Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

			Page
Management's Annual Report on Internal Control Over Financial Reporting			64
Report of Independent Registered Public Accounting Firm			65
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended March 31, 2022, 2021, and 2020			70
Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2022, 2021, and 2020			71
Consolidated Balance Sheets as of March 31, 2022 and 2021			72
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended March 31, 2022, 2021, and 2020			73
Consolidated Statements of Cash Flows for the years ended March 31, 2022, 2021, and 2020			74
Financial Notes			75
Note 1 - Significant Accounting Policies			75
Note 2 - Held for Sale			83
Note 3 - Restructuring, Impairment, and Related Charges, Net			86
Note 4 - Business Acquisitions and Divestitures			89
Note 5 - Share-Based Compensation			91
Note 6 - Other Income, Net			95
Note 7 - Income Taxes			95
Note 8 - Redeemable Noncontrolling Interests and Noncontrolling Interests			99
Note 9 - Earnings (Loss) per Common Share			100
Note 10 - Leases			101
Note 11 - Goodwill and Intangible Assets, Net			104
Note 12 - Debt and Financing Activities			107
Note 13 - Variable Interest Entities			109
Note 14 - Pension Benefits			109
Note 15 - Hedging Activities			116
Note 16 - Fair Value Measurements			119
Note 17 - Financial Guarantees and Warranties			121
Note 18 - Commitments and Contingent Liabilities			122
Note 19 - Stockholders' Equity (Deficit)			129
Note 20 - Related Party Balances and Transactions			132
Note 21 - Segments of Business			132

Table of Contents			Item 8 Index

McKESSON CORPORATION

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of McKesson Corporation is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). With the participation of the Chief Executive Officer and the Chief Financial Officer, our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management has concluded that our internal control over financial reporting was effective as of March 31, 2022.

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, 2022. This audit report appears on the following page of this Annual Report on Form 10-K.

May 9, 2022

/s/ Brian S. Tyler
Brian S. Tyler
Chief Executive Officer
(Principal Executive Officer)

/s/ Britt J. Vitalone
Britt J. Vitalone
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Table of Contents			Item 8 Index

McKESSON CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of McKesson Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of McKesson Corporation and subsidiaries (the “Company”) as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended March 31, 2022, 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, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, 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, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial 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 an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Table of Contents			Item 8 Index

McKESSON CORPORATION

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness 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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Contingent Liabilities - Opioid Claims brought by United States (U.S.) Governmental Entities - Refer to Note 1 and Note 18 to the financial statements

Critical Audit Matter Description

The Company and its affiliates are defendants in many cases asserting claims related to distribution of controlled substances, including opioids. The Company is named as a defendant along with other pharmaceutical wholesale distributors, pharmaceutical manufacturers and retail pharmacy chains. The plaintiffs in these actions include state attorneys general, county and municipal governments, hospitals, tribal nations, health and welfare funds, third-party payors and individuals.

On February 25, 2022, the Company and two other United States pharmaceutical distribution companies (collectively, "Distributors") determined that there is sufficient State and subdivision participation to proceed with an agreement ("Settlement") to settle a substantial majority of opioid-related lawsuits filed against the Distributors by U.S. states, territories and local governmental entities (collectively, "Settling Governmental Entities"). The Settlement became effective on April 2, 2022. If all conditions to the Settlement are satisfied, the Distributors would pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Although the Settlement terminated the substantial majority of opioid-related suits pending against the Company, a small number of subdivisions in participating states have opted not to participate in the Settlement, and those suits remain pending. The Company continues to prepare for trial in these pending matters, and believes that it has valid defenses to the claims pending against it, and it intends to vigorously defend against all such claims if acceptable settlement terms are not achieved.

When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its estimate for the ultimate loss. The Company reviews all loss contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. The Company also performs an assessment of loss contingencies where a loss is reasonably possible. If it is reasonably possible that a loss may have been incurred and the effect on the financial statements could be material, the Company discloses the nature of the loss contingency and an estimate of the possible loss or range of loss or a statement that such an estimate cannot be made within the notes to the financial statements. For the year ended March 31, 2022, management believes that a loss from opioid claims is both probable and reasonably estimable, and accordingly, an $8.3 billion liability has been recorded by management, inclusive of claims brought by U.S. governmental entities, which represents the Company’s best estimate of future loss related to opioid litigation.

Table of Contents			Item 8 Index

McKESSON CORPORATION

We identified the liabilities associated with opioid claims brought by both Settling Governmental Entities, as well as U.S. governmental entities who are not party to the Settlement, collectively “Governmental Entities,” as a critical audit matter because of the significant judgment in auditing management’s accounting for these matters. Such judgment led to an increased extent of effort, including the need to involve specialists. Specifically, auditing management’s assessment of the magnitude of the liability and the determination of whether there is a reasonably estimable range of loss in excess of the amount accrued, is subjective and requires significant judgment given the size and complexity of opioid claims brought by Governmental Entities.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to liabilities arising from opioid claims brought by Governmental Entities included the following, among others:

• We tested the effectiveness of internal controls related to liabilities arising from opioid claims brought by Governmental Entities, and approval of the accounting treatment and related disclosures.

• We inquired of the Company’s internal and external legal counsel, as well as executives and other members of management, to understand the basis for the Company’s conclusion that a loss related to opioid claims brought by Governmental Entities is probable and reasonably estimable, and that it is not possible to estimate a range of loss in excess of the amount accrued as of March 31, 2022. In addition, we inspected responses to inquiry letters sent to both internal and external legal counsel as it relates to the terms of settlements with Governmental Entities. We also made inquiries of legal counsel regarding the status of discussions and legal proceedings with Governmental Entities who are not currently party to the Settlement.

• We evaluated management’s analysis of liabilities arising from opioid claims brought by Governmental Entities, including the methodology used by management to determine the probability of such loss and conclusion that it is not possible to estimate a range of loss in excess of the amount accrued as of March 31, 2022. We also evaluated the methodology used by management to estimate the most likely loss to be incurred by the Company as a result of these specific opioid claims.

• We examined Board of Directors meeting minutes, including relevant sub-committee meeting minutes, held inquiries with a director serving on the sub-committee, and compared to internal and external counsel’s written responses to our inquiry letters.

• With the assistance of our specialists in accounting for loss contingencies, we evaluated the facts, evidence and the Company’s related accounting treatment for liabilities arising from opioid claims brought by Governmental Entities.

• We evaluated any events subsequent to March 31, 2022 that might impact management’s accounting treatment.

• We obtained written representations from executives and internal counsel of the Company.

• We examined the terms related to settlements with Governmental Entities.

• We evaluated the adequacy of the Company’s related disclosures for consistency with our testing.

Uncertain Tax Position - Opioid Claims brought by Governmental Entities - Refer to Note 1 and Note 7 to the financial statements

Critical Audit Matter Description

The Company has recorded charges and related tax benefit for opioid-related claims, inclusive of those brought by Governmental Entities. In order to account for the uncertainty associated with the ultimate realization of the tax benefit related to opioid claims, the Company recorded an uncertain tax position reserve. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The net amount recognized by management is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized. The Company uses significant judgment in evaluating the technical tax merits of income tax benefits that qualify for recognition, including the determination of the amount that is more likely than not of being realized for U.S. federal and state income tax purposes.

Table of Contents			Item 8 Index

McKESSON CORPORATION

We identified the Company’s uncertain tax position related to liabilities arising from opioid claims brought by Governmental Entities as a critical audit matter because of the challenges in auditing management’s estimate of the amount of income tax benefit that qualifies for recognition. Specifically, there is significant judgment associated with the assessment of the technical tax merits of such a settlement, including the related interpretation of applicable, newly-enacted tax laws and regulations. Auditing the uncertain tax position related to liabilities arising from opioid claims brought by Governmental Entities required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company's uncertain tax position associated with liabilities arising from opioid claims brought by Governmental Entities included the following, among others:

• We tested the effectiveness of internal controls related to the Company’s assessment of the technical merits of its tax position, including the Company’s assessment as to the amount of benefit that is more likely than not to be realized upon settlement with a taxing authority that has full knowledge of all relevant information.

• With the assistance of our tax specialists, we evaluated the facts, evidence and the Company’s related income tax analysis for liabilities arising from opioid claims brought by Governmental Entities, including assumptions used by management to measure the related recognized and unrecognized tax benefits.

• We inquired of the Company’s internal and external legal counsel to understand the basis for the Company’s conclusion that a portion of the liabilities arising from opioid claims brought by Governmental Entities would be deductible based on the settlement terms, and expected documentation to be received from Governmental Entities regarding how settlement funds are used.

• We held inquiries with the Company’s internal and external income tax specialists related to the uncertain tax position for liabilities arising from opioid claims brought by Governmental Entities.

• We compared management's income tax assessment of this matter to the Company’s treatment of other recorded opioid charges to evaluate the consistency of the Company’s judgments related to the uncertain tax position.

• We evaluated any events subsequent to March 31, 2022 that might impact management’s accounting treatment.

• We obtained written representations from executives and internal counsel of the Company.

• We examined terms related to settlements of opioid claims brought by Governmental Entities.

• We evaluated the Company’s related disclosures for consistency with our testing and also searched for contradictory evidence by reading disclosures from peer companies, who are also party to the opioid litigation with Governmental Entities.

Goodwill - Refer to Note 1 and Note 11 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves comparing the carrying amount of each reporting unit to its fair value on the first day of the third fiscal quarter or whenever the Company believes a potential indicator of impairment requiring a more frequent assessment has occurred. The Company uses a combination of the income and market approaches to estimate reporting unit fair value. Under the market approach, fair value is estimated by comparing the business to similar businesses, or guideline companies whose equity securities are actively traded in public markets. Under the income approach, the Company uses a discounted cash flow (“DCF”) model where cash flows anticipated over future periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate discount rate that is commensurate with the risk inherent within the reporting unit. The rate used to discount to present value includes an unsystematic risk premium, which is intended to address uncertainty related to the reporting unit’s future cash flow projections. The goodwill balance was $9.5 billion as of March 31, 2022, of which $1.5 billion was allocated to the McKesson Canada reporting unit. The fair value of all reporting units exceeded their respective carrying amounts as of the measurement date and, therefore, no impairment was recognized.

Table of Contents			Item 8 Index

McKESSON CORPORATION

We identified the estimation of the fair value of the McKesson Canada reporting unit used to evaluate the recoverability of goodwill as a critical audit matter because of the challenges auditing significant judgments used in the selection of a discount rate, including the unsystematic risk premium. In particular, the fair value estimate is sensitive to the unsystematic risk premium assumption, which is affected by potential additional risk of changes in the Canadian business and regulatory environments. Auditing management’s selected discount rate required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s selection of a discount rate, including determination of the unsystematic risk premium, for the McKesson Canada reporting unit, included the following, among others:

• We tested the effectiveness of internal controls related to management’s goodwill impairment evaluation, including those related to the selection of a discount rate and determination of an unsystematic risk premium.

• We evaluated management’s ability to accurately forecast operating results for the McKesson Canada reporting unit by comparing actual results to management’s historical forecasts, in order to consider the reasonableness and adequacy of management’s selected unsystematic risk premium.

• As part of our assessment of the unsystematic risk premium, we evaluated the reasonableness of strategic plans expected to be implemented during the forecast period by comparing the forecasts to:

• Actual results of historical strategic plans

• Internal communications to management and the Board of Directors

• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate, including the unsystematic risk premium, by developing a range of independent estimates, testing the mathematical accuracy of the calculation, and comparing to the discount rate selected by management.

/s/ Deloitte & Touche LLP
Dallas, Texas
May 9, 2022

We have served as the Company’s auditor since 1968.

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

			Years Ended March 31,
			2022						2021						2020
Revenues			$	263,966					$	238,228					$	231,051
Cost of sales			(250,836)						(226,080)						(219,028)
Gross profit			13,130						12,148						12,023
Selling, distribution, general, and administrative expenses			(10,537)						(8,849)						(9,182)
Claims and litigation charges, net			(274)						(7,936)						(82)
Goodwill impairment charges			—						(69)						(2)
Restructuring, impairment, and related charges, net			(281)						(334)						(268)
Total operating expenses			(11,092)						(17,188)						(9,534)
Operating income (loss)			2,038						(5,040)						2,489
Other income, net			259						223						12
Equity earnings and charges from investment in Change Healthcare Joint Venture			—						—						(1,108)
Loss on debt extinguishment			(191)						—						—
Interest expense			(178)						(217)						(249)
Income (loss) from continuing operations before income taxes			1,928						(5,034)						1,144
Income tax benefit (expense)			(636)						695						(18)
Income (loss) from continuing operations			1,292						(4,339)						1,126
Loss from discontinued operations, net of tax			(5)						(1)						(6)
Net income (loss)			1,287						(4,340)						1,120
Net income attributable to noncontrolling interests			(173)						(199)						(220)
Net income (loss) attributable to McKesson Corporation			$	1,114					$	(4,539)					$	900
Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations			$	7.26					$	(28.26)					$	4.99
Discontinued operations			(0.03)						—						(0.04)
Total			$	7.23					$	(28.26)					$	4.95
Basic
Continuing operations			$	7.35					$	(28.26)					$	5.01
Discontinued operations			(0.03)						—						(0.03)
Total			$	7.32					$	(28.26)					$	4.98
Weighted-average common shares outstanding
Diluted			154.1						160.6						181.6
Basic			152.3						160.6						180.6

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

			Years Ended March 31,
			2022						2021						2020
Net income (loss)			$	1,287					$	(4,340)					$	1,120
Other comprehensive income, net of tax
Foreign currency translation adjustments			60						184						(66)
Unrealized gains (losses) on cash flow hedges			14						(36)						86
Changes in retirement-related benefit plans			41						22						129
Other comprehensive income, net of tax			115						170						149
Comprehensive income (loss)			1,402						(4,170)						1,269
Comprehensive income attributable to noncontrolling interests			(172)						(146)						(223)
Comprehensive income (loss) attributable to McKesson Corporation			$	1,230					$	(4,316)					$	1,046

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

			March 31,
			2022						2021
ASSETS
Current assets
Cash and cash equivalents			$	3,532					$	6,278
Receivables, net			18,583						19,181
Inventories, net			18,702						19,246
Assets held for sale			4,516						12
Prepaid expenses and other			898						665
Total current assets			46,231						45,382
Property, plant, and equipment, net			2,092						2,581
Operating lease right-of-use assets			1,548						2,100
Goodwill			9,451						9,493
Intangible assets, net			2,059						2,878
Other non-current assets			1,917						2,581
Total assets			$	63,298					$	65,015
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
Current liabilities
Drafts and accounts payable			$	38,086					$	38,975
Current portion of long-term debt			799						742
Current portion of operating lease liabilities			297						390
Liabilities held for sale			4,741						9
Other accrued liabilities			4,543						3,987
Total current liabilities			48,466						44,103
Long-term debt			5,080						6,406
Long-term deferred tax liabilities			1,418						1,411
Long-term operating lease liabilities			1,366						1,867
Long-term litigation liabilities			7,220						8,067
Other non-current liabilities			1,540						1,715
Commitments and contingent liabilities (Note 18)
Redeemable noncontrolling interests			—						1,271
McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding			—						—
Common stock, $0.01 par value, 800 shares authorized, 275 and 273 shares issued at March 31, 2022 and 2021, respectively			2						2
Additional paid-in capital			7,275						6,925
Retained earnings			9,030						8,202
Accumulated other comprehensive loss			(1,534)						(1,480)
Treasury shares, at cost, 130 and 115 shares at March 31, 2022 and 2021, respectively			(17,045)						(13,670)
Total McKesson Corporation stockholders’ deficit			(2,272)						(21)
Noncontrolling interests			480						196
Total equity (deficit)			(1,792)						175
Total liabilities, redeemable noncontrolling interests, and equity (deficit)			$	63,298					$	65,015

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

			McKesson Corporation Stockholders’ Equity (Deficit)
			Common Stock												Additional Paid-in Capital						Other Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Treasury												Noncontrolling Interests						Total Equity (Deficit)
			Shares						Amount						Common Shares						Amount
Balances, March 31, 2019			271						$	3					$	6,435					$	(2)					$	12,409					$	(1,849)					(81)						$	(8,902)					$	193					$	8,287
Opening retained earnings adjustments: adoption of new accounting standards			—						—						—						—						11						—						—						—						—						11
Balances, April 1, 2019			271						3						6,435						(2)						12,420						(1,849)						(81)						(8,902)						193						8,298
Issuance of shares under employee plans, net of forfeitures			1						—						113						—						—						—						—						(20)						—						93
Share-based compensation			—						—						115						—						—						—						—						—						—						115
Payments to noncontrolling interests			—						—						—						—						—						—						—						—						(154)						(154)
Other comprehensive income			—						—						—						—						—						146						—						—						—						146
Net income			—						—						—						—						900						—						—						—						178						1,078
Repurchase of common stock			—						—						—						—						—						—						(14)						(1,934)						—						(1,934)
Change Healthcare share exchange			—						—						—						—						—						—						(15)						(2,036)						—						(2,036)
Cash dividends declared, $1.62 per common share			—						—						—						—						(294)						—						—						—						—						(294)
Other			—						(1)						—						2						(4)						—						—						—						—						(3)
Balances, March 31, 2020			272						2						6,663						—						13,022						(1,703)						(110)						(12,892)						217						5,309
Opening retained earnings adjustments: adoption of new accounting standard			—						—						—						—						(13)						—						—						—						—						(13)
Balances, April 1, 2020			272						2						6,663						—						13,009						(1,703)						(110)						(12,892)						217						5,296
Issuance of shares under employee plans, net of forfeitures			1						—						92						—						—						—						—						(28)						—						64
Share-based compensation			—						—						151						—						—						—						—						—						—						151
Payments to noncontrolling interests			—						—						—						—						—						—						—						—						(177)						(177)
Other comprehensive income			—						—						—						—						—						223						—						—						—						223
Net income (loss)			—						—						—						—						(4,539)						—						—						—						156						(4,383)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						—						3						—						—						—						—						—						—						3
Repurchase of common stock			—						—						—						—						—						—						(5)						(750)						—						(750)
Cash dividends declared, $1.67 per common share			—						—						—						—						(270)						—						—						—						—						(270)
Other			—						—						16						—						2						—						—						—						—						18
Balances, March 31, 2021			273						2						6,925						—						8,202						(1,480)						(115)						(13,670)						196						175
Issuance of shares under employee plans, net of forfeitures			2						—						220						—						—						—						—						(71)						—						149
Share-based compensation			—						—						154						—						—						—						—						—						—						154
Payments to noncontrolling interests			—						—						—						—						—						—						—						—						(155)						(155)
Other comprehensive income (loss)			—						—						—						—						—						116						—						—						(4)						112
Net income			—						—						—						—						1,114						—						—						—						165						1,279
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						—						178						—						—						(170)						—						—						—						8
Repurchase of common stock			—						—						(204)						—						—						—						(15)						(3,304)						—						(3,508)
Reclassification of McKesson Europe AG redeemable noncontrolling interests			—						—						—						—						—						—						—						—						287						287
Reclassification of recurring compensation to other accrued liabilities			—						—						—						—						—						—						—						—						(7)						(7)
Cash dividends declared, $1.83 per common share			—						—						—						—						(279)						—						—						—						—						(279)
Other			—						—						2						—						(7)						—						—						—						(2)						(7)
Balances, March 31, 2022			275						$	2					$	7,275					$	—					$	9,030					$	(1,534)					(130)						$	(17,045)					$	480					$	(1,792)

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

			Years Ended March 31,
			2022						2021						2020
OPERATING ACTIVITIES
Net income (loss)			$	1,287					$	(4,340)					$	1,120
Adjustments to reconcile to net cash provided by operating activities:
Depreciation			279						321						321
Amortization			481						566						601
Goodwill and long-lived asset impairment charges			175						242						139
Equity earnings and charges from investment in Change Healthcare Joint Venture			—						—						1,084
Deferred taxes			34						(908)						(342)
Credits associated with last-in, first-out inventory method			(23)						(38)						(252)
Non-cash operating lease expense			241						334						366
Loss (gain) from sales of businesses and investments			(132)						(9)						33
European businesses held for sale			1,509						—						—
Other non-cash items			501						188						615
Changes in assets and liabilities, net of acquisitions:
Receivables			(1,843)						1,145						(2,494)
Inventories			(1,169)						(2,276)						(376)
Drafts and accounts payable			2,802						1,267						3,952
Operating lease liabilities			(356)						(362)						(377)
Taxes			243						(166)						(8)
Litigation liabilities			199						8,067						—
Other			206						511						(8)
Net cash provided by operating activities			4,434						4,542						4,374
INVESTING ACTIVITIES
Payments for property, plant, and equipment			(388)						(451)						(362)
Capitalized software expenditures			(147)						(190)						(144)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired			(6)						(35)						(133)
Proceeds from sales of businesses and investments, net			578						400						37
Other			(126)						(139)						23
Net cash used in investing activities			(89)						(415)						(579)
FINANCING ACTIVITIES
Proceeds from short-term borrowings			11,192						6,323						21,437
Repayments of short-term borrowings			(11,192)						(6,323)						(21,437)
Proceeds from issuances of long-term debt			498						500						—
Repayments of long-term debt			(1,648)						(1,040)						(298)
Payments for debt extinguishments			(184)						—						—
Common stock transactions:
Issuances			220						92						113
Share repurchases			(3,516)						(742)						(1,934)
Dividends paid			(277)						(276)						(294)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			(1,031)						(49)						(3)
Other			(383)						(178)						(318)
Net cash used in financing activities			(6,321)						(1,693)						(2,734)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			55						(61)						(19)
Cash, cash equivalents, and restricted cash classified within Assets held for sale			(540)						—						—
Net increase (decrease) in cash, cash equivalents, and restricted cash			(2,461)						2,373						1,042
Cash, cash equivalents, and restricted cash at beginning of year			6,396						4,023						2,981
Cash, cash equivalents, and restricted cash at end of year			3,935						6,396						4,023
Less: Restricted cash at end of year included in Prepaid expenses and other			(403)						(118)						(8)
Cash and cash equivalents at end of year			$	3,532					$	6,278					$	4,015
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest, net			$	186					$	220					$	235
Income taxes, net of refunds			359						379						368

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES

1. Significant Accounting Policies

Nature of Operations: McKesson Corporation (“McKesson,” or the “Company,”) is a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. McKesson’s teams partner with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services to help make quality care more accessible and affordable. The Company reports its financial results in four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. The Company’s equity method investment in Change Healthcare LLC (“Change Healthcare JV”), which was split-off from McKesson in the fourth quarter of 2020, has been included in Other for retrospective periods presented. Refer to Financial Note 21, “Segments of Business,” for additional information.

