McKesson (MCK) 10-K risk factor changes: FY2018 vs FY2017

These changes have included cuts in Medicare and Medicaid reimbursement levels, changes in the basis for payments, shifting away from fee-for-service and towards value-based payments and risk-sharing models, increases in the use of managed [removed: care, consolidation of pharmaceutical and medical-surgical supply distributors] [added: care] and [added: consolidation in] the [removed: development of large, sophisticated purchasing groups.][added: healthcare industry.]

[removed: During 2017, our] [added: Our] Distribution Solutions segment experienced weaker pharmaceutical pricing [removed: trends, which are expected to continue in 2018.][added: trends over the last three years.]

On [removed: January 21,] [added: February 1,] 2016, the Centers for Medicare and Medicaid Services (“CMS”) [removed: released] [added: published] the Covered Outpatient Drugs final [removed: rule with comment.][added: rule.]

The final rule, with limited exceptions, establishes the FUL to be 175% of the weighted average (determined on the basis of [removed: utilization)] [added: utilization across a drug molecule when multiple sources are available)] of the most recently reported monthly average manufacturer price (“AMP”).

The DSQA also establishes new requirements for drug wholesale distributors and [removed: third party] [added: third-party] logistics providers, including licensing requirements in states that had not previously licensed such entities.

These standards may include track-and-trace or authentication technologies, such as radio frequency identification [removed: devices] [added: devices, 2D data matrix barcodes] and other similar technologies.

Privacy: There are numerous [removed: federal, state] [added: federal] and [removed: foreign] [added: state] laws and regulations related to the privacy and security of personal information.

Further, as a result of the November 2016 U.S. presidential election, there are [added: continued] uncertainties associated with efforts to change or repeal [added: certain provisions of] the ACA or other healthcare reforms, and we cannot predict their full effect on the Company at this time.

[removed: Two] [added: A] top legislative [removed: priorities] [added: priority] of the new presidential administration and Congress may be significant reform of the ACA, as discussed [removed: above, and reform of the Internal Revenue Code of 1986, as amended (the “Code”), including significant changes to taxation of business entities and the deductibility of interest expense.][added: above.]

Moreover, in Europe, [added: McKesson Europe AG (“McKesson Europe”), formerly known as] Celesio [added: AG,] operates as a wholesale and retail company and provider of logistics and services to the pharmaceutical and healthcare sector.

For instance, to reduce the cost for taxpayers, provincial governments have taken [added: and will continue to take] steps to reform the rules regarding the sale of generic drugs.

These changes include [added: increased powers of investigation, reporting and enforcement for provincial regulatory agencies,] the significant lowering of prices for generic pharmaceuticals and, in some provinces, changes to the allowable amounts of professional allowances paid to pharmacists by generic [removed: manufacturers,] [added: manufacturers and] the tendering of generic molecules on provincial drug [removed: formularies as well as the tendering of drug distribution services by provincial governments.][added: formularies.]

[removed: Other] [added: Additional] provinces have implemented or are considering similar changes, which would also lower pharmaceutical pricing and service fees.

In Europe, [added: beginning May 25, 2018,] we are subject to the [removed: 1995 European Union (“EU”) Directive on Data Protection (“1995] [added: General] Data Protection [removed: Directive”),] [added: Regulation,] which requires EU member states to impose restrictions on the collection and use of personal data that, in some respects, are more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States.

If we are unable to manage our joint venture relationship and to realize the strategic and financial benefits that we expect, including an initial [removed: private] [added: public] offering of Change Healthcare, such inability to manage the relationship or realize benefits may have a material adverse impact on our results of operations.

Our Distribution Solutions segment [added: (and commencing in first quarter of 2019, our reportable segments including U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, Medical-Surgical Solutions and Other)] faces a highly competitive global environment with strong competition from international, national, regional and local full-line, short-line and specialty distributors, service merchandisers, self-warehousing chain drug stores, manufacturers engaged in direct distribution, third-party logistics companies and large payer organizations.

Our [removed: Technology Solutions segment and] McKesson [removed: Rx] [added: Prescription] Technology Solutions [removed: businesses experience] [added: business experiences] substantial competition from many companies, including other software services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, payers, care management organizations, hardware vendors and internet-based companies with technology applicable to the healthcare industry.

During [removed: 2017,] [added: 2018,] sales to our ten largest customers, including group purchasing organizations (“GPOs”) accounted for approximately [removed: 54.2%] [added: 51.7%] of our total consolidated revenues.

Sales to our largest customer, CVS Health (“CVS”), accounted for approximately [removed: 20.2%] [added: 19.9%] of our total consolidated revenues.

At March 31, [removed: 2017,] [added: 2018,] trade accounts receivable from our ten largest customers were approximately [removed: 33.7%] [added: 24.9%] of total trade accounts receivable.

Accounts receivable from CVS were approximately [removed: 17.8%] [added: 16.4%] of total trade accounts receivable.

Although [removed: we and] [added: we,] our customers [added: and our external service providers] use a variety of security measures to protect our and their computer systems, a failure or compromise of [added: our,] our [added: customers’] or our [removed: customers’] [added: external service providers’] computer systems from a cyberattack, natural disaster, or malfunction may result in material adverse operational and financial consequences.

Our business relies on the secure electronic transmission, storage, and hosting of sensitive information, including [added: personally identifiable information,] protected health information, financial information and other sensitive information relating to our customers, company and workforce.

Despite our implementation of a variety of physical, technical and administrative security measures, [added: our,] our [added: customers’] and our [removed: customers’] [added: external service providers’] computer systems could be subject to cyberattacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering.

A failure or compromise of [added: our,] our [added: customers’] or our [removed: customers’] [added: external service providers’] computer systems may [added: result in business disruption or] jeopardize the confidential, proprietary, and sensitive information processed, stored, and transmitted through such computer systems.

Such an event may result in significant damage to our reputation, financial losses, litigation, increased costs, regulatory penalties, [added: notification costs, remediation expenses,] customer attrition, brand impairment, or other business harm.

Transactions like our acquisitions of [removed: Celesio] [added: McKesson Europe] and Rexall [added: Health] expose us to additional risks related to providing pharmacy services.

For example, [added: some of] our [removed: Technology Solutions segment] systems are intended to provide information to healthcare professionals in the course of delivering patient care.

If customers’ access is interrupted from failure or breach of our operational or information security systems, or those of our contractors or [removed: third party] [added: third-party] service providers, we could suffer reputational harm or be exposed to liabilities arising from the unauthorized and improper use or disclosure of confidential or proprietary information.

We may be required to record a significant charge to earnings if our goodwill, intangible [added: and other long-lived] assets, or investments become impaired.

In addition, we periodically review our intangible [added: and other long-lived] assets for impairment when events or changes in circumstances, such as a divestiture, indicate the carrying value may not be recoverable.

Factors that may be considered a change in circumstances indicating that the carrying value of our intangible [added: and other long-lived] assets may not be recoverable include slower growth rates, the loss of a significant customer, or divestiture of a business or asset for less than its carrying value.

We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible [added: and other long-lived] assets is determined.

There are inherent uncertainties in management’s estimates, judgments and assumptions used in assessing recoverability of [removed: goodwill and] [added: goodwill,] intangible [added: and other long-lived] assets.

Any [added: material] changes in key assumptions, including failure to meet business plans, [added: negative changes in government reimbursement rates,] a [removed: further] deterioration in the [added: U.S. and global financial markets, an increase in interest rate or an increase in the cost of equity financing by] market [added: participants within the industry] or other unanticipated events and circumstances, may [removed: affect] [added: decrease] the [removed: accuracy] [added: projected cash flows] or [removed: validity of such estimates] [added: increase the discount rates] and could potentially result in an impairment charge.

A decline in the fair value of our Change Healthcare investment may require that we review the carrying value for potential impairment, and such review could result in [removed: impairments and charges] [added: an impairment charge] to our consolidated statements of operations.

Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our [added: consolidated] financial statements.

Our [added: consolidated] financial statements are subject to the application of U.S. GAAP, which is periodically revised and/or expanded.

It is possible that future accounting standards we are required to adopt, such as the amended guidance for [removed: revenue recognition and] leases, may require changes to the current accounting treatment that we apply to our consolidated financial statements and may require us to make significant changes to our systems.

We could face significant liability if we withdraw from participation in one or more multiemployer pension plans in which we participate, or if one or more multiemployer plans in which we participate is [removed: reported to have underfunded liabilities.][added: underfunded.]

Additionally, if we experience disruptions in our supply of generic drugs, our margins could be adversely affected.

Our generic pharmaceutical sourcing program has benefited from the joint sourcing entity, ClarusONE.

If ClarusONE does not continue to be successful, our margins could be adversely affected.

On September 20, 2017, CMS issued a request for information seeking recommendations for payment models, which could include prescription drug models under Medicare Parts B and D and state Medicaid programs.

CMS noted its interest in drug pricing and value-based purchasing models involving “novel arrangements between plans, manufacturers, and stakeholders across the supply chain.” Additionally, CMS published a proposed rule on July 20, 2017 that would cut Medicare outpatient hospital reimbursement for separately payable drugs (other than vaccines) purchased through the 340B drug pricing program at ASP minus 22.5% (with certain exceptions), rather than ASP plus 6%.

CMS finalized this rule on November 1, 2017.

For example, the Company is a defendant in many cases alleging claims related to the distribution of controlled substances to pharmacies, often together with other pharmaceutical wholesale distributors and pharmaceutical manufacturers and retail pharmacy chains named as defendants.

The Company has been served with many complaints, often brought by governmental entities (including counties and municipalities) that allege violations of controlled substance laws and various other statutes in addition to common law claims, including negligence and public nuisance, and seek monetary damages and equitable relief.

Some states and other governmental entities have indicated that they are considering filing similar suits.

Our industry is subject to various evolving federal, state and international data and security laws and regulations, which impose operational costs to achieve compliance.

Any failure to comply with these laws and regulations could result in regulatory enforcement activity and fines.

In addition, compliance with these requirements could require changes in business practices, complicate our operations, and increase our oversight needs.

The constant evolution of cyberattacks has caused us to spend more time and money to deal with increasingly sophisticated attacks.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was enacted and contains significant changes to U.S. income tax law.

Effective in 2018, the 2017 Tax Act reduces the U.S. statutory tax rate from 35% to 21%.

Effective in 2019, it creates new taxes focused on foreign-sourced earnings and related-party payments.

In addition, we were subject to a one-time transition tax in 2018 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax.

The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") on December 22, 2017, which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.

We have made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial statements for the year ended March 31, 2018, in accordance with SAB 118.

The U.S. Treasury Department and IRS have not yet issued regulations with respect to the 2017 Tax Act.

Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to the 2017 Tax Act), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, the complexity of our intercompany arrangements, uncertainties regarding the geographic mix of earnings in any particular period, and other factors, material adjustments to our tax estimates impact our provision for income taxes and our earnings per share, as well as our cash flows, in the period in which any such adjustments are made.

