providers in the U.S.

•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~~In the second quarter of 2022, we entered into an agreement to sell certain of our businesses in the European ~~Pharmaceutical Solutions reportable segment~~Union, primarily located in France, Italy, Ireland, Portugal, Belgium, and ~~McKesson Canada was previously included~~Slovenia. The sale also includes our German headquarters and wound-care business, part of a shared services center in ~~Other.~~

•~~Medical-Surgical Solutions~~ ~~provides medical-surgical supply~~Lithuania, and our ownership stake in a joint venture in the Netherlands (“E.U. disposal group”). Additionally, on November 1, 2021, we announced an agreement to sell our retail and distribution ~~logistics, and other services to healthcare providers~~businesses in the United ~~States~~Kingdom (“~~U.S.~~U.K.”) ~~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.

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Executive Summary:

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three and ~~nine~~six months ended ~~December 31, 2020.~~September 30, 2021.

•Coronavirus disease 2019 (“COVID-19”) ~~impacted~~continues to impact our ~~results of operations for the three and nine months ended December 31, 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 pharmaceutical~~volume trends continue to be non-linear. However, the recovery from the pandemic is favorably reflected in our results when comparing 2022 versus 2021. We also had favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution ~~volumes have improved across our businesses during the second and third quarters since the troughs we experienced~~programs during the first ~~quarter, the recovery~~half of ~~the COVID-19 pandemic continues to be fluid. We also saw~~2022 and a ~~continued~~year over year increase in ~~demand for~~sales of COVID-19 tests;

•~~We expanded our existing partnership with~~In response to the ~~Centers for Disease Control and Prevention~~global pandemic, McKesson plans to donate certain personal protective equipment (“~~CDC”~~PPE”) to ~~support~~charitable organizations to assist with COVID-19 recovery efforts. During the ~~U.S. government as a centralized distributor~~six months ended September 30, 2021, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment. The majority of ~~COVID-19 vaccines~~these charges are driven by the intent of management not to sell certain excess PPE inventory and ~~ancillary supplies needed~~instead direct it to administer vaccines. We have also partnered with the Department of Health and Human Services (“HHS”) and Pfizer to manage the assembly and distribution of the ancillary supplies needed to administer COVID-19 vaccines;

•On December 20, 2020, under the direction of the CDC, we began the distribution of Moderna’s COVID-19 vaccine. 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 ~~$62.6~~$66.6 billion for the three months ended ~~December 31, 2020~~September 30, 2021 increased 6%9% from the prior year, and revenues of ~~$179.1~~$129.3 billion for the ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 increased 4%11% from the prior year. The increase in revenues is primarily driven by market growth in our U.S. Pharmaceutical segment. Revenues for the nine months ended December 31, 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 ~~4% and 2%~~12% for both the three and ~~nine~~six months ended ~~December 31, 2020, respectively,~~September 30, 2021 compared to the prior year primarily driven by improvements in primary care patient visits, higher sales of COVID-19 tests, and the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment as well as the contribution from our COVID-19 vaccination distribution program and growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. Gross profit for the six months ended September 30, 2021 also included favorable effects of foreign currency exchange fluctuations in our International segment;


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•~~Total~~On July 5, 2021, we entered into an agreement to sell our E.U. disposal group to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.4 billion), subject to certain adjustments under the agreement. Beginning in the second quarter of 2022, the E.U. disposal group was reflected in our condensed consolidated financial statements as held for sale, at which point we discontinued recording depreciation and amortization expense on related assets. As a result of the transaction, we recorded charges totaling $491 million during the second quarter of 2022 in total operating expenses to remeasure assets and liabilities held for sale to fair value less costs to sell and to impair certain internal-use software that will not be utilized in the ~~three and nine months ended December 31, 2020~~future. The remeasurement adjustment includes a ~~charge of $8.1 billion~~$226 million loss related to ~~our estimated liability for opioid-related claims. This charge~~the accumulated other comprehensive income balances associated with the E.U. disposal group. The transaction is ~~reflected~~anticipated to close within ~~“Claims and litigation charges, net” in our Condensed Consolidated Statements~~the next twelve months, pursuant to customary closing conditions, including receipt of ~~Operations and within “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheets.~~required regulatory approvals. Refer to Financial Note 2, “Held for Sale,” to the ~~Opioid-Related Litigation and Claims section of~~ ~~“Trends and Uncertainties”~~accompanying condensed consolidated financial statements included ~~below~~in this Quarterly Report on Form 10-Q for ~~further~~more information;

•Total operating expenses for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 includes charges of ~~$115 million to impair certain long-lived assets within our International segment;~~

•On November 1, 2020, we completed the contribution of our German pharmaceutical wholesale business to a newly formed joint venture with Walgreens Boots Alliance (“WBA”) in which we have a 30% ownership interest. In connection with the transaction, we recorded fair value remeasurement charges of $47$112 million and ~~$57~~$186 million, ~~within total operating expenses~~respectively, related to our estimated liability for opioid-related claims as further described in the ~~three~~“Trends and ~~nine months ended December 31, 2020, respectively;~~Uncertainties” section included below;

•Total operating expenses for the ~~nine~~three and six months ended ~~December 31, 2020 also~~September 30, 2021 includes ~~the following:~~ a ~~goodwill impairment charge~~gain of ~~$69 million recorded in connection with our segment realignment that commenced in the second quarter of 2021; a charge of $50~~$59 million related to the sale of our ~~estimated liability under the State of New York’s Opioid Stewardship Act (the “OSA”);~~Canadian health benefit claims management and ~~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;~~plan administrative services business;

•Other income, ~~(expense),~~ net for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 includes net gains of ~~$30~~$97 million and ~~$89~~$104 million, respectively, ~~recognized from~~related to our equity investments;

•Diluted loss per common share from continuing operations attributable to McKesson Corporation for the three and nine months ended December 31, 2020 of $39.03 and $32.28, respectively, reflects the aforementioned items, net of any respective tax impacts, and a lower share count compared to the prior year driven largely by the separation of our investment in Change Healthcare JV on March 10, 2020;

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•On ~~December 3, 2020,~~July 23, 2021, we completed a ~~public offering~~cash tender offer and paid an aggregate consideration of ~~0.90% Notes due December 3, 2025 (the “2025 Notes”) in~~$1.1 billion to redeem certain notes with a principal amount of ~~$500~~$922 million. As a result of the redemption, we incurred a loss on debt extinguishment in the second quarter of 2022 of $191 million, consisting of the premiums paid and ~~repaid $1.0 billion~~a portion of ~~long-term debt.~~the write-off of unamortized debt issuance costs in an amount proportional to the principal amount of debt retired. Refer to Financial Note 9,8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three and six months ended September 30, 2021 of $1.71 and $4.82, respectively, reflects the aforementioned items, net of any respective tax impacts, discrete tax items recognized, and a lower share count compared to the prior year 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 six months ended September 30, 2021 through exercises of a put right by the noncontrolling shareholders pursuant to the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”);

•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. On August 12, 2021, we also completed a public offering of 1.30% notes due August 15, 2026 with a principal amount of $500 million for proceeds received, net of discounts and offering expenses, of $495 million. The Company utilized the net proceeds from this note for general corporate purposes;

•We returned ~~$709 million~~$1.4 billion of cash to shareholders during the six months ended September 30, 2021 through ~~$500 million~~$1.3 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 ~~$209~~$134 million of dividend ~~payments during the nine months ended December 31, 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

•~~In January~~On November 1, 2021, we announced an agreement to sell our ~~Board~~retail and distribution businesses in the U.K. (“U.K. disposal group”) to Aurelius Elephant Limited for purchase consideration of ~~Directors (the “Board”) approved an increase~~£325 million (or, approximately $438 million). Beginning in the third quarter of ~~$2.0 billion~~2022, the U.K. disposal group will be reflected in our condensed consolidated financial statements as held for sale and will be remeasured to the ~~authorized share repurchase~~lower of ~~McKesson’s common stock.~~its carrying amount or fair value less costs to sell, which we estimate will result in a charge between $700 million and $900 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the U.K. disposal group. Actual charges could differ based on operating results, changes in foreign exchange rates, and other factors prior to closing of the transaction. The transaction is anticipated to close during the fourth quarter of 2022, pursuant to customary closing conditions, including receipt of regulatory approvals.


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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 quarter~~the first half of 2020 and continues to evolve. Infection rates have increased to higher levels and significant numbers of new COVID-19 cases continued to be reported throughout the nine months ended December 31, 2020, particularly in the U.S.2022. The full extent to which COVID-19 will impact us depends on many factors and future developments, which are described at the end of this COVID-19 section.

Our Response to COVID-19 in the Workplace

We are committed in continuing to supply our customers and protect the safety of 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 ~~response~~July 2021, we also lifted certain travel restrictions across the enterprise. We continue to enforce the safety measures in the workplace as recommended by the Centers for Disease Control and Prevention (“CDC”). During the second quarter of 2022, we implemented new COVID-19 vaccination protocols designed to be consistent with customer requirements for our U.S. and Canada employees and to protect the safety of our employees, customers, patients, and communities while also safeguarding the healthcare supply chain. In Europe, we are following applicable government guidelines in local countries. We will continue to monitor all of these changing requirements. We have not observed a material increase in employee turnover as a result of our policies related to the COVID-19 ~~pandemic, federal, state, and local government directives and~~vaccination mandates; however, we are unable to predict whether such policies or mandates will have ~~been put in place~~a material impact on our workforce in the U.S. to enhance availability of medications 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. On December 11, 2020, the U.S. Food and Drug Administration (“FDA”) issued the first Emergency Use Authorization (“EUA”) for the Pfizer-BioNTech COVID-19 vaccine manufactured by Pfizer, Inc. (“Pfizer Vaccine”) to be distributedfuture.

Our Role in the U.S. On December 18, 2020, the FDA issued an EUA for the Moderna COVID-19 vaccine manufactured by ModernaTX, Inc. (“Moderna Vaccine”) to be distributed in the U.S. Similar COVID-19 vaccine authorizations have occurred in Canada and Europe. Government-coordinated administrative or allocation decisions at the federal, state, and local levels may cause variability in the timing and volumeDistribution of COVID-19 ~~vaccine distribution~~Vaccines and ~~administration activities. Our role in the distribution of COVID-19 vaccines as well as the assembly and distribution of related ancillary supply kits is discussed further below.~~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”),~~PPE, and medicine reach our customers and patients.

We continue to support the U.S. government as a centralized distributor of COVID-19 vaccines and ancillary supplies needed to administer vaccines through a contract with the CDC. We have been distributing COVID-19 vaccines that are refrigerated or frozen since December 2020, when the Emergency Use Authorization was issued by the U.S. Food and Drug Administration for the Moderna COVID-19 vaccine manufactured by ModernaTX, Inc. 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 do 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, storage, and distribution of ancillary supply kits needed to administer COVID-19 vaccines, including sourcing some of those supplies, through agreements with both the Department of Health and Human Services (“HHS”) and Pfizer, Inc. The results of operations for the kitting and distribution of ancillary supplies are reflected in our Medical-Surgical Solutions segment. The future financial impact of the arrangements with the CDC and HHS depend on numerous uncertainties, which are described at the end of this COVID-19 section.

