Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, ~~2021~~2022


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

For the transition period from to

Commission File Number: 1-13252

McKESSON CORPORATION

(Exact name of registrant as specified in its charter)


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

6555 State Hwy 161,

Irving, TX 75039

(Address of principal executive offices, including zip code)

(972) 446-4800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)
Common stock, $0.01 par value	MCK	New York Stock Exchange
1.500% Notes due 2025	MCK25	New York Stock Exchange
1.625% Notes due 2026	MCK26	New York Stock Exchange
3.125% Notes due 2029	MCK29	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~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. ~~154,674,571~~143,730,455 shares of the issuer’s common stock were outstanding as of ~~June 30, 2021.~~July 29, 2022.

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 months ended June 30, 2021 and 2020	3		Condensed Consolidated Statements of Operations for the three months ended June 30, 2022 and 2021	3

		Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2021 and 2020	4		Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2022 and 2021	4

		Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021	5		Condensed Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022	5

		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended June 30, 2021 and 2020	6		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended June 30, 2022 and 2021	6

		Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020	7		Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2022 and 2021	7

		Financial Notes	8		Financial Notes	8

		Note 1 - Significant Accounting Policies	8		Note 1 - Significant Accounting Policies	8

		Note 2 - Held for Sale	9		Note 2 - Held for Sale	9

		Note 3 - Restructuring, Impairment, and Related Charges	9		Note 3 - Restructuring, Impairment, and Related Charges , Net	11

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

		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	11		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	13

		Note 6 - Earnings (Loss) per Common Share	13		Note 6 - Earnings (Loss) per Common Share	14

		Note 7 - Goodwill and Intangible Assets, Net	14		Note 7 - Goodwill and Intangible Assets, Net	15

		Note 8 - Debt and Financing Activities	16		Note 8 - Debt and Financing Activities	17

		Note 9 - Pension Benefits	17		Note 9 - Pension Benefits	18

		Note 1 0 - Hedging Activities	17		Note 10 - Hedging Activities	18

		Note 1 1 - Fair Value Measurements	20		Note 11 - Fair Value Measurements	22

		Note 1 2 - Commitments and Contingent Liabilities	22		Note 12 - Commitments and Contingent Liabilities	23

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

		Note 1 4 - Segments of Business	29		Note 14 - Segments of Business	30

2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

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

4	4	Controls and Procedures	48	4	Controls and Procedures	49

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION

1	1	Legal Proceedings	49	1	Legal Proceedings	50

1A	1A	Risk Factors	49	1A	Risk Factors	50

2	2	Unregistered Sales of Equity Securities and Use of Proceeds	49	2	Unregistered Sales of Equity Securities and Use of Proceeds	50

3	3	Defaults Upon Senior Securities	50	3	Defaults Upon Senior Securities	51

4	4	Mine Safety Disclosures	50	4	Mine Safety Disclosures	51

5	5	Other Information	50	5	Other Information	51

6	6	Exhibits	51	6	Exhibits	52

		Signatures	52		Signatures	53

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 June 30,						Three Months Ended June 30,
			2021		2020				2022		2021
Revenues	Revenues		$	62,674	$	55,679	Revenues		$	67,154	$	62,674
Cost of sales	Cost of sales		(59,642)		(52,979)		Cost of sales		(64,131)		(59,642)
Gross profit	Gross profit		3,032		2,700		Gross profit		3,023		3,032
Selling, distribution, general, and administrative expenses	Selling, distribution, general, and administrative expenses		(2,232)		(2,097)		Selling, distribution, general, and administrative expenses		(1,959)		(2,232)
Claims and litigation charges, net	Claims and litigation charges, net		(74)		131		Claims and litigation charges, net		(5)		(74)

Restructuring, impairment, and related charges			(158)		(56)
Restructuring, impairment, and related charges, net							Restructuring, impairment, and related charges, net		(23)		(158)
Total operating expenses	Total operating expenses		(2,464)		(2,022)		Total operating expenses		(1,987)		(2,464)
Operating income	Operating income		568		678		Operating income		1,036		568
Other income, net	Other income, net		43		27		Other income, net		15		43

Interest expense	Interest expense		(49)		(60)		Interest expense		(45)		(49)
Income from continuing operations before income taxes	Income from continuing operations before income taxes		562		645		Income from continuing operations before income taxes		1,006		562
Income tax expense	Income tax expense		(26)		(150)		Income tax expense		(199)		(26)
Income from continuing operations	Income from continuing operations		536		495		Income from continuing operations		807		536
Loss from discontinued operations, net of tax			(3)		(1)
Income (loss) from discontinued operations, net of tax							Income (loss) from discontinued operations, net of tax		2		(3)
Net income	Net income		533		494		Net income		809		533
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests		(47)		(50)		Net income attributable to noncontrolling interests		(41)		(47)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation		$	486	$	444	Net income attributable to McKesson Corporation		$	768	$	486

Earnings (loss) per common share attributable to McKesson Corporation	Earnings (loss) per common share attributable to McKesson Corporation						Earnings (loss) per common share attributable to McKesson Corporation
Diluted	Diluted						Diluted
Continuing operations	Continuing operations		$	3.09	$	2.72	Continuing operations		$	5.25	$	3.09
Discontinued operations	Discontinued operations		(0.02)		0		Discontinued operations		0.01		(0.02)
Total	Total		$	3.07	$	2.72	Total		$	5.26	$	3.07
Basic	Basic						Basic
Continuing operations	Continuing operations		$	3.13	$	2.74	Continuing operations		$	5.31	$	3.13
Discontinued operations	Discontinued operations		(0.02)		0		Discontinued operations		0.01		(0.02)
Total	Total		$	3.11	$	2.74	Total		$	5.32	$	3.11

Weighted-average common shares outstanding	Weighted-average common shares outstanding						Weighted-average common shares outstanding
Diluted	Diluted		158.1		163.2		Diluted		145.9		158.1
Basic	Basic		156.2		162.0		Basic		144.2		156.2

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended June 30,						Three Months Ended June 30,
			2021		2020				2022		2021
Net income	Net income		$	533	$	494	Net income		$	809	$	533

Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax							Other comprehensive income, net of tax
Foreign currency translation adjustments	Foreign currency translation adjustments		24		33		Foreign currency translation adjustments		582		24
Unrealized losses on cash flow hedges			0		(5)
Unrealized gains on cash flow hedges							Unrealized gains on cash flow hedges		18		—
Changes in retirement-related benefit plans	Changes in retirement-related benefit plans		2		1		Changes in retirement-related benefit plans		36		2
Other comprehensive income, net of tax	Other comprehensive income, net of tax		26		29		Other comprehensive income, net of tax		636		26

Comprehensive income	Comprehensive income		559		523		Comprehensive income		1,445		559
Comprehensive income attributable to noncontrolling interests	Comprehensive income attributable to noncontrolling interests		(50)		(111)		Comprehensive income attributable to noncontrolling interests		(91)		(50)
Comprehensive income attributable to McKesson Corporation	Comprehensive income attributable to McKesson Corporation		$	509	$	412	Comprehensive income attributable to McKesson Corporation		$	1,354	$	509

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


		June 30, 2021		March 31, 2021			June 30, 2022		March 31, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,423	$	6,278	Cash and cash equivalents	$	2,233	$	3,532
Receivables, net	Receivables, net	20,198		19,181		Receivables, net	19,900		18,583
Inventories, net	Inventories, net	20,016		19,246		Inventories, net	19,505		18,702
Assets held for sale	Assets held for sale	7		12		Assets held for sale	3,155		4,516
Prepaid expenses and other	Prepaid expenses and other	706		665		Prepaid expenses and other	590		898
Total current assets	Total current assets	43,350		45,382		Total current assets	45,383		46,231
Property, plant, and equipment, net	Property, plant, and equipment, net	2,549		2,581		Property, plant, and equipment, net	2,083		2,092
Operating lease right-of-use assets	Operating lease right-of-use assets	2,071		2,100		Operating lease right-of-use assets	1,598		1,548
Goodwill	Goodwill	9,520		9,493		Goodwill	9,368		9,451
Intangible assets, net	Intangible assets, net	2,797		2,878		Intangible assets, net	1,976		2,059

Other non-current assets	Other non-current assets	2,607		2,581		Other non-current assets	1,887		1,917
Total assets	Total assets	$	62,894	$	65,015	Total assets	$	62,295	$	63,298

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
LIABILITIES AND DEFICIT						LIABILITIES AND DEFICIT
Current liabilities	Current liabilities					Current liabilities
Drafts and accounts payable	Drafts and accounts payable	$	38,389	$	38,975	Drafts and accounts payable	$	39,708	$	38,086

Current portion of long-term debt	Current portion of long-term debt	752		742		Current portion of long-term debt	799		799
Current portion of operating lease liabilities	Current portion of operating lease liabilities	392		390		Current portion of operating lease liabilities	293		297
Liabilities held for sale	Liabilities held for sale	5		9		Liabilities held for sale	2,324		4,741
Other accrued liabilities	Other accrued liabilities	4,297		3,987		Other accrued liabilities	4,077		4,543
Total current liabilities	Total current liabilities	43,835		44,103		Total current liabilities	47,201		48,466
Long-term debt	Long-term debt	6,424		6,406		Long-term debt	4,976		5,080
Long-term deferred tax liabilities	Long-term deferred tax liabilities	1,441		1,411		Long-term deferred tax liabilities	1,541		1,418
Long-term operating lease liabilities	Long-term operating lease liabilities	1,888		1,867		Long-term operating lease liabilities	1,364		1,366
Long-term litigation liabilities	Long-term litigation liabilities	7,596		8,067		Long-term litigation liabilities	7,132		7,220
Other non-current liabilities	Other non-current liabilities	1,748		1,715		Other non-current liabilities	1,553		1,540
Redeemable noncontrolling interests		7		1,271

McKesson Corporation stockholders’ deficit	McKesson Corporation stockholders’ deficit					McKesson Corporation stockholders’ 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 274 and 273 shares issued at June 30, 2021 and March 31, 2021, respectively		2		2
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding						Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized and 277 and 275 shares issued at June 30, 2022 and March 31, 2022, respectively						Common stock, $0.01 par value, 800 shares authorized and 277 and 275 shares issued at June 30, 2022 and March 31, 2022, respectively	3		2
Additional paid-in capital	Additional paid-in capital	7,057		6,925		Additional paid-in capital	7,350		7,275
Retained earnings	Retained earnings	8,618		8,202		Retained earnings	9,732		9,030
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,627)		(1,480)		Accumulated other comprehensive loss	(948)		(1,534)

Treasury shares, at cost, 119 and 115 shares at June 30, 2021 and March 31, 2021, respectively		(14,579)		(13,670)
Treasury shares, at cost, 133 and 130 shares at June 30, 2022 and March 31, 2022, respectively						Treasury shares, at cost, 133 and 130 shares at June 30, 2022 and March 31, 2022, respectively	(18,141)		(17,045)
Total McKesson Corporation stockholders’ deficit	Total McKesson Corporation stockholders’ deficit	(529)		(21)		Total McKesson Corporation stockholders’ deficit	(2,004)		(2,272)
Noncontrolling interests	Noncontrolling interests	484		196		Noncontrolling interests	532		480
Total equity (deficit)		(45)		175
Total liabilities, redeemable noncontrolling interests, and equity (deficit)		$	62,894	$	65,015
Total deficit						Total deficit	(1,472)		(1,792)
Total liabilities and deficit						Total liabilities and deficit	$	62,295	$	63,298

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

(Unaudited)

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


	Three Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, March 31, 2022	275	$	2	$	7,275		$	9,030	$	(1,534)	(130)	$	(17,045)	$	480	$	(1,792)
Issuance of shares under employee plans, net of forfeitures	2	1		91			—		—		—	(152)		—		(60)
Share-based compensation	—	—		40			—		—		—	—		—		40
Payments to noncontrolling interests	—	—		—			—		—		—	—		(36)		(36)
Other comprehensive income	—	—		—			—		586		—	—		50		636
Net income	—	—		—			768		—		—	—		41		809
Repurchase of common stock	—	—		(56)			—		—		(3)	(944)		—		(1,000)


Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(2)		(2)
Cash dividends declared, $0.47 per common share	—	—		—			(67)		—		—	—		—		(67)
Other	—	—		—			1		—		—	—		(1)		—
Balance, June 30, 2022	277	$	3	$	7,350		$	9,732	$	(948)	(133)	$	(18,141)	$	532	$	(1,472)

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


	Three Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount				Common Shares					Amount
Balance, 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	1	—		71			—		—		—	(59)		—		12
Share-based compensation	—	—		33			—		—		—	—		—		33
Payments to noncontrolling interests	—	—		—			—		—		—	—		(39)		(39)
Other comprehensive income	—	—		—			—		23		—	—		—		23
Net income	—	—		—			486		—		—	—		39		525
Repurchase of common stock	—	—		(150)			—		—		(4)	(850)		—		(1,000)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		178			—		(170)		—	—		—		8
Reclassification of McKesson Europe AG redeemable noncontrolling interests	—	—		—			—		—		—	—		287		287

Cash dividends declared, $0.42 per common share	—	—		—			(65)		—		—	—		—		(65)
Other	—	—		—			(5)		—		—	—		1		(4)
Balance, June 30, 2021	274	$	2	$	7,057		$	8,618	$	(1,627)	(119)	$	(14,579)	$	484	$	(45)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended June 30,
2021 2020
OPERATING ACTIVITIES
Net income $ 533 $ 494
Adjustments to reconcile to net cash used in operating activities:
Depreciation 80 75
Amortization 138 142
Long-lived asset impairment charges 104 5
Deferred taxes 36 28
Credits associated with last-in, first-out inventory method (23) (52)
Non-cash operating lease expense 90 83
Loss from sales of businesses and investments 0 2
Other non-cash items 194 9
Changes in assets and liabilities, net of acquisitions:
Receivables (1,045) 2,291
Inventories (901) 238
Drafts and accounts payable (609) (4,214)
Operating lease liabilities (90) (89)
Taxes (54) 76
Litigation liabilities 74 0
Other (149) (150)
Net cash used in operating activities (1,622) (1,062)
INVESTING ACTIVITIES
Payments for property, plant, and equipment (93) (72)
Capitalized software expenditures (66) (45)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired (1) (4)
Proceeds from sales of businesses and investments, net 83 7
Other (22) (16)
Net cash used in investing activities (99) (130)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 0 5,303
Repayments of short-term borrowings 0 (5,303)
Repayments of long-term debt (2) (2)
Common stock transactions:
Issuances 71 21
Share repurchases (1,008) 0
Dividends paid (69) (74)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG (1,031) (49)
Other (112) 165
Net cash provided by (used in) financing activities (2,151) 61
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 11 (28)
Net decrease in cash, cash equivalents, and restricted cash (3,861) (1,159)
Cash, cash equivalents, and restricted cash at beginning of period 6,396 4,023
Cash, cash equivalents, and restricted cash at end of period 2,535 2,864
Less: Restricted cash at end of period included in Prepaid expenses and other (112) (251)
Cash and cash equivalents at end of period $ 2,423 $ 2,613


	Three Months Ended June 30,
	2022		2021
OPERATING ACTIVITIES
Net income	$	809	$	533
Adjustments to reconcile to net cash used in operating activities:
Depreciation	61		80
Amortization	87		138
Long-lived asset impairment charges	—		104
Deferred taxes	109		36
Credits associated with last-in, first-out inventory method	(13)		(23)
Non-cash operating lease expense	63		90
Gain from sales of businesses and investments	(33)		—
European businesses held for sale	20		—
Other non-cash items	102		194
Changes in assets and liabilities, net of acquisitions:
Receivables	(1,584)		(1,045)
Inventories	(955)		(901)
Drafts and accounts payable	1,006		(609)
Operating lease liabilities	(94)		(90)
Taxes	37		(54)
Litigation liabilities	(370)		74
Other	(186)		(149)
Net cash used in operating activities	(941)		(1,622)

INVESTING ACTIVITIES
Payments for property, plant, and equipment	(71)		(93)
Capitalized software expenditures	(29)		(66)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(1)		(1)
Proceeds from sales of businesses and investments, net	240		83
Other	(100)		(22)
Net cash provided by (used in) investing activities	39		(99)

FINANCING ACTIVITIES






Repayments of long-term debt	(2)		(2)

Common stock transactions:
Issuances	91		71
Share repurchases	(1,000)		(1,008)
Dividends paid	(71)		(69)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—		(1,031)
Other	(199)		(112)
Net cash used in financing activities	(1,181)		(2,151)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		11
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale	470		—
Net decrease in cash, cash equivalents, and restricted cash	(1,595)		(3,861)
Cash, cash equivalents, and restricted cash at beginning of period	3,935		6,396
Cash, cash equivalents, and restricted cash at end of period	2,340		2,535
Less: Restricted cash at end of period included in Prepaid expenses and other	(107)		(112)

Cash and cash equivalents at end of period	$	2,233	$	2,423

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~~diversified healthcare services leader ~~in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions.~~dedicated to advancing health outcomes for patients everywhere. McKesson partners with ~~pharmaceutical manufacturers,~~biopharma companies, care providers, pharmacies, manufacturers, governments, and ~~other organizations in healthcare~~others to deliver insights, products, and services to help ~~provide the right medicines, medical products,~~make quality care more accessible and ~~healthcare services to the right patients at the right time, safely, and cost-effectively.~~affordable. The Company reports its financial results in 4 reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Refer to Financial Note 14, “Segments of Business,” for ~~more~~additional information.