Refer to Financial Note 10, “Income Taxes,” to the accompanying consolidated financial statements appearing in this Annual Report on Form 10-K for additional information.

From time to time, the Company may enter into restructuring and business process initiatives.

In April 2018, the Company announced a multi-year strategic growth initiative focused on creating innovative new solutions that improve patient care delivery and drive incremental profit growth.

The initiative includes a comprehensive review of the Company’s operations and cost structure, designed to increase efficiency, accelerate execution and improve long-term performance.

The Company’s acquisition of Celesio increased our assets and operations within Europe and, accordingly, our exposure to economic conditions in Europe.

In May 2018, the General Data Protection Regulation (“GDPR”) will supersede current EU data protection legislation, impose more stringent EU data protection requirements, and provide for greater penalties for noncompliance.

For example, the day after the United Kingdom approved an advisory referendum to withdraw from the European Union in June 2016, the British pound sterling fell by more than 10 percent against the U.S. dollar, to its lowest level in more than 30 years.

The fall in the British pound sterling relative to the U.S. dollar and Euro, and the strengthening of the U.S. dollar relative to a number of currencies including the British pound sterling and Euro, could have significant impacts on the business and financial results.

For example, if legislation is passed to repeal the LIFO (last-in, first-out) method of inventory accounting for income tax purposes, it would adversely impact our cash flow.

Additionally, if legislation is passed to change the current U.S. taxation treatment of income from foreign operations, or if legislation is passed at the state level to establish or increase taxation on the basis of our gross revenues, it may adversely impact our tax expense.

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 [added: McKesson Corporation (“McKesson,”] the [removed: Company] [added: “Company,” or “we” and other similar pronouns)] together with its subsidiaries.

We conduct our business through two [removed: operating] [added: reportable] segments: McKesson Distribution Solutions [added: (“MDS”)] and McKesson Technology Solutions.

Refer to Financial Note [removed: 29,] [added: 28,] “Segments of Business,” to the consolidated financial statements appearing in this Annual Report on Form 10-K for a description of these segments.

| (Dollars in millions, except per share [removed: data)] [added: data and ratios)] | Years Ended March 31, | | | | | | | | | | | | Change | | | | | | |

| [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | |

| Revenues | $ | [removed: 198,533] [added: 208,357] | | | $ | [removed: 190,884] [added: 198,533] | | | $ | [removed: 179,045] [added: 190,884] | | | [removed: 4] [added: 5] | | % | | [removed: 7] [added: 4] | | % |

| Gross Profit | $ | [removed: 11,271] [added: 11,184] | | | $ | [removed: 11,416] [added: 11,271] | | | $ | [removed: 11,411] [added: 11,416] | | | (1 | ) | % | | [removed: —] [added: (1] | [added: )] | % |

| [removed: Operating Expenses Excluding] Gain on [removed: Healthcare Technology Net Asset Exchange,] [added: healthcare technology] net [added: asset exchange, net] | [removed: $] [added: 37] | [removed: (8,109] | [removed: )] | | [removed: $] [added: 3,947] | [removed: (7,871] | [removed: )] | | [removed: $] [added: —] | [removed: (8,443] | [removed: )] | | [removed: 3] [added: (99] | [added: )] | [removed: %] | | [removed: (7] [added: NM] | [removed: )] | [removed: %] |

| Gain on [removed: Healthcare Technology Net Asset Exchange,] [added: healthcare technology] net [added: asset exchange, net] | [removed: 3,947] [added: (37] | | [added: )] | | [removed: —] [added: (3,947] | | [added: )] | | — | | | | [removed: —] | [added: (99] | [added: )] | | [removed: —] | [added: NM] | | [added: |]

| Total Operating Expenses | $ | [removed: (4,162] [added: (10,422] | ) | | $ | [removed: (7,871] [added: (4,162] | ) | | $ | [removed: (8,443] [added: (7,871] | ) | | [removed: (47] [added: 150] | [removed: )] | % | | [removed: (7] [added: (47] | ) | % |

| Income from Continuing Operations Before Income Taxes | $ | [removed: 6,891] [added: 239] | | | $ | [removed: 3,250] [added: 6,891] | | | $ | [removed: 2,657] [added: 3,250] | | | [removed: 112] [added: (97] | [added: )] | % | | [removed: 22] [added: 112] | | % |

| Income Tax [removed: Expense] [added: Benefit (Expense)] | [removed: (1,614] [added: 53] | | [removed: )] | | [removed: (908] [added: (1,614] | | ) | | [removed: (815] [added: (908] | | ) | | [removed: 78] [added: (103] | [added: )] | | | [removed: 11] [added: 78] | | |

| Income from Continuing Operations | [removed: 5,277] [added: 292] | | | | [removed: 2,342] [added: 5,277] | | | | [removed: 1,842] [added: 2,342] | | | | [removed: 125] [added: (94] | [added: )] | | | [removed: 27] [added: 125] | | |

| [removed: Loss] [added: Income (Loss)] from Discontinued Operations, Net of Tax | [removed: (124] [added: 5] | | [removed: )] | | [removed: (32] [added: (124] | | ) | | [removed: (299] [added: (32] | | ) | | [removed: 288] [added: (104] | [added: )] | | | [removed: (89] [added: 288] | [removed: )] | |

| Net Income | [removed: 5,153] [added: 297] | | | | [removed: 2,310] [added: 5,153] | | | | [removed: 1,543] [added: 2,310] | | | | [removed: 123] [added: (94] | [added: )] | | | [removed: 50] [added: 123] | | |

| Net Income Attributable to Noncontrolling Interests | [removed: (83] [added: (230] | | ) | | [removed: (52] [added: (83] | | ) | | [removed: (67] [added: (52] | | ) | | [removed: 60] [added: 177] | | | | [removed: (22] [added: 60] | [removed: )] | |

| Net Income Attributable to McKesson Corporation | $ | [removed: 5,070] [added: 67] | | | $ | [removed: 2,258] [added: 5,070] | | | $ | [removed: 1,476] [added: 2,258] | | | [removed: 125] [added: (99] | [added: )] | % | | [removed: 53] [added: 125] | | % |

| Continuing Operations | $ | [removed: 23.28] [added: 0.30] | | | $ | [removed: 9.84] [added: 23.28] | | | $ | [removed: 7.54] [added: 9.84] | | | [removed: 137] [added: (99] | [added: )] | % | | [removed: 31] [added: 137] | | % |

| Discontinued Operations | [removed: (0.55] [added: 0.02] | | [removed: )] | | [removed: (0.14] [added: (0.55] | | ) | | [removed: (1.27] [added: (0.14] | | ) | | [removed: 293] [added: (104] | [added: )] | | | [removed: (89] [added: 293] | [removed: )] | |

| Total | $ | [removed: 22.73] [added: 0.32] | | | $ | [removed: 9.70] [added: 22.73] | | | $ | [removed: 6.27] [added: 9.70] | | | [removed: 134] [added: (99] | [added: )] | % | | [removed: 55] [added: 134] | | % |

| Weighted Average Diluted Common Shares | [removed: 223] [added: 209] | | | | [removed: 233] [added: 223] | | | | [removed: 235] [added: 233] | | | | [removed: (4] [added: (6] | ) | % | | [removed: (1] [added: (4] | ) | % |

Revenues for [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] increased [removed: 4%] [added: 5%] and [removed: 7%] [added: 4%] compared to the same periods a year ago primarily due to market [removed: growth] [added: growth, reflecting growing drug utilization] and [added: price increases, our business acquisitions and] expanded business with existing customers within our North America pharmaceutical distribution businesses.

[removed: Market growth includes growing drug utilization, price] [added: These] increases [removed: and newly launched products,] [added: were] partially offset by price deflation associated with brand to generic drug [removed: conversion.][added: conversion and loss of customers.]

Gross profit [added: and gross profit margin] decreased [removed: 1%] in [removed: 2017] [added: 2018] and [removed: was flat in 2016] [added: 2017] compared to the same periods a year ago.

Gross profit [added: and gross profit] margin decreased in 2017 primarily due to weaker pharmaceutical manufacturer pricing trends, the competitive sell-side pricing environment, our mix of business and lower compensation from a branded pharmaceutical manufacturer from our U.S. Pharmaceutical distribution business.

These decreases [added: for 2017] were partially offset by our [added: business] acquisitions, LIFO inventory credits, higher cash receipts from antitrust legal settlements and [removed: benefits from our global] [added: higher] procurement [removed: arrangements.][added: benefits.]

[removed: Gross profit included LIFO-related] [added: Our LIFO] inventory credits [removed: of] [added: were $99 million and] $7 million in [added: 2018 and] 2017 and [added: LIFO] charges [removed: of] [added: were] $244 million [removed: and $337 million] in [removed: 2016 and 2015.][added: 2016.]

Gross profit for 2017 and 2016 [removed: also included] [added: benefited from] $144 million and $76 million of cash receipts representing our share of antitrust legal settlements.

[removed: During 2017 and 2016, our] [added: Our] Distribution Solutions segment experienced weaker pharmaceutical manufacturer pricing [removed: trends, which are expected to continue in 2018.][added: trends over the last three years.]

[removed: Operating expenses decreased 47%] [added: Gross profit] and [removed: 7%] [added: gross profit margin decreased] in [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] compared to the same periods a year ago.

Excluding [removed: favorable] foreign currency [removed: effects of 2% and 5%,] [added: effects,] operating expenses [removed: decreased 45% and 2% in 2017] [added: increased 47% for 2018] and [removed: 2016.][added: 5% for 2017.]

[removed: Operating] [added: Total operating] expenses [added: increased in 2018 and] decreased in 2017 [added: compared to the same periods a year ago] primarily due to a pre-tax gain of $3,947 million (after-tax gain of $3,018 million) recognized [added: in 2017] from the [removed: deconsolidation] [added: contribution] of the [removed: majority of our Technology Solutions businesses (“Core] [added: Core] MTS [removed: Business”), as further described below.][added: Business.]

On [removed: March 1,] [added: October 2,] 2017, the transaction closed upon satisfaction of all closing conditions [removed: pursuant to] [added: including] the [removed: Contribution Agreement.][added: termination of the waiting period under U.S. antitrust laws.]

We retained our RelayHealth Pharmacy [added: (“RHP”)] and [removed: EIS] [added: Enterprise Information Solutions (“EIS”)] businesses.

Our investment in Change Healthcare is accounted for using the equity method of [removed: accounting on a one-month reporting lag.][added: accounting.]

Refer to Financial Note 2, “Healthcare Technology Net Asset Exchange,” to the [added: accompanying] consolidated financial statements appearing in this Annual Report on Form [removed: 10-K] [added: 10‑K] for additional information.

Excluding the gain on Healthcare Technology Net Asset Exchange, 2017 [added: total] operating expenses increased primarily due to a non-cash pre-tax [added: goodwill impairment] charge of $290 million ($282 million after-tax) [removed: for goodwill impairment] related to our EIS business within our Technology Solutions segment and higher expenses due to our [removed: 2017] [added: business] acquisitions.

