Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 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. ~~152,682,166~~141,793,480 shares of the issuer’s common stock were outstanding as of September 30, ~~2021.~~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 and six months ended September 30, 2021 and 2020	3		Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2022 and 2021	3

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

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

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

		Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020	8		Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2022 and 2021	8

		Financial Notes	9		Financial Notes	9

		Note 1 - Significant Accounting Policies	9		Note 1 - Significant Accounting Policies	9

		Note 2 - Held for Sale	10		Note 2 - Business Acquisitions and Divestitures	10

		Note 3 - Restructuring, Impairment, and Related Charges	11		Note 3 - Restructuring, Impairment, and Related Charges, Net	13

		Note 4 - Income Taxes	14		Note 4 - Income Taxes	16

		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	15		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	17

		Note 6 - Earnings (Loss) per Common Share	17		Note 6 - Earnings (Loss) per Common Share	19

		Note 7 - Goodwill and Intangible Assets, Net	18		Note 7 - Goodwill and Intangible Assets, Net	20

		Note 8 - Debt and Financing Activities	20		Note 8 - Debt and Financing Activities	22

		Note 9 - Pension Benefits	22		Note 9 - Pension Benefits	23

		Note 10 - Hedging Activities	22		Note 10 - Hedging Activities	23

		Note 11 - Fair Value Measurements	25		Note 11 - Fair Value Measurements	27

		Note 12 - Commitments and Contingent Liabilities	27		Note 12 - Commitments and Contingent Liabilities	29

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

		Note 14 - Segments of Business	36		Note 14 - Segments of Business	36

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

3	3	Quantitative and Qualitative Disclosures About Market Risk	60	3	Quantitative and Qualitative Disclosures About Market Risk	58

4	4	Controls and Procedures	60	4	Controls and Procedures	59

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION

1	1	Legal Proceedings	61	1	Legal Proceedings	60

1A	1A	Risk Factors	61	1A	Risk Factors	60

2	2	Unregistered Sales of Equity Securities and Use of Proceeds	61	2	Unregistered Sales of Equity Securities and Use of Proceeds	60

3	3	Defaults Upon Senior Securities	62	3	Defaults Upon Senior Securities	60

4	4	Mine Safety Disclosures	62	4	Mine Safety Disclosures	61

5	5	Other Information	62	5	Other Information	61

6	6	Exhibits	63	6	Exhibits	62

		Signatures	64		Signatures	63

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended September 30,				Six Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	66,576	$	60,808	$	129,250	$	116,487	Revenues	$	70,157	$	66,576	$	137,311	$	129,250
Cost of sales	Cost of sales	(63,224)		(57,808)		(122,866)		(110,787)		Cost of sales	(67,062)		(63,224)		(131,193)		(122,866)
Gross profit	Gross profit	3,352		3,000		6,384		5,700		Gross profit	3,095		3,352		6,118		6,384
Selling, distribution, general, and administrative expenses	Selling, distribution, general, and administrative expenses	(2,669)		(2,237)		(4,901)		(4,334)		Selling, distribution, general, and administrative expenses	(1,950)		(2,669)		(3,909)		(4,901)
Claims and litigation charges, net	Claims and litigation charges, net	(112)		—		(186)		131		Claims and litigation charges, net	9		(112)		4		(186)
Goodwill impairment charges		—		(69)		—		(69)
Restructuring, impairment, and related charges		(32)		(60)		(190)		(116)

Restructuring, impairment, and related charges, net										Restructuring, impairment, and related charges, net	(30)		(32)		(53)		(190)
Total operating expenses	Total operating expenses	(2,813)		(2,366)		(5,277)		(4,388)		Total operating expenses	(1,971)		(2,813)		(3,958)		(5,277)
Operating income	Operating income	539		634		1,107		1,312		Operating income	1,124		539		2,160		1,107
Other income, net	Other income, net	139		71		182		98		Other income, net	175		139		190		182
Loss on debt extinguishment	Loss on debt extinguishment	(191)		—		(191)		—		Loss on debt extinguishment	—		(191)		—		(191)

Interest expense	Interest expense	(45)		(50)		(94)		(110)		Interest expense	(55)		(45)		(100)		(94)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	442		655		1,004		1,300		Income from continuing operations before income taxes	1,244		442		2,250		1,004
Income tax expense	Income tax expense	(132)		(28)		(158)		(178)		Income tax expense	(271)		(132)		(470)		(158)
Income from continuing operations	Income from continuing operations	310		627		846		1,122		Income from continuing operations	973		310		1,780		846
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	—		—		(3)		(1)		Loss from discontinued operations, net of tax	(6)		—		(4)		(3)
Net income	Net income	310		627		843		1,121		Net income	967		310		1,776		843
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(43)		(50)		(90)		(100)		Net income attributable to noncontrolling interests	(41)		(43)		(82)		(90)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	267	$	577	$	753	$	1,021	Net income attributable to McKesson Corporation	$	926	$	267	$	1,694	$	753

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	$	1.71	$	3.54	$	4.82	$	6.26	Continuing operations	$	6.46	$	1.71	$	11.71	$	4.82
Discontinued operations	Discontinued operations	—		—		(0.02)		—		Discontinued operations	(0.04)		—		(0.03)		(0.02)
Total	Total	$	1.71	$	3.54	$	4.80	$	6.26	Total	$	6.42	$	1.71	$	11.68	$	4.80
Basic	Basic									Basic
Continuing operations	Continuing operations	$	1.73	$	3.56	$	4.87	$	6.31	Continuing operations	$	6.51	$	1.73	$	11.81	$	4.87
Discontinued operations	Discontinued operations	—		—		(0.02)		(0.01)		Discontinued operations	(0.04)		—		(0.02)		(0.02)
Total	Total	$	1.73	$	3.56	$	4.85	$	6.30	Total	$	6.47	$	1.73	$	11.79	$	4.85

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Diluted	Diluted	155.8		163.2		156.9		163.2		Diluted	144.1		155.8		145.0		156.9
Basic	Basic	154.1		162.0		155.1		162.0		Basic	143.1		154.1		143.7		155.1

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended September 30,				Six Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	310	$	627	$	843	$	1,121	Net income	$	967	$	310	$	1,776	$	843

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	Foreign currency translation adjustments	(48)		41		(24)		74		Foreign currency translation adjustments	(192)		(48)		390		(24)
Unrealized gains (losses) on cash flow hedges		8		(19)		8		(24)
Unrealized gains on cash flow hedges										Unrealized gains on cash flow hedges	18		8		36		8
Changes in retirement-related benefit plans	Changes in retirement-related benefit plans	2		(9)		4		(8)		Changes in retirement-related benefit plans	2		2		38		4
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(38)		13		(12)		42		Other comprehensive income (loss), net of tax	(172)		(38)		464		(12)

Comprehensive income	Comprehensive income	272		640		831		1,163		Comprehensive income	795		272		2,240		831
Comprehensive (income) loss attributable to noncontrolling interests		(43)		75		(93)		(36)
Comprehensive income attributable to noncontrolling interests										Comprehensive income attributable to noncontrolling interests	(35)		(43)		(126)		(93)
Comprehensive income attributable to McKesson Corporation	Comprehensive income attributable to McKesson Corporation	$	229	$	715	$	738	$	1,127	Comprehensive income attributable to McKesson Corporation	$	760	$	229	$	2,114	$	738

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


		September 30, 2021		March 31, 2021			September 30, 2022		March 31, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,151	$	6,278	Cash and cash equivalents	$	2,916	$	3,532
Receivables, net	Receivables, net	20,140		19,181		Receivables, net	20,109		18,583
Inventories, net	Inventories, net	19,342		19,246		Inventories, net	19,876		18,702
Assets held for sale	Assets held for sale	3,086		12		Assets held for sale	2,825		4,516
Prepaid expenses and other	Prepaid expenses and other	861		665		Prepaid expenses and other	722		898
Total current assets	Total current assets	45,580		45,382		Total current assets	46,448		46,231
Property, plant, and equipment, net	Property, plant, and equipment, net	2,222		2,581		Property, plant, and equipment, net	2,071		2,092
Operating lease right-of-use assets	Operating lease right-of-use assets	1,768		2,100		Operating lease right-of-use assets	1,548		1,548
Goodwill	Goodwill	9,473		9,493		Goodwill	9,239		9,451
Intangible assets, net	Intangible assets, net	2,385		2,878		Intangible assets, net	1,872		2,059

Other non-current assets	Other non-current assets	2,173		2,581		Other non-current assets	1,903		1,917
Total assets	Total assets	$	63,601	$	65,015	Total assets	$	63,081	$	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	$	38,922	$	38,975	Drafts and accounts payable	$	41,003	$	38,086

Current portion of long-term debt	Current portion of long-term debt	39		742		Current portion of long-term debt	800		799
Current portion of operating lease liabilities	Current portion of operating lease liabilities	348		390		Current portion of operating lease liabilities	284		297
Liabilities held for sale	Liabilities held for sale	2,337		9		Liabilities held for sale	1,991		4,741
Other accrued liabilities	Other accrued liabilities	4,429		3,987		Other accrued liabilities	4,279		4,543
Total current liabilities	Total current liabilities	46,075		44,103		Total current liabilities	48,357		48,466
Long-term debt	Long-term debt	5,946		6,406		Long-term debt	4,813		5,080
Long-term deferred tax liabilities	Long-term deferred tax liabilities	1,352		1,411		Long-term deferred tax liabilities	1,660		1,418
Long-term operating lease liabilities	Long-term operating lease liabilities	1,605		1,867		Long-term operating lease liabilities	1,315		1,366
Long-term litigation liabilities	Long-term litigation liabilities	7,146		8,067		Long-term litigation liabilities	6,644		7,220
Other non-current liabilities	Other non-current liabilities	1,564		1,715		Other non-current liabilities	1,541		1,540
Redeemable noncontrolling interests		—		1,271

McKesson Corporation stockholders’ deficit	McKesson Corporation stockholders’ deficit					McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—		Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized and 275 and 273 shares issued at September 30, 2021 and March 31, 2021, respectively		2		2
Common stock, $0.01 par value, 800 shares authorized, 277 and 275 shares issued at September 30, 2022 and March 31, 2022, respectively						Common stock, $0.01 par value, 800 shares authorized, 277 and 275 shares issued at September 30, 2022 and March 31, 2022, respectively	3		2
Additional paid-in capital	Additional paid-in capital	7,311		6,925		Additional paid-in capital	7,609		7,275
Retained earnings	Retained earnings	8,812		8,202		Retained earnings	10,579		9,030
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,665)		(1,480)		Accumulated other comprehensive loss	(1,114)		(1,534)

Treasury shares, at cost, 122 and 115 shares at September 30, 2021 and March 31, 2021, respectively		(15,031)		(13,670)
Treasury shares, at cost, 135 and 130 shares at September 30, 2022 and March 31, 2022, respectively						Treasury shares, at cost, 135 and 130 shares at September 30, 2022 and March 31, 2022, respectively	(18,844)		(17,045)
Total McKesson Corporation stockholders’ deficit	Total McKesson Corporation stockholders’ deficit	(571)		(21)		Total McKesson Corporation stockholders’ deficit	(1,767)		(2,272)
Noncontrolling interests	Noncontrolling interests	484		196		Noncontrolling interests	518		480
Total equity (deficit)		(87)		175
Total liabilities, redeemable noncontrolling interests, and equity (deficit)		$	63,601	$	65,015
Total deficit						Total deficit	(1,249)		(1,792)
Total liabilities and deficit						Total liabilities and deficit	$	63,081	$	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 September 30, 2021																	Three Months Ended September 30, 2022
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)						Common Stock							Additional Paid-in Capital						Retained Earnings			Accumulated Other Comprehensive Loss				Treasury							Noncontrolling Interests			Total Deficit
		Shares	Amount				Common Shares					Amount	Noncontrolling Interests						Amount				Additional Paid-in Capital			Common Shares								Accumulated Other Comprehensive Loss									Total Deficit
Balances, June 30, 2021		274	$	2	$	7,057		$	8,618	$	(1,627)	(119)			$	484	$	(45)
Balance, June 30, 2022																				Balance, June 30, 2022		277						$	3			$	7,350								$	9,732					$	(948)			(133)			$	(18,141)	$	532	$	(1,472)
Issuance of shares under employee plans, net of forfeitures	Issuance of shares under employee plans, net of forfeitures	1	—		40			—		—		—	(1)		—		39				Issuance of shares under employee plans, net of forfeitures			—			—				36						—			—				—			(2)				—			34
Share-based compensation	Share-based compensation	—	—		43			—		—		—	—		—		43				Share-based compensation		—			—				46						—			—				—			—				—			46
Repurchase of common stock																				Repurchase of common stock		—			—				177						—			—				(2)			(701)				—			(524)
Net income																				Net income		—			—				—						926			—				—			—				41			967
Other comprehensive loss																				Other comprehensive loss		—			—				—						—			(166)				—			—				(6)			(172)
Cash dividends declared, $0.54 per common share																				Cash dividends declared, $0.54 per common share		—			—				—						(78)			—				—			—				—			(78)
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—			—		—		—	—		(40)		(40)				Payments to noncontrolling interests		—			—				—						—			—				—			—				(41)			(41)
Other comprehensive loss		—	—		—			—		(38)		—	—		—		(38)
Net income		—	—		—			267		—		—	—		43		310
Repurchase of common stock		—	—		171			—		—		(3)	(451)		—		(280)

Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(2)		(2)				Reclassification of recurring compensation to other accrued liabilities		—			—				—						—			—				—			—				(2)			(2)
Cash dividends declared, $0.47 per common share		—	—		—			(74)		—		—	—		—		(74)
Other	Other	—	—		—			1		—		—	—		(1)		—				Other		—			—				—						(1)			—				—			—				(6)			(7)
Balances, September 30, 2021		275	$	2	$	7,311		$	8,812	$	(1,665)	(122)	$	(15,031)	$	484	$	(87)
Balance, September 30, 2022																				Balance, September 30, 2022		277			$	3			$	7,609					$	10,579		$	(1,114)			(135)			$	(18,844)			$	518		$	(1,249)


		Three Months Ended September 30, 2020															Three Months Ended September 30, 2021
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests			Total Equity			Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury				Noncontrolling Interests		Total Deficit
		Shares	Amount				Common Shares					Amount	Noncontrolling Interests								Amount	Additional Paid-in Capital				Retained Earnings					Noncontrolling Interests		Total Deficit
Balances, June 30, 2020		272	$	2	$	6,711		$	13,384	$	(1,735)	(110)			$	207		$	5,653
Balance, June 30, 2021																				Balance, June 30, 2021	274			$	2		$	7,057			$	8,618	$	(1,627)	(119)		$	(14,579)	$	484	$	(45)
Issuance of shares under employee plans, net of forfeitures	Issuance of shares under employee plans, net of forfeitures	1	—		18			—		—		—	—		—			18		Issuance of shares under employee plans, net of forfeitures	1	—		40			—		—		—		(1)		—		39
Share-based compensation	Share-based compensation	—	—		36			—		—		—	—		—			36		Share-based compensation	—	—		43			—		—		—		—		—		43
Repurchase of common stock																				Repurchase of common stock	—	—		171			—		—		(3)		(451)		—		(280)
Net income																				Net income	—	—		—			267		—		—		—		43		310
Other comprehensive loss																				Other comprehensive loss	—	—		—			—		(38)		—		—		—		(38)
Cash dividends declared, $0.47 per common share																				Cash dividends declared, $0.47 per common share	—	—		—			(74)		—		—		—		—		(74)
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—			—		—		—	—		(50)			(50)		Payments to noncontrolling interests	—	—		—			—		—		—		—		(40)		(40)
Other comprehensive income		—	—		—			—		138		—	—		—			138
Net income		—	—		—			577		—		—	—		40			617
Repurchase of common stock		—	—		—			—		—		(2)	(269)		—			(269)

Cash dividends declared, $0.42 per common share		—	—		—			(69)		—		—	—		—			(69)
Reclassification of recurring compensation to other accrued liabilities																				Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—		—		(2)		(2)
Other	Other	—	—		15			(2)		—		—	—		3			16		Other	—	—		—			1		—		—		—		(1)		—
Balances, September 30, 2020		273	$	2	$	6,780		$	13,890	$	(1,597)	(112)	$	(13,185)	$	200		$	6,090
Balance, September 30, 2021																				Balance, September 30, 2021	275	$	2	$	7,311		$	8,812	$	(1,665)	(122)		$	(15,031)	$	484	$	(87)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

(Unaudited)


		Six Months Ended September 30, 2021																												Six Months Ended September 30, 2022
		Common Stock			Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury						Noncontrolling Interests			Total Equity (Deficit)									Common Stock								Additional Paid-in Capital						Retained Earnings			Accumulated Other Comprehensive Loss				Treasury										Noncontrolling Interests				Total Deficit
		Shares	Amount								Common Shares						Amount								Shares						Amount					Additional Paid-in Capital					Retained Earnings			Accumulated Other Comprehensive Loss			Amount							Noncontrolling Interests		Total Deficit
Balances, March 31, 2021		273	$	2			$	6,925			$	8,202			$	(1,480)		(115)			$	(13,670)						$	196			$	175
Balance, March 31, 2022																																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	Issuance of shares under employee plans, net of forfeitures	2	—		111				—				—				—		(60)				—			51							Issuance of shares under employee plans, net of forfeitures		2			1					127							—			—				—					(154)					—				(26)
Share-based compensation	Share-based compensation	—	—		76				—				—				—		—				—			76							Share-based compensation		—			—					86						—			—				—					—					—				86
Repurchase of common stock																																Repurchase of common stock		—			—					121						—			—				(5)					(1,645)					—				(1,524)
Net income																																Net income		—			—					—						1,694			—				—					—					82				1,776
Other comprehensive income																																Other comprehensive income		—			—					—						—			420				—					—					44				464
Cash dividends declared, $1.01 per common share																																Cash dividends declared, $1.01 per common share		—			—					—						(145)			—				—					—					—				(145)
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—				—				—				—		—				(79)			(79)							Payments to noncontrolling interests		—			—					—						—			—				—					—					(77)				(77)
Other comprehensive loss		—	—		—				—				(15)				—		—				—			(15)
Net income		—	—		—				753				—				—		—				82			835
Exercise of put right by noncontrolling shareholders of McKesson Europe AG		—	—		178				—				(170)				—		—				—			8
Repurchase of common stock		—	—		21				—				—				(7)		(1,301)				—			(1,280)
Reclassification of McKesson Europe AG redeemable noncontrolling interests		—	—		—				—				—				—		—				287			287

Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—	—		—				—				—				—		—				(2)			(2)							Reclassification of recurring compensation to other accrued liabilities		—			—					—						—			—				—					—					(4)				(4)
Cash dividends declared, $0.89 per common share		—	—		—				(139)				—				—		—				—			(139)
Other	Other	—	—		—				(4)				—				—		—				—			(4)							Other		—			—					—						—			—				—					—					(7)				(7)
Balances, September 30, 2021		275	$	2	$	7,311			$	8,812			$	(1,665)			(122)		$	(15,031)			$	484		$	(87)
Balance, September 30, 2022																																Balance, September 30, 2022		277			$	3				$	7,609					$	10,579		$	(1,114)			(135)					$	(18,844)				$	518			$	(1,249)


		Six Months Ended September 30, 2020																	Six Months Ended September 30, 2021
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity						Common Stock							Additional Paid-in Capital						Retained Earnings			Accumulated Other Comprehensive Loss				Treasury							Noncontrolling Interests			Total Equity (Deficit)
		Shares	Amount				Common Shares					Amount	Noncontrolling Interests						Amount				Additional Paid-in Capital			Common Shares								Accumulated Other Comprehensive Loss									Total Equity (Deficit)
Balances, March 31, 2020		272	$	2	$	6,663		$	13,022	$	(1,703)	(110)			$	217	$	5,309
Opening retained earnings adjustments: adoption of new accounting standard		—	—		—			(13)		—		—	—		—		(13)
Balances, April 1, 2020		272	2		6,663			13,009		(1,703)		(110)	(12,892)		217		5,296
Balance, March 31, 2021																				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	Issuance of shares under employee plans, net of forfeitures	1	—		39			—		—		—	(24)		—		15				Issuance of shares under employee plans, net of forfeitures			2			—				111						—			—				—			(60)				—			51
Share-based compensation	Share-based compensation	—	—		59			—		—		—	—		—		59				Share-based compensation		—			—				76						—			—				—			—				—			76
Repurchase of common stock																				Repurchase of common stock		—			—				21						—			—				(7)			(1,301)				—			(1,280)
Net income																				Net income		—			—				—						753			—				—			—				82			835
Other comprehensive loss																				Other comprehensive loss		—			—				—						—			(15)				—			—				—			(15)
Cash dividends declared, $0.89 per common share																				Cash dividends declared, $0.89 per common share		—			—				—						(139)			—				—			—				—			(139)
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—			—		—		—	—		(93)		(93)				Payments to noncontrolling interests		—			—				—						—			—				—			—				(79)			(79)
Other comprehensive income		—	—		—			—		106		—	—		—		106
Net income		—	—		—			1,021		—		—	—		79		1,100
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		3			—		—		—	—		—		3				Exercise of put right by noncontrolling shareholders of McKesson Europe AG		—			—				178						—			(170)				—			—				—			8
Repurchase of common stock		—	—		—			—		—		(2)	(269)		—		(269)