Basis of Presentation: The consolidated financial statements and accompanying notes are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The consolidated financial statements of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled companies. For those consolidated subsidiaries where the Company’s ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net income attributable to noncontrolling interests” in the Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation, including the intercompany portion of transactions with equity method investees.

The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method.

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

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

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the pandemic caused by the SARS-CoV-2 coronavirus (“COVID-19”). As COVID-19 further evolves, the Company’s accounting estimates and assumptions may change over time and may change materially in future periods.

Cash and Cash Equivalents: All highly liquid debt and money market instruments purchased with an original maturity of three months or less at the date of acquisition are included in cash and cash equivalents. Cash equivalents are carried at fair value. Cash equivalents are primarily invested in AAA-rated U.S. government money market funds and overnight deposits with financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of the Company’s foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. Deposits may exceed the amounts insured by the Federal Deposit Insurance Corporation in the U.S. and similar deposit insurance programs in other jurisdictions. The Company mitigates the risk of its short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Restricted Cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash and is included in “Prepaid expenses and other” and “Other non-current assets” in the Consolidated Balance Sheets. Restricted cash at March 31, 2022 primarily consists of $395 million held in escrow related to obligations under settlement agreements for opioid-related claims of governmental entities, as discussed in more detail in Financial Note 18, “Commitments and Contingent Liabilities.” Additionally, restricted cash at March 31, 2022 and 2021 includes funds temporarily held on behalf of unaffiliated medical practice groups related to their COVID-19 business continuity borrowings. These amounts have been designated as restricted cash due to contractual provisions requiring their segregation from all other funds until utilized by the medical practices for a limited list of qualified activities. Corresponding deposit liabilities associated with these funds have been recorded by the Company within “Other accrued liabilities” in the Company’s Consolidated Balance Sheets at March 31, 2022 and 2021.

Equity Method Investments: Investments in business entities in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. The Company evaluates its equity method investments for impairment whenever an event or change in circumstances occurs that may have a significant adverse impact on the carrying value of the investment. If a loss in value has occurred that is deemed to be other-than-temporary, an impairment loss is recorded.

Receivables, Net and Allowances for Credit Losses: The Company’s receivables are presented net of an allowance for credit losses and primarily consist of trade accounts receivable from customers that result from the sale of goods and services. Receivables, net also includes other receivables, which primarily represent amounts due from suppliers.

We are exposed to credit losses on accounts receivable balances. The Company estimates credit losses by considering historical credit losses, the current economic environment, customer credit ratings, legal disputes, or bankruptcies, as well as reasonable and supportable forecasts. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance.

Trade accounts receivable represent the majority of the Company's financial assets, for which an allowance for credit losses of $89 million and $198 million were included in “Receivables, net” on the Consolidated Balance Sheets as of March 31, 2022 and 2021, respectively. Changes in the allowance for the year ended March 31, 2022, were primarily within the U.S Pharmaceutical and International segments.

The following table presents the components of the Company’s receivables as of March 31, 2022 and 2021:

			March 31,
(In millions)			2022						2021
Customer accounts			$	16,438					$	17,106
Other			2,289						2,325
Total receivables			18,727						19,431
Allowances			(144)						(250)
Receivables, net			$	18,583					$	19,181

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Concentrations of Credit Risk and Receivables: The Company’s trade accounts receivable are subject to concentrations of credit risk with customers primarily in its U.S. Pharmaceutical segment. During 2022, sales to the Company’s ten largest customers, including group purchasing organizations (“GPOs”), accounted for approximately 52% of its total consolidated revenues and approximately 43% of total trade accounts receivable at March 31, 2022. Sales to the Company’s largest customer, CVS Health Corporation (“CVS”), accounted for approximately 21% of its total consolidated revenues in 2022 and comprised approximately 28% of total trade accounts receivable at March 31, 2022. As a result, the Company’s sales and credit concentration is significant. The Company has agreements with GPOs, each of which functions as a purchasing agent on behalf of member hospitals, pharmacies, and other healthcare providers, as well as with government entities and agencies. The accounts receivables balances are with individual members of the GPOs, and therefore no significant concentration of credit risk exists. A material default in payment, a material reduction in purchases from GPOs or any other large customers, or the loss of a large customer or customer groups could have a material adverse impact on the Company’s financial condition, results of operations, and liquidity. In addition, trade accounts receivables are subject to concentrations of credit risk with customers in the institutional, retail, and healthcare provider sectors, which can be affected by a downturn in the economy and changes in reimbursement policies. This credit risk is mitigated by the size and diversity of the Company’s customer base as well as its geographic dispersion.

Inventories: Inventories consist of merchandise held for resale. The Company reports inventories at the lower of cost or net realizable value, except for inventories determined using the last-in, first-out (“LIFO”) method which are valued at the lower of LIFO cost or market. The LIFO method presumes that the most recent inventory purchases are the first items sold and the inventory cost under LIFO approximates market. The majority of the cost of domestic inventories is determined using the LIFO method. The majority of the cost of inventories held in foreign and certain domestic locations is based on the first-in, first-out (“FIFO”) method and weighted-average purchase prices. Rebates, cash discounts, and other incentives received from vendors are recognized in cost of sales upon the sale of the related inventory.

At March 31, 2022 and 2021, total inventories, net were $18.7 billion and $19.2 billion, respectively, in the Company’s Consolidated Balance Sheets. The LIFO method was used to value approximately 63% and 58% of the Company’s inventories at March 31, 2022 and 2021, respectively. If the Company had used the moving average method of inventory valuation, inventories would have been approximately $383 million and $406 million higher than the amounts reported at March 31, 2022 and 2021, respectively. These amounts are equivalent to the Company’s LIFO reserves. The Company’s LIFO valuation amount includes both pharmaceutical and non-pharmaceutical products. The Company recognized LIFO credits of $23 million, $38 million, and $252 million in 2022, 2021, and 2020, respectively, in “Cost of sales” in its Consolidated Statements of Operations. The lower LIFO credits in 2022 compared to 2021 and 2020 is primarily due to higher brand inflation and delays of branded off-patent to generic drug launches. A LIFO charge is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines, including the effect of branded pharmaceutical products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory.

The Company believes that the moving average inventory costing method provides a reasonable estimation of the current cost of replacing inventory (i.e., “market”). As such, its LIFO inventory is valued at the lower of LIFO cost or market. As of March 31, 2022 and 2021, inventories at LIFO did not exceed market.

Shipping and Handling Costs: The Company includes costs to pack and deliver inventory to its customers in “Selling, distribution, general, and administrative expenses” in its Consolidated Statements of Operations. Shipping and handling costs of $1.1 billion was recognized in 2022, and $1.0 billion was recognized in each of 2021 and 2020.

Held for Sale: Assets and liabilities to be disposed of by sale (“disposal groups”) are classified as “held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use. The classification occurs when the disposal group is available for immediate sale and the sale is probable. These criteria are generally met when management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying amount or fair value less costs to sell, and long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Refer to Financial Note 2, “Held for Sale,” for additional information.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Property, Plant, and Equipment, Net: Property, plant, and equipment, net is stated at historical cost and depreciated under the straight-line method over the estimated useful life of each asset, which ranges from 15 to 30 years for building and improvements and 3 to 15 years for machinery, equipment, and other. Leasehold improvements and property, plant, and equipment, net under finance leases are amortized over their respective useful lives of the right-of-use (“ROU”) asset or over the term of the lease, whichever is shorter. Depreciation and amortization begins when an asset is placed in service and ready for its intended use. Repairs and maintenance costs are expensed as incurred. When certain events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable, an impairment assessment may be performed on the recoverability of the carrying amounts.

The following table presents the components of the Company’s property, plant, and equipment, net as of March 31, 2022 and 2021:

			March 31,
(In millions)			2022						2021
Land			$	104					$	156
Building and improvements			1,331						1,745
Machinery, equipment, and other			2,338						2,512
Construction in progress			313						382
Total property, plant, and equipment			4,086						4,795
Accumulated depreciation and amortization			(1,994)						(2,214)
Property, plant, and equipment, net			$	2,092					$	2,581

Total depreciation expense for property, plant, and equipment, net and amortization of the ROU assets of finance leases was $312 million, $344 million, and $335 million for the years ended March 31, 2022, 2021, and 2020, respectively.

Leases: The Company leases facilities and equipment primarily under operating leases. The Company recognizes lease expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor incentives for tenant improvements, periods where no rent payment is required, and escalations in rent payments over the term of the lease. As a practical expedient, the Company does not separate lease components from non-lease components, such as common area maintenance, utilities, and repairs and maintenance. Remaining terms for facility leases generally range from one to 15 years, while remaining terms for equipment leases generally range from one to five years. Most real property leases contain renewal options (typically for five-year increments). Generally, the renewal option periods are not included within the lease term as the Company is not reasonably certain to exercise that right at lease commencement. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating ROU assets and operating lease liabilities are recognized at the lease commencement date. ROU assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease liabilities are recognized based on the present value of the future lease payments over the lease term, discounted at the Company’s incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company’s leases. The Company estimates the discount rate as its incremental borrowing rate based on qualitative factors including Company specific credit rating, lease term, general economics, and the interest rate environment. For existing leases that commenced prior to the adoption of the amended leasing guidance, the Company determined the discount rate on April 1, 2019 using the full lease term. Operating lease liabilities are recorded in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” and the corresponding lease assets are recorded in “Operating lease right-of-use assets” in the Company’s Consolidated Balance Sheets. Finance lease assets are included in “Property, plant, and equipment, net” and finance lease liabilities are included in “Current portion of long-term debt” and “Long-term debt” in the Company’s Consolidated Balance Sheets. As a practical expedient, short-term leases with an initial term of 12 months or less are excluded from the Consolidated Balance Sheets and charges from these leases are expensed as incurred.

As a lessor, the Company primarily leases certain owned equipment, classified as direct financing or sales-type leases, to physician practices.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Refer to Financial Note 10, “Leases,” for additional information on the Company’s leases.

Goodwill: Goodwill is tested for impairment on an annual basis in the third quarter and more frequently if indicators of potential impairment exist. Impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results.

The Company applies the goodwill impairment test by comparing the estimated fair value of a reporting unit to its carrying value and recording an impairment charge equal to the amount of excess carrying value above estimated fair value, if any, but not to exceed the amount of goodwill allocated to the reporting unit.

To estimate the fair value of its reporting units, the Company generally uses a combination of the market approach and the income approach. Under the market approach, it estimates fair value by comparing the business to similar businesses, or guideline companies whose securities are actively traded in public markets. Under the income approach, it uses a discounted cash flow (“DCF”) model in which cash flows anticipated over future periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate that is commensurate with the risk inherent within the reporting unit. Other estimates inherent in both the market and income approaches include long-term growth rates, projected revenues, and earnings and cash flow forecasts for the reporting units. In addition, the Company compares the aggregate of the reporting units’ fair values to the Company’s market capitalization as a further corroboration of the fair values. Goodwill testing requires a complex series of assumptions and judgments by management in projecting future operating results, selecting guideline companies for comparisons and assessing risks. The use of alternative assumptions and estimates could affect the fair values and change the impairment determinations.

Intangible Assets: Currently all of the Company’s intangible assets are subject to amortization and are amortized based on the pattern of their economic consumption or on a straight-line basis over their estimated useful lives, ranging from one to 24 years. The Company reviews intangible assets for impairment at an asset group level whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated future undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset group over its estimated fair market value.

Capitalized Software Held for Internal Use: The Company capitalizes costs of software held for internal use during the application development stage of a project and amortizes those costs using the straight-line method over their estimated useful lives, not to exceed 10 years. As of March 31, 2022 and 2021, capitalized software held for internal use was $320 million and $513 million, respectively, net of accumulated amortization of $1.4 billion, and is included in “Other non-current assets” in the Consolidated Balance Sheets. The decrease in capitalized software held for internal use is primarily due to the planned exit of the Company’s European businesses which resulted in an impairment of certain internal-use software that will not be utilized in the future and classification of certain software as held for sale, as discussed in Note 2, “Held for Sale.” Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Amortization expense for capitalized software held for internal use was $116 million, $117 million, and $129 million for the years ended March 31, 2022, 2021, and 2020, respectively.

Insurance Programs: The Company maintains insurance programs through its wholly-owned captive insurance subsidiaries (“Captives”) from which it obtains coverage for various exposures, including certain exposures arising from the opioid-related claims of governmental entities against the Company as discussed in more detail in Financial Note 18, “Commitments and Contingent Liabilities,” as well as those risks required to be insured by law or contract. It is the Company’s policy to retain a significant portion of certain losses, including those related to workers’ compensation and comprehensive general, product, and vehicle liability. Provisions for losses expected under insurance programs are recorded based on the Company’s estimate of the aggregate liability for claims incurred as well as for claims incurred but not yet reported. Such estimates utilize certain actuarial assumptions followed in the insurance industry. The Captives receive direct premiums, which are eliminated on consolidation against the Company’s premium costs within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

Revenue Recognition: Revenue is recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled for that good or service.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Revenues generated from the distribution of pharmaceutical and medical products represent the majority of the Company’s revenues. The Company orders product from the manufacturer, receives and carries the product at its central distribution facilities, and delivers the product directly to its customers’ warehouses, hospitals, or retail pharmacies. The distribution business primarily generates revenue from a contract related to a confirmed purchase order with a customer in a distribution arrangement. Revenue is recognized when control of goods is transferred to the customer which occurs upon the Company’s delivery to the customer or upon customer pick-up. The Company also earns revenues from a variety of other sources including its retail, services, and technology businesses. Retail revenues are recognized at the point of sale. Service revenues, including technology service revenues, are recognized when services are rendered. Revenues derived from distribution and retail business at the point of sale, and revenues derived from services represent approximately 98% and 2% of total revenues for each of the years ended March 31, 2022, 2021, and 2020.

Revenues are recorded gross when the Company is the principal in the transaction, has the ability to direct the use of the goods or services prior to transfer to a customer, is responsible for fulfilling the promise to its customer, has latitude in establishing prices, and controls the relationship with the customer. The Company records its revenues net of sales taxes. Revenues are measured based on the amount of consideration that the Company expects to receive, reduced by estimates for return allowances, discounts, and rebates using historical data. Sales returns from customers were approximately $3.2 billion in 2022 and $3.1 billion in each of 2021 and 2020. Assets for the right to recover products from customers and the associated refund liabilities for return allowances were not material as of March 31, 2022 and 2021. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs. The Company records deferred revenues when payments are received or due in advance of its performance. Deferred revenues are primarily from the Company’s services arrangements and are recognized as revenues over the periods when services are performed.

The Company had no material contract assets, contract liabilities, or deferred contract costs recorded in its Consolidated Balance Sheets as of March 31, 2022 and 2021. The Company generally expenses costs to obtain a contract as incurred when the amortization period is less than one year.

Supplier Incentives: Fees for services and other incentives received from suppliers, relating to the purchase or distribution of inventory, are considered product discounts and are generally reported as a reduction to cost of sales.

Supplier Reserves: The Company establishes reserves against amounts due from suppliers relating to various fees for services and price and rebate incentives, including deductions taken against payments otherwise due to it. These reserve estimates are established based on judgment after considering the status of current outstanding claims, historical experience with the suppliers, the specific incentive programs, and any other pertinent information available. The Company evaluates the amounts due from suppliers on a continual basis and adjusts the reserve estimates when appropriate based on changes in facts and circumstances. Adjustments to supplier reserves are generally included in cost of sales unless consideration from the vendor is in exchange for distinct goods or services or for pass-through rebate purchases. The ultimate outcome of any outstanding claims may be different than the Company’s estimate. The supplier reserves primarily pertain to the Company’s U.S. Pharmaceutical segment.

Income Taxes: The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or the tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement.

Interest Expense: Interest expense primarily includes interest for the Company’s long-term debt obligations, commercial paper, net interest settlements of interest rate swaps, and the amortization of deferred issuance costs and original issue discounts on debt.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Foreign Currency Translation: The reporting currency of the Company and its subsidiaries is the U.S. dollar. Its foreign subsidiaries generally consider their local currency to be their functional currency. Foreign currency-denominated assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the corresponding period and stockholders’ equity (deficit) accounts are primarily translated at historical exchange rates. Foreign currency translation adjustments are included in “Other comprehensive income, net of tax” in the Consolidated Statements of Comprehensive Income (Loss), and the cumulative effect is included in the stockholders’ equity (deficit) section of the Consolidated Balance Sheets. Realized gains and losses from currency exchange transactions are recorded in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations and were not material in 2022, 2021, or 2020. The Company releases cumulative translation adjustments from stockholders’ equity into earnings as a gain or loss only upon a complete or substantially complete liquidation of a controlling interest in a subsidiary or a group of assets within a foreign entity. It also releases all or a pro-rata portion of the cumulative translation adjustments into earnings upon the sale of an equity method investment that is a foreign entity or has a foreign component.