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

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~~Our Response to~~Trends in our Business

At the onset of the COVID-19 pandemic late in ~~the Workplace~~

During this unprecedented time, we are committed in continuing to supply our customers and protect the safety of our employees. The various responses we put in place to mitigate the impact of COVID-19 on our business operations, including telecommuting and work-from-home policies, restricted travel, employee support programs, and enhanced safety measures, are intended to limit employee exposure to COVID-19. We expanded employee medical benefits covering COVID-19 related visits, treatments, and testing as well as expanded telehealth options to protect employee safety. We provided further support including additional emergency leave and an internal paid time off donation platform for employees impacted by COVID-19. For employees whose roles require presence at our facilities, we enhanced safety by promoting the practice of social distancing, providing reminders to wash or disinfect hands and avoid unnecessary face touching, making face masks available, placing hand sanitizers within our operating environments, and periodically cleaning and disinfecting our facilities. For employees whose roles do not require presence at our facilities, we added technology resources to support their working remotely. These responses were initially put in place during our fourth quarter of ~~2020. During the second quarter of 2021,~~2020, 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. When working in frozen vaccine storage environments, employees are provided with protective gear, including special clothing, gloves, and facial gear. These steps to protect employee safety have resulted in limited disruption from COVID-19 to 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 ~~nine months ended December 31, 2020. We also took various actions to mitigate the impact~~first half of ~~COVID-19 on our results from operations through cost-containment and payroll-related expenses.~~

~~Trends in our Business~~

~~During the first quarter, we experienced growth in pharmaceutical distribution and specialty drug volumes at a lower rate in the U.S., while~~2021, pharmaceutical distribution volumes decreased ~~in Europe~~as a result of the weakened and ~~Canada due to the~~uncertain global economic environment and COVID-19 pandemic, as compared to the same 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 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 of doctors’ offices, which was partially offset by demand for PPE and COVID-19 ~~tests and PPE.~~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. This drove favorability in our results when comparing the first half of 2022 versus 2021, particularly during the first quarter.

~~During the second~~We have experienced significant improvements in prescription volumes and ~~third quarters, these trends improved~~primary care patient visits during our first half 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 as we experienced stabilization~~half of ~~prescription volumes across~~2022, the ~~enterprise~~COVID-19 vaccine and ~~improved frequency~~related ancillary kit distribution in the U.S. favorably impacted our results. During the first half of ~~primary care patient visits. Additionally,~~2022, sales for PPE remained relatively flat year over year and we saw ~~increased demand~~higher sales for COVID-19 tests primarily due to limited product availability in the first quarter of 2021 and ~~continued sales~~increased demand during the second quarter of ~~PPE~~2022 corresponding with the spike in positive COVID-19 cases as a result of the Delta variant.

Impact to our Supply Chain

We also continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers, industry partners, and government agencies to meet the needs of our customers during the pandemic. Overall, during 2022 we have experienced an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for the three or six months ended September 30, 2021. Additionally, in our Medical-Surgical Solutions segment, ~~as well as improvements~~we have experienced certain supply chain disruptions for COVID-19 tests, which poses a potential risk for supply availability to meet the future demand. As potential shortages or disruptions of ~~retail pharmacy foot traffic in Europe and Canada.~~

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

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. The COVID-19 vaccine distribution agreement with the CDC was finalized during the third quarter of 2021. We support the U.S. government as a centralized distributor of COVID-19 vaccines and ancillary supplies needed to administer vaccines. 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 whereany products are to be distributed nor how the products are allocated between the various provider sites and ultimately administered to the individuals receiving a vaccine. We 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 2009 H1N1 pandemic.

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On December 20, 2020, we began distributing the Moderna Vaccine in the U.S. We expect to distribute other future authorized COVID-19 vaccines that are refrigerated (2-8ºC) or frozen (-20ºC). Ancillary supply kits may be shipped either together with the Moderna Vaccine or in advance of the vaccines. The results of operations related to our vaccine distribution are reflected in our U.S. Pharmaceutical segment. The financial impact of vaccine distribution was not material for the three and nine months ended December 31, 2020 given the timing of authorization and subsequent distribution of the Moderna Vaccine late in our third quarter. The Pfizer Vaccine, which is ultra-frozen, is not being distributed by McKesson, althoughidentified we are ~~providing ancillary supplies~~acting to address supply continuity, which includes securing additional products when available, sourcing back-up products when needed, ~~for its administration. The results of operations for the kitting~~ and ~~distribution of ancillary supplies for the Pfizer Vaccine are reflected in our Medical-Surgical Solutions segment,~~following allocation procedures to maintain and protect supply as ~~further discussed below.~~

On September 23, 2020, we announced our contract with the HHS under which our Medical-Surgical Solutions segment manages the assembly and distribution of ancillary supply kits and dry ice kits needed to administer COVID-19 vaccines, including sourcing some of those supplies. We also have an agreement with Pfizer to assemble and distribute ancillary supply kits needed to administer that particular COVID-19 vaccine. Ancillary supply kits include alcohol prep pads, face shields, surgical masks, needles and syringes, and other vaccine administration items. For the Pfizer Vaccine, ancillary supply kits also include the diluent needed to administer the ultra-frozen vaccine. We began assembling the ancillary supply kits in September 2020 and continued assembly throughout our third quarter, in preparation for vaccine authorization and subsequent distribution. Ancillary supply kits to administer the Pfizer Vaccine are shipped directly to point-of-care sites, and all other ancillary supply kits are shipped to our dedicated vaccine distribution centers. The future financial impact of the arrangements with the CDC and HHS depend on numerous uncertainties, which are described at the end of this COVID-19 section.

To manage the COVID-19 vaccine and ancillary supply kit distribution, we have set up special, dedicated vaccine distribution centers that include large-scale, custom freezers and refrigerators to safely store and process vaccines. We have also set up distribution centers for kitting and inventory managementmuch as ~~part of our contract with the HHS.~~possible. We are ~~working with delivery partners~~also initiating business continuity action planning to ~~manage the delivery of vaccines~~maintain and ~~ancillary supply kits from our centralized vaccine distribution centers to point-of-care destinations as directed by the CDC. The capital expenditures we made during the second~~protect operations across all locations and ~~third quarters of 2021 to prepare for vaccine and ancillary supply kit distribution were not material to our financial condition or liquidity.~~facilities.

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

~~The demand for~~For the three months ended September 30, 2021, COVID-19 tests ~~as well as~~and the ~~contribution from~~ kitting and distribution of ancillary supplies for COVID-19 vaccines ~~had a favorable impact~~ in our Medical-Surgical Solutions segment oncontributed approximately $545 million, or 17%, to segment revenues, and ~~income (loss) from continuing operations before income taxes~~contributed approximately $93 million, or 31% to segment operating profit. For the six months ended September 30, 2021, these contributions were approximately $868 million, or 15%, to segment revenues, and including total inventory charges as further described below, increased our segment operating profit by approximately 1%.

The distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment contributed less than 10% to segment operating profit for both the three and ~~nine~~six months ended ~~December 31, 2020. Sales of PPE~~September 30, 2021. The financial impact from our COVID-19 response efforts in ~~this~~the International segment ~~also had a favorable impact on revenues for~~during the three and ~~nine~~six months ended ~~December 31, 2020. However,~~September 30, 2021 was not material to our consolidated results, but contributed to year over year favorability in segment operating results. During the six months ended September 30, 2020, particularly during the first quarter, we had lower pharmaceutical volumes, specialty drug volumes, and patient care visits that negatively impacted our consolidated revenues and income ~~(loss)~~ from continuing operations before income ~~taxes for~~taxes. The recovery of prescription volume trends and patient care visits, which are also described in more detail above in the ~~nine months ended December 31, 2020. During the three and nine months ended December 31, 2020, operating expenses decreased as~~Trends in our Business section, had a ~~result of the pandemic, largely due to savings from restricted travel and decreased meetings. The~~ favorable reduction in operating expenses was partially offset by increased costs of transport, costs for enhanced procedures to sanitize operating facilities, and costs of providing PPE and other related products for employee use. impact year over year across our businesses when comparing 2022 versus 2021.


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Additionally, ~~increased costs for~~ certain ~~PPE compressed our margins. Certain~~ PPE items held for resale were valued in our inventory at costs that were inflated by earlier COVID-19 pandemic demand levels. That inventory valuation, if not supported by market resale prices, may be written down to net realizable value. We may also write-off inventory due to decreased customer demand and excess inventory. During the ~~three and nine~~six months ended ~~December 31, 2020,~~September 30, 2021, we recorded inventory charges totaling ~~$35~~$164 million ~~and $49 million, respectively,~~ on certain PPE and other related products ~~due to inventory impairments and excess inventory~~ 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 for excess inventory which has already been committed for donation during our first half of 2022. In addition, $9 million of inventory charges were recorded in cost of sales for PPE and other related products that management intends to sell. Although market price volatility and changes to anticipated customer demand may require additional write-downs in future periods of other PPE and related product categories, we are taking measures to mitigate such risk.

Overall, these COVID-19 related items had a net favorable impact on consolidated income ~~(loss)~~ from continuing operations before income taxes for the three and six months ended ~~December 31, 2020 and an immaterial impact for the nine months ended December 31, 2020 when~~September 30, 2021 compared to the same prior year periods. Impacts to future periods due to COVID-19 may differ based on future developments, which is described at the end of this COVID-19 section.

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~We were able to maintain~~During the six months ended September 30, 2021, we maintained appropriate labor and overall vendor supply levels ~~during the nine months ended December 31, 2020. 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 PPE 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 PPE and other related products. 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.

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 citizens, companies, healthcare providers and patients, and others. 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, including refundable payroll tax credits on certain qualified wages. We anticipate changes due to the CARES Act in the timing of certain cash flows, with no material impact to our financial results for the three and nine months ended December 31, 2020. On December 27, 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021 (the “CA Act”), which enhances and expands certain provisions of the CARES Act. Currently, we do not expect the CA Act to have a material impact on our future financial condition, results of operations, or liquidity.

~~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 due to the COVID-19 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 changes to their timing of payments or ability to pay amounts owed to 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 September 30, 2021, we were in compliance with all debt covenants, and believe we ~~meet and~~ have the ability to continue to meet our debt covenants in the ~~covenants of our credit agreements.~~

~~Impact to our Supply Chain~~

We also continue to monitor the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers, industry partners, and government agencies to meet the needs of our customers during the pandemic. We have assembled a Critical Care Drug Task Force, made up of our procurement specialists, clinical health systems pharmacists, and supply chain professionals, that is focused on securing additional product where available, sourcing back-up products, and protecting 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 protect the supply chain to minimize disruption in healthcare, protect our customers, ensure the safety and security of our employees and workplaces, and ensure the continuity of critical business processes.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

future.