2017 [added: total] operating expenses benefited from lower restructuring charges and cost savings associated with a cost alignment plan implemented in the fourth quarter of 2016 and ongoing expense management efforts.

Our reported income tax [added: benefit rate was 22.2% in 2018 and income tax expense] rates were [removed: 23.4%, 27.9%] [added: 23.4%] and [removed: 30.7%] [added: 27.9%] in [removed: 2017, 2016] [added: 2017] and [removed: 2015.][added: 2016.]

[removed: In 2017,] [added: On December 19, 2016,] we sold various software [removed: and ancillary intellectual property] relating to our Technology Solutions business between wholly owned legal entities within the McKesson group that are based in different tax [removed: jurisdictions and recognized a net tax benefit of $137 million prior to the contribution of these assets to Change Healthcare.][added: jurisdictions.]

| Gross Profit Margin | $ | 5.37 | | | $ | 5.68 | | | $ | 5.98 | | | (31 | ) | bp | | (30 | ) | bp |

| Operating Expenses | $ | (8,263 | ) | | $ | (7,801 | ) | | $ | (7,771 | ) | | 6 | | % | | — | | % |

| Goodwill impairment charges | (1,738 | | ) | | (290 | | ) | | — | | | | 499 | | | | NM | | |

| Restructuring and asset impairment charges | (567 | | ) | | (18 | | ) | | (203 | | ) | | 3,050 | | | | (91 | ) | |

| Gains from sales of businesses | 109 | | | | — | | | | 103 | | | | NM | | | | NM | | |

| Loss from Equity Method Investment in Change Healthcare | $ | (248 | ) | | $ | — | | | $ | — | | | NM | | | | NM | | |

| Loss on Debt Extinguishment | $ | (122 | ) | | $ | — | | | $ | — | | | NM | | | | NM | | |

NM - not meaningful

These increases for 2018 and 2017 were partially offset by price deflation associated with brand to generic drug conversion and loss of customers and for 2018 also by the contribution of the majority of our McKesson Technology Solutions businesses (“Core MTS Business”) to a joint venture in March 2017, as further discussed below.

The decrease for 2018 was primarily due to the contribution of the Core MTS Business, significant government reimbursement reductions in the United Kingdom (“U.K.”), the competitive sell-side environment and weaker pharmaceutical manufacturer pricing trends.

These decreases in 2018 were partially offset by market growth, procurement benefits realized through the joint sourcing entity, ClarusONE Sourcing Services LLP (“ClarusONE”), higher last-in, first-out (“LIFO”) credits and our business acquisitions.

LIFO credits were higher in 2018 compared to 2017 due to higher net effect of price declines, partially offset by the lower inventory level.

LIFO expense was recognized in 2016 primarily due to net effects of price increases.

On March 1, 2017, we contributed our Core MTS Business to the newly formed joint venture, Change Healthcare, LLC (“Change Healthcare”) under the terms of a contribution agreement entered into between McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including shareholders of Change.

The RHP business was transferred to our MDS segment, effective April 1, 2017, and the EIS business was sold to a third party in the third quarter of 2018.

2018 total operating expenses also increased due to:

| • | Total non-cash goodwill impairment charges (pre-tax and after-tax) of $1,738 million for our McKesson Europe AG (“McKesson Europe”) and Rexall Health reporting units, as further described below. The charges were recorded within our Distribution Solutions segment. There were no tax benefits associated with these goodwill impairment charges. |

| • | Non-cash pre-tax long-lived asset impairment charges of $446 million ($410 million after-tax) and pre-tax restructuring charges of $74 million ($67 million after-tax) primarily representing employee severance and lease exit costs for our McKesson Europe business; |

| • | Higher expenses due to our business acquisitions; and |

| • | Pre-tax charitable contribution expense of $100 million ($64 million after-tax) to a public benefit California foundation (“Foundation”), as further described below. |

These increases in 2018 total operating expenses were partially offset by a pre-tax gain of $109 million (after-tax gain of $30 million) from the 2018 third quarter sale of our EIS business in our Technology Solutions segment.

During 2018, we recorded our proportionate share of loss from Change Healthcare of $248 million under the caption, “Loss from Equity Method Investment in Change Healthcare,” in our consolidated statements of operations.

We recorded our proportionate share of a provisional net benefit recognized by Change Healthcare from the enactment of the December 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) of $76 million primarily due to a reduction in future applicable tax rate.

In the fourth quarter of 2018, we recognized a pre-tax loss of $122 million ($78 million after-tax) on debt extinguishment related to our February 2018 tender offers to redeem a portion of our existing outstanding long-term debt.

Income from continuing operations before income taxes decreased in 2018 and increased in 2017 compared to the same periods a year ago primarily due to the pre-tax gain recognized in 2017 from the contribution of the Core MTS Business.

Income from continuing operations before income taxes decreased in 2018 also due to the goodwill impairment charges within our Distribution Solutions segment, the restructuring and asset impairment charges, our proportionate share of loss from our equity method investment in Change Healthcare and loss on debt extinguishment.

During 2018, as a result of the 2017 Tax Act, we have recognized a provisional tax benefit of $1,324 million due to the re-measurement of certain deferred taxes to the lower U.S. federal tax rate and a provisional tax expense of $457 million for the one-time tax imposed on certain accumulated earnings and profits (“E&P”) of our foreign subsidiaries.

Additionally, our 2018 diluted earnings per share reflect the cumulative effects of share repurchases.

Foundation

During the fourth quarter of 2018, the Foundation was established to provide opioid education to patients, caregivers, and providers, address policy issues, and increase patient access to life-saving treatments.

In March 2018, we made a pledge to the Foundation and incurred a pre-tax charitable contribution expense of $100 million ($64 million after-tax) for 2018, which was recorded in operating expenses within Corporate Expenses.

The pledge is binding and enforceable and is expected to be paid in the first quarter of 2019.

Goodwill Impairments

McKesson Europe: In 2018, we recorded total non-cash pre-tax and after-tax charges of $1,283 million to impair the carrying value of goodwill for our McKesson Europe reporting unit.

As a result, we performed the interim impairment test in the second quarter of 2018 and recorded a non-cash goodwill impairment charge of $350 million (pre-tax and after-tax).

During the fourth quarter of 2018, this reporting unit had a further decline in its estimated future cash flows driven by weakening script growth projections in our U.K. business and by a more competitive environment in France.

Based on the annual goodwill impairment test, we recorded non-cash charges of $933 million (pre-tax and after-tax) in the fourth quarter of 2018 to impair this reporting unit’s goodwill balance.

The discount rates and terminal growth rates were 7.5% and 1.25% for the 2018 second quarter interim test and 8.0% and 1.25% for the 2018 annual test, compared to 7.0% and 1.5% in our 2017 annual impairment test.

At March 31, 2018, this reporting unit had a remaining goodwill balance of $1,851 million.

Rexall Health: As a result of the 2018 annual impairment test, we recognized a non-cash goodwill impairment charge (pre-tax and after-tax) of $455 million in 2018.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Revenues for 2017 also increased due to our 2017 acquisitions including UDG Healthcare Plc (“UDG”), Biologics, Inc. (“Biologics”), Vantage Oncology Holdings, LLC (“Vantage”) and Rexall Health.

Excluding unfavorable foreign currency effects of 1% and 4%, gross profit remained flat in 2017 and increased 4% in 2016.

Gross profit margin decreased in 2016 primarily due to a lower sell margin within our North America distribution business driven by increased customer sales volume with some of our largest customers, partially offset by higher buy margin including benefits from our global procurement arrangements, lower LIFO-related inventory charges and higher cash receipts from antitrust legal settlements.

LIFO credits were recognized in 2017 primarily due to the impact of lower price increases.

On June 28, 2016, we entered into a Contribution Agreement with Change, and others including shareholders of Change to form a joint venture, Change Healthcare.

Under the terms of the Contribution Agreement, we contributed the majority of our Core MTS Business to the joint venture.

Accordingly, in the fourth quarter of 2017, we deconsolidated the Core MTS Business and recorded a pre-tax gain of $3,947 million (after-tax gain of $3,018 million).

The pre-tax gain was calculated based on the difference between the fair value of our 70% equity interest in the joint venture, less the carrying amount of the contributed Core MTS Business’ net assets of $1,132 million and $1,258 million of promissory notes, a $136 million liability associated with a tax receivable agreement and transaction and other related expenses.

The $1,258 million of promissory notes were subsequently repaid in cash from proceeds of Change Healthcare’s long term debt issuance.

The gain is subject to final net working capital and other adjustments within 90 days from the transaction close date and is recorded in operating expenses within our Technology Solutions segment.

We disclose intervening events at the joint venture in the lag period that could materially affect our consolidated financial statements, if applicable.

In March 2017, our proportionate share of transaction expenses incurred by the joint venture is estimated to be approximately $80 million to $120 million.

However, due to the timing of the transaction and the one-month reporting lag, no net income or loss from our investment was recorded in our financial results for 2017.

Commencing April 1, 2017, our proportionate share of the net income or loss from the joint venture including these transaction expenses will be recorded in “Other Income, Net” in our consolidated statement of operations.

In connection with the Healthcare Technology Net Asset Exchange, we are evaluating strategic options for our EIS business.

2016 operating expenses decreased primarily due to pre-tax gains of $103 million from the sale of two businesses and lower acquisition-related expenses, partially offset by pre-tax restructuring charges of $203 million relating to the 2016 cost alignment plan.

Additionally, 2015 operating expenses included a pre-tax and after-tax $150 million charge associated with the settlement of controlled substance distribution claims with the Drug Enforcement Administration (“DEA”), Department of Justice (“DOJ”) and various U.S. Attorney’s offices.

Income from continuing operations before income taxes increased in 2017 and 2016 compared with the prior years primarily due to lower operating expenses.

Income tax expense for 2017 included discrete income tax benefits of $54 million related to the early adoption of the amended accounting guidance on share-based compensation.

and $7.54.

On April 3, 2017, we completed our acquisition of CoverMyMeds LLC (“CMM”) for $1.3 billion and up to an additional $0.2 billion of contingent consideration payable based on CMM’s financial performance through the end of 2019.

CMM provides electronic prior authorization solutions and is headquartered in Columbus, Ohio.

| | Years Ended March 31, | | | | | | | | | | | | Change | | | | | | |

These increases were partially offset by customer losses.

Revenues increased in 2017 primarily due to market growth and our acquisition of UDG.

Revenue growth for 2016 primarily reflected increased revenues in the United Kingdom due to a new distribution agreement with a manufacturer, which was almost fully offset by lower revenues in Norway associated with the loss of a hospital contract.

Revenues for 2017 also benefited from an acquisition and for 2016 were unfavorably affected by the sale of our ZEE Medical business in the second quarter of 2016.

Revenues decreased over the last two years primarily due to a decline in hospital software revenues, partially offset by higher revenues in our other businesses.