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

The condensed consolidated financial statements of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled companies. For those consolidated subsidiaries where the Company’s ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation, including the intercompany portion of transactions with equity method investees.

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~~can exercise significant influence over operating and financial policies are accounted for using the equity method.

Fiscal Period:The ~~condensed consolidated financial statements~~Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.

Reclassifications: Certain prior period amounts have been ~~prepared in accordance with accounting principles generally accepted in~~reclassified to conform to the ~~United States (“U.S.”)~~current year presentation.

Use of ~~America (“GAAP”) for interim financial reporting and the rules and regulations~~Estimates: The preparation 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 U.S. GAAP ~~management must~~requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts ~~may~~could differ from ~~these~~those estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the pandemic caused by the SARS-CoV-2 coronavirus ~~disease 2019~~ (“COVID-19”) ~~pandemic. As COVID-19 evolves,~~, and therefore the Company’s accounting estimates and assumptions may change over time and may change materially in future periods. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the ~~financial position,~~ results of operations, financial position, and cash flows of McKesson for the interim periods presented.

The results of operations for the three months ended June 30, ~~2021~~2022 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, ~~2021,~~2022, previously filed with the SEC on May ~~12, 2021~~9, 2022 (“~~2021~~2022 Annual Report”).

~~The Company’s~~Recently Adopted Accounting Pronouncements

There were no adopted accounting standards during the first quarter of fiscal ~~year begins on April 1 and ends on March 31. Unless otherwise noted, all references~~2023 that had a material impact to ~~a particular year shall mean~~ the Company’s ~~fiscal year.~~

~~Certain prior year amounts have been reclassified to conform~~results of operations, financial position, cash flows, or notes to the ~~current year presentation.~~financial statements upon their adoption.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

In ~~the first quarter of~~June 2022, the ~~Company adopted~~Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) ~~2019-12,~~2022-03, ~~Income Taxes~~Fair Value Measurement (Topic ~~740)~~820): ~~Simplifying the Accounting for Income Taxes~~Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which ~~eliminates certain exceptions related~~clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the ~~approach~~sale of an equity security and requires additional disclosure requirements. ASU 2022-03 is effective for ~~intraperiod tax allocation,~~ the ~~methodology~~Company on a prospective basis for ~~calculating income taxes in an interim period, and~~fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating 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 adoption~~impact of this ~~amended~~ guidance ~~did~~but does not expect it to have a material impact on ~~the Company’s condensed~~its consolidated financial statements or related disclosures.

Subsequent Events

In July 2022, the Company exited one of its investments in equity securities for proceeds of $179 million. The Company expects to recognize a gain within “Other income, net” in its Condensed Consolidated Statement of Operations for the second quarter of fiscal 2023 related to the disposition. The cost basis of the investment was $38 million.

2. Held for Sale

In July 2021, the Company announced its intention to exit its businesses in Europe resulting in classification of certain assets and liabilities as held for sale. Assets and liabilities of $3.2 billion and $2.3 billion, respectively, at June 30, 2022, and $4.5 billion and $4.7 billion, respectively, at March 31, 2022, met the criteria for classification as held for sale, primarily consisting of disposal groups related to the Company’s European divestiture activities discussed below. The decrease in assets and liabilities held for sale during the first quarter of fiscal 2023 was primarily due to the divestiture of the Company’s U.K. disposal group in April 2022, as discussed in more detail below.

Assets and liabilities to be disposed of by sale (“disposal groups”) are ~~reclassified into~~classified as “held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use. The ~~reclassification~~classification 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~~costs to sell is reported as an adjustment to the carrying value of the disposal group. ~~Assets and liabilities~~When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that ~~have met~~it does not increase the ~~classification~~value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for ~~sale were $7 million and $5 million, respectively, at June 30, 2021 and $12 million and $9 million, respectively, at March 31, 2021. Based on its analysis, the~~sale. 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.~~operations.

European Divestiture Activities

On July 5, 2021, the Company entered into an agreement to sell certain of its businesses in the European ~~businesses~~Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately ~~$1.5~~$1.3 billion)~~, subject to~~ adjusted for certain ~~adjustments,~~items, including cash, net debt and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the ~~divestiture~~transaction closing date. The Company concluded that the held for sale criteria were not met in the first quarter of 2022 and continued to classify the assets and liabilities of these businesses as held and used in the condensed consolidated balance sheet. Beginning in the second quarter of 2022, the disposal group will be reflected in the Company’s condensed consolidated financial statements as held for sale. The disposal group will be remeasured to the lower of its carrying amount or fair value less costs to sell, which the Company estimates will result in a charge of between $500 million and $700 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the disposal group and the impairment of internal-use software that will not be completed. While this range reflects the Company’s best estimate as of the date of this Quarterly Report on Form 10-Q, actual charges could differ based on operating results, changes in foreign exchange rates, and other factors prior to closing of the transaction. The transaction is anticipated to close ~~during~~within the second half of fiscal 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of June 30, 2022 and March 31, 2022, the E.U. disposal group within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the Condensed Consolidated Balance Sheet.

During the three months ended June 30, 2022, the Company recorded a gain of $12 million to remeasure the E.U. disposal group to fair value less costs to sell. This amount was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statement of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The total assets and liabilities of the E.U. disposal group that have met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet are as follows:


(In millions)	June 30, 2022		March 31, 2022
Assets
Current assets
Receivables, net	$	1,277	$	1,322
Inventories, net	819		809
Prepaid expenses and other	92		72
Property, plant, and equipment, net	291		304
Operating lease right-of-use assets	217		224
Intangible assets, net	253		267
Other non-current assets	312		328
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)	(279)		(302)
Total assets held for sale	$	2,982	$	3,024

Liabilities
Current liabilities
Drafts and accounts payable	$	1,406	$	1,826
Current portion of long-term debt	4		4
Current portion of operating lease liabilities	30		33
Other accrued liabilities	403		473
Long-term debt	11		11
Long-term deferred tax liabilities	60		55
Long-term operating lease liabilities	168		180
Other non-current liabilities	122		138
Total liabilities held for sale	$	2,204	$	2,720

(1)Excludes charges in fiscal 2022 related to the 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 April 6, 2022, the Company completed the previously announced sale of its retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. As part of the transaction, the Company divested net assets of $615 million and released $731 million of accumulated other comprehensive loss, within the International segment, and the buyer assumed and repaid a note payable to the Company of approximately $118 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Following the completion of the transaction on April 6, 2022, there were no assets or liabilities of the U.K. disposal group classified as held for sale in the Company’s Condensed Consolidated Balance Sheet. The total assets and liabilities of the U.K. disposal group that met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet at March 31, 2022 were as follows:


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

Liabilities
Current liabilities
Drafts and accounts payable	$	1,593

Current portion of operating lease liabilities	50
Other accrued liabilities	59

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

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $23 million and $158 million and $56 million during the three months ended June 30, 2021 and 2020, respectively. These charges are included in “Restructuring, impairment, and related charges” in the Condensed Consolidated Statements of Operations. In addition, charges related to restructuring initiatives are included in “Cost of sales” in the Condensed Consolidated Statements of Operations and were not material for the three months ended June 30, 2022 and 2021, respectively. These charges were included in “Restructuring, impairment, and ~~2020.~~related charges, net” in the Condensed Consolidated Statements of Operations.

Restructuring Initiatives

During the first quarter of fiscal 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily ~~includes~~included the rationalization of the Company’s office space in North America. Where ~~it determines to cease~~the Company ceased using office space, ~~the Company plans to exit~~it exited the portion of the facility no longer used. It also ~~may retain~~retained and ~~repurpose~~repurposed certain other office locations. The Company expects to incur total charges of approximately $180 million to $280 million for this initiative, consisting primarily of exit related costs, accelerated depreciation and amortization of long-lived assets, and asset impairments. The Company recorded charges of $95 million infor the three months ended June 30, ~~2021. This initiative is anticipated to be completed in 2022. Charges~~2021 primarily ~~relate~~related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative was substantially complete in fiscal 2022 and remaining costs the Company expects to record under this initiative are not material.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

During the first quarter of 2021, the Company committed to an initiative within the United Kingdom (“U.K.”), which is included in the Company’s International segment, to further drive operational changes in technologies and business processes, 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,Restructuring, impairment, and related ~~headcount reductions. The Company expects to incur total~~ charges, ~~of approximately $85 million to $90 million, of which $63 million of charges were recorded to date. The Company recorded charges of $6 million and $14 million, respectively, in~~net, for the three months ended June 30, 2021 and 2020, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. The initiative is anticipated to be substantially complete 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 months ended June 30,~~ 2021 consisted of the following:


		Three Months Ended June 30, 2021													Three Months Ended June 30, 2022
(In millions)	(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions (1)		Medical-Surgical Solutions (1)		International (2)		Corporate (1)		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	Severance and employee-related costs, net	$	2	$	0	$	0	$	12	$	0	$	14	Severance and employee-related costs, net	$	3	$	—	$	—	$	—	$	(1)	$	2
Exit and other-related costs ~~(3)~~(1)	Exit and other-related costs ~~(3)~~(1)	2		1		2		14		21		40		Exit and other-related costs ~~(3)~~(1)	1		2		1		2		15		21
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	8		17		4		34		41		104		Asset impairments and accelerated depreciation	—		5		—		—		(5)		—
Total	Total	$	12	$	18	$	6	$	60	$	62	$	158	Total	$	4	$	7	$	1	$	2	$	9	$	23

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


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

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

(2)~~Primarily represents~~Includes costs related to the transition to ~~the~~a partial remote work model described above 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~~The following table summarizes the activity related ~~charges during~~to the liabilities associated with the Company’s restructuring initiatives for the three months ended June 30, ~~2020 consisted of the following:~~2022:

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


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2022 (1)	$	11	$	3	$	1	$	56	$	59	$	130
Restructuring, impairment, and related charges, net	4		7		1		2		9		23
Non-cash charges	—		(5)		—		—		5		—
Cash payments	(2)		(2)		(1)		(2)		(15)		(22)
Other (2)	(1)		—		—		(15)		1		(15)
Balance, June 30, 2022 (3)	$	12	$	3	$	1	$	41	$	59	$	116

(1)~~Primarily represents costs associated with~~As of March 31, 2022, the ~~U.K. operating model~~total reserve balance was $130 million, of which $58 million was recorded in “Other accrued liabilities,” $36 million was recorded in “Liabilities held for sale,” and ~~cost optimization efforts described above, and an operating model and cost optimization initiative which~~$36 million was ~~substantially completed~~recorded in “Other non-current liabilities” in the ~~year ended March 31, 2021.~~Condensed Consolidated Balance Sheet.

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

~~(3)Exit and other-related costs primarily include project consulting fees.~~transfers to certain other liabilities.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

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

~~(1)~~(3)As of ~~March 31, 2021,~~June 30, 2022, the total reserve balance was ~~$151~~$116 million, of which ~~$99~~$62 million was recorded in “Other accrued ~~liabilities” and $52~~liabilities,” $26 million was recorded in ~~“Other non-current liabilities” in the Condensed Consolidated Balance Sheet.~~

~~(2)As of June 30, 2021, the total reserve balance was $177 million, of which $127 million was recorded in “Other accrued liabilities”~~“Liabilities held for sale,” and ~~$50~~$28 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.

4. Income Taxes

During the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company recorded income tax expense of ~~$26~~$199 million and ~~$150~~$26 million, respectively. The Company’s reported income tax ~~rates were~~expense rate was 19.8% and 4.6% ~~and 23.3%~~ for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to discrete ~~items~~benefits recognized in the ~~quarter and changes in~~quarter. During the ~~mix of earnings between various taxing jurisdictions.~~

~~As of~~three months ended June 30, ~~2021,~~2022, the Company ~~had $1.7 billion~~recognized a net discrete tax benefit of ~~unrecognized~~$45 million primarily related to the tax ~~benefits,~~impact of ~~which $1.3 billion would reduce income tax expense and the effective tax rate if recognized.~~share-based compensation. During the three months ended June 30, 2021, the Company recognized a net discrete tax benefit of $97 million primarily related to statute of limitation expirations in various taxing jurisdictions.

As of June 30, 2022, the Company had $1.5 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, ~~the Company does not estimate any material reduction in its~~it is reasonably possible that our unrecognized tax ~~benefits.~~benefits may decrease by as much as $150 million to $190 million due to settlements of tax examinations and statute of limitation expirations based on the information currently available. However, this may change as the Company continues to have ongoing ~~negotiations~~discussions with various taxing authorities throughout the ~~year.~~year or statute of limitations expire, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to future developments in ~~the Opioid related~~opioid-related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 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~~2014 through the current fiscal year.

5. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s previously recognized redeemable noncontrolling interests primarily related to its consolidated subsidiary, McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, ~~during the three months ended June 30, 2021 and 2020,~~ the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million ~~and $11 million, respectively. All amounts were~~during the three months ended June 30, 2021. This amount was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated ~~Statements~~Statement of Operations and the corresponding liability balance was recorded in “Other accrued liabilities” in the Company’s Condensed Consolidated Balance ~~Sheets.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Sheet.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of 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”). 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 Amount, annual recurring compensation amount, and/or the guaranteed dividend. During the pendency of the Appraisal Proceedings, such amount was paid as specified currently in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remained unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. On April 12, 2021, the Company received notice that the Stuttgart Court of Appeals ruled that the Put Amount shall remain €22.99, thereby rejecting the lower court’s increase, and the recurring compensation remained at €0.83 per share.

During the three months ended June 30, 2021, ~~and 2020,~~ the Company paid $1.0 billion ~~and $49 million, respectively,~~ to purchase 34.5 million ~~and 1.8 million~~ shares ~~respectively,~~ of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the redeemable noncontrolling interests by $983 million ~~and $49 million, respectively,~~ for the three months ended June 30, 2021, ~~and 2020,~~ and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million ~~and $3 million, respectively,~~ as an increase to ~~McKesson’s stockholders~~McKesson stockholders’ additional paid-in capital. The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, with a carrying value of $287 million, were transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” onin the Condensed Consolidated Balance Sheet.

~~The redeemable noncontrolling interest was adjusted each period for the proportion~~

Table 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 March 31, 2021, the carrying value of $1.3 billion exceeded the maximum redemption value of $1.2 billion and the Company owned approximately 78% of McKesson Europe’s outstanding common shares. At June 30, 2021, the Company owned approximately 95%, of McKesson Europe’s outstanding common shares.Contents

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. As ofdiscussed above, after June ~~30,~~15, 2021, noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. The Company’s noncontrolling interest in McKesson Europe will be included in the sale of the E.U. disposal group, as discussed ~~above. During the three months ended June 30, 2021 and 2020, the~~in Financial Note 2, “Held for Sale.” The Company allocated ~~a total of~~$41 million and $39 million of net income to noncontrolling ~~interests.~~interests during the during the three months ended June 30, 2022 and 2021, respectively, which was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statements of Operations.

Changes in noncontrolling interests for the three months ended June 30, 2022 were as follows:


(In millions)	Noncontrolling Interests
Balance, March 31, 2022	$	480
Net income attributable to noncontrolling interests	41
Other comprehensive income	50
Reclassification of recurring compensation to other accrued liabilities	(2)
Payments to noncontrolling interests	(36)


Other	(1)
Balance, June 30, 2022	$	532

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

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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


(In millions)	(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests		(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2020		$	217	$	1,402
Balance, March 31, 2021						Balance, March 31, 2021	$	196	$	1,271
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	39		11		Net income attributable to noncontrolling interests	39		8
Other comprehensive income	Other comprehensive income	0		61		Other comprehensive income	—		3
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—		(11)		Reclassification of recurring compensation to other accrued liabilities	—		(8)
Payments to noncontrolling interests	Payments to noncontrolling interests	(43)		0		Payments to noncontrolling interests	(39)		—
Exercises of Put Right	Exercises of Put Right	—		(49)		Exercises of Put Right	—		(983)
Reclassification of McKesson Europe redeemable noncontrolling interests						Reclassification of McKesson Europe redeemable noncontrolling interests	287		(287)
Other	Other	(6)		0		Other	1		3
Balance, June 30, 2020		$	207	$	1,414
Balance, June 30, 2021						Balance, June 30, 2021	$	484	$	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.

Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. ~~Approximately~~Fewer than 1 million ~~and 3 million of~~ potentially dilutive securities for each of the three months ended June 30, 2022 and 2021, ~~and 2020~~respectively, were excluded from the computation of diluted ~~net~~ earnings per common share 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 June 30,			Three Months Ended June 30,
(In millions, except per share amounts)	(In millions, except per share amounts)		2021			2020		(In millions, except per share amounts)	2022		2021
Income from continuing operations	Income from continuing operations		$	536		$	495	Income from continuing operations	$	807	$	536
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests		(47)			(50)		Net income attributable to noncontrolling interests	(41)		(47)
Income from continuing operations attributable to McKesson Corporation	Income from continuing operations attributable to McKesson Corporation		489			445		Income from continuing operations attributable to McKesson Corporation	766		489
Loss from discontinued operations, net of tax			(3)			(1)
Income (loss) from discontinued operations, net of tax								Income (loss) from discontinued operations, net of tax	2		(3)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation		$	486		$	444	Net income attributable to McKesson Corporation	$	768	$	486

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:							Weighted-average common shares outstanding:
Basic	Basic		156.2			162.0		Basic	144.2		156.2
Effect of dilutive securities:	Effect of dilutive securities:							Effect of dilutive securities:
Stock options	Stock options		0.1			0		Stock options	0.3		0.1
Restricted stock units (1)	Restricted stock units (1)		1.8			1.2		Restricted stock units (1)	1.4		1.8
Diluted	Diluted		158.1			163.2		Diluted	145.9		158.1

Earnings (loss) per common share attributable to McKesson: (2)
Earnings (loss) per common share attributable to McKesson Corporation: (2)								Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted	Diluted							Diluted
Continuing operations	Continuing operations		$	3.09		$	2.72	Continuing operations	$	5.25	$	3.09
Discontinued operations	Discontinued operations		(0.02)			0		Discontinued operations	0.01		(0.02)
Total	Total		$	3.07		$	2.72	Total	$	5.26	$	3.07
Basic	Basic							Basic
Continuing operations	Continuing operations		$	3.13		$	2.74	Continuing operations	$	5.31	$	3.13
Discontinued operations	Discontinued operations		(0.02)			0		Discontinued operations	0.01		(0.02)
Total	Total		$	3.11		$	2.74	Total	$	5.32	$	3.11

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

(2)Certain computations may reflect rounding adjustments.

7. Goodwill and Intangible Assets, Net

~~Changes~~The Company evaluates goodwill for impairment on an annual basis and at an interim date, if indicators of potential impairment exist. The Company voluntarily changed its annual goodwill impairment testing date from October 1st to April 1st to align with a change in timing of the ~~carrying amount~~Company’s annual long-term planning process. Accordingly, management determined that the change in accounting principle is preferable under the circumstance. This change has been applied prospectively from April 1, 2022 as retrospective application is deemed impracticable due to the inability to objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight. This change was not material to the Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill ~~were~~impairment charge. The annual impairment testing performed as ~~follows:~~

(In millions) U.S. Pharmaceutical Prescription Technology Solutions Medical-Surgical Solutions International Total
Balance, March 31, 2021 $ 3,963 $ 1,542 $ 2,453 $ 1,535 $ 9,493
Foreign currency translation adjustments, net 7 0 0 20 27
Balance, June 30, 2021 $ 3,970 $ 1,542 $ 2,453 $ 1,555 $ 9,520
of April 1, 2022 did not indicate an impairment of goodwill.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Changes in the carrying amount of goodwill were as follows:


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



Foreign currency translation adjustments, net	(33)		—		—		(48)		(81)
Other adjustments	(3)		—		—		1		(2)
Balance, June 30, 2022	$	3,887	$	1,542	$	2,453	$	1,486	$	9,368

Information regarding intangible assets is as follows:


		June 30, 2021							March 31, 2021							June 30, 2022							March 31, 2022
(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	$	3,747	$	(2,329)	$	1,418	$	3,739	$	(2,269)	$	1,470	Customer relationships	12	$	2,747	$	(1,695)	$	1,052	$	2,777	$	(1,691)	$	1,086
Service agreements	Service agreements	10	1,088		(530)		558		1,081		(513)		568		Service agreements	9	1,078		(584)		494		1,085		(573)		512
Pharmacy licenses		23	503		(252)		251		497		(244)		253

Trademarks and trade names	Trademarks and trade names	12	934		(412)		522		925		(394)		531		Trademarks and trade names	11	802		(397)		405		819		(386)		433
Technology	Technology	4	150		(127)		23		150		(122)		28		Technology	1	127		(118)		9		128		(116)		12
Other	Other	6	255		(230)		25		254		(226)		28		Other	9	188		(172)		16		187		(171)		16
Total	Total		$	6,677	$	(3,880)	$	2,797	$	6,646	$	(3,768)	$	2,878	Total		$	4,942	$	(2,966)	$	1,976	$	4,996	$	(2,937)	$	2,059

Amortization expense of intangible assets was $56 million and $98 million ~~and $106 million for~~during the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Estimated amortization expense of these assets is as follows: ~~$279~~$166 million, ~~$273~~$211 million, ~~$261~~$206 million, ~~$255~~$174 million, and ~~$223~~$168 million for the remainder of ~~2022~~fiscal 2023 and each of the succeeding years through ~~2026~~fiscal 2027, respectively, and ~~$1.5~~$1.1 billion thereafter. All intangible assets were subject to amortization as of June 30, ~~2021~~2022 and March 31, ~~2021.~~2022. Amortization of intangible assets of the E.U. disposal group classified as held for sale ceased in the second quarter of fiscal 2022.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

8. Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	(In millions)	June 30, 2021		March 31, 2021		(In millions)	June 30, 2022		March 31, 2022
U.S. Dollar notes (1) (2)	U.S. Dollar notes (1) (2)					U.S. Dollar notes (1) (2)
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		360
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		918
0.90% Notes due December 3, 2025	0.90% Notes due December 3, 2025	500		500		0.90% Notes due December 3, 2025	500		500
1.30% Notes due August 15, 2026						1.30% Notes due August 15, 2026	498		498
7.65% Debentures due March 1, 2027	7.65% Debentures due March 1, 2027	167		167		7.65% Debentures due March 1, 2027	150		150
3.95% Notes due February 16, 2028	3.95% Notes due February 16, 2028	600		600		3.95% Notes due February 16, 2028	343		343
4.75% Notes due May 30, 2029	4.75% Notes due May 30, 2029	400		400		4.75% Notes due May 30, 2029	196		196
6.00% Notes due March 1, 2041	6.00% Notes due March 1, 2041	282		282		6.00% Notes due March 1, 2041	217		217
4.88% Notes due March 15, 2044	4.88% Notes due March 15, 2044	411		411		4.88% Notes due March 15, 2044	255		255
Foreign currency notes (1) (3)	Foreign currency notes (1) (3)					Foreign currency notes (1) (3)
0.63% Euro Notes due August 17, 2021		711		704
1.50% Euro Notes due November 17, 2025	1.50% Euro Notes due November 17, 2025	708		700		1.50% Euro Notes due November 17, 2025	627		662
1.63% Euro Notes due October 30, 2026	1.63% Euro Notes due October 30, 2026	592		587		1.63% Euro Notes due October 30, 2026	524		554
3.13% Sterling Notes due February 17, 2029	3.13% Sterling Notes due February 17, 2029	635		627		3.13% Sterling Notes due February 17, 2029	548		582

Lease and other obligations	Lease and other obligations	270		270		Lease and other obligations	239		244
Total debt	Total debt	7,176		7,148		Total debt	5,775		5,879
Less: Current portion	Less: Current portion	752		742		Less: Current portion	799		799
Total long-term debt	Total long-term debt	$	6,424	$	6,406	Total long-term debt	$	4,976	$	5,080

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

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

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

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. Debt outstanding totaled ~~$7.2~~$5.8 billion and ~~$7.1~~$5.9 billion at June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, respectively, of which ~~$752~~$799 million, ~~and $742 million, respectively,~~ was included under the caption “Current portion of long-term debt” within the Company’s Condensed Consolidated Balance ~~Sheets.~~

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

~~Tender Offer~~

~~On July 23, 2021, the Company completed a cash tender offer for a portion~~each 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,~~June 30, 2022 and (vii) 4.88% Notes due 2044 (collectively referred to herein as the “Tender Offer Notes”). In connection with the tender offer, the Company paid an aggregate consideration of $1.1 billion to redeem $922 million principal amount of the notes at a redemption price equal to 100% of the principal amount and premiums of $182 million. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment and in the second quarter of 2022 the Company will record a loss on debt extinguishment, consisting of the premiums paid and a portion of the unamortized discounts and debt issuance costs proportional to the principal amount of debt retired.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

March 31, 2022.

Revolving Credit Facilities

The Company has a Credit Agreement, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), that provides a syndicated $4.0 billion five-year senior unsecured credit facility with a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and Euro. 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 0no borrowings during the three months ended June 30, 2022 and 2021 and ~~2020 and 0~~no amounts outstanding as of June 30, ~~2021~~2022 and March 31, ~~2021.~~2022.

~~On March 31, 2021, the Company entered into Amendment No. 2 to the 2020 Credit Facility, which superseded Amendment No. 1, dated as~~

Table of ~~February 1, 2021.~~ Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The 2020 Credit Facility ~~as amended,~~ contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a maximum Total Debt to Consolidated EBITDA ratio, as defined in the amended credit agreement. If the Company does not comply with these covenants, its ability to use the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit Facility may be required. At June 30, ~~2021,~~2022, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in ~~Euro~~Euros with a committed amount of $8$1 million and an uncommitted amount of ~~$118~~$105 million as of June 30, ~~2021.~~2022. Borrowings and repayments were not material during the three months ended June 30, ~~2021~~2022 and ~~2020, and amounts~~2021. Amounts outstanding under these credit lines were not material as of June 30, ~~2021~~2022 and March 31, ~~2021.~~2022.

Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. ~~There were 0 borrowings or repayments during the three months ended June 30, 2021.~~ During the three months ended June 30, ~~2020, the Company borrowed $5.3 billion~~2022 and ~~repaid $5.3 billion~~2021, there were no material borrowings under the program. At June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, there were 0no commercial paper notes outstanding.

9. Pension Benefits

The net periodic expense for defined benefit pension plans was ~~approximately 0~~not material for each of the three months ended June 30, 2022 and $72021. Cash contributions to these plans were $3 million and $14 million for the three months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~

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

As part of the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale,” pension liabilities of $79 million and $85 million as of June 30, 2022 and March 31, 2022, respectively, were included under the caption “Liabilities held for sale,” in the Condensed Consolidated Balance Sheets as part of the E.U. disposal group. During the first quarter of fiscal 2023, the Company derecognized pension assets of $49 million and released $30 million of accumulated other comprehensive loss related to the sale of its U.K. disposal group. The pension assets were included within “Assets held for sale” in the Condensed Consolidated Balance Sheet as of March 31, 2022.

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.~~described below. In accordance with the Company’s policy, derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

The Company uses different counterparties for its derivative contracts to minimize the exposure to credit risk but does not anticipate non-performance by these parties.

Foreign Currency Exchange Risk

The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign subsidiaries, including Euro, 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. Subsequent to the completion of the U.K. divestiture in April 2022 as discussed in Financial Note 2, “Held for Sale,” the Company’s foreign currency exchange rate risk is limited to the Euro and Canadian dollar.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Non-Derivative Instruments Designated as Hedges

At June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, the Company had ~~€1.7~~€1.1 billion of Euro-denominated notes designated as non-derivative net investment hedges. These hedges are utilized to hedge portions of the Company’s net investments in non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For all notes that are designated as net investment hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates are recorded inas foreign currency translation adjustments in “Accumulated other comprehensive loss” in the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) where they offset foreign currency translation gains and losses recorded on the Company’s net investments. To the extent foreign currency denominated notes designated as net investment hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.

~~Losses~~In connection with the sale of the U.K. disposal group as discussed in more detail in Financial Note 2, “Held for Sale,” the Company reclassified $26 million of gains from accumulated other comprehensive loss and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. This amount related to the Company’s £450 million British pound sterling-denominated notes, which were previously accounted for as net investment hedges ~~recorded within Other~~until de-designated in fiscal 2020, and was included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities held for sale to fair value less costs to sell.

Foreign currency gains (losses) from non-derivative instruments included in other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income were ~~$22 million and $34 million during~~as follows:


	Three Months Ended June 30,
(In millions)	2022		2021
Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes	$	64	$	(22)

(1)There was no ineffectiveness in these hedges for the three months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~ 2021.

Derivative Instruments

At June 30, 2022 and March 31, 2022, the notional amounts of the Company’s outstanding derivatives were as follows:


			June 30, 2022		March 31, 2022
(In millions)	Currency	Maturity Date	Notional
Derivatives designated as net investment hedges: (1)
Cross-currency swaps (2)	CAD	Nov-24	$	500	$	500

Derivatives designated as fair value hedges: (1)
Cross-currency swaps (3)	GBP	Feb-23	£	450	£	450
Floating interest rate swaps (4)	USD	Aug-27	$	180	$	—

Derivatives designated as cash flow hedges: (1)
Cross-currency swaps (2)	CAD	Jul-22 to Jan-24	$	1,678	$	1,678
Fixed interest rate swaps (5)	USD	Mar-23	$	500	$	500

(1)There was no ineffectiveness in ~~non-derivative net investment~~these hedges ~~during~~for the three months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

~~Derivatives Designated as Hedges~~

~~At June 30, 2021 and March 31, 2021, the~~(2)The Company had cross-currency swaps designated as net investment hedges with a total gross notional amount of $500 million Canadian dollars. Under the terms of the cross-currency swap contracts, the Company agreesagreed 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~~

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

(4)The Company entered into fixed-to-floating interest rate swaps ~~are utilized~~to hedge the changes in fair value caused by fluctuations in the benchmark interest rates.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

(5)The Company entered into agreements with financial institutions to lock into the fixed benchmark interest rates for future bond issuance.

Net Investment Hedges

The Company uses cross-currency swaps to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in ~~“Accumulated~~accumulated other comprehensive ~~loss” in the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) where they~~loss and offset foreign currency translation gains and losses recorded on the Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings. ~~There was no ineffectiveness in the Company’s net investment hedges for the three months ended June 30, 2021 and 2020.~~

Fair Value Hedges

The ~~remaining~~Company uses cross-currency swaps ~~will mature November 2024.~~

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

On September 30, 2019, the Company entered into a number of cross-currency swaps designated as fair value hedges with total notional amounts of £450 million British pound sterling. Under the terms of the cross-currency swap contracts, the Company agreed with third parties to exchange fixed interest payments in British pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread. These swaps are utilized to hedge the changes in the fair value of ~~the underlying £450 million~~ British pound sterling notes resulting from changes in benchmark interest rates and foreign exchange rates. The changes in the fair value of these derivatives ~~which are designated as fair value hedges,~~ and the offsetting changes in the fair value of the hedged notes are recorded in earnings. Gains from ~~these~~the changes in the Company’s fair value hedges recorded in earnings were largely offset by the losses recorded in earnings ~~related~~on the hedged item.

During the first quarter of fiscal 2023, the Company entered into floating interest rate swaps to convert $180 million of its fixed rate debt to floating interest rate in order to hedge the changes in fair value caused by fluctuations in the benchmark interest rate. The changes in the fair value of these ~~notes. The swaps will mature~~derivatives are recorded in ~~February 2023.~~earnings.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Cash Flow Hedges

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 designedcurrencies to reduce the income statement effects arising from fluctuations in foreign ~~exchange~~currency rates and have been designated as cash flow hedges. At June 30, 2021 and March 31, 2021, the Company had cross-currency swaps with total gross notional amounts of approximately $2.6 billion, which are designated as cash flow hedges. These swaps will mature between August 2021 and January 2024.

~~For~~also enters into forward contracts ~~and cross-currency swaps that are designated as cash flow hedges,~~to hedge the variability future benchmark interest rates on planned bond issuances. The effective portion of changes in the fair value of ~~the~~these hedges is recorded in ~~Accumulated~~accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings.

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

~~Gains or losses from cash flow hedges recorded in Other comprehensive income were 0 and a loss of $5 million during the three months ended June 30, 2021 and 2020, respectively.~~ Gains or losses reclassified from ~~Accumulated~~accumulated other comprehensive ~~income~~loss and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations were not material ~~in the three months ended June 30, 2021 and 2020. There was no ineffectiveness in the Company’s cash flow hedges~~ for the three months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Derivatives Not Designated as Hedges

Derivative instruments not designated as hedges are ~~marked-to-market~~mark-to-market at the end of each accounting period with the change in fair value included in earnings.