Derivative Financial Instruments: Derivative financial instruments are used principally in the management of foreign currency exchange and interest rate exposures and are recorded in the Consolidated Balance Sheets at fair value. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. The Company uses foreign currency-denominated notes and cross-currency swaps to hedge a portion of its net investment in its foreign subsidiaries. It uses cash flow hedges primarily to reduce the effects of foreign currency exchange rate risk related to intercompany loans denominated in non-functional currencies. If the financial instrument is designated as a cash flow hedge or net investment hedge, the effective portions of changes in the fair value of the derivative are included in “Other comprehensive income, net of tax” in the Consolidated Statements of Comprehensive Income (Loss), and the cumulative effect is included in the stockholders’ equity (deficit) section of the Consolidated Balance Sheets. The cumulative changes in fair value are reclassified to the same line as the hedged item in the Consolidated Statements of Operations when the hedged item affects earnings. The Company evaluates hedge effectiveness at inception and on an ongoing basis, and ineffective portions of changes in the fair value of cash flow hedges and net investment hedges are recognized in earnings following the date when ineffectiveness was identified. Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the change included in earnings. Refer to Financial Note 15, “Hedging Activities,” for additional information.

Comprehensive Income (Loss): Comprehensive income (loss) consists of two components: net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, as well as gains and losses that are recorded as an element of stockholders’ equity (deficit) but are excluded from earnings. The Company’s other comprehensive income (loss) primarily consists of foreign currency translation adjustments from those subsidiaries where the local currency is the functional currency, including gains and losses on net investment hedges, as well as unrealized gains and losses on cash flow hedges and unrealized gains and losses on retirement-related benefit plans.

Noncontrolling Interests and Redeemable Noncontrolling Interests: Noncontrolling interests represent the portion of profit or loss, net assets, and comprehensive income or loss that is not allocable to McKesson Corporation. Net income attributable to noncontrolling interests includes recurring compensation that McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe AG (“McKesson Europe”), formerly known as Celesio AG, under the domination and profit and loss transfer agreement. Net income attributable to noncontrolling interests also includes third-party equity interests in the Company’s consolidated entities including Vantage Oncology Holdings, LLC (“Vantage”) and ClarusONE Sourcing Services LLP (“ClarusONE”), which was established between McKesson and Walmart, Inc in 2017. Noncontrolling interests with redemption features, such as put rights, that are not solely within the Company’s control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of stockholders’ equity (deficit) in the Company’s Consolidated Balance Sheets. Refer to Financial Note 8, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” for additional information.

Share-Based Compensation: The Company accounts for all share-based compensation transactions at fair value. The share-based compensation expense, for the portion of the awards that is ultimately expected to vest, is recognized on a straight-line basis over the requisite service period. The share-based compensation expense recognized is classified in the Consolidated Statements of Operations in the same manner as cash compensation paid to the Company’s employees. Refer to Financial Note 5, “Share-Based Compensation,” for additional information.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Loss Contingencies: The Company is subject to various claims, including, but not limited to, claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of its business. When a loss is considered probable and reasonably estimable, the Company records a liability in the amount of its best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate the loss or a range of possible loss. When a material loss is reasonably possible or probable, but a reasonable estimate cannot be made, disclosure of the proceeding is provided. The Company recognizes legal fees as incurred when the legal services are provided.

The Company reviews all material contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or a range of the loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system, and other interested parties. Refer to Financial Note 18, “Commitments and Contingent Liabilities,” for additional information related to ongoing controlled substances claims to which the Company is a party.

Restructuring Charges: Employee severance costs are generally recognized when payments are probable and amounts are reasonably estimable. Costs related to contracts without future benefit or contract termination are recognized at fair value at the earlier of the contract termination or the cease-use dates. Other exit-related costs are expensed as incurred. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” for additional information.

Business Combinations: The Company accounts for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that the Company obtains control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, the Company typically uses a method that is a form or variation of the income approach, whereby a forecast of future cash flows attributable to the asset are discounted to present value using a risk-adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life.

Treasury Stock: We record purchases of treasury stock at cost, which is reflected as a reduction to stockholders’ equity in the Company’s Consolidated Balance Sheets. Incremental direct costs to purchase treasury stock are included in the cost of the shares acquired. Treasury stock also includes shares withheld to satisfy the tax obligations of recipients of share-based compensation.

Recently Adopted Accounting Pronouncements

In the first quarter of 2022, the Company prospectively adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies and clarifies certain other aspects of accounting for income taxes. The adoption of this amended guidance did not have a material impact on the Company’s consolidated financial statements or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

There were no recently issued accounting standards that could have a material impact to the Company’s financial position, results of operations, cash flows, or notes to the financial statements upon their adoption.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

2. Held for Sale

In July 2021, the Company announced its intention to exit its businesses in Europe (“European Divestiture Activities”). These activities, further described below, constitute the majority of the assets and liabilities classified as held for sale as of March 31, 2022. Total assets and liabilities that have met the classification as held for sale were $4.5 billion and $4.7 billion, respectively, as of March 31, 2022 and $12 million and $9 million, respectively, as of March 31, 2021, primarily included within the Company’s International segment. The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations. During the year ended March 31, 2022, the Company recorded charges totaling $1.6 billion, primarily to remeasure the assets and liabilities of the disposal groups to fair value less costs to sell. These charges were largely driven by declines in the British pound sterling and the Euro. During the years ended March 31, 2021 and 2020, the Company recorded losses of $58 million and $275 million, respectively, related to the contribution of a majority of its German pharmaceutical wholesale business to a joint venture with Walgreens Boots Alliance (“WBA”) which was completed on November 1, 2020. These charges in each year were recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

European Divestiture Activities

On July 5, 2021, the Company entered into an agreement to sell certain of its businesses in the European Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.4 billion) adjusted for certain items, including cash, net debt, and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. The transaction is anticipated to close within the second half of fiscal year 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable.

During the year ended March 31, 2022, the Company recorded charges totaling $438 million to remeasure the E.U. disposal group to fair value less costs to sell. These charges also included impairments of individual assets, such as certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole. The remeasurement adjustment includes net losses of $151 million related to the accumulated other comprehensive income balances associated with the E.U. disposal group, driven by declines in the Euro. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

(In millions)			March 31, 2022
Assets
Current assets
Receivables, net			$	1,322
Inventories, net			809
Prepaid expenses and other			72
Property, plant, and equipment, net			304
Operating lease right-of-use assets			224
Intangible assets, net			267
Other non-current assets			328
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)			(302)
Total assets held for sale			$	3,024
Liabilities
Current liabilities
Drafts and accounts payable			$	1,826
Current portion of long-term debt			4
Current portion of operating lease liabilities			33
Other accrued liabilities			473
Long-term debt			11
Long-term deferred tax liabilities			55
Long-term operating lease liabilities			180
Other non-current liabilities			138
Total liabilities held for sale			$	2,720

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

On November 1, 2021, the Company announced an agreement to sell its retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited. In April 2022, the Company entered into an amendment to the agreement for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. During the year ended March 31, 2022, the Company recorded charges totaling $1.2 billion, primarily consisting of adjustments to remeasure the U.K. disposal group to fair value less costs to sell. The remeasurement adjustments include a $734 million loss related to the accumulated other comprehensive income balances associated with the U.K. disposal group, driven by declines in the British pound sterling. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations. The Company’s measurement of the fair value of the U.K. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy. The transaction closed on April 6, 2022 and, at closing the buyer assumed and repaid a note payable to the Company of approximately $118 million.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

(In millions)			March 31, 2022
Assets
Current assets
Cash and cash equivalents			$	531
Receivables, net			931
Inventories, net			563
Prepaid expenses and other			50
Property, plant, and equipment, net			91
Operating lease right-of-use assets			270
Intangible assets, net			117
Other non-current assets			88
Remeasurement of assets of businesses held for sale to fair value less costs to sell			(1,159)
Total assets held for sale			$	1,482
Liabilities
Current liabilities
Drafts and accounts payable			$	1,593
Current portion of operating lease liabilities			50
Other accrued liabilities			59
Long-term deferred tax liabilities			16
Long-term operating lease liabilities			262
Other non-current liabilities			38
Total liabilities held for sale			$	2,018

On January 31, 2022, the Company completed the sale of its Austrian business to Quadrifolia Management GmbH in a management-led buyout for a purchase price of €244 million (or, approximately $276 million), including certain adjustments. The Company divested net assets of the Austrian business of $272 million, primarily within the International segment, and the buyer assumed a note payable to the Company of approximately $63 million which was paid to McKesson in the fourth quarter of 2022. During the year ended March 31, 2022, the Company recognized a loss of $32 million which was recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations.

German Pharmaceutical Wholesale Joint Venture

On November 1, 2020, the Company completed a transaction with WBA whereby the majority of its German pharmaceutical wholesale business was contributed to a newly formed joint venture in which McKesson had a 30% noncontrolling interest.

Transaction consideration for the contribution included a receivable amount of $41 million, primarily related to working capital and net debt adjustments from WBA, which was received in the first quarter of 2022, and the 30% interest in the newly formed joint venture. At the transaction date, the carrying value of the equity investment in the joint venture was recorded at its fair value, which was measured using inputs that fell within Level 3 of the fair value hierarchy. The carrying value of the investment in the joint venture was nil as of March 31, 2021. The Company accounted for its interest in the joint venture as an equity method investment within the International segment. The joint venture also assumed a note payable to the Company in the amount of approximately $291 million as of the transaction date, which was paid to the Company in 2021.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

In conjunction with the contribution, the Company recorded losses of $58 million and $275 million, respectively, in the years ended March 31, 2021 and 2020, which included adjustments to remeasure the assets and liabilities held for sale to fair value less costs to sell. These charges were included within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. The Company’s measurement of the fair value of the German pharmaceutical wholesale business disposal group was based on estimates of total consideration to be received by the Company as outlined in the contribution agreement between the Company and WBA.

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net, of $281 million, $334 million, and $268 million in 2022, 2021, and 2020, respectively. These charges are included in “Restructuring, impairment, and related charges, net” in the Consolidated Statements of Operations. In addition, for the years ended March 31, 2021 and 2020, certain charges related to restructuring initiatives were included in “Cost of sales” in the Consolidated Statements of Operations and were not material.

Restructuring Initiatives

During the first quarter of 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily included the rationalization of the Company’s office space in North America. Where the Company ceased using office space, it exited the portion of the facility no longer used. It also retained and repurposed certain other office locations. The Company recorded charges of $124 million for the year ended March 31, 2022, primarily related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative was substantially complete in 2022 after which immaterial charges will continue to be incurred through the termination date of certain leases.

During the first quarter of 2021, the Company committed to an initiative within the United Kingdom (“U.K.”), which is included in the Company’s International segment, to further drive operational changes in technologies and business processes, efficiencies, and cost savings. The initiative included reducing the number of retail pharmacy stores, decommissioning obsolete technologies and processes, reorganizing and consolidating certain business operations, and related headcount reductions. Charges incurred for this initiative were not material for the year ended March 31, 2022 and were $57 million for the year ended March 31, 2021, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. This initiative was substantially complete in 2022 and remaining costs the Company expects to record under this initiative are not material.

During the fourth quarter of 2019, the Company committed to certain programs to continue its operating model and cost optimization efforts. The Company continues to implement centralization of certain functions and outsourcing through an expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also include reorganization and consolidation of business operations, related headcount reductions, the further closures of retail pharmacy stores in Europe, and closures of other facilities. The Company recorded charges of $62 million and $72 million in 2021 and 2020, respectively, consisting primarily of employee severance, accelerated depreciation expense, and project consulting fees. This initiative was substantially complete in 2021 and remaining costs the Company recorded under this initiative were not material.

As previously announced on November 30, 2018, the Company relocated its corporate headquarters, effective April 1, 2019, from San Francisco, California to Irving, Texas to improve efficiency, collaboration, and cost competitiveness. As a result, the Company recorded charges of $28 million and $44 million in 2021 and 2020, respectively, consisting primarily of employee retention expenses, severance, long-lived asset impairments, and accelerated depreciation. The relocation was substantially complete in January 2021 and remaining costs the Company recorded under this initiative, primarily relating to lease costs, were not material.

On April 25, 2018, the Company announced a strategic growth initiative intended to drive long-term incremental profit growth and to increase operational efficiency. The initiative consisted of multiple growth priorities and plans to optimize the Company’s operating models and cost structures primarily through centralization, cost management, and outsourcing of certain administrative functions. As part of the growth initiative, the Company committed to implement certain actions including a reduction in workforce, facility consolidation, and store closures. This set of initiatives was substantially complete by the end of 2020 and charges in 2021 were not material. The Company recorded charges of $15 million in 2020.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Fiscal 2022

Restructuring, impairment, and related charges, net for the year ended March 31, 2022 consisted of the following:

			Year Ended March 31, 2022
(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Corporate						Total
Severance and employee-related costs, net			$	8					$	1					$	(1)					$	8					$	(7)					$	9
Exit and other-related costs (1)			9						4						5						33						46						97
Asset impairments and accelerated depreciation (2)			18						20						5						35						61						139
Total			$	35					$	25					$	9					$	76					$	100					$	245

(1)Exit and other-related costs consist of accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred. For the Company’s International segment, costs primarily relate to optimization programs in Canada, exit-related actions for the Company’s European Divestiture Activities, and programs for operating model and cost optimization efforts in the U.K. as described above. For Corporate, primarily represents costs related to the transition to the partial remote work model described above and various other initiatives.

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

Fiscal 2021

Restructuring, impairment, and related charges, net for the year ended March 31, 2021 consisted of the following:

			Year Ended March 31, 2021
(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International (1)						Corporate (2)						Total
Severance and employee-related costs, net			$	10					$	4					$	(1)					$	22					$	69					$	104
Exit and other-related costs (3)			11						—						4						17						27						59
Asset impairments and accelerated depreciation			—						—						1						46						9						56
Total			$	21					$	4					$	4					$	85					$	105					$	219

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

(2)Represents costs associated with the operating model cost optimization efforts and the relocation of the Company’s headquarters described above in addition to various other initiatives.

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

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Fiscal 2020

Restructuring, impairment, and related charges, net for the year ended March 31, 2020 consisted of the following:

			Year Ended March 31, 2020
(In millions)			U.S. Pharmaceutical (1)						Prescription Technology Solutions						Medical-Surgical Solutions (2)						International (3)						Corporate (4)						Total
Severance and employee-related costs, net			$	12					$	(1)					$	4					$	2					$	30					$	47
Exit and other-related costs (5)			1						—						19						13						46						79
Asset impairments and accelerated depreciation			10						—						1						6						13						30
Total			$	23					$	(1)					$	24					$	21					$	89					$	156

(1)Represents costs associated with dispositions and costs related to the relocation of the Company’s corporate headquarters described above.

(2)Primarily represents costs associated with the growth initiative described above.

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

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

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

The following table summarizes the activity related to the restructuring liabilities associated with the Company’s restructuring initiatives for the years ended March 31, 2022 and 2021:

(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Corporate						Total
Balance, March 31, 2020			$	29					$	1					$	22					$	66					$	39					$	157
Restructuring, impairment, and related charges, net			21						4						4						85						105						219
Non-cash charges			—						—						(1)						(46)						(9)						(56)
Cash payments			(31)						(1)						(21)						(31)						(75)						(159)
Other			—						—						(1)						(8)						(1)						(10)
Balance, March 31, 2021 (1)			19						4						3						66						59						151
Restructuring, impairment, and related charges, net			35						25						9						76						100						245
Non-cash charges			(18)						(20)						(5)						(35)						(61)						(139)
Cash payments			(18)						(6)						(6)						(28)						(29)						(87)
Other			(7)						—						—						(23)						(10)						(40)
Balance, March 31, 2022 (2)			$	11					$	3					$	1					$	56					$	59					$	130

(1) As of March 31, 2021, the total reserve balance was $151 million, of which $99 million was recorded in “Other accrued liabilities” and $52 million was recorded in “Other non-current liabilities” in the Company’s Consolidated Balance Sheets.

(2) As of March 31, 2022, the total reserve balance was $130 million, of which $58 million was recorded in “Other accrued liabilities,” $36 million was recorded in “Liabilities held for sale,” and $36 million was recorded in “Other non-current liabilities” in the Company’s Consolidated Balance Sheets.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Long-Lived Asset Impairments

Fiscal 2022

In 2022, the Company recognized charges totaling $36 million to impair certain long-lived assets within the International segment related to the Company’s operations in Denmark and its retail pharmacy businesses in Canada. The Company used an income approach (a DCF method) and a market approach to estimate the fair value of the long-lived assets.

Fiscal 2021

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

Fiscal 2020

In 2020, the Company recognized charges of $82 million to impair certain long-lived and intangible assets for its retail pharmacy business in Europe within the Company’s International segment. These charges related primarily to intangible assets associated with pharmacy licenses within the U.K. retail business due to a decline in estimated future cash flows driven by additional U.K. government reimbursement reductions communicated in the third quarter of 2020. The Company used a combination of an income approach and a market approach to estimate the fair value of the long-lived and intangible assets.

In 2020, the Company performed an interim impairment test of long-lived and intangible assets for its Rexall Health retail business, within the Company's International segment, due to the decline in the estimated future cash flows primarily driven by lower than expected growth in both prescription volume and sales of non-prescription goods. As a result, the Company recognized a charge of $30 million to impair certain long-lived and intangible assets, primarily customer relationships. The Company used an income approach for estimating the fair value of the long-lived and intangible assets.

4. Business Acquisitions and Divestitures

Acquisitions

During 2022, 2021, and 2020, the Company did not complete any material acquisitions. For the three years presented, the Company completed several de minimis acquisitions within its operating segments. Financial results for the Company’s business acquisitions have been included in the Company’s consolidated financial statements since their respective acquisition dates. Purchase prices for business acquisitions have been allocated based on estimated fair values at the respective acquisition dates. Goodwill recognized for business acquisitions is generally not expected to be deductible for tax purposes. However, if the assets of another company are acquired, the goodwill may be deductible for tax purposes.

Divestitures

In July 2021, the Company announced its intention to exit its businesses in Europe. In 2022, the Company entered into agreements to sell the E.U. disposal group and U.K. disposal group and completed the previously announced sale of its Austrian business, as described in Financial Note 2, “Held for Sale.” In 2021, the Company contributed the majority of its German pharmaceutical wholesale business to a newly formed joint venture with WBA as discussed in Financial Note 2, “Held for Sale,” and, in 2022, sold its interest in the joint venture to WBA, as described in Financial Note 6, “Other Income, Net.” In 2020, the Company completed the separation of the Change Healthcare JV, as described below.

Investment in the Change Healthcare Joint Venture

In the fourth quarter of 2017, the Company contributed the majority of its McKesson Technology Solutions businesses to form a joint venture, the Change Healthcare JV, under a contribution agreement between McKesson and Change Healthcare Inc. (“Change”) and others, including shareholders of Change. In exchange for the contribution, the Company initially owned approximately 70% of the joint venture, with the remaining equity ownership of approximately 30% held by Change. The Change Healthcare JV was jointly governed by McKesson and shareholders of Change.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On June 27, 2019, common stock and certain other securities of Change began trading on the NASDAQ (“IPO”). Change was a holding company and did not own any material assets or have any operations other than its interest in the Change Healthcare JV. On July 1, 2019, upon the completion of its IPO, Change contributed net cash proceeds it received from its offering of common stock to the Change Healthcare JV in exchange for additional membership interests of the Change Healthcare JV (“LLC Units”). As a result, McKesson’s equity interest in the Change Healthcare JV was diluted from approximately 70% to approximately 58.5%. Accordingly, in the second quarter of 2020, the Company recognized a dilution loss of $246 million, primarily representing the difference between its proportionate share of the IPO proceeds and the dilution effect on the investment’s carrying value. This amount was included in “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

In the second quarter of 2020, the Company recorded an other-than-temporary impairment (“OTTI”) charge of $1.2 billion to its investment in the Change Healthcare JV, representing the difference between the carrying value of the Company’s investment and the fair value derived from the corresponding closing price of Change’s common stock at September 30, 2019. This charge was included in “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

Separation of the Change Healthcare Joint Venture

On March 10, 2020, the Company completed the separation of its interest in the Change Healthcare JV. The separation was affected through the split-off of PF2 SpinCo, Inc. (“SpinCo”), a wholly-owned subsidiary of the Company that held all of the Company’s interest in the Change Healthcare JV, to certain of the Company’s stockholders through an exchange offer (“Split-off”), followed by the merger of SpinCo with and into Change, with Change surviving the merger (“Merger”).