Cash dividends declared, $0.83 per common share		—	—		—			(136)		—		—	—		—		(136)
Reclassification of McKesson Europe AG redeemable noncontrolling interests																				Reclassification of McKesson Europe AG redeemable noncontrolling interests		—			—				—						—			—				—			—				287			287
Reclassification of recurring compensation to other accrued liabilities																				Reclassification of recurring compensation to other accrued liabilities		—			—				—						—			—				—			—				(2)			(2)
Other	Other	—	—		16			(4)		—		—	—		(3)		9				Other		—			—				—						(4)			—				—			—				—			(4)
Balances, September 30, 2020		273	$	2	$	6,780		$	13,890	$	(1,597)	(112)	$	(13,185)	$	200	$	6,090
Balance, September 30, 2021																				Balance, September 30, 2021		275			$	2			$	7,311					$	8,812		$	(1,665)			(122)			$	(15,031)			$	484		$	(87)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Six Months Ended September 30,					Six Months Ended September 30,
		2021		2020			2022		2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	843	$	1,121	Net income	$	1,776	$	843
Adjustments to reconcile to net cash provided by (used in) operating activities:
Adjustments to reconcile to net cash provided by operating activities:						Adjustments to reconcile to net cash provided by operating activities:
Depreciation	Depreciation	148		154		Depreciation	124		148
Amortization	Amortization	265		285		Amortization	175		265
Goodwill and long-lived asset impairment charges		127		104

Long-lived asset impairment charges						Long-lived asset impairment charges	11		127
Deferred taxes	Deferred taxes	(18)		(35)		Deferred taxes	170		(18)
Credits associated with last-in, first-out inventory method	Credits associated with last-in, first-out inventory method	(46)		(104)		Credits associated with last-in, first-out inventory method	(36)		(46)
Non-cash operating lease expense	Non-cash operating lease expense	152		172		Non-cash operating lease expense	126		152
Loss (gain) from sales of businesses and investments		(101)		1
Gain from sales of businesses and investments						Gain from sales of businesses and investments	(148)		(101)
European businesses held for sale	European businesses held for sale	470		—		European businesses held for sale	(35)		470
Other non-cash items	Other non-cash items	381		17		Other non-cash items	157		381
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Receivables	Receivables	(2,311)		981		Receivables	(1,883)		(2,311)
Inventories	Inventories	(1,164)		(1,396)		Inventories	(1,453)		(1,164)
Drafts and accounts payable	Drafts and accounts payable	1,431		(1,305)		Drafts and accounts payable	2,292		1,431
Operating lease liabilities	Operating lease liabilities	(186)		(185)		Operating lease liabilities	(174)		(186)
Taxes	Taxes	40		(58)		Taxes	82		40
Litigation liabilities	Litigation liabilities	151		—		Litigation liabilities	(915)		151
Other	Other	(12)		207		Other	(103)		(12)
Net cash provided by (used in) operating activities		170		(41)
Net cash provided by operating activities						Net cash provided by operating activities	166		170

INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Payments for property, plant, and equipment	Payments for property, plant, and equipment	(186)		(174)		Payments for property, plant, and equipment	(157)		(186)
Capitalized software expenditures	Capitalized software expenditures	(93)		(91)		Capitalized software expenditures	(65)		(93)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(4)		(8)		Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(23)		(4)
Proceeds from sales of businesses and investments, net	Proceeds from sales of businesses and investments, net	179		9		Proceeds from sales of businesses and investments, net	496		179
Other	Other	(53)		(14)		Other	(135)		(53)
Net cash used in investing activities		(157)		(278)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	116		(157)

FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from short-term borrowings	Proceeds from short-term borrowings	3,020		5,303		Proceeds from short-term borrowings	100		3,020

Repayments of short-term borrowings	Repayments of short-term borrowings	(3,020)		(5,303)		Repayments of short-term borrowings	(100)		(3,020)
Proceeds from issuances of long-term debt	Proceeds from issuances of long-term debt	498		—		Proceeds from issuances of long-term debt	—		498
Repayments of long-term debt	Repayments of long-term debt	(1,636)		(5)		Repayments of long-term debt	(4)		(1,636)
Payments for debt extinguishments	Payments for debt extinguishments	(184)		—		Payments for debt extinguishments	—		(184)
Common stock transactions:	Common stock transactions:					Common stock transactions:
Issuances	Issuances	111		39		Issuances	127		111
Share repurchases	Share repurchases	(1,272)		(248)		Share repurchases	(1,484)		(1,272)
Dividends paid	Dividends paid	(134)		(140)		Dividends paid	(139)		(134)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(1,031)		(49)		Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—		(1,031)
Other	Other	(246)		2		Other	(253)		(246)
Net cash used in financing activities	Net cash used in financing activities	(3,894)		(401)		Net cash used in financing activities	(1,753)		(3,894)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		(63)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	24		18
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale						Change in cash, cash equivalents, and restricted cash classified within Assets held for sale	470		—
Net decrease in cash, cash equivalents, and restricted cash	Net decrease in cash, cash equivalents, and restricted cash	(3,863)		(783)		Net decrease in cash, cash equivalents, and restricted cash	(977)		(3,863)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	6,396		4,023		Cash, cash equivalents, and restricted cash at beginning of period	3,935		6,396
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	2,533		3,240		Cash, cash equivalents, and restricted cash at end of period	2,958		2,533
Less: Restricted cash at end of period included in Prepaid expenses and other	Less: Restricted cash at end of period included in Prepaid expenses and other	(382)		(149)		Less: Restricted cash at end of period included in Prepaid expenses and other	(42)		(382)

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	2,151	$	3,091	Cash and cash equivalents at end of period	$	2,916	$	2,151

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 4four 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 further 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 and six months ended September 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 fiscal year begins~~On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IR Act”). Among other provisions, the IR Act includes a 15% corporate minimum tax, a 1% excise tax on ~~April 1~~certain repurchases of an entity’s own common stock after December 31, 2022, and ~~ends~~various drug pricing reforms. Based on ~~March 31. Unless otherwise noted, all references~~its preliminary assessment, the Company does not currently expect the IR Act to have a ~~particular year shall mean~~material impact on its results of operations, financial position, or cash flows in the ~~Company’s fiscal year.~~

~~Certain prior year amounts have been reclassified~~foreseeable future; however, the Company will continue to ~~conform to~~evaluate the ~~current year presentation.~~full impact of these legislative changes.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Recently Adopted Accounting Pronouncements

InThere were no adopted accounting standards during the first ~~quarter~~half of fiscal 2023 that had a material impact to the Company’s results of operations, financial position, cash flows, or notes to the financial statements upon their adoption.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2022, the ~~Company prospectively 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 the 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 the recognition of deferred tax liabilities for outside basis differences.~~fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not expect that this guidance ~~also simplifies and clarifies certain other aspects of accounting for income taxes. The adoption of this amended guidance did not~~will have a material impact on ~~the Company’s condensed~~its consolidated financial statements or related disclosures.

2. ~~Held~~Business Acquisitions and Divestitures

Acquisitions

Rx Savings Solutions, LLC

On November 1, 2022, the Company completed its acquisition of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to expand on connecting biopharma and payer services to patients. RxSS is a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. The purchase consideration included a payment of approximately $600 million made upon closing and a maximum of $275 million of contingent consideration based on RxSS’ financial performance through calendar year 2025. The financial results of RxSS will be included in the Company’s RxTS segment as of the acquisition date in the third quarter of fiscal 2023. The transaction will be accounted for ~~Sale~~as a business combination and the analysis to assign fair values to the assets acquired and liabilities assumed is currently underway.

Oncology Research Business

On October 31, 2022, the Company completed a transaction with HCA Healthcare, Inc. (“HCA”) to form an oncology research business, combining McKesson’s U.S. Oncology Research (“USOR”) and HCA’s Sarah Cannon Research Institute (“SCRI”), to advance cancer care and increase access to oncology clinical research. McKesson owns a 51% controlling interest in the combined business, and the financial results will be consolidated by the Company and reported within its U.S. Pharmaceutical segment as of the acquisition date in the third quarter of fiscal 2023. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and $173 million of cash paid to HCA. The transaction will be accounted for as a business combination and the analysis to assign fair values to the assets acquired, liabilities assumed, and noncontrolling interest is currently underway.

Separately, on October 31, 2022, McKesson acquired Genospace, SCRI’s personalized medicine platform. Genospace is a leading innovator in precision medicine and clinical trial matching and will enhance McKesson’s oncology data and analytics capabilities. The acquisition of Genospace will be accounted for as a business combination and its financial results will be included in the U.S. Pharmaceutical segment as of the acquisition date in the third quarter of 2023. The analysis to assign fair values to the assets acquired and liabilities assumed is currently underway.

Divestitures

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 $2.8 billion and $2.0 billion, respectively, at September 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 fiscal 2023 was driven by the divestiture of the Company’s U.K. disposal group in April 2022, as discussed in more detail below.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 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 classified as held for ~~sale were $3.1 billion and $2.3 billion, respectively, at September 30, 2021 and $12 million and $9 million, respectively, at March 31, 2021.~~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 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 ~~$1.4~~$1.2 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 AG (“McKesson Europe”) at the transaction closing date. The transaction ~~is anticipated to close within~~closed on October 31, 2022, and the ~~next twelve months, pursuant to~~Company received net cash proceeds of $892 million after the ~~satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable.~~adjustments listed above. As of September 30, ~~2021,~~2022 and March 31, 2022, the E.U. disposal group ~~consisting of $3.1 billion of assets and $2.3 billion of liabilities primarily~~ within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for ~~sale”~~sale,” respectively, in the Condensed Consolidated Balance ~~Sheet.~~Sheets.

During the three and six months ended September 30, ~~2021,~~2022, the Company recorded a gain of $23 million and $35 million, respectively, and during the three and six months ended September 30, 2021, recorded charges totaling $491 million to remeasure the assets and liabilities of the E.U. disposal group to ~~the lower of its carrying value or~~ fair value less costs to sell. ~~These~~The fiscal 2022 charges also included impairments of individual assets, such as certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole. The remeasurement adjustment ~~includes~~in the three and six months ended September 30, 2021 included a $226 million loss related to the accumulated other comprehensive income balances associated with the E.U. disposal group. ~~The charges~~These amounts were recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was 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 Sheets are as follows:


(In millions)	September 30, 2022		March 31, 2022
Assets
Current assets
Receivables, net	$	1,175	$	1,322
Inventories, net	810		809
Prepaid expenses and other	68		72
Property, plant, and equipment, net	278		304
Operating lease right-of-use assets	206		224
Intangible assets, net	236		267
Other non-current assets	297		328
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)	(245)		(302)
Total assets held for sale	$	2,825	$	3,024

Liabilities
Current liabilities
Drafts and accounts payable	$	1,258	$	1,826
Current portion of long-term debt	4		4
Current portion of operating lease liabilities	28		33
Other accrued liabilities	360		473
Long-term debt	10		11
Long-term deferred tax liabilities	64		55
Long-term operating lease liabilities	153		180
Other non-current liabilities	114		138
Total liabilities held for sale	$	1,991	$	2,720

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

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

Table of Contents

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 Sheets. 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)	~~September 30, 2021~~March 31, 2022
Assets
Current assets
~~Receivables, net~~Cash and cash equivalents	$	~~1,298~~531
Receivables, net	931
Inventories, net	~~886~~563
Prepaid expenses and other	~~113~~50
Property, plant, and equipment, net	~~301~~91
Operating lease right-of-use assets	~~224~~270
Intangible assets, net	~~279~~117
Other non-current assets	~~348~~88
Remeasurement of assets of businesses held for sale to fair value less ~~cost~~costs to sell~~(1)~~	~~(370)~~(1,159)
Total assets held for sale	$	~~3,079~~1,482

Liabilities
Current liabilities
Drafts and accounts payable	$	~~1,398~~1,593
~~Current portion of long-term debt~~	4
Current portion of operating lease liabilities	3450
Other accrued liabilities	~~449~~59
~~Long-term debt~~	15
Long-term deferred tax liabilities	4816
Long-term operating lease liabilities	~~198~~262
Other non-current liabilities	~~184~~38
Total liabilities held for sale	$	~~2,330~~2,018

~~(1)Excludes charges related to~~Other

For 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 November 1, 2021,~~periods presented, the Company ~~announced an agreement to sell~~also completed de minimis acquisitions and divestitures within its ~~retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited~~operating segments. Financial results for purchase consideration of £325 million (or, approximately $438 million). The transaction is anticipated to close during the fourth quarter of 2022, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals. Beginning in the third quarter of 2022, the U.K. disposal group will be reflected in the Company’s ~~condensed~~business acquisitions have been included in its consolidated financial statements as ~~held~~of their respective acquisition dates. Purchase prices for sale and will be remeasured to the lower of its carrying amount or fair value less costs to sell, which the Company estimates will result in a charge of between $700 million and $900 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the U.K. disposal group. While this range reflects the Company’s best estimate as of the date of this Quarterly Report on Form 10-Q, actual charges could differbusiness acquisitions have been allocated based on ~~operating results, changes in foreign exchange rates, and other factors prior to closing of~~estimated fair values at the ~~transaction.~~respective acquisition dates.

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $30 million and $32 million for the three months ended September 30, 2022 and 2021, respectively, and $53 million and $190 million ~~during~~for the ~~three and~~ six months ended September 30, ~~2021, respectively,~~2022 and ~~$60 million and $116 million during the three and six months ended September 30, 2020,~~2021, respectively. These charges ~~are~~were included in “Restructuring, impairment, and related ~~charges”~~charges, net” 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 and six months ended September 30, 2021 and 2020.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 $15 million and $110 million ~~respectively, in~~for the three and six months ended September 30, ~~2021. This initiative is anticipated to be completed in 2022. Charges~~2021, respectively, primarily ~~relate~~related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization.

~~During the first quarter of 2021, the Company committed to an~~ This initiative within the 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, and related headcount reductions. The Company expects to incur total charges of approximately $85 million to $90 million, of which $64 million of charges were recorded to date. The Company recorded charges of $1 million and $7 million, respectively, in the three and six months ended September 30, 2021 and $27 million and $41 million, respectively, in the three and six months ended September 30, 2020, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. The initiative is anticipated to bewas substantially complete in fiscal 2022 and ~~estimated~~ remaining ~~charges primarily consist of accelerated amortization of long-lived assets, facility~~costs the Company recorded and ~~other exit costs, and employee-related costs.~~expects to record under this initiative are not material.

Restructuring, impairment, and related charges, ~~during~~net, for the three ~~and six~~ months ended September 30, 2022 and 2021 consisted of the following:


	Three Months Ended September 30, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	—	$	—	$	—	$	2	$	(5)	$	(3)
Exit and other-related costs (1)	—		1		1		6		14		22
Asset impairments and accelerated depreciation	3		6		—		1		1		11
Total	$	3	$	7	$	1	$	9	$	10	$	30

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


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

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Six Months Ended September 30, 2021
(In millions)
U.S. Pharmaceutical (1)
Prescription Technology Solutions (1)
Medical-Surgical Solutions (1)
International (2)
Corporate (1)
Total
Severance and employee-related costs, net $ 2 $ (1) $ 1 $ 10 $ 1 $ 13
Exit and other-related costs (3)
4 2 2 15 27 50
Asset impairments and accelerated depreciation 16 17 5 36 53 127
Total $ 22 $ 18 $ 8 $ 61 $ 81 $ 190
Restructuring, impairment, and related charges, net, for the six months ended September 30, 2022 and 2021 consisted of the following:


	Six Months Ended September 30, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	3	$	—	$	—	$	2	$	(6)	$	(1)
Exit and other-related costs (1)	1		3		2		8		29		43
Asset impairments and accelerated depreciation	3		11		—		1		(4)		11
Total	$	7	$	14	$	2	$	11	$	19	$	53

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

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

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

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


		Three Months Ended September 30, 2020													Six Months Ended September 30, 2021
(In millions)	(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International (1)		Corporate (2)		Total		(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions (1)		Medical-Surgical Solutions (1)		International (2)		Corporate (1)		Total
Severance and employee-related costs, net	Severance and employee-related costs, net	$	6	$	—	$	3	$	3	$	4	$	16	Severance and employee-related costs, net	$	2	$	(1)	$	1	$	10	$	1	$	13
Exit and other-related costs (3)	Exit and other-related costs (3)	4		—		(1)		5		7		15		Exit and other-related costs (3)	4		2		2		15		27		50
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	—		—		1		27		1		29		Asset impairments and accelerated depreciation	16		17		5		36		53		127
Total	Total	$	10	$	—	$	3	$	35	$	12	$	60	Total	$	22	$	18	$	8	$	61	$	81	$	190

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

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

~~(2)Primarily represents~~and costs ~~associated with an operating model and cost~~for optimization ~~initiative and with the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed~~programs in ~~the year ended March 31, 2021.~~Canada.

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

Six Months Ended September 30, 2020
(In millions) U.S. Pharmaceutical Prescription Technology Solutions Medical-Surgical Solutions
International (1)
Corporate (2)
Total
Severance and employee-related costs, net $ 7 $ — $ 3 $ 20 $ 24 $ 54
Exit and other-related costs (3)
5 — 2 7 14 28
Asset impairments and accelerated depreciation — — 1 31 2 34
Total $ 12 $ — $ 6 $ 58 $ 40 $ 116

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

~~(2)~~Primarily represents costs associated with an operating model and cost optimization initiative and with the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed in the year ended March 31, 2021.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The following table summarizes the activity related to the ~~restructuring~~ liabilities associated with the Company’s restructuring initiatives for the six months ended September 30, ~~2021:~~2022:


(In millions)	(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2021 (1)		$	19	$	4	$	3	$	66	$	59	$	151
Restructuring, impairment, and related charges		22		18		8		61		81		190
Balance, March 31, 2022 (1)														Balance, March 31, 2022 (1)	$	11	$	3	$	1	$	56	$	59	$	130
Restructuring, impairment, and related charges, net														Restructuring, impairment, and related charges, net	7		14		2		11		19		53
Non-cash charges	Non-cash charges	(16)		(17)		(5)		(36)		(53)		(127)		Non-cash charges	(3)		(11)		—		(1)		4		(11)
Cash payments	Cash payments	(9)		(1)		(4)		(14)		(13)		(41)		Cash payments	(3)		(3)		(2)		(6)		(25)		(39)
Other(2)	Other(2)	—		—		—		(6)		(6)		(12)		Other(2)	(1)		—		—		(24)		1		(24)
Balance, September 30, 2021 (2)		$	16	$	4	$	2	$	71	$	68	$	161
Balance, September 30, 2022 (3)														Balance, September 30, 2022 (3)	$	11	$	3	$	1	$	36	$	58	$	109

(1)As of March 31, ~~2021,~~2022, the total reserve balance was ~~$151~~$130 million, of which ~~$99 million was recorded in “Other accrued liabilities” and $52 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.~~

~~(2)As of September 30, 2021, the total reserve balance was $161 million, of which $95~~$58 million was recorded in “Other accrued liabilities,” $36 million was recorded in “Liabilities held for sale,” and ~~$30~~$36 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.

(2)Other primarily includes cumulative translation adjustments and transfers to certain other liabilities. For the Company’s International segment, other also includes a reduction of the liability related to the sale of the U.K. disposal group in April 2022, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(3)As of September 30, 2022, the total reserve balance was $109 million, of which $60 million was recorded in “Other accrued liabilities,” $22 million was recorded in “Liabilities held for sale,” and $27 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.

4. Income Taxes

~~During the three months ended September 30, 2021 and 2020, the Company recorded income~~Income tax expense of $132 million and $28 million, respectively. During the six months ended September 30, 2021 and 2020, the Company recorded income tax expense of $158 million and $178 million, respectively. The Company’s reported income tax rates were 29.9% and 4.3% for the three months ended September 30, 2021 and 2020, respectively and 15.7% and 13.7% for the six months ended September 30, 2021 and 2020, respectively. related to continuing operations was as follows:


	Three Months Ended September 30,						Six Months Ended September 30,
(Dollars in millions)	2022			2021			2022			2021
Income tax expense	$	271		$	132		$	470		$	158
Reported income tax rate	21.8		%	29.9		%	20.9		%	15.7		%

Fluctuations in the Company’s reported income tax rates ~~are~~were primarily due to non-cash charges related to remeasuring the value of ~~its~~the E.U. disposal group ~~held for sale,~~in the second quarter of fiscal 2022, changes in the mix of earnings between various taxing jurisdictions, and discrete ~~items~~benefits recognized in the quarters.