~~The~~ From time to time, the Company ~~has a number of~~enters into forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At June 30, 2021 and March 31, 2021, the total gross notional amounts of these contracts were $54 million and $39 million, respectively. These contracts will predominantly mature between July 2021 and 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 “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. Changes in the fair values were not material infor the three months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

1920

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Other Information on Derivative Instruments

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


	Three Months Ended June 30,
(In millions)	2022		2021
Derivatives designated as net investment hedges:
Cross-currency swaps	$	12	$	(5)

Derivatives designated as cash flow hedges:
Cross-currency swaps	$	(2)	$	(2)
Fixed interest rate swaps	27		2

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


		Balance Sheet Caption	June 30, 2021						March 31, 2021							Balance Sheet Caption	June 30, 2022							March 31, 2022
			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	$	4	$	50	$	895	$	4	$	47	$	826	Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$	4	$	30		$	1,537			$	30			$	39		$	1,537
Cross-currency swaps (non-current)	Cross-currency swaps (non-current)	Other non-current assets/liabilities	77		128		2,594		72		92		2,663		Cross-currency swaps (non-current)	Other non-current liabilities	—		15		679			—				36				679
Forward starting interest rate swaps (current)		Other accrued liabilities	0		5		711		0		7		704
Fixed interest rate swaps (current)															Fixed interest rate swaps (current)	Prepaid expenses and other	57		—		500			31				—				500

Floating interest rate swaps (non-current)															Floating interest rate swaps (non-current)	Other non-current assets	2		—		180			—				—				—
Total	Total		$	81	$	183			$	76	$	146			Total		$	63	$	45				$	61			$	75
Derivatives not designated for hedge accounting
Foreign exchange contracts (current)		Prepaid expenses and other	$	0	$	0	$	42	$	0	$	0	$	29
Foreign exchange contracts (current)		Other accrued liabilities	0		0		12		0		1		10
Total			$	0	$	0			$	0	$	1

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

11. Fair Value Measurements

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

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

Level 2 - significant other observable market-based inputs.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at June 30, ~~2021~~2022 and March 31, ~~2021~~2022 included investments in money market funds of ~~$521~~$547 million and ~~$1.6 billion,~~$981 million, respectively, which are reported at fair value. The fair value of money market funds was determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash equivalents approximates their fair value due to their relatively short-term nature. Fair values for the Company’s marketable securities were not material at June 30, ~~2021~~2022 and March 31, ~~2021.~~2022.

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

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

At June 30, ~~2021,~~2022 and March 31, 2022, the assets and liabilities associated with the disposal groups in Europe held for sale were measured at the lower of carrying value or fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale." At March 31, 2022, assets measured at fair value on a nonrecurring basis also included certain long-lived assets associated with the Company’s restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges.” At March 31, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets of the Company’s International segment and goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International ~~segment.~~segment related to the Company’s operations in Denmark and its retail pharmacy businesses in Canada.

There were 0no other material liabilities measured at fair value on a nonrecurring basis at June 30, ~~2021~~2022 and March 31, ~~2021.~~2022.

Other Fair Value Disclosures

At June 30, ~~2021~~2022 and March 31, ~~2021,~~2022, 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.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


		June 30, 2021				March 31, 2021					June 30, 2022				March 31, 2022
(In millions)	(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value		(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	Long-term debt, including current maturities	$	7,176	$	7,865	$	7,148	$	7,785	Long-term debt, including current maturities	$	5,775	$	5,674	$	5,879	$	5,999

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

Restricted Cash

Restricted cash, included within “Prepaid expenses and other” onin the Company’s Condensed Consolidated Balance Sheets primarily consists of $100 million and $395 million as of June 30, ~~2021~~2022 and March 31, ~~2021, primarily consists of funds temporarily~~2022, respectively, held ~~on behalf of unaffiliated medical practice groups~~in escrow related to ~~their COVID-19 business continuity borrowings. The amounts have been designated~~obligations under settlement agreements for opioid-related claims of governmental entities, as restricted cash due to contractual provisions requiring their segregation from all other funds until utilized by the medical practices for a limited list of qualified activities. Corresponding deposit liabilities associated with these funds have been recorded by the Company within “Other accrued liabilities” on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2021discussed in more detail in Financial Note 12, “Commitments and ~~March 31, 2021.~~Contingent Liabilities.”

Goodwill

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

Long-lived Assets

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

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

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 1918 to the Company’s ~~2021~~2022 Annual Report, which disclosure is incorporated in this footnote by this reference. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Unless otherwise stated, the Company is unable to reasonably estimate the loss or a range of possible loss for the matters described below. Often, the Company is unable to determine that a loss is probable, or to reasonably estimate the amount of loss or a range of loss, for a claim because of the limited information available and the potential effects of future events and decisions by third parties, such as courts and regulators, that will determine the ultimate resolution of the claim. Many of the matters described are at preliminary stages, raise novel theories of liability, or seek an indeterminate amount of damages. It is not uncommon for claims to remain unresolved over many years. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and whether it can make a reasonable estimate of the loss or range of loss. When the Company determines that a loss from a claim is probable and reasonably estimable, it records a liability for an estimated amount. The Company also provides disclosure when it is reasonably possible that a loss may be incurred or when it is reasonably possible that the amount of a loss will exceed its recorded liability. Amounts included within “Claims and litigation charges, net” in the Condensed Consolidated Statements of Operations consist of estimated loss contingencies related to opioid-related litigation matters.

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates ~~are~~have been sued as defendants in many cases asserting claims related to distribution of controlled substances. They ~~are~~have been named as defendants along with other pharmaceutical wholesale distributors, pharmaceutical manufacturers, and retail pharmacy chains. The plaintiffs in these actions ~~include~~have included state attorneys general, county and municipal governments, school districts, tribal nations, hospitals, health and welfare funds, third-party payors, and individuals. These actions have been filed in state and federal courts throughout the U.S., and in Puerto Rico and Canada. They seek 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 cases under the jurisdiction of the MDL court.~~

NaN cases involving McKesson that were previously part of the federal MDL have been remanded to other federal courts for discovery and trial. On January 14, 2020, the Judicial Panel on Multidistrict Litigation finalized its Conditional Remand Order, ordering that the cases 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 ended on July 28, 2021 and the outcome is pending. On February 5, 2020, the case brought by the City and County of San Francisco was remanded to the U.S. District Court for the Northern District of California; trial has been set for April 25, 2022. Also on February 5, 2020, the case brought by the Cherokee Nation was remanded by the MDL court to the U.S. District Court for the Eastern District of Oklahoma; trial has been set for September 2022.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

The Company is also named in approximately 300 similar state court cases pending in 38 states plus Puerto Rico, along with 3 cases in Canada. These include actions filed by 26 state attorneys general, and some by or on behalf of individuals, including wrongful death lawsuits, and putative class action lawsuits brought on behalf of children with neonatal abstinence syndrome due to alleged exposure to opioids in utero. Trial dates have been set in several of these state court cases. For example, trials in the cases brought by the Ohio and Washington attorneys general are scheduled for September 2021; the case brought by the Alabama attorney general is scheduled to go to trial in November 2021; the case brought by the Rhode Island attorney general is scheduled for January 2022; and the case brought by Dallas County, Texas, is scheduled for trial in January 2022.

~~On July 21, 2021, the~~ Company and the 2 other national pharmaceutical distributors ~~announced that they had negotiated a comprehensive proposed settlement agreement which, if~~(collectively “Distributors”) settled with 46 of 49 eligible states and their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). If all conditions to the Settlement are satisfied, ~~would result in~~including the ~~settlement~~receipt of ~~a substantial majority~~approval by relevant courts of ~~opioid~~consent decrees to dismiss the lawsuits, ~~filed by state and local governmental entities. If~~ the ~~proposed settlement agreement and settlement process leads to final settlement, the 3 distributors~~Distributors would pay the Settling Governmental Entities up to approximately ~~$21~~$19.5 billion over 18 years, with up to ~~$7.9~~approximately $7.4 billion to be paid by the Company for its 38.1% ~~portion;~~portion. Under the Settlement, a minimum of 85% of ~~such~~the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period.

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

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

The exact amount that would be due under the proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against the Company after the proposed agreement becomes effective. The proposed agreement contemplates that if certain governmental entitiesDistributors do not ~~agree~~admit liability or wrongdoing and do not waive any defenses pursuant to ~~a settlement under~~ the ~~framework,~~Settlement.

Three eligible states, Alabama, Washington, and Oklahoma did not join the Settlement, but they have all now reached agreements in principle with the ~~distributors nonetheless conclude that there is sufficient participation~~Company. With respect to ~~warrant~~ 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 do not participate. Those non-participating governmental entities would be entitled to pursue their claims against~~Alabama attorney general, the Company has negotiated an agreement in principle under which the Company will pay $141 million in 10 equal annual installments and ~~other defendants.~~

~~This settlement process only addresses~~an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state of Alabama and its subdivisions. On May 3, 2022, the Distributors announced an agreement with the attorney general of Washington to settle the claims of ~~U.S.~~the state ~~attorneys general~~of Washington and ~~political~~its subdivisions. Under that agreement, Washington and its subdivisions in participating states. The West Virginia subdivisions and Native American tribes are not part of this settlement process. The proposed agreement provides that the Company will place its first annual payment, estimated to be approximately $482 million, into escrow on or before September 30, 2021, to be disbursed when and if the proposed agreement becomes effective. Subsequent payments would be ~~due on July 15~~paid up to $518 million over 18 years, of ~~each year.~~

which the Company’s portion would be 38.1% (or approximately $197 million), consistent with Washington’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. On ~~July 20, 2021,~~June 27, 2022, an agreement was announced between the ~~Company announced that it~~Distributors and the ~~2 other national pharmaceutical distributors had agreed~~attorney general of Oklahoma to ~~pay~~settle claims of the state of Oklahoma and its subdivisions. Under that agreement, Oklahoma and its subdivisions would be paid up to ~~$1.2 billion,~~$250 million over 18 years, 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~~Oklahoma’s allocation under the ~~broad settlement~~comprehensive framework, as well as certain additional attorneys’ fees and costs. IfThe Company’s loss contingency accruals for these three states and their subdivisions reflect the ~~broad settlement is finalized, New York and its participating subdivisions will become part~~amounts of ~~that broader agreement.~~

The Company believes that a broad settlement of opioid claims by governmental entities is probable, and that the loss related thereto can be reasonably estimated. The Company recorded a charge of $8.1 billion ($6.8 billion after-tax)these agreements 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 $74 million ($61 million after-tax) in the quarter ended June 30, 2021 within “Claims and litigation charges, net” in the Condensed Consolidated Statements of Operations, including a pre-tax charge of $27 million ($22 million after-tax) related to the settlement with New York and its participating subdivisions, and a pre-tax charge of $47 million ($39 million after-tax) related to the proposed settlement agreement with state and local governmental entities.principle.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company previously settled with the state of West Virginia, and West Virginia and its subdivisions were not eligible to participate in the comprehensive Settlement. Claims of various West Virginia subdivisions remain pending in both state and federal courts. 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. On July 4, 2022, the court entered judgment in defendants’ favor. On August 2, 2022, the plaintiffs filed an appeal. The claims of certain other West Virginia subdivisions are pending in the federal Multi-district Litigation and before the state Mass Litigation Panel. On September 30, 2021, the Mass Litigation Panel issued an order scheduling a liability-only trial on the public nuisance claims of certain political subdivisions against the Distributors for July 5, 2022. On July 5, 2022, the Mass Litigation Panel entered an order postponing the trial in light of an agreement in principle between a group of plaintiffs’ attorneys representing the municipalities and the three companies. Under that agreement in principle, the three companies would pay $400 million over approximately 11 years, with the Company responsible for 38.1% of the total amount (or approximately $152 million). The agreement in principle is contingent on participation of certain litigating subdivisions in West Virginia, but does not include school districts or the claims of Cabell County and the City of Huntington. The Company’s loss contingency accruals for the West Virginia subdivisions are reflected in the estimated ~~accrued~~ liability for the opioid-related claims ~~of governmental entities, including the $482 million initial payment under the proposed settlement agreement, is as follows~~ as of June 30, ~~2021:~~2022.

~~(In millions)~~

~~June 30, 2021~~

~~Current litigation liabilities~~ ~~(1)~~

~~545~~

~~Long-term litigation liabilities~~

~~7,596~~

~~Total litigation liabilities~~

~~8,141~~

~~(1)This amount, recorded in “Other accrued liabilities”~~With respect to the claims of Native American tribes, on September 28, 2021, the ~~Condensed Consolidated Balance Sheet, is~~Company announced that the ~~amount estimated~~Distributors 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 ~~paid prior to June 30, 2022.~~

If38.1% (or, approximately $29 million). The Company has also negotiated a broad ~~settlement is not reached under~~resolution of opioid-related claims brought by Native American tribes. Under the proposed agreement, ~~litigation will continue.~~which has been endorsed by the leadership committee of counsel representing the tribes, the Distributors would pay the Native American tribes, other than the Cherokee Nation, approximately $440 million over 6 years, of which the Company’s portion would be 38.1% (or, approximately $167 million). This broad resolution is contingent on the participation of a substantial majority of the Native American tribes that have brought opioid-related claims against the Distributors. Under these agreements, a minimum of 85% of the settlement payments must be used by the Native American tribes to remediate the opioid epidemic. The Company’s loss-contingency accruals for the Native American tribes reflect these amounts and are reflected in the estimated liability for the opioid-related claims as of June 30, 2022.

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

In the first quarter of fiscal 2023, the Company paid $375 million, and in July 2022 paid an additional $470 million, associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes.

The Company’s estimated accrued liability for the opioid-related claims of governmental entities is as follows:


(In millions)	June 30, 2022		March 31, 2022
Current litigation liabilities (1)	$	759	$	1,046
Long-term litigation liabilities	7,132		7,220

Total litigation liabilities	$	7,891	$	8,266

(1)These amounts as of June 30, 2022 and March 31, 2022, recorded in “Other accrued liabilities” in the Condensed Consolidated Balance Sheets, are the amounts estimated to be paid within the next twelve months following each respective period end date.

Consistent with the terms of the Settlement and a separate agreement with the Alabama attorney general, the Company placed approximately $395 million into escrow during the fiscal year ended March 31, 2022. During the period ended June 30, 2022, the Company released $296 million from escrow consistent with the terms of the opioid settlement agreements. The remaining escrow amounts were presented as restricted cash within “Prepaid expenses and other” in our Condensed Consolidated Balance Sheet as of June 30, 2022. The Settlement created a binding obligation to release the funds from escrow upon entry of consent judgments and establishment of a settlement administrator.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Although the vast majority of opioid claims have been brought by governmental entities in the U.S., the Company is also a defendant in cases brought in the U.S. by private plaintiffs, such as hospitals, health and welfare funds, third-party payors, and individuals, as well as 34 cases brought in Canada (2(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 governmental entities,~~Settlement or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense. One such case was brought by a group of individual plaintiffs in Glynn County, Georgia Superior ~~Court seeks~~Court. These plaintiffs seek to recover for damages allegedly arising from their family members’ abuse of prescription ~~opioids; trial in that case is scheduled to begin in October 2021.~~opioids. Poppell v. Cardinal Health, Inc. et al.,CE19-00472. Although trial began in this case on July 18, 2022, the court declared a mistrial on July 22, 2022; no new trial date has been set. The Company has not concluded a loss is probable in any of these matters; nor is ~~the amount~~any possible loss or range of ~~any~~ loss reasonably estimable.

Because of the many uncertainties associated with ~~any potential settlement arrangement or other resolution of all of these~~the remaining opioid-related litigation matters, ~~including the uncertain scope of participation by governmental entities in any potential settlement under the framework described above,~~ the Company is not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for all opioid-related litigation matters. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on the Company’s financial position, cash flows or liquidity, or results of operations.

II. Other Litigation and Claims

~~In December 2019,~~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. 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 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 October 8, 2021, the court de-certified the class citing the plaintiffs lacked class-wide proof identifying the manner of receipt, thus leaving two ~~qui tam complaints~~named Plaintiffs remaining in the case. On April 27, 2022, the Court found that the named Plaintiffs had failed to meet their burden to show Defendants willfully or knowingly violated the TCPA and therefore were not entitled to treble damages. The Court found McKesson liable for statutory damages in the amount of $6,500. The Company appealed the finding of liability and the plaintiffs cross-appealed the denial of class certification and the ruling denying treble damages.

On December 9, 2019, the United States District Court for the Eastern District of New York ordered the unsealing of a complaint filed by a relator, purportedly on behalf of the ~~same two relators~~United States, 30 states, the District of Columbia, and 2 cities, against US Oncology, Inc. alleging ~~violations~~that from 2001 through 2010 the Company repackaged and sold single-dose syringes of oncology medications in a manner that violated the federal False Claims Act ~~the California False Claims Act,~~ and ~~the California Unfair Business Practices statute based on alleged predicate violations~~various state and local false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of ~~the Controlled Substances Act and its implementing regulations,~~suit, all in unspecified amounts, United States ex rel. ~~Kelley~~Omni Healthcare, Inc. v. US Oncology, Inc., 19-cv-05125. The United States and the named states declined to intervene in the case. On July 21, 2022, US Oncology, Inc.’s motion to dismiss was granted without prejudice. The related case against other Company defendants remains pending, ~~19-cv-2233, and~~ ~~State of California~~United States ex rel. ~~Kelley~~Omni Healthcare Inc. v. McKesson Corporation, et al., ~~CGC-19-576931.~~12-CV-06440 (NG).

On December 30, 2019, a group of independent pharmacies and a hospital filed a purported 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 ~~complaints seek~~complaint seeks relief including treble damages, ~~civil penalties,~~disgorgement, attorney fees, and costs in unspecified amounts. On ~~February 16, 2021,~~May 25, 2022, the district court ingranted distributor defendants’ motion to dismiss the ~~federal action dismissed~~complaint, but granted the ~~second~~plaintiffs leave to amend the complaint. Plaintiffs filed an 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.~~on July 1, 2022.