Risks and Forward-Looking Information

The COVID-19 pandemic has disrupted the global economy and exacerbated uncertainties inherent in estimates, judgments, and assumptions used in our forecasts. We still 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. 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;~~COVID-19 pandemic; potential seasonality of viral outbreaks; potential new ~~strains or~~ 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 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~~COVID-19 may no longer significantly impact our ability to forecast future financial performance 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 ~~as disclosed in Financial Note 4, “Restructuring, Impairment, and Related Charges,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q,~~ 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.


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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Opioid-Related Litigation and Claims

We are a defendant in ~~over 3,200~~a number of 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. Those proceedings include approximately ~~2,900~~2,800 federal cases and approximately ~~400~~350 state court cases throughout the U.S., and cases in Puerto Rico and Canada. ~~We continue to be involved~~

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 satisfied, would result in ~~discussions with~~ the ~~objective~~settlement of ~~achieving broad resolution~~a substantial majority of ~~opioid-related claims of states, their political subdivisions,~~opioid lawsuits filed by state and ~~other government entities (“~~local governmental ~~entities”). We are in ongoing, advanced discussions with state attorneys general and plaintiffs’ representatives regarding a framework under which~~entities. Under the proposed agreement, the three ~~largest U.S. pharmaceutical~~ distributors would pay up to approximately ~~$21.0~~$21 billion over a period of 18 years, with up to approximately ~~$8.0~~$7.9 billion to be paid by us ~~to resolve claims of governmental~~for our 38.1% portion if all eligible entities with more than 90% of the total amount anticipated to be used to remediate the opioids crisis. Most of the remaining amount relates to plaintiffs’ attorneys fees and costs, and would be payable over a shorter time period.participate. In addition, the proposed ~~framework~~agreement would require the three distributors, including the Company, to establish a clearinghouse for controlled substances distribution data and adopt changes to anti-diversion programs.

On September 4, 2021, we and the two other national distributors announced that 42 of 49 eligible states, all 5 U.S. territories, and Washington, DC, had affirmatively signed on to the proposed agreement. The attorneys general of Alabama, Georgia, Nevada, New Mexico, Oklahoma, Rhode Island, and Washington have not joined the proposed settlement. We further announced that we and the other two distributors had determined that enough states had signed on to the settlement for the proposed agreement to proceed to the next phase. During this phase, which is expected to end on January 2, 2022, each participating state will offer its political subdivisions, including those that have ~~concluded~~not sued, the opportunity to participate in the settlement. After the conclusion of this period, we will have 30 days to determine whether a sufficient number of states and political subdivisions have joined for the settlement to proceed to implementation.

The proposed agreement 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 exact amount that ~~discussions~~would be due under the proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against us after the proposed agreement becomes effective. The proposed agreement contemplates that if certain governmental entities do not agree to a settlement under the framework, ~~have reached~~but the distributors nonetheless conclude that there is sufficient participation to warrant the settlement, there would be a ~~stage at which~~corresponding reduction in the amount due to account for the unresolved claims of the governmental entities that do not participate. Those non-participating governmental entities would be entitled to pursue their claims.

We believe that a broad settlement of opioid claims by governmental entities is probable, and that the loss related thereto can be reasonably ~~estimated as of December 31, 2020. As a result of that conclusion, and our assessment of certain other opioid-related claims, we~~estimated. We recorded a charge of $8.1 billion ~~for~~during the ~~three and nine months~~year ended ~~December~~March 31, ~~2020,~~2021 related to our share of the global settlement ~~framework described above,~~ as well as claims of West Virginia municipalities and the Native American tribes. In connection with the proposed settlement agreement and other opioid-related ~~claims.~~settlement accruals described above, we recorded additional charges of $112 million and $186 million during the three and six months ended September 30, 2021, respectively, within “Claims and litigation charges, net” in our Condensed Consolidated Statements of Operations. Our total estimated liability for opioid-related claims was $8.2 billion as of September 30, 2021, of which $1.1 billion was included in “Other accrued liabilities” for the amount estimated to be paid prior to September 30, 2022, and the remaining liability was included in “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheet.

Consistent with the terms of the proposed agreement, we placed approximately $354 million into escrow on September 30, 2021. This amount excludes the proportionate allocation under the proposed settlement for each non-participating state and would be disbursed when and if the proposed agreement becomes effective. Subsequent annual payments would be due on July 15 of each year. The escrow payment was presented as restricted cash within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheet as of September 30, 2021. Because of the many uncertainties associated with any potential settlement arrangement or other resolution of opioid-related litigation, ~~and~~including the uncertainty of the scope of ~~potential~~ 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.~~loss for all opioid-related litigation matters. In light of the uncertainty of the timing of amounts that would be paid with respect to the charge, the charge was recorded in “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheet as of December 31, 2020. Moreover, in light of this uncertainty, the amount of any ultimate loss may differ materially from the amount accrued.

~~While we continue to be involved in discussions regarding~~


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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Notwithstanding the progress toward a ~~potential~~ broad settlement, ~~framework,~~ we also continue to prepare for trial in these pending matters. We believe that we have valid defenses to the claims pending against us and, absent an acceptable settlement, intend to vigorously defend against all such claims. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on our financial position, cash flows or liquidity, or results of operations. Refer to Financial Note ~~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.

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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.

On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision striking down the OSA on procedural grounds. ~~The Healthcare Distribution Alliance filed~~On October 4, 2021, the U.S. Supreme Court declined to hear a petition ~~for panel rehearing, or, in the alternative, for rehearing~~ ~~en banc~~ ~~with the U.S. Court of Appeals for~~challenging the Second ~~Circuit;~~Circuit’s Decision. Thus, we expect that ~~petition was denied on December 18, 2020. Unless the appellate court’s decision is overturned,~~ the OSA will be reinstated for calendar years 2017 and 2018 (but not beyond those years), and, subject to any further legal challenge, we will have to pay our ratable share of the annual surcharge for those two years. During the second quarter of 2021, we reflected an estimated liability of $50 million for the OSA surcharge in our ~~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.

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RESULTS OF OPERATIONS

Overview of Consolidated Results:


(In millions, except per share data)	(In millions, except per share data)	Three Months Ended December 31,								Nine Months Ended December 31,								(In millions, except per share data)	Three Months Ended September 30,								Six Months Ended September 30,
		2020			2019			Change		2020			2019			Change			2021			2020			Change		2021			2020			Change
Revenues	Revenues	$	62,599		$	59,172		6	%	$	179,086		$	172,516		4	%	Revenues	$	66,576		$	60,808		9	%	$	129,250		$	116,487		11	%
Gross profit	Gross profit	3,151			3,033			4		8,851			8,687			2		Gross profit	3,352			3,000			12		6,384			5,700			12
Gross profit margin	Gross profit margin	5.03		%	5.13		%	(10)	bp	4.94		%	5.04		%	(10)	bp	Gross profit margin	5.03		%	4.93		%	10	bp	4.94		%	4.89		%	5	bp
Total operating expenses	Total operating expenses	(10,513)			(2,673)			293	%	(14,901)			(7,067)			111	%	Total operating expenses	$	(2,813)		$	(2,366)		19	%	$	(5,277)		$	(4,388)		20	%
Total operating expenses as a percentage of revenues	Total operating expenses as a percentage of revenues	16.79		%	4.52		%	NM		8.32		%	4.10		%	422	bp	Total operating expenses as a percentage of revenues	4.23		%	3.89		%	34	bp	4.08		%	3.77		%	31	bp
Other income (expense), net		$	54		$	26		108	%	$	152		$	(15)		NM
Equity earnings and charges from investment in Change Healthcare Joint Venture		—			(28)			(100)		—			(1,478)			(100)
Other income, net																		Other income, net	$	139		$	71		96	%	$	182		$	98		86	%
Loss on debt extinguishment																		Loss on debt extinguishment	(191)			—			—		(191)			—			—
Interest expense	Interest expense	(55)			(64)			(14)		(165)			(184)			(10)		Interest expense	(45)			(50)			(10)		(94)			(110)			(15)
Income (loss) from continuing operations before income taxes		(7,363)			294			NM		(6,063)			(57)			NM
Income tax benefit (expense)		1,189			(47)			NM		1,011			111			811
Income (loss) from continuing operations		(6,174)			247			NM		(5,052)			54			NM
Income from continuing operations before income taxes																		Income from continuing operations before income taxes	442			655			(33)		1,004			1,300			(23)
Income tax expense																		Income tax expense	(132)			(28)			371		(158)			(178)			(11)
Income from continuing operations																		Income from continuing operations	310			627			(51)		846			1,122			(25)
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	—			(5)			(100)		(1)			(12)			(92)		Loss from discontinued operations, net of tax	—			—			—		(3)			(1)			200
Net income (loss)		(6,174)			242			NM		(5,053)			42			NM
Net income																		Net income	310			627			(51)		843			1,121			(25)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(52)			(56)			(7)		(152)			(163)			(7)		Net income attributable to noncontrolling interests	(43)			(50)			(14)		(90)			(100)			(10)
Net income (loss) attributable to McKesson Corporation		$	(6,226)		$	186		NM		$	(5,205)		$	(121)		NM
Net income attributable to McKesson Corporation																		Net income attributable to McKesson Corporation	$	267		$	577		(54)	%	$	753		$	1,021		(26)	%

Diluted earnings (loss) per common share attributable to McKesson Corporation	Diluted earnings (loss) per common share attributable to McKesson Corporation																	Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations	Continuing operations	$	(39.03)		$	1.06		NM		$	(32.28)		$	(0.60)		NM		Continuing operations	$	1.71		$	3.54		(52)	%	$	4.82		$	6.26		(23)	%
Discontinued operations	Discontinued operations	—			(0.03)			(100)		(0.01)			(0.06)			(83)		Discontinued operations	—			—			—		(0.02)			—			—
Total	Total	$	(39.03)		$	1.03		NM		$	(32.29)		$	(0.66)		NM		Total	$	1.71		$	3.54		(52)	%	$	4.80		$	6.26		(23)	%

Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	159.5			179.7			(11)	%	161.2			183.1			(12)	%	Weighted-average diluted common shares outstanding	155.8			163.2			(5)	%	156.9			163.2			(4)	%

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

bp - basis points

~~NM - computation not meaningful~~

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~~(UNAUDITED)~~

Revenues

Revenues increased for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year periods primarily due to market growth in our U.S. Pharmaceutical ~~segment. As~~segment, partially offset by the contribution of our German pharmaceutical wholesale business to a ~~result of COVID-19,~~joint venture with Walgreens Boots Alliance (“WBA”) on November 1, 2020. For the six months ended September 30, 2021, revenues were ~~unfavorably impacted for the nine months ended December 31, 2020~~also favorable year over year due to ~~reduced customer demand, which drove declines in~~the recovery of 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.


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Gross Profit

Gross profit increased for the three and six months ended ~~December 31, 2020 compared~~September 30, 2021 largely due to the ~~same~~pandemic, including the favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs, the recovery of the prior year period primarily in our Medical-Surgical Solutions segment driven by increased demand for COVID-19 tests. Gross profit was also favorably impacted by growth in our RxTS segment and growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. Gross profit was unfavorably impacted by lower last-in, first-out (“LIFO”) credits in the third quarter of 2021 as further described below, as well as from the contribution of our German pharmaceutical wholesale business to a joint venture with WBA.