During the three months ended September 30, 2022 and 2021, the Company recognized a net discrete tax benefit primarily related to increased tax credits of $16 million and a decrease in the global intangible low-tax income (“GILTI”) of $55 million, respectively. During the six months ended September 30, 2022, the Company recognized a net discrete tax benefit primarily related to the tax impact of share-based compensation of $53 million. During the six months ended September 30, 2021, the Company also recognized a net discrete tax benefit primarily related to statute of limitation expirations of $97 million in various taxing jurisdictions.

During the second quarter of fiscal 2022, the Company recorded non-cash pre-tax charges totaling $491 million primarily to remeasure the assets and liabilities of the E.U. disposal group to ~~the lower of its carrying value or~~ fair value less costs to sell, as described in Financial Note 2, ~~“Held for Sale.~~“Business Acquisitions and Divestitures.” The Company’s reported income tax rates for the three and six months ended September 30, 2021 were unfavorably impacted by this due to the non-deductible nature of the majority of these charges for income tax purposes.

~~During the second quarter~~

Table of ~~2022, the Company recognized a net discrete tax benefit of $55 million primarily related to a decrease in the global intangible low-tax income (“GILTI”) in its 2021 U.S. Federal income tax return.~~Contents

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

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

As of September 30, ~~2021,~~2022, the Company had ~~$1.7~~$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 ~~six~~next twelve months, ~~ended September 30, 2021, the Company recognized a net discrete~~it is reasonably possible that our unrecognized tax ~~benefit~~benefits may decrease by as much as $150 million to $180 million due to settlements of ~~$97 million primarily related to~~tax examinations and statute of limitation expirations ~~in various taxing jurisdictions. During~~based on the ~~next twelve months, the Company does not anticipate any material reduction in its unrecognized tax benefits.~~information currently available. However, this may change as the Company continues to have ongoing ~~negotiations~~discussions with various taxing authorities throughout the ~~year.~~year, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to future developments in ~~the Opioid related~~opioid-related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

The Company is a party to a certain tax receivable agreement (“TRA”) entered into as part of the formation of the joint venture with Change Healthcare Inc. (“Change”), from which McKesson has since exited. The TRA generally requires Change to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the amortization allocated to Change by the joint venture. In October 2022, Change exercised its right pursuant to the TRA to terminate the agreement. The Company received $126 million in the third quarter of fiscal 2023 due to early termination of the TRA, which will result in a gain within “Other income, net” in the Condensed Consolidated Statements of Operations.

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, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million during the ~~three months ended June 30, 2021, and $10 million and $21 million during the three and~~ six months ended September 30, ~~2020, respectively. All amounts were~~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.~~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 5five 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 in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remained unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. On April 12, 2021, the Company received notice that the Stuttgart Court of Appeals ruled that the Put Amount shall remain €22.99, thereby rejecting the lower court’s increase, and the recurring compensation remained at €0.83 per share.

During the six months ended September 30, 2021, ~~and 2020,~~ the Company paid $1.0 billion ~~and $49 million, respectively,~~ to purchase 34.5 million ~~and 1.8 million~~ shares ~~respectively,~~ of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the redeemable noncontrolling interests by $983 million ~~and $49 million, respectively,~~ for the six months ended September 30, 2021, ~~and 2020,~~ and the Company recorded the associated effect of the increase in the Company’s ownership interest 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” in the Condensed Consolidated Balance Sheet.

The redeemable noncontrolling interest was adjusted each period for the proportion of other comprehensive income, primarily due to changes in foreign currency exchange rates, attributable to the noncontrolling shareholders. Prior to expiration of the Put Right, the 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.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021, noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. ~~At September 30, 2021, the Company owned approximately 95%, of McKesson Europe’s outstanding common shares.~~ The Company’s noncontrolling interest in McKesson Europe, ~~will be~~with a carrying value of $382 million at September 30, 2022, was included in the sale of the E.U. disposal group, as discussed in Financial Note 2, ~~“Held for Sale.~~“Business Acquisitions and Divestitures.” The Company allocated ~~$43~~$41 million and ~~$82~~$43 million of net income to noncontrolling interests during the three months ended September 30, 2022 and 2021, respectively, and $82 million during each of the six months ended September 30, 2022 and 2021, ~~respectively, and $40 million and $79 million during~~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 and six months ended September 30, ~~2020, respectively.~~2022 were as follows:


(In millions)	Noncontrolling Interests
Balance, June 30, 2022	$	532
Net income attributable to noncontrolling interests	41
Other comprehensive loss	(6)
Payments to noncontrolling interests	(41)
Reclassification of recurring compensation to other accrued liabilities	(2)


Other	(6)
Balance, September 30, 2022	$	518


(In millions)	Noncontrolling Interests
Balance, March 31, 2022	$	480
Net income attributable to noncontrolling interests	82
Other comprehensive income	44
Payments to noncontrolling interests	(77)
Reclassification of recurring compensation to other accrued liabilities	(4)


Other	(7)
Balance, September 30, 2022	$	518

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


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

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

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

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

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

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, June 30, 2020 $ 207 $ 1,414
Net income attributable to noncontrolling interests 40 10
Other comprehensive loss — (151)
Reclassification of recurring compensation to other accrued liabilities — (10)
Payments to noncontrolling interests (50) —
Other 3 2
Balance, September 30, 2020 $ 200 $ 1,265

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


(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	79		21		Net income attributable to noncontrolling interests	82		8
Other comprehensive loss		—		(90)
Other comprehensive income						Other comprehensive income	—		3
Payments to noncontrolling interests						Payments to noncontrolling interests	(79)		—
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—		(21)		Reclassification of recurring compensation to other accrued liabilities	(2)		(8)
Payments to noncontrolling interests		(93)		—
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	(3)		2		Other	—		(4)
Balance, September 30, 2020		$	200	$	1,265
Balance, September 30, 2021						Balance, September 30, 2021	$	484	$	—

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. Less than 1 million of potentially dilutive securities for each of the three and six months ended September 30, ~~2021~~2022 and ~~approximately 2 million of potentially dilutive securities for the three and six months ended September 30, 2020~~2021 were excluded from the computation of diluted 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 September 30,				Six Months Ended September 30,					Three Months Ended September 30,				Six Months Ended September 30,
(In millions, except per share amounts)	(In millions, except per share amounts)	2021		2020		2021		2020		(In millions, except per share amounts)	2022		2021		2022		2021
Income from continuing operations	Income from continuing operations	$	310	$	627	$	846	$	1,122	Income from continuing operations	$	973	$	310	$	1,780	$	846
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(43)		(50)		(90)		(100)		Net income attributable to noncontrolling interests	(41)		(43)		(82)		(90)
Income from continuing operations attributable to McKesson Corporation	Income from continuing operations attributable to McKesson Corporation	267		577		756		1,022		Income from continuing operations attributable to McKesson Corporation	932		267		1,698		756
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	—		—		(3)		(1)		Loss from discontinued operations, net of tax	(6)		—		(4)		(3)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	267	$	577	$	753	$	1,021	Net income attributable to McKesson Corporation	$	926	$	267	$	1,694	$	753

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic	Basic	154.1		162.0		155.1		162.0		Basic	143.1		154.1		143.7		155.1
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Stock options	Stock options	0.2		—		0.2		—		Stock options	0.2		0.2		0.3		0.2
Restricted stock units (1)	Restricted stock units (1)	1.5		1.2		1.6		1.2		Restricted stock units (1)	0.8		1.5		1.0		1.6
Diluted	Diluted	155.8		163.2		156.9		163.2		Diluted	144.1		155.8		145.0		156.9

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	$	1.71	$	3.54	$	4.82	$	6.26	Continuing operations	$	6.46	$	1.71	$	11.71	$	4.82
Discontinued operations	Discontinued operations	—		—		(0.02)		—		Discontinued operations	(0.04)		—		(0.03)		(0.02)
Total	Total	$	1.71	$	3.54	$	4.80	$	6.26	Total	$	6.42	$	1.71	$	11.68	$	4.80
Basic	Basic									Basic
Continuing operations	Continuing operations	$	1.73	$	3.56	$	4.87	$	6.31	Continuing operations	$	6.51	$	1.73	$	11.81	$	4.87
Discontinued operations	Discontinued operations	—		—		(0.02)		(0.01)		Discontinued operations	(0.04)		—		(0.02)		(0.02)
Total	Total	$	1.73	$	3.56	$	4.85	$	6.30	Total	$	6.47	$	1.73	$	11.79	$	4.85

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

(2)Certain computations may reflect rounding adjustments.

7. Goodwill and Intangible Assets, Net

~~In the second quarter of 2021, the~~The Company ~~implemented a new segment reporting structure which prompted changes in multiple reporting units across the Company. As a result,~~evaluates goodwill ~~included in the impacted reporting units was reallocated using a relative fair value approach and assessed~~ for impairment ~~before~~on an annual basis and ~~after the reallocation.~~at an interim date, if indicators of potential impairment exist. The Company ~~recorded a~~voluntarily changed its annual goodwill impairment ~~charge of $69 million~~testing date from October 1st to April 1st to align with a change in ~~the three and six months ended September 30, 2020 as the estimated fair value~~timing of the ~~Europe Retail Pharmacy reporting unit~~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 ~~lower than its reassigned carrying value based on changes in~~not material to the ~~composition~~Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge. The annual impairment testing performed as of ~~this reporting unit within the International segment. This~~April 1, 2022 did not indicate an impairment ~~charge is included in “Goodwill impairment charges” in the Condensed Consolidated Statements~~ of ~~Operations.~~goodwill.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Changes in the carrying amount of goodwill were as follows:


(In millions)	(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total
Balance, March 31, 2021		$	3,963	$	1,542	$	2,453	$	1,535	$	9,493
Balance, March 31, 2022												Balance, March 31, 2022	$	3,923	$	1,542	$	2,453	$	1,533	$	9,451
Goodwill acquired	Goodwill acquired	—		—		—		4		4		Goodwill acquired	11		—		—		1		12

Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	(9)		—		—		(15)		(24)		Foreign currency translation adjustments, net	(72)		—		—		(150)		(222)
Balance, September 30, 2021		$	3,954	$	1,542	$	2,453	$	1,524	$	9,473
Other adjustments												Other adjustments	(2)		—		—		—		(2)
Balance, September 30, 2022												Balance, September 30, 2022	$	3,860	$	1,542	$	2,453	$	1,384	$	9,239

Information regarding intangible assets is as follows:

September 30, 2021 March 31, 2021
(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 12 $ 3,241 $ (2,017) $ 1,224 $ 3,739 $ (2,269) $ 1,470
Service agreements 10 1,082 (542) 540 1,081 (513) 568
Pharmacy licenses 22 308 (209) 99 497 (244) 253
Trademarks and trade names 12 872 (394) 478 925 (394) 531
Technology 3 136 (116) 20 150 (122) 28
Other 7 255 (231) 24 254 (226) 28
Total $ 5,894 $ (3,509) $ 2,385 (1) $ 6,646 $ (3,768) $ 2,878

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


	September 30, 2022							March 31, 2022
(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	12	$	2,710	$	(1,703)	$	1,007	$	2,777	$	(1,691)	$	1,086
Service agreements	9	1,063		(591)		472		1,085		(573)		512

Trademarks and trade names	11	765		(402)		363		819		(386)		433
Technology	3	132		(120)		12		128		(116)		12
Other	9	190		(172)		18		187		(171)		16
Total		$	4,860	$	(2,988)	$	1,872	$	4,996	$	(2,937)	$	2,059

Amortization expense of intangible assets was $57 million and $84 million for the three months ended September 30, 2022 and 2021, respectively, and $113 million and $182 million ~~during~~for the ~~three and~~ six months ended September 30, ~~2021, respectively,~~2022 and ~~$106 million and $212 million during the three and six months ended September 30, 2020,~~2021, respectively. Estimated amortization expense of these assets is as follows: ~~$167~~$108 million, ~~$242~~$208 million, ~~$230~~$202 million, ~~$225~~$170 million, and ~~$192~~$164 million for the remainder of ~~2022~~fiscal 2023 and each of the succeeding years through ~~2026~~fiscal 2027, respectively, and ~~$1.3~~$1.0 billion thereafter. All intangible assets were subject to amortization as of September 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)	September 30, 2021		March 31, 2021		(In millions)	September 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	360		400		2.85% Notes due March 15, 2023	360		360
3.80% Notes due March 15, 2024	3.80% Notes due March 15, 2024	918		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		—		1.30% Notes due August 15, 2026	498		498
7.65% Debentures due March 1, 2027	7.65% Debentures due March 1, 2027	150		167		7.65% Debentures due March 1, 2027	150		150
3.95% Notes due February 16, 2028	3.95% Notes due February 16, 2028	343		600		3.95% Notes due February 16, 2028	343		343
4.75% Notes due May 30, 2029	4.75% Notes due May 30, 2029	197		400		4.75% Notes due May 30, 2029	196		196
6.00% Notes due March 1, 2041	6.00% Notes due March 1, 2041	220		282		6.00% Notes due March 1, 2041	217		217
4.88% Notes due March 15, 2044	4.88% Notes due March 15, 2044	255		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		—		704
1.50% Euro Notes due November 17, 2025	1.50% Euro Notes due November 17, 2025	703		700		1.50% Euro Notes due November 17, 2025	586		662
1.63% Euro Notes due October 30, 2026	1.63% Euro Notes due October 30, 2026	588		587		1.63% Euro Notes due October 30, 2026	490		554
3.13% Sterling Notes due February 17, 2029	3.13% Sterling Notes due February 17, 2029	602		627		3.13% Sterling Notes due February 17, 2029	503		582

Lease and other obligations (4)		251		270
Lease and other obligations						Lease and other obligations	197		244
Total debt	Total debt	5,985		7,148		Total debt	5,613		5,879
Less: Current portion	Less: Current portion	39		742		Less: Current portion	800		799
Total long-term debt	Total long-term debt	$	5,946	$	6,406	Total long-term debt	$	4,813	$	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.

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

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. Debt outstanding totaled ~~$6.0~~$5.6 billion and ~~$7.1~~$5.9 billion at September 30, ~~2021~~2022 and March 31, ~~2021,~~2022, respectively, of which ~~$39~~$800 million and ~~$742~~$799 million, ~~respectively,~~ was included under the caption “Current portion of long-term debt” within the Company’s Condensed Consolidated Balance ~~Sheets.~~

On August 12, 2021, the Company completed a public offering of 1.30% Notes due August 15, 2026 (the “2026 Notes”) in a principal amount of $500 million. Interest on the 2026 Notes is payable semi-annually on February 15thSheets at September 30, 2022 and August 15th of each year, commencing on February 15, 2022. Proceeds received from this note issuance, net of discounts and offering expenses, were $495 million. The Company utilized the net proceeds from this note for general corporate purposes.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

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

~~Tender Offer~~March 31, 2022, respectively.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 upon margins. The 2020 Credit Facility matures in September 2024 and had no borrowings during the ~~three and~~ six months ended September 30, ~~2021~~2022 and ~~2020~~2021 and no amounts outstanding as of September 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 of February 1, 2021.~~ The 2020 Credit Facility ~~as amended,~~ contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a 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 September 30, ~~2021,~~2022, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in ~~Euro~~Euros with ano committed amount ~~of $7 million~~ and an uncommitted amount of ~~$116~~$99 million as of September 30, ~~2021.~~2022. Borrowings and repayments were not material during the ~~three and~~ six months ended September 30, ~~2021~~2022 and ~~2020, and amounts~~2021. Amounts outstanding under these credit lines were not material as of September 30, ~~2021~~2022 and March 31, ~~2021.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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. During the six months ended September 30, 2022, the Company borrowed $100 million and repaid $100 million under the program. During the six months ended September 30, 2021, the Company borrowed $3.0 billion and repaid $3.0 billion under the program. ~~During the six months ended September 30, 2020, the Company borrowed $5.3 billion and repaid $5.3 billion under the program.~~ At September 30, ~~2021~~2022 and March 31, ~~2021,~~2022, there were no commercial paper notes outstanding.

9. Pension Benefits

The net periodic expense for defined benefit pension plans was ~~approximately~~not material for each of the three and six months ended September 30, 2022 and 2021. Cash contributions to these plans were $2 million and $5 million for the three and six months ended September 30, ~~2021~~2022, respectively, and ~~$7 million and $14 million for the three and six months ended September 30, 2020, respectively.~~

~~Cash contributions to these plans were~~ $3 million and $17 million for the three and six months ended September 30, 2021, ~~respectively, and $4 million and $11 million for the three and six months ended September 30, 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~~estimated life expectancy.

As part of the ~~E.U. disposal group, as~~European divestiture activities discussed in more detail in Financial Note 2, ~~“Held for Sale,~~“Business Acquisitions and Divestitures,” pension liabilities of ~~approximately $108~~$74 million and $85 million as of September 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 ~~September 30, 2021.~~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. 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.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Foreign Currency Exchange Risk

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

Non-Derivative Instruments Designated as Hedges

At September 30, ~~2021~~2022 and March 31, ~~2021,~~2022, the Company had €1.1 billion ~~and €1.7 billion, respectively,~~ of Euro-denominated notes designated as non-derivative net investment hedges. These hedges are utilized to hedge portions of the Company’s net investments in non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For all notes that are designated as net investment hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates are recorded 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.

In connection with the sale of the U.K. disposal group in April 2022, the Company reclassified $26 million of gains from accumulated other comprehensive loss and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations for the six months ended September 30, 2022. This amount related to the Company’s £450 million British pound sterling-denominated notes, which were previously accounted for as net investment hedges until de-designated in fiscal 2020, and was included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities to fair value less costs to sell.

Foreign currency gains (losses) from non-derivative instruments included in other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income were as follows:


	Three Months Ended September 30,				Six Months Ended September 30,
(In millions)	2022		2021		2022		2021
Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes	$	75	$	33	$	139	$	11

(1)There was no ineffectiveness in these hedges for the three and six months ended September 30, 2022 and 2021.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Gains or losses from net investment~~Derivative Instruments

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


			September 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 to Sep-29	$	750	$	—

Derivatives designated as cash flow hedges: (1)
Cross-currency swaps (2)	CAD	Jul-22 to Jan-24	$	1,532	$	1,678
Fixed interest rate swaps (5)	USD	Mar-23	$	500	$	500

(1)There was no ineffectiveness in these hedges ~~recorded within Other comprehensive income were gains of $33 million and $11 million during~~for the three and six months ended September 30, ~~2021, respectively,~~2022 and losses of $83 million and $117 million during the three and six months ended September 30, 2020, respectively. There was no ineffectiveness in non-derivative net investment hedges during the three and six months ended September 30, 2021 and 2020.2021.

~~Derivatives Designated as Hedges~~

~~At September 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.

(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 and six months ended September 30, 2021 and 2020. The remaining 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 gains of $10 million and $5 million during the three and six months ended September 30, 2021, respectively, and losses of $12 million and $63 million during the three and six months ended September 30, 2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three and six months ended September 30, 2021 and 2020.Fair Value Hedges

The Company ~~is a party to a number of~~uses 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 three and six months ended September 30, 2022, the Company entered into floating interest rate swaps to convert $570 million and $750 million, respectively, 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.~~“Interest expense” in the Condensed Consolidated Statements of Operations.

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

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

Gains or losses from cash flow hedges recorded in Other comprehensive income were gains of $11 million during the three and six months ended September 30, 2021 and losses of $23 million and $28 million during the three and six months ended September 30, 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 and six months ended September 30, 2021 and 2020. There was no ineffectiveness in the Company’s cash flow hedges~~ for the three and six months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

Derivatives Not Designated as Hedges

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

~~The~~ 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 September 30, 2021 and March 31, 2021, the total gross notional amounts of these contracts were $19 million and $39 million, respectively. These contracts will predominantly mature between October 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 and six months ended September 30, 2021 and ~~2020.~~the Company did not have any outstanding derivative instruments not designated as hedges during fiscal 2023. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

Other Information on Derivative Instruments

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


	Three Months Ended September 30,				Six Months Ended September 30,
(In millions)	2022		2021		2022		2021
Derivatives designated as net investment hedges:
Cross-currency swaps	$	21	$	10	$	33	$	5

Derivatives designated as cash flow hedges:
Cross-currency swaps	$	(3)	$	1	$	(5)	$	(1)
Fixed interest rate swaps	28		10		55		12

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

Balance Sheet
Caption September 30, 2021 March 31, 2021
Fair Value of
Derivative U.S. Dollar Notional Fair Value of
Derivative U.S. Dollar Notional
(In millions) Asset Liability Asset Liability
Derivatives designated for hedge accounting
Cross-currency swaps (current) Prepaid expenses and other/Other accrued liabilities $ 2 $ 36 $ 838 $ 4 $ 47 $ 826
Cross-currency swaps (non-current) Other non-current assets/liabilities 62 74 2,474 72 92 2,663
Forward starting interest rate swaps (current) Other accrued liabilities — — — — 7 704
Forward starting interest rate swaps (non-current) Other accrued liabilities 3 — 200 — — —
Total $ 67 $ 110 $ 76 $ 146
Derivatives not designated for hedge accounting
Foreign exchange contracts (current) Prepaid expenses and other $ — $ — $ 1 $ — $ — $ 29
Foreign exchange contracts (current) Other accrued liabilities — — 18 — 1 10
Total $ — $ — $ — $ 1


	Balance Sheet Caption	September 30, 2022						March 31, 2022
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
(In millions)		Asset		Liability				Asset		Liability
Derivatives designated for hedge accounting:

Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$	43	$	62	$	1,417	$	30	$	39	$	1,537
Cross-currency swaps (non-current)	Other non-current assets/liabilities	26		—		679		—		36		679
Fixed interest rate swaps (current)	Prepaid expenses and other	85		—		500		31		—		500


Floating interest rate swaps (non-current)	Other non-current liabilities	—		34		750		—		—		—
Total		$	154	$	96			$	61	$	75

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

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 September 30, ~~2021~~2022 and March 31, ~~2021~~2022 included investments in money market funds of ~~$361~~$772 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~~The Company’s marketable securities were not material at September 30, ~~2021~~2022 and March 31, ~~2021.~~2022.