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(UNAUDITED)

~~II. Other Litigation and Claims~~

~~On March 5, 2018,~~In July 2020, the ~~Company’s subsidiary, RxC Acquisition~~ Company ~~(d/b/a RxCrossroads),~~ was served with a first amended qui tam complaint filed ~~in July 2017~~ in the United States District Court for the Southern District of ~~Illinois~~New York by a relator on behalf of the U.S., 27 states and the District of Columbia against ~~RxC Acquisition Company, among others,~~McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation, alleging that ~~UCB, Inc. provided illegal “kickbacks” to providers, including nurse educator services and reimbursement assistance services provided through RxC Acquisition Company, in violation of~~defendants violated the Anti-Kickback Statute, ~~the~~federal False Claims Act, and various state false claims ~~statutes.~~statutes by providing certain business analytical tools to oncology practice customers, United States ex rel. ~~CIMZNHCA, LLC~~Hart v. ~~UCB, Inc.,~~McKesson Corporation, et al., ~~No. 17-cv-00765.~~15-cv-00903-RA. The ~~complaint sought treble damages, civil penalties, and further relief. The United States~~U.S. and the named states ~~named in the complaint~~have declined to intervene in the ~~suit.~~case. The complaint seeks relief including damages, treble damages, civil penalties, attorney fees, and costs of suit, all in unspecified amounts. On ~~December 17, 2018,~~May 5, 2022, the ~~United States filed a~~district court granted the Company’s motion to dismiss the complaint, ~~in its entirety; this motion was denied~~but granted the plaintiff leave to amend the complaint. The relator filed the second amended complaint on ~~April 15, 2019. On~~ June 7, 2019, the court denied the United States’ motion for reconsideration. On July 8, 2019, the United States appealed to the United States Court of Appeals for the Seventh Circuit seeking interlocutory review of the denial of its motion for reconsideration of the denial of the motion to dismiss the complaint. On September 3, 2019, the United States District Court for the Southern District of Illinois stayed the district court proceedings pending the appeal. On August 17, 2020, the Seventh Circuit reversed the district court’s decision on the United States’ motion to dismiss and remanded the case with instructions that the district court enter judgment for the defendants on the relator’s claims under the False Claims Act. The relator sought a re-hearing en banc at the Seventh Circuit, which was denied. The relator’s False Claims Act case was dismissed, with judgment entered in favor of the defendants on September 30, 2020. On February 10, 2021, the relator filed a Petition for Writ of Certiorari at the United States Supreme Court seeking review of the Seventh Circuit’s ruling; that petition was denied on June 28, 2021.2022.

III. Government Subpoenas and Investigations

From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and requests can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the health care industry, as well as to settlements of claims against the Company. The Company responds to these requests in the ordinary course of business.

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

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

IV. State Opioid Statutes

Legislative, regulatory, or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that it may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On July 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 in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. 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~~That petition was denied on October 4, 2021. In December 2021, McKesson paid $26 million for the assessment for calendar year 2017 while reserving all rights to challenge the constitutionality of the assessment. McKesson filed a new lawsuit challenging the constitutionality of the OSA on May ~~17, 2021.~~18, 2022.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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”).

OnIn July ~~23, 2021,~~2022, the ~~Company raised its~~ quarterly dividend was raised from ~~$0.42~~$0.47 to ~~$0.47~~$0.54 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.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

Stock repurchases may be made from ~~time to time~~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. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

In May ~~2021,~~2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. Pursuant to the ASR agreement, the Company paid $1.0 billion to the financial institution and received an initial delivery of ~~4.3~~2.6 million shares in May ~~2021.~~2022. The transaction will be completed during the second quarter of ~~2022,~~fiscal 2023, at which point the Company expects to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock during the term of the ASR program, less a pre-negotiated discount.

In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received 4.8 million shares as the initial share settlement during the fourth quarter of fiscal 2022 and, in May 2022, the Company received an additional 0.3 million shares upon the completion of this ASR program.

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

There were ~~0 share repurchases~~no other shares repurchased during the three months ended June 30, ~~2020.~~2022 and 2021.

~~In January 2021, the Board approved an increase of $2.0 billion for the authorized share repurchase of McKesson’s common stock.~~ The total remaining authorization outstanding for repurchases of the Company’s common stock at June 30, ~~2021~~2022 was ~~$1.8~~$2.3 billion. In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Other Comprehensive Income (Loss)~~

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

Three Months Ended June 30,
(In millions) 2021 2020
Foreign currency translation adjustments (1)
Foreign currency translation adjustments arising during period, net of income tax expense of 0 and 0 (2)
$ 34 $ 96
Reclassified to income statement, net of income tax expense of 0 and 0 17 0
51 96
Unrealized losses on net investment hedges
Unrealized losses on net investment hedges arising during period, net of income tax benefit of $6 and $22 (3)
(27) (63)
Reclassified to income statement, net of income tax expense of 0 and 0 0 0
(27) (63)
Unrealized losses on cash flow hedges
Unrealized losses on cash flow hedges arising during period, net of income tax benefit of 0 and 0 0 (5)
Reclassified to income statement, net of income tax expense of 0 and 0 0 0
0 (5)
Changes in retirement-related benefit plans (4)
Net actuarial gain and prior service cost arising during the period, net of income tax expense of 0 and 0 5 0
Amortization of actuarial gain (loss), prior service cost and transition obligation, net of income tax benefit expense of 0 and 0 (5)
(1) 2
Foreign currency translation adjustments and other, net of income tax benefit of 0 and 0 0 (1)
Reclassified to income statement, net of income tax benefit of $1 and 0 (2) 0
2 1
Other comprehensive income, net of tax $ 26 $ 29

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

~~(2)The three months ended June 30, 2021 and 2020 includes net foreign currency translation adjustments of $9 million and $58 million, respectively, attributable to redeemable noncontrolling interests.~~

~~(3)~~The three months ended June 30, 2021 includes foreign currency losses of $22 million on the net investment hedges from the €1.7 billion Euro-denominated notes, losses of $5 million on the net investment hedges from cross-currency swaps, and losses on net investment hedges of $6 million attributable to redeemable noncontrolling interests. The three months ended June 30, 2020 include foreign currency losses of $34 million on the net investment hedges from the €1.7 billion Euro-denominated notes and losses of $51 million on the net investment hedges from cross-currency swaps.

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

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

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Accumulated Other Comprehensive ~~Income (Loss)~~Loss

Information regarding changes in ~~the Company’s Accumulated~~accumulated other comprehensive ~~income (loss)~~loss, including noncontrolling interests and redeemable noncontrolling interests, by ~~component~~components for the three months ended June 30, 2022 and 2021 are as follows:

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


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at March 31, 2022	$	(1,504)	$	10		$	27	$	(67)	$	(1,534)
Other comprehensive income (loss) before reclassifications	(176)		45		⁽²⁾	18		12		(101)
Amounts reclassified to earnings and other (3)	730		(17)			—		24		737
Other comprehensive income	554		28			18		36		636
Less: amounts attributable to noncontrolling interests	47		—			—		3		50
Other comprehensive income attributable to McKesson	507		28			18		33		586
Balance at June 30, 2022	$	(997)	$	38		$	45	$	(34)	$	(948)

~~Information regarding changes in~~(1)Primarily results from the conversion of non-U.S. dollar financial statements of the Company’s ~~Accumulated other comprehensive income (loss) by component~~operations in Europe and Canada into the Company’s reporting currency, U.S. dollars.

(2)Amounts recorded for the three months ended June 30, ~~2020~~2022 include gains of $64 million related to net investment hedges from Euro-denominated notes and gains of $12 million related to net investment hedges from cross-currency swaps. These amounts 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 March 31, 2020 $ (1,780) $ 138 $ 49 $ (110) $ (1,703)
Other comprehensive income (loss) before reclassifications 96 (63) (5) (1) 27
Amounts reclassified to earnings and other 0 0 0 2 2
Other comprehensive income (loss) 96 (63) (5) 1 29
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 58 0 0 3 61
Other comprehensive income (loss) attributable to McKesson 38 (63) (5) (2) (32)
Balance at June 30, 2020 $ (1,742) $ 75 $ 44 $ (112) $ (1,735)
net of income tax expense of $31 million.

(3)Primarily includes adjustments for amounts related to the sale of the U.K. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities held for sale to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations.

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(UNAUDITED)


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

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

(2)Amounts recorded for the three months ended June 30, 2021 include losses of $22 million related to net investment hedges from Euro-denominated notes and losses of $5 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit of $6 million.

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, RxTS, Medical-Surgical Solutions, and International. ~~All prior segment information has been recast to reflect the Company’s new segment structure and current period presentation.~~ The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments ~~included~~include the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. The Company evaluates the performance of its operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income taxes. Assets by operating segment are not reviewed by management for the purpose of assessing performance or allocating resources.

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

The RxTS segment ~~unifies the solutions and services of CoverMyMeds, RelayHealth, RxCrossroads, and McKesson Prescription Automation to serve~~serves McKesson’s biopharma and life sciences partners and ~~patients. By combining automation and expert navigation of the~~patients to address medication challenges for patients throughout their journeys. RxTS works across healthcare ~~ecosystem, RxTS connects~~to connect pharmacies, providers, payers, and biopharma companies to ~~address patients’ medication~~deliver innovative access and adherence solutions designed to benefit stakeholders and ~~affordability challenges to~~ help people get the medicine they need to live healthier lives. ~~RxCrossroads was previously included in~~RxTS also offers third-party logistics and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the ~~former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and McKesson Prescription Automation were previously included in Other.~~product lifecycle.

The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers more than ~~275,000~~285,000 national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers within the ~~United States.~~U.S.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 1210 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~~solutions throughout Canada and includes Rexall Health retail pharmacies. ~~McKesson Europe was previously reflected as the European Pharmaceutical Solutions reportable segment and McKesson Canada was previously included in Other.~~ In the second quarter of fiscal 2022, the Company entered into an agreement to sell ~~certain~~the E.U. disposal group which is anticipated to close within the second half of ~~its Europe businesses,~~fiscal 2023. International segment assets at June 30, 2022 were $10.9 billion, a decrease during the first quarter of fiscal 2023 primarily ~~located in France, Italy, Ireland, Portugal, Belgium, and Slovenia. The~~due to the completed the sale ~~also includes~~of the ~~Company’s German headquarters and wound-care business, business center in Lithuania, and an ownership stake in its joint venture in the Netherlands.~~U.K. disposal group. Refer to Financial Note 2, “Held for Sale,” for more information.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONCLUDED)~~

~~(UNAUDITED)~~

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


		Three Months Ended June 30,				Three Months Ended June 30,
(In millions)	(In millions)	2021		2020			(In millions)	2022		2021
Segment revenues (1)	Segment revenues (1)						Segment revenues (1)
U.S. Pharmaceutical	U.S. Pharmaceutical	$	50,019	$	44,670		U.S. Pharmaceutical	$	56,947	$	50,019
Prescription Technology Solutions	Prescription Technology Solutions	881		656			Prescription Technology Solutions	1,066		881
Medical-Surgical Solutions	Medical-Surgical Solutions	2,528		1,801			Medical-Surgical Solutions	2,592		2,528
International	International	9,246		8,552			International	6,549		9,246

Total revenues	Total revenues	$	62,674	$	55,679		Total revenues	$	67,154	$	62,674

Segment operating profit (2)
Segment operating profit (loss) (2)							Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)	U.S. Pharmaceutical (3)	$	682	$	613		U.S. Pharmaceutical (3)	$	696	$	682
Prescription Technology Solutions	Prescription Technology Solutions	104		68			Prescription Technology Solutions	144		104
Medical-Surgical Solutions (4)	Medical-Surgical Solutions (4)	75		89			Medical-Surgical Solutions (4)	256		75
International		53		3

International (5)							International (5)	(6)		53
Subtotal	Subtotal	914		773			Subtotal	1,090		914
Corporate expenses, net (5)		(303)		(68)
Corporate expenses, net (6)							Corporate expenses, net (6)	(39)		(303)
Interest expense	Interest expense	(49)		(60)			Interest expense	(45)		(49)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	562	$	645		Income from continuing operations before income taxes	$	1,006	$	562

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, ~~approximately~~less than 35% of the RxTS segment’s total revenues, less than 2%1% of the Medical-Surgical Solutions segment’s total revenues, and ~~approximately 7%~~less than 8% of the International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining ~~three~~3 reportable segments are ~~domestic.~~derived in the U.S.

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

(3)The Company’s U.S. Pharmaceutical segment’s operating profit for the three months ended June 30, 2022 and 2021 ~~and 2020~~ includes ~~$23~~$13 million and ~~$52~~$23 million, respectively, of credits related to the last-in, first-out (“LIFO”) method of accounting for inventories.

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

(5)~~Corporate expenses, net~~The Company’s International segment’s operating loss for the three months ended June 30, ~~2021~~2022 includes charges of $94 million to remeasure assets and liabilities of the E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale.”

(6)Corporate expenses, net includes the following:

•gains of $106 million for the three months ended June 30, 2022 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;”

•charges of $5 million and $74 million for the three months ended June 30, 2022 and 2021, respectively, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12,, “Commitments and Contingent Liabilities." Corporate expenses, net for the three months ended June 30, 2020 includes a net gain of $131 million recorded in connection with insurance proceeds received during the first quarter of 2021 from the settlement of the shareholder derivative action related to the Company’s controlled substances monitoring program.Liabilities;”

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FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

•charges of $19 million and $35 million for the three months ended June 30, 2022 and 2021, respectively, of opioid-related costs, primarily litigation expenses; and

•restructuring charges of $62 million for the three months ended June 30, 2021 primarily due to the transition to a partial remote work model for certain employees.


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(UNAUDITED)

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

INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS

GENERAL

Management’s discussion and analysis of financial condition and results of operations, referred to as the “Financial Review,” is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of McKesson Corporation together with its subsidiaries (collectively, the “Company,” “McKesson,” “we,” “our,” or “us” and other similar pronouns). This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying financial notes in Item 1 of Part I of this Quarterly Report on Form 10-Q (“Quarterly Report”) and in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021~~2022 previously filed with the Securities and Exchange Commission on May ~~12, 2021~~9, 2022 (“~~2021~~2022 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.~~Report.

Overview of ~~Our~~our Business:

We are a ~~global~~diversified healthcare services leader ~~in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. We~~dedicated to advancing health outcomes for patients everywhere. Our teams partner with ~~pharmaceutical manufacturers,~~biopharma companies, care providers, pharmacies, manufacturers, governments, and ~~other organizations in healthcare~~others to deliver insights, products, and services to help ~~provide the right medicines, medical products,~~make quality care more accessible and ~~healthcare services to the right patients at the right time, safely, and cost-effectively.~~affordable.

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


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(UNAUDITED)

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 14, “Segments of Business,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q~~ for further information regarding our reportable segments.

•U.S. Pharmaceutical~~, previously the U.S. Pharmaceutical and Specialty Solutions~~ is a reportable segment ~~continues to distribute~~that 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~~Prescription Technology Solutions 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~~combines automation and ~~expert navigation of~~our ability to navigate the healthcare ecosystem ~~RxTS connects~~to connect pharmacies, providers, payers, and biopharma companies to address patients’ medication access, adherence, and affordability challenges to help people get the medicine they need to live healthier lives. RxCrossroads was previously included in the former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and McKesson Prescription Automation were previously included in Other.

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

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

•International is a reportable segment that includes our operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. During fiscal 2022, we entered into agreements to sell certain of our businesses in the European Union (“E.U.”) and our retail and distribution businesses in the United Kingdom (“U.K.”), as well as completed the sale of our Austrian business. During the three months ended June 30, 2022, we completed the sale of our retail and distribution businesses in the U.K. These divestitures are further described in the “European Divestiture Activities” section below.

European Divestiture Activities

On July 5, 2021, we entered into an agreement to sell certain of our businesses in the E.U. located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with our German headquarters and wound-care business, part of a shared services center in Lithuania, and our ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.3 billion) adjusted for certain items, including cash, net debt and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe ~~was~~AG (“McKesson Europe”) at the transaction closing date. We recorded a gain of $12 million for the three months ended June 30, 2022 in total operating expenses to remeasure the E.U. disposal group to fair value less costs to sell, of which gains of $106 million are included within Corporate expenses, net, partially offset by charges of $94 million included within our International segment. The transaction is anticipated to close within the second half of fiscal 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals.

On April 6, 2022, we completed the previously ~~reflected~~announced sale of our retail and distribution businesses in the U.K. (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. As part of the transaction, we divested net assets of $615 million and released $731 million of accumulated other comprehensive loss.

As of June 30, 2022, we had $3.2 billion of assets and $2.3 billion of liabilities classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the ~~European Pharmaceutical Solutions reportable segment and McKesson Canada was previously~~Condensed Consolidated Balance Sheet primarily related to the pending sale of our E.U. disposal group described above. Refer to Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in ~~Other.~~this Quarterly Report for more information.

Executive Summary:

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three months ended June 30, ~~2021.~~2022.