Additionally, 2016 revenues decreased as a result of the sale of our nurse triage business and the transition of our workforce business within our International Technology business to a third party during the first quarter of 2016.

Gross profit decreased 1% in 2017 and remained flat in 2016 compared to the same periods a year ago.

Gross profit margin decreased in 2017 and 2016.

These changes were primarily due to our Distribution Solutions segment.

Excluding unfavorable foreign currency effects of 2% and 4%, gross profit increased 1% and 4% in 2017 and 2016.

Gross profit margin for 2016 decreased primarily due to a lower sell margin within our North America distribution business driven by increased customer sales volume with some of our largest customers, partially offset by lower LIFO inventory charges.

Gross profit margin over the last two years was favorably affected by benefits from our global procurement arrangements and higher cash receipts representing our share of antitrust legal settlements.

Buy margin primarily reflects volume and timing of compensation we receive from pharmaceutical manufacturers, including the effects of price increases of both branded and generic drugs.

LIFO credits were recognized in 2017 and LIFO charge decreased in 2016 compared to 2015 primarily due to the impact of lower price increases.

This segment’s gross profit margin increased over the last two years.

Gross profit margin for 2016 benefited from the sale of our nurse triage business, transitioning of our workforce business within our International Technology business to a third party, and higher pull-through of deferred revenue.

At March 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] we had [removed: $2.8] [added: $2.7] billion and [removed: $4.0] [added: $2.8] billion and in cash and cash equivalents.

The effect of a hypothetical 50 bp increase in the underlying interest rate on our cash and cash equivalents, net of short-term borrowings and variable rate debt, would have resulted in a favorable impact to earnings in [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] of approximately [removed: $19] [added: $10] million and [removed: $26] [added: $19] million.

We have certain foreign exchange rate risk programs that use foreign currency forward contracts and [removed: cross currency] [added: cross-currency] swaps.

The forward contracts and [removed: cross currency] [added: cross-currency] swaps are designated to reduce the income statement effects from fluctuations in foreign exchange rates and have been designated as cash flow hedges.

As of March 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] the effect of a hypothetical adverse 10% change in the underlying foreign currency exchange rates would have impacted the fair value of our foreign exchange contracts by approximately [removed: $357] [added: $458] million and [removed: $131] [added: $357] million.

Refer to Financial Note [removed: 21,] [added: 20,] “Hedging Activities,” for more information on our foreign currency forward contracts and [removed: cross currency] [added: cross-currency] swaps.

McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns), currently ranked [removed: 5th] [added: 6th] on the FORTUNE 500, is a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information technology.

We partner with [removed: pharmaceutical] manufacturers, providers, pharmacies, governments and other organizations in healthcare to help provide the right medicines, medical products and healthcare services to the right patients at the right time, safely and cost-effectively.

[removed: We operate] [added: Through the end of 2018, we operated] our business through two [added: reportable] segments: McKesson Distribution Solutions [added: (“MDS”)] and McKesson Technology [removed: Solutions.][added: Solutions (“MTS”).]

[removed: Our Distribution Solutions] [added: This] segment [removed: distributes branded and generic pharmaceutical drugs and other healthcare-related products internationally and] provides practice management, technology, clinical support and business solutions to community-based oncology and other specialty practices.

This segment also provides [removed: specialty pharmaceutical] solutions for [removed: pharmaceutical] manufacturers including offering multiple distribution channels and clinical trial access to our network of oncology physicians.

It also provides medical-surgical supply distribution, [removed: logistics] [added: equipment, logistics,] and other services to healthcare providers within the United States.

Additionally, this segment operates retail pharmacy chains in Europe and Canada, and supports independent [removed: pharmacy networks] [added: pharmacies] within North America and Europe.

Our Technology Solutions segment provides clinical, financial and supply chain management solutions to healthcare organizations and [removed: includes our] [added: owns approximately 70%] equity [removed: method investment] [added: interest] in [added: a joint venture,] Change [removed: Healthcare,] [added: Healthcare Holdings,] LLC (“Change Healthcare”), [removed: a Delaware limited liability company, as further described below.][added: which was formed in the fourth quarter of 2017.]

On [removed: June 28, 2016,] [added: March 1, 2017,] we [removed: entered into] [added: finalized] a contribution agreement (“Contribution Agreement”) with Change Healthcare Holdings, Inc. (“Change”), a Delaware corporation, and others including shareholders of Change to form a joint venture, Change Healthcare.

We retained our RelayHealth Pharmacy [added: (“RHP”)] and [removed: Enterprise Information Solutions (“EIS”)] [added: EIS] businesses.

In exchange for the contribution, we own [added: approximately] 70% of the joint venture with the remaining equity ownership held by Change shareholders.

Distribution Solutions [removed: Segment][added: segment:]

Our North America pharmaceutical distribution and services business is the largest pharmaceutical distributor in the United States with more than 40,000 customers and is comprised of the following business units: U.S. Pharmaceutical Distribution, McKesson Specialty Health, McKesson Canada and McKesson [removed: Rx] [added: Prescription] Technology [removed: Solutions.][added: Solutions (“MRxTS”).]

[removed: U.S. Pharmaceutical Distribution:] This business supplies [removed: branded, specialty] [added: brand, generic, specialty, biosimilar] and [removed: generic pharmaceuticals] [added: OTC pharmaceutical drugs] and other healthcare-related products to customers throughout the United States [removed: in] [added: and Puerto Rico through] three primary customer channels: (1) [removed: retail] [added: Retail] national accounts [removed: (including] [added: which includes] national and regional chains, [removed: food/drug] [added: food and drug] combinations, mail order pharmacies and mass [removed: merchandisers);] [added: merchandisers;] (2) [removed: independent] [added: Independent] retail pharmacies; and (3) [removed: institutional] [added: Institutional] healthcare providers such as hospitals, health systems, integrated delivery networks and long-term care providers.

Our U.S. pharmaceutical distribution business operates and serves [removed: thousands of] customer locations [added: in all 50 states and Puerto Rico] through a network of 27 distribution centers, as well as a primary redistribution center, two strategic redistribution centers and two repackaging [removed: facilities, serving all 50 states and Puerto Rico.][added: facilities.]

We invest in technology and other systems at all of our distribution centers to enhance safety and reliability and [removed: to provide the best] product [removed: availability for our customers.][added: availability.]

[removed: We also] [added: For example, we] offer McKesson ConnectSM, an internet-based ordering system that provides item lookup and real-time inventory availability as well as ordering, purchasing, third-party reconciliation and account management functionality.

The major customer groups of our U.S. Pharmaceutical Distribution business can be categorized [removed: as] [added: as:] retail national accounts, independent retail pharmacies and institutional healthcare providers.

Retail National [removed: Accounts — Business] [added: Accounts: We provide business] solutions that help [added: retail] national account customers increase revenues and profitability.

| • | ExpressRx Track™ — Pharmacy automation solution featuring state-of-the-art robotics, upgraded imaging and expanded vial capabilities, and industry-leading speed and accuracy in a [removed: radically] small footprint. |

Independent Retail [removed: Pharmacies — Solutions for] [added: Pharmacies: We provide] managed care contracting, branding and advertising, merchandising, purchasing, operational efficiency and automation that help independent pharmacists focus on patient care while improving profitability.

| • | [removed: AccessHealth®] [added: Health Mart Atlas®] — Comprehensive managed care and reconciliation assistance services that help independent pharmacies save time, access competitive reimbursement rates and improve cash flow. |

| • | Sunmark® — Complete line of more than 600 products that provide [removed: retail] independent [added: retail] pharmacies with value-priced alternatives to national brands. |

| • | McKesson Sponsored Clinical Services [removed: (SCS)] [added: (“SCS”)] Network — Access to patient-support services that [removed: allow] [added: allows] pharmacists to earn service fees and to develop stronger patient relationships. |

Institutional Healthcare [removed: Providers — Electronic] [added: Providers: We provide electronic] ordering/purchasing and supply chain management systems that help customers improve financial performance, increase operational efficiencies and deliver better patient care.

| • | Fulfill-RxSM — Ordering and inventory management system that empowers hospitals to optimize the often complicated [removed: and disjointed] processes related to unit-based cabinet replenishment and inventory management. |

| • | McKesson Plasma and [removed: BioLogics] [added: Biologics] — A full portfolio of plasma-derivatives and biologic products. [added: In the second quarter of 2018, we acquired BDI Pharma, LLC (“BDI”).] |

[removed: McKesson Specialty Health (“MSH”): This] [added: Our MSH] business provides a range of [added: services and] solutions to oncology and other specialty practices operating in communities across the country, to pharmaceutical and biotechnology suppliers who manufacture specialty drugs and vaccines, and to payers and hospitals.

[removed: MSH] [added: This business] is focused on three core business lines: Manufacturer Solutions, Practice Management and Provider Solutions.

Manufacturer [removed: Solutions help] [added: Solutions: This business helps] manufacturers accelerate the approval and successful commercialization of specialty pharmaceuticals across the product life cycle.

[removed: MSH’s] [added: Our] offerings include supply chain services, including specialty pharmacy services and [removed: third party] [added: third-party] logistics (“3PL”), provider and patient engagement programs, clinical trial support, patient assistance programs, reimbursement [removed: services,] [added: services] and analytics.

In addition, [removed: MSH helps] [added: we help] manufacturers minimize reimbursement challenges while offering affordable, safe access to therapies through Risk Evaluation and Mitigation Strategies (“REMS”) programs.

Practice [removed: Management] [added: Management: This business] provides a variety of solutions, including practice operations, healthcare information technology, revenue cycle management and managed care contracting solutions, evidence-based guidelines and quality measurements to support U.S. Oncology Network, one of the nation’s largest [removed: network] [added: networks] of physician-led, integrated, community-based oncology practices dedicated to advancing high-quality, evidence-based cancer care.

Provider [removed: Solutions] [added: Solutions: This business] offers community specialists (oncologists, rheumatologists, ophthalmologists, urologists, [removed: neurologists,] [added: neurologists] and other specialists) an extensive set of customizable products and services designed to strengthen core practice operations, enhance value-based care [removed: delivery,] [added: delivery] and expand their service offering to patients.

Community-based physicians in this business line have broad flexibility and [removed: choice] [added: discretion] to select the products and commitment levels that best meet their practice needs.

When we classify a pharmaceutical product or service as “specialty,” we consider the following factors: diseases requiring complex treatment regimens such as cancer and rheumatoid arthritis; [added: plasma and biologics products;] ongoing clinical monitoring requirements, high-cost, special handling, storage and delivery requirements and, in some cases, exclusive distribution arrangements.

McKesson [removed: Canada: McKesson] Canada is one of the largest [removed: pharmaceutical] [added: wholesale] distributors [added: and pharmacy retailers] in Canada.