In connection with the Split-off, on March 9, 2020, the Company distributed all 176.0 million outstanding shares of common stock of SpinCo to participating holders of the Company’s common stock in exchange for 15.4 million shares of McKesson common stock which now are held as treasury stock on the Company’s Consolidated Balance Sheets. Refer to Financial Note 19, “Stockholders' Equity (Deficit),” for more information. Following consummation of the exchange offer, on March 10, 2020, SpinCo was merged with and into Change Healthcare, and each share of SpinCo common stock converted into one share of Change common stock, par value $0.001 per share, with cash being paid in lieu of fractional shares of Change common stock. The Split-off and the Merger are intended to be generally tax-free transactions for U.S. federal income tax purposes. Following the Split-off, the Company does not beneficially own any of Change’s outstanding securities. In the fourth quarter of 2020, the Company recognized a net gain of $414 million related to the transaction which is included under the caption “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020. The net gain was calculated as follows:

(In millions, except per share data)
Fair value of McKesson common stock accepted (15.4 million shares at $131.97 per share on March 9, 2020)			$	2,036
Investment in the Change Healthcare JV at exchange date			(2,096)
Reversal of deferred tax liability (1)			521
Release of accumulated other comprehensive loss attributable to the joint venture			(24)
Less: Transaction costs incurred			(23)
Net gain on split-off of the Change Healthcare JV			$	414

(1)Under the agreement with the Change Healthcare JV, McKesson, Change, and certain subsidiaries of the Change Healthcare JV, there may be changes in future periods to the amount reversed as the relevant periods are audited by tax authorities. Any such change is not expected to have a material impact on the Company’s consolidated financial statements.

Equity Method Investment in the Change Healthcare Joint Venture

Until the separation of the Company’s interest in the Change Healthcare JV, this investment was accounted for using the equity method of accounting. Effective April 1, 2019, the Change Healthcare JV adopted the amended revenue recognition guidance and, in the first quarter of 2020, the Company recorded its proportionate share of the joint venture’s adoption impact of the amended revenue recognition guidance of approximately $80 million, net of tax, in the Company’s opening retained earnings.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Excluding the OTTI and transaction-related items described above, the Company recorded its proportionate share of loss from its investment in the Change Healthcare JV of $119 million in 2020, which includes transaction and integration expenses incurred by the Change Healthcare JV and basis differences between the joint venture and McKesson, including amortization of fair value adjustments primarily representing incremental intangible amortization and removal of profit associated with the recognition of deferred revenue. This amount was recorded under the caption “Equity earnings and charges from investment in Change Healthcare Joint Venture” in the Company’s Consolidated Statement of Operations for the year ended March 31, 2020.

Related Party Transactions

In connection with the formation of the Change Healthcare JV, McKesson, the Change Healthcare JV, and certain shareholders of Change entered into various ancillary agreements, including a transition services agreement (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”), a tax receivable agreement (“TRA”) and certain other agreements. The Advisory Agreement was terminated in 2020 and fees incurred or earned from the agreement were not material for 2020. Fees incurred or earned from the TSA were not material in 2022 nor 2021 and were $22 million in 2020.

Under the TRA, McKesson had the ability to adjust the manner in which certain depreciation or amortization deductions are allocated among Change and McKesson. McKesson exercised its right under the agreement and allocated certain depreciation and amortization deductions to Change for the tax year ended March 31, 2020.

After McKesson’s separation of its interest in the Change Healthcare JV, the aforementioned TRA agreement requires the Change Healthcare JV to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the depreciation or amortization allocated to Change by McKesson. The receipt of any payments from the Change Healthcare JV under the TRA is dependent upon Change benefiting from this depreciation or amortization in future tax return filings. This creates uncertainty over the amount, timing, and probability of the gain recognized. As such, the Company accounts for the TRA as a gain contingency, with no receivable recognized as of March 31, 2022 or 2021.

5. Share-Based Compensation

The Company provides share-based compensation to its employees, officers, and non-employee directors, including restricted stock units (“RSUs”), performance-based stock units (“PSUs”), stock options, and an employee stock purchase plan (“ESPP”) (collectively, “share-based awards”). Most of the share-based awards are granted in the first quarter of each fiscal year.

Compensation expense for the share-based awards is recognized for the portion of awards ultimately expected to vest. The Company estimates the number of share-based awards that will ultimately vest primarily based on historical experience. The estimated forfeiture rate established upon grant is re-assessed throughout the requisite service period and is adjusted when actual forfeitures occur. The actual forfeitures in future reporting periods could be higher or lower than current estimates.

Compensation expense is classified in the Consolidated Statements of Operations in the same manner as cash compensation paid to the Company’s employees.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Impact on Net Income

The components of share-based compensation expense and related tax benefits are as follows:

			Years Ended March 31,
(In millions)			2022						2021						2020
Restricted stock unit awards (1)			$	148					$	137					$	104
Stock options			2						4						7
Employee stock purchase plan			11						10						8
Share-based compensation expense			161						151						119
Tax benefit for share-based compensation expense (2)			(35)						(23)						(18)
Share-based compensation expense, net of tax			$	126					$	128					$	101

(1)Includes compensation expense recognized for RSUs and PSUs.

(2)Income tax benefit is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of compensation expense is not tax-deductible. Income tax expense for 2022, 2021, and 2020 included discrete income tax expense of $10 million, $2 million, and $2 million, respectively.

Stock Plans

In July 2013, the Company’s stockholders approved the 2013 Stock Plan to replace the 2005 Stock Plan. Under these stock plans, the Company may issue restricted stock, RSUs, PSUs, stock options, and other share-based awards to selected employees, officers, and non-employee directors. The 2013 Stock Plan reserves 30 million shares plus unused reserved shares under the 2005 Stock Plan. As of March 31, 2022, 19 million shares remain available for future grant under the 2013 Stock Plan.

Restricted Stock Unit Awards

RSUs entitle the holder to receive a specified number of shares of the Company’s common stock which vest over a period of generally three to four years as determined by the Compensation Committee at the time of grant. The fair value of the award is determined based on the price of the Company’s common stock on the grant date and the related compensation expense is recognized over the vesting period on a straight-line basis.

Non-employee directors receive an annual grant of RSUs, which vest immediately and are expensed upon grant. The director may elect to receive the underlying shares immediately or defer receipt of the shares if they meet director stock ownership guidelines. The shares will be automatically deferred for those directors who do not meet the director stock ownership guidelines. At March 31, 2022, approximately 57,000 RSUs for the Company’s directors are vested.

PSUs are conditional upon the attainment of market and performance objectives over a specified period. The number of vested PSUs is assessed at the end of a three-year performance period upon attainment of meeting certain earnings per share targets, average return on invested capital, and for certain participants, total shareholder return relative to a peer group of companies and, for special PSUs granted in 2019, meeting certain cumulative operating profit metrics. The Company uses the Monte Carlo simulation model to measure the fair value of the total shareholder return portion of the PSUs. The earnings per share portion of the PSUs is measured at the grant date market price. PSUs have a requisite service period of generally three years. Expense is attributed to the requisite service period on a straight-line basis based on the fair value of the PSUs, adjusted for the performance modifier at the end of each reporting period. For PSUs that are designated as equity awards, the fair value is measured at the grant date.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The weighted-average assumptions used in the Monte Carlo valuations are as follows:

			Years Ended March 31,
			2022						2021						2020
Expected stock price volatility			35		%				36		%				30		%
Expected dividend yield			0.9		%				1.1		%				1.3		%
Risk-free interest rate			0.3		%				0.2		%				2.2		%
Expected life (in years)			3						3						3

The following table summarizes activity for restricted stock unit awards (RSUs and PSUs) during 2022:

(In millions, except per share data)			Shares						Weighted- Average Grant Date Fair Value Per Share
Nonvested, March 31, 2021			3						$	142.13
Granted			1						200.64
Cancelled			—						142.40
Vested			(1)						141.16
Nonvested, March 31, 2022			3						$	160.47

The following table provides data related to restricted stock unit award activity:

			Years Ended March 31,
(In millions)			2022						2021						2020
Total fair value of shares vested			$	144					$	79					$	67
Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock unit awards not yet recognized, pre-tax			$	165					$	147					$	155
Weighted-average period in years over which restricted stock unit award cost is expected to be recognized			2						2						3

Stock Options

Stock options are granted with an exercise price at no less than the fair market value and those options granted under the stock plans generally have a contractual term of seven years and follow a four-year vesting schedule. The Company did not grant any stock options during the years ended March 31, 2022, 2021, and 2020.

Compensation expense for stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. The Company uses the Black-Scholes options-pricing model to estimate the fair value of its stock options. Once the fair value of an employee stock option is determined, current accounting practices do not permit it to be changed, even if the estimates used are different from actual.

The following is a summary of stock options outstanding at March 31, 2022:

												Options Outstanding																		Options Exercisable
Range of Exercise Prices												Number of Options Outstanding at Year End (In millions)						Weighted- Average Remaining Contractual Life (Years)						Weighted- Average Exercise Price						Number of Options Exercisable at Year End (In millions)						Weighted- Average Exercise Price
$123.98			—			$159.00						1						3						$	150.35					1						$	152.20
159.00			—			237.86						—						1						201.56						—						201.56
												1																		1

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table summarizes stock option activity during 2022:

(In millions, except per share data)			Shares						Weighted- Average Exercise Price						Weighted- Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (2)
Outstanding, March 31, 2021			2						$	183.29					2						$	36
Granted			—						—
Cancelled			—						207.92
Exercised			(1)						190.96
Outstanding, March 31, 2022			1						$	175.23					2						$	114
Vested and expected to vest (1)			1						$	175.23					2						$	114
Vested and exercisable, March 31, 2022			1						178.48						2						101

(1)The number of options expected to vest takes into account an estimate of expected forfeitures.

(2)The intrinsic value is calculated as the difference between the period-end market price of the Company’s common stock and the exercise price of “in-the-money” options.

The following table provides data related to stock option activity:

			Years Ended March 31,
(In millions, except per share data)			2022						2021						2020
Weighted-average grant date fair value per stock option			$	—					$	—					$	—
Aggregate intrinsic value on exercise			$	28					$	5					$	17
Cash received upon exercise			$	157					$	38					$	66
Tax benefits realized related to exercise			$	5					$	4					$	4
Total fair value of stock options vested			$	5					$	10					$	16
Total compensation cost, net of estimated forfeitures, related to unvested stock options not yet recognized, pre-tax			$	—					$	2					$	6
Weighted-average period in years over which stock option compensation cost is expected to be recognized			0						2						2

Employee Stock Purchase Plan

The Company has an ESPP under which 21 million shares have been authorized for issuance. The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions. The deductions occur over three-month purchase periods and the shares are then purchased at 85% of the market price at the end of each purchase period. Employees are allowed to terminate their participation in the ESPP at any time during the purchase period prior to the purchase of the shares. The 15% discount provided to employees on these shares is included in compensation expense. The shares related to funds outstanding at the end of a quarter are included in the calculation of diluted weighted-average shares outstanding. These amounts have not been significant for all the years presented. The Company recognizes costs for employer matching contributions as ESPP expense over the relevant purchase period. Shares issued under the ESPP were not material in 2022, 2021, and 2020. At March 31, 2022, 2 million shares remain available for issuance.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

6. Other Income, Net

Other income, net consists of the following:

			Years Ended March 31,
(In millions)			2022						2021						2020
Interest income			$	10					$	12					$	49
Equity in earnings, net (1)			43						48						36
Net gains on investments in equity securities (2)			98						133						17
Actuarial gains (losses) from pension plans (3)			5						—						(127)
Other, net (4)			103						30						37
Total			$	259					$	223					$	12

(1)Primarily recorded within the Company’s International segment.

(2)Represents net realized and unrealized gains on the Company’s investments in equity securities of certain U.S. growth stage companies in the healthcare industry. These net gains primarily relate to mark-to-market adjustments for investments which are measured at fair value based on changes in the observable price of the securities and realized gains on disposal of certain of these investments. Refer to Financial Note 16, “Fair Value Measurements” and Financial Note 21, “Segments of Business” for more information.

(3)The year ended March 31, 2020 includes $116 million from the termination of the U.S. defined benefit pension plan and $11 million related to a settlement from the executive benefit retirement plan for a retired executive. Refer to Financial Note 14, “Pension Benefits” for more information.

(4)Includes a gain of $42 million for the year ended March 31, 2022 as part of the completed sale of the Company’s 30% interest in its German pharmaceutical wholesale joint venture to WBA. Other, net for all periods presented also includes income recognized from finance charges to customers primarily for late fees.

7. Income Taxes

			Years Ended March 31,
(In millions)			2022						2021						2020
Income (loss) from continuing operations before income taxes
U.S.			$	1,944					$	(6,019)					$	216
Foreign			(16)						985						928
Income (loss) from continuing operations before income taxes			$	1,928					$	(5,034)					$	1,144

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Income tax expense (benefit) related to continuing operations consists of the following:

			Years Ended March 31,
(In millions)			2022						2021						2020
Current
Federal			$	233					$	(15)					$	170
State			129						47						48
Foreign			240						181						142
Total current			602						213						360
Deferred
Federal			88						(562)						(204)
State			(16)						(204)						(105)
Foreign			(38)						(142)						(33)
Total deferred			34						(908)						(342)
Income tax expense (benefit)			$	636					$	(695)					$	18

The Company reported an income tax expense (benefit) rate of 33.0%, (13.8)%, and 1.6% in 2022, 2021, and 2020. Fluctuations in the Company’s reported income tax rates are primarily due to non-cash charges related to remeasuring the value of certain of its European businesses to fair value less costs to sell in 2022, the impact of opioid-related claims, including charges of $8.1 billion ($6.8 billion after-tax) in 2021, the impact of the Change Healthcare joint venture divestiture in 2020, and changes in the mix of earnings between various taxing jurisdictions.

The reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21.0% to income before income taxes is as follows:

			Years Ended March 31,
(In millions)			2022						2021						2020
Income tax expense (benefit) at federal statutory rate			$	405					$	(1,057)					$	240
State income taxes, net of federal tax benefit			83						(206)						(41)
Tax effect of foreign operations			(186)						(77)						(81)
Unrecognized tax benefits and settlements			(26)						41						(7)
Opioid-related litigation and claims			38						715						—
Net tax benefit on intellectual property transfer			—						(105)						—
Tax-free gain on investment exit (1)			—						—						(87)
E.U. disposal transaction loss			345						—						—
Capital loss carryback			—						—						(19)
Other, net (2)			(23)						(6)						13
Income tax expense (benefit)			$	636					$	(695)					$	18

(1)Refer to Financial Note 4, “Business Acquisitions and Divestitures,” for additional information regarding the separation of the Change Healthcare JV.

(2)The Company’s effective tax rates were impacted by other favorable U.S. federal permanent differences including research and development credits of $4 million, $5 million, and $7 million in 2022, 2021, and 2020.

During the year ended March 31, 2022, the Company recorded non-deductible, non-cash pre-tax charges of $438 million primarily to remeasure the E.U. disposal group to fair value less costs to sell, and $1.2 billion to remeasure the U.K. disposal group, as described in Financial Note 2, “Held for Sale.”

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company’s reported income tax rates for 2021 and 2020 were unfavorably impacted by non-deductible, non-cash charges of $58 million and $275 million, respectively, primarily to remeasure the carrying value of assets and liabilities held for sale related to the formation of a new German pharmaceutical wholesale joint venture within the Company’s International segment. Refer to Financial Note 2, “Held for Sale,” for more information.

The Company’s reported income tax rates for 2022 and 2021 were impacted by the charge for pending and future opioid-related claims of $274 million ($237 million after-tax) and $8.1 billion ($6.8 billion after-tax), respectively, as described further in Financial Note 18, “Commitments and Contingent Liabilities.”

During 2021, the Company sold intellectual property between wholly-owned legal entities within McKesson that are based in different tax jurisdictions. The transferor entity recognized a gain on the sale of assets which was not subject to income tax in its local jurisdiction; such gains were eliminated upon consolidation. The acquiring entities of the intellectual property were entitled to amortize the purchase price of the assets for tax purposes. In accordance with ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” discrete tax benefits of $105 million was recognized for 2021, with a corresponding increase to a deferred tax assets for the temporary difference arising from the buyer’s excess tax basis.

On March 10, 2020, the Company completed the previously announced separation of its interest in the Change Healthcare JV as described in Financial Note 4, “Business Acquisitions and Divestitures.” The Company’s reported income tax expense rate for 2020 was favorably impacted by this transaction given that it was intended to generally be a tax-free split-off for U.S. federal income tax purposes. In the fourth quarter of 2020, the Company recognized a net gain for financial reporting purposes of $414 million related to the separation transaction.

Deferred tax balances consisted of the following:

			March 31,
(In millions)			2022						2021
Assets
Receivable allowances			$	49					$	69
Opioid-related litigation and claims			755						724
Compensation and benefit related accruals			285						305
Net operating loss and credit carryforwards			739						974
Lease obligations			422						539
Other			83						115
Subtotal			2,333						2,726
Less: valuation allowance			(726)						(864)
Total assets			1,607						1,862
Liabilities
Inventory valuation and other assets			(1,993)						(1,939)
Fixed assets and systems development costs			(184)						(196)
Intangibles			(233)						(411)
Lease right-of-use assets			(401)						(505)
Other			(17)						(37)
Total liabilities			(2,828)						(3,088)
Net deferred tax liability			$	(1,221)					$	(1,226)
Long-term deferred tax asset			$	197					$	185
Long-term deferred tax liability			(1,418)						(1,411)
Net deferred tax liability			$	(1,221)					$	(1,226)

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Excluded from the amounts above were $48 million of net deferred tax liabilities which were classified as held for sale for European divestitures at March 31, 2022, as discussed in Financial Note 2, “Held for Sale.”

The Company assesses the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets in various tax jurisdictions. The valuation allowances were approximately $726 million and $864 million in 2022 and 2021, respectively, and primarily relate to net operating and capital losses incurred in certain tax jurisdictions for which no tax benefit was recognized. The decrease in the valuation allowance of $138 million in the current year relates primarily to classification of deferred tax balances as held for sale for European divestitures, as discussed in Financial Note 2, “Held for Sale,” partially offset by the net operating losses incurred and deferred tax movements in certain tax jurisdictions for which no tax benefit was recognized.

The Company has federal, state, and foreign net operating loss carryforwards of $303 million, $3.9 billion, and $1.5 billion at March 31, 2022, respectively. Federal and state net operating losses will expire at various dates from 2023 through 2042. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has foreign capital loss carryforwards of $785 million with indefinite lives.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the last three years:

			Years Ended March 31,
(In millions)			2022						2021						2020
Unrecognized tax benefits at beginning of period			$	1,754					$	958					$	1,052
Additions based on tax positions related to prior years			14						53						20
Reductions based on tax positions related to prior years			(131)						(5)						(168)
Additions based on tax positions related to current year			14						755						82
Reductions based on settlements			(20)						(8)						(8)
Reductions based on the lapse of the applicable statutes of limitations			(102)						(12)						(13)
Exchange rate fluctuations			(6)						13						(7)
Unrecognized tax benefits at end of period			$	1,523					$	1,754					$	958

As of March 31, 2022, the Company had $1.5 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate, if recognized. The decrease in unrecognized tax benefits in 2022 compared to 2021 is primarily attributable to statute of limitation expirations in various taxing jurisdictions and the reclassification of $23 million of unrecognized tax benefits as held for sale for European divestitures, as discussed in Financial Note 2, “Held for Sale.” The increase in unrecognized tax benefits in 2021 compared to 2020 is primarily attributable to uncertainty in connection with the deductibility of opioid-related litigation and claims. Because many uncertainties associated with any potential settlement arrangements or other resolutions of opioid claims including provisions related to deductibility have not been finalized, the actual amount of the tax benefit related to uncertain tax positions may differ from these estimates. Refer to Financial Note 18, “Commitments and Contingent Liabilities,” for more information.

During the next twelve months, it is reasonably possible that the Company’s unrecognized tax benefit may decrease by as much as $170 million due to settlements of tax examinations and statute of limitations expirations in the U.S. federal and state jurisdictions and in foreign jurisdictions. However, this amount may change as the Company continues to have ongoing negotiations with various taxing authorities throughout the year.