Fair values of the Company’s interest rate swaps, cross-currency swaps, and 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~~cross-currency swaps, and foreign currency ~~contracts, and cross-currency swaps.~~forward contracts.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry and which had carrying values of ~~$357~~$252 million and ~~$269~~$346 million ~~respectively,~~ at September 30, ~~2021~~2022 and March 31, ~~2021.~~2022, respectively. These investments primarily consist of equity securities without readily determinable fair values and are included in “Other non-current assets” in the Condensed Consolidated Balance Sheets. During the six months ended September 30, 2022, the Company recognized impairment charges and realized gains on the exit of certain investments. During the three months ended September 30, 2021, certain of the Company’s investments in equity securities without readily determinable fair values ~~experienced~~were remeasured to fair value based on transactions which resulted in changes in the observable price of those securities. During the three months ended September 30, 2020, three of the companies in which McKesson held investments in equity securities were converted into shares of public common stock through initial public offerings and an acquisition. Net gains (losses) related to the Company’s investments in these equity securities ~~primarily representing unrealized gains on~~were $(3) million and $97 million for the ~~securities discussed above, were approximately $97~~three months ended September 30, 2022 and 2021, respectively, and $(25) million and $104 million for the ~~three and~~ six months ended September 30, ~~2021~~2022 and ~~$49 million and $59 million for the three and six months ended September 30, 2020,~~2021, respectively. These ~~net gains~~amounts were recorded in “Other income, ~~net,”~~net” in the Condensed Consolidated Statements of Operations. The carrying value of ~~publicly traded~~publicly-traded investments, which was not material for the periods presented, was determined using quoted prices for identical investments in active markets and are considered to be Level 1 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

At September 30, ~~2021,~~2022 and March 31, 2022, the assets and liabilities associated with the ~~E.U.~~ disposal ~~group~~groups in Europe classified as held for sale were measured at the lower of ~~cost~~carrying value or fair value less ~~cost~~costs to sell, as discussed in more detail in Financial Note 2, ~~“Held for Sale.~~“Business Acquisitions and Divestitures." At ~~September 30, 2021 and 2020,~~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.” Assets measured at fair value on a nonrecurring basis as of September 30, 2020 included goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International ~~segment. Refer~~segment related to ~~Financial Note 7, “Goodwill and Intangible Assets, Net,” for more information. At March 31, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets of~~ the Company’s ~~International segment~~previous operations in Denmark and ~~goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment.~~its retail pharmacy businesses in Canada.

The aforementioned investments in equity securities of U.S. growth stage companies include the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. ~~These~~The inputs related to changes in observable price are considered Level 2 under the fair value measurements and disclosure guidance and may not be representative of actual values that could have been realized or that will be realized in the future. Inputs related to impairments of investments are generally considered Level 3 fair value measurements due to their inherently unobservable nature based on significant assumptions by management and use of company-specific information.

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

Other Fair Value Disclosures

At September 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~~short-term maturity of these financial instruments.

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

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


		September 30, 2021				March 31, 2021					September 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	$	5,985	$	6,496	$	7,148	$	7,785	Long-term debt, including current maturities	$	5,613	$	5,321	$	5,879	$	5,999

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

Restricted Cash

Restricted cash, included within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheets primarily consists of $35 million and $395 million as of September 30, ~~2021, primarily consists of $354 million~~2022 and March 31, 2022, respectively, held in escrow related to ~~the initial payment~~obligations under ~~the proposed~~ settlement ~~agreement~~agreements for opioid-related claims of governmental entities, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities.” Additionally, restricted cash as of September 30, 2021 and March 31, 2021 includes funds temporarily held on behalf of unaffiliated medical practice groups related to their COVID-19 business continuity borrowings. These amounts have been designated as restricted cash due to contractual provisions requiring their segregation from all other funds until utilized by the medical practices for a limited list of qualified activities and corresponding deposit liabilities associated with these funds have been recorded by the Company within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2021 and March 31, 2021.

Goodwill

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

Long-lived Assets

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

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

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 ~~Statement~~Statements of Operations consist of estimated loss contingencies related to opioid-related litigation matters.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates ~~are~~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 2,800 cases under the jurisdiction of the MDL court.~~

The Company ~~is also named in approximately 350 similar state court cases pending in 38 states plus Puerto Rico, along with 4 cases in Canada. These include actions filed by 26 state attorneys general,~~ and some by or on behalf of individuals, including wrongful death lawsuits, and putative class action lawsuits brought on behalf of children with neonatal abstinence syndrome due to alleged exposure to opioids in utero. Trial dates have been set in several of these state court cases. For example, trial in the case brought by the Washington attorney general is scheduled for November 15, 2021; trial in the case brought by the Rhode Island attorney general is scheduled for January 17, 2022; and the case brought by Dallas County, Texas, is scheduled to be trial-ready by February 7, 2022. Trial in the case brought by the Alabama attorney general was postponed until April 18, 2022, and the parties continue to engage in settlement negotiations.

~~On July 21, 2021, the Company and the 2~~two 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 ~~conditions are satisfied, would result in~~eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). Under the ~~settlement of a substantial majority of opioid lawsuits filed by state and local governmental entities. If~~Settlement, the ~~proposed settlement agreement and settlement process leads to final settlement,~~Distributors will pay the ~~3 distributors would pay~~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; a~~portion. 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 Distributors do not admit liability or wrongdoing and do not waive any defenses pursuant to the Settlement. Consent judgments have been entered in all participating states and territories, and approximately 2,000 cases have been dismissed pursuant to the Settlement.

~~The proposed agreement only addresses~~Three eligible states, Alabama, Washington, and Oklahoma did not join the Settlement, but they have all now reached agreements with the Company. With respect to the claims of ~~U.S.~~the Alabama attorney general, the Company has negotiated an agreement under which the Company will pay $141 million in ten equal annual installments and an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state ~~attorneys~~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 the state of Washington and ~~political~~its subdivisions. Under that agreement, Washington and its subdivisions ~~in participating states.~~would be paid up to $518 million over 18 years, of 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 June 27, 2022, an agreement was announced between the Distributors and the attorney general of Oklahoma to settle claims of the state of Oklahoma and its subdivisions. Under that agreement, Oklahoma and its subdivisions will be paid up to approximately $308 million over 18 years, of which the Company’s portion would be 38.1% (or approximately $117 million), consistent with Oklahoma’s allocation under the comprehensive framework. The Company’s loss contingency accruals for these three states and their subdivisions reflect the amounts of these agreements.

The Company previously settled with the state of West Virginia, and West Virginia and its subdivisions ~~and Native American tribes are~~were not part of this settlement process. The proposed agreement is subject to contingencies and will not become effective unless the Company determines that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to be bound by the agreement (or otherwise had their claims foreclosed).

~~On September 4, 2021, the Company and the 2 other national distributors announced that 42 out of 49~~ eligible states, all 5 U.S. territories, and Washington, DC, had affirmatively signed on to the proposed agreement. The attorneys general of Alabama, Georgia, Nevada, New Mexico, Oklahoma, Rhode Island, and Washington have not joined the proposed settlement. The distributors further announced that they had determined that enough states had signed on to the settlement for the proposed agreement to proceed to the next phase. During this phase, which is expected to end on January 2, 2022, each participating state will offer its political subdivisions, including those that have not sued, the opportunity to participate in the ~~settlement. After~~comprehensive Settlement. Trial in the ~~conclusion~~case of ~~this period,~~Cabell County and the City of Huntington occurred in the U.S. District Court for the Southern District of West Virginia and concluded on July 28, 2021. On July 4, 2022, the court entered judgment in defendants’ favor. On August 2, 2022, the plaintiffs filed an appeal. The claims of certain other West Virginia subdivisions were pending in the federal Multi-district Litigation and before the state Mass Litigation Panel. On July 5, 2022, the Mass Litigation Panel entered an order noting an agreement in principle between a group of plaintiffs’ attorneys representing the municipalities and the Distributors. Under the settlement agreement with the participating West Virginia municipalities, the Distributors will pay $400 million over approximately 11 years, with the Company ~~will have 30 days to determine whether a sufficient number~~responsible for 38.1% of ~~states and political~~the total amount (or approximately $152 million). All participating litigating subdivisions have ~~joined~~dismissed their claims against the Company. The agreement does not include school districts or the claims of Cabell County and the City of Huntington. The Company’s loss contingency accruals for the ~~settlement to proceed to implementation.~~West Virginia subdivisions are reflected in the estimated liability for the opioid-related claims as of September 30, 2022.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~The exact amount that would be due under~~With respect to the proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against the Company after the proposed agreement becomes effective. The proposed agreement contemplates that if certain governmental entities do not agree to a settlement under the framework, but the distributors nonetheless conclude that there is sufficient participation to warrant the settlement, there would be a corresponding reduction in the amount due from the Company 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 the Company and other defendants.~~

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

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

On September 28, 2021, the Company and the 2 other national pharmaceutical distributors reached an agreement with the state of Ohio and its participating subdivisions and agreed to pay $881 million to resolve opioid-related claims. This settlement was negotiated in connection with the broad proposed settlement described above, but provides assurance that Ohio and its participating subdivisions will receive a settlement amount consistent with their allocations under the broad settlement framework, as well as certain attorneys’ fees and costs. If the broad settlement is finalized, Ohio and its participating subdivisions will become part of that broader agreement.

On September 28, 2021, the Company announced that ~~it and~~ the ~~2 other national distributors had~~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 38.1% (or, approximately $29 million). ~~This settlement~~The Company has also negotiated an agreement to resolve opioid-related claims brought by Native American tribes. Under that agreement, which was ~~negotiated in parallel with ongoing negotiations toward a~~executed on October 26, 2022, the Distributors will 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). The agreement achieves broad resolution of opioid-related claims brought against the Distributors by federally recognized Native American tribes.

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

The Company 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) in the fiscal year ended March 31, 2021 related to its share85% of the ~~global~~ settlement ~~as well as claims of West Virginia municipalities and~~payments must be used by the Native American ~~tribes. In connection with~~tribes to remediate the ~~matters described above,~~opioid epidemic. The Company’s loss-contingency accruals for the ~~Company recorded additional charges of $112 million ($93 million after-tax)~~Native American tribes reflect these amounts and ~~$186 million ($155 million after-tax)~~are reflected in the three and six months ended September 30, 2021 within “Claims and litigation charges, net” in the Condensed Consolidated Statements of Operations, in connection with the proposed settlement agreement and other opioid related settlement accruals.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~The Company’s~~ estimated ~~accrued~~ liability for the opioid-related claims ~~of governmental entities is as follows~~ as of September 30, ~~2021:~~2022.

~~(In millions)~~

~~September 30, 2021~~

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

~~1,072~~

~~Long-term litigation liabilities~~

~~7,146~~

~~Total litigation liabilities~~

~~8,218~~

~~(1)This amount, recorded in “Other accrued liabilities”~~Although the Settlement terminated the substantial majority of opioid-related suits by governmental entities pending against the Company, a small number of subdivisions have opted not to participate in the ~~Condensed Consolidated Balance Sheet, is the amount estimated to be paid prior to September 30, 2022.~~

~~If a broad settlement is not reached under the proposed agreement, litigation will continue.~~settlements described above. The Company continues to prepare for trial in these pending matters and believes that it has valid defenses to the claims pending against it, and it intends to vigorously defend against all such claims if acceptable settlement terms are not achieved. The Company’s loss contingency accruals for these subdivisions are reflected in the estimated liability for the opioid-related claims consistent with what would be allocated under the framework of the settlement.

In the three and six months ended September 30, 2022, the Company paid $535 million and $910 million, respectively, associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and the Cherokee Nation.

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


(In millions)	September 30, 2022		March 31, 2022
Current litigation liabilities (1)	$	703	$	1,046
Long-term litigation liabilities	6,644		7,220

Total litigation liabilities	$	7,347	$	8,266

(1)These amounts as of September 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.

During the six months ended September 30, 2022, the Company paid $45 million into, and released $406 million from, escrow consistent with the terms of the opioid settlement agreements. The remaining escrow amounts, totaling $35 million, were presented as restricted cash within “Prepaid expenses and other” in our Condensed Consolidated Balance Sheet as of September 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.

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 4four cases brought in Canada (3(three by governmental or tribal entities and 1one 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. 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; a new trial has been set for January 23, 2023. 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.

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

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(UNAUDITED)

II. Other Litigation and Claims

On ~~May 17, 2013,~~December 12, 2018, the Company ~~was served with~~received a purported class action 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~~and two of its former officers, CEO John Hammergren and CFO James Beer, violated the Securities Exchange Act of 1934 by reporting profits and revenues from 2013 until early 2017 that were false and misleading, due to an alleged undisclosed conspiracy to fix the prices of generic drugs. Evanston Police Pension Fund v. McKesson Corporation, No. 3:18-06525. The complaint seeks relief including damages, attorney fees, and costs in ~~violation~~unspecified amounts. On February 8, 2019, the court appointed the Pension Trust Fund for Operating Engineers as the lead plaintiff. On April 10, 2019, the lead plaintiff filed an amended complaint that added insider trading allegations against defendant Hammergren. On April 8, 2021, the court granted plaintiff’s motion for class certification. On October 21, 2021, the court granted defendants’ motion for partial summary judgment and shortened the class period. On December 29, 2021, plaintiff filed an amended complaint, which defendants have moved to dismiss. In October 2022, the parties reached an agreement in principle to settle this class action lawsuit for an amount covered in full by the Company’s insurance policy. The settlement is subject to, among other things, approval by the court. This settlement does not include any admission of liability, and defendants expressly deny wrongdoing. Accordingly, the Company’s estimated probable loss, entirely offset by probable loss recovery from the Company’s insurers, is $141 million, both of which have been recognized in the Condensed Consolidated Balance Sheet as of September 30, 2022 within “Other accrued liabilities” and “Prepaid expenses and other.”

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 ~~Telephone Consumer Protection~~United States, 30 states, the District of Columbia, and two cities, against US Oncology, Inc. alleging 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 and various state and local false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of ~~1991 (“TCPA”)~~suit, all in unspecified amounts, United States ex rel. Omni Healthcare, Inc. v. US Oncology, Inc., as19-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. Relator filed an amended ~~by the Junk Fax Protection Act of 2005, or JFPA,~~complaint on August 19, 2022. The related case against other Company defendants remains pending, ~~True Health Chiropractic~~United States ex rel. Omni Healthcare Inc.~~, et al.~~ v. McKesson Corporation, et al., ~~No. CV-13-02219 (HG)~~12-CV-06440 (NG). Plaintiffs seek statutory damages from $500 to $1,500 per violation plus injunctive relief. True Health Chiropractic later amended its complaint, adding McLaughlin Chiropractic Associates as an additional named plaintiff and McKesson Technologies Inc. as a defendant. Both plaintiffs alleged that defendants violated the TCPA by sending faxes that did not contain notices regarding how to opt out of receiving the faxes. On July 16, 2015, plaintiffs filed a motion for class certification. On August 22, 2016, the court denied plaintiffs’ motion. On July 17, 2018, the United States Court of Appeals for the Ninth Circuit Court affirmed in part and reversed in part the district court’s denial of class certification and remanded the case to the district court for further proceedings. On August 13, 2019, the court granted plaintiffs’ renewed motion for class certification. After class notice and the opt-out period, 9,490 fax numbers remain in the class, representing 48,769 faxes received. On October 8, 2021, the Court de-certified the class citing the plaintiffs lacked class-wide proof identifying the manner of receipt; the October 18, 2021 trial date has been vacated.

III. Government Subpoenas and Investigations

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

IV. ~~State Opioid Statutes~~Antitrust Settlements

~~Legislative, regulatory or industry measures~~In October 2022, the Company received proceeds of $129 million related 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 creationits share of an ~~aggregate $100 million annual surcharge on all manufacturers and distributors licensed~~antitrust settlement. A lawsuit was filed against a brand manufacturer alleging that the manufacturer, by itself or in concert with others, took improper actions to ~~sell~~delay or ~~distribute opioids in New York.~~prevent generic drugs from entering the market. 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,~~Company was not a named party to the ~~Healthcare Distribution Alliance filed~~litigation but was a ~~lawsuit challenging the constitutionality~~member of the ~~law and seeking an injunction against its enforcement. On December 19, 2018,~~class of those who purchased directly from 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.pharmaceutical manufacturer. The Company ~~has accrued~~will recognize a ~~$50 million pre-tax charge ($37 million after-tax) as its estimated share~~gain in that amount within "Cost of ~~the OSA surcharge for calendar years 2017 and 2018. This OSA provision was recognized in “Selling, distribution, general, and administrative expenses”~~sales" in the Condensed Consolidated Statement of Operations ~~for the year ended March 31, 2021 and in “Other accrued liabilities”~~ in the ~~Consolidated Balance Sheet as~~third quarter of ~~March 31, 2021. The State of New York adopted an excise tax on sales of opioids in~~fiscal 2023 related to the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA does not apply to sales or distributions occurring after December 31, 2018. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its mandate pending the filing and disposition of a petition for writ of certiorari before the U.S. Supreme Court. The petition was denied on October 4, 2021.settlement.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

13. Stockholders' Equity (Deficit)

Each share of the Company’s outstanding common stock is permitted 1one vote on proposals presented to stockholders and is entitled to ~~share~~participate 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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McKESSON CORPORATION

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 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. The total number of shares repurchased under this ASR program was 3.1 million shares at an average price per share of $321.05. The Company received 2.6 million shares as the initial share settlement, and in August 2022, the Company received an additional 0.5 million shares upon the completion of this ASR program.

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, and in August 2021, the Company received an additional 0.9 million shares upon the completion of this ASR program.

During the three and six months ended September 30, 2022, the Company repurchased 1.5 million of the Company’s shares of common stock for $524 million through open market transactions at an average price per share of $355.75, of which $40 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets for share repurchases that were executed in late September 2022 and settled in early October 2022. During the three and six months ended September 30, 2021, the Company repurchased ~~an additional~~ 1.4 million of the Company’s shares of common stock for $280 million through open market transactions at an average price per share of $203.20, of which $16 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets for the period ended September 30, 2021 for share repurchases that were executed in late September 2021 and settled in early ~~October.~~October 2021.

In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock at September 30, ~~2021~~2022 was ~~$1.5~~$5.8 billion.

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

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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 components for the three and six months ended September 30, ~~2021 and 2020~~2022 are as follows:


		Foreign Currency Translation Adjustments												Foreign Currency Translation Adjustments
(In millions)	(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss		(In millions)	Foreign Currency Translation Adjustments, Net of Tax (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 June 30, 2021		$	(1,477)	$	(57)		$	13	$	(106)	$	(1,627)
Balance at June 30, 2022													Balance at June 30, 2022	$	(997)	$	38		$	45	$	(34)	$	(948)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(81)		32		⁽²⁾	3		1		(45)		Other comprehensive income (loss) before reclassifications	(280)		71		⁽²⁾	18		2		(189)
Amounts reclassified to income statement		1		—			5		1		7
Amounts reclassified to earnings and other													Amounts reclassified to earnings and other	17		—			—		—		17
Other comprehensive income (loss)	Other comprehensive income (loss)	(80)		32			8		2		(38)		Other comprehensive income (loss)	(263)		71			18		2		(172)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests		—		—			—		—		—
Less: amounts attributable to noncontrolling interests													Less: amounts attributable to noncontrolling interests	(6)		—			—		—		(6)
Other comprehensive income (loss) attributable to McKesson	Other comprehensive income (loss) attributable to McKesson	(80)		32			8		2		(38)		Other comprehensive income (loss) attributable to McKesson	(257)		71			18		2		(166)

Balance at September 30, 2021		$	(1,557)	$	(25)		$	21	$	(104)	$	(1,665)
Balance at September 30, 2022													Balance at September 30, 2022	$	(1,254)	$	109		$	63	$	(32)	$	(1,114)

(1)Primarily ~~result~~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 infor the three months ended September 30, ~~2021~~2022 include gains of ~~$33~~$75 million related to net investment hedges from ~~the~~ Euro-denominated notes and gains of ~~$10~~$21 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax ~~loss~~expense of ~~$11~~$25 million.