[removed: McKesson Canada, through its network of 13 distribution centers, provides logistics and distribution for manufacturers - delivering] [added: The wholesale business delivers] their products to retail pharmacies, hospitals, long-term care centers, clinics and institutions [removed: throughout] [added: in] Canada [removed: and] through [removed: its] [added: a] network of [removed: infusion clinics, offers specialty services] [added: 13 distribution centers] and [removed: adherence programs.][added: provides logistics and distribution services for manufacturers.]

Beyond [added: wholesale] pharmaceutical [removed: distribution,] logistics and [removed: order fulfillment,] [added: distribution,] McKesson Canada provides automation solutions to its retail and hospital [removed: customers, dispensing millions of doses each year.][added: customers.]

[removed: McKesson Canada] [added: We] also [removed: provides health information exchange solutions that streamline clinical and administrative communication and] [added: provide] retail banner services that help independent pharmacists compete and grow through innovative services and [removed: operation] [added: operations] support.

Our Distribution Solutions segment distributes brand, generic, specialty, biosimilar and over-the-counter (“OTC”) pharmaceutical drugs and other healthcare-related products worldwide.

It also sells financial, operational and clinical solutions to pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing and other services.

U.S. Pharmaceutical Distribution

This business is the largest pharmaceutical distributor in the United States with more than 40,000 customers.

This business provides secondary distribution of generics and medical supplies and consulting services.

We also source generic pharmaceutical drugs through our joint sourcing entity, ClarusONE Sourcing Services, LLP (“ClarusONE”), which was formed in 2017.

We make extensive use of technology as an enabler to ensure customers have the right products at the right time in the right place.

McKesson Specialty Health (“MSH”)

In the fourth quarter of 2018, we completed our acquisition of RxCrossroads, a provider of tailored services to pharmaceutical and biotechnology manufacturers.

RxCrossroads is headquartered in Louisville, Kentucky.

This acquisition enhances our end-to-end solutions for manufacturers of branded, specialty, generic and biosimilar drugs, including comprehensive patient support services, custom pharmacy solutions and third-party logistics.

In addition, this acquisition will add plasma logistics to our manufacturer solutions, complementing the Company’s established customer-facing plasma offerings.

This is a continuation of our strategy to achieve better patient outcomes through efficiency and coordination across the supply chain, and throughout the patient journey.

In the second quarter of 2018, we acquired intraFUSION, Inc. (“intraFUSION”) of Houston, Texas, which provides management services to physician office infusion centers.

McKesson Canada

McKesson Canada also provides health information exchange solutions that streamline clinical and administrative communication.

Through specialty solutions and services, McKesson Canada works with health care providers, manufacturers and payers to help patients with complex diseases by improving access to life-saving treatments.

In the second quarter of 2018, we expanded our support for Canadian banners to more than 2,400 independent pharmacies by adding more than 300 independent pharmacies in Quebec, Canada, with our acquisition of the Uniprix Group.

MRxTS

This business is comprised of McKesson Pharmacy Technology and Services, RelayHealth Pharmacy and CoverMyMeds.

Our International pharmaceutical distribution and services business provides distribution and services to wholesale, institutional and retail customers in 13 European countries where we own, partner or franchise with retail pharmacies, as further described below.

The business consists of Pharmacy Solutions and Consumer Solutions.

Our Pharmacy Solutions business delivers pharmaceutical and other healthcare-related products to pharmacies across Europe.

This business functions as a vital link connecting manufacturers to retail pharmacies.

Our European business leverages its scale and provides innovative and effective medical care services to create enhanced customer value.

In addition, this business includes outpatient dispensing and homecare arrangements mainly in the United Kingdom (“U.K.”).

In addition, we partner with independent pharmacies under our franchise program.

We serve our customers across the continuum of care to help improve efficiencies, profitability and compliance while promoting better patient outcomes.

Our comprehensive portfolio of medical-surgical products helps our customers increase revenue with the right product mix.

With 85% of patient visits happening beyond the hospital, each of these sites has unique needs and challenges.

We serve more than 200,000 medical practices, including physician offices, surgery centers, seven of the top ten urgent care center chains and more than 1,800 community health centers.

We develop customized plans to address the clinical support needs of our customers, including tackling reimbursements, reducing administrative burdens, and training and educating clinical staff.

On April 25, 2018, we entered into a definitive agreement to purchase Medical Specialties Distributors LLC, a leading national distributor of infusion and medical-surgical supplies as well as provider of biomedical services to alternate site and home health providers.

Equity investment in Change Healthcare:

Change Healthcare is a healthcare technology company that leverages software and analytics, network solutions, and technology-enabled services to enable better patient care, choice, and outcomes at scale.

We transferred our RHP business to our MDS segment, effective April 1, 2017.

EIS:

On October 2, 2017, we sold our EIS business to a third party.

We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party.

We recognized a pre-tax gain of $109 million (after-tax gain of $30 million) upon the disposition of this business in the third quarter of 2018.

It also supplies integrated pharmacy management systems, automated dispensing systems and related services to retail, outpatient, central fill, specialty and mail order pharmacies.

On December 21, 2016, we received notification from the Department of Justice that their review was closed and the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, was terminated.

On March 1, 2017, the transaction closed upon satisfaction of all other closing conditions pursuant to the Contribution Agreement.

Change contributed substantially all of its businesses to the joint venture excluding its pharmacy switch and prescription routing business.

Change Healthcare is a healthcare technology company which provides software and analytics, network solutions and technology-enabled services that will deliver wide-ranging financial, operational and clinical benefits to payers, providers and consumers.

McKESSON CORPORATION

Net revenues for our segments for the last three years were as follows:

| | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Years Ended March 31, | | | | | | | | | | | | | | | | |

| (Dollars in billions) | | 2017 | | | | | | 2016 | | | | | | 2015 | | | | |

| Distribution Solutions | | $ | 195.9 | | 99 | % | | $ | 188.0 | | 98 | % | | $ | 176.0 | | 98 | % |

| Technology Solutions | | 2.6 | | | 1 | | | 2.9 | | | 2 | | | 3.1 | | | 2 | |

| Total | | $ | 198.5 | | 100 | % | | $ | 190.9 | | 100 | % | | $ | 179.1 | | 100 | % |

This business sources materials and products from a wide array of different suppliers, including certain generic pharmaceutical drugs produced through a contract-manufacturing program and generic pharmaceutical drugs sourced through our sourcing joint venture, ClarusOne Sourcing Services, LLC.

For example, in most of our distribution centers we use Acumax® Plus, an award-winning technology that integrates and tracks all internal inventory-related functions such as receiving, put-away and order fulfillment.

Acumax® Plus uses bar code technology, wrist-mounted computer hardware and radio frequency signals to provide customers with real-time product availability and industry-leading order quality and fulfillment in excess of 99.9% adjusted accuracy.

In addition, we offer Mobile ManagerSM, which integrates portable handheld technology with Acumax® Plus to give customers complete ordering and inventory control.

Together, these features help ensure customers have the right products at the right time for their facilities and patients.

Solutions include:

| | |

| --- | --- |

In April 2016, we completed the acquisition of Biologics, Inc (“Biologics”), a Cary, North Carolina-based company that provides oncology pharmacy services to providers and patients as well as solutions for manufacturers and payers.

For manufacturers, Biologics helps optimize the speed of therapy to the patient, enhance patient adherence and improve patient access to therapy.

In addition, Biologics works with manufacturers to develop custom strategies to enhance the clinical and commercial success of their products at each stage of the life-cycle.

In April 2016, we also completed the acquisition of Vantage Oncology Holdings, LLC (“Vantage”), a leading national provider of integrated oncology and radiation services headquartered in Manhattan Beach, California.

Vantage’s comprehensive oncology management services model, including its focus on community-based radiation oncology, medical oncology, surgical specialties and other integrated cancer care services, complements and strengthens the existing offerings of McKesson and U.S. Oncology Network, while allowing patients to access the care they need in an efficient, customizable and cost effective way.

McKesson Canada’s retail banners comprise the largest network of independent pharmacies in Canada.

In partnership with other McKesson businesses, McKesson Canada provides a full range of services to Canadian manufacturers and healthcare providers, contributing to the quality and safety of care for patients.

In December 2016, we completed our acquisition of Rexall Health of the Katz Group Canada, Inc. for $2.9 billion Canadian dollars (or, approximately $2.1 billion U.S dollars).

Rexall Health, which operates approximately 470 retail pharmacies in Canada, enhances our ability to provide best-in-class pharmacy care through an expanded retail footprint for patients across Canada.

Rexall Health helps us leverage our existing portfolio of assets to drive growth along the entire value chain, particularly in two of Canada’s fastest growing regions, Ontario and Western Canada.

McKesson Rx Technology Solutions (“MRTS”): This business is comprised of McKesson Pharmacy Technology and Services (“MPTS”), RelayHealth Pharmacy (“RHP”) and CoverMyMeds (“CMM”) and drives greater innovation and value for all stakeholders in the pharmaceutical value chain.

MPTS provides offerings that allow retail chains, hospital outpatient pharmacies, small and independent pharmacies to meet the high demand for prescriptions while maximizing profits, meeting clinical demands and optimizing operations.

It supplies integrated pharmacy management systems, automated dispensing systems and related services to retail, outpatient, central fill, specialty and mail order pharmacies.

| • | EnterpriseRx® — A Software as a Service (SaaS) pharmacy management system, that allows large retail chain, health system and retail independent pharmacies to meet demand for prescriptions while maximizing profits and optimizing operations. |

| • | Pharmaserv® — A fully integrated, server-based pharmacy management system that gives the customer complete control of their pharmacy data. |

| • | PharmacyRx — A cost-effective, SaaS-based pharmacy management system that can be installed quickly and makes processing prescriptions fast and easy. |

| • | Macro Helix® — Software as a Service (SaaS)-based solutions that help pharmacists manage, track and report on medication replenishment associated with the federal 340B Drug Pricing Program. |

| • | Supplylogix® — Develops and delivers practical supply chain intelligence solutions to retail pharmacies to aid in inventory management and control. |

Certain legal proceedings in which we are involved are discussed in Financial Note [removed: 25,] [added: 24,] “Commitments and Contingent Liabilities,” to the consolidated financial statements appearing in this Annual Report on Form 10-K.

[Table of [removed: Content](#s39454EBAEFFB5E36A3FA5DF8408EED97)][added: Content](#s8F876454633A5800B586A1D941666031)]

For the fiscal year ended March 31, [removed: 2017][added: 2018]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, September 30, [removed: 2016,] [added: 2017,] was approximately [removed: $37.6] [added: $32] billion.