Gross profit increased for the nine months ended December 31, 2020 compared to the same prior year period primarily in our Medical-Surgical Solutions segment driven by the demand for COVID-19 tests and PPE. Gross profit was also favorably impacted by growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. These increases were partially offset by the adverse impacts from COVID-19, ~~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.~~pharmacies, as well as higher sales of COVID-19 tests. Gross profit was also favorably impacted by growth in specialty pharmaceuticals within our U.S. Pharmaceutical segment as well as by foreign currency exchange fluctuations for the three and six months ended September 30, 2021, and unfavorably impacted by the contribution of our German pharmaceutical wholesale business to a joint venture with WBA on November 1, 2020. For the six months ended September 30, 2021, gross profit was unfavorably impacted by inventory charges on certain PPE and other related products.

~~LIFO~~In our U.S. Pharmaceutical segment, gross profit for the three and six months ended September 30, 2021 also included net cash proceeds received of $34 million and $46 million, respectively, representing our share of antitrust legal settlements. There were no similar cash proceeds received for the same prior year periods. Last-in, first-out (“LIFO”) inventory credits were ~~$11~~$23 million and ~~$66~~$52 million for the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively, and ~~$115~~$46 million and ~~$114~~$104 million for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. LIFO credits are lower in the ~~third~~second quarter and first half of ~~2021~~2022 compared to the same prior year ~~period, which unfavorably impacted our gross profit margin,~~periods primarily due to ~~delays~~a decrease in the volume of branded off-patent to generic drug launches ~~as a result of COVID-19.~~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 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.

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Total Operating Expenses

A summary of the components of our total operating expenses for the three and ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~ is as follows:

Three Months Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Operating expenses $ 2,291 $ 2,535 (10) % $ 6,625 $ 6,779 (2) %
Claims and litigation charges, net (1)
8,067 — NM 7,936 82 NM
Goodwill impairment charges — 2 (100) 69 2 NM
Restructuring, impairment, and related charges 155 136 14 271 204 33
Total operating expenses $ 10,513 $ 2,673 293 % $ 14,901 $ 7,067 111 %
Percent of revenues 16.79 % 4.52 % NM 8.32 % 4.10 % 422 bp

~~bp - basis points~~

~~NM - computation not meaningful~~•Selling, distribution, general, and administrative expenses (“SDG&A”): SDG&A consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, administrative expenses, and other general charges.

~~(1)~~•“Claims and litigation charges, ~~net” within total operating expenses includes~~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 ~~“Operating expenses.”~~SDG&A. We have reclassified prior period amounts to conform to the current period presentation.

•Goodwill impairments charges: We perform an impairment test on goodwill balances annually in the third quarter and more frequently if indicators for potential impairment exist. The resulting goodwill impairment charges are reflected within this line item.

•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.


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(UNAUDITED)


	Three Months Ended September 30,								Six Months Ended September 30,
(Dollars in millions)	2021			2020			Change		2021			2020			Change
Selling, distribution, general, and administrative expenses	$	2,669		$	2,237		19	%	$	4,901		$	4,334		13	%
Claims and litigation charges, net	112			—			—		186			(131)			(242)
Goodwill impairment charges	—			69			(100)		—			69			(100)
Restructuring, impairment, and related charges	32			60			(47)		190			116			64
Total operating expenses	$	2,813		$	2,366		19	%	$	5,277		$	4,388		20	%
Percent of revenues	4.23		%	3.89		%	34	bp	4.08		%	3.77		%	31	bp

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

bp - basis points

For the three and ~~nine~~six months ended ~~December 31, 2020,~~September 30, 2021, total operating expenses and total operating expenses as a percentage of revenues increased compared to the same prior year periods. Total operating expenses were impacted by the following significant items:

•~~Operating expenses~~SDG&A for the three and ~~nine~~six months ended ~~December 31, 2020 reflects~~September 30, 2021 includes charges of ~~$47~~$491 million ~~and $57 million, respectively,~~ to remeasure assets and liabilities of our E.U. disposal group held for sale to fair value less costs to sell and to impair certain internal-use software that will not be utilized in the future. The remeasurement adjustment includes a $226 million loss related to the ~~completed contribution of~~accumulated other comprehensive income balances associated with the ~~majority of our German pharmaceutical wholesale business to create a joint venture with WBA in which we have a 30% ownership interest~~E.U. disposal group. Of the total charges recorded during the period, $342 million are included within our International ~~segment. Operating~~segment and $149 million are included within Corporate expenses, net;

•SDG&A for the three and ~~nine~~six months ended ~~December 31, 2019 reflects~~September 30, 2021 includes a ~~charge~~gain of ~~$282~~$59 million ~~to remeasure assets and liabilities held for sale to fair value less costs to sell~~ related to the ~~joint venture for those reporting periods;~~sale of our Canadian health benefit claims management and plan administrative services business;

•~~Operating expenses~~SDG&A for the three months ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~ includes opioid-related ~~expenses~~costs of ~~$34~~$36 million and ~~$36~~$41 million, respectively, and ~~$118~~$71 million and ~~$108~~$84 million for the ~~nine~~six months ended ~~December 31, 2020 and 2019,~~September 30, 2021, respectively, primarily related to litigation expenses;

•~~Operating expenses~~SDG&A for the three and ~~nine~~six months ended ~~December 31, 2020 reflects cost savings of $23 million and $75 million, respectively, on travel and entertainment due to travel restrictions associated with COVID-19;~~

•~~Operating expenses for the nine months ended December 31,~~September 30, 2020 includes a charge of $50 million related to our estimated liability under the OSA as previously discussed in the “Trends and Uncertainties” section;

•~~Operating expenses~~SDG&A for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 when compared to the same prior year periods ~~includes higher corporate expenses~~also includes increased employee-related and ~~increased~~transportation costs ~~to support business growth, particularly in~~across our ~~Medical-Surgical Solutions segment,~~businesses, partially offset by lower operating expenses due to the contribution of our German pharmaceutical wholesale business to a joint venture with ~~WBA and a divestiture in our Medical-Surgical Solutions segment that closed during the fourth quarter of 2020;~~WBA;

•Claims and litigation charges, net for the three ~~and nine~~ months ended ~~December 31,~~September 30, 2021 and 2020 includes ~~a charge~~charges of ~~$8.1 billion~~$112 million and $186 million, respectively, related to our estimated liability for opioid-related claims as previously discussed in the “Trends and Uncertainties” section;

•Claims and litigation charges, net for the ~~nine~~six months ended ~~December 31,~~September 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;

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•Claims and litigation charges, net for the nine months ended December 31, 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;

•Goodwill impairment charges of $69 million for the ~~nine~~three and six months ended ~~December 31,~~September 30, 2020 ~~was~~were recorded in connection with our segment realignment that commenced in the second quarter of 2021. Refer to the ~~“Goodwill~~“Goodwill Impairment” section below for further details;


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•Restructuring, impairment, and related charges for the three ~~and nine~~ months ended ~~December 31, 2020 and 2019~~September 30, 2021 primarily includes charges related to Corporate expenses, net, as well as our ~~European~~U.S. Pharmaceutical segment, and ~~Canadian businesses in~~for the six months ended September 30, 2021 primarily includes charges related to Corporate expenses, net, as well as our International segment. The three and six months ended September 30, 2020 primarily includes charges related to our International segment and Corporate expenses, net. 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 ~~nine~~six months ended ~~December 31, 2020 and 2019.~~September 30, 2020. Refer to the “Restructuring Initiatives and Long-Lived Asset Impairments” and “Segment Operating Profit ~~(Loss)~~ and Corporate Expenses, Net” sections below as well as Financial Note 4,3, “Restructuring, Impairment, and Related Charges,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information; and

•Total operating expenses were unfavorably impacted by foreign currency exchange fluctuations for the three and ~~nine~~six months ended ~~December 31, 2020.~~September 30, 2021.

Goodwill Impairment

~~As discussed in the~~ ~~“Overview of Our Business”~~ section, our operating structure was realigned commencing in the second quarter of 2021 into four reportable segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and RxTS. These reportable segments encompass all operating segments of the Company. The second quarter segment realignment resulted in changes in multiple reporting units across the Company. As a result, we were required 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 million during the second quarter of 2021. At December 31, 2020, the balance of goodwill for our reporting units in Europe was approximately nil and the remaining balance of goodwill in the International segment relates to one of our reporting units in Canada.

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

Our operating structure was realigned commencing in the second quarter of 2021 which prompted changes in multiple reporting units across the Company. As a result, we were required to ~~Financial Note 8, “Goodwill~~perform a goodwill impairment test for these reporting units and ~~Intangible Assets, Net” to~~recorded a goodwill impairment charge of $69 million for the ~~accompanying condensed financial statements appearing~~three and six months ended September 30, 2020 in ~~this Quarterly Report on Form 10-Q for further information.~~our Europe Retail Pharmacy reporting unit, which is included within the International reportable segment.

Restructuring Initiatives and Long-Lived Asset Impairments

~~Restructuring, impairment,~~During the first quarter of 2022, we approved an initiative to increase operational efficiencies and ~~related~~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 facility no longer used. We also may retain and repurpose certain other office locations. We expect to incur total charges ~~within total operating expenses include~~of approximately $180 million to $280 million for this initiative, of which $110 million of charges ~~for programs~~were recorded to date. This initiative is anticipated to be complete in ~~which we change our operations, the scope~~2022 and estimated remaining charges consist primarily of ~~a business undertaken by our business units, or the manner in which that business is conducted as well as~~lease right-of-use and other long-lived asset ~~impairments.~~impairments, lease exit costs, and 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.

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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. The relocation was substantially complete in January 2021.

~~In connection with the above initiatives, we~~ expect to ~~record~~incur total charges of approximately~~$515~~ $85 millionto ~~$565~~$90 million for this initiative, of which ~~$442~~$64 million of charges were recorded to ~~date, primarily representing employee severance, exit-related costs, asset impairment charges,~~date. The initiative is anticipated to be substantially complete in 2022 and ~~accelerated depreciation. Estimated~~estimated remaining charges consist primarily ~~consist~~ of accelerated amortization of long-lived assets, facility ~~lease,~~ and other exit costs, and employee-related costs.

Restructuring, impairment, and related charges for the three and nine months ended December 31, 2020 also includes long-lived asset impairment charges of $115 million primarily related to our retail pharmacy businesses in Canada and Europe within our International segment. Restructuring, impairment, and related charges for the three and nine months ended December 31, 2019 includes long-lived asset impairment charges of $94 million primarily related to our retail pharmacy businesses in the U.K. and Canada within our International segment.

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 further information on our restructuring initiatives and long-lived asset impairments.