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains 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	(456)		116		⁽²⁾	36		14		(290)
Amounts reclassified to earnings and other (3)	747		(17)			—		24		754
Other comprehensive income	291		99			36		38		464
Less: amounts attributable to noncontrolling interests	41		—			—		3		44
Other comprehensive income attributable to McKesson	250		99			36		35		420
Balance at September 30, 2022	$	(1,254)	$	109		$	63	$	(32)	$	(1,114)

(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.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Foreign Currency Translation Adjustments
(In millions)
Foreign Currency Translation Adjustments, Net of Tax (1)
Unrealized Gains (Losses) on Net Investment Hedges,
Net of Tax Unrealized Gains on Cash Flow Hedges,
Net of Tax Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at March 31, 2021 $ (1,361) $ (36) $ 13 $ (96) $ (1,480)
Other comprehensive income (loss) before reclassifications (47) 5 ⁽²⁾ 3 6 (33)
Amounts reclassified to income statement 18 — 5 (2) 21
Other comprehensive income (loss) (29) 5 8 4 (12)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 9 (6) — — 3
Other comprehensive income (loss) attributable to McKesson (38) 11 8 4 (15)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG (158) — — (12) (170)
Balance at September 30, 2021 $ (1,557) $ (25) $ 21 $ (104) $ (1,665)
(2)Amounts recorded for the six months ended September 30, 2022 include gains of $139 million related to net investment hedges from Euro-denominated notes and gains of $33 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense of $56 million.

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

Information regarding changes in accumulated other comprehensive loss, including noncontrolling interests and redeemable noncontrolling interests, by components for the three and six months ended September 30, 2021 are as follows:


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at June 30, 2021	$	(1,477)	$	(57)		$	13	$	(106)	$	(1,627)
Other comprehensive income (loss) before reclassifications	(81)		32		⁽²⁾	3		1		(45)
Amounts reclassified to earnings and other	1		—			5		1		7
Other comprehensive income (loss)	(80)		32			8		2		(38)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	—		—			—		—		—
Other comprehensive income (loss) attributable to McKesson	(80)		32			8		2		(38)
Balance at September 30, 2021	$	(1,557)	$	(25)		$	21	$	(104)	$	(1,665)

(1)Primarily ~~result~~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 infor the ~~six~~three months ended September 30, 2021 include gains of ~~$11~~$33 million related to net investment hedges from ~~the~~ Euro-denominated notes and gains of $5$10 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax ~~loss~~expense of $5$11 million.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


		Foreign Currency Translation Adjustments												Foreign Currency Translation Adjustments
(In millions)	(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized Net Losses and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss		(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at June 30, 2020		$	(1,742)	$	75		$	44	$	(112)	$	(1,735)
Balance at March 31, 2021													Balance at March 31, 2021	$	(1,361)	$	(36)		$	13	$	(96)	$	(1,480)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	111		(70)		⁽²⁾	(19)		(9)		13		Other comprehensive income (loss) before reclassifications	(47)		5		⁽²⁾	3		6		(33)
Amounts reclassified to income statement		—		—			—		—		—
Amounts reclassified to earnings and other													Amounts reclassified to earnings and other	18		—			5		(2)		21
Other comprehensive income (loss)	Other comprehensive income (loss)	111		(70)			(19)		(9)		13		Other comprehensive income (loss)	(29)		5			8		4		(12)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	(119)		(1)			—		(5)		(125)		Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	9		(6)			—		—		3
Other comprehensive income (loss) attributable to McKesson	Other comprehensive income (loss) attributable to McKesson	230		(69)			(19)		(4)		138		Other comprehensive income (loss) attributable to McKesson	(38)		11			8		4		(15)
Balance at September 30, 2020		$	(1,512)	$	6		$	25	$	(116)	$	(1,597)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG													Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(158)		—			—		(12)		(170)
Balance at September 30, 2021													Balance at September 30, 2021	$	(1,557)	$	(25)		$	21	$	(104)	$	(1,665)

(1)Primarily ~~result~~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 infor the ~~three~~six months ended September 30, ~~2020~~2021 include ~~losses~~gains of ~~$83~~$11 million related to net investment hedges from ~~the~~ Euro-denominated notes and ~~losses~~gains of ~~$12~~$5 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax ~~benefit~~expense of ~~$25~~$5 million.

Foreign Currency Translation Adjustments
(In millions)
Foreign Currency Translation Adjustments, Net of Tax (1)
Unrealized Gains (Losses) on Net Investment Hedges,
Net of Tax Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at March 31, 2020 $ (1,780) $ 138 $ 49 $ (110) $ (1,703)
Other comprehensive income (loss) before reclassifications 207 (133) ⁽²⁾ (24) (10) 40
Amounts reclassified to income statement — — — 2 2
Other comprehensive income (loss) 207 (133) (24) (8) 42
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (61) (1) — (2) (64)
Other comprehensive income (loss) attributable to McKesson 268 (132) (24) (6) 106
Balance at September 30, 2020 $ (1,512) $ 6 $ 25 $ (116) $ (1,597)

~~(1)Primarily result from the 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 in the six months ended September 30, 2020 include losses of $117 million related to net investment hedges from the Euro-denominated notes and losses of $63 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit of $47 million.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

14. Segments of Business

The Company reports its financial results in 4four reportable segments: U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and International. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments ~~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, affordability, and adherence solutions designed to benefit stakeholders and ~~affordability challenges to~~ help people get the medicine they need to live healthier lives. RxTS also offers third-party logistics and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers more than ~~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 12nine European countries where it owns, partners, or franchises with retail pharmacies and operates through 2two businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s ~~Canada~~Canadian operations deliver vital medicines, supplies, and information technology ~~services~~solutions throughout Canada and includes Rexall Health retail pharmacies. In the second quarter of fiscal 2022, the Company entered into an agreement to sell the E.U. disposal group which closed on October 31, 2022. International segment assets at September 30, 2022 were $9.6 billion, a decrease from the end of fiscal 2022 primarily due to the completed the sale of the U.K. disposal group in April 2022 and ~~on November 1, 2021, the Company announced an agreement to sell its retail and distribution businesses in the United Kingdom.~~unfavorable effects of foreign currency exchange fluctuations. Refer to Financial Note 2, ~~“Held for Sale,~~“Business Acquisitions and Divestitures,” for more information.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended September 30,				Six Months Ended September 30,
(In millions)	(In millions)	2021		2020		2021		2020		(In millions)	2022		2021		2022		2021
Segment revenues (1)	Segment revenues (1)									Segment revenues (1)
U.S. Pharmaceutical	U.S. Pharmaceutical	$	53,411	$	48,067	$	103,430	$	92,737	U.S. Pharmaceutical	$	60,059	$	53,411	$	117,006	$	103,430
Prescription Technology Solutions	Prescription Technology Solutions	932		668		1,813		1,324		Prescription Technology Solutions	1,018		932		2,084		1,813
Medical-Surgical Solutions	Medical-Surgical Solutions	3,124		2,533		5,652		4,334		Medical-Surgical Solutions	2,843		3,124		5,435		5,652
International	International	9,109		9,540		18,355		18,092		International	6,237		9,109		12,786		18,355

Total revenues	Total revenues	$	66,576	$	60,808	$	129,250	$	116,487	Total revenues	$	70,157	$	66,576	$	137,311	$	129,250

Segment operating profit (loss) (2)	Segment operating profit (loss) (2)									Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)	U.S. Pharmaceutical (3)	$	760	$	623	$	1,442	$	1,236	U.S. Pharmaceutical (3)	$	896	$	760	$	1,592	$	1,442
Prescription Technology Solutions	Prescription Technology Solutions	128		88		232		156		Prescription Technology Solutions	120		128		264		232
Medical-Surgical Solutions (4)	Medical-Surgical Solutions (4)	296		187		371		276		Medical-Surgical Solutions (4)	299		296		555		371
International (5)	International (5)	(146)		(45)		(93)		(42)		International (5)	(37)		(146)		(43)		(93)

Subtotal	Subtotal	1,038		853		1,952		1,626		Subtotal	1,278		1,038		2,368		1,952
Corporate expenses, net (6)	Corporate expenses, net (6)	(360)		(148)		(663)		(216)		Corporate expenses, net (6)	21		(360)		(18)		(663)
Loss on debt extinguishment (7)	Loss on debt extinguishment (7)	(191)		—		(191)		—		Loss on debt extinguishment (7)	—		(191)		—		(191)
Interest expense	Interest expense	(45)		(50)		(94)		(110)		Interest expense	(55)		(45)		(100)		(94)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	442	$	655	$	1,004	$	1,300	Income from continuing operations before income taxes	$	1,244	$	442	$	2,250	$	1,004

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, less than ~~40%~~37% of the RxTS segment’s total revenues, less than 3% of the Medical-Surgical Solutions segment’s total revenues, and less than 8% of the International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining three 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 includes the following:

•a gain of $142 million for the three and six months ended September 30, ~~2021 includes $23~~2022 related to the exit of one of the Company’s investments in equity securities in July 2022 for proceeds of $179 million, ~~and $46 million, respectively, and for~~which is reflected within “Other income, net” in the ~~three and six months ended September 30, 2020 includes $52 million and $104 million, respectively,~~Company’s Condensed Consolidated Statements of Operations;

•credits related to the last-in, first-out (“LIFO”) method of accounting for ~~inventories. The~~inventories of $23 million for each of the three months ended September 30, 2022 and 2021, and $36 million and $46 million for the six months ended September 30, 2022 and 2021, ~~includes $34 million~~respectively; and ~~$46 million, respectively, of~~

•cash receipts for the Company’s share of antitrust legal ~~settlements. The~~settlements of $34 million and $46 million for the three and six months ended September 30, 2020 also includes a charge of $50 million recorded in connection with the Company’s estimated liability under the State of New York’s Opioid Stewardship Act, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities.”2021, respectively.

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

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FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

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

•charges of $143 million and $237 million for the three and six months ended September 30, 2022, respectively, and charges of $342 million for the three and six months ended September 30, 2021, ~~includes charges of $342 million~~ to remeasure the assets and liabilities of the E.U. disposal group to ~~the lower of carrying value or~~ fair value less costs to sell and, in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future, as discussed in more detail in Financial Note 2, ~~“Held~~“Business Acquisitions and Divestitures;” and

•a gain of $59 million for ~~Sale.” The~~the three and six months ended September 30, 2021 ~~includes a gain of $59 million~~ related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business. ~~Operating loss~~

(6)Corporate expenses, net includes the following:

•gains of $166 million and $272 million for the three and six months ended September 30, ~~2020 includes restructuring, impairment,~~2022, respectively, and ~~related~~ charges of ~~$35~~$149 million and $58 million, respectively, primarily associated with the closure of retail pharmacy stores within the U.K. business, as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges,” and a goodwill impairment charge of $69 million related to one of the Company’s reporting units in Europe, as discussed in more detail in Financial Note 7, “Goodwill and Intangible Assets, Net.”

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONCLUDED)~~

~~(UNAUDITED)~~

~~(6)Corporate expenses, net~~ for the three and six months ended September 30, 2021, ~~includes charges of $149 million~~ primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, ~~“Held for Sale.~~“Business Acquisitions and Divestitures;” ~~Corporate expenses, net~~

•charges of $112 million and $186 million for the three and six months ended September 30, 2021, ~~includes charges of $112 million and $186 million,~~ respectively, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent ~~Liabilities.~~Liabilities;” ~~The three~~

•charges of $9 million and ~~six~~$36 million for the three months ended September 30, 2022 and 2021, ~~includes $36~~respectively, and charges of $28 million and $71 million ~~respectively, and the three and six months ended September 30, 2020 includes $41 million and $84 million, respectively, of opioid-related costs, primarily litigation expenses. Corporate expenses, net~~ for the six months ended September 30, ~~2020 includes a net gain~~2022 and 2021, respectively, of ~~$131~~opioid-related costs, primarily litigation expenses;

•restructuring charges of $19 million recorded in connection with insurance proceeds received during the first quarter of 2021 from the settlement of the shareholder derivative action related to the Company’s controlled substances monitoring program. Corporate expenses, net,and $81 million for the three and six months ended September 30, 2021, ~~includes~~respectively, primarily due to the transition to a partial remote work model for certain employees; and

•net gains (losses) of $(3) million and $97 million for three months ended September 30, 2022 and 2021, respectively, and $(25) million and $104 million ~~respectively, and~~ for the ~~three and~~ six months ended September 30, ~~2020 includes $49 million~~2022 and ~~$59 million,~~2021, respectively, ~~of net gains~~ associated with certain of the Company’s equity investments.

(7)Loss on debt extinguishment for the three and six months ended September 30, 2021 consists of a charge of $191 million ~~on debt extinguishment~~ related to the Company’s July 2021 tender offer to redeem a portion of its existing debt, as discussed in more detail in Financial Note 8, “Debt and Financing Activities.”


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McKESSON CORPORATION

FINANCIAL REVIEW

(UNAUDITED)

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

INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS

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”~~“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 ~~United States (“U.S.”)~~ 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 report our financial results in four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income taxes.

The following summarizes our four reportable 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.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

The following summarizes our four reportable segments. Refer to Financial Note 14, “Segments of Business,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information regarding our reportable segments.

•U.S. Pharmaceutical is a reportable segment that distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products. 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,~~affordability, and ~~affordability~~adherence challenges to help people get the medicine they need to live healthier lives.

•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.”).

•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. In April 2022, we completed the ~~second quarter~~sale of ~~2022,~~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 ~~European Union, primarily~~E.U. located in France, Italy, Ireland, Portugal, Belgium, and ~~Slovenia. The sale also includes~~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”)~~. Additionally, on November 1, 2021, we announced an agreement to sell our retail and distribution businesses in the United Kingdom (“U.K.”).~~

~~Executive Summary:~~

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

•Coronavirus disease 2019 (“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 in our results when comparing 2022 versus 2021. We also had favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs during the first half 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 six months ended September 30, 2021, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment. The majority of 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 $66.6 billion for the three months ended September 30, 2021 increased 9% from the prior year, and revenues of $129.3 billion for the six months ended September 30, 2021 increased 11% from the prior year. The increase in revenues is primarily driven by market growth in our U.S. Pharmaceutical segment;

•Gross profit increased 12% for both the three and six months ended September 30, 2021 compared to the prior year primarily driven by improvements in primary care patient visits, higher sales of COVID-19 tests, and the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment as well as the contribution from our COVID-19 vaccination distribution program and growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. Gross profit for the six months ended September 30, 2021 also included favorable effects of foreign currency exchange fluctuations in our International segment;


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

•~~On July 5, 2021, we entered into an agreement to sell our E.U. disposal group~~ to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately ~~$1.4~~$1.2 billion)~~, subject to~~ adjusted for certain items, including cash, net debt and working capital adjustments, ~~under~~and reduced by the agreement. Beginning in the second quarter of 2022, the E.U. disposal group was reflected in our condensed consolidated financial statements as held for sale, at which point we discontinued recording depreciation and amortization expense on related assets. As a resultvalue of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. For the three and six months ended September 30, 2022, we recorded net gains of $23 million and $35 million, respectively, and for the three and six months ended September 30, 2021, we recorded charges ~~totaling~~of $491 million ~~during the second quarter of 2022~~ in total operating expenses to remeasure the assets and liabilities ~~held for sale~~of our E.U. disposal group to fair value less costs to ~~sell and to impair~~sell. The fiscal 2022 charges also included impairments of certain internal-use software that will not be utilized in the ~~future. The remeasurement adjustment includes~~future, prior to adjusting the E.U. disposal group as a whole, and a $226 million loss related to the accumulated other comprehensive income balances associated with ~~the~~our E.U. disposal group. The transaction ~~is anticipated to close within~~closed on October 31, 2022 and we received net cash proceeds of $892 million after the next twelve months, 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;adjustments listed above.

•Total operating expenses for the three and six months ended September 30, 2021 includes charges of $112 million and $186 million, respectively, related to our estimated liability for opioid-related claims as further described in the ~~“Trends and Uncertainties”~~ ~~section included below;~~

•Total operating expenses for the three and six months ended September 30, 2021 includes a gain of $59 million related to the sale of our Canadian health benefit claims management and plan administrative services business;

•~~Other income, net for the three and six months ended September 30, 2021 includes net gains of $97 million and $104 million, respectively, related to our equity investments;~~

•On ~~July 23, 2021,~~April 6, 2022, we completed ~~a cash tender offer and paid an aggregate consideration~~the previously announced sale 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 of $191 million, consisting of the premiums paid and a portion of the write-off of unamortized 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;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three and six months ended September 30, 2021 of $1.71 and $4.82, respectively, reflects the aforementioned items, net of any respective tax impacts, discrete tax items recognized, and a lower share count compared to the prior year due to the cumulative effect of share repurchases;

•We paid $1.0 billion to purchase 34.5 million shares of McKesson Europe AG (“McKesson Europe”) during the six months ended September 30, 2021 through exercises of a put right by the noncontrolling shareholders pursuant to the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”);

•On July 17, 2021, we redeemed our 0.63% Euro-denominated notes with a principal amount of €600 million (or, approximately $709 million) prior to the maturity date of August 17, 2021. The notes were redeemed using cash on hand. On August 12, 2021, we also completed a public offering of 1.30% notes due August 15, 2026 with a principal amount of $500 million for proceeds received, net of discounts and offering expenses, of $495 million. The Company utilized the net proceeds from this note for general corporate purposes;

•We returned $1.4 billion of cash to shareholders during the six months ended September 30, 2021 through $1.3 billion of share repurchases under an accelerated share repurchase (“ASR”) program entered into in May 2021, and $134 million of dividend payments. On July 23, 2021, we raised our quarterly dividend from $0.42 to $0.47 per common share; and

•~~On November 1, 2021, we announced an agreement to sell~~ our retail and distribution businesses in the U.K. (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase ~~consideration~~price of ~~£325~~£110 million (or, approximately ~~$438~~$144 million)~~. Beginning~~, 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 September 30, 2022, we had $2.8 billion of assets and $2.0 billion of liabilities classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the ~~third quarter of 2022, the U.K.~~Condensed Consolidated Balance Sheet related to our E.U. disposal group ~~will be reflected in our~~described above. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements ~~as held~~included in this Quarterly Report 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 $700 million and $900 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the U.K. disposal group. Actual charges could differ based on operating results, changes in foreign exchange rates, and other factors prior to closing of the transaction. The transaction is anticipated to close during the fourth quarter of 2022, pursuant to customary closing conditions, including receipt of regulatory approvals.more information.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Executive Summary:

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

•On November 1, 2022, we completed our acquisition of Rx Savings Solutions, LLC (“RxSS”) to expand on connecting biopharma and payer services to patients. RxSS is a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. Transaction consideration included a payment of approximately $600 million made upon closing and a maximum of $275 million of contingent consideration based on RxSS’ financial performance through calendar year 2025. The financial results of RxSS will be reported within our RxTS segment as of the acquisition date in the third quarter of fiscal 2023;

•On October 31, 2022, we completed a transaction with HCA Healthcare, Inc. (“HCA”) to form an oncology research business, combining McKesson’s U.S. Oncology Research (“USOR”) and HCA’s Sarah Cannon Research Institute (“SCRI”), to advance cancer care and increase access to oncology clinical research. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and $173 million of cash paid to HCA. The financial results of the combined business, in which we have a 51% controlling financial interest, will be reported within our U.S. Pharmaceutical segment as of the acquisition date in the third quarter of fiscal 2023. Separately, on October 31, 2022, we acquired Genospace, SCRI’s personalized medicine platform. Genospace is a leading innovator in precision medicine and clinical trial matching and will enhance McKesson’s oncology data and analytics capabilities;

•On October 31, 2022, we completed the sale of our E.U. disposal group and received net cash proceeds of $892 million, as discussed in further detail in the “European Divestitures Activities” section above;

•In July 2022, we exited one of our investments in equity securities within our U.S. Pharmaceutical segment for proceeds of $179 million and recognized a gain of $142 million within other income, net during the second quarter of fiscal 2023;

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

•For the three months ended September 30, 2022 compared to the prior year, revenues increased by 5%, gross profit decreased by 8%, total operating expenses decreased by 30%, and other income, net increased by 26%. For the six months ended September 30, 2022 compared to the prior year, revenues increased by 6%, gross profit decreased by 4%, total operating expenses decreased by 25%, and other income, net increased by 4%. Refer to the “Overview of Consolidated Results” section below for an analysis of these changes;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation increased 278% to $6.46 and 143% to $11.71 for the three and six months ended September 30, 2022 compared to the prior year, respectively, primarily driven by year over year favorability from fair value remeasurements of our E.U. disposal group since it was classified as held for sale in July 2022 and a lower share count due to the cumulative effect of share repurchases; and

•We returned $1.6 billion of cash to shareholders during the six months ended September 30, 2022 through $1.5 billion of common stock repurchases both under an accelerated share repurchase (“ASR”) program completed in August 2022 as well as through open market transactions and $139 million of dividend payments. In July 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 $0.47 to $0.54 per common share. The total remaining authorization outstanding for repurchases of the Company’s common stock at September 30, 2022 was $5.8 billion.