•~~Coronavirus~~The pandemic disease ~~2019~~caused by the SARS-CoV-2 coronavirus (“COVID-19”) continues to impact our 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 following the onset of the pandemic. We remain in a dynamic environment and volume trends continue to be non-linear. However, the recovery from the pandemic is favorably reflected inimpacted our results ~~when comparing 2022 versus 2021. We also had favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs during the first quarter~~ of ~~2022 and a year over year increase in sales of COVID-19 tests;~~

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

•~~Revenues of $62.7 billion~~operations for the three months ended June 30, ~~2021 increased 13% from~~2022. For a more in-depth discussion of how COVID-19 impacted our business, operations, and outlook, refer to the ~~prior year primarily driven by market growth in our U.S. Pharmaceutical segment;~~COVID-19 section of "Trends and Uncertainties" included below;


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(UNAUDITED)

•~~Gross profit increased 12% for~~For the three months ended June 30, ~~2021~~2022 compared to the prior year, ~~primarily in our International segment driven~~revenues increased by ~~favorable effects of foreign currency exchange fluctuations, and in our U.S. Pharmaceutical segment driven by the contribution from our COVID-19 vaccine distribution program;~~

•~~Total~~7%, gross profit was flat, total operating expenses ~~for the three months ended June 30, 2021 includes charges of $74 million related~~decreased by 19%, and other income, net decreased by 65%. Refer to ~~our estimated liability for opioid-related claims as further described in~~ the “~~Trends and Uncertainties”~~Overview of Consolidated Results” section ~~included below;~~below for an analysis of these changes;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three months ended June 30, ~~2021 of $3.09 reflects the aforementioned items, net of any respective tax impacts, discrete tax items recognized in the quarter,~~2022 increased 70% to $5.25, primarily driven by reduced corporate expenses, growth across our North American businesses, 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 three months ended June 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”);~~

•We returned $1.1 billion of cash to shareholders during the three months ended June 30, ~~2021~~2022 through $1.0 billion of ~~share~~common stock repurchases under an accelerated share repurchase (“ASR”) program entered into in May ~~2021,~~2022 and ~~$69~~$71 million of dividend payments. OnIn July ~~23, 2021, we~~2022, our Board of Directors (the “Board”) approved an increase of $4.0 billion in the authorization for repurchases of McKesson’s common stock and raised our quarterly dividend from ~~$0.42~~$0.47 to ~~$0.47~~$0.54 per common ~~share;~~

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

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

•On July 17, 2021, we redeemed our 0.63% Euro-denominated notes with a principal amount of €600 million (or, approximately $709 million) prior to the maturity date of August 17, 2021. The notes were redeemed using cash on hand; and

•On July 23, 2021, we completed a cash tender offer and paid an aggregate consideration of $1.1 billion to redeem certain notes with a principal amount of $922 million. As a result of the redemption, we incurred a loss on debt extinguishment in the second quarter of 2022, consisting of the premiums paid and a portion of the write-off of unamortized discounts and debt issuance costs in an amount proportional to the principal amount of debt retired. Refer to Financial Note 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.share.

Trends and Uncertainties:

The Impact of Inflationary and Global Events

Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including inflation, increased competition for talent, and disruption of the supply chain, as well as by political or civil unrest or military action, including indirect results such as commodity price increases from the conflict between Russia and Ukraine (“Russo-Ukrainian War”). Cost inflation generally affects us by increasing transportation, operational, and other administrative costs associated with our business operations which we might not be able to fully pass along to our customers. Although it is difficult to predict the impact that these factors may have on our business in the future, they did not have a material effect on our results of operations, financial condition, or liquidity for the three months ended June 30, 2022.

COVID-19

~~The novel strain of coronavirus, which causes the infectious disease known as~~ COVID-19 ~~continues~~has continued to evolve since it was declared a global pandemic ~~on March 11, 2020~~ by the World Health ~~Organization.~~Organization on March 11, 2020. We continue to evaluate the nature and extent of the ongoing impacts of COVID-19 ~~has~~ on our business, operations, and financial results. Refer to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our ~~2021~~2022 Annual Report for ~~a full~~additional disclosure of trends and uncertainties due to ~~COVID-19 since the onset of the pandemic.~~COVID-19. The disclosures below include significant updates that occurred during the first quarter of ~~2022. The full extent~~fiscal 2023 and the financial impacts compared 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~~

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

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

As a ~~global~~diversified healthcare services leader, ~~in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions,~~ we ~~remain~~are 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 ~~PPE,~~personal protective equipment (“PPE”), and medicine reach our customers and their patients.

~~We continue to~~In December 2020, we began distributing certain COVID-19 vaccines in support of the U.S. government through a contract with the Centers for Disease Control and Prevention (“CDC”). In July 2022, we renewed our relationship with the CDC, under which we serve as a centralized distributor of COVID-19 vaccines and ancillary supplies ~~needed~~used to administer vaccines through a contract with the CDC. We have been distributing COVID-19 vaccines since December 2020, when the first Emergency Use Authorization was issued by the U.S. Food and Drug Administration. In the first quarter of 2022, McKesson began supporting the U.S. government’s commitment to donate COVID-19 vaccines worldwide. For this initiative, we are responsible for picking and packing the COVID-19 vaccines into temperature-controlled coolers and preparing them for pickup by an international partner. We will not manage the actual shipments of the vaccines to other countries.vaccines. The results of operations related to our vaccine distribution are reflected in our U.S. Pharmaceutical segment. We also ~~continue~~extended our contract 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~~as directed by the Department of Health and Human Services (“HHS”) ~~and Pfizer, Inc. The~~, the results of ~~operations for the kitting and distribution of ancillary supplies~~which 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~~through distributing COVID-19 vaccines ~~but~~and administering them in pharmacies as ~~well.~~well as distributing COVID-19 tests and certain PPE.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Trends in our Business

~~At the onset of the COVID-19 pandemic late~~We observed increases in prescription volumes within our ~~fourth quarter of 2020, we experienced higher pharmaceutical distribution volumes~~U.S. Pharmaceutical segment and increased retail pharmacy foot traffic as our customers increased supplies on hand in March. Subsequently, during the first quarter of 2021, pharmaceutical distribution volumes decreased as a result of the weakened and uncertain global economic environment and COVID-19 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. 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 quarter of 2022 versus 2021.~~

~~We have experienced significant improvements in prescription volumes and~~ primary care ~~patient visits~~business within our Medical-Surgical Solutions segment during ~~our first quarter of~~the three months ended June 30, 2022 compared to the same prior year ~~period, however, the recovery of~~period. The contributions from COVID-19 ~~continues to be non-linear~~tests and ~~tracked with patient mobility. During the first quarter of 2022, the COVID-19~~our vaccine and related ~~ancillary kit~~kitting distribution ~~in the U.S. favorably impacted our results. While demand for PPE remained relatively flat~~programs have decreased year over year primarily driven by lower demand.

Impacts to our Supply Chain

We continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we ~~saw higher sales~~proactively work with manufacturers, industry partners, and government agencies to meet the needs of our customers. During the quarter, we had an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for ~~COVID-19 tests primarily due~~the three months ended June 30, 2022. As potential shortages or disruptions of any products are identified, we address supply continuity which includes securing additional products when available, sourcing back-up products when needed, and following allocation procedures to ~~limited product availability in the first quarter of 2021.~~maintain and protect supply as much as possible. We utilize business continuity action planning to maintain and protect operations across all locations and facilities.

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

For the three months ended June 30, ~~2021,~~2022, COVID-19 tests ~~as well as~~and the kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment contributed approximately $201 million and $49 million to segment revenues and segment operating profit, respectively. For the three months ended June 30, 2021, the contribution was approximately $323 million ~~or 13%, in~~to segment revenues and including total inventory charges ~~which is~~that are further described below, reduced our segment operating profit by approximately $90 ~~million, or 120%. Additionally, the~~million.

The distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment ~~contributed~~decreased during the first quarter of fiscal 2023 when compared to the same prior year period. The contribution was less than 10% into segment operating profit for each of the three months ended June 30, 2022 and 2021. The financial impact from ~~the~~our COVID-19 ~~vaccine~~response efforts in ~~our~~the International segment during the three months ended June 30, 2022 and 2021 was not material to our consolidated results, but favorably contributed to ~~year over year favorability in~~our segment operating profit. During the three months ended June 30, 2020, we had lower pharmaceutical volumes, specialty drug volumes, and patient care visits that negatively impacted our consolidated revenues and income from continuing operations before income taxes. The recovery of prescription volume trends and patient care visits, which are also described in more detail above in the ~~Trends in our Business~~ ~~section, resulted in favorability year over year across our businesses when comparing 2022 versus 2021.~~results.

Additionally, certain PPE items held for resale were valued in our inventory at costs that were inflated by earlier COVID-19 pandemic demand levels. That inventory valuation, if not supported by market resale prices, may be written down to net realizable value. We may also write-off inventory due to decreased customer demand and excess inventory. During the three months ended June 30, 2021, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions ~~segment. Of this amount, we recorded $147 million in cost of sales driven by~~segment during the ~~intent of management not~~three months ended June 30, 2021. We have taken measures 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~~mitigate risks for excess inventory which has already been committed for donation during our first quarter of 2022. In addition, $9 million of inventory charges were recorded in cost of sales for PPE and other related products that management intends to sell. Although market price volatility and changes to anticipated customer demand that may require additional write-downs in future periods of other PPE and related product ~~categories, we are taking measures to mitigate such risk.~~categories.

~~Overall, these~~These COVID-19 related items had a net favorable impact on consolidated income from continuing operations before income taxes for the three months ended June 30, ~~2021~~2022 compared to the same prior year ~~period. Impacts to future periods~~period, primarily due to ~~COVID-19 may differ based~~prior year inventory charges on ~~future developments, which is described at the end of this COVID-19 section.~~certain PPE and other related products as mentioned above.

During the three months ended June 30, 2022 and 2021, we maintained appropriate labor and overall vendor supply levels and experienced no material impacts to our liquidity or net working capital due to the COVID-19 pandemic. 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. At June 30, 2021, we were in compliance with all debt covenants, and believe we have the ability to continue to meet our debt covenants in the future.

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~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; potential seasonality of viral outbreaks; potential new variants of the original virus; the amount of COVID-19 vaccines authorized, manufactured, distributed, and administered; the amount of ancillary supply kits assembled and distributed; the effectiveness of COVID-19 vaccines and governmental measures in controlling the spread of the virus; and the effectiveness of treatments of infected individuals. Due to several rapidly changing variables related to the COVID-19 pandemic, estimations of future economic trends and the timing of when stability will return remains challenging. Additionally, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Key assumptions and estimates about future values in our impairment assessments can be affected by a variety of factors, including the impacts of the global pandemic on industry and economic trends as well as on our business strategy and internal forecasts. Material changes to key assumptions and estimates can decrease the projected cash flows or increase the discount rates and have resulted in impairment charges of certain long-lived assets and could potentially result in future impairment charges. Refer to Item 1A - Risk Factors in Part I of our 2021 Annual Report for a disclosure of risk factors related to COVID-19.

Opioid-Related Litigation and Claims

We are a defendant in ~~approximately 3,200~~many legal proceedings asserting claims related to the distribution of controlled substances (opioids) in federal and state courts throughout the U.S., and in Puerto Rico and Canada. ~~Those proceedings include approximately 2,900 federal cases~~The plaintiffs in these actions have included state attorneys general, county and ~~approximately 300 state court cases throughout the U.S.,~~municipal governments, tribal nations, hospitals, health and ~~cases in Puerto Rico~~welfare funds, third-party payors, and ~~Canada.~~individuals.


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(UNAUDITED)

On ~~July 21, 2021, we~~February 25, 2022, the Company and ~~the~~ two other ~~national~~United States pharmaceutical ~~distributors announced~~distribution companies (collectively, "Distributors") determined that ~~we had negotiated a comprehensive proposed settlement~~there was sufficient State and subdivision participation to proceed with an agreement ~~which, if all conditions are satisfied, would result in the settlement of~~("Settlement") to settle a substantial majority of ~~opioid~~opioids-related lawsuits filed against the Distributors by ~~state~~U.S. states, territories and local governmental entities. Under the ~~proposed agreement,~~Settlement, 46 of 49 eligible states and their participating subdivisions, as well as the ~~three distributors~~District of Columbia and all eligible territories (collectively, "Settling Governmental Entities"), have agreed to join the Settlement. The Settlement became effective on April 2, 2022. If all conditions to the Settlement are satisfied, including the receipt of approval by relevant courts of consent decrees to dismiss the lawsuits, the Distributors would pay the Settling Governmental Entities up to approximately ~~$21~~$19.5 billion over ~~a period of~~ 18 years, with up to approximately ~~$7.9~~$7.4 billion to be paid by ~~us for our 38.1% portion if all eligible entities participate. In addition, the proposed agreement would require the three distributors, including~~ the Company for its 38.1% portion. Under the Settlement, a minimum of 85% of the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse ~~for controlled substances~~to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Settlement provides that the Distributors do not admit liability or wrongdoing and ~~adopt changes~~do not waive any defenses.

The Settlement only addresses the claims of attorneys general of U.S. states and territories and political subdivisions in participating states and territories. Governmental entities not participating in the Settlement may continue to ~~anti-diversion programs.~~

~~On July 20, 2021,~~pursue their claims. The states of Alabama, Oklahoma and Washington chose not to participate in the Settlement, but, since the announcement of the Settlement, we ~~announced that we and the two other national pharmaceutical distributors had agreed to pay up to $1.2 billion, of which our portion would be 38.1%,~~have reached separate agreements in ~~a settlement~~principle with the ~~State~~attorneys general of ~~New York~~these states to settle the claims of the states and ~~its participating subdivisions, including Nassau and Suffolk Counties, to resolve opioid-related claims. This settlement was negotiated in connection~~their subdivisions. The Distributors previously settled with the ~~broad proposed settlement described above, but provides assurance that New York~~Cherokee Nation and ~~its participating subdivisions will receive~~reached a ~~settlement amount consistent with their allocations under~~separate agreement in principle to settle the ~~broad settlement framework, as well as certain attorneys’ fees and costs. If~~claims of the ~~broad settlement is finalized, New York and its participating subdivisions will become part of that broader agreement.~~ remaining federally recognized Native American Tribes.

We ~~previously~~ recorded a charge of ~~$8.1~~$8.3 billion ~~for~~during the year ended March 31, ~~2021 within “Claims and litigation charges, net” in our Consolidated Statement of Operations,~~2022 related to our ~~share~~estimated liability to U.S. governmental entities, including those expected to participate in the Settlement, the states and subdivisions that were not expected to participate or were not eligible, and the Native American tribes. Our total estimated liability for opioid-related claims was $7.9 billion as of ~~the settlement framework described above, as well as other opioid-related claims. We have increased that by $74~~June 30, 2022, of which $759 million ~~this quarter, including a charge~~ of $27 million related to the settlement with New York and its participating subdivisions and a charge of $47 million related to the proposed settlement agreement with state and local governmental entities. We also ~~reclassified $545 million to~~was included in “Other accrued liabilities” for the amount estimated ~~payment due~~to be paid within ~~one year,~~the next twelve months, and the remaining liability ~~is recorded~~was included in “Long-term litigation liabilities” in our Condensed Consolidated Balance ~~Sheet~~Sheet.

Because of the many uncertainties associated with ~~any potential settlement arrangement or other resolution of~~ongoing opioid-related litigation ~~including the uncertainty of the scope of participation by plaintiffs in any potential settlement,~~matters, we are not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for all opioid-related litigation matters. In light of the uncertainty, the amount of any ultimate loss may differ materially from the amount accrued.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Notwithstanding the ~~progress toward a broad settlement,~~Settlement, 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 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10‑Q for more information.~~

~~State Opioid Statutes~~

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

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

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Risks and Forward-Looking Information

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

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(In millions, except per share data)		Three Months Ended June 30,
		2021			2020			Change
(Dollars in millions, except per share data)										(Dollars in millions, except per share data)	Three Months Ended June 30,
											2022			2021			Change
Revenues	Revenues	$	62,674		$	55,679		13	%	Revenues	$	67,154		$	62,674		7	%
Gross profit	Gross profit	3,032			2,700			12		Gross profit	3,023			3,032			-
Gross profit margin	Gross profit margin	4.84		%	4.85		%	(1)	bp	Gross profit margin	4.50		%	4.84		%	(34)	bp
Total operating expenses	Total operating expenses	$	(2,464)		$	(2,022)		22	%	Total operating expenses	$	(1,987)		$	(2,464)		(19)	%
Total operating expenses as a percentage of revenues	Total operating expenses as a percentage of revenues	3.93		%	3.63		%	30	bp	Total operating expenses as a percentage of revenues	2.96		%	3.93		%	(97)	bp
Other income, net	Other income, net	$	43		$	27		59	%	Other income, net	$	15		$	43		(65)	%

Interest expense	Interest expense	(49)			(60)			(18)		Interest expense	(45)			(49)			(8)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	562			645			(13)		Income from continuing operations before income taxes	1,006			562			79
Income tax expense	Income tax expense	(26)			(150)			(83)		Income tax expense	(199)			(26)			665
Income from continuing operations	Income from continuing operations	536			495			8		Income from continuing operations	807			536			51
Loss from discontinued operations, net of tax		(3)			(1)			200
Income (loss) from discontinued operations, net of tax										Income (loss) from discontinued operations, net of tax	2			(3)			167
Net income	Net income	533			494			8		Net income	809			533			52
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(47)			(50)			(6)		Net income attributable to noncontrolling interests	(41)			(47)			(13)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	486		$	444		9	%	Net income attributable to McKesson Corporation	$	768		$	486		58	%

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	$	3.09		$	2.72		14	%	Continuing operations	$	5.25		$	3.09		70	%
Discontinued operations	Discontinued operations	(0.02)			—			—		Discontinued operations	0.01			(0.02)			150
Total	Total	$	3.07		$	2.72		13	%	Total	$	5.26		$	3.07		71	%

Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	158.1			163.2			(3)	%	Weighted-average diluted common shares outstanding	145.9			158.1			(8)	%

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

bp - basis points


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Revenues

Revenues increased for the three months ended June 30, ~~2021~~2022 compared to the same prior year period primarily due to market growth in our U.S. Pharmaceutical segment. ~~Revenues were also favorable year over year due to~~This was partially offset by lower revenues in our International segment driven by the ~~recovery~~completed divestiture of ~~pharmaceutical distribution volumes from the prior year impact~~our U.K. disposal group in April 2022 and unfavorable effects of ~~COVID-19 across our businesses.~~foreign currency exchange fluctuations. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with branded to generic drug conversion.