The Company reports interest and penalties on income taxes as income tax expense. It recognized income tax expense of $8 million, $9 million, and $23 million in 2022, 2021, and 2020, respectively, representing interest and penalties, in its Consolidated Statements of Operations. As of March 31, 2022 and 2021, it accrued $108 million and $101 million, cumulatively, in interest and penalties on unrecognized tax benefits.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2014 through the current fiscal year.

Undistributed earnings of the Company’s foreign operations of approximately $5.0 billion were considered indefinitely reinvested at March 31, 2022. Following enactment of the 2017 Tax Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the U.S. could be subject to applicable foreign withholding taxes and state income taxes. The Company may remit foreign earnings to the U.S. to the extent it is tax efficient to do so. It does not expect the tax impact from remitting these earnings to be material.

8. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s redeemable noncontrolling interests primarily related to its consolidated subsidiary, McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, during 2022, 2021, and 2020, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million, $43 million, and $42 million, respectively. All amounts were recorded in “Net income attributable to noncontrolling interests” in the Company’s Consolidated Statements of Operations and the corresponding liability balance was recorded in “Other accrued liabilities” in the Company’s Consolidated Balance Sheets.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”).

Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of McKesson Europe initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court to challenge the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed dividend. During the pendency of the Appraisal Proceedings, such amount was paid as specified in the Domination Agreement. On September 19, 2018, that court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remained unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. On April 12, 2021, the Company received notice that the Stuttgart Court of Appeals ruled that the Put Amount remained at €22.99, thereby rejecting the lower court’s increase, and the recurring compensation remained at €0.83 per share.

Exercises of the Put Right reduced the balance of redeemable noncontrolling interests. The redeemable noncontrolling interest was adjusted each period for the proportion of other comprehensive income or loss, primarily due to changes in foreign currency exchange rates, attributable to the noncontrolling shareholders.

During 2022 and 2021, the Company paid $1.0 billion and $49 million, respectively, to purchase 34.5 million and 1.8 million shares, respectively, of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the noncontrolling interests by $983 million and $49 million, respectively, and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million and $3 million, respectively, as an increase to McKesson stockholders’ additional paid-in capital. During 2020, there were no material exercises of the Put Right. The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, with a carrying value of $287 million, were transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” in the Consolidated Balance Sheet.

Prior to the expiration of the Put Right, the balance of the redeemable noncontrolling interests was reported at the greater of its carrying value or its maximum redemption value at each reporting date. At March 31, 2021, the carrying value of redeemable noncontrolling interests of $1.3 billion exceeded the maximum redemption value of $1.2 billion and the Company owned approximately 78% of McKesson Europe’s outstanding common shares.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to ClarusONE Sourcing Services LLP, and Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021, noncontrolling interests also include minority shareholder equity interests in McKesson Europe. Noncontrolling interests in the Company’s Consolidated Balance Sheets were $480 million and $196 million at March 31, 2022 and 2021, respectively.

At March 31, 2022, the Company owned approximately 95% of McKesson Europe’s outstanding common shares. The Company’s noncontrolling interest in McKesson Europe will be included in the sale of the E.U. disposal group, as discussed in Financial Note 2, “Held for Sale.” During 2022, 2021, and 2020, the Company allocated a total of $165 million, $156 million, and $178 million of net income to noncontrolling interests, respectively.

Changes in redeemable noncontrolling interests and noncontrolling interests for the years ended March 31, 2022, 2021, and 2020 were as follows:

(In millions)						Noncontrolling Interests						Redeemable Noncontrolling Interests
Balance, March 31, 2019						$	193					$	1,393
Net income attributable to noncontrolling interests						178						42
Other comprehensive income						—						3
Reclassification of recurring compensation to other accrued liabilities						—						(42)
Payments to noncontrolling interests						(154)						—
Other						—						6
Balance, March 31, 2020						217						1,402
Net income attributable to noncontrolling interests						156						43
Other comprehensive loss						—						(79)
Reclassification of recurring compensation to other accrued liabilities						—						(43)
Payments to noncontrolling interests						(177)						—
Exercises of Put Right						—						(49)
Other						—						(3)
Balance, March 31, 2021						196						1,271
Net income attributable to noncontrolling interests						165						8
Other comprehensive income (loss)						(4)						3
Reclassification of recurring compensation to other accrued liabilities						(7)						(8)
Payments to noncontrolling interests						(155)						—
Exercises of Put Right						—						(983)
Reclassification of McKesson Europe redeemable noncontrolling interests						287						(287)
Other						(2)						(4)
Balance, March 31, 2022						$	480					$	—

9. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Diluted loss per common share for the year ended March 31, 2021 was calculated by excluding all dilutive securities from the denominator of the share computation due to their anti-dilutive effects. Approximately nil and 2 million of potentially dilutive securities for 2022 and 2020, respectively, were excluded from the computation of diluted net earnings per common share, as they were anti-dilutive.

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

			Years Ended March 31,
(In millions, except per share amounts)			2022						2021						2020
Income (loss) from continuing operations			$	1,292					$	(4,339)					$	1,126
Net income attributable to noncontrolling interests			(173)						(199)						(220)
Income (loss) from continuing operations attributable to McKesson			1,119						(4,538)						906
Loss from discontinued operations, net of tax			(5)						(1)						(6)
Net income (loss) attributable to McKesson			$	1,114					$	(4,539)					$	900
Weighted-average common shares outstanding:
Basic			152.3						160.6						180.6
Effect of dilutive securities:
Stock options			0.2						—						—
Restricted stock units (1)			1.6						—						1.0
Diluted			154.1						160.6						181.6
Earnings (loss) per common share attributable to McKesson: (2)
Diluted
Continuing operations			$	7.26					$	(28.26)					$	4.99
Discontinued operations			(0.03)						—						(0.04)
Total			$	7.23					$	(28.26)					$	4.95
Basic
Continuing operations			$	7.35					$	(28.26)					$	5.01
Discontinued operations			(0.03)						—						(0.03)
Total			$	7.32					$	(28.26)					$	4.98

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

(2)Certain computations may reflect rounding adjustments.

10. Leases

In the first quarter of 2020, the Company adopted amended guidance for leases using the modified retrospective method. Upon adoption of this amended guidance, the Company recorded $2.2 billion of operating lease liabilities, $2.1 billion of operating lease ROU assets, and a cumulative-effect adjustment of $69 million to opening retained earnings as of April 1, 2019. The adjustment to opening retained earnings included impairment charges of $89 million, net of tax, to the ROU assets primarily related to previously impaired long-lived assets at the retail pharmacies in the Company’s U.K. and Canadian businesses, partially offset by the derecognition of an existing deferred gain on the Company’s sale-leaseback transaction related to its former corporate headquarters building. The Company also elected to adopt the transition package of practical expedients provided within the amended guidance which eliminated the requirements to reassess lease identification, lease classification, and initial direct costs for leases which commenced before April 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated statements of operations and cash flows.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Lessee

Supplemental balance sheet information related to leases was as follows:

			March 31,
(In millions, except lease term and discount rate)			2022						2021
Operating leases (1)
Operating lease right-of-use assets (2)			$	1,548					$	2,100
Current portion of operating lease liabilities			$	297					$	390
Long-term operating lease liabilities			1,366						1,867
Total operating lease liabilities (3)			$	1,663					$	2,257
Finance leases
Property, plant and equipment, net			$	206					$	237
Current portion of long-term debt			$	25					$	22
Long-term debt			185						206
Total finance lease liabilities			$	210					$	228
Weighted-average remaining lease term (Years) (4)
Operating leases			6.9						7.8
Finance leases			8.8						10.1
Weighted-average discount rate (4)
Operating leases			2.47		%				2.53		%
Finance leases			2.50		%				2.71		%

(1)As discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” the Company rationalized its office space, including certain property leases, in North America during 2022. Where the Company ceased using office space, it exited the portion of the facility no longer used and repurposed other office locations which resulted in changes to certain lease agreements. This initiative did not have a material financial impact to the Company’s operating lease ROU assets and liabilities.

(2)Excludes operating lease right-of-use assets of approximately $494 million as of March 31, 2022 related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Assets held for sale” in the Consolidated Balance Sheet as of March 31, 2022. Amortization of these assets ceased upon classification as held for sale.

(3)Excludes current and long-term operating lease liabilities of approximately $83 million and $442 million, respectively, as of March 31, 2022 related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Liabilities held for sale” in the Consolidated Balance Sheet as of March 31, 2022.

(4)Lease terms and discount rates as of March 31, 2022 exclude leases classified as held for sale in the Consolidated Balance Sheet related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.”

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The components of lease cost were as follows:

			Years Ended March 31,
(In millions)			2022						2021						2020
Short-term lease cost			$	43					$	32					$	29
Operating lease cost			431						465						459
Finance lease cost:
Amortization of right-of-use assets			33						23						14
Interest on lease liabilities			5						6						5
Total finance lease cost			38						29						19
Variable lease cost (1)			127						125						125
Sublease income			(41)						(36)						(33)
Total lease cost (2)			$	598					$	615					$	599

(1) These amounts include payments for maintenance, taxes, payments affected by the consumer price index, and other similar metrics and payments contingent on usage.

(2) These amounts were primarily recorded in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations.

Supplemental cash flow information related to leases was as follows:

			Years Ended March 31,
(In millions)			2022						2021						2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	(356)					$	(362)					$	(377)
Operating cash flows from finance leases			—						(4)						(3)
Financing cash flows from finance leases			(31)						(31)						(18)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (1)			$	286					$	321					$	2,378
Finance leases			32						75						166

(1) The amount for the year ended March 31, 2020 includes the transition adjustment of $2.1 billion for operating lease right-of-use assets recorded as of April 1, 2019 upon adoption of the amended leasing guidance included in ASU 2016-02, Leases.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Maturities of lease liabilities as of March 31, 2022 were as follows:

(In millions)			Operating Leases						Finance Leases						Total
2023			$	328					$	29					$	357
2024			310						29						339
2025			268						27						295
2026			223						25						248
2027			180						24						204
Thereafter			506						103						609
Total lease payments (1)			1,815						237						2,052
Less imputed interest			(152)						(27)						(179)
Present value of lease liabilities			$	1,663					$	210					$	1,873

(1)Total lease payments are not reduced by minimum sublease income of $201 million which are due under future noncancellable subleases.

As of March 31, 2022, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $285 million that are not reflected in the table above. These operating leases will commence between 2023 and 2024 with noncancellable lease terms of five to 15 years.

Lessor

The Company leases certain owned equipment, classified as direct financing or sales-type leases, to physician practices. As of March 31, 2022 and 2021, the total lease receivable was $298 million, respectively, with a weighted-average remaining lease term of approximately seven years. Interest income from these leases was not material for the years ended March 31, 2022, 2021, and 2020.

11. Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:

(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Total
Balance, March 31, 2020			$	3,924					$	1,540					$	2,453					$	1,443					$	9,360
Goodwill acquired			—						—						—						5						5
Acquisition accounting, transfers, and other adjustments			—						2						—						—						2
Other changes/disposals			(1)						—						—						—						(1)
Impairment charges			—						—						—						(69)						(69)
Foreign currency translation adjustments, net			40						—						—						156						196
Balance, March 31, 2021			3,963						1,542						2,453						1,535						9,493
Goodwill acquired			—						—						—						5						5
Foreign currency translation adjustments, net			(40)						—						—						(7)						(47)
Balance, March 31, 2022			$	3,923					$	1,542					$	2,453					$	1,533					$	9,451

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Goodwill Impairment Charges

The Company evaluates goodwill for impairment as of October 1 on an annual basis each year and at an interim date if indicators of potential impairment exist. Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit.

The fair value of the reporting units was determined using a combination of an income approach based on a DCF model and a market approach based on appropriate valuation multiples observed for the reporting unit’s guideline public companies. Fair value estimates result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by management as of the measurement date. Any material changes in key assumptions, including failure to improve operations of certain retail pharmacy stores, additional government reimbursement reductions, deterioration in the financial markets, an increase in interest rates or an increase in the cost of equity financing by market participants within the industry, or other unanticipated events and circumstances, may affect such estimates. The discount rates are the weighted-average cost of capital measuring the reporting unit’s cost of debt and equity financing weighted by the percentage of debt and percentage of equity in a company’s target capital. The unsystematic risk premium is an input factor used in calculating the discount rate that specifically addresses uncertainty related to the reporting unit’s future cash flow projections. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company-specific information.

The annual impairment testing performed for 2022, 2021, and 2020 did not indicate any impairment of goodwill.

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

The Company recorded a goodwill impairment charge of $69 million in 2021 as the estimated fair value of the Europe Retail Pharmacy reporting unit was lower than its reassigned carrying value based on changes in the composition of the Europe Retail Pharmacy reporting unit within the International segment. This charge was recorded in “Goodwill impairment charges” in the Consolidated Statements of Operations. At March 31, 2021, the balance of goodwill for the reporting units in Europe was approximately nil and the remaining balance of goodwill in the International segment primarily relates to one of its reporting units in Canada.

Refer to Financial Note 16, “Fair Value Measurements,” for more information on these nonrecurring fair value measurements. As of March 31, 2022 and 2021, accumulated goodwill impairment losses in the Company’s International segment were $0.7 billion and $3.6 billion, respectively. Most of the goodwill impairment for these reporting units was generally not deductible for income tax purposes.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Intangible Assets

Information regarding intangible assets is as follows:

			March 31, 2022																								March 31, 2021
(Dollars in millions)			Weighted- Average Remaining Amortization Period (Years)						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			12						$	2,777					$	(1,691)					$	1,086					$	3,739					$	(2,269)					$	1,470
Service agreements			9						1,085						(573)						512						1,081						(513)						568
Pharmacy licenses			—						—						—						—						497						(244)						253
Trademarks and trade names			12						819						(386)						433						925						(394)						531
Technology			1						128						(116)						12						150						(122)						28
Other			9						187						(171)						16						254						(226)						28
Total									$	4,996					$	(2,937)					$	2,059		(1)			$	6,646					$	(3,768)					$	2,878

(1)Excludes net intangible assets of approximately $384 million related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” This amount was included under the caption “Assets held for sale” in the Consolidated Balance Sheet as of March 31, 2022. Amortization of these assets ceased upon classification as held for sale in the second and third quarters of 2022.

All intangible assets were subject to amortization as of March 31, 2022 and 2021. Amortization expense of intangible assets was $332 million, $422 million, and $462 million for 2022, 2021, and 2020, respectively. Estimated annual amortization expense of intangible assets is as follows: $225 million, $214 million, $208 million, $177 million, and $171 million for 2023 through 2027, and $1.1 billion thereafter.

Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” for more information on intangible asset impairment charges recorded in 2022, 2021, and 2020.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

12. Debt and Financing Activities

Long-term debt consisted of the following:

			March 31,
(In millions)			2022						2021
U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022			$	400					$	400
2.85% Notes due March 15, 2023			360						400
3.80% Notes due March 15, 2024			918						1,100
0.90% Notes due December 3, 2025			500						500
1.30% Notes due August 15, 2026			498						—
7.65% Debentures due March 1, 2027			150						167
3.95% Notes due February 16, 2028			343						600
4.75% Notes due May 30, 2029			196						400
6.00% Notes due March 1, 2041			217						282
4.88% Notes due March 15, 2044			255						411
Foreign currency notes (1) (3)
0.63% Euro Notes due August 17, 2021			—						704
1.50% Euro Notes due November 17, 2025			662						700
1.63% Euro Notes due October 30, 2026			554						587
3.13% Sterling Notes due February 17, 2029			582						627
Lease and other obligations (4)			244						270
Total debt			5,879						7,148
Less: Current portion			799						742
Total long-term debt			$	5,080					$	6,406

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

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

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

(4)Excludes current and long-term debt of approximately $4 million and $11 million, respectively, as of March 31, 2022 related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Liabilities held for sale” in the Consolidated Balance Sheet as of March 31, 2022.

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. At March 31, 2022 and 2021, $5.9 billion and $7.1 billion, respectively, of total debt was outstanding, of which $799 million and $742 million, respectively, was included in “Current portion of long-term debt” in the Company’s Consolidated Balance Sheets.

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

On December 3, 2020, the Company completed a public offering of 0.90% Notes due December 3, 2025 (the “2025 Notes”) in a principal amount of $500 million. Interest on the 2025 Notes is payable semi-annually on June 3rd and December 3rd of each year, commencing on June 3, 2021. Proceeds received from this note issuance, net of discounts and offering expenses, were $496 million. The Company utilized the net proceeds from this note for general corporate purposes.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

On July 17, 2021, the Company redeemed its 0.63% €600 million (or, approximately $709 million) total principal Euro-denominated notes, originally due on August 17, 2021, prior to maturity. The notes were redeemed at par value using cash on hand. On December 1, 2020, the Company redeemed its 4.75% $323 million total principal of notes due on March 1, 2021 prior to maturity. On November 30, 2020, the Company retired its 3.65% $700 million total principal of notes upon maturity. These notes were redeemed using cash on hand and the proceeds of the notes offering discussed above. In 2020, the Company repaid at maturity its €250 million Floating Rate Euro Notes due February 12, 2020.

Tender Offer

On July 23, 2021, the Company completed a cash tender offer for a portion of its existing outstanding (i) 2.85% Notes due 2023, (ii) 3.80% Notes due 2024, (iii) 7.65% Debentures due 2027, (iv) 3.95% Notes due 2028, (v) 4.75% Notes due 2029, (vi) 6.00% Notes due 2041, and (vii) 4.88% Notes due 2044 (collectively referred to herein as the “Tender Offer Notes”). In connection with the tender offer, the Company paid an aggregate consideration of $1.1 billion to redeem $922 million principal amount of the notes at a redemption price equal to 100% of the principal amount and premiums of $182 million, plus accrued and unpaid interest of $14 million. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment. As a result of the redemption, the Company incurred a pre-tax loss on debt extinguishment of $191 million in the year ended March 31, 2022, which included premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred totaling $9 million.

Other Information

Scheduled principal payments of long-term debt are $799 million in 2023, $966 million in 2024, $35 million in 2025, $1.2 billion in 2026, $1.2 billion in 2027, and $1.7 billion thereafter.

Revolving Credit Facilities

In the second quarter of 2020, the Company entered into a Credit Agreement, dated as of September 25, 2019 (the “2020 Credit Facility”), that provides a syndicated $4.0 billion five-year senior unsecured credit facility with a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and Euro. Borrowings under the 2020 Credit Facility bear interest based upon the London Interbank Offered Rate (“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The 2020 Credit Facility matures in September 2024 and had no borrowings during 2022 and 2021 and no amounts outstanding as of March 31, 2022 and 2021.

On March 31, 2021, the Company entered into Amendment No. 2 to the 2020 Credit Facility, which superseded Amendment No. 1, dated as of February 1, 2021. The 2020 Credit Facility, as amended, contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a maximum Total Debt to Consolidated EBITDA ratio, as defined in the amended credit agreement. If the Company does not comply with these covenants, its ability to use the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit Facility may be required. At March 31, 2022, the Company was in compliance with all covenants. The remaining terms and conditions of the 2020 Credit Facility are substantially similar to those previously in place under the $3.5 billion five-year senior unsecured revolving credit facility (the “Global Facility”), which was scheduled to mature in October 2020. The Global Facility was terminated in connection with the execution of the 2020 Credit Facility in September 2019 and had no borrowings during the six months ended September 30, 2019.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company also maintains bilateral credit facilities primarily denominated in Euros with a committed amount of $7 million and an uncommitted amount of $111 million as of March 31, 2022. Borrowings and repayments were not material in 2022 and 2021 and amounts outstanding under these credit lines were not material as of March 31, 2022 and 2021.

Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. During 2022, 2021, and 2020, the Company borrowed $11.2 billion, $6.3 billion, and $21.4 billion, respectively, and repaid $11.2 billion, $6.3 billion, and $21.4 billion, respectively, under the program. At March 31, 2022 and 2021, there were no commercial paper notes outstanding.