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Other Income, ~~(Expense),~~ Net

The ~~change~~increase in other income, net for the ~~nine~~three and six months ended ~~December 31, 2020~~September 30, 2021 compared to ~~other expense, net for~~ the same prior year ~~period~~periods was primarily due to pension settlement charges of $122 million recognized during the nine months ended December 31, 2019 related to our previously approved termination 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,~~higher net ~~for the three and nine months ended December 31, 2020 also includes net~~ gains ~~recognized~~ from our equity investments, of ~~$30~~which $97 million and ~~$89~~$49 million were recognized during the three months ended September 30, 2021 and 2020, respectively, and $104 million and $59 million were recognized during the six months ended September 30, 2021 and 2020, respectively. ~~This primarily reflects mark-to-market gains on our investments in publicly traded securities as further described in~~Refer to Financial Note ~~12,~~11, “Fair Value Measurements,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form ~~10-Q.~~10-Q for further information. 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 nine months ended December 31, 2019 includes net settlement gains of $26 million from our derivative contracts.~~

Loss on Debt Extinguishment

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

~~Until the separation of our investment in Change Healthcare JV~~The loss on ~~March 10, 2020, we accounted for this investment using the equity method of accounting. Our proportionate share of loss from our investment in Change Healthcare JV was $28 million and $75 million~~debt extinguishment recorded for the three and ~~nine~~six months ended ~~December 31, 2019, respectively, which primarily~~September 30, 2021 of $191 million includes premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred of $9 million, and ~~integration expenses incurred~~was driven 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~~our July ~~1, 2019, upon the completion of its IPO, Change contributed net cash proceeds it received from its offering of common stock~~2021 tender offer to Change Healthcare JV in exchange for additional membership interests of Change Healthcare JV 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. Asredeem 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 valueportion of our ~~investment~~existing debt. Refer to Financial Note 8, “Debt 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 Statement of Operations for the nine months ended December 31, 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 periodsFinancing Activities,” 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 fromaccompanying condensed consolidated financial statements included in 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~~Quarterly Report on Form 10-Q for ~~the TRA as a gain contingency, with no receivable recognized as of December 31, 2020.~~more information.

Interest Expense

Interest expense decreased for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year periods 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 ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ we recorded ~~an income tax benefit of $1.2 billion and~~ income tax expense of ~~$47~~$132 million and $28 million, respectively. During the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ we recorded income tax ~~benefits~~expense of ~~$1.0 billion~~$158 million and ~~$111~~$178 million, respectively. WeOur reported an income tax ~~benefit rate of 16.1%~~rates were 29.9% and ~~an income tax expense rate of 16.0%~~4.3% for the three months ended ~~December 31,~~September 30, 2021 and 2020, respectively, and ~~2019, respectively. We reported income tax benefit rates of 16.7%~~15.7% and ~~194.7%~~13.7% for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. The charge for opioid-related claims of $8.1 billion ($6.7 billion after-tax) unfavorably impacted our reported income tax benefit rates for the three and nine months ended December 31, 2020. During the three and nine months ended December 31, 2019, no tax benefit was recognized for the charge of $282 million to remeasure to fair value the assets and liabilities of our German pharmaceutical wholesale business which was contributed to a joint venture within our International segment. Fluctuations in our reported income tax rates are primarily due to non-cash charges related to remeasuring the value of our E.U. disposal group held for sale, changes ~~within~~in our business mix of income between various taxing jurisdictions, and discrete items ~~recognized.~~recognized in the quarters. 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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Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three ~~and nine~~ months ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~ 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 the ~~December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”).~~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~~deficit in 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 ~~$(6.2) billion~~$267 million and ~~$186~~$577 million for the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively, and ~~$(5.2)~~$753 million and $1.0 billion ~~and $(121) million~~ for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. Diluted earnings ~~(loss)~~ per common share attributable to McKesson Corporation was ~~$(39.03)~~$1.71 and ~~$1.03~~$3.54 for the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively, and ~~$(32.29)~~$4.80 and ~~$(0.66)~~$6.26 for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. Net loss per diluted share for the three and nine months ended December 31, 2020 and for the nine months ended December 31, 2019 is calculated by excluding dilutive securities from the denominator due to their antidilutive effects. Additionally, our diluted earnings (loss) per share for the three and nine months ended December 31, 2020 and 2019 reflects the cumulative effects of share repurchases.


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Weighted-Average Diluted Common Shares Outstanding

Diluted earnings ~~(loss)~~ per common share was calculated based on a weighted-average number of shares outstanding of ~~159.5~~155.8 million and ~~179.7~~163.2 million for the three months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively, and ~~161.2~~156.9 million and ~~183.1~~163.2 million for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. Weighted-average diluted shares outstanding for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 decreased from the same prior year periods primarily due to the ~~separation from our investment in Change Healthcare JV on March 10, 2020.~~cumulative effect of shares repurchases.

Overview of Segment Results:

Segment Revenues:


		Three Months Ended December 31,						Nine Months Ended December 31,							Three Months Ended September 30,						Six Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2020		2019		Change		2020		2019		Change		(Dollars in millions)	2021		2020		Change		2021		2020		Change
Segment revenues	Segment revenues													Segment revenues
U.S. Pharmaceutical	U.S. Pharmaceutical	$	49,495	$	46,453	7	%	$	142,232	$	135,855	5	%	U.S. Pharmaceutical	$	53,411	$	48,067	11	%	$	103,430	$	92,737	12	%
Prescription Technology Solutions														Prescription Technology Solutions	932		668		40		1,813		1,324		37
Medical-Surgical Solutions														Medical-Surgical Solutions	3,124		2,533		23		5,652		4,334		30
International	International	9,273		9,864		(6)		27,365		28,592		(4)		International	9,109		9,540		(5)		18,355		18,092		1
Medical-Surgical Solutions		3,054		2,141		43		7,388		6,100		21
Prescription Technology Solutions		777		714		9		2,101		1,969		7
Total revenues	Total revenues	$	62,599	$	59,172	6	%	$	179,086	$	172,516	4	%	Total revenues	$	66,576	$	60,808	9	%	$	129,250	$	116,487	11	%

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


	Increase (decrease)
(Dollars in billions)	Three Months Ended		Six Months Ended
Sales to pharmacies and institutional healthcare providers	$	4.7	$	9.3
Sales to specialty practices and other (1)	0.6		1.4
Total change in U.S. Pharmaceutical revenues	$	5.3	$	10.7

Total change in Prescription Technology Solutions revenues	$	0.3	$	0.5

Sales to primary care customers	$	0.5	$	1.1
Sales to extended care customers	—		—
Other (2)	0.1		0.2
Total change in Medical-Surgical Solutions revenues	$	0.6	$	1.3

Sales in Europe, excluding FX impact	$	(1.1)	$	(1.8)
Sales in Canada, excluding FX impact	0.4		0.8
Impact from FX	0.3		1.3
Total change in International revenues	$	(0.4)	$	0.3

Total change in revenues	$	5.8	$	12.8

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.


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U.S. Pharmaceutical

Three Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

U.S. Pharmaceutical revenues for the three months ended ~~December 31, 2020~~September 30, 2021 increased 7%11% compared to the same prior year period primarily due to market growth, including ~~branded pharmaceutical price increases,~~higher volumes from existing customers, growth in specialty pharmaceuticals, and ~~higher volumes from retail national account customers,~~branded pharmaceutical price increases, partially offset by branded to generic drug conversions. Market growth was partially offset by unfavorability from one less sales day this quarter compared to the same prior year period.

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~~Nine~~Six Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

U.S. Pharmaceutical revenues for the ~~nine~~six months ended ~~December 31, 2020~~September 30, 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, growth in specialty pharmaceuticals, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions. Market growth was partially offset by unfavorability from one less sales day this year compared to the same prior year period. Revenues for this segment were ~~unfavorably impacted by~~also favorable year over year due to the ~~loss~~recovery of ~~customers and reduced~~prescription volumes from the prior year impact of COVID-19, including increased customer demand for pharmaceuticals in retail pharmacies and institutional healthcare ~~providers~~providers.

Prescription Technology Solutions

Three Months Ended September 30, 2021 vs. 2020

RxTS revenues for the three months ended September 30, 2021 increased 40% compared to the same prior year period primarily due to increased volume with new and existing customers.

Six Months Ended September 30, 2021 vs. 2020

RxTS revenues for the six months ended September 30, 2021 increased 37% compared to the same prior year period primarily due to increased volume with new and existing customers and the recovery of prescription volumes from the prior year impact of COVID-19.

Medical-Surgical Solutions

Three Months Ended September 30, 2021 vs. 2020

Medical-Surgical Solutions revenues for the three months ended September 30, 2021 increased 23% compared to the same prior year period largely in our primary care business due to higher sales of COVID-19 ~~particularly during~~tests and improvements in patient care visits. Revenues for this segment were also favorably impacted by the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines.

Six Months Ended September 30, 2021 vs. 2020

Medical-Surgical Solutions revenues for the six months ended September 30, 2021 increased 30% compared to the same prior year period largely in our primary care business due to improvements in patient care visits and higher sales of COVID-19 tests in the first ~~quarter~~half of ~~2021.~~2022. Revenues for this segment were also favorably impacted by the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines.

International

Three Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

International revenues for the three months ended ~~December 31, 2020~~September 30, 2021 decreased 6%5% compared to the same prior year period. Excluding the favorable effects of foreign currency exchange fluctuations, revenues for this segment decreased ~~10%~~8% largely due to the contribution of our German pharmaceutical wholesale business to a joint venture with ~~WBA and~~WBA. This was partially offset by sales to ~~a lesser extent, the exit of unprofitable~~new customers in our Canadian ~~business. These decreases were partially offset by~~business as well as favorability year over year due to ~~additional sales days for~~ the ~~three months ended December 31, 2020 compared to the same prior year period~~recovery of volumes from COVID-19 in our ~~European operations.~~pharmaceutical distribution and retail pharmacy businesses across the segment.

~~Nine~~


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Six Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

International revenues for the ~~nine~~six months ended ~~December 31, 2020 decreased 4%~~September 30, 2021 increased 1% compared to the same prior year period. Excluding the favorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 6% ~~primarily~~largely due to the contribution of our German pharmaceutical wholesale business to a joint venture with ~~WBA,~~WBA. This was partially offset by favorability year over year due to the ~~exit~~recovery of ~~unprofitable~~volumes from COVID-19 in our pharmaceutical distribution and retail pharmacy businesses across the segment as well as sales to new customers in our Canadian business, and lower pharmaceutical distribution volumes resulting from the adverse impacts from COVID-19 largely during the first quarter of 2021. These decreases were partially offset by favorability due to additional sales days for the nine months ended December 31, 2020 compared to the same prior year period in our European operations.

~~Medical-Surgical Solutions~~

~~Three Months Ended December 31, 2020 vs. 2019~~

~~Medical-Surgical Solutions revenues for the three months ended December 31, 2020 increased 43% compared to the same prior year period primarily due to sales of COVID-19 tests and PPE.~~

~~Nine Months Ended December 31, 2020 vs. 2019~~

Medical-Surgical Solutions revenues for the nine months ended December 31, 2020 increased 21% compared to the same prior year period largely due to sales of COVID-19 tests. Revenues for this segment were also favorably impacted by sales of PPE, partially offset by lower demand due to customer closures in our primary care business primarily during the first quarter of 2021.