Gross Profit

Gross profit ~~increased~~was flat for the three months ended June 30, ~~2021 largely due~~2022 compared to the ~~pandemic, including the recovery of the~~same prior year ~~impacts from COVID-19, such as disruptions~~period. Gross profit decreased in our International segment primarily driven by the completed divestiture of ~~doctors’ office operations, deferred or cancelled elective procedures, lower demand for pharmaceuticals,~~our U.K. disposal group in April 2022 and ~~overall reduction~~unfavorable effects of ~~foot traffic in pharmacies, and the favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs.~~foreign currency exchange fluctuations. This was partially offset by an increase in gross profit in our Medical-Surgical Solutions segment due to prior year inventory charges on ~~certain~~ PPE and other related ~~products.~~products as well as growth in our primary care business. Gross profit was also favorably impacted by ~~foreign currency exchange fluctuations for the three months ended June 30, 2021~~growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment as well as increased volume with new and ~~unfavorably impacted by the contribution of~~existing customers in our ~~German pharmaceutical wholesale business to a joint venture with Walgreens Boots Alliance (“WBA”) on November 1, 2020.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

RxTS segment.

Last-in, first-out (“LIFO”) inventory credits were ~~$23~~$13 million and ~~$52~~$23 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. LIFO credits ~~are~~were lower in the first quarter of ~~2022~~fiscal 2023 compared to the same prior year period primarily due to ~~a decrease in the volume of branded off-patent to generic drug launches and~~ higher expected 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.

Total Operating Expenses

A summary of the components of our total operating expenses for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 is as follows:

•Selling, distribution, general, and administrative expenses (“SDG&A”): SDG&A consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, administrative expenses, remeasurement charges to the lower of carrying value or fair value less costs to sell, and ~~administrative expenses.~~other general charges.

•Claims and litigation charges, net: These charges include adjustments for estimated probable settlements related to our controlled substance monitoring and reporting, and opioid-related claims, as well as any applicable income items or credit adjustments due to subsequent changes in estimates. Legal fees to defend claims, which are expensed as incurred, are included within SDG&A. ~~We have reclassified prior period amounts to conform to the current period presentation.~~

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

Three Months Ended June 30,
(Dollars in millions) 2021 2020 Change
Selling, distribution, general, and administrative expenses $ 2,232 $ 2,097 6 %
Claims and litigation charges, net 74 (131) (156)
Restructuring, impairment, and related charges 158 56 182
Total operating expenses $ 2,464 $ 2,022 22 %
Percent of revenues 3.93 % 3.63 % 30 bp


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)


	Three Months Ended June 30,
(Dollars in millions)	2022			2021			Change
Selling, distribution, general, and administrative expenses	$	1,959		$	2,232		(12)	%
Claims and litigation charges, net	5			74			(93)

Restructuring, impairment, and related charges, net	23			158			(85)
Total operating expenses	$	1,987		$	2,464		(19)	%
Percent of revenues	2.96		%	3.93		%	(97)	bp

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

bp - basis points

For the three months ended June 30, ~~2021,~~2022, total operating expenses and total operating expenses as a percentage of revenues ~~increased~~decreased compared to the same prior year period. Total operating expenses were impacted by the following significant items:

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

•~~SDG&A for the three months ended June 30, 2021 when compared to the same prior year period also includes increased costs primarily to support growth across our businesses, partially offset by~~2022 reflects lower operating expenses due to the ~~contribution~~completed divestiture of our ~~German pharmaceutical wholesale business to a joint venture with WBA;~~U.K. disposal group in April 2022;

•Claims and litigation charges, net for the three months ended June 30, 2022 and 2021 includes charges of $5 million and $74 million, respectively, related to our estimated liability for opioid-related claims as previously discussed in the “Trends and Uncertainties” section;

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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

•~~Restructuring, impairment, and related charges for three months ended June 30,~~ 2021 ~~and 2020 primarily~~ includes charges ~~related to our European and Canadian businesses in our International segment and Corporate expenses, net. The year over year increase in restructuring, impairment, and related charges~~ of ~~$102~~$158 million is primarily ~~due~~related to our transition to a partial remote work model approved during the first quarter of fiscal 2022 and costs for optimization programs in ~~Canada. In addition, certain charges related to restructuring initiatives are included under the caption “Cost of sales” in our Condensed Consolidated Statements of Operations~~Canada; and

•Total operating expenses were ~~not material~~favorably impacted by foreign currency exchange fluctuations for the three months ended June 30, ~~2020.~~2022.

Goodwill Impairment

We evaluate goodwill for impairment on an annual basis and at an interim date, if indicators of potential impairment exist. We voluntarily changed our annual goodwill impairment testing date from October 1st to April 1st to align with the change in timing of our annual long-term planning process. This change was not material to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge. Refer to ~~the~~ ~~“Restructuring Initiatives and Long-Lived Asset Impairments”~~ ~~and “Segment Operating Profit and Corporate Expenses, Net”sections below as well as~~ Financial Note ~~3, “Restructuring, Impairment,~~7, “Goodwill and ~~Related Charges,~~Intangible Assets, Net,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q~~ for more ~~information; and~~information.

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

~~Goodwill Impairment~~

~~We evaluate goodwill for impairment on an annual basis as of October 1, and at an interim date, if indicators of potential impairment exist.~~ The annual impairment testing performed in ~~2021~~fiscal 2023 and fiscal 2022 did not indicate any impairment of goodwill and no goodwill impairment charges were recorded during the three months ended June 30, ~~2021 nor 2020.~~2022 and 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 our RxCrossroads reporting unit within our RxTS segment,~~ where the risk of a material goodwill impairment is higher than other reporting units.

Restructuring Initiatives and Long-Lived Asset Impairments

During the first quarter of fiscal 2022, we approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily ~~includes~~included the rationalization of our office space in North America. Where we ~~determine to cease~~ceased using office space, we ~~plan to exit~~exited the portion of the facility no longer used. We also ~~may retain~~retained and ~~repurpose~~repurposed certain other office locations. We ~~expect to incur total~~recorded charges of ~~approximately $180 million to $280~~$95 million for ~~this initiative, of which $95 million of charges were recorded~~the three months ended June 30, 2021 primarily related to ~~date. This initiative is anticipated to be complete in 2022 and estimated remaining charges consist primarily of~~ lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization.

~~During the first quarter of 2021, we committed to an~~ This initiative within the United Kingdom, which is included in our International segment, to further drive operational changes in technologies and business processes, 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. We expect to incur total charges of approximately $85 million to $90 million for this initiative, of which $63 million of charges were recorded to date. The initiative is anticipated to bewas substantially complete in fiscal 2022 and ~~estimated~~ remaining ~~charges consist primarily of accelerated amortization of long-lived assets, facility and other exit~~ costs ~~and employee-related costs.~~we expect to record under this initiative are not material.

Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” 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.~~initiatives.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Other Income, Net

~~The increase in other~~Other income, net decreased for the three months ended June 30, ~~2021~~2022 compared to the same prior year period ~~was~~ primarily due to ~~higher~~unfavorability from our equity investments and lower net equity in ~~earnings and~~earnings. This was partially offset by the payment from a ~~pension settlement~~tax receivable agreement related to our previous joint venture with Change Healthcare, Inc., which was split-off in March 2020.

In July 2022, we exited one of our investments in equity securities for proceeds of $179 million. We expect to recognize a gain within “Other income, net” in our ~~International segment recognized during~~Condensed Consolidated Statement of Operations for the ~~first~~second quarter of ~~2022.~~

~~Table~~fiscal 2023 related to the disposition. The cost basis of ~~Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

the investment was $38 million.

Interest Expense

Interest expense decreased for the three months ended June 30, ~~2021~~2022 when compared to the same prior year ~~period primarily due to the repayment of $1.0 billion of long-term debt in the third quarter of 2021.~~period. Interest expense may ~~also~~ fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, as well as amounts incurred associated with financing fees.

Income Tax Expense

During the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recorded an income tax expense of $199 million and $26 million, ~~and $150 million,~~ respectively. WeOur reported income tax rates ofwere 19.8% and 4.6% ~~and 23.3%~~ for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Fluctuations in our reported income tax rates are primarily due to discrete ~~items~~benefits recognized in the ~~quarter and changes in our business mix of income between various taxing jurisdictions.~~quarter. Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q~~ for more information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 primarily represents ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and the accrual of the annual recurring compensation amount of €0.83 per McKesson Europe share that McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe under the ~~Domination Agreement.~~December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”). Noncontrolling interests with redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. ~~Redeemable noncontrolling interests are presented outside of McKesson Corporation stockholders’ deficit on our condensed consolidated balance sheets.~~ Refer to the “Selected Measures of Liquidity and Capital Resources” section of this Financial Review and Financial Note 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 on changes to our redeemable and noncontrolling interests that occurred during the first quarter of fiscal 2022.

Net Income Attributable to McKesson Corporation

Net income attributable to McKesson Corporation was ~~$486~~$768 million and ~~$444~~$486 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Diluted earnings per common share attributable to McKesson Corporation was ~~$3.07~~$5.26 and ~~$2.72~~$3.07 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Weighted-Average Diluted Common Shares Outstanding

Diluted earnings per common share was calculated based on a weighted-average number of shares outstanding of~~158.1~~ 145.9 million and ~~163.2~~158.1 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Weighted-average diluted shares outstanding for the three months ended June 30, ~~2021~~2022 decreased from the same prior year period primarily due to the cumulative effect of shares repurchases.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Overview of Segment Results:

Segment Revenues:

Three Months Ended June 30,
(Dollars in millions) 2021 2020 Change
Segment revenues
U.S. Pharmaceutical $ 50,019 $ 44,670 12 %
Prescription Technology Solutions 881 656 34
Medical-Surgical Solutions 2,528 1,801 40
International 9,246 8,552 8
Total revenues $ 62,674 $ 55,679 13 %

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


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

~~Total change in Prescription Technology Solutions revenues~~	$	~~0.2~~

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

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

~~Total change in revenues~~	$	~~7.0~~

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

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

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


	Three Months Ended June 30,
(Dollars in millions)	2022		2021		Change
Segment revenues
U.S. Pharmaceutical	$	56,947	$	50,019	14	%
Prescription Technology Solutions	1,066		881		21
Medical-Surgical Solutions	2,592		2,528		3
International	6,549		9,246		(29)
Total revenues	$	67,154	$	62,674	7	%

U.S. Pharmaceutical

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

U.S. Pharmaceutical revenues for the three months ended June 30, ~~2021~~2022 increased $6.9 billion or ~~12%~~14% compared to the same prior year ~~period~~period. Within the segment, sales to pharmacies and institutional healthcare providers increased $6.6 billion and sales to specialty practices and other increased $315 million compared to the same prior year period. Other includes the results for the distribution of COVID-19 vaccines. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, and branded pharmaceutical price increases, ~~and growth in specialty pharmaceuticals,~~ partially offset by branded to generic drug conversions. Revenues for this segment were also favorable year over year due to the recovery of prescription volumes from the prior year impact of COVID-19, including increased customer demand for pharmaceuticals in retail pharmacies and institutional healthcare providers.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Prescription Technology Solutions

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

RxTS revenues for the three months ended June 30, ~~2021~~2022 increased ~~34%~~$185 million or 21% compared to the same prior year ~~period primarily~~period. This increase was due to increased ~~volume~~volumes with new and existing customers primarily in our third-party logistics and ~~the recovery of prescription volumes from the prior year impact of COVID-19.~~wholesale distribution services as well as higher technology service revenues.

Medical-Surgical Solutions

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

Medical-Surgical Solutions revenues for the three months ended June 30, ~~2021~~2022 increased ~~40%~~$64 million or 3% compared to the same prior year ~~period largely~~period. Within the segment, sales to primary care and extended care customers increased $87 million and $10 million, respectively, partially offset by a $33 million decline in sales primarily related to the results of the kitting and distribution of ancillary supply kits used to administer COVID-19 vaccines. The increase in our primary care business ~~due to improvements in patient care visits as a result of prior year customer closures due to COVID-19 and higher~~was driven by underlying revenue growth from physician office customers, partially offset by lower sales of COVID-19 ~~tests in the first quarter of 2022. Revenues for this segment were also favorably impacted by the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines.~~tests.

International

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

International revenues for the three months ended June 30, ~~2021~~2022 decreased $2.7 billion or 29% compared to the same prior year period. Within the segment, foreign currency exchange fluctuations were unfavorable by $574 million and sales in Europe declined by $2.3 billion, partially offset by increased 8%sales in Canada of $169 million compared to the same prior year period. Excluding the ~~favorable~~unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 3%23% largely due to the ~~contribution~~completed divestitures of our ~~German pharmaceutical wholesale~~U.K. disposal group in April 2022 and Austrian business ~~to a joint venture with WBA. This was partially offset by favorability year over year due to the recovery of volumes from COVID-19~~ in ~~our pharmaceutical distribution and retail pharmacy businesses across the segment as well as sales to a new customer in our Canadian business.~~

January 2022.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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


		Three Months Ended June 30,								Three Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2021			2020			Change			(Dollars in millions)	2022				2021			Change
Segment operating profit (1)
Segment operating profit (loss) (1)													Segment operating profit (loss) (1)
U.S. Pharmaceutical	U.S. Pharmaceutical	$	682		$	613		11	%				U.S. Pharmaceutical	$	696		$	682		2	%
Prescription Technology Solutions	Prescription Technology Solutions	104			68			53					Prescription Technology Solutions	144			104			38
Medical-Surgical Solutions (2)	Medical-Surgical Solutions (2)	75			89			(16)					Medical-Surgical Solutions (2)	256			75			241
International(3)	International(3)	53			3			—					International(3)	(6)			53			(111)

Subtotal	Subtotal	914			773			18					Subtotal	1,090			914			19
Corporate expenses, net ~~(3)~~(4)	Corporate expenses, net ~~(3)~~(4)	(303)			(68)			346					Corporate expenses, net ~~(3)~~(4)	(39)			(303)			(87)

Interest expense	Interest expense	(49)			(60)			(18)					Interest expense	(45)			(49)			(8)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	562		$	645		(13)					Income from continuing operations before income taxes	$	1,006		$	562		79	%

Segment operating profit margin
Segment operating profit (loss) margin													Segment operating profit (loss) margin
U.S. Pharmaceutical	U.S. Pharmaceutical	1.36		%	1.37		%	(1)	bp				U.S. Pharmaceutical	1.22		%	1.36		%	(14)	bp
Prescription Technology Solutions	Prescription Technology Solutions	11.80			10.37			143					Prescription Technology Solutions	13.51			11.80			171
Medical-Surgical Solutions	Medical-Surgical Solutions	2.97			4.94			(197)					Medical-Surgical Solutions	9.88			2.97			691
International	International	0.57			0.04			53					International	(0.09)			0.57			(66)

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

bp - basis points

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

(2)Operating profit for our Medical-Surgical Solutions segment for the three months ended June 30, 2021 includes $164 million of 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.~~products.

(3)Operating loss for our International segment for the three months ended June 30, 2022 includes charges of $94 million to remeasure our E.U. disposal group to fair value less costs to sell.

(4)Corporate expenses, net includes the following:

•gains of $106 million for the three months ended June 30, 2022 primarily related to the effect of accumulated other comprehensive loss components from our E.U. disposal group;

•charges of $5 million and $74 million for the three months ended June 30, 2022 and 2021, respectively, related to our estimated liability for opioid-related ~~claims~~claims;

•charges of $19 million and ~~a net gain of $131~~$35 million for the three months ended June 30, ~~2020 recorded in connection with insurance proceeds received from the settlement~~2022 and 2021, respectively, of ~~the shareholder derivative action related to our controlled substances monitoring program.~~opioid-related costs, primarily litigation expenses; and

•restructuring charges of $62 million for the three months ended June 30, 2021 primarily due to the transition to a partial remote work model for certain employees.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

U.S. Pharmaceutical

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

Operating profit increased for this segment for the three months ended June 30, ~~2021~~2022 compared to the same prior year period primarily due to ~~the contribution from our COVID-19 vaccine distribution program and~~ growth in specialty pharmaceuticals, partially offset by a decrease in ~~LIFO credits of $29 million and increased costs for strategic growth initiatives. Operating profit for this segment was also favorable year over year due to~~ the ~~recovery of prescription volumes~~contribution from ~~the prior year impact of COVID-19.~~our COVID-19 vaccine distribution program.