Trends and Uncertainties:

~~COVID-19~~Legislative Developments

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IR Act”). Among other provisions, the IR Act includes a 15% corporate minimum tax, a 1% excise tax on certain repurchases of an entity’s own common stock after December 31, 2022, and various drug pricing reforms. Based on our preliminary assessment, we do not currently expect the IR Act to have a material impact on our results of operations, financial position, or cash flows in the foreseeable future; however, we will continue to evaluate the full impact of these legislative changes.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

The ~~novel strain~~Impact of ~~coronavirus,~~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 ~~causes~~we might not be able to fully pass along to our customers. Although it is difficult to predict the ~~infectious disease known as~~ impact that these factors may have on our business in the future, they did not have a material impact on our results of operations, financial condition, or liquidity for the three and six months ended September 30, 2022.

COVID-19

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 half 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~~

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”). During the second quarter of 2022, we implemented new COVID-19 vaccination protocols designed to be consistent with customer requirements for our U.S. and Canada employees and to protect the safety of our employees, customers, patients, and communities while also safeguarding the healthcare supply chain. In Europe, we are following applicable government guidelines in local countries. We will continue to monitor all of these changing requirements. We have not observed a material increase in employee turnover as a result of our policies related to the COVID-19 vaccination mandates; however, we are unable to predict whether such policies or mandates will have a material impact on our workforce in the future.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 that are refrigerated or frozen since December 2020, when the Emergency Use Authorization was issued by the U.S. Food and Drug Administration for the Moderna COVID-19 vaccine manufactured by ModernaTX, Inc. In the first quarter of 2022, McKesson began supporting the U.S. government’s commitment to donate COVID-19 vaccines worldwide. For this initiative, we are responsible for picking and packing the COVID-19 vaccines into temperature-controlled coolers and preparing them for pickup by an international partner. We do not manage the actual shipments of the vaccines to other countries.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. McKesson Europe is also~~well as distributing COVID-19 tests and certain PPE.

Trends in our Business

We observed stability in prescription volumes within our U.S. Pharmaceutical segment and patient visits in our primary care business within our Medical-Surgical Solutions segment during the three and six months ended September 30, 2022 compared to the same prior year periods. The contributions from COVID-19 tests and our vaccine and related kitting distribution programs have decreased year over year primarily driven by lower demand.

Impacts to our Supply Chain

We continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we proactively work with manufacturers, industry partners, and government agencies to meet the needs of our customers. During the first half of fiscal 2023, we had an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for the three and six months ended September 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 maintain and protect supply as much as possible. We utilize business continuity action planning to maintain and protect operations across all locations and facilities.


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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~Trends in our Business~~

At the onset of the COVID-19 pandemic late in our fourth quarter of 2020, we experienced higher pharmaceutical distribution volumes and increased retail pharmacy foot traffic as our customers increased supplies on hand in March. Subsequently, during the first half 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 half of 2022 versus 2021, particularly during the first quarter.

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

~~Impact to our Supply Chain~~

We also continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers, industry partners, and government agencies to meet the needs of our customers during the pandemic. Overall, during 2022 we have experienced an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for the three or six months ended September 30, 2021. Additionally, in our Medical-Surgical Solutions segment, we have experienced certain supply chain disruptions for COVID-19 tests, which poses a potential risk for supply availability to meet the future demand. As potential shortages or disruptions of any products are identified we are acting to address supply continuity, which includes securing additional products when available, sourcing back-up products when needed, and following allocation procedures to maintain and protect supply as much as possible. We are also initiating 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 September 30, ~~2021,~~2022, COVID-19 tests and the kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment contributed approximately ~~$545~~$227 million ~~or 17%,~~and $65 million to segment revenues and segment operating profit, respectively, and for the three months ended September 30, 2021, contributed approximately $545 million and $93 million ~~or 31%~~ to segment revenues and segment operating ~~profit.~~profit, respectively. For the six months ended September 30, 2022, the contribution was approximately $428 million and $114 million to segment revenues and segment operating profit, respectively, and for the six months ended September 30, 2021, ~~these contributions were~~the contribution was approximately $868 million ~~or 15%,~~ to segment revenues and including total inventory charges asthat are further described below, increased our segment operating profit by approximately 1%.

The distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment ~~contributed~~decreased during the second quarter and first half of fiscal 2023 when compared to the same prior year periods. The contribution was less than 10% to segment operating profit for ~~both~~each of the three and six months ended September 30, 2022 and 2021. The financial impact from our COVID-19 response efforts in the International segment during the three and six months ended September 30, 2022 and 2021 was not material to our consolidated ~~results, but contributed to year over year favorability in~~or segment operating results. ~~During~~

Additionally, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment during the six months ended September 30, ~~2020, particularly during~~2021. We have taken measures to mitigate risks for market price volatility and changes to anticipated customer demand that may require additional write-downs in future periods of other PPE and related product categories.

Excluding the ~~first quarter, we~~prior year inventory charges on certain PPE and other related products for the six months ended September 31, 2021 mentioned above, these COVID-19 related items had ~~lower pharmaceutical volumes, specialty drug volumes, and patient care visits that negatively impacted our~~a net unfavorable impact on consolidated ~~revenues and~~ income from continuing operations before income ~~taxes.~~taxes for the three and six months ended September 30, 2022 compared to the same prior year periods, primarily driven by lower demand for COVID-19 tests as well as COVID-19 vaccines and related ancillary supply kits.

During the three and six months ended September 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.

Opioid-Related Litigation and Claims

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

The Company and two other national pharmaceutical distributors (collectively “Distributors”) settled with 46 of ~~prescription volume trends~~49 eligible states and ~~patient care visits,~~their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). Under the Settlement, the Distributors will pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Consent judgments have been entered in all participating states and territories, and approximately 2,000 cases have been dismissed pursuant to 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 is payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which ~~are also described~~will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Settlement provides that the Distributors do not admit liability or wrongdoing and do not waive any defenses.

The Settlement only addresses the claims of attorneys general of U.S. states and territories and political subdivisions in ~~more detail above~~participating states and territories. Governmental entities not participating in the ~~Trends~~Settlement may continue to pursue their claims. The states of Alabama, Oklahoma and Washington chose not to participate in ~~our Business~~ ~~section, had a favorable impact year over year across our businesses when comparing 2022 versus 2021.~~the Settlement, but, since the announcement of the Settlement, we have reached separate agreements with the attorneys general of these states to settle the claims of the states and their subdivisions. The Distributors previously settled with the Cherokee Nation and reached an agreement to settle the claims of federally recognized Native American Tribes.


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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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 six months ended September 30, 2021, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment. Of this amount, we recorded $147 million in cost of sales driven by the intent of management not to sell certain excess PPE inventory, which required an inventory write-down to zero, and instead direct it to charitable organizations. We recorded $8 million in total operating expenses for excess inventory which has already been committed for donation during our first half of 2022. In addition, $9 million of inventory charges were recorded in cost of sales for PPE and other related products that management intends to sell. Although market price volatility and changes to anticipated customer demand may require additional write-downs in future periods of other PPE and related product categories, we are taking measures to mitigate such risk.

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

During the six months ended September 30, 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 September 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.

~~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 COVID-19 pandemic; 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 COVID-19 may no longer significantly impact our ability to forecast future financial performance remains challenging. Additionally, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Key assumptions and estimates about future values in our impairment assessments can be affected by a variety of factors, including the impacts of the global pandemic on industry and economic trends as well as on our business strategy and internal forecasts. Material changes to key assumptions and estimates can decrease the projected cash flows or increase the discount rates and have resulted in impairment charges of certain long-lived assets 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.


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Opioid-Related Litigation and Claims~~

We are a defendant in a number of legal proceedings asserting claims related to the distribution of controlled substances (opioids) in federal and state courts throughout the U.S., and in Puerto Rico and Canada. Those proceedings include approximately 2,800 federal cases and approximately 350 state court cases throughout the U.S., and cases in Puerto Rico and Canada.

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

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

The proposed agreement only addresses the claims of U.S. state attorneys general and political subdivisions in participating states. The West Virginia subdivisions and Native American tribes are not part of this settlement process. The exact amount that would be due under the proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against us after the proposed agreement becomes effective. The proposed agreement contemplates that if certain governmental entities do not agree to a settlement under the framework, but the distributors nonetheless conclude that there is sufficient participation to warrant the settlement, there would be a corresponding reduction in the amount due to account for the unresolved claims of the governmental entities that do not participate. Those non-participating governmental entities would be entitled to pursue their claims.

We believe that a broad settlement of opioid claims by governmental entities is probable, and that the loss related thereto can be reasonably estimated. We recorded a charge of $8.1 billion during the year ended March 31, 2021 related to our share of the global settlement as well as claims of West Virginia municipalities and the Native American tribes. In connection with the proposed settlement agreement and other opioid-related settlement accruals described above, we recorded additional charges of $112 million and $186 million during the three and six months ended September 30, 2021, respectively, within “Claims and litigation charges, net” in our Condensed Consolidated Statements of Operations. Our total estimated liability for opioid-related claims was ~~$8.2~~$7.3 billion as of September 30, ~~2021,~~2022, of which ~~$1.1 billion~~$703 million was included in “Other accrued liabilities” for the amount estimated to be paid ~~prior to September 30, 2022,~~within the next twelve months, and the remaining liability was included in “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheet.

~~Consistent with~~Although the ~~terms~~vast majority of the proposed agreement, we placed approximately $354 million into escrow on September 30, 2021. This amount excludes the proportionate allocation under the proposed settlement for each non-participating state and would be disbursed when and if the proposed agreement becomes effective. Subsequent annual payments would be due on July 15 of each year. The escrow payment was presented as restricted cash within “Prepaid expenses and other”opioid claims have been brought by governmental entities in the ~~Company’s Condensed Consolidated Balance Sheet~~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 four cases brought in Canada (three by governmental or tribal entities and one by an individual). These claims, and those of ~~September 30, 2021.~~ private individuals or entities generally, are not included in the Settlement or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense.

Because 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~~Risks and Forward-Looking Information

~~Legislative, regulatory, or industry measures~~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 ~~address~~ the ~~misuse~~effects of ~~prescription opioid medications could affect our business~~these events on supply chains. Our participation in ~~ways~~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 ~~able to predict. In April 2018,~~recoverable. Key assumptions and estimates about future values in our impairment assessments can be affected by a variety of factors, including the ~~State~~impacts of ~~New York adopted the Opioid Stewardship Act (“OSA”) which required the imposition of an annual surcharge~~socio-political events on ~~all manufacturers~~industry and ~~distributors licensed to sell or distribute opioids~~economic trends as well as on our business strategy and internal forecasts. Impairment charges have been recognized 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 appealedprior periods due to the ~~U.S. Court~~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 ~~Appeals~~our 2022 Annual Report for ~~the Second Circuit. The State~~a discussion 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~~risk factors that ~~the OSA would apply only~~could cause our actual results 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~~differ materially 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. On October 4, 2021, the U.S. Supreme Court declined to hear a petition challenging the Second Circuit’s Decision. Thus, we expect that 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.projections.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(In millions, except per share data)		Three Months Ended September 30,								Six Months Ended September 30,
		2021			2020			Change		2021			2020			Change
(Dollars in millions, except per share data)																		(Dollars in millions, except per share data)	Three Months Ended September 30,								Six Months Ended September 30,
																			2022			2021			Change		2022			2021			Change
Revenues	Revenues	$	66,576		$	60,808		9	%	$	129,250		$	116,487		11	%	Revenues	$	70,157		$	66,576		5	%	$	137,311		$	129,250		6	%
Gross profit	Gross profit	3,352			3,000			12		6,384			5,700			12		Gross profit	3,095			3,352			(8)		6,118			6,384			(4)
Gross profit margin	Gross profit margin	5.03		%	4.93		%	10	bp	4.94		%	4.89		%	5	bp	Gross profit margin	4.41		%	5.03		%	(62)	bp	4.46		%	4.94		%	(48)	bp
Total operating expenses	Total operating expenses	$	(2,813)		$	(2,366)		19	%	$	(5,277)		$	(4,388)		20	%	Total operating expenses	$	(1,971)		$	(2,813)		(30)	%	$	(3,958)		$	(5,277)		(25)	%
Total operating expenses as a percentage of revenues	Total operating expenses as a percentage of revenues	4.23		%	3.89		%	34	bp	4.08		%	3.77		%	31	bp	Total operating expenses as a percentage of revenues	2.81		%	4.23		%	(142)	bp	2.88		%	4.08		%	(120)	bp
Other income, net	Other income, net	$	139		$	71		96	%	$	182		$	98		86	%	Other income, net	$	175		$	139		26	%	$	190		$	182		4	%
Loss on debt extinguishment	Loss on debt extinguishment	(191)			—			—		(191)			—			—		Loss on debt extinguishment	—			(191)			(100)		—			(191)			(100)
Interest expense	Interest expense	(45)			(50)			(10)		(94)			(110)			(15)		Interest expense	(55)			(45)			22		(100)			(94)			6
Income from continuing operations before income taxes	Income from continuing operations before income taxes	442			655			(33)		1,004			1,300			(23)		Income from continuing operations before income taxes	1,244			442			181		2,250			1,004			124
Income tax expense	Income tax expense	(132)			(28)			371		(158)			(178)			(11)		Income tax expense	(271)			(132)			105		(470)			(158)			197
Reported income tax rate																		Reported income tax rate	(21.8)		%	(29.9)		%	810	bp	(20.9)		%	(15.7)		%	(520)	bp
Income from continuing operations	Income from continuing operations	310			627			(51)		846			1,122			(25)		Income from continuing operations	$	973		$	310		214	%	$	1,780		$	846		110	%
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	—			—			—		(3)			(1)			200		Loss from discontinued operations, net of tax	(6)			—			—		(4)			(3)			33
Net income	Net income	310			627			(51)		843			1,121			(25)		Net income	967			310			212		1,776			843			111
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(43)			(50)			(14)		(90)			(100)			(10)		Net income attributable to noncontrolling interests	(41)			(43)			(5)		(82)			(90)			(9)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	267		$	577		(54)	%	$	753		$	1,021		(26)	%	Net income attributable to McKesson Corporation	$	926		$	267		247	%	$	1,694		$	753		125	%

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	$	1.71		$	3.54		(52)	%	$	4.82		$	6.26		(23)	%	Continuing operations	$	6.46		$	1.71		278	%	$	11.71		$	4.82		143	%
Discontinued operations	Discontinued operations	—			—			—		(0.02)			—			—		Discontinued operations	(0.04)			—			—		(0.03)			(0.02)			50
Total	Total	$	1.71		$	3.54		(52)	%	$	4.80		$	6.26		(23)	%	Total	$	6.42		$	1.71		275	%	$	11.68		$	4.80		143	%

Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	155.8			163.2			(5)	%	156.9			163.2			(4)	%	Weighted-average diluted common shares outstanding	144.1			155.8			(8)	%	145.0			156.9			(8)	%

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

bp - basis points

~~Revenues~~

Revenues increased for the three and six months ended September 30, 2021 compared to the same prior year periods primarily due to market growth in our U.S. Pharmaceutical segment, partially offset by the contribution of our German pharmaceutical wholesale business to a joint venture with Walgreens Boots Alliance (“WBA”) on November 1, 2020. For the six months ended September 30, 2021, revenues were also favorable year over year due to the recovery of pharmaceutical distribution volumes from the prior year impact of COVID-19 across our businesses. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with branded to generic drug conversion.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~Gross Profit~~Revenues

~~Gross profit~~Revenues increased for the three and six months ended September 30, 2021 largely due to the pandemic, including the favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs, the recovery of the prior year impacts from COVID-19, such as disruptions of doctors’ office operations, deferred or cancelled elective procedures, lower demand for pharmaceuticals, and overall reduction of foot traffic in pharmacies, as well as higher sales of COVID-19 tests. Gross profit was also favorably impacted by growth in specialty pharmaceuticals within our U.S. Pharmaceutical segment as well as by foreign currency exchange fluctuations for the three and six months ended September 30, 2021, and unfavorably impacted by the contribution of our German pharmaceutical wholesale business to a joint venture with WBA on November 1, 2020. For the six months ended September 30, 2021, gross profit was unfavorably impacted by inventory charges on certain PPE and other related products.

In our U.S. Pharmaceutical segment, gross profit for the three and six months ended September 30, 2021 also included net cash proceeds received of $34 million and $46 million, respectively, representing our share of antitrust legal settlements. There were no similar cash proceeds received for the same prior year periods. Last-in, first-out (“LIFO”) inventory credits were $23 million and $52 million for the three months ended September 30, 2021 and 2020, respectively, and $46 million and $104 million for the six months ended September 30, 2021 and 2020, respectively. LIFO credits are lower in the second quarter and first half of 2022 compared to the same prior year periods primarily due to ~~a decrease~~market growth in ~~the volume of~~our U.S. Pharmaceutical segment. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with branded ~~off-patent~~ to generic drug ~~launches~~conversion. This revenue growth was partially offset by lower revenues in our International segment driven by the completed divestiture of our U.K. disposal group in April 2022 and unfavorable effects of foreign currency exchange fluctuations.

Gross Profit

Gross profit decreased for the three and six months ended September 30, 2022 compared to the same prior year periods primarily in our International segment driven by the completed divestiture of our U.K. disposal group in April 2022 and unfavorable effects of foreign currency exchange fluctuations. For the six months ended September 30, 2022, 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 and favorability in our primary care business. Gross profit for the six months ended September 30, 2022 was also favorably impacted by growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment as well as increased volume with new and existing customers in our RxTS segment.

Last-in, first-out (“LIFO”) inventory credits were $23 million for each of the three months ended September 30, 2022 and 2021, and $36 million and $46 million for the six months ended September 30, 2022 and 2021, respectively. LIFO credits were lower in the first half of fiscal 2023 compared to the same prior year period primarily due to 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.

In October 2022, we received proceeds of $129 million related to our share of an antitrust settlement. A lawsuit was filed against a brand manufacturer alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. We were not a named party to the litigation but were a member of the class of those who purchased directly from the pharmaceutical manufacturer. We will recognize a gain in that amount within "Cost of sales" in the Condensed Consolidated Statement of Operations in the third quarter of fiscal 2023 related to the settlement within our U.S. Pharmaceutical segment.