Number of shares of common stock outstanding on April 30, [removed: 2017: 210,902,490][added: 2018: 202,050,986]

Portions of the registrant’s Proxy Statement for its [removed: 2017] [added: 2018] Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

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| 4. | [Mine Safety [removed: Disclosures](#sD8A4661EFDD955A7BB0A1C7C49B36E91)] [added: Disclosures](#s35E53EB9944E5DB38EB0E48E1DF01652)] | [removed: [25](#sD8A4661EFDD955A7BB0A1C7C49B36E91)] [added: [25](#s35E53EB9944E5DB38EB0E48E1DF01652)] |

| | [Executive Officers of the [removed: Registrant](#sF2C9C40605465661852F7EFD738FAD9E)] [added: Registrant](#sFDB9E0B66D665E0D8583FEC9EA4A7869)] | [removed: [26](#sF2C9C40605465661852F7EFD738FAD9E)] [added: [26](#sFDB9E0B66D665E0D8583FEC9EA4A7869)] |

| 5. | [Market for the Registrant's Common Equity, Related Stockholder Matters [removed: and](#sDB312E25433C5896812B3F055DDEA132)] [added: and](#sA56A223BAA6A5F1BB54AFC73B818D593)] [Issuer Purchases of Equity [removed: Securities](#sDB312E25433C5896812B3F055DDEA132)] [added: Securities](#sA56A223BAA6A5F1BB54AFC73B818D593)] | [removed: [27](#sDB312E25433C5896812B3F055DDEA132)] [added: [27](#sA56A223BAA6A5F1BB54AFC73B818D593)] |

| 6. | [Selected Financial [removed: Data](#sF10F07697D23590D9E35DF08E00C7F65)] [added: Data](#s329C9D5204865AA7BFD9374AD30A43D6)] | [removed: [30](#sF10F07697D23590D9E35DF08E00C7F65)] [added: [30](#s329C9D5204865AA7BFD9374AD30A43D6)] |

| 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sF1469D7307715FA4814935A096B8EAAA)] [added: Operations](#sA3EFA9D919005C8BBFB74B704DC693AD)] | [removed: [31](#sF1469D7307715FA4814935A096B8EAAA)] [added: [32](#sA3EFA9D919005C8BBFB74B704DC693AD)] |

| 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sE5C46F73D7295092AC517A236699AD3F)] [added: Risk](#s9477E66B5F2C54DF8639B26B9C139B89)] | [removed: [51](#sE5C46F73D7295092AC517A236699AD3F)] [added: [58](#s9477E66B5F2C54DF8639B26B9C139B89)] |

| 8. | [Financial Statements and Supplementary [removed: Data](#sD0F175804BBF5CBDA702D800A0EC4F3C)] [added: Data](#s21B862ADA4AA5B518262E0DAD1C4B2F8)] | [removed: [52](#sD0F175804BBF5CBDA702D800A0EC4F3C)] [added: [59](#s21B862ADA4AA5B518262E0DAD1C4B2F8)] |

| 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sF36C348AD15952BBB95C4D6151243A10)] [added: Disclosure](#s18AF3E9EE12F5D20B92B557615BE6160)] | [removed: [118](#sF36C348AD15952BBB95C4D6151243A10)] [added: [134](#s18AF3E9EE12F5D20B92B557615BE6160)] |

| 9A. | [Controls and [removed: Procedures](#sD6C1F544D20E5570B59E4166BF40E6BE)] [added: Procedures](#sAA2135A6F044577DB5249F98385BA508)] | [removed: [118](#sD6C1F544D20E5570B59E4166BF40E6BE)] [added: [134](#sAA2135A6F044577DB5249F98385BA508)] |

| 9B. | [Other [removed: Information](#s5B0088737F8E5E0DB998C8E35A25C0CC)] [added: Information](#sF27D0DCC26275141AE1B14F354F323B8)] | [removed: [118](#s5B0088737F8E5E0DB998C8E35A25C0CC)] [added: [134](#sF27D0DCC26275141AE1B14F354F323B8)] |

| | [PART [removed: III](#s1AAA492300EF572A82CBBE21120F75D9)] [added: III](#s15FA5AA30E4858788AE2511F6AC756A7)] | |

| 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s3784C9CDE1105B1AA0760CB730AA8E23)] [added: Governance](#s115F8692F4FA53CE87A02DFFC90831B8)] | [removed: [119](#s3784C9CDE1105B1AA0760CB730AA8E23)] [added: [135](#s115F8692F4FA53CE87A02DFFC90831B8)] |

| 11. | [Executive [removed: Compensation](#s4DA601197CC154DA8B3AEBF7898679A0)] [added: Compensation](#s4080B314BC13527E9F744E0310DBAB94)] | [removed: [119](#s4DA601197CC154DA8B3AEBF7898679A0)] [added: [135](#s4080B314BC13527E9F744E0310DBAB94)] |

| 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s0D2AA415A4E95349A47F6A3805EAC058)] [added: Matters](#s95B47A72D6555943B190551F99A8F176)] | [removed: [119](#s0D2AA415A4E95349A47F6A3805EAC058)] [added: [135](#s95B47A72D6555943B190551F99A8F176)] |

| 13. | [Certain Relationships and Related Transactions and Director [removed: Independence](#s6A870F2F9B48539F8480E25C6057F107)] [added: Independence](#s986A4AB171E45C0F936767B5A023C7FF)] | [removed: [121](#s6A870F2F9B48539F8480E25C6057F107)] [added: [137](#s986A4AB171E45C0F936767B5A023C7FF)] |

| 14. | [Principal Accounting Fees and [removed: Services](#s8825BA6F399C5005A46663B014589172)] [added: Services](#s72B50F69D7B55D41A67913E026E73314)] | [removed: [121](#s8825BA6F399C5005A46663B014589172)] [added: [137](#s72B50F69D7B55D41A67913E026E73314)] |

| 15. | [Exhibits and Financial Statement [removed: Schedule](#s58A56E5DBBEE5FC3881A4B4E3DEB79A7)] [added: Schedule](#s280CD3983D4B55E9BD4B5BAFD195760B)] | [removed: [122](#s58A56E5DBBEE5FC3881A4B4E3DEB79A7)] [added: [138](#s280CD3983D4B55E9BD4B5BAFD195760B)] |

10-K 1 mck_10kx3312018.htm 10-K

| | [PART I](#s636CCA13AF8A56C4B9D8C7A7129E876D) | |

| 1. | [Business](#s13F10750BE8256D7879258C5C6122378) | [3](#s13F10750BE8256D7879258C5C6122378) |

| 2. | [Properties](#s821278569B135A0A930BEA7850408A01) | [24](#s821278569B135A0A930BEA7850408A01) |

| | [PART II](#s636CCA13AF8A56C4B9D8C7A7129E876D) | |

| | [PART IV](#s58476D5EA4F95C708E046AF530B4E18F) | |

| | [Signatures](#s4342FCD800D85FABA0C782DF0B8E8896) | [144](#s4342FCD800D85FABA0C782DF0B8E8896) |

10-K 1 mck_10kx3312017.htm 10-K

| | [PART I](#s95E0E65B285850A29E936B299C5F21FC) | |

| 1. | [Business](#sCCAE094ADD2759E6848CB0C0610A13B8) | [3](#sCCAE094ADD2759E6848CB0C0610A13B8) |

| 2. | [Properties](#s616F12EF7EC0534AB3F186B234D4C8FF) | [25](#s616F12EF7EC0534AB3F186B234D4C8FF) |

| | [PART II](#s95E0E65B285850A29E936B299C5F21FC) | |

| | [PART IV](#s6EAAD96EE6E55F7CA1F14CF689F041C2) | |

| | [Signatures](#s7F4E90928132560486F0BEAA6D7D4B54) | [123](#s7F4E90928132560486F0BEAA6D7D4B54) |

Information as to material lease commitments is included in Financial Note [removed: 23,] [added: 22,] “Lease Obligations,” to the consolidated financial statements appearing in this Annual Report on Form 10-K.

McKESSON CORPORATION

| John H. Hammergren | | [removed: 58] [added: 59] | | Chairman of the Board since July 2002; President and Chief Executive Officer since April 2001; and a director since July 1999. Service with the Company — [removed: 21] [added: 22] years. |

| Jorge L. Figueredo | | [removed: 56] [added: 57] | | Executive Vice President, Human Resources since May 2008. Service with the Company — [removed: 9] [added: 10] years. |

| Kathleen D. McElligott | | [removed: 61] [added: 62] | | Executive Vice President, Chief Information Officer and Chief Technology Officer since July 2015; Chief Information Officer and Vice President, Information Technology, Emerson Electric from 2010 to July 2015. Service with the Company — [removed: 1 year, 9 months.] [added: 2 years.] |

| Bansi Nagji | | [removed: 52] [added: 53] | | Executive Vice President, Corporate Strategy and Business Development since February 2015; Principal, Deloitte Consulting, LLP and Global Leader, Monitor Deloitte (which was formed by the global merger of Monitor Group with Deloitte) from January 2013 to February 2015; President, Monitor Group from July 2012 to January 2013; Partner, Monitor Group from 2001 to January 2013. Service with the Company — [removed: 2] [added: 3] years. |

| Lori A. Schechter | | [removed: 55] [added: 56] | | Executive Vice President, General Counsel and Chief Compliance Officer since June 2014; Associate General Counsel from January 2012 to June 2014; Litigation Partner, Morrison & Foerster LLP from January 1995 to December 2011. Service with the Company — [removed: 5] [added: 6] years. |

| Britt J. Vitalone | | 49 | | Executive Vice President and Chief Financial Officer since January 2018; Senior Vice President and Chief Financial Officer, U.S. Pharmaceutical from July 2014 to December 2017; Senior Vice President and Chief Financial Officer, U.S. Pharmaceutical and Specialty Health from October 2017 to December 2017; Senior Vice President of Corporate Finance and M&A Finance from March 2012 to June 2014. Service with the Company — 12 years. |

| | | | | |

| James A. Beer | | 56 | | Executive Vice President and Chief Financial Officer since October 2013; Executive Vice President and Chief Financial Officer, Symantec Corporation from 2006 to October 2013; Senior Vice President and Chief Financial Officer, AMR Corporation and its principal subsidiary, American Airlines, Inc., from 2004 to 2006. Service with the Company — 3 years. |

| Paul C. Julian | | 61 | | Executive Vice President and Group President since April 2004. Service with the Company — 21 years. |

| First quarter | $ | [removed: 188.43] [added: 169.29] | | $ | [removed: 154.33] [added: 133.82] | | | $ | [removed: 243.61] [added: 188.43] | | $ | [removed: 219.51] [added: 154.33] | |

| Second quarter | $ | [removed: 199.43] [added: 168.87] | | $ | [removed: 163.57] [added: 145.13] | | | $ | [removed: 236.86] [added: 199.43] | | $ | [removed: 160.10] [added: 163.57] | |

| Third quarter | $ | [removed: 166.78] [added: 164.29] | | $ | [removed: 114.53] [added: 134.25] | | | $ | [removed: 202.20] [added: 166.78] | | $ | [removed: 169.00] [added: 114.53] | |

| Fourth quarter | $ | [removed: 153.07] [added: 178.86] | | $ | [removed: 134.17] [added: 137.10] | | | $ | [removed: 196.84] [added: 153.07] | | $ | [removed: 148.29] [added: 134.17] | |

| (b) | Holders: The number of record holders of the Company’s common stock at March 31, [removed: 2017] [added: 2018] was approximately [removed: 5,974.] [added: 5,619.] |

| (c) | Dividends: In July [removed: 2015,] [added: 2017,] the Company’s quarterly dividend was raised from [removed: $0.24 to] $0.28 [added: to $0.34] per common share for dividends declared [added: on or] after such [removed: date, until further action] [added: date] by the Company’s Board of Directors (the “Board”). The Company declared regular cash dividends of [removed: $1.12] [added: $1.30] and [removed: $1.08] [added: $1.12] per share in the years ended March 31, [removed: 2017] [added: 2018] and [removed: 2016.] [added: 2017.] |

[removed: This] [added: The] ASR program was completed during the [removed: 2016] fourth quarter [added: of 2016] and we repurchased 4.2 million shares at an average price per share of $154.04.