~~Prescription Technology Solutions~~

~~Three Months Ended December 31, 2020 vs. 2019~~

~~RxTS revenues for the three months ended December 31, 2020 increased 9% compared to the same prior year period primarily driven by increased volume with new and existing customers in our CoverMyMeds~~ business.

~~Nine Months Ended December 31, 2020 vs. 2019~~

~~RxTS revenues for the nine months ended December 31, 2020 increased 7% compared to the same prior year period primarily driven by increased volume with new and existing customers.~~

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


		Three Months Ended December 31,								Nine Months Ended December 31,									Three Months Ended September 30,								Six Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2020			2019			Change		2020			2019			Change		(Dollars in millions)	2021			2020			Change		2021			2020			Change
Segment operating profit (loss) (1)	Segment operating profit (loss) (1)																	Segment operating profit (loss) (1)
U.S. Pharmaceutical (2)	U.S. Pharmaceutical (2)	$	635		$	677		(6)	%	$	1,871		$	1,894		(1)	%	U.S. Pharmaceutical (2)	$	760		$	623		22	%	$	1,442		$	1,236		17	%
International (3)		(71)			(290)			(76)		(113)			(229)			(51)
Prescription Technology Solutions																		Prescription Technology Solutions	128			88			45		232			156			49
Medical-Surgical Solutions(3)	Medical-Surgical Solutions(3)	260			124			110		536			378			42		Medical-Surgical Solutions(3)	296			187			58		371			276			34
Prescription Technology Solutions		114			82			39		270			280			(4)
Other (4)		—			(33)			(100)		—			(1,483)			(100)
International (4)																		International (4)	(146)			(45)			224		(93)			(42)			121

Subtotal	Subtotal	938			560			68		2,564			840			205		Subtotal	1,038			853			22		1,952			1,626			20
Corporate expenses, net (5)	Corporate expenses, net (5)	(8,246)			(202)			NM		(8,462)			(713)			NM		Corporate expenses, net (5)	(360)			(148)			143		(663)			(216)			207
Loss on debt extinguishment																		Loss on debt extinguishment	(191)			—			—		(191)			—			—
Interest expense	Interest expense	(55)			(64)			(14)		(165)			(184)			(10)		Interest expense	(45)			(50)			(10)		(94)			(110)			(15)
Income (loss) from continuing operations before income taxes		$	(7,363)		$	294		NM		$	(6,063)		$	(57)		NM
Income from continuing operations before income taxes																		Income from continuing operations before income taxes	$	442		$	655		(33)		$	1,004		$	1,300		(23)

Segment operating profit (loss) margin	Segment operating profit (loss) margin																	Segment operating profit (loss) margin
U.S. Pharmaceutical	U.S. Pharmaceutical	1.28		%	1.46		%	(18)	bp	1.32		%	1.39		%	(7)	bp	U.S. Pharmaceutical	1.42		%	1.30		%	12	bp	1.39		%	1.33		%	6	bp
Prescription Technology Solutions																		Prescription Technology Solutions	13.73			13.17			56		12.80			11.78			102
Medical-Surgical Solutions																		Medical-Surgical Solutions	9.48			7.38			210		6.56			6.37			19
International	International	(0.77)			(2.94)			217		(0.41)			(0.80)			39		International	(1.60)			(0.47)			(113)		(0.51)			(0.23)			(28)
Medical-Surgical Solutions		8.51			5.79			272		7.26			6.20			106
Prescription Technology Solutions		14.67			11.48			319		12.85			14.22			(137)

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

bp - basis points

~~NM - computation not meaningful~~

(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 segment includes a charge of $50 million for the ~~nine~~three and six months ended ~~December 31,~~September 30, 2020 related to our estimated liability under the OSA.

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

(4)Operating loss for our International segment ~~includes restructuring, impairment, and related charges of $131 million and $189 million~~ for the three and ~~nine~~six months ended ~~December 31, 2020, respectively, driven largely by long-lived asset impairment~~September 30, 2021 includes charges of ~~$115~~$342 million ~~primarily related~~ to remeasure assets and liabilities of our ~~retail pharmacy businesses in Canada~~E.U. disposal group held for sale to fair value less costs to sell and ~~Europe as well as costs incurred~~to impair certain internal-use software that will not be utilized in the closure of certain retail pharmacy stores within our U.K. business as part of our operating model and cost optimization efforts. Restructuring, impairment, and related charges of $100 million and $116 millionfuture. Operating loss for the three and ~~nine~~six months ended ~~December 31, 2019, respectively, was driven largely by long-lived asset impairment charges~~September 30, 2021 also includes a gain of ~~$94~~$59 million ~~primarily~~ related to the sale of our ~~retail pharmacy businesses in the U.K.~~Canadian health benefit claims management and ~~Canada.~~plan administrative services business. Operating loss for the three and six months ended September 30, 2020 includes a goodwill impairment charge of $69 million ~~for the nine months ended December 31, 2020~~ related to our European retail business as well as charges of $47 million and $57 million for three and nine months ended December 31, 2020, respectively, to remeasure to fair value the assets and liabilities of our German pharmaceutical wholesale business which was contributed to a joint venture with WBA. We recognized a fair value remeasurement charge related to the joint venture of $282 million for the three and nine months ended December 31, 2019.business.

~~(4)~~


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Operating loss for Other for the nine months ended December 31, 2019 includes an impairment charge of $1.2 billion and a dilution loss of $246 million related to our investment in Change Healthcare JV.McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

(5)Corporate expenses, net for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 includes ~~a charge~~charges of ~~$8.1 billion~~$149 million related to the effect of accumulated other comprehensive loss components from our ~~estimated liability for opioid-related claims.~~E.U. disposal group. Corporate expenses, net ~~for the three and nine months ended December 31, 2020 also~~ includes net gains from our equity investments of ~~$30~~$97 million and ~~$89~~$49 million for the three months ended September 30, 2021 and 2020, respectively, ~~as well as~~and $104 million and $59 million for the six months ended September 30, 2021 and 2020, respectively. Corporate expenses, net also includes charges of $112 million and $186 million for the three and six months ended September 30, 2021, respectively, related to our estimated liability for opioid-related claims and a net gain of $131 million for ~~nine~~the six months ended ~~December 31,~~September 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 nine months ended December 31, 2019 includes pension settlement charges of $122 million 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 ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

Operating profit ~~and operating profit margin decreased~~increased for this segment for the three months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to ~~lower LIFO credits of $55 million and net cash proceeds of $22 million received in the prior year representing our share of antitrust legal settlements, partially offset by~~ growth in specialty ~~pharmaceuticals.~~

~~Nine Months Ended December 31, 2020 vs. 2019~~

~~Operating profit and operating profit margin decreased for this segment for~~pharmaceuticals, the ~~nine months ended December 31, 2020 compared to the same prior year period primarily due to~~contribution from our COVID-19 vaccine distribution program, favorability from a ~~charge of~~ $50 million charge recorded during the second quarter of 2021 related to our estimated liability under the OSA, ~~increased costs for strategic growth initiatives,~~ and net cash proceeds received of ~~$22~~$34 million ~~received in the prior year~~ representing our share of antitrust legal settlements. This was partially offset by ~~growth~~a decrease in ~~specialty pharmaceuticals.~~LIFO credits of $29 million and an increase in operating expenses.

~~International~~

~~Three~~Six Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

Operating ~~loss and operating loss margin improved~~profit increased for this segment for the ~~three~~six months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to the contribution from our COVID-19 vaccine distribution program, growth in specialty pharmaceuticals, favorability from the prior year OSA charge described above, net cash proceeds received of $46 million representing our share of antitrust legal settlements, and the recovery of prescription volumes from the prior year impact of COVID-19. This was partially offset by a decrease in ~~the charges recorded to remeasure to fair value the assets~~LIFO credits of $58 million and ~~liabilities of our German pharmaceutical wholesale business which was contributed to a joint venture with WBA. The fair value remeasurement charges reflected~~an increase in operating expenses.

Prescription Technology Solutions

Three Months Ended September 30, 2021 vs. 2020

Operating profit for this segment increased for the three months ended ~~December 31, 2020 and 2019 was $47 million and $282 million, respectively.~~

~~Nine Months Ended December 31, 2020 vs. 2019~~

~~Operating loss and operating loss margin improved for this segment for the nine months ended December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to ~~a decrease in the fair value remeasurement charges discussed above, of which $57 million~~increased volumes with new and $282 million was reflected for the nine months ended December 31, 2020 and 2019, respectively, and lower operating expenses across our European businesses. This was partially offset by higher restructuring charges in Europe and Canada and a goodwill impairment charge of $69 million recorded in the second quarter of 2021 related to our European retail pharmacy business.existing customers.

~~Medical-Surgical Solutions~~

~~Three~~Six Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

Operating profit ~~and operating profit margin~~ for this segment increased for the ~~three~~six months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to ~~COVID-19, including demand for COVID-19 tests~~increased volumes with new and existing customers and the ~~contribution~~recovery of prescription volumes from ~~kitting and distribution of ancillary supplies for COVID-19 vaccines, partially offset by inventory charges on certain PPE and other related products. Operating profit and operating profit margin for~~ the ~~three months ended December 31, 2019 also included a~~ prior year ~~remeasurement charge~~impact of ~~assets and liabilities held for sale to fair value related to a divestiture that closed during the fourth quarter of 2020.~~COVID-19.

~~Nine~~Medical-Surgical Solutions

Three Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

Operating profit ~~and operating profit margin~~ for this segment increased for the ~~nine~~three months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to ~~COVID-19, including demand for~~favorability in our primary care business from improvements in patient care visits and higher sales of COVID-19 tests ~~and PPE,~~in the second quarter of 2022, as well as the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines. This was partially offset by ~~customer closures~~an increase in ~~our primary care~~employee-related expenses to support business largely during the first quarter of 2021 and inventory charges on certain PPE and other related products. Operating profit and operating profit margin for the nine months ended December 31, 2019 also included a prior year remeasurement charge of assets and liabilities held for sale to fair value related to a divestiture that closed during the fourth quarter of 2020.growth.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Prescription Technology Solutions~~

~~Three~~Six Months Ended ~~December 31,~~September 30, 2021 vs. 2020 ~~vs. 2019~~

Operating profit ~~and operating profit margin~~ for this segment increased for the ~~three~~six months ended ~~December 31, 2020 compared to the same prior year period primarily driven by favorability in our CoverMyMeds business, including increased volumes with new and existing customers.~~

~~Nine Months Ended December 31, 2020 vs. 2019~~

~~Operating profit and operating profit margin for this segment decreased for the nine months ended December 31, 2020~~September 30, 2021 compared to the same prior year period primarily due to favorability in our primary care business from improvements in patient care visits, as well as the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines and higher ~~operating~~sales of COVID-19 tests in the first half of 2022. This was partially offset by inventory charges on certain PPE and other related products and an increase in employee-related expenses to support business growth. ~~Operating profit margin for this segment also decreased due to changes in our product mix.~~

~~Other~~


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

International

Three Months Ended September 30, 2021 vs. 2020

Operating loss for ~~Other~~this segment increased for the ~~nine~~three months ended ~~December 31, 2019 includes an~~September 30, 2021 compared to the same prior year period largely due to charges of $342 million to remeasure assets and liabilities of our E.U. disposal group held for sale to fair value less costs to sell and to impair certain internal-use software that will not be utilized in the future, partially offset by savings from ceased depreciation and amortization expense beginning in July 2021. This was also partially offset by favorability from a $69 million goodwill impairment charge recorded during the second quarter of ~~$1.2 billion and a dilution loss of $246 million~~2021 related to our ~~investment~~European retail business, a gain recognized of $59 million during the second quarter of 2022 related to the sale of our Canadian health benefit claims management and plan administrative services business, and lower restructuring charges from our initiative in ~~Change Healthcare JV.~~ the U.K. This segment also experienced 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.