Total Operating Expenses

A summary of the components of our total operating expenses for the three and six months ended September 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 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.~~

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

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

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)


		Three Months Ended September 30,								Six Months Ended September 30,									Three Months Ended September 30,								Six Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021			2020			Change		2021			2020			Change		(Dollars in millions)	2022			2021			Change		2022			2021			Change
Selling, distribution, general, and administrative expenses	Selling, distribution, general, and administrative expenses	$	2,669		$	2,237		19	%	$	4,901		$	4,334		13	%	Selling, distribution, general, and administrative expenses	$	1,950		$	2,669		(27)	%	$	3,909		$	4,901		(20)	%
Claims and litigation charges, net	Claims and litigation charges, net	112			—			—		186			(131)			(242)		Claims and litigation charges, net	(9)			112			108		(4)			186			102
Goodwill impairment charges		—			69			(100)		—			69			(100)
Restructuring, impairment, and related charges		32			60			(47)		190			116			64

Restructuring, impairment, and related charges, net																		Restructuring, impairment, and related charges, net	30			32			(6)		53			190			(72)
Total operating expenses	Total operating expenses	$	2,813		$	2,366		19	%	$	5,277		$	4,388		20	%	Total operating expenses	$	1,971		$	2,813		(30)	%	$	3,958		$	5,277		(25)	%
Percent of revenues	Percent of revenues	4.23		%	3.89		%	34	bp	4.08		%	3.77		%	31	bp	Percent of revenues	2.81		%	4.23		%	(142)	bp	2.88		%	4.08		%	(120)	bp

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

bp - basis points

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

•SDG&A for the three and six months ended September 30, 2022 reflects lower operating expenses due to the completed divestiture of our U.K. disposal group in April 2022;

•SDG&A for the three and six months ended September 30, 2022 includes gains of $23 million and $35 million, respectively, and for the three and six months ended September 30, 2021 includes charges of $491 million to remeasure the assets and liabilities of our E.U. disposal group ~~held for sale~~ to fair value less costs to ~~sell and to impair~~sell. The fiscal 2022 charges also includes impairments of individual assets, such as certain internal-use software that will not be utilized in the future. The fiscal 2022 remeasurement adjustment includes a $226 million loss related to the accumulated other comprehensive income balances associated with ~~the~~our E.U. disposal ~~group. Of the total charges recorded during the period, $342 million are included within our International segment and $149 million are included within Corporate expenses, net;~~group;

•SDG&A for the for the three and six months ended September 30, 2021 includes a gain of $59 million related to the sale of our Canadian health benefit claims management and plan administrative services business;

•SDG&A for the three months ended September 30, 2022 and 2021 ~~and 2020~~ includes ~~opioid-related costs~~charges of $9 million and $36 million, ~~and $41 million,~~ respectively, and ~~$71 million and $84 million~~ for the six months ended September 30, 2022 and 2021 includes charges of $28 million and $71 million, respectively, of opioid-related costs, primarily ~~related to~~ litigation expenses;

•~~SDG&A~~Claims and litigation charges, net for ~~the three~~fiscal 2023 was not material and ~~six months ended September 30, 2020 includes a charge of $50 million related to our estimated liability under the OSA as previously discussed in the~~ ~~“Trends and Uncertainties”~~ ~~section;~~

•~~SDG&A~~ for the three and six months ended September 30, 2021 ~~when compared to the same prior year periods also~~ includes increased employee-related and transportation costs across our businesses, partially offset by lower operating expenses due to the contribution of our German pharmaceutical wholesale business to a joint venture with WBA;

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

•of government entities, including Native American tribes. Claims and litigation charges, net for the six months ended September 30, ~~2020~~2021 also includes a ~~net gain~~charge of ~~$131~~$27 million ~~reflecting insurance proceeds received, net of attorneys' fees and expenses awarded~~related to ~~plaintiffs' counsel, in connection~~an agreement to settle opioid-related claims with the ~~previously reported $175~~State of New York and its participating subdivisions, including Nassau and Suffolk Counties, and a charge of $47 million ~~settlement of the shareholder derivative action~~ related to our ~~controlled substances monitoring program;~~estimated liability for a comprehensive proposed agreement to settle opioid-related claims of participating states, their political subdivisions, and other governmental entities. Refer to the Opioid-Related Litigation and Claims section of "Trends and Uncertainties" for further discussion;

•~~Goodwill~~Restructuring, impairment, and related charges, ~~of $69 million~~net for fiscal 2023 was not material and for the three and six months ended September 30, ~~2020 were recorded in connection with~~2021 includes charges of $15 million and $110 million, respectively, related to our ~~segment realignment that commenced in~~transition to a partial remote work model approved during the ~~second~~first quarter of ~~2021. Refer to~~fiscal 2022 as further described below; and

•Total operating expenses were favorably impacted by foreign currency exchange fluctuations for the ~~“Goodwill Impairment”~~ ~~section below for further details;~~three and six months ended September 30, 2022.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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 1~~Restructuring, impairment, and related charges for~~st to April 1st to align with the ~~three months ended September 30, 2021 primarily includes charges related to Corporate expenses, net, as well as~~change in timing of our U.S. Pharmaceutical segment, and for the six months ended September 30, 2021 primarily includes charges related to Corporate expenses, net, as well as our International segment. The three and six months ended September 30, 2020 primarily includes charges relatedannual long-term planning process. This change was not material to our International segment and Corporate expenses, net. In addition, certain charges related to restructuring initiatives are included under the caption “Cost of sales” in our Condensed Consolidated Statements of Operations and wereconsolidated financial statements as it did not ~~material for the three and six months ended September 30, 2020.~~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 and six months ended September 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 fiscal ~~2021~~2023 and fiscal 2022 did not indicate any impairment of ~~goodwill. Additionally,~~goodwill and no goodwill impairment charges were recorded during the three and six months ended September 30, 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.

Our operating structure was realigned commencing in the second quarter of 2021 which prompted changes in multiple reporting units across the Company. As a result, we were required to perform a goodwill impairment test for these reporting units and recorded a goodwill impairment charge of $69 million for the three and six months ended September 30, 2020 in our Europe Retail Pharmacy reporting unit, which is included within the International reportable segment.

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~~$15 million ~~to $280~~and $110 million for ~~this initiative, of which $110 million of charges were recorded~~the three and six months ended September 30, 2021, respectively, 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 U.K., 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 $64 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~~costs we recorded and ~~other exit costs, and employee-related costs.~~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.~~


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

initiatives.

Other Income, Net

~~The increase~~Other income, net increased for the three and six months ended September 30, 2022 compared to the same prior year periods primarily due to a gain of $142 million recognized in ~~other income,~~July 2022 related to the exit of one of our investments in equity securities held within our U.S. Pharmaceutical segment.

This was partially offset by prior year net gains from our equity investments held within Corporate of $97 million and $104 million recognized for the three and six months ended September 30, 2021, respectively, compared to ~~the same prior year periods was primarily due to higher~~ net ~~gains from our equity investments,~~losses of ~~which $97~~$3 million and ~~$49~~$25 million ~~were~~ recognized ~~during~~for the three ~~months ended September 30, 2021~~ and ~~2020, respectively, and $104 million and $59 million were recognized during the~~ six months ended September 30, ~~2021 and 2020,~~2022, respectively. ~~Refer~~

We are a party to ~~Financial Note 11, “Fair Value Measurements,”~~a certain tax receivable agreement (“TRA”) entered into as part of the formation of the joint venture with Change Healthcare Inc. (“Change”), from which McKesson has since exited. The TRA generally requires Change to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the amortization allocated to Change by the joint venture. In October 2022, Change exercised its right pursuant to the ~~accompanying condensed consolidated financial statements included~~TRA to terminate the agreement. We received $126 million in ~~this Quarterly Report on Form 10-Q for further information. In future periods, fair value adjustments recognized~~the third quarter of fiscal 2023 due to early termination of the TRA, which will result in ~~our operating results for these types~~a gain within “Other income, net” in the Condensed Consolidated Statements of ~~investments may be adversely impacted by market volatility.~~Operations within Corporate.

Loss on Debt Extinguishment

The loss on debt extinguishment recorded for the three and six months ended September 30, 2021 of $191 million includes premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred of $9 million, and was driven by our July 2021 tender offer to redeem a portion of our existing debt. 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.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Interest Expense

Interest expense ~~decreased~~increased for the three and six months ended September 30, ~~2021~~2022 compared to the same prior year periods, ~~primarily~~which includes unfavorable impacts from changes in our derivative portfolio as a result of our European divestiture activities. This was partially offset by a decrease in interest expense driven by lower existing debt due to ~~the repayment of $1.0 billion of long-term debt~~our tender offer in ~~the third quarter of~~late July 2021. Interest expense may ~~also~~ fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, as well as amounts incurred associated with financing fees.

Income Tax Expense

~~During~~For the three months ended September 30, 2022 and 2021, we recorded an income tax expense of $271 million and ~~2020,~~$132 million, respectively. For the six months ended September 30, 2022 and 2021, we recorded income tax expense of ~~$132~~$470 million and ~~$28 million, respectively. During the six months ended September 30, 2021 and 2020, we recorded income tax expense of~~ $158 ~~million and $178~~ million, respectively. Our reported income tax rates were ~~29.9%~~21.8% and ~~4.3%~~29.9% for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~15.7%~~20.9% and ~~13.7%~~15.7% for the six months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Fluctuations in our reported income tax rates are primarily due to non-cash charges related to remeasuring the value of our E.U. disposal group held for sale, changes in our business mix of ~~income~~earnings between various taxing jurisdictions, and discrete ~~items~~tax benefits recognized in the quarters. Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q~~ for more information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three and six months ended September 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 iswas 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 in 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 ~~$267~~$926 million and ~~$577~~$267 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $1.7 billion and $753 million ~~and $1.0 billion~~ for the six months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Diluted earnings per common share attributable to McKesson Corporation was ~~$1.71~~$6.42 and ~~$3.54~~$1.71 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$4.80~~$11.68 and ~~$6.26~~$4.80 for the six months ended September 30, 2022 and 2021, respectively.

Weighted-Average Diluted Common Shares Outstanding

Diluted earnings per common share were calculated based on a weighted-average number of shares outstanding of 144.1 million and ~~2020,~~155.8 million for the three months ended September 30, 2022 and 2021, respectively, and 145.0 million and 156.9 million for the six months ended September 30, 2022 and 2021, respectively. Weighted-average diluted shares outstanding for the three and six months ended September 30, 2022 decreased from the same prior year periods primarily due to the cumulative effect of share repurchases.

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~~Weighted-Average Diluted Common Shares Outstanding~~

~~Diluted earnings per common share was calculated based on a weighted-average number of shares outstanding of~~155.8 million and 163.2 million for the three months ended September 30, 2021 and 2020, respectively, and 156.9 million and 163.2 million for the six months ended September 30, 2021 and 2020, respectively. Weighted-average diluted shares outstanding for the three and six months ended September 30, 2021 decreased from the same prior year periods primarily due to the cumulative effect of shares repurchases.

Overview of Segment Results:

Segment Revenues:

Three Months Ended September 30, Six Months Ended September 30,
(Dollars in millions) 2021 2020 Change 2021 2020 Change
Segment revenues
U.S. Pharmaceutical $ 53,411 $ 48,067 11 % $ 103,430 $ 92,737 12 %
Prescription Technology Solutions 932 668 40 1,813 1,324 37
Medical-Surgical Solutions 3,124 2,533 23 5,652 4,334 30
International 9,109 9,540 (5) 18,355 18,092 1
Total revenues $ 66,576 $ 60,808 9 % $ 129,250 $ 116,487 11 %

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

Increase (decrease)
(Dollars in billions) Three Months Ended Six Months Ended
Sales to pharmacies and institutional healthcare providers $ 4.7 $ 9.3
Sales to specialty practices and other (1)
0.6 1.4
Total change in U.S. Pharmaceutical revenues $ 5.3 $ 10.7
Total change in Prescription Technology Solutions revenues $ 0.3 $ 0.5
Sales to primary care customers $ 0.5 $ 1.1
Sales to extended care customers — —
Other (2)
0.1 0.2
Total change in Medical-Surgical Solutions revenues $ 0.6 $ 1.3
Sales in Europe, excluding FX impact $ (1.1) $ (1.8)
Sales in Canada, excluding FX impact 0.4 0.8
Impact from FX 0.3 1.3
Total change in International revenues $ (0.4) $ 0.3
Total change in revenues $ 5.8 $ 12.8

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

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

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


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	Three Months Ended September 30,						Six Months Ended September 30,
(Dollars in millions)	2022		2021		Change		2022		2021		Change
Segment revenues
U.S. Pharmaceutical	$	60,059	$	53,411	12	%	$	117,006	$	103,430	13	%
Prescription Technology Solutions	1,018		932		9		2,084		1,813		15
Medical-Surgical Solutions	2,843		3,124		(9)		5,435		5,652		(4)
International	6,237		9,109		(32)		12,786		18,355		(30)
Total revenues	$	70,157	$	66,576	5	%	$	137,311	$	129,250	6	%

U.S. Pharmaceutical

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

U.S. Pharmaceutical revenues for the three months ended September 30, ~~2021~~2022 increased $6.6 billion or ~~11%~~12% compared to the same prior year ~~period~~period. Within the segment, sales to pharmacies and institutional healthcare providers increased $6.4 billion and sales to specialty practices and other, which reflects the results for the distribution of COVID-19 vaccines, increased $235 million. Overall, these increases were primarily due to market growth, including ~~higher volumes from existing customers,~~ growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions. ~~Market growth was partially offset by unfavorability from one less sales day this quarter compared to the same prior year period.~~

Six Months Ended September 30, ~~2021~~2022 vs. ~~2020~~2021

U.S. Pharmaceutical revenues for the six months ended September 30, ~~2021~~2022 increased $13.6 billion or ~~12%~~13% compared to the same prior year ~~period~~period. Within the segment, sales to pharmacies and institutional healthcare providers increased $13.0 billion and sales to specialty practices and other, which reflects the results for the distribution of COVID-19 vaccines, increased $550 million. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, ~~growth in specialty pharmaceuticals,~~ and branded pharmaceutical price increases, partially offset by branded to generic drug conversions. Market growth was partially offset by unfavorability from one less sales day this year compared to the same prior year period. Revenues for this segment were 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.

Prescription Technology Solutions

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

RxTS revenues for the three months ended September 30, ~~2021~~2022 increased ~~40%~~$86 million or 9% compared to the same prior year period ~~primarily~~ due to increased ~~volume~~volumes with new and existing ~~customers.~~customers primarily in our third-party logistics and wholesale distribution services as well as higher technology service revenues.

Six Months Ended September 30, ~~2021~~2022 vs. ~~2020~~2021

RxTS revenues for the six months ended September 30, ~~2021~~2022 increased ~~37%~~$271 million or 15% compared to the same prior year period ~~primarily~~ 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 September 30, ~~2021~~2022 vs. ~~2020~~2021

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

~~Six Months Ended September 30, 2021 vs. 2020~~

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

~~International~~

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

~~International revenues for the three months ended September 30, 2021~~2022 decreased 5%$281 million or 9% compared to the same prior year period. ~~Excluding~~Within the ~~favorable effects~~segment, sales to primary care and extended care customers decreased $227 million and $8 million, respectively. The decrease in our primary care business was driven by lower sales of ~~foreign currency exchange fluctuations, revenues for this segment decreased 8% largely due to the contribution of our German pharmaceutical wholesale business to a joint venture with WBA. This was~~COVID-19 tests, partially offset by underlying core business growth. Other sales declined $46 million driven by lower contribution from the kitting and distribution of ancillary supply kits used to ~~new customers in our Canadian business as well as favorability year over year due to the recovery of volumes from~~administer COVID-19 ~~in our pharmaceutical distribution and retail pharmacy businesses across the segment.~~vaccines.

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Six Months Ended September 30, ~~2021~~2022 vs. ~~2020~~2021

~~International~~Medical-Surgical Solutions revenues for the six months ended September 30, ~~2021 increased 1%~~2022 decreased $217 million or 4% compared to the same prior year period. Within the segment, sales to primary care customers decreased $140 million and sales to extended care customers increased $2 million. The decrease in our primary care business was driven by lower sales of COVID-19 tests, partially offset by underlying core business growth. Other sales declined $79 million driven by lower contribution from the kitting and distribution of ancillary supply kits used to administer COVID-19 vaccines.

International

Three Months Ended September 30, 2022 vs. 2021

International revenues for the three months ended September 30, 2022 decreased $2.9 billion or 32% compared to the same prior year period. Within the segment, foreign currency exchange fluctuations were unfavorable by $633 million and sales in Europe declined by $2.5 billion, partially offset by increased sales in Canada of $231 million. Excluding the ~~favorable~~unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 6%25% largely due to the ~~contribution~~completed divestitures of our ~~German pharmaceutical wholesale~~U.K. disposal group in April 2022 and Austrian business in January 2022.

Six Months Ended September 30, 2022 vs. 2021

International revenues for the six months ended September 30, 2022 decreased $5.6 billion or 30% compared to ~~a joint venture with WBA. This was~~the same prior year period. Within the segment, foreign currency exchange fluctuations were unfavorable by $1.2 billion and sales in Europe declined by $4.8 billion, partially offset by ~~favorability year over year~~increased sales in Canada of $400 million. Excluding the unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 24% largely due to the ~~recovery~~completed divestitures of ~~volumes from COVID-19~~our U.K. disposal group in ~~our pharmaceutical distribution~~April 2022 and ~~retail pharmacy businesses across the segment as well as sales to new customers~~Austrian business in ~~our Canadian business.~~January 2022.

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


		Three Months Ended September 30,								Six Months Ended September 30,									Three Months Ended September 30,								Six Months Ended September 30,
(Dollars in millions)	(Dollars in millions)	2021			2020			Change		2021			2020			Change		(Dollars in millions)	2022			2021			Change		2022			2021			Change
Segment operating profit (loss) (1)	Segment operating profit (loss) (1)																	Segment operating profit (loss) (1)
U.S. Pharmaceutical (2)	U.S. Pharmaceutical (2)	$	760		$	623		22	%	$	1,442		$	1,236		17	%	U.S. Pharmaceutical (2)	$	896		$	760		18	%	$	1,592		$	1,442		10	%
Prescription Technology Solutions	Prescription Technology Solutions	128			88			45		232			156			49		Prescription Technology Solutions	120			128			(6)		264			232			14
Medical-Surgical Solutions (3)	Medical-Surgical Solutions (3)	296			187			58		371			276			34		Medical-Surgical Solutions (3)	299			296			1		555			371			50
International (4)	International (4)	(146)			(45)			224		(93)			(42)			121		International (4)	(37)			(146)			(75)		(43)			(93)			(54)

Subtotal	Subtotal	1,038			853			22		1,952			1,626			20		Subtotal	1,278			1,038			23		2,368			1,952			21
Corporate expenses, net (5)	Corporate expenses, net (5)	(360)			(148)			143		(663)			(216)			207		Corporate expenses, net (5)	21			(360)			106		(18)			(663)			(97)
Loss on debt extinguishment(6)	Loss on debt extinguishment(6)	(191)			—			—		(191)			—			—		Loss on debt extinguishment(6)	—			(191)			(100)		—			(191)			(100)
Interest expense	Interest expense	(45)			(50)			(10)		(94)			(110)			(15)		Interest expense	(55)			(45)			22		(100)			(94)			6
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	442		$	655		(33)		$	1,004		$	1,300		(23)		Income from continuing operations before income taxes	$	1,244		$	442		181	%	$	2,250		$	1,004		124	%

Segment operating profit (loss) margin	Segment operating profit (loss) margin																	Segment operating profit (loss) margin
U.S. Pharmaceutical	U.S. Pharmaceutical	1.42		%	1.30		%	12	bp	1.39		%	1.33		%	6	bp	U.S. Pharmaceutical	1.49		%	1.42		%	7	bp	1.36		%	1.39		%	(3)	bp
Prescription Technology Solutions	Prescription Technology Solutions	13.73			13.17			56		12.80			11.78			102		Prescription Technology Solutions	11.79			13.73			(194)		12.67			12.80			(13)
Medical-Surgical Solutions	Medical-Surgical Solutions	9.48			7.38			210		6.56			6.37			19		Medical-Surgical Solutions	10.52			9.48			104		10.21			6.56			365
International	International	(1.60)			(0.47)			(113)		(0.51)			(0.23)			(28)		International	(0.59)			(1.60)			101		(0.34)			(0.51)			17

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

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

~~(4)~~Operating loss for our International segment for the three and six months ended September 30, 2021 includes charges of $342 million to remeasure assets and liabilities of our E.U. disposal group held for sale to fair value less costs to sell and to impair certain internal-use software that will not be utilized in the future. Operating loss for the three and six months ended September 30, 2021 also includes a gain of $59 million related to the sale of our Canadian health benefit claims management and plan administrative services business. Operating loss for the three and six months ended September 30, 2020 includes a goodwill impairment charge of $69 million related to our European retail business.following:

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~~(5)~~•~~Corporate expenses, net~~a gain of $142 million related to the exit of one of our investments in equity securities in July 2022 for the three and six months ended September 30, 2022; and

•cash receipts for our share of antitrust legal settlements of $34 million and $46 million for the three and six months ended September 30, 2021, respectively.

(3)Operating profit for our Medical-Surgical Solutions segment for the six months ended September 30, 2021 includes $164 million of inventory charges on certain PPE and other related products.

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

•charges of $143 million and $237 million for the three and six months ended September 30, 2022, respectively, and charges of $342 million for the three and six months ended September 30, 2021, to remeasure the assets and liabilities of our E.U. disposal group to fair value less costs to sell and, in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future; and

•a gain of $59 million for the three and six months ended September 30, 2021 related to the sale of our Canadian health benefit claims management and plan administrative services business.

(5)Corporate expenses, net includes the following:

•gains of $166 million and $272 million for the three and six months ended September 30, 2022, respectively, and charges of $149 million for the three and six months ended September 30, 2021, primarily related to the effect of accumulated other comprehensive loss components from our E.U. disposal group. Corporate expenses, net includes net gains from our equity investments of $97 million and $49 million for the three months ended September 30, 2021 and 2020, respectively, and $104 million and $59 million for the six months ended September 30, 2021 and 2020, respectively. Corporate expenses, net also includes group;

•charges of $112 million and $186 million for the three and six months ended September 30, 2021, respectively, related to our estimated liability for opioid-related ~~claims~~claims;

•charges of $9 million and ~~a net gain~~$36 million for the three months ended September 30, 2022 and 2021, respectively, and charges of ~~$131~~$28 million and $71 million for the six months ended September 30, ~~2020 recorded in connection with insurance proceeds received from~~2022 and 2021, respectively, of opioid-related costs, primarily litigation expenses;

•restructuring charges of $19 million and $81 million for the ~~settlement of the shareholder derivative action related to our controlled substances monitoring program.~~

~~U.S. Pharmaceutical~~

~~Three Months Ended~~three and six months ended September 30, 2021, ~~vs. 2020~~respectively, primarily due to the transition to a partial remote work model for certain employees; and

~~Operating profit increased~~•net gains (losses) of $(3) million and $97 million for ~~this segment for the~~ three months ended September 30, 2022 and 2021, compared to the same prior year period primarily due to growth in specialty pharmaceuticals, the contribution from our COVID-19 vaccine distribution program, favorability from a $50 million charge recorded during the second quarter of 2021 related to our estimated liability under the OSA,respectively, and ~~net cash proceeds received of $34 million representing our share of antitrust legal settlements. This was partially offset by a decrease in LIFO credits of $29~~$(25) million and ~~an increase in operating expenses.~~

~~Six Months Ended September 30, 2021 vs. 2020~~

~~Operating profit increased for this segment~~$104 million for the six months ended September 30, 2022 and 2021, ~~compared to the same prior year period primarily due to the contribution from~~respectively, associated with certain of our COVID-19 vaccine distribution program, growth in specialty pharmaceuticals, favorability from the prior year OSA charge described above, net cash proceeds received of $46 million representing our share of antitrust legal settlements, and the recovery of prescription volumes from the prior year impact of COVID-19. This was partially offset by a decrease in LIFO credits of $58 million and an increase in operating expenses.equity investments.