13. Variable Interest Entities

The Company evaluates its ownership, contractual, and other interests in entities to determine if they are VIEs if it has a variable interest in those entities, and the nature and extent of those interests. These evaluations are highly complex and involve management judgment and the use of estimates and assumptions based on available historical information, among other factors. Based on its evaluations, if the Company determines it is the primary beneficiary of such VIEs, it consolidates such entities into its financial statements.

Consolidated Variable Interest Entities

The Company consolidates a VIE when it has the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE and, as a result, is considered the primary beneficiary of the VIE. It consolidates certain single-lessee leasing entities where it, as the lessee, has the majority risk of the leased assets due to its minimum lease payment obligations to these leasing entities. As a result of absorbing this risk, the leases provide the Company with the power to direct the operations of the leased properties and the obligation to absorb losses or the right to receive benefits of the entity. Consolidated VIEs do not have a material impact on the Company’s Consolidated Statements of Operations and Cash Flows. Total assets and liabilities included in its Consolidated Balance Sheets for these VIEs were $660 million and $65 million, respectively, at March 31, 2022, and $662 million and $74 million, respectively, at March 31, 2021.

Investments in Unconsolidated Variable Interest Entities

The Company is involved with VIEs which it does not consolidate because it does not have the power to direct the activities that most significantly impact their economic performance and thus is not considered the primary beneficiary of the entities. Its relationships include equity method investments and lending, leasing, contractual, or other relationships with the VIEs. The Company’s most significant VIE relationships are with oncology and other specialty practices. Under these practice arrangements, the Company generally owns or leases all of the real estate and equipment used by the practices and manages the practices’ administrative functions. Prior to the divestment of the Austrian businesses in 2022, the Company had relationships with certain pharmacies in Europe with whom it provided financing, had equity ownership, and/or had a supply agreement whereby it supplied the vast majority of the pharmacies’ purchases. The Company’s maximum exposure to loss (regardless of probability) as a result of all unconsolidated VIEs was $1.4 billion and $1.5 billion at March 31, 2022 and 2021, respectively, which primarily represents the value of intangible assets related to service agreements, equity investments, and lease and loan receivables. This amount excludes the customer loan guarantees discussed in Financial Note 17, “Financial Guarantees and Warranties.” The Company believes there is no material loss exposure on these assets or from these relationships.

14. Pension Benefits

The Company maintains a number of qualified and nonqualified defined benefit pension plans and defined contribution plans for eligible employees.

Defined Benefit Pension Plans

The Company has an unfunded nonqualified supplemental defined benefit plan for certain U.S. executives, as well as benefit pension plans for eligible employees outside the U.S.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On May 23, 2018, the Company’s Board of Directors approved the termination of its frozen U.S. defined benefit pension plan (“Plan”). During the first quarter of 2020, the Company offered the option of receiving a lump sum payment to certain participants with vested qualified Plan benefits in lieu of receiving monthly annuity payments. Approximately 1,300 participants elected to receive the settlement, and lump sum payments of approximately $49 million were made from Plan assets to these participants in June 2019. The benefit obligation settled approximated payments to Plan participants and a settlement charge of $17 million was recorded during the first quarter of 2020. During the second quarter of 2020, the Company transferred the remainder of the Plan’s pension obligation to a third-party insurance provider by purchasing annuity contracts for approximately $280 million which was fully funded directly by Plan assets. The third-party insurance provider assumed the obligation to pay future pension benefits and provide administrative services on November 1, 2019 and a pre-tax settlement charge of $105 million was recorded during the second quarter of 2020. Settlement charges were included within “Other income, net,” in the Consolidated Statement of Operations for the year ended March 31, 2020. As of March 31, 2020, this defined benefit pension plan had an accumulated comprehensive loss of approximately nil.

The Company’s non-U.S. defined benefit pension plans cover eligible employees located predominantly in Norway, the United Kingdom, Germany, and Canada. Benefits for these plans are based primarily on each employee’s final salary, with annual adjustments for inflation. The obligations in Norway are largely related to the state-regulated pension plan which is managed by the Norwegian Public Service Pension Fund (“SPK”). According to the terms of the SPK, the plan assets of state regulated plans in Norway must correspond very closely to the pension obligation calculated using the principles codified in Norwegian law. In the U.K., the Company has subsidiaries that participate in a joint pension plan. The pension obligation in Germany is unfunded with the exception of the contractual trust arrangement used to fund pensions of McKesson Europe’s Management Board.

During the fourth quarter of 2022, the Company derecognized $43 million of pension liabilities included in liabilities held for sale and $11 million of accumulated other comprehensive loss related to the sale of its Austrian business. During the third quarter of 2021, the Company derecognized $187 million of pension liabilities included in liabilities held for sale and $33 million of accumulated other comprehensive loss related to its German pharmaceutical wholesale business contributed to a joint venture, as discussed in more detail in Financial Note 2, “Held for Sale.”

Defined benefit plan assets and obligations are measured as of the Company’s fiscal year-end. The net periodic expense for the Company’s pension plans is as follows:

			U.S. Plans																		Non-U.S. Plans
			Years Ended March 31,																		Years Ended March 31,
(In millions)			2022						2021						2020						2022						2021						2020
Service cost - benefits earned during the year			$	—					$	—					$	—					$	11					$	15					$	16
Interest cost on projected benefit obligation			—						—						6						14						19						19
Expected return on assets			—						—						(4)						(19)						(20)						(22)
Amortization of unrecognized actuarial loss and prior service costs			—						—						2						3						5						6
Curtailment/settlement loss (gain)			—						—						127						(5)						—						—
Net periodic pension expense			$	—					$	—					$	131					$	4					$	19					$	19

The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized straight-line over the average remaining future service period of active employees.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Information regarding the changes in benefit obligations and plan assets for the Company’s pension plans is as follows:

			U.S. Plans												Non-U.S. Plans
			Years Ended March 31,												Years Ended March 31,
(In millions)			2022						2021						2022						2021
Change in benefit obligations
Benefit obligation at beginning of period (1)			$	9					$	10					$	875					$	896
Service cost			—						—						11						15
Interest cost			—						—						14						19
Actuarial loss (gain)			—						—						(55)						89
Benefits paid			(1)						(1)						(35)						(34)
Curtailment/settlement			—						—						(32)						—
Expenses paid			—						—						(1)						—
Divestiture (2)			—						—						(43)						(187)
Foreign exchange impact and other			—						—						(33)						77
Benefit obligation at end of period (1)			$	8					$	9					$	701					$	875
Change in plan assets
Fair value of plan assets at beginning of period			$	—					$	—					$	735					$	594
Actual return on plan assets			—						—						(4)						87
Employer and participant contributions			1						1						43						27
Benefits paid			(1)						(1)						(35)						(34)
Expenses paid			—						—						(1)						—
Settlements			—						—						(24)						—
Foreign exchange impact and other			—						—						(33)						61
Fair value of plan assets at end of period			$	—					$	—					$	681					$	735
Funded status at end of period			$	(8)					$	(9)					$	(20)					$	(140)
Amounts recognized on the balance sheet
Current assets (3)			$	—					$	—					$	49					$	—
Long-term assets			—						—						40						54
Current liabilities (3)			(1)						(1)						(90)						(9)
Long-term liabilities			(7)						(8)						(19)						(185)
Total			$	(8)					$	(9)					$	(20)					$	(140)

(1)The benefit obligation is the projected benefit obligation.

(2)The divestiture relates to the sale of the Company’s Austrian business in 2022 and to the contribution of the Company’s German pharmaceutical wholesale business to a joint venture in 2021 as discussed in more detail in Financial Note 2, “Held for Sale.”

(3)Current assets at March 31, 2022 include $49 million reclassified from long-term assets to assets held for sale as part of the Company’s U.K. disposal group. Current liabilities at March 31, 2022 include $85 million reclassified from long-term liabilities to liabilities held for sale as part of the Company’s E.U. disposal group. Refer to Financial Note 2, “Held for Sale” for additional information.

The actuarial gain of $55 million in 2022 was primarily attributable to:

• Discount rates ($69 million gain): The weighted average discount rate for Non-U.S. plans increased to 2.67% as of March 31, 2022 from 1.89% as of March 31, 2021.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

• Demographic and assumption changes ($14 million loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as inflation assumption, compensation changes, mortality, and other changes including losses related to the divestitures in 2022.

The actuarial loss of $89 million in 2021 was primarily attributable to:

• Discount rates ($32 million loss): The weighted average discount rate for Non-U.S. plans decreased to 1.89% as of March 31, 2021 from 2.03% as of March 31, 2020.

*•*Demographic and assumption changes ($57 million loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as inflation assumption, compensation changes, mortality, and other changes including losses related to the divestiture in 2021.

The following table provides the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for all the Company’s pension plans, including accumulated benefit obligation in excess of plan assets:

			U.S. Plans												Non-U.S. Plans
			March 31,												March 31,
(In millions)			2022						2021						2022						2021
Projected benefit obligation			$	8					$	9					$	701					$	875
Accumulated benefit obligation			8						9						689						847
Fair value of plan assets			—						—						681						735

Amounts recognized in accumulated other comprehensive loss consist of:

			U.S. Plans												Non-U.S. Plans
			March 31,												March 31,
(In millions)			2022						2021						2022						2021
Net actuarial loss			$	1					$	1					$	70					$	120
Prior service credit			—						—						(2)						(2)
Total			$	1					$	1					$	68					$	118

Other changes in accumulated other comprehensive income were as follows:

			U.S. Plans																		Non-U.S. Plans
			Years Ended March 31,																		Years Ended March 31,
(In millions)			2022						2021						2020						2022						2021						2020
Net actuarial loss (gain)			$	—					$	—					$	(3)					$	(32)					$	(9)					$	(24)
Amortization of:
Net actuarial loss			—						—						(129)						(14)						(35)						(6)
Prior service credit (cost)			—						—						—						1						1						—
Foreign exchange impact and other			—						—						—						(5)						15						(6)
Total recognized in other comprehensive loss (income)			$	—					$	—					$	(132)					$	(50)					$	(28)					$	(36)

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

In 2022, the Company recognized $11 million in actuarial losses for pension plans to stockholders’ equity as a result of the sale of its Austrian business. In 2021, the Company recognized $33 million in actuarial losses for pension plans to stockholders’ equity as a result of the contribution of its German pharmaceutical wholesale business to a joint venture. Refer to Financial Note 2, “Held for Sale,” for more information. The Company recognized $127 million in actuarial losses for the pension plans to stockholders’ equity in 2020 as a result of the termination of the U.S. defined benefit pension plan and the settlement from the executive benefit retirement plan for a retired executive.

Projected benefit obligations related to the Company’s unfunded U.S. plans were $8 million and $9 million at March 31, 2022 and 2021, respectively. Pension obligations for its unfunded plans are based on the recommendations of independent actuaries. Projected benefit obligations relating to the Company’s unfunded non-U.S. plans were $101 million and $162 million at March 31, 2022 and 2021, respectively. Funding obligations for its non-U.S. plans vary based on the laws of each non-U.S. jurisdiction.

Expected benefit payments for the Company’s pension plans are as follows: $34 million, $33 million, $33 million, $34 million, and $35 million for 2023 to 2027, respectively, and $186 million for 2028 through 2032. Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include estimated future employee service. Expected contributions to be made for the Company’s pension plans are $13 million for 2023.

Weighted-average assumptions used to estimate the net periodic pension expense and the actuarial present value of benefit obligations were as follows:

			U.S. Plans																		Non-U.S. Plans
			Years Ended March 31,																		Years Ended March 31,
			2022						2021						2020						2022						2021						2020
Net periodic pension expense
Discount rates			2.35%						3.08%						3.66%						1.89		%				1.89		%				2.03		%
Rate of increase in compensation			N/A (1)						N/A (1)						N/A (1)						3.20						3.20						2.93
Expected long-term rate of return on plan assets			N/A						N/A						4.00						2.56						2.56						3.01
Benefit obligation
Discount rates			3.35%						2.35%						3.08%						2.67		%				1.89		%				2.03		%
Rate of increase in compensation			N/A (1)						N/A (1)						N/A (1)						3.67						3.20						2.93

(1) This assumption is no longer needed in actuarial valuations as U.S. plans are frozen or have fixed benefits for the remaining active participants.

The Company’s defined benefit pension plan liabilities are valued using a discount rate based on a yield curve developed from a portfolio of high quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments of its plans. For March 31, 2022, the Company’s U.S. defined benefit liabilities are valued using a weighted-average discount rate of 3.35%, which represents an increase of 100 basis points from its 2021 weighted-average discount rate of 2.35%. The Company’s non-U.S. defined benefit pension plan liabilities are valued using a weighted-average discount rate of 2.67%, which represents an increase of 78 basis points from its 2021 weighted-average discount rate of 1.89%.

Plan Assets

Investment Strategy: For non-U.S. plan assets, the investment strategies are subject to local regulations and the asset/liability profiles of the plans in each individual country. Plan assets of the non-U.S. plans are broadly invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the plans. Plan assets are primarily invested in high-quality corporate and government bond funds and equity securities. Assets are properly diversified to avoid excessive reliance on any particular asset, issuer, or group of undertakings so as to avoid accumulations of risk in the portfolio as a whole.

The Company develops the expected long-term rate of return assumption based on the projected performance of the asset classes in which plan assets are invested. The target asset allocation was determined based on the liability and risk tolerance characteristics of the plans and at times may be adjusted to achieve overall investment objectives.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Fair Value Measurements: The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on unadjusted quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. The following tables represent the Company’s pension plan assets as of March 31, 2022 and 2021, using the fair value hierarchy by asset class:

			Non-U.S. Plans
			March 31, 2022																								March 31, 2021
(In millions)			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Cash and cash equivalents			$	15					$	—					$	—					$	15					$	5					$	—					$	—					$	5
Equity securities:
Equity commingled funds			—						38						—						38						64						117						—						181
Fixed income securities:
Government securities			—						6						—						6						5						144						—						149
Corporate bonds			—						11						—						11						6						30						—						36
Fixed income commingled funds			336						25						—						361						51						222						1						274
Other:
Annuity contracts			—						—						173						173						—						—						—						—
Real estate funds and Other			31						4						2						37						31						4						3						38
Total			$	382					$	84					$	175					$	641					$	162					$	517					$	4					$	683
Assets held at NAV practical expedient (1):
Other																					40																								52
Total plan assets																					$	681																							$	735

(1) Equity commingled funds, fixed income commingled funds, real estate funds, and other investments for which fair value is measured using the NAV per share as a practical expedient are not leveled within the fair value hierarchy and are included as a reconciling item to total investments.

Cash and cash equivalents - Cash and cash equivalents include short-term investment funds that maintain daily liquidity and aim to have constant unit values of $1.00. The funds invest in short-term fixed income securities and other securities with debt-like characteristics emphasizing short-term maturities and high credit quality. Directly held cash and cash equivalents are classified as Level 1 investments. Cash and cash equivalents include money market funds and other commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 1 investments.

Equity commingled funds - Some equity investments are held in commingled funds, which have daily net asset values derived from quoted prices for the underlying securities in active markets; these are classified as Level 1 or Level 2 investments.

Fixed income securities - Government securities consist of bonds and debentures issued by central governments or federal agencies; corporate bonds consist of bonds and debentures issued by corporations. Inputs to the valuation methodology include quoted prices for similar assets in active markets, and inputs that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Multiple prices and price types are obtained from pricing vendors whenever possible, enabling cross-provider price validations. Fixed income securities are generally classified as Level 1 or Level 2 investments.

Fixed income commingled funds - Some fixed income investments are held in exchange traded or commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 1, 2, or 3 investments.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Annuity contracts - The value of the annuity contracts is reported by the Trustee and is based on a valuation of the remaining contracted cash flow of the contract. Inputs in the valuation include discounted future cash flows; these are classified as Level 3 investments.

Real estate funds - The value of the real estate funds is reported by the fund manager and is based on a valuation of the underlying properties. Inputs used in the valuation include items such as cost, discounted future cash flows, independent appraisals, and market based comparable data. The real estate funds are classified as Level 1, 2, or 3 investments.

Other - At March 31, 2022 and 2021, this includes $35 million and $36 million, respectively, of plan asset value relating to the SPK. In principle, the SPK is organized as a pay-as-you-go system guaranteed by the Norwegian government as it holds no Company-owned assets to back the pension liabilities. The Company pays a pension premium used to fund the plan, which is paid directly to the Norwegian government who establishes an account for each participating employer to keep track of the financial status of the plan, including managing the contributions and the payments. Further, the investment return credited to this account is determined annually by the SPK based on the performance of long-term government bonds.

The following table presents the changes in the Level 3 plan assets measured on a recurring basis for the year ended March 31, 2022:

(In millions)			Level 3
Balance as of March 31, 2021			$	4
Purchases			196
Return on assets			(25)
Balance as of March 31, 2022			$	175

The activity attributable to Level 3 plan assets was not material for the year ended March 31, 2021.

Multiemployer Plans

The Company contributes to a number of multiemployer pension plans under the terms of collective-bargaining agreements that cover union-represented employees in the U.S. In 2017, it also contributed to the Pensjonsordningen for Apoteketaten (“POA”), a mandatory multiemployer pension scheme for its pharmacy employees in Norway, managed by the association of Norwegian Pharmacies.

The risks of participating in these multiemployer plans are different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Actions taken by other participating employers may lead to adverse changes in the financial condition of a multiemployer benefit plan and the Company’s withdrawal liability and contributions may increase.

Contributions and amounts accrued for U.S. plans were not material for the years ended March 31, 2022, 2021, and 2020. Contributions to the POA for non-U.S. plans exceeding 5% of total plan contributions were $20 million, $22 million, and $17 million in 2022, 2021, and 2020, respectively. Based on actuarial calculations, the Company estimates the funded status for its non-U.S. Plans to be approximately 88% as of March 31, 2022. No amounts were accrued for liability associated with the POA as the Company has no intention to withdraw from the plan.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Defined Contribution Plans

The Company has a contributory retirement savings plan (“RSP”) for U.S. eligible employees. Eligible employees may contribute to the RSP up to 75% of their eligible compensation on a pre-tax or post-tax basis not to exceed IRS limits. The Company makes matching contributions in an amount equal to 100% of the employee’s first 3% of pay contributed and 50% for the next 2% of pay contributed. The Company also may make an additional annual matching contribution for each plan year to enable participants to receive a full match based on their annual contribution. The Company also contributed to non-U.S. plans that are available in certain countries. Contribution expenses for the RSP and non-U.S. plans were $116 million for the year ended March 31, 2022 and $102 million for each of the years ended March 31, 2021 and 2020.

Postretirement Benefits

The Company maintains a number of postretirement benefit plans, primarily consisting of healthcare and life insurance (“welfare”) benefits, for certain eligible U.S. employees. Eligible employees consist of those who retired before March 31, 1999 and those who retired after March 31, 1999, but were an active employee as of that date, after meeting other age-related criteria. It also provides postretirement benefits for certain U.S. executives. Defined benefit plan obligations are measured as of the Company’s fiscal year-end. The net periodic (credit) expense for the Company’s postretirement welfare benefits was not material for the years ended March 31, 2022, 2021, and 2020. The benefit obligation at March 31, 2022 and 2021 was $56 million and $64 million, respectively.

15. Hedging Activities

In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. At times, the Company limits these risks through the use of derivatives such as cross-currency swaps, foreign currency forward contracts, and interest rate swaps. In accordance with the Company’s policy, derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes.

Foreign currency exchange risk

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

Non-Derivative Instruments Designated as Hedges

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

On September 30, 2019, the Company de-designated its £450 million British pound sterling-denominated notes prospectively from net investment hedges as the hedging relationship ceased to be effective.