Six Months Ended September 30, 2021 vs. 2020

Operating loss for ~~Other also includes our proportionate share of loss from Change Healthcare JV of $28 million and $75 million~~this segment increased for the ~~three and nine~~six months ended ~~December 31, 2019, respectively.~~September 30, 2021 compared to the same prior year period largely due to fair value remeasurement charges related to our E.U. disposal group, partially offset by a prior year goodwill impairment charge related to our European retail business and a gain recognized in the current quarter related to a certain Canadian business, all of which is described above. This segment also experienced 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.

Corporate Expenses, Net

Corporate expenses, net increased for the three and ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 compared to the same prior year ~~periods~~period primarily due to ~~a charge~~charges recorded during the second quarter of ~~$8.1 billion~~2022 of $149 million related to the effect of accumulated other comprehensive loss components from our E.U. disposal group and charges of $112 million and $186 million recorded for the three and six months ended September 30, 2021, respectively, related to our estimated liability for opioid-related claims.

~~Corporate expenses, net also includes~~ This was partially offset by higher net gains recognized from our equity ~~investments of $30 million and $89 million~~investments.

Corporate expenses, net for the ~~three and nine~~six months ended ~~December 31, 2020, respectively, as well as~~September 30, 2021 also increased compared to the same prior year period from a net gain of $131 million recognized during the ~~nine months ended December 31, 2020~~first quarter of 2021 in connection with insurance proceeds received from the settlement of the shareholder derivative action related to our controlled substances monitoring ~~program. Corporate expenses, net,~~program and higher restructuring charges for the nine months ended December 31, 2019 includes pension settlement charges of $122 million, an opioid claim settlement charge of $82 million, and net settlement gains of $26 million recognized 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 short-term and long-term capital expenditures, working capital, and other cash requirements. ~~As described withinthe~~ ~~“Trends and Uncertainties”~~ section above, the COVID-19 pandemic developed 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 September 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 and accessible to us 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 ~~meet and~~ have the ability to continue to meet our debt covenants in the ~~covenants of our credit agreements.~~future.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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

Nine Months Ended December 31,
(Dollars in millions) 2020 2019 Change
Net cash provided by (used in):
Operating activities $ 1,172 $ (280) $ 1,452
Investing activities (210) (409) 199
Financing activities (1,176) (254) (922)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (77) 27 (104)
Net change in cash, cash equivalents, and restricted cash $ (291) $ (916) $ 625


	Six Months Ended September 30,
(Dollars in millions)	2021		2020		Change
Net cash provided by (used in):
Operating activities	$	170	$	(41)	$	211
Investing activities	(157)		(278)		121
Financing activities	(3,894)		(401)		(3,493)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		(63)		81
Net change in cash, cash equivalents, and restricted cash	$	(3,863)	$	(783)	$	(3,080)

Operating Activities

Operating activities ~~generated~~provided cash of ~~$1.2 billion~~$170 million during the six months ended September 30, 2021 and used cash of ~~$280~~$41 million during the ~~nine~~six months ended ~~December 31, 2020 and 2019, respectively.~~September 30, 2020. 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 sales and purchase volumes, inventory requirements, and vendor payment terms. Operating activities for the ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 were affected by ~~net income adjusted for non-cash items, a decrease~~increases in drafts and accounts payable of $1.4 billion, receivables of ~~$1.5~~$2.3 billion, and ~~an increase in~~ inventory of ~~$2.0~~$1.2 billion, ~~both~~all primarily due to timing and higher revenues. Operating activities for the six months ended September 30, 2020 were affected by increases in inventory of $1.4 billion due to higher stock levels to meet sales ~~recognized at year end, as well as a decrease~~demand, decreases in drafts and accounts payable of ~~$1.2~~$1.3 billion primarily from effective working capital management at year ~~end. Operating activities for the nine months ended December 31, 2019 were affected by an increase~~end, and decreases in receivables of ~~$1.0 billion~~$981 million primarily due to ~~revenue growth, as well as a decrease in drafts and accounts payable~~higher sales recognized at the end of ~~$929 million and an increase in inventory of $689 million, both primarily associated with timing. Operating activities also~~March 2020. Other non-cash items for the six months ended September 30, 2021 includes non-cash ~~fair value remeasurement~~inventory charges ~~of $57~~totaling $164 million on certain PPE and ~~$282 million~~other related ~~to the contribution of~~products in our German pharmaceutical wholesale business to a joint venture with WBA for the nine months ended December 31, 2020 and 2019, respectively, and a non-cash pension settlement charge of $122 million for the nine months ended December 31, 2019.Medical-Surgical Solutions segment.

Investing Activities

Investing activities used cash of ~~$210~~$157 million and ~~$409~~$278 million during the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, ~~and 2019,~~ respectively. Investing activities for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020 ~~and 2019~~ includes ~~$427~~$279 million and ~~$338~~$265 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software. Investing activities for the nine months ended December 31, 2020 also includes net cash proceeds of $297 million in exchange for the contribution of our German pharmaceutical wholesale business to a joint venture with WBA.

Financing Activities

Financing activities used cash of ~~$1.2~~$3.9 billion and ~~$254~~$401 million during the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020, respectively. In July 2021, we completed a cash tender offer and ~~2019, respectively.~~paid an aggregate consideration of $1.1 billion to redeem certain notes with a principal amount of $922 million and also redeemed our 0.63% Euro-denominated notes with a principal amount of €600 million (or, approximately $709 million) prior to the maturity date of August 17, 2021 using cash on hand. This resulted in total repayments of long-term debt during the six months ended September 30, 2021 of $1.8 billion, including $184 million of cash paid for premiums and transaction fees. This was partially offset by the issuance of long-term debt in August 2021 from a public offering of 1.30% notes due August 15, 2026 for proceeds received of $498 million, which was utilized for general corporate purposes. Financing activities for the ~~nine~~six months ended ~~December 31,~~September 30, 2021 and 2020 includes $1.3 billion and $248 million of cash paid for share repurchases, respectively, and $134 millionand $140 million of cash paid for dividends, respectively. Additionally, financing activities for the six months ended September 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 six months ended September 30, 2021 includes cash receipts and payments of $3.0 billion for short-term borrowings, primarily commercial paper. Financing activities for the six months ended September 30, 2020 includes cash receipts ~~of $5.5 billion~~ and payments of $5.3 billion for short-term borrowings, primarily commercial paper. Financing activities for the nine months ended December 31, 2019 includes cash receipts of $15.9 billion and payments of $13.7 billion for short-term borrowings, primarily commercial paper. Financing activities for the nine months ended December 31, 2020 includes the issuance of the 2025 Notes in a principal amount of $500 million, the retirement of our $700 million total principal amount of notes due on November 30, 2020 at a fixed interest rate of 3.65% upon maturity, and the redemption of our 4.75% $323 million total principal of notes due on March 1, 2021 prior to maturity. The notes were redeemed using cash on hand and the proceeds from the 2025 Notes. Financing activities for the nine months ended December 31, 2020 and 2019 includes $526 million and $2.0 billion, respectively, of cash paid for stock repurchases, including shares surrendered for tax withholding. Additionally, financing activities for the nine months ended December 31, 2020 and 2019 includes~~$209 millionand $222 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 ~~nine~~six months ended ~~December 31,~~September 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.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

~~The~~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,~~2021, we entered into an ASR program with a third-party financial institution to repurchase ~~$600 million~~$1.0 billion of the Company’s common stock. WePursuant 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 was completed in August 2021, at which point we received additional shares of 0.9 million. The total number of shares repurchased ~~a total of 4.7~~under this ASR program was 5.2 million shares at an average price per share of ~~$127.68 during the nine months ended December 31, 2019.~~$193.22.

During the three months ended ~~June~~September 30, ~~2019,~~2021, we also repurchased ~~0.7~~1.4 million of the Company’s shares for ~~$84~~$280 million through open market transactions at an average price per share of ~~$128.64. During the three months ended~~$203.20, of which $16 million was accrued within “Other accrued liabilities” on our Condensed Consolidated Balance Sheets for share repurchases that were executed in late September ~~30, 2019, we repurchased 5.2 million~~and settled in early October.

The total remaining authorization outstanding for repurchases of the Company’s ~~shares for $750 million through open market transactions~~common stock was $1.5 billion at an average price per share of $144.28. During the three months ended December 31, 2019, we repurchased 3.4 million of the Company’s shares for $500 million through open market transactions at an average price per share of $148.39.September 30, 2021.

~~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, we 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. During~~$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. There were no share repurchases during the three months ended December 31, 2020, we repurchased 1.5 million of the Company’s shares for $231 million through open market transactions at an average price per share of $151.12. The total authorization outstanding for repurchases of the Company’s common stock was $1.0 billion at December 31,June 30, 2020. ~~In January 2021, the Board approved an increase of $2.0 billion for the authorized share repurchase of McKesson’s common stock.~~

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 developed 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)	December 31, 2020			March 31, 2020			(Dollars in millions)	September 30, 2021			March 31, 2021
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	3,732		$	4,023		Cash, cash equivalents, and restricted cash	$	2,533		$	6,396
Working capital	Working capital	438			(402)			Working capital	(495)			1,279
Debt to capital ratio (1)	Debt to capital ratio (1)	87.8		%	52.1		%	Debt to capital ratio (1)	84.5		%	83.1		%
Return on McKesson stockholders’ equity (deficit) (2)		(94.6)			13.3

(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. ~~This ratio of debt to capital differs from our total indebtedness to total capital ratio calculated under our credit agreement dated September 25, 2019, as amended.~~

~~(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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Our cash and cash equivalents balance as of ~~December 31, 2020~~September 30, 2021 and March 31, ~~2020~~2021 included approximately $~~1.1~~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.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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 ~~December 31, 2020~~September 30, 2021 compared to March 31, ~~2020~~2021 primarily due to a decrease in cash and cash equivalents and an increase in ~~inventory~~other accrued liabilities, partially offset by an increase in receivables, an increase in net current assets held for sale related to our E.U. disposal group, and a decrease in ~~drafts and accounts payable, partially offset by decreases~~our current portion of debt from the redemption of our €600 million Euro-denominated notes in ~~receivables and cash and cash equivalents as well as an~~July 2021. The increase in other ~~current liabilities.~~accrued liabilities is primarily due to the reclassification of $1.1 billion from long-term to short-term for the total amount we expect to pay for opioid-related claims within one year as of September 30, 2021, of which $354 million is held in escrow for the initial payment under the proposed settlement agreement for opioid-related claims of governmental entities, excluding the West Virginia subdivisions and Native American Tribes. The escrow payment is presented as restricted cash within “Prepaid expenses and other” on our Condensed Consolidated Balance Sheets. 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.