~~Prescription Technology Solutions~~

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

~~Operating profit for this segment increased~~(6)Loss on debt extinguishment for the three ~~months ended September 30, 2021 compared to the same prior year period primarily due to increased volumes with new~~ and ~~existing customers.~~

~~Six Months Ended September 30, 2021 vs. 2020~~

~~Operating profit for this segment increased for the~~ six months ended September 30, 2021 ~~compared~~consists of a charge of $191 million related to ~~the same prior year period primarily due~~our July 2021 tender offer to ~~increased volumes with new and~~redeem a portion of our existing ~~customers and the recovery of prescription volumes from the prior year impact of COVID-19.~~

~~Medical-Surgical Solutions~~

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

Operating profit for this segment increased for the three months ended September 30, 2021 compared to the same prior year period primarily due to favorability in our primary care business from improvements in patient care visits and higher sales of COVID-19 tests in the second quarter of 2022, as well as the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines. This was partially offset by an increase in employee-related expenses to support business growth.

~~Six Months Ended September 30, 2021 vs. 2020~~

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

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~~International~~U.S. Pharmaceutical

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

Operating ~~loss~~profit for this segment increased for the three months ended September 30, ~~2021~~2022 compared to the same prior year period ~~largely~~primarily due to ~~charges~~a gain recognized from the exit of ~~$342 million to remeasure assets and liabilities~~one of our ~~E.U. disposal group held for sale to fair value less costs to sell~~investments in equity securities in July 2022 and ~~to impair certain internal-use software that will not be utilized~~growth in ~~the future,~~specialty pharmaceuticals, partially offset by savings from ceased depreciation and amortization expense beginning in July 2021. This was also partially offset by favorability from a $69 million goodwill impairment charge recorded during the second quarter of 2021 related to our European retail business, a gain recognized of $59 million during the second quarter of 2022 related to the sale of our Canadian health benefit claims management and plan administrative services business, and lower restructuring charges from our initiativenet cash proceeds received in the ~~U.K. This segment also experienced favorability~~prior year ~~over year due to the volume recovery from COVID-19 in~~representing our ~~pharmaceutical distribution and retail pharmacy businesses across the segment and to a lesser extent, the distribution~~share of ~~COVID-19 vaccines, COVID-19 tests, and PPE.~~antitrust legal settlements.

Six Months Ended September 30, ~~2021~~2022 vs. ~~2020~~2021

Operating ~~loss~~profit for this segment increased for the six months ended September 30, 2022 compared to the same prior year period primarily due to a gain recognized from the exit of one of our investments in equity securities in July 2022 and growth in specialty pharmaceuticals. This was partially offset by net cash proceeds received in the prior year representing our share of antitrust legal settlements and a decrease in the contribution from our COVID-19 vaccine distribution program.

Prescription Technology Solutions

Three Months Ended September 30, 2022 vs. 2021

Operating profit for this segment decreased for the three months ended September 30, 2022 compared to the same prior year period primarily due to higher operating expenses related to annual support of customer programs.

Six Months Ended September 30, 2022 vs. 2021

Operating profit for this segment increased for the six months ended September 30, 2022 compared to the same prior year period primarily driven by increased volumes with new and existing customers due to growth in our access, affordability, and adherence solutions.

Medical-Surgical Solutions

Three Months Ended September 30, 2022 vs. 2021

Operating profit for this segment was flat for the three months ended September 30, 2022 compared to the same prior year period. Operating profit increased due to favorability in our core primary care business, which was offset by lower sales of COVID-19 tests.

Six Months Ended September 30, 2022 vs. 2021

Operating profit for this segment increased for the six months ended September 30, 2022 compared to the same prior year period largely due to prior year inventory charges on certain PPE and other related products.

International

Three Months Ended September 30, 2022 vs. 2021

Operating loss for this segment improved for the three months ended September 30, 2022 compared to the same prior year period largely due to a decrease in fair value remeasurement charges related to our E.U. disposal group, partially offset by a gain recognized in the prior year ~~goodwill impairment charge~~from the sale of our Canadian health benefit claims management and plan administrative services business.

Six Months Ended September 30, 2022 vs. 2021

Operating loss for this segment improved for the six months ended September 30, 2022 compared to the same prior year period due to a decrease in fair value remeasurement charges related to our ~~European retail~~E.U. disposal group and the cessation of depreciation and amortization expenses from its assets classified as held for sale, as well as lower restructuring expenses due to optimization programs in Canada. This was partially offset by unfavorable impacts from the completed divestitures of our Austrian business and U.K. disposal group as well as a gain recognized in the ~~current quarter related to a certain~~prior year from the sale of our Canadian ~~business, all of which is described above. This segment also experienced favorability year over year due to the volume recovery from COVID-19 in our pharmaceutical distribution~~health benefit claims management and ~~retail pharmacy businesses across the segment and to a lesser extent, the distribution of COVID-19 vaccines, COVID-19 tests, and PPE.~~plan administrative services business.


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Corporate Expenses, Net

Three Months Ended September 30, 2022 vs. 2021

Corporate expenses, net ~~increased~~decreased for the three ~~and six~~ months ended September 30, ~~2021~~2022 compared to the same prior year period primarily due to ~~charges recorded during~~year over year favorability from the ~~second quarter~~fair value remeasurement of ~~2022 of $149 million related to~~our E.U. disposal group, which includes the effect of accumulated other comprehensive loss components, ~~from our E.U. disposal group~~ and lower charges ~~of $112 million and $186 million recorded for the three and six months ended September 30, 2021, respectively,~~ related to our estimated liability for opioid-related ~~claims. This was~~claims, partially offset by ~~higher~~prior year net gains recognized from our equity investments.

Six Months Ended September 30, 2022 vs. 2021

Corporate expenses, net decreased for the six months ended September 30, ~~2021 also increased~~2022 compared to the same prior year period ~~from a net gain of $131 million recognized during the first quarter of 2021 in connection with insurance proceeds received~~primarily due to year over year favorability from the ~~settlement~~fair value remeasurement of our E.U. disposal group, which includes the ~~shareholder derivative action~~effect of accumulated other comprehensive loss components, lower charges related to our ~~controlled substances monitoring program~~estimated liability for opioid-related claims, and ~~higher~~prior year restructuring charges for the transition to a partial remote work model for certain employees. This was partially offset by lower net gains recognized from our equity investments.

Business Combinations

Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for our disclosures on business combinations.

New Accounting Pronouncements

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

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


	Six Months Ended September 30,
(Dollars in millions)	2022		2021		Change
Net cash provided by (used in):
Operating activities	$	166	$	170	$	(4)
Investing activities	116		(157)		273
Financing activities	(1,753)		(3,894)		2,141
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	24		18		6
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	$	(977)	$	(3,863)	$	2,886

(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, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information.

Operating Activities

Operating activities provided cash of $166 million and $170 million during the six months ended September 30, 2022 and 2021, respectively. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers, inventory purchases, 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 six months ended September 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 Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information on our European divestiture activities. Operating activities for the six months ended September 30, 2022 were affected by increases in drafts and accounts payable of $2.3 billion, receivables of $1.9 billion, and inventories of $1.5 billion, all primarily driven by higher revenues and timing. Our litigation liabilities also decreased by $915 million due to payments made during the first half 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 six months ended September 30, 2021 were affected by increases in drafts and accounts payable of $1.4 billion, receivables of $2.3 billion, and inventories of $1.2 billion, all primarily due to timing and higher revenues. Other non-cash items for the six months ended September 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 $116 million and used cash of $157 million during the six months ended September 30, 2022 and 2021, respectively. Investing activities for the six months ended September 30, 2022 reflects proceeds from sales of businesses and investments of $496 million, including $202 million of cash from the completed divestiture of our U.K. disposal group in April 2022 and $179 million of cash from the exit of one our investments in equity securities in July 2022. Investing activities for the six months ended September 30, 2022 and 2021 includes $222 million and $279 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.

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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:~~

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

~~Operating~~Financing Activities

~~Operating~~Financing activities ~~provided~~used cash of ~~$170 million~~$1.8 billion and $3.9 billion during the six months ended September 30, 2022 and 2021, ~~and used cash of $41 million during~~respectively. Financing activities for the six months ended September 30, ~~2020.~~2022 and 2021 includes $1.5 billion and $1.3 billion of cash paid for share repurchases, respectively, as well as $139 million and $134 million of cash paid for dividends, respectively. Financing activities also includes cash receipts and repayments of $100 million and $3.0 billion for the six months ended September 30, 2022 and 2021, respectively, for short-term borrowings, primarily commercial paper. Cash ~~flows from operations can be significantly impacted by factors such as timing of receipts from customers, inventory receipts,~~used for other financing activities generally includes shares surrendered for tax withholding and payments to ~~vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements, and vendor payment terms. Operating~~noncontrolling interests.

Financing activities for the six months ended September 30, 2021 ~~were affected~~includes a payment of $1.0 billion to purchase shares of McKesson Europe through exercises of a put right option by increases in drafts and accounts payable of $1.4 billion, receivables of $2.3 billion, and inventory of $1.2 billion, all primarily due to timing and higher revenues. Operating activities for the six months ended September 30, 2020 were affected by increases in inventory of $1.4 billion due to higher stock levels to meet sales demand, decreases in drafts and accounts payable of $1.3 billion primarily from effective working capital management at year end, and decreases in receivables of $981 million primarily due to higher sales recognized at the end of March 2020. Other non-cash items for the six months ended September 30,noncontrolling shareholders. The put right option expired on June 15, 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 used cash of $157 million and $278 million during the six months ended September 30, 2021 and 2020, respectively. Investing activities for the six months ended September 30, 2021 and 2020 includes $279 million and $265 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.

~~Financing Activities~~

~~Financing activities used cash of $3.9 billion and $401 million during the six months ended September 30, 2021 and 2020, respectively.~~as further described below. In July 2021, we completed a cash tender offer and paid an aggregate consideration of $1.1 billion to redeem certain notes with a principal amount of $922 million and also redeemed our 0.63% Euro-denominated notes with a principal amount of €600 million (or, approximately $709 million) prior to the maturity date of August 17, 2021 using cash on hand. This resulted in total repayments of long-term debt during the six months ended September 30, 2021 of $1.8 billion, including $184 million of cash paid for premiums and transaction fees. This was partially offset by the issuance of long-term debt in August 2021 from a public offering of 1.30% notes due August 15, 2026 for proceeds received of $498 million, which was utilized for general corporate purposes. ~~Financing activities for the six months ended September 30, 2021 and 2020 includes $1.3 billion and $248 million of cash paid for share repurchases, respectively, and $134 million~~and $140 million of cash paid for dividends, respectively. Additionally, financing activities for the six months ended September 30, 2021 and 2020 includes payments of $1.0 billion and $49 million, respectively, to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders. The put right option expired on June 15, 2021 as further described below. Financing activities for the six months ended September 30, 2021 includes cash receipts and payments of $3.0 billion for short-term borrowings, primarily commercial paper. Financing activities for the six months ended September 30, 2020 includes cash receipts 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 six months ended September 30, 2020 also includes restricted cash inflow related to funds temporarily held on behalf of unaffiliated medical practice groups.


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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

In May 2022, 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 3.1 million shares at an average price per share of $321.05. We received 2.6 million shares as the initial share settlement, and in August 2022, we received an additional 0.5 million shares upon the completion of this ASR program.

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 in the fourth quarter of fiscal 2022, and in May 2022, we received an additional 0.3 million shares upon the completion of this ASR program.

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

During the three and six months ended September 30, 2022, we repurchased 1.5 million of the Company’s shares of common stock for $524 million through open market transactions at an average price per share of $355.75, of which $40 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets for share repurchases that were executed in late September 2022 and settled in early October 2022. During the three and six months ended September 30, 2021, we ~~also~~ repurchased 1.4 million of the Company’s shares of common stock for $280 million through open market transactions at an average price per share of $203.20, of which $16 million was accrued within “Other accrued liabilities” ~~on our~~in the Company’s Condensed Consolidated Balance Sheets for the period ended September 30, 2021 for share repurchases that were executed in late September 2021 and settled in early ~~October.~~October 2021.

In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock ~~was $1.5 billion~~ at September 30, ~~2021.~~2022 was $5.8 billion.

~~During~~


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	September 30, 2022			March 31, 2022
Cash, cash equivalents, and restricted cash	$	2,958		$	3,935
Working capital	(1,909)			(2,235)
Debt to capital ratio (1)	113.2		%	114.5		%

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

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

Our cash and cash equivalents balance as of September 30, 2022 and March 31, 2022 included approximately$921 million and $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 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 net assets or liabilities classified as held for sale, net of drafts and accounts payable, 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 improved at September 30, 2022 compared to March 31, 2022 primarily due to increases in receivables, inventory, and net assets classified as held for sale related to our European divestiture activities, partially offset by an increase in drafts and accounts payable and a decrease in cash and cash equivalents.

Our debt to capital ratio decreased for the six months ended September 30, ~~2020,~~2022 due to a decrease in our foreign currency denominated notes driven by foreign currency remeasurement and an improvement in our stockholder’s deficit driven by net income for the year-to-date period, partially offset by share repurchases.

In July 2022, we ~~repurchased 1.8 million~~raised our quarterly dividend from $0.47 to $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 ~~Company’s~~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. Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their shares ~~for $269 million through open market transactions~~ at ~~an average price~~€22.99 per share, increased annually for interest in the amount of ~~$151.23,~~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 six months ended September 30, 2021, we paid $1.0 billion to purchase 34.5 million shares of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders, which ~~$21~~reduced the balance of our redeemable noncontrolling interests.

The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, valued at $287 million, were transferred from redeemable noncontrolling interests to noncontrolling interests and as a result, we no longer have redeemable noncontrolling interests presented in our condensed consolidated balance sheets at September 30, 2022 or March 31, 2022. Our noncontrolling interest in McKesson Europe was ~~accrued within “Other accrued liabilities” on~~included in the sale of our ~~Condensed Consolidated Balance Sheets for~~E.U. disposal group.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

Additionally, we were obligated to pay an annual recurring compensation of €0.83 per McKesson Europe share ~~repurchases that were executed in late September and settled in early October. There were no share repurchases~~(the “Compensation Amount”) to the noncontrolling shareholders of McKesson Europe under the Domination Agreement. The Compensation Amount was recognized ratably during the ~~three months ended June~~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 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 completed and anticipated acquisitions, or future payments that may be made related to our total estimated litigation liability of $7.3 billion as of September 30, ~~2020.~~2022 payable under the terms of various settlement agreements for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and other capital market transactions. Long-term debt markets and commercial paper markets, our principal 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.

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.

~~Selected Measures of Liquidity and Capital Resources~~

(Dollars in millions) September 30, 2021 March 31, 2021
Cash, cash equivalents, and restricted cash $ 2,533 $ 6,396
Working capital (495) 1,279
Debt to capital ratio (1)
84.5 % 83.1 %

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

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

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


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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

Consolidated working capital decreased at September 30, 2021 compared to March 31, 2021 primarily due to a decrease in cash and cash equivalents and an increase in other accrued liabilities, partially offset by an increase in receivables, an increase in net current assets held for sale related to our E.U. disposal group, and a decrease in our current portion of debt from the redemption of our €600 million Euro-denominated notes in July 2021. The increase in other accrued liabilities is primarily due to the reclassification of $1.1 billion from long-term to short-term for the total amount we expect to pay for opioid-related claims within one year as of September 30, 2021, of which $354 million is held in escrow for the initial payment under the proposed settlement agreement for opioid-related claims of governmental entities, excluding the West Virginia subdivisions and Native American Tribes. The escrow payment is presented as restricted cash within “Prepaid expenses and other” on our Condensed Consolidated Balance Sheets. See ~~“Trends and Uncertainties”~~ of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q for further information.

Our debt to capital ratio increased for the six months ended September 30, 2021 primarily due to an increase in McKesson stockholders’ deficit driven by share repurchases, partially offset by net income for the year to date period. Our debt to capital ratio was also impacted by a decrease in total debt from the completion of a cash tender offer to redeem certain notes with a principal amount of $922 million and the redemption of our €600 million Euro-denominated notes both in July 2021, partially offset by the issuance of notes with a principal amount of $500 million in August 2021. We compute our return on equity (deficit) as net income (loss) attributable to McKesson Corporation for the last four quarters, divided by a five-quarter average of McKesson stockholders’ equity (deficit), excluding noncontrolling and redeemable noncontrolling interests. Our unfavorable return on equity (deficit) as of September 30, 2021 and March 31, 2021 was primarily driven by net loss for the year ended March 31, 2021, which includes an after-tax non-cash charge of $6.8 billion related to our estimated liability for opioid-related claims, as discussed in ~~“Trends and Uncertainties”~~ of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

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

~~Redeemable Noncontrolling Interests~~

Our redeemable noncontrolling interests primarily 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 six months ended September 30, 2021 and 2020, we paid $1.0 billion and $49 million, respectively, to purchase 34.5 million and 1.8 million shares, respectively, of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders, 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 September 30, 2021, we owned approximately 95% of McKesson Europe’s outstanding common shares. Our noncontrolling interest in McKesson Europe will be included in the sale of our E.U. disposal group.

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


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

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 $8.2 billion for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and other capital market transactions. Long-term debt markets and commercial paper markets, our primary sources of capital after cash flow from operations, are open and accessible to us should we decide to access those markets. Detailed information regarding our debt and financing activities is included in Financial Note 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. Readers 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 September 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.

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 program discussed below was designed to comply with Rule 10b5-1(c).

Refer to Financial Note 13, “Stockholders' Equity (Deficit),” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a full discussion of the Company’s share repurchases for the three and six months ended September 30, 2022 and 2021.

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


	Share Repurchases (1)
(In millions, except price per share)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
July 1, 2022 – July 31, 2022	—	$	—	—	$	6,278
August 1, 2022 – August 31, 2022 (2)	1.1	342.93		1.1	6,076
September 1, 2022 – September 30, 2022	0.9	351.32		0.9	5,754
Total	2.0			2.0

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

(2)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. The total number of shares repurchased under this ASR program was ~~5.2~~3.1 million shares at an average price per share of ~~$193.22.~~$321.05. The Company received ~~4.3~~2.6 million shares as the initial share settlement, and in August ~~2021~~2022, the Company received an additional ~~0.9~~0.5 million shares upon the completion of this ASR program.

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

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

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

Share Repurchases (1)
(In millions, except price per share) Total Number
of Shares
Purchased Average Price
Paid Per Share Total Number of
Shares Purchased
As Part of Publicly
Announced
Program Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
July 1, 2021 – July 31, 2021 — $ — — $ 1,786
August 1, 2021 – August 31, 2021 1.4 195.98 1.4 1,684
September 1, 2021 – September 30, 2021 0.9 204.67 0.9 1,506
Total 2.3 2.3

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

Item 3.Defaults Upon Senior Securities.

None.

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McKESSON CORPORATION

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

Not applicable.

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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
~~4.1~~10.1*			O ~~fficers~~’ ~~Certificate, dated as of August 12, 2021, and related Form of 2026 Note~~McKesson Corporation 2022 Stock Plan, effective July 22, 2022 (incorporated by reference to Exhibit ~~4.1~~10.1 of the ~~Company~~’~~s Current Report~~Company’s Registration Statement on Fo r m ~~8-K~~Form S-8 filed with the SEC on ~~August~~ 12 ~~, 2021~~)July 27, 2022).

~~31.1~~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 September 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:	November 1, ~~2021~~2022	/s/ Britt J. Vitalone
		Britt J. Vitalone
		Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	November 1, ~~2021~~2022	/s/ ~~Kevin W. Emerson~~Napoleon B. Rutledge Jr.
		~~Kevin W. Emerson~~Napoleon B. Rutledge Jr.
		Senior Vice President and Controller

6463


Section			Page

General			39

Overview of ~~Our~~our Business			39

Executive Summary			4041

Trends and Uncertainties			4241

Overview of Consolidated Results			4745

Overview of Segment Results			5250

B usiness Combinations			54

New Accounting Pronouncements			5654

Financial Condition, Liquidity, and Capital Resources			5655

Cautionary Notice About Forward-Looking Statements			6058


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

Total change in Prescription Technology Solutions revenues	$	0.3	$	0.5

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

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

Total change in revenues	$	5.8	$	12.8