Foreign currency gains or losses from net investment hedges recorded within Other comprehensive income were gains of $73 million in 2022, losses of $118 million in 2021, and gains of $39 million in 2020. Ineffectiveness on the Company’s non-derivative net investment hedges during 2020 resulted in gains of $34 million which were recorded in earnings in “Other income, net” in the Consolidated Statement of Operations. There was no ineffectiveness in the Company’s net investment hedges for the years ended March 31, 2022 and 2021.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Derivatives Designated as Hedges

At March 31, 2022 and 2021, the Company had cross-currency swaps designated as net investment hedges with a total gross notional amount of $500 million Canadian dollars. Under the terms of the cross-currency swap contracts, the Company agrees with third parties to exchange fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon notional amounts. These swaps are utilized to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in “Accumulated other comprehensive loss” in the Consolidated Statements of Stockholders’ Equity (Deficit) where they offset foreign currency translation gains and losses recorded on the Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings. There was no ineffectiveness in the Company’s net investment hedges for the years ended March 31, 2022, 2021, and 2020. The cross-currency swaps will mature in November 2024.

In 2020, the Company terminated its cross-currency swaps designated as net investment hedges with a total gross notional amount of £932 million British pound sterling swaps. The termination was due to ineffectiveness in its British pound sterling hedging program that arose due to 2019 impairments of goodwill and certain long-lived assets in the U.K. businesses. Proceeds from the termination of these swaps totaled $84 million and resulted in a settlement gain of $34 million in 2020. This gain was recorded in earnings in “Other income, net” in the Consolidated Statements of Operations.

Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in Other comprehensive income were losses of $4 million and $119 million in 2022 and 2021, respectively, and gains of $76 million in 2020. There was no ineffectiveness in the Company’s hedges for the years ended March 31, 2022, 2021 and 2020.

On September 30, 2019, the Company entered into a number of cross-currency swaps designated as fair value hedges with total notional amounts of £450 million British pound sterling. Under the terms of the cross-currency swap contracts, the Company agreed with third parties to exchange fixed interest payments in British pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread. These swaps are utilized to hedge the changes in the fair value of the underlying £450 million British pound sterling notes resulting from changes in benchmark interest rates and foreign exchange rates. The changes in the fair value of these derivatives, which are designated as fair value hedges, and the offsetting changes in the fair value of the hedged notes are recorded in earnings. Gains from these fair value hedges recorded in earnings were largely offset by the losses recorded in earnings related to these notes. The swaps will mature in February 2023.

From time to time, the Company also enters into cross-currency swaps to hedge intercompany loans denominated in non-functional currencies. For cross-currency swap transactions, the Company agrees with third parties to exchange fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon notional amounts. These cross-currency swaps are designed to reduce the income statement effects arising from fluctuations in foreign exchange rates and have been designated as cash flow hedges. At March 31, 2022 and 2021, the Company had cross-currency swaps with total gross notional amounts of approximately $1.3 billion and $2.6 billion, respectively, which are designated as cash flow hedges. These swaps will mature between July 2022 and January 2024.

For forward contracts and cross-currency swaps that are designated as cash flow hedges, the effective portion of changes in the fair value of the hedges is recorded in Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On April 27, 2020, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with combined notional amounts of $500 million and €600 million, to hedge the variability of future benchmark interest rates on planned bond issuances. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $500 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR and to pay fixed interest payments for floating interest payments in Euros based on six-month Euro Interbank Offered Rate (“EURIBOR”) for the €600 million swaps. The $500 million swaps were terminated upon the issuance of the 2025 Notes in November 2020. The settlement loss on the swaps was not material and will be amortized on a straight-line basis as interest expense over the five-year life of the 2025 Notes. The €600 million swaps were terminated in the second quarter of 2022 and the loss on termination of the swaps recorded in interest expense was not material for the year ended March 31, 2022. Refer to Financial Note 12, “Debt and Financing Activities,” for more information.

During 2022, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with a combined notional amount of $500 million, to hedge the variability of future benchmark interest rates on a planned bond issuance. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $500 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR.

Gains or losses from cash flow hedges recorded in Other comprehensive income were gains of $21 million in 2022, losses of $42 million in 2021, and gains of $98 million in 2020. Gains or losses reclassified from Accumulated other comprehensive income and recorded in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations were not material in 2022, 2021, and 2020. There was no ineffectiveness in the Company’s cash flow hedges for the years ended March 31, 2022, 2021, and 2020.

Derivatives Not Designated as Hedges

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

From time to time, the Company enters into forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At March 31, 2022 and 2021, the total gross notional amounts of these contracts were nil and $39 million, respectively. Changes in the fair values for contracts not designated as hedges are recorded directly into earnings in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. Changes in the fair values were not material in 2022, 2021, and 2020. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

In 2020, the Company also entered into a number of forward contracts and swaps to offset a portion of the earnings impacts from the ineffectiveness of the non-derivative net investment hedges discussed above. These contracts matured through January 2020 and none of these contracts were designated for hedge accounting. In December 2019, the Company entered into a series of forward contracts with a total notional amount of €250 million to offset the earnings impact from its Euro-denominated notes. These contracts and the notes against which they are offsetting matured in February 2020 and were not designated for hedge accounting. Changes in the fair value for contracts not designated as hedges are recorded directly in earnings. In 2020, losses of $44 million were recorded in earnings in “Other income, net” in the Consolidated Statements of Operations, which offset the ineffectiveness on the Company’s non-derivative net investment hedges noted above.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

			Balance Sheet Caption			March 31, 2022																		March 31, 2021
			Fair Value of Derivative												U.S. Dollar Notional						Fair Value of Derivative												U.S. Dollar Notional
(In millions)			Asset						Liability									Asset						Liability
Derivatives designated for hedge accounting
Cross-currency swaps (current)			Prepaid expenses and other/Other accrued liabilities			$	30					$	39					$	1,537					$	4					$	47					$	826
Cross-currency swaps (non-current)			Other non-current assets/liabilities			—						36						679						72						92						2,663
Forward starting interest rate swaps (current)			Other accrued liabilities			31						—						500						—						7						704
Total						$	61					$	75											$	76					$	146
Derivatives not designated for hedge accounting
Foreign exchange contracts (current)			Prepaid expenses and other			$	—					$	—					$	—					$	—					$	—					$	29
Foreign exchange contracts (current)			Other accrued liabilities			—						—						—						—						1						10
Total						$	—					$	—											$	—					$	1

Refer to Financial Note 16, “Fair Value Measurements,” for more information on these recurring fair value measurements.

16. Fair Value Measurements

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

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

Level 2 - significant other observable market-based inputs.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Fair values of the Company’s interest rate swaps and foreign currency forward contracts were determined using observable inputs from available market information, including quoted interest rates, foreign currency exchange rates, and other observable inputs from available market information. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note 15, “Hedging Activities,” for fair value and other information on the Company’s derivatives including interest rate swaps, forward foreign currency contracts, and cross-currency swaps.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry and which had carrying values of $346 million and $269 million at March 31, 2022 and 2021, respectively. These investments primarily consist of equity securities without readily determinable fair values and are included in “Other non-current assets” in the Consolidated Balance Sheets. During 2022 and 2021, certain of the Company’s investments in equity securities without readily determinable fair values experienced transactions which resulted in changes in the observable price of those securities. Additionally, in 2021, certain of the Company’s investments in equity securities were converted into shares of public common stock through initial public offerings and an acquisition. The Company exited most of its investments in publicly traded shares in the fourth quarter of 2021. Net gains related to the Company’s investments in these equity securities were approximately $98 million and $133 million, respectively, for the years ended March 31, 2022 and 2021. These net gains were recorded in “Other income, net” in the Consolidated Statements of Operations. The carrying value of publicly traded investments was determined using quoted prices for identical investments in active markets and are considered to be Level 1 inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company’s assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges, including long-lived assets associated with the Company’s restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net.”

At March 31, 2022, the assets and liabilities associated with the E.U. disposal group and U.K. disposal group classified as held for sale were measured at the lower of carrying value or fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale." Additionally, at March 31, 2022, assets measured at fair value on a nonrecurring basis included certain long-lived assets within the International segment related to the Company’s operations in Denmark and its retail pharmacy businesses in Canada, as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net.”

At March 31, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets of the Company’s International segment and its Europe Retail Pharmacy reporting unit within the International segment. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net” and Financial Note 11, “Goodwill and Intangible Assets, Net,” for more information.

The aforementioned investments in equity securities of U.S. growth stage companies include the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. These inputs are considered Level 2 under the fair value measurements and disclosure guidance and may not be representative of actual values that could have been realized or that will be realized in the future.

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

Other Fair Value Disclosures

At March 31, 2022 and 2021, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.

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

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

Goodwill

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

Refer to Financial Note 11, “Goodwill and Intangible Assets, Net,” for more information regarding goodwill impairment charges recorded for certain reporting units during 2021.

Long-lived Assets

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

The Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis when events occur that indicate an asset group may not be recoverable. If the carrying amount of an asset group is not recoverable, an impairment charge is recorded to reduce the carrying amount by the excess over its fair value. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net” under the heading “Long-Lived Asset Impairments” for more information*.*

17. Financial Guarantees and Warranties

Financial Guarantees

The Company has agreements with certain of its customers’ financial institutions, primarily in its International segment, under which it has guaranteed the repurchase of its customers’ inventory or its customers’ debt in the event these customers are unable to meet their obligations to those financial institutions. For the Company’s inventory repurchase agreements, among other requirements, inventories must be in a resalable condition and any repurchase would be at a discount. The inventory repurchase agreements mostly relate to certain Canadian customers and generally range from one to two years. Customers’ debt guarantees generally range from one to 10 years and are primarily provided to facilitate financing for certain customers. The majority of the Company’s customers’ debt guarantees are secured by certain assets of the customer. At March 31, 2022, the maximum amounts of inventory repurchase guarantees and customers’ debt guarantees were $367 million and $84 million, respectively, of which the Company has not accrued any material amounts. The expirations of these financial guarantees are as follows: $309 million, $45 million, $6 million, $15 million, and $12 million from 2023 through 2027, respectively, and $64 million thereafter.

At March 31, 2022, the Company’s banks and insurance companies have issued $214 million of standby letters of credit and surety bonds, which were issued on the Company’s behalf primarily related to its customer contracts and in order to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, pension obligations in Europe, and its workers’ compensation and automotive liability programs.

The Company’s software license agreements generally include certain provisions for indemnifying customers against liabilities if its software products infringe a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnification agreements and has not accrued any liabilities related to such obligations.

In conjunction with certain transactions, primarily divestitures, the Company may provide routine indemnification agreements (such as retention of previously existing environmental, tax, and employee liabilities) whose terms vary in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, the Company has historically not made material payments as a result of these indemnification provisions.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Warranties

In the normal course of business, the Company provides certain warranties and indemnification protection for its products and services. For example, the Company provides warranties that the pharmaceutical and medical-surgical products it distributes are in compliance with the U.S. Food, Drug, and Cosmetic Act and other applicable laws and regulations. It has received the same warranties from its suppliers, which customarily are the manufacturers of the products. In addition, the Company has indemnity obligations to its customers for these products, which have also been provided from its suppliers, either through express agreement or by operation of law. Accrued warranty costs were not material to the Consolidated Balance Sheets.

18. Commitments and Contingent Liabilities

In addition to commitments and obligations incurred in the ordinary course of business, the Company is subject to a variety of claims and legal proceedings, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations, and other matters. The Company and its affiliates are parties to the legal claims and proceedings described below. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

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

I. Litigation and Claims Involving Distribution of Controlled Substances

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

On July 21, 2021, the Company and the two other national pharmaceutical distributors (collectively “Distributors”) announced that they had negotiated a comprehensive proposed settlement agreement which, if all conditions were satisfied, would result in the settlement of a substantial majority of opioid lawsuits filed by state and local governmental entities. On February 25, 2022, the Distributors determined that there was sufficient State and subdivision participation to proceed with an agreement ("Settlement") to settle a substantial majority of opioids-related lawsuits filed against the Distributors by U.S. states, territories, and local governmental entities. As previously disclosed, 46 of 49 eligible states and their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”), have agreed to join the Settlement. To date, over 98% of eligible political subdivisions that have brought opioid-related suits against the Company, as calculated by population under the agreement, have agreed to participate in the settlement or have had their claims addressed by state legislation.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Settlement became effective on April 2, 2022. If all conditions to the Settlement are satisfied, including the receipt of approval by relevant courts of consent decrees to dismiss the lawsuits, the Distributors would pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Under the Settlement, a minimum of 85% of the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Settlement provides that the Distributors do not admit liability or wrongdoing and do not waive any defenses.

Before the effective date of the Settlement, the Company entered into separate settlement agreements with the states of New York, Ohio, Rhode Island, Texas, and Florida. These states intended to participate in the Settlement when it was finalized, and these agreements provided that each state and its participating subdivisions would receive a settlement consistent with their allocation under the comprehensive Settlement framework, as well as, in some cases, certain attorneys’ fees and costs. Now that the Settlement has become effective, these separate settlement agreements have become part of that broader agreement.

Three eligible states, Alabama, Oklahoma, and Washington, did not join the Settlement.

With respect to the claims of the Alabama attorney general, the Company has negotiated an agreement in principle under which the Company will pay $141 million in ten equal annual installments and an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state of Alabama and its subdivisions. On May 3, 2022, the Distributors announced an agreement with the attorney general of Washington to settle the claims of the state of Washington and its subdivisions. Under that agreement, Washington and its subdivisions would be paid up to $518 million, of which the Company’s portion would be 38.1% (or approximately $197 million), consistent with Washington’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. The claims of the Oklahoma attorney general are pending in the District Court of Bryan County, Oklahoma (Case No. CJ-2020-84, 85, and 86), and trial is scheduled to begin in January 2023. The Company’s loss contingency accruals for these three states and their subdivisions reflect the amounts of these agreements in principle or, where there is no agreement in principle, amounts equivalent to what that state and its subdivisions would have been allocated under the framework of the Settlement.

The Company previously settled with the state of West Virginia, and West Virginia and its subdivisions were not eligible to participate in the comprehensive Settlement. Claims of various West Virginia subdivisions remain pending in both state and federal courts. Trial in the case of Cabell County and City of Huntington occurred in the U.S. District Court for the Southern District of West Virginia and concluded on July 28, 2021. The outcome of that trial is pending. The claims of certain other West Virginia subdivisions are pending in the federal Multi-district Litigation and before the state Mass Litigation Panel. On September 30, 2021, the Mass Litigation Panel issued an order scheduling a liability-only trial on the public nuisance claims of certain political subdivisions against the Distributors for July 5, 2022. The Company’s loss contingency accruals for the West Virginia subdivisions are reflected in the estimated liability for the opioid-related claims as of March 31, 2022.

With respect to the claims of Native American tribes, on September 28, 2021, the Company announced that the Distributors reached an agreement with the Cherokee Nation to pay approximately $75 million over 6.5 years to resolve opioid-related claims, of which the Company’s portion would be 38.1% (or, approximately $29 million). The Company has also negotiated a broad resolution of opioid-related claims brought by Native American tribes. Under the proposed agreement, which has been endorsed by the leadership committee of counsel representing the tribes, the Distributors would pay the Native American tribes other than the Cherokee Nation approximately $440 million over 6 years, of which the Company’s portion would be 38.1% (or, approximately $167 million). This broad resolution is contingent on the participation of a substantial majority of the Native American tribes that have brought opioid-related claims against the Distributors. Under these agreements, a minimum of 85% of the settlement payments must be used by the Native American tribes to remediate the opioid epidemic. The Company’s loss-contingency accruals for the Native American tribes reflect these amounts and are reflected in the estimated liability for the opioid-related claims as of March 31, 2022.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

The Company has paid $157 million in payments to date associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes.

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

(In millions)			March 31, 2022						March 31, 2021
Current litigation liabilities (1) (2)			$	1,046					$	—
Long-term litigation liabilities			7,220						8,067
Total litigation liabilities			$	8,266					$	8,067

(1)This amount, recorded in “Other accrued liabilities” in the Consolidated Balance Sheet, is the amount estimated to be paid prior to March 31, 2023.

(2)In light of the uncertainty of the timing of amounts that would be paid with respect to the charge, the charge was recorded in “Long-term litigation liabilities” in our Consolidated Balance Sheet as of March 31, 2021.

Consistent with the terms of the Settlement, the Company placed approximately $354 million into escrow on September 30, 2021. During the second half of 2022, the Company placed an additional net $41 million into escrow to reflect the participation of additional states, and as part of a separate agreement in principle with the Alabama attorney general. Those escrow amounts were presented as restricted cash within “Prepaid expenses and other” in our Consolidated Balance Sheet as of March 31, 2022. These amounts excluded the proportionate allocation under the Settlement for each non-participating state. The Settlement created a binding obligation to release the funds from escrow upon entry of consent judgments and establishment of a settlement administrator.

Although the vast majority of opioid claims have been brought by governmental entities in the U.S., the Company is also a defendant in cases brought in the U.S. by private plaintiffs, such as hospitals, health and welfare funds, third-party payors, and individuals, as well as four cases brought in Canada (three by governmental or tribal entities and one by an individual). These claims, and those of private entities generally, are not included in the Settlement or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense. Trial is scheduled for July 18, 2022 in one such case brought by a group of individual plaintiffs in Glynn County, Georgia Superior Court. These plaintiffs seek to recover for damages allegedly arising from their family members’ abuse of prescription opioids. Poppell v. Cardinal Health, Inc. et al., CE19-00472. The Company has not concluded a loss is probable in any of these matters; nor is any possible loss or range of loss reasonably estimable.

Because of the many uncertainties associated with the remaining opioid-related litigation matters, the Company is not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for all opioid-related litigation matters. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on the Company’s financial position, cash flows or liquidity, or results of operations.

On August 8, 2018, the Company was served with a qui tam complaint pending in the United States District Court for the District of Massachusetts alleging that the Company violated the federal False Claims Act and various state false claims acts due to the alleged failure of the Company and other defendants to report providers who were engaged in diversion of controlled substances. United States ex rel. Manchester v. Purdue Pharma, L.P., et al., Case No. 1-16-cv-10947. On August 22, 2018, the United States filed a motion to dismiss. The relator died, and on February 25, 2019 the court entered an order staying the matter until a proper party can be substituted, and providing that if no party is substituted within 90 days of February 25, 2019, the case would be dismissed. In April 2019, the widow of the relator filed a motion to substitute their daughter as the relator; the United States and defendants opposed this substitution request. The motion remains pending and the case remains stayed.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

In December 2019, the Company was served with two qui tam complaints filed by the same two relators alleging violations of the federal False Claims Act, the California False Claims Act, and the California Unfair Business Practices statute based on alleged predicate violations of the Controlled Substances Act and its implementing regulations, United States ex rel. Kelley, 19-cv-2233, and State of California ex rel. Kelley, CGC-19-576931. The complaints seek relief including treble damages, civil penalties, attorney fees, and costs in unspecified amounts. On February 16, 2021, the court in the federal action dismissed the second amended complaint with prejudice, and the relators appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the dismissal on March 10, 2022. On June 28, 2021, the court in the state action dismissed the complaint with prejudice, and the relators appealed the dismissal to the Superior Court of California, County of San Francisco.

Insurance Coverage Litigation

Two cases pending in the Northern District of California were filed against McKesson by its liability umbrella insurers about policies they issued to the Company for the period 1999-2017, AIU Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pa. (together "AIG") and ACE Property and Casualty Insurance Company ("ACE"). AIU Insurance Company et al. v. McKesson Corporation, No. 3:20-cv-07469 (N.D. Cal.) was initiated by AIG in the Northern District of California on October 23, 2020. Ace Property and Casualty Insurance Company v. McKesson Corporation et al., No. 3:20-cv-09356 (N.D. Cal.) was brought by ACE in California state court on November 2, 2020, and was removed by McKesson to federal court, transferred to the Northern District of California, and designated as related to the AIU action. AIG and ACE are seeking declarations that they have no duty to defend or indemnify McKesson in the thousands of lawsuits pending in federal and state courts related to opioids. In both actions, McKesson has asserted claims under the AIG and ACE policies seeking declarations and damages for past and future defense and indemnity costs. On April 5, 2022, the court issued an order granting partial summary judgment to the insurers that the Company’s defense costs in certain opioid-related litigation were not covered by two of the insurance policies.