Prescription Technology Solutions

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~2021

Operating profit for this segment increased for the three months ended June 30, ~~2021~~2022 compared to the same prior year period primarily ~~due to~~driven by increased volumes with new and existing customers due to growth in our access, affordability, and ~~the recovery of prescription volumes from the prior year impact of COVID-19.~~adherence solutions.

Medical-Surgical Solutions

Three Months Ended June 30, ~~2021~~2022 vs. ~~2020~~

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

~~International~~

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

Operating profit for this segment increased for the three months ended June 30, 2021 compared to the same prior year period largely due to favorability year over year due to the volume recovery from COVID-19 in our pharmaceutical distribution and retail pharmacy businesses across the segment and to a lesser extent, the distribution of COVID-19 vaccines, COVID-19 tests, and PPE. This was partially offset by higher restructuring charges for optimization programs in Canada.

~~Corporate Expenses, Net~~

~~Corporate expenses, net increased for the three months ended June 30, 2021~~2022 compared to the same prior year period primarily due to aprior year inventory charges on certain PPE and other related products.

International

Three Months Ended June 30, 2022 vs. 2021

Operating loss for this segment for the three months ended June 30, 2022 compared to operating profit for the same prior year period was largely due to fair value remeasurement charges recorded during the first quarter of fiscal 2023 related to our E.U. disposal group, partially offset by the cessation of depreciation and amortization expenses from its assets classified as held for sale, as well as unfavorable impacts from the completed divestitures of our Austrian business and U.K. disposal group. These impacts were partially offset by lower restructuring expenses primarily due to optimization programs in Canada.

Corporate Expenses, Net

Three Months Ended June 30, 2022 vs. 2021

Corporate expenses, net ~~gain of $131 million~~decreased for the three months ended June 30, 2022 compared to the same prior year period primarily due to fair value remeasurement gains recognized during the first quarter of ~~2021 in connection with insurance proceeds received from the settlement of the shareholder derivative action~~fiscal 2023 related to our ~~controlled substances monitoring program. We also recorded~~E.U. disposal group, lower charges ~~of $74 million~~ related to our estimated liability for opioid-related claims, ~~during the first quarter of 2022~~ and ~~higher~~prior year restructuring charges for the 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.~~Report.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

We expect our available cash generated from operations and our short-term investment portfolio, together with our existing sources of liquidity from our credit facilities and commercial paper program, will be sufficient to fund our short-term and long-term capital expenditures, working capital, and other cash requirements. We remain ~~well-capitalized~~adequately capitalized with access to liquidity from our $4.0 billion revolving credit facility. At June 30, ~~2021,~~2022, we were in compliance with all debt covenants, and believe we have the ability to continue to meet our debt covenants in the future.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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


		Three Months Ended June 30,							Three Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2021		2020		Change		(Dollars in millions)	2022		2021		Change
Net cash provided by (used in):	Net cash provided by (used in):							Net cash provided by (used in):
Operating activities	Operating activities	$	(1,622)	$	(1,062)	$	(560)	Operating activities	$	(941)	$	(1,622)	$	681
Investing activities	Investing activities	(99)		(130)		31		Investing activities	39		(99)		138
Financing activities	Financing activities	(2,151)		61		(2,212)		Financing activities	(1,181)		(2,151)		970
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	11		(28)		39		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		11		7
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale (1)								Change in cash, cash equivalents, and restricted cash classified within Assets held for sale (1)	470		—		470
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	$	(3,861)	$	(1,159)	$	(2,702)	Net change in cash, cash equivalents, and restricted cash	$	(1,595)	$	(3,861)	$	2,266

(1)This change reflects a reversal of cash, cash equivalents, and restricted cash previously classified within assets held for sale at March 31, 2022 as part of the U.K. disposal group and is offset by cash outflows primarily related to the settlement of liabilities which is reflected in operating activities. Refer to Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information.

Operating Activities

Operating activities used cash of ~~$1.6 billion~~$941 million and ~~$1.1~~$1.6 billion during the three months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively.Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers, inventory receipts, and payments to vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements, and vendor payment terms.

Operating activities for the three months ended June 30, 2022 were affected by net income adjusted for non-cash items and changes in receivables, drafts and accounts payables, and inventories classified as held for sale. Refer to the “Selected Measures of Liquidity and Capital Resources” section below of this Financial Review and Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information. Operating activities for the three months ended June 30, 2022 were affected by increases in receivables of $1.6 billion, drafts and accounts payable of $1.0 billion, and inventory of $955 million, all primarily driven by higher revenues and timing. Our litigation liabilities also decreased by $370 million primarily driven by payments made during the first quarter of fiscal 2023 associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes.

Operating activities for the three months ended June 30, 2021 were affected by ~~an increase~~increases in receivables of $1.0 billion and ~~an increase in~~ inventory of ~~$0.9 billion,~~$901 million, both primarily due to timing and higher revenues. Operating activities for the three months ended June 30, 2020 were affected by a decrease in drafts and accounts payable of $4.2 billion primarily associated with timing and management of inventory levels as well as a decrease in receivables of $2.3 billion primarily due to lower revenues. Other non-cash items for the three months ended June 30, 2021 includes non-cash inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment.

Investing Activities

Investing activities provided cash of $39 million and used cash of $99 ~~million and $130~~ million during the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Investing activities for the three months ended June 30, 2022 includes proceeds from sales of businesses and investments of $240 million, primarily due to the completed divestiture of our U.K. disposal group in April 2022. Investing activities for the three months ended June 30, 2022 and 2021 ~~and 2020~~ includes ~~$159~~$100 million and ~~$117~~$159 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Financing Activities

Financing activities used cash of $1.2 billion and $2.2 billion during the three months ended June 30, 2022 and 2021, ~~and provided cash~~respectively. Financing activities for each of ~~$61 million during~~ the three months ended June 30, ~~2020.~~2022 and 2021 includes $1.0 billion of cash paid for share repurchases as well as $71 millionand $69 million of cash paid for dividends, respectively. Financing activities for the three months ended June 30, 2021 includes ~~$1.0 billion of cash paid for share repurchases under an ASR program entered into in May 2021. Financing activities for the three months ended June 30, 2021 and 2020 includes$69 millionand $74 million of cash paid for dividends, respectively. Additionally, financing activities for the three months ended June 30, 2021 and 2020 includes payments~~a payment of $1.0 billion ~~and $49 million, respectively,~~ to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders. The put right option expired on June 15, 2021 as further described below. ~~Financing activities for the three months ended June 30, 2020 includes cash receipts and payments of $5.3 billion for short-term borrowings, primarily commercial paper.~~ Cash used for other financing activities generally includes shares surrendered for tax withholding and payments to noncontrolling interests. ~~Other financing activities for the three months ended June 30, 2020 also includes restricted cash inflow related to funds temporarily held on behalf of unaffiliated medical practice groups.~~

Share Repurchase Plans

~~Our~~The Board ~~of Directors (the “Board”)~~ has authorized the repurchase of McKesson’s common stock from ~~time to time~~time-to-time in open market transactions, privately negotiated transactions, through 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~~the Company’s stock price, corporate and regulatory requirements, restrictions under ~~our~~the Company’s debt obligations, and other market and economic conditions.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

In May ~~2021,~~2022, we entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. Pursuant to the ASR agreement, we paid $1.0 billion to the financial institution and received an initial delivery of ~~4.3~~2.6 million shares in May ~~2021.~~2022. The transaction will be completed during the second quarter of ~~2022,~~fiscal 2023, at which point we expect to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock during the term of the ASR program, less a pre-negotiated discount.

In February 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. We received 4.8 million shares as the initial share settlement, and in May 2022, we received an additional 0.3 million shares upon the completion of this ASR program.

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

There were no ~~share repurchases~~other shares repurchased during the three months ended June 30, ~~2020.~~2022 and 2021.

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

~~We believe that our future operating cash flow, financial assets, and current access to capital and credit markets, including our existing credit facilities, will give us~~2022 was $2.3 billion. In July 2022, the ~~ability to meet our financing needs for the foreseeable future. However, there can be no assurance that~~Board approved an increase ~~in volatility or disruption~~of $4.0 billion in the ~~global capital and credit markets will not impair our liquidity or increase our costs~~authorization for repurchase of ~~borrowing.~~McKesson’s common stock.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	(Dollars in millions)	June 30, 2021			March 31, 2021			(Dollars in millions)	June 30, 2022			March 31, 2022
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	2,535		$	6,396		Cash, cash equivalents, and restricted cash	$	2,340		$	3,935
Working capital	Working capital	(485)			1,279			Working capital	(1,818)			(2,235)
Debt to capital ratio (1)	Debt to capital ratio (1)	86.7		%	83.1		%	Debt to capital ratio (1)	122.4		%	114.5		%
Return on McKesson stockholders’ deficit (2)		(218.2)		%	(142.5)		%

(1)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’ ~~deficit,~~equity (deficit), which excludes ~~noncontrolling and redeemable~~ noncontrolling interests and accumulated other comprehensive loss.

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

Cash equivalents, which are readily convertible to known amounts of cash, are carried at fair value. Cash equivalents are primarily invested in AAA-rated U.S. government money market funds and overnight deposits with financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. We mitigate the risk of our short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Our cash and cash equivalents balance as of June 30, ~~2021~~2022 and March 31, ~~2021~~2022 included approximately $~~1.2 billion~~821 million and ~~$2.3~~$1.5 billion of cash held by our subsidiaries outside of the U.S., respectively. Our primary intent is to utilize this cash for foreign operations for an indefinite period of time. Although the ~~vast~~ majority of cash held outside the U.S. is available for repatriation, doing so could subject us to foreign withholding taxes and state income taxes. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes.

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

Consolidated working capital ~~decreased~~improved at June 30, ~~2021~~2022 compared to March 31, ~~2021~~2022 primarily due to increases in receivables, net assets classified as held for sale related to our European divestiture activities, and inventory, partially offset by an increase in drafts and accounts payable and a decrease in cash and cash equivalents and an increase in other accrued liabilities, partially offset by an increase in receivables and inventory as well as a decrease in drafts and accounts payable. The increase in other accrued liabilities is primarily due to the reclassification of $545 million from long-term to short-term for the amount we expect to pay for opioid-related claims within one year as of June 30, 2021. See ~~“Trends and Uncertainties”~~ of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q for further information.equivalents.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

Our debt to capital ratio increased for the three months ended June 30, ~~2021~~2022 primarily due to ~~an increase in McKesson stockholders’ deficit driven by~~ share repurchases, ~~under an ASR program entered into in May 2021,~~ partially offset by net income for the quarter. Our unfavorable return on McKesson’s stockholders’ deficit as of June 30, 2021 and March 31, 2021 was primarily driven by net loss for the year ended March 31, 2021, which includes an after-tax non-cash charge of $6.8 billion related to our estimated liability for opioid-related claims, as discussed in ~~“Trends and Uncertainties”~~ of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

OnIn July ~~23, 2021,~~2022, we raised our quarterly dividend from ~~$0.42~~$0.47 to ~~$0.47~~$0.54 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 previously recognized redeemable noncontrolling interests primarily 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 had a right to put (“Put Right”) their shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published semi-annually by the German Bundesbank, less any compensation amount or guaranteed dividend already paid by McKesson (“Put Amount”). During the three months ended June 30, 2021, ~~and 2020,~~ we paid $1.0 billion ~~and $49 million, respectively,~~ to purchase 34.5 million ~~and 1.8 million~~ shares ~~respectively,~~ of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders, which reduced the balance of our redeemable noncontrolling interests.

The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, valued at $287 million, were transferred from redeemable noncontrolling interests to noncontrolling ~~interests. At~~interests and as a result, we no longer have redeemable noncontrolling interests presented in our condensed consolidated balance sheets at June 30, ~~2021, we owned approximately 95%~~2022 or March 31, 2022. Our noncontrolling interest in McKesson Europe will be included in the sale of ~~McKesson Europe’s outstanding common shares.~~our E.U. disposal group.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

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 months’ advance notice.

Refer to Financial Note 5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~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 ~~$8.1~~$7.9 billion as of June 30, 2022 payable under the Settlement terms 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 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly ~~Report on Form 10-Q.~~Report.

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

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~~McKESSON CORPORATION~~

CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. Readers should not place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to update or revise our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied. Although it is not possible to predict or identify all such risks and uncertainties, they include, but are not limited to, factors described in the Risk Factors discussion in Item 1A of Part I of our most recently filed Annual ~~Report on Form 10-K.~~Report.

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 ~~2021~~2022 Annual Report.

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McKESSON CORPORATION

Item 4.Controls and Procedures.

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

There were no changes in our “internal control over financial reporting” (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that occurred during the three months ended June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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McKESSON CORPORATION

PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

The information set forth in Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and in Financial Note ~~19,~~18, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2021,~~2022, is incorporated herein by reference. Disclosure of an environmental proceeding with a governmental agency generally is included only if we expect monetary sanctions in the proceeding to exceed $1 million, unless otherwise material.

Item 1A.Risk Factors.

Other than factual updates discussed in this Quarterly Report on Form 10-Q, there have been no material changes for the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our ~~2021~~2022 Annual Report on Form 10-K.

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

In May ~~2021, we~~2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. Pursuant to the ASR agreement, wethe Company paid $1.0 billion to the financial institution and received an initial delivery of ~~4.3~~2.6 million shares in May ~~2021.~~2022. The transaction will be completed during the second quarter of ~~2022,~~fiscal 2023, at which point the Company expects to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock during the term of the ASR program, less a pre-negotiated discount.

In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received 4.8 million shares as the initial share settlement, and in May 2022, the Company received an additional 0.3 million shares upon the completion of this ASR program.

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

There were no ~~share repurchases~~other shares repurchased during the three months ended June 30, ~~2020.~~2022 and 2021.

The total remaining authorization outstanding for repurchases of the Company’s common stock ~~was $1.8 billion~~ at June 30, ~~2021.~~2022 was $2.3 billion. In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock.

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McKESSON CORPORATION

The following table provides information on the Company’s share repurchases during the three months ended June 30, ~~2021.~~2022:

Share Repurchases (1)
(In millions, except price per share) Total Number
of Shares
Purchased
Average Price
Paid Per Share (2)
Total Number of
Shares Purchased
As Part of Publicly
Announced
Program Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
April 1, 2021 – April 30, 2021 — $ — — $ 2,785
May 1, 2021 – May 31, 2021 4.3 197.07 4.3 1,785
June 1, 2021 – June 30, 2021 — — — 1,785
Total 4.3 4.3


	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
April 1, 2022 – April 30, 2022	—	$	—	—	$	3,278
May 1, 2022 – May 31, 2022 (2)	2.9	323.42		2.9	2,278
June 1, 2022 – June 30, 2022	—	—		—	2,278
Total	2.9			2.9

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

(2)~~The average price paid per share in~~Includes shares received upon the ~~above table is an estimate based on~~completion of the February 2022 ASR program, and the initial ~~share purchase~~delivery of shares under the May 2022 ASR program at a reference price of $326.47, as discussed above. These amounts under anthe May 2022 ASR ~~agreement~~program are estimates and may differ from the total number of shares purchased and average price paid ~~for~~per share ~~repurchases~~ under the ASR program upon its final settlement ~~during~~in the second quarter of ~~2022.~~fiscal 2023.

~~Table of Contents~~

~~McKESSON CORPORATION~~

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

Not applicable.

5051

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McKESSON CORPORATION

Item 6.Exhibits.

Exhibits identified in parentheses below are on file with the SEC and are incorporated by reference as exhibits hereto.


Exhibit Number			Description
10.1*			McKesson Corporation 2022 Stock Plan, effective July 22 , 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-8 filed with the SEC on July 27 , 2022 ).

~~31.1~~10.2*†			Forms of Statement of Terms and Conditions and Grant Notices Applicable to Awards Pursuant to the McKesson Corporation 2022 Stock Plan.

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

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

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

101			The following materials from the McKesson Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2021,~~2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Deficit), (v) Condensed Consolidated Statements of Cash Flows, and (vi) related Financial Notes.

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

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

† Filed herewith.

†† Furnished herewith.

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McKESSON CORPORATION

SIGNATURES

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


		MCKESSON CORPORATION

Date:	August ~~4, 2021~~3, 2022	/s/ Britt J. Vitalone
		Britt J. Vitalone
		Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	August ~~4, 2021~~3, 2022	/s/ ~~Sundeep G. Reddy~~Napoleon B. Rutledge Jr.
		~~Sundeep G. Reddy~~Napoleon B. Rutledge Jr.
		Senior Vice President and Controller

5253


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

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


Section			Page

General			33

Overview of o ur Business			33

Executive Summary			34

Trends and Uncertainties			35

Overview of Consolidated Results			38

Overview of Segment Results			42

New Accounting Pronouncements			44

Financial Condition, Liquidity, and Capital Resources			45

Cautionary Notice About Forward-Looking Statements			48