Our debt to capital ratio increased for the ~~nine~~six months ended ~~December 31, 2020~~September 30, 2021 primarily due to an increase in McKesson stockholders’ deficit driven by share repurchases, partially offset by net income for the year to date period. Our debt to capital ratio was also impacted by a decrease in total debt from the completion of a cash tender offer to redeem certain notes with a principal amount of $922 million and the redemption of our €600 million Euro-denominated notes both in July 2021, partially offset by the issuance of notes with a principal amount of $500 million in August 2021. We compute our return on equity (deficit) as net income (loss) attributable to McKesson Corporation for the last four quarters, divided by a five-quarter average of McKesson stockholders’ equity (deficit), excluding noncontrolling and redeemable noncontrolling interests. Our unfavorable return on equity (deficit) as of September 30, 2021 and March 31, 2021 was primarily driven by net loss for the ~~year-to-date period and share repurchases. Our unfavorable return on McKesson’s stockholder’s equity (deficit) as of December~~year ended March 31, ~~2020 was also driven by net loss for the year-to-date period. Net loss for the nine months ended December 31, 2020~~2021, which includes an after-tax non-cash charge of ~~$6.7~~$6.8 billion related to our estimated liability for opioid-related ~~claims.~~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

Our redeemable noncontrolling interests primarily ~~relate~~related to our consolidated subsidiary, McKesson Europe. At March 31, 2021, the carrying value was $1.3 billion and we owned approximately 78% of McKesson Europe’s outstanding common shares. Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe ~~have~~had a right to put (“Put Right”) their shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published semi-annually by the German Bundesbank, less any compensation amount or guaranteed dividend already paid by McKesson (“Put Amount”). ~~The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests.~~ During the ~~nine~~six months ended ~~December 31,~~September 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 by the noncontrolling ~~shareholders. The ultimate amount and timing of any future cash payments related to the Put Amount are uncertain.~~

The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted for exchange rate fluctuations each period. The carrying value of redeemable noncontrolling interests is also adjusted each period for the portion of other comprehensive income attributable to the noncontrolling shareholders, which is primarily due to changes in foreign currency exchange rates. At December 31, 2020, the carrying value of redeemable noncontrolling interests related to McKesson Europe of $1.3 billion approximated the maximum redemption value, and at March 31, 2020, the carrying value of $1.4 billion exceeded the maximum redemption value of $1.2 billion. In future periods, unfavorable foreign currency exchange rate fluctuations between the Euro and the U.S. dollar could adversely impact the carrying value of our redeemable noncontrolling interests and require an adjustment to increasereduced the balance of our redeemable noncontrolling interests.

The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, valued at $287 million, were transferred from redeemable noncontrolling interests to ~~its maximum redemption value. Such adjustments would~~noncontrolling interests. At September 30, 2021, we owned approximately 95% of McKesson Europe’s outstanding common shares. Our noncontrolling interest in McKesson Europe will be ~~recorded~~included in ~~“Net income attributable to noncontrolling interests” in~~the sale of our ~~consolidated statements of operations.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

E.U. disposal group.

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. The Put Amount, annual recurring compensation amount, and the guaranteed dividend are subject to ongoing appraisal proceedings as previously disclosed in Financial Note 9, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” in Item 8 of Part II of our 2020 Annual Report, the outcome of which is uncertain and could result in increased future payments to the noncontrolling shareholders of McKesson Europe.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

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 on redeemable noncontrolling interests.

Credit Resources

We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings from our credit facilities and commercial paper issuances. Funds necessary for future debt maturities and our other cash requirements, including any future payments that may be made related to our total estimated litigation liability of $8.2 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.

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 our report on Form 10-Q for the quarter ended September 30, 2020. 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.

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 ~~December 31, 2020~~September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

The information set forth in Financial Note ~~13,~~12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and in Financial Note ~~21,~~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, ~~2020,~~2021, is incorporated herein by reference. Disclosure of an environmental proceeding with a governmental agency generally is included only if we expect monetary sanctions in the proceeding to exceed $1 million, unless otherwise material.

Item 1A.Risk Factors.

~~There~~Other than factual updates discussed in this Quarterly Report on Form 10-Q, there have been no material changes ~~during~~for the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our ~~2020~~2021 Annual Report ~~and as updated in Item 1A of Part II of our report~~ on Form ~~10-Q for the quarter ended September 30, 2020.~~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, the ~~three months ended June 30, 2020, there were no~~Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.2 million shares at an average price per share ~~repurchases made under previously authorized~~of $193.22. The Company received 4.3 million shares as the initial share ~~repurchase programs.~~ settlement, and in August 2021 the Company received an additional 0.9 million shares upon the completion of this ASR program.

During the three months ended September 30, ~~2020,~~2021, the Company repurchased ~~1.8~~an additional 1.4 million of the Company’s shares for ~~$269~~$280 million through open market transactions at an average price per share of ~~$151.23. During the three months ended December 31, 2020, the Company repurchased 1.5~~$203.20, of which $16 million ofwas accrued within “Other accrued liabilities” in the Company’s ~~shares~~Condensed Consolidated Balance Sheets for ~~$231 million through open market transactions at an average price per~~ share ~~of $151.12.~~ repurchases that were executed in late September and settled in early October.

The total remaining authorization outstanding for repurchases of the Company’s common stock was ~~$1.0~~$1.5 billion at ~~December 31, 2020. In January 2021, the Company’s Board of Directors approved an increase of $2.0 billion for the authorized share repurchase of McKesson’s common stock.~~September 30, 2021.

The following table provides information on the Company’s share repurchases during the three months ended ~~December 31, 2020.~~September 30, 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
October 1, 2020 – October 31, 2020 1.5 $ 151.12 1.5 $ 1,036
November 1, 2020 – November 30, 2020 — — — 1,036
December 1, 2020 – December 31, 2020 — — — 1,036
Total 1.5 1.5


	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, 2021 – July 31, 2021	—	$	—	—	$	1,786
August 1, 2021 – August 31, 2021	1.4		195.98	1.4		1,684
September 1, 2021 – September 30, 2021	0.9		204.67	0.9		1,506
Total	2.3			2.3

(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 in connection with employee equity awards.~~obligations.

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Item 3.Defaults Upon Senior Securities.

None.

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~~McKESSON CORPORATION~~

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

On February 1, 2021, the Company entered into Amendment No. 1 (the “Credit Agreement Amendment”) to the Credit Agreement, dated as of September 25, 2019, among the Company and certain of its subsidiaries, as borrowers, the lenders party thereto, the letter of credit issuers party thereto, Bank of America, N.A., as administrative agent, and Barclays Bank PLC, Citibank, N.A., Wells Fargo Bank, National Association, Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., and HSBC Securities (USA) Inc., as co-syndication agents (as amended, the “2020 Credit Facility”). The Credit Agreement Amendment amended the financial covenant in Section 7.04 of the 2020 Credit Facility that obligates the Company to maintain a debt to capital ratio of no greater than 65%. The Amendment under that covenant excludes from the calculation of “Net Worth” as of December 31, 2020 any non-cash charge in respect of any claims or litigation in excess of $1.0 billion that the Company excludes from its “Adjusted Earnings (Non-GAAP)” for the fiscal quarter ended December 31, 2020, as reported in a current report on Form 8-K reporting operating results for such period. As of December 31, 2020, the Company was in compliance with the debt to capital ratio and all other covenants under the 2020 Credit Facility.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

4.1			~~Officer’s~~O fficers ’ Certificate , dated as of ~~December 3, 2020,~~August 12, 2021, and related Form of ~~2025~~2026 Note (incorporated by reference to Exhibit 4.1 of the ~~Company’s~~Company ’s Current Report on ~~Form~~Fo r m 8-K filed with the SEC on ~~December 3, 2020)~~August 12 , 2021 ).

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

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

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

101			The following materials from the McKesson Corporation Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2020,~~September 30, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Deficit), (v) Condensed Consolidated Statements of Cash Flows, and (vi) related Financial Notes.

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

†† Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		MCKESSON CORPORATION

Date:	~~February 2,~~November 1, 2021	/s/ Britt J. Vitalone
		Britt J. Vitalone
		Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	~~February 2,~~November 1, 2021	/s/ ~~Sundeep G. Reddy~~Kevin W. Emerson
		~~Sundeep G. Reddy~~Kevin W. Emerson
		Senior Vice President and Controller

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	Nine Months Ended December 31, 2020
	Common Stock			Additional Paid-in Capital		Other Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount										Common Shares	Amount
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
Issuance of shares under employee plans	1	—		55		—		—		—		—	(26)		—		29
Share-based compensation	—	—		110		—		—		—		—	—		—		110
Payments to noncontrolling interests	—	—		—		—		—		—		—	—		(134)		(134)
Other comprehensive income	—	—		—		—		—		200		—	—		—		200
Net income (loss)	—	—		—		—		(5,205)		—		—	—		120		(5,085)
Exercise of put right by noncontrolling shareholders of McKesson Europe	—	—		3		—		—		—		—	—		—		3
Repurchase of common stock	—	—		—		—		—		—		(4)	(500)		—		(500)
Cash dividends declared, $1.25 per common share	—	—		—		—		(203)		—		—	—		—		(203)
Other	—	—		16		—		(6)		—		—	—		(3)		7
Balances, December 31, 2020	273	$	2	$	6,847	$	0	$	7,595	$	(1,503)	(114)	$	(13,418)	$	200	$	(277)


	Three Months Ended December 31, 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, September 30, 2019	272	$	3	$	6,573	$	(2)	$	11,965	$	(1,704)	(92)	$	(10,353)	$	210	$	6,692
Issuance of shares under employee plans	—	—		11		—		—		—		—	—		—		11
Share-based compensation	—	—		30		—		—		—		—	—		—		30
Payments to noncontrolling interests	—	—		—		—		—		—		—	—		(39)		(39)
Other comprehensive income	—	—		—		—		—		41		—	—		—		41
Net income	—	—		—		—		186		—		—	—		45		231
Repurchase of common stock	—	—		—		—		—		—		(3)	(500)		—		(500)

Cash dividends declared, $0.41 per common share	—	—		—		—		(73)		—		—	—		—		(73)
Other	—	—		—		—		(3)		—		—	—		(5)		(8)
Balances, December 31, 2019	272	$	3	$	6,614	$	(2)	$	12,075	$	(1,663)	(95)	$	(10,853)	$	211	$	6,385