In 2017, we repurchased 14.1 million of the Company’s shares for [removed: $2] [added: $2.0] billion through open market transactions at an average price per share of $140.96.

The following table provides information on the Company’s share repurchases during the fourth quarter of [removed: 2017:][added: 2018:]

[removed: ][added: ]

| | [removed: 2012 | | | |] 2013 | | | | 2014 | | | | 2015 | | | | 2016 | | | | 2017 | | | [added: | 2018 | | |]

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, [removed: 2012] [added: 2013] and that all dividends are reinvested.

| | 2018 | | | | | | | 2017 | | | | | |

In 2018, we repurchased 3.5 million of the Company’s shares for $500 million through open market transactions at an average price per share of $144.43.

In June 2017, August 2017 and March 2018, we entered into three separate ASR programs with third-party financial institutions to repurchase $250 million, $400 million and $500 million of the Company’s common stock.

As of March 31, 2018, we completed and received a total of 1.5 million shares under the June 2017 ASR program and a total of 2.7 million shares under the August 2017 ASR program.

In addition, we received 2.5 million shares representing the initial number of shares due in March 2018 and an additional 0.5 million shares in April 2018 under the March 2018 ASR program.

The total number of shares to be ultimately repurchased by the Company under the March 2018 ASR program will be determined at the completion of the program based on the average daily volume-weighted average price of the Company’s common stock during this program, less a discount.

The program is anticipated to be completed during the first quarter of 2019.

The total authorization outstanding for repurchase of the Company’s common stock was $1.1 billion at March 31, 2018.

In May 2018, the Board authorized the repurchase of up to $4.0 billion of the Company’s common stock.

The total authorization outstanding for repurchases of the Company’s common stock was increased to $5.1 billion.

| January 1, 2018 - January 31, 2018 | — | | | $ | — | | | — | | | $ | 1,846 | |

| February 1, 2018 - February 28, 2018 | 0.7 | | | 152.00 | | | | 0.7 | | | 1,734 | | |

| March 1, 2018 - March 31, 2018 | 3.5 | | | 155.87 (2) | | | | 3.5 | | | 1,096 | | |

| Total | 4.2 | | | | | | | 4.2 | | | | | |

| (2) | The average price paid per share computation includes the initial share settlement of 2.5 million shares from the March 2018 ASR program, of which the actual average price of shares will be determined at the termination of the program. |

| McKesson Corporation | $ | 100.00 | | | $ | 164.63 | | | $ | 211.91 | | | $ | 148.16 | | | $ | 140.65 | | | $ | 133.64 | |

| S&P 500 Index | $ | 100.00 | | | $ | 121.86 | | | $ | 137.37 | | | $ | 139.82 | | | $ | 163.83 | | | $ | 186.75 | |

| S&P 500 Health Care Index | $ | 100.00 | | | $ | 129.24 | | | $ | 163.09 | | | $ | 154.64 | | | $ | 172.57 | | | $ | 192.01 | |

| | |

| --- | --- |

| | 2017 | | | | | | | 2016 | | | | | |

| January 1, 2017 - January 31, 2017 | — | | | $ | — | | | — | | | $ | — | |

| February 1, 2017 - February 29, 2017 | — | | | — | | | | — | | | — | | |

| March 1, 2017 - March 31, 2017 | 1.4 | | | 143.19 | | | | 1.4 | | | 2,746 | | |

| Total | 1.4 | | | | | | | 1.4 | | | $ | 2,746 | |

| McKesson Corporation | $ | 100.00 | | | $ | 124.07 | | | $ | 204.26 | | | $ | 262.91 | | | $ | 183.82 | | | $ | 174.50 | |

| S&P 500 Index | $ | 100.00 | | | $ | 113.96 | | | $ | 138.87 | | | $ | 156.55 | | | $ | 159.34 | | | $ | 186.71 | |

| S&P 500 Health Care Index | $ | 100.00 | | | $ | 125.19 | | | $ | 161.79 | | | $ | 204.17 | | | $ | 193.59 | | | $ | 216.03 | |

| (In millions, except per share data and ratios) | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Revenues | | $ | [removed: 198,533] [added: 208,357] | | | $ | [removed: 190,884] [added: 198,533] | | | $ | [removed: 179,045] [added: 190,884] | | | $ | [removed: 137,392] [added: 179,045] | | | $ | [removed: 122,196] [added: 137,392] | |

| Percent change | | [removed: 4.0] [added: 4.9] | | % | | [removed: 6.6] [added: 4.0] | | % | | [removed: 30.3] [added: 6.6] | | % | | [removed: 12.4] [added: 30.3] | | % | | [removed: (0.2] [added: 12.4] | | [removed: )%] [added: %] |

| Gross profit | | $ | [removed: 11,271] [added: 11,184] | | | $ | [removed: 11,416] [added: 11,271] | | | $ | [removed: 11,411] [added: 11,416] | | | $ | [removed: 8,352] [added: 11,411] | | | $ | [removed: 6,881] [added: 8,352] | |

| Income from continuing operations before income taxes (2) | | [removed: 6,891] [added: 239] | | | | [removed: 3,250] [added: 6,891] | | | | [removed: 2,657] [added: 3,250] | | | | [removed: 2,171] [added: 2,657] | | | | [removed: 1,950] [added: 2,171] | | |

| Continuing operations (2) | | [removed: 5,277] [added: 292] | | | | [removed: 2,342] [added: 5,277] | | | | [removed: 1,842] [added: 2,342] | | | | [removed: 1,414] [added: 1,842] | | | | [removed: 1,363] [added: 1,414] | | |

| Discontinued operations | | [removed: (124] [added: 5] | | [removed: )] | | [removed: (32] [added: (124] | | ) | | [removed: (299] [added: (32] | | ) | | [removed: (156] [added: (299] | | ) | | [removed: (25] [added: (156] | | ) |

| Net income | | [removed: 5,153] [added: 297] | | | | [removed: 2,310] [added: 5,153] | | | | [removed: 1,543] [added: 2,310] | | | | [removed: 1,258] [added: 1,543] | | | | [removed: 1,338] [added: 1,258] | | |

| Net (income) loss attributable to noncontrolling interests (1) | | [removed: (83] [added: (230] | | ) | | [removed: (52] [added: (83] | | ) | | [removed: (67] [added: (52] | | ) | | [removed: 5] [added: (67] | | [added: )] | | [removed: —] [added: 5] | | |

| Net income attributable to McKesson Corporation (2) | | [removed: 5,070] [added: 67] | | | | [removed: 2,258] [added: 5,070] | | | | [removed: 1,476] [added: 2,258] | | | | [removed: 1,263] [added: 1,476] | | | | [removed: 1,338] [added: 1,263] | | |

| Working capital | | $ | [removed: 1,336] [added: 451] | | | $ | [removed: 3,366] [added: 1,336] | | | $ | [removed: 3,173] [added: 3,366] | | | $ | [removed: 3,221] [added: 3,173] | | | $ | [removed: 1,813] [added: 3,221] | |

| Customer receivables | | [removed: 27] [added: 25] | | | | [removed: 28] [added: 27] | | | | [removed: 26] [added: 28] | | | | [removed: 29] [added: 26] | | | | [removed: 26] [added: 29] | | |

| Inventories | | 30 | | | | [removed: 32] [added: 30] | | | | [removed: 31] [added: 32] | | | | [removed: 33] [added: 31] | | | | 33 | | |

| Drafts and accounts payable | | [removed: 61] [added: 60] | | | | [removed: 59] [added: 61] | | | | [removed: 54] [added: 59] | | | | 54 | | | | [removed: 51] [added: 54] | | |

| Total assets | | $ | [removed: 60,969] [added: 60,381] | | | $ | [removed: 56,523] [added: 60,969] | | | $ | [removed: 53,870] [added: 56,523] | | | $ | [removed: 51,759] [added: 53,870] | | | $ | [removed: 34,786] [added: 51,759] | |

| Total debt, including capital lease obligations | | [removed: 8,545] [added: 7,880] | | | | [removed: 8,114] [added: 8,545] | | | | [removed: 9,844] [added: 8,114] | | | | [removed: 10,594] [added: 9,844] | | | | [removed: 4,873] [added: 10,594] | | |

| Total McKesson stockholders’ equity (4) | | [removed: 11,095] [added: 9,804] | | | | [removed: 8,924] [added: 11,095] | | | | [removed: 8,001] [added: 8,924] | | | | [removed: 8,522] [added: 8,001] | | | | [removed: 7,070] [added: 8,522] | | |

| Payments for property, plant and equipment | | [removed: 404] [added: 405] | | | | [removed: 488] [added: 404] | | | | [removed: 376] [added: 488] | | | | [removed: 278] [added: 376] | | | | [removed: 241] [added: 278] | | |

| Acquisitions, net of cash and cash equivalents acquired | | [removed: 4,237] [added: 2,893] | | | | [removed: 40] [added: 4,237] | | | | [removed: 170] [added: 40] | | | | [removed: 4,634] [added: 170] | | | | [removed: 1,873] [added: 4,634] | | |

| Common shares outstanding at year-end | | [removed: 211] [added: 202] | | | | [removed: 225] [added: 211] | | | | [removed: 232] [added: 225] | | | | [removed: 231] [added: 232] | | | | [removed: 227] [added: 231] | | |

| Diluted | | [removed: 223] [added: 209] | | | | [removed: 233] [added: 223] | | | | [removed: 235] [added: 233] | | | | [removed: 233] [added: 235] | | | | [removed: 239] [added: 233] | | |

| Basic | | [removed: 221] [added: 208] | | | | [removed: 230] [added: 221] | | | | [removed: 232] [added: 230] | | | | [removed: 229] [added: 232] | | | | [removed: 235] [added: 229] | | |

| Continuing operations | | $ | [removed: 23.28] [added: 0.30] | | | $ | [removed: 9.84] [added: 23.28] | | | $ | [removed: 7.54] [added: 9.84] | | | $ | [removed: 6.08] [added: 7.54] | | | $ | [removed: 5.69] [added: 6.08] | |

| Discontinued operations | | [removed: (0.55] [added: 0.02] | | [removed: )] | | [removed: (0.14] [added: (0.55] | | ) | | [removed: (1.27] [added: (0.14] | | ) | | [removed: (0.67] [added: (1.27] | | ) | | [removed: (0.10] [added: (0.67] | | ) |

| Total | | [removed: 22.73] [added: 0.32] | | | | [removed: 9.70] [added: 22.73] | | | | [removed: 6.27] [added: 9.70] | | | | [removed: 5.41] [added: 6.27] | | | | [removed: 5.59] [added: 5.41] | | |

| Cash dividends declared | | [removed: 249] [added: 270] | | | | 249 | | | | [removed: 226] [added: 249] | | | | [removed: 214] [added: 226] | | | | [removed: 192] [added: 214] | | |

| Cash dividends declared per common share | | [removed: 1.12] [added: 1.30] | | | | [removed: 1.08] [added: 1.12] | | | | [removed: 0.96] [added: 1.08] | | | | [removed: 0.92] [added: 0.96] | | | | [removed: 0.80] [added: 0.92] | | |

| Book value per common share (5) (6) | | [removed: 52.58] [added: 48.53] | | | | [removed: 39.66] [added: 52.58] | | | | [removed: 34.49] [added: 39.66] | | | | [removed: 36.89] [added: 34.49] | | | | [removed: 31.15] [added: 36.89] | | |

| Market value per common share - year-end | | [removed: 148.26] [added: 140.87] | | | | [removed: 157.25] [added: 148.26] | | | | [removed: 226.20] [added: 157.25] | | | | [removed: 176.57] [added: 226.20] | | | | [removed: 107.96] [added: 176.57] | | |

| Debt to capital ratio (7) | | [removed: 39.2] [added: 40.6] | | % | | [removed: 43.6] [added: 39.2] | | % | | [removed: 50.3] [added: 43.6] | | % | | [removed: 55.4] [added: 50.3] | | % | | [removed: 40.6] [added: 55.4] | | % |

| Average McKesson stockholders’ equity (8) | | $ | [removed: 9,282] [added: 11,016] | | | $ | [removed: 8,688] [added: 9,282] | | | $ | [removed: 8,703] [added: 8,688] | | | $ | [removed: 7,803] [added: 8,703] | | | $ | [removed: 7,294] [added: 7,803] | |

| Return on McKesson stockholders’ equity (9) | | [removed: 54.6] [added: 0.6] | | % | | [removed: 26.0] [added: 54.6] | | % | | [removed: 17.0] [added: 26.0] | | % | | [removed: 16.2] [added: 17.0] | | % | | [removed: 18.3] [added: 16.2] | | % |

| (1) | [removed: 2016 and 2015 primarily reflect] [added: Primarily reflects] guaranteed dividends [added: for 2015] and annual recurring compensation [added: for 2016, 2017 and 2018] that McKesson became obligated to pay to the noncontrolling shareholders of [removed: Celesio AG] [added: McKesson Europe] upon the effectiveness of the Domination Agreement in December 2014. [added: 2018 and] 2017 also [removed: includes] [added: include] net income attributable to third-party equity interests in our consolidated entities including Vantage and [removed: ClarusOne] [added: ClarusONE] Sourcing Services [removed: LLC,] [added: LLP,] which was [removed: established between McKesson and Wal-Mart Stores, Inc.] [added: formed in 2017.] |

| (2) | [added: 2018 includes non-cash goodwill impairment charges (pre-tax and after-tax) of $1,738 million for our McKesson Europe and Rexall Health reporting units.] 2017 includes a pre-tax gain of $3,947 million ($3,018 million after-tax) from the [removed: deconsolidation] [added: contribution] of our Core MTS Business in connection with Healthcare Technology Net Asset Exchange. |

McKESSON CORPORATION

| [Management's Annual Report on Internal Control Over Financial [removed: Reporting](#s61594CD96A7653EB969FF887532A1ADE)] [added: Reporting](#sD3B7F98F9F6D58FB8C5ACB7747D5F06B)] | [removed: [53](#s61594CD96A7653EB969FF887532A1ADE)] [added: [60](#sD3B7F98F9F6D58FB8C5ACB7747D5F06B)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#sB63CEBC182B6540AB72CDFD1632AF71D)] [added: Firm](#sDA632577752557B4B9215CACCCFA340A)] | [removed: [54](#sB63CEBC182B6540AB72CDFD1632AF71D)] [added: [61](#sDA632577752557B4B9215CACCCFA340A)] |

| [Consolidated Statements of Operations for the years ended March 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#sF1A87D821E055213A4268075CC6729BB)] [added: 2016](#sA596AFB889B05B629D073E56F2F188DF)] | [removed: [56](#sF1A87D821E055213A4268075CC6729BB)] [added: [63](#sA596AFB889B05B629D073E56F2F188DF)] |

| [Consolidated [removed: Statement] [added: Statements] of Comprehensive Income for the years ended March 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#sDCECF8B68215518BB57A5E93A151F3E5)] [added: 2016](#s32A532F351F8597DBBCE8664F03A083E)] | [removed: [57](#sDCECF8B68215518BB57A5E93A151F3E5)] [added: [64](#s32A532F351F8597DBBCE8664F03A083E)] |

| [Consolidated Balance Sheets as of March 31, [removed: 2017] [added: 2018] and [removed: 2016](#s478F8690D7075B51A58B2A63B802EB36)] [added: 2017](#s734F0B2BF90D5DA283902DFBC4E2BCAE)] | [removed: [58](#s478F8690D7075B51A58B2A63B802EB36)] [added: [65](#s734F0B2BF90D5DA283902DFBC4E2BCAE)] |

| [Consolidated [removed: Statement] [added: Statements] of Stockholders’ Equity for the years ended March 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#s6E69E055FD3F5310BC1326D017CBC079)] [added: 2016](#s2691FBB1DD4357C1AB42B0FF18C707EB)] | [removed: [59](#s6E69E055FD3F5310BC1326D017CBC079)] [added: [66](#s2691FBB1DD4357C1AB42B0FF18C707EB)] |

| [Consolidated Statements of Cash Flows for the years ended March 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#s36DA2676C0BA5F10A85259D152DB5048)] [added: 2016](#s1C0B4C9E47425A2C981F8F23CFC4F662)] | [removed: [60](#s36DA2676C0BA5F10A85259D152DB5048)] [added: [67](#s1C0B4C9E47425A2C981F8F23CFC4F662)] |

| [Financial [removed: Notes](#s188B862194A55058B027FC77D544FAB4)] [added: Notes](#s974E5FDEB99159529105594ACC52492F)] | [removed: [61](#s188B862194A55058B027FC77D544FAB4)] [added: [68](#s974E5FDEB99159529105594ACC52492F)] |

Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of March 31, [removed: 2017.][added: 2018.]

Deloitte & Touche LLP, an independent registered public accounting firm, audited the financial statements included in this Annual Report on Form 10-K and has also audited the effectiveness of the Company’s internal control over financial reporting as of March 31, [removed: 2017.][added: 2018.]

This audit report appears on page [removed: 55] [added: 61] of this Annual Report on Form 10-K.

To the [added: stockholders and the] Board of Directors [removed: and Stockholders] of [added: McKesson Corporation]

We have audited the accompanying consolidated balance sheets of McKesson Corporation and subsidiaries (the “Company”) as of March 31, [removed: 2017 and 2016,] [added: 2018] and [added: 2017,] the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash [removed: flows] [added: flows,] for each of the three [removed: fiscal] years in the period ended March 31, [removed: 2017.][added: 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).]

We also have audited the Company’s internal control over financial reporting as of March 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway [removed: Commission.][added: Commission (“COSO”).]

The Company’s management is responsible for these financial [removed: statements and financial statement schedule,] [added: statements,] for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and [removed: financial statement schedule, and] an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

A company’s internal control over financial reporting is a process designed [removed: by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Also, projections of any evaluation of effectiveness [removed: of the internal control over financial reporting] to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the [removed: consolidated] financial statements referred to above present fairly, in all material respects, the financial position of [removed: McKesson Corporation and subsidiaries] [added: the Company] as of March 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended March 31, [removed: 2017,] [added: 2018,] in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, [removed: 2017,] [added: 2018,] based on [removed: the] criteria established in Internal [removed: Control—Integrated] [added: Control - Integrated] Framework (2013) issued by [removed: the Committee of Sponsoring Organizations of the Treadway Commission.][added: COSO.]

[removed: | |] Years Ended March 31, [removed: | | | | | | | | | | |][added: 2018, 2017 and 2016]

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Revenues | $ | [removed: 198,533] [added: 208,357] | | | $ | [removed: 190,884] [added: 198,533] | | | $ | [removed: 179,045] [added: 190,884] | |

| Cost of Sales | [removed: (187,262] [added: (197,173] | | ) | | [removed: (179,468] [added: (187,262] | | ) | | [removed: (167,634] [added: (179,468] | | ) |

| Gross Profit | [removed: 11,271] [added: 11,184] | | | | [removed: 11,416] [added: 11,271] | | | | [removed: 11,411] [added: 11,416] | | |

| Selling, distribution and administrative expenses | [removed: (7,466] [added: (8,138] | | ) | | [removed: (7,276] [added: (7,460] | | ) | | [removed: (7,901] [added: (7,379] | | ) |

| Research and development | [removed: (341] [added: (125] | | ) | | [removed: (392] [added: (341] | | ) | | (392 | | ) |

| Restructuring [added: and asset impairment] charges | [removed: (18] [added: (567] | | ) | | [removed: (203] [added: (18] | | ) | | [removed: —] [added: (203] | | [added: )] |

| Goodwill impairment [removed: charge] | [removed: (290] [added: —] | | [removed: )] | | [removed: —] [added: (290] | | [added: )] | | [removed: —] [added: (290] | | [added: )] |

| Gain on [removed: Healthcare Technology Net Asset Exchange,] [added: healthcare technology] net [added: asset exchange, net] | [removed: 3,947] [added: 37] | | | | [removed: —] [added: 3,947] | | | | — | | |

| Total Operating Expenses | [removed: (4,162] [added: (10,422] | | ) | | [removed: (7,871] [added: (4,162] | | ) | | [removed: (8,443] [added: (7,871] | | ) |

| Operating Income | [removed: 7,109] [added: 762] | | | | [removed: 3,545] [added: 7,109] | | | | [removed: 2,968] [added: 3,545] | | |

| Other Income, Net | [removed: 90] [added: 130] | | | | [removed: 58] [added: 90] | | | | [removed: 63] [added: 58] | | |

| Interest Expense | [removed: (308] [added: (283] | | ) | | [removed: (353] [added: (308] | | ) | | [removed: (374] [added: (353] | | ) |

| Income from Continuing Operations Before Income Taxes | [removed: 6,891] [added: 239] | | | | [removed: 3,250] [added: 6,891] | | | | [removed: 2,657] [added: 3,250] | | |

| Income Tax [removed: Expense] [added: Benefit (Expense)] | [removed: (1,614] [added: 53] | | [removed: )] | | [removed: (908] [added: (1,614] | | ) | | [removed: (815] [added: (908] | | ) |