II. Other Litigation and Claims

On May 17, 2013, the Company was served with a complaint filed in the United States District Court for the Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by the Junk Fax Protection Act of 2005 or JFPA, True Health Chiropractic Inc., et al. v. McKesson Corporation, et al., No. CV-13-02219 (HG). Plaintiffs seek statutory damages from $500 to $1,500 per violation plus injunctive relief. True Health Chiropractic later amended its complaint, adding McLaughlin Chiropractic Associates as an additional named plaintiff and McKesson Technologies Inc. as a defendant. Both plaintiffs alleged that defendants violated the TCPA by sending faxes that did not contain notices regarding how to opt out of receiving the faxes. On August 13, 2019, the court granted plaintiffs’ renewed motion for class certification. After class notice and the opt-out period, 9,490 fax numbers remain in the class, representing 48,769 faxes received. On October 8, 2021, the court de-certified the class citing the plaintiffs lacked class-wide proof identifying the manner of receipt, thus leaving two named Plaintiffs remaining in the case. On April 27, 2022, the Court found that the named Plaintiffs had failed to meet their burden to show Defendants willfully or knowingly violated the TCPA and therefore were not entitled to treble damages. The Court found McKesson liable for statutory damages in the amount of $6,500.

On April 16, 2013, the Company’s subsidiary, U.S. Oncology, Inc. (“USON”), was served with a third amended qui tam complaint filed in the United States District Court for the Eastern District of New York by two relators, purportedly on behalf of the United States, 21 states and the District of Columbia, against USON and five other defendants, alleging that USON solicited and received illegal “kickbacks” from Amgen in violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel. Piacentile v. Amgen Inc., et al., CV 04-3983 (SJ). Previously, the United States declined to intervene in the case as to all allegations and defendants except for Amgen. On September 30, 2013, the court granted the United States’ motion to dismiss the claims pled against Amgen. On September 17, 2018, the court granted USON’s motion to dismiss the claims pled against it, with leave to amend. On November 16, 2018, the relators filed a fourth amended complaint; that complaint was dismissed with prejudice on December 1, 2021. Plaintiffs filed a notice of appeal with the Court of Appeals for the Second Circuit on January 4, 2022.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On June 17, 2014, U.S. Oncology Specialty, LP (“USOS”) was served with a fifth amended qui tam complaint filed in the United States District Court for the Eastern District of New York by a relator alleging that USOS, among others, solicited and received illegal “kickbacks” from Amgen in violation of the Anti-Kickback Statute, the federal False Claims Act, and various state false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel. Hanks v. Amgen, Inc., et al., CV-08-03096 (SJ). Previously, the U.S. declined to intervene in the case as to all allegations and defendants except for Amgen. On September 17, 2018, the court granted USOS’s motion to dismiss. Following the relator’s appeal, the United States Court of Appeals for the Second Circuit vacated the district court’s order and remanded the suit to the district court, directing it to consider the question of whether the suit should be dismissed for lack of jurisdiction. The district court granted the relator leave to amend the complaint for a seventh time. The relator filed the seventh amended complaint on November 30, 2020.

On April 3, 2018, a second amended qui tam complaint was filed in the United States District Court for the Eastern District of New York by a relator, purportedly on behalf of the United States, 30 states, the District of Columbia, and two cities against McKesson Corporation, McKesson Specialty Care Distribution Corporation, McKesson Specialty Distribution LLC, McKesson Specialty Care Distribution Joint Venture, L.P., Oncology Therapeutics Network Corporation, Oncology Therapeutics Network Joint Venture, L.P., US Oncology, Inc. and US Oncology Specialty, L.P., alleging that from 2001 through 2010 the defendants repackaged and sold single-dose syringes of oncology medications in a manner that violated the federal False Claims Act and various state and local false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel. Omni Healthcare Inc. v. McKesson Corporation, et al., 12-CV-06440 (NG). The United States and the named states have declined to intervene in the case. On October 15, 2018, the Company filed a motion to dismiss the complaint as to all named defendants. On February 4, 2019, the court granted the motion to dismiss in part and denied it in part, leaving the Company and Oncology Therapeutics Network Corporation as the only remaining defendants in the case. On December 9, 2019, the United States District Court for the Eastern District of New York ordered the unsealing of another complaint filed by the same relator, alleging the same misconduct and seeking the same relief with respect to US Oncology, Inc., purportedly on behalf of the same government entities, United States ex rel. Omni Healthcare, Inc. v. US Oncology, Inc., 19-cv-05125. The United States and the named states declined to intervene in the case.

The Company is a defendant in an amended complaint filed on June 15, 2018 in a case pending in the United States District Court for the Southern District of Illinois alleging that the Company’s subsidiary, McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of safety and conventional syringes and safety IV catheters. Marion Diagnostic Center, LLC v. Becton, Dickinson, et al., No. 18:1059. The action is filed on behalf of a purported class of purchasers, and seeks treble damages and further relief, all in unspecified amounts. On July 20, 2018, the defendants filed a motion to dismiss. On November 30, 2018, the district court granted the motion to dismiss, and dismissed the complaint with prejudice. On December 27, 2018, plaintiffs appealed the order to the United States Court of Appeals for the Seventh Circuit. On March 5, 2020, the United States Court of Appeals for the Seventh Circuit vacated the district court’s order, and ruled that dismissal was appropriate on alternative grounds. The case was remanded to the district court to allow the plaintiffs an opportunity to amend their complaint. Plaintiffs filed an amended complaint on August 21, 2020. Defendants filed a motion to dismiss the amended complaint, which the district court granted on March 15, 2021. Plaintiffs appealed the order to the United States Court of Appeals for the Seventh Circuit, which affirmed the district court’s dismissal on March 18, 2022.

On December 30, 2019, a group of independent pharmacies and a hospital filed a purported class action complaint alleging that the Company and other distributors violated the Sherman Act by colluding with manufacturers to restrain trade in the sale of generic drugs. Reliable Pharmacy, et al. v. Actavis Holdco US, et al., No. 2:19-cv-6044; MDL No. 16-MD-2724. The complaint seeks relief including treble damages, disgorgement, attorney fees, and costs in unspecified amounts.

On December 12, 2018, the Company received a purported class action complaint in the United States District Court for the Northern District of California, alleging that McKesson and two of its former officers, CEO John Hammergren and CFO James Beer, violated the Securities Exchange Act of 1934 by reporting profits and revenues from 2013 until early 2017 that were false and misleading, due to an alleged undisclosed conspiracy to fix the prices of generic drugs. Evanston Police Pension Fund v. McKesson Corporation, No. 3:18-06525. The complaint seeks relief including damages, attorney fees, and costs in unspecified amounts. On February 8, 2019, the court appointed the Pension Trust Fund for Operating Engineers as the lead plaintiff. On April 10, 2019, the lead plaintiff filed an amended complaint that added insider trading allegations against defendant Hammergren. On April 8, 2021, the court granted plaintiff’s motion for class certification.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

In July 2015, The Great Atlantic & Pacific Tea Company (“A&P”), a former customer of the Company, filed for reorganization in bankruptcy under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court for the Southern District of New York. In re The Great Atlantic & Pacific Tea Company, Inc., et al., Case No. 15-23007. A suit filed in 2017 against the Company in this bankruptcy case seeks to recover alleged preferential transfers. The Official Committee of Unsecured Creditors on behalf of the bankruptcy estate of The Great Atlantic & Pacific Tea Company, Inc., et al. v. McKesson Corporation d/b/a McKesson Drug Co., Adv. Proc. No. 17-08264.

In October 2019, the Company’s subsidiary NDCHealth Corporation dba RelayHealth (“RelayHealth”) was served with three purported class action complaints filed in the United States District Court for the Northern District of Illinois. The complaints allege that RelayHealth violated the Sherman Act by entering into an agreement with co-defendant Surescripts, LLC not to compete in the electronic prescription routing market, and by conspiring with Surescripts, LLC to monopolize that market, Powell Prescription Center, et al. v. Surescripts, LLC, et al., No. 1:19-cv-06627; Intergrated Pharmaceutical Solutions LLC v. Surescripts, LLC, et al., 1:19-cv-06778; Falconer Pharmacy, Inc. v. Surescripts LLC, et al., No. 1:19-cv-07035. In November 2019, three similar complaints were filed in the United States District Court for the Northern District of Illinois. Kennebunk Village Pharmacy, Inc. v. SureScripts, LLC, et al., 1:19-cv-7445; Whitman v. SureScripts, LLC et al., No. 1:19-cv-7448; BBK Global Corp. v. SureScripts, LLC et al., 1:19-cv-7640. In December 2019, the six actions were consolidated in the Northern District of Illinois. The complaints seek relief including treble damages, attorney fees, and costs. Plaintiffs and RelayHealth reached an agreement in June 2020 to resolve the class action lawsuits and RelayHealth paid into escrow an amount not material in the context of the Company’s overall financial results. The settlement does not include any admission of liability, and RelayHealth expressly denies wrongdoing. The Court granted Plaintiffs’ motion for final approval of the settlement on February 24, 2022.

In July 2020, the Company was served with a first amended qui tam complaint filed in the United States District Court for the Southern District of New York by a relator on behalf of the U.S., 27 states and the District of Columbia against McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation, alleging that defendants violated the Anti-Kickback Statute, federal False Claims Act, and various state false claims statutes by providing certain business analytical tools to oncology practice customers, United States ex rel. Hart v. McKesson Corporation, et al., 15-cv-00903-RA. The U.S. and the named states have declined to intervene in the case. The complaint seeks relief including damages, treble damages, civil penalties, attorney fees, and costs of suit, all in unspecified amounts. On May 5, 2022, the district court granted the Company’s motion to dismiss the complaint, but granted the plaintiff leave to amend the complaint.

III. Government Subpoenas and Investigations

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

In May 2017 and August 2018, respectively, the Company was served with two separate Civil Investigative Demands by the U.S. Attorney’s Office for the Eastern District of New York relating to the certification the Company obtained for two software products under the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program.

In April and June 2019, the United States Attorney’s Office for the Eastern District of New York served grand jury subpoenas seeking documents related to the Company’s anti-diversion policies and procedures and its distribution of Schedule II controlled substances. The Company believes the subpoenas are part of a broader investigation by that office into pharmaceutical manufacturers’ and distributors’ compliance with the Controlled Substances Act and related statutes.

In January 2020, the United States Attorney’s Office for the District of Massachusetts served a Civil Investigative Demand on the Company seeking documents related to certain discounts and rebates paid to physician practice customers.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On November 21, 2016, the Belgian Competition Authority carried out inspections at the premises of several Belgian wholesalers, including Belmedis SA, which was subsequently acquired by the Company. Pharma Belgium NV was also part of the investigation. The Company resolved this matter in April 2022 by paying fines not material in the context of the Company’s overall financial results that had been fully reserved for in the third quarter of 2022.

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

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

IV. State Opioid Statutes

Legislative, regulatory, or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that it may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On July 6, 2018, the Healthcare Distribution Alliance filed a lawsuit challenging the constitutionality of the law and seeking an injunction against its enforcement. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. The State appealed that decision. On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision on procedural grounds. The Company has accrued a $50 million pre-tax charge ($37 million after-tax) as its estimated share of the OSA surcharge for calendar years 2017 and 2018. This OSA provision was recognized in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. The State of New York adopted an excise tax on sales of opioids in the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA does not apply to sales or distributions occurring after December 31, 2018. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its mandate pending the filing and disposition of a petition for writ of certiorari before the U.S. Supreme Court. That petition was denied on October 4, 2021. In December 2021, McKesson paid $26 million for the assessment for calendar year 2017 while reserving all rights to challenge the constitutionality of the assessment.

V. Environmental Matters

Primarily as a result of the operation of the Company’s former chemical businesses, which were fully divested by 1987, the Company is involved in various matters pursuant to environmental laws and regulations. The Company has received claims and demands from governmental agencies relating to investigative and remedial actions purportedly required to address environmental conditions alleged to exist at five sites where it, or entities acquired by it, formerly conducted operations and the Company, by administrative order or otherwise, has agreed to take certain actions at those sites, including soil and groundwater remediation.

Based on a determination by the Company’s environmental staff, in consultation with outside environmental specialists and counsel, the current estimate of the Company’s probable loss associated with the remediation costs for these five sites is $15 million, net of amounts anticipated from third parties. The $15 million is expected to be paid out between April 2022 and March 2052. The Company has accrued for the estimated probable loss for these environmental matters.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company has been designated as a Potentially Responsible Party (“PRP”) under the Superfund law for environmental assessment and cleanup costs as the result of its alleged disposal of hazardous substances at 14 sites. With respect to these sites, numerous other PRPs have similarly been designated and while the current state of the law potentially imposes joint and several liabilities upon PRPs, as a practical matter, costs of these sites are typically shared with other PRPs. At one of these sites, the United States Environmental Protection Agency has selected a preferred remedy with an estimated cost of approximately $1.4 billion. It is not certain at this point in time what proportion of this estimated liability will be borne by the Company. Accordingly, the Company’s estimated probable loss at those 14 sites is approximately $29 million, which has been accrued for in the Consolidated Balance Sheets. However, it is possible that the ultimate costs of these matters may exceed or be less than the reserves.

VI. Value Added Tax Assessments

The Company operates in various countries outside the U.S. which collect value added taxes (“VAT”). The determination of the manner in which a VAT applies to the Company’s foreign operations is subject to varying interpretations arising from the complex nature of the tax laws. The Company has received assessments for VAT which are in various stages of appeal. The Company disagrees with these assessments and believes that it has a strong legal argument to defend its tax positions. Certain VAT assessments relate to years covered by an indemnification agreement. Due to the complex nature of the tax laws, it is not possible to estimate the outcome of these matters. However, based on currently available information, the Company believes the ultimate outcome of these matters will not have a material adverse effect on its financial position, cash flows or results of operations.

VII. Antitrust Settlements

Numerous lawsuits have been filed against certain brand pharmaceutical manufacturers alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. These lawsuits are typically brought as class actions. The Company has not been named a plaintiff in any of these class action lawsuits, but has been a member of the class of those who purchased directly from the pharmaceutical manufacturers. Some of these class action lawsuits have settled in the past with the Company receiving proceeds, including $46 million, $181 million, and $22 million in 2022, 2021, and 2020, respectively, which were included in “Cost of sales” in the Consolidated Statements of Operations.

VIII. Other Matters

The Company is involved in various other litigation, governmental proceedings, and claims, not described above, that arise in the normal course of business. While it is not possible to determine the ultimate outcome or the duration of such litigation, governmental proceedings, or claims, the Company believes, based on current knowledge and the advice of counsel, that such litigation, proceedings, and claims will not have a material impact on the Company’s financial position or results of operations.

19. Stockholders' Equity (Deficit)

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

In July 2021, the quarterly dividend was raised from $0.42 to $0.47 per common share for dividends declared on or after such date by the Board. Dividends were $1.83 per share in 2022, $1.67 per share in 2021, and $1.62 in 2020. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company’s future earnings, financial condition, capital requirements, and other factors.

Share Repurchase Plans

Stock repurchases may be made from time-to-time in open market transactions, privately negotiated transactions, through accelerated share repurchase (“ASR”) programs, or by combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory requirements, restrictions under the Company’s debt obligations, and other market and economic conditions. During the last three years, the Company’s share repurchases were transacted through both open market transactions and ASR programs with third-party financial institutions.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Information regarding share repurchase activity over the last three years is as follows:

			Share Repurchases (1)
(In millions, except price per share data)						Total Number of Shares Purchased (2)						Average Price Paid Per Share						Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
Balance, March 31, 2019																		$	3,469
Shares repurchased - Open market						9.2						$	144.68					(1,334)
Shares repurchased - May 2019 ASR						4.7						$	127.68					(600)
Balance, March 31, 2020																		1,535
Shares repurchase authorization increase in 2021																		2,000
Shares repurchased - Open market (3)						4.7						$	160.33					(750)
Balance, March 31, 2021																		2,785
Shares repurchased - May 2021 ASR						5.2						$	193.22					(1,000)
Shares repurchased - Open market						4.6						$	217.73					(1,007)
Shares repurchase authorization increase in 2022																		4,000
Shares repurchased - February 2022 ASR (4)						4.8						$	265.56					(1,500)
Balance, March 31, 2022																		$	3,278

(1)This table does not include the value of equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards. It also excludes shares related to the Company’s Split-off of the Change Healthcare JV as described below.

(2)The number of shares purchased reflects rounding adjustments.

(3)Of the total dollar value, $8 million was accrued within “Other accrued liabilities” in the Company’s Consolidated Balance Sheet as of March 31, 2021 for share repurchases that were executed in late March and settled in early April.

(4)In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The average price paid per share and total number of shares purchased under this program are estimates based on the initial share purchase price and initial delivery of shares under an ASR agreement and may differ from the average price paid per share and total number of shares purchased under the ASR program upon its final settlement in May 2022.

On March 9, 2020, the Company completed the Split-off of its interest in the Change Healthcare JV. In connection with the Split-off, the Company distributed all 176.0 million outstanding shares of SpinCo common stock, which held all of the Company’s interests in the Change Healthcare JV, to participating holders of the Company’s common stock in exchange for 15.4 million shares of McKesson stock, which are now held as treasury stock on the Company’s Consolidated Balance Sheets. Following consummation of the exchange offer, on March 10, 2020, SpinCo merged with and into Change with each share of SpinCo common stock converted into one share of Change common stock, par value $0.001 per share, with cash being paid in lieu of fractional shares of Change common stock. See Financial Note 4, “Business Acquisitions and Divestitures,” for more information.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the Company’s accumulated other comprehensive income (loss) by component are as follows:

			Foreign Currency Translation Adjustments
(In millions)			Foreign Currency Translation Adjustments, Net of Tax (1)						Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax (2)						Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax						Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax						Total Accumulated Other Comprehensive Loss
Balance at March 31, 2019			$	(1,628)					$	53					$	(37)					$	(237)					$	(1,849)
Other comprehensive income (loss) before reclassifications			(151)						85						86						33						53
Amounts reclassified to earnings and other (3)			—						—						—						96						96
Other comprehensive income (loss)			(151)						85						86						129						149
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests			1						—						—						2						3
Other comprehensive income (loss) attributable to McKesson			(152)						85						86						127						146
Balance at March 31, 2020			(1,780)						138						49						(110)						(1,703)
Other comprehensive income (loss) before reclassifications			312						(175)						(36)						(2)						99
Amounts reclassified to earnings and other (4)			47						—						—						24						71
Other comprehensive income (loss)			359						(175)						(36)						22						170
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests			(60)						(1)						—						8						(53)
Other comprehensive income (loss) attributable to McKesson			419						(174)						(36)						14						223
Balance at March 31, 2021			(1,361)						(36)						13						(96)						(1,480)
Other comprehensive income (loss) before reclassifications			(51)						41						18						31						39
Amounts reclassified to earnings and other (5)			71						(1)						(4)						10						76
Other comprehensive income			20						40						14						41						115
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests			5						(6)						—						—						(1)
Other comprehensive income attributable to McKesson			15						46						14						41						116
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			(158)						—						—						(12)						(170)
Balance at March 31, 2022			$	(1,504)					$	10					$	27					$	(67)					$	(1,534)

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

(2)Amounts before reclassifications recorded in 2022, 2021, and 2020 include gains (losses) of $73 million, $(118) million, and $39 million, respectively, related to net investment hedges from Euro-denominated notes and gains (losses) of $(4) million, $(119) million, and $76 million, respectively, related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit (expense) of $(23) million, $62 million, and $(30) million in 2022, 2021, and 2020, respectively.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(3)Primarily reflects a reclassification of losses of $127 million, net of $33 million of income tax benefit, predominantly on the termination of the Company’s U.S. defined benefit pension plan from “Accumulated other comprehensive loss” to “Other income, net” in the Company’s Consolidated Statement of Operations.

(4)Primarily includes adjustments for amounts related to the contribution of the Company’s German pharmaceutical wholesale business to a joint venture, as discussed in more detail in Financial Note 2, “Held for Sale” and Financial Note 6, “Other Income, Net.” These amounts were included in the 2021 and 2020 calculation of charges to remeasure the assets and liabilities held for sale to fair value less costs to sell recorded within Selling, distribution, general, and administrative expenses in the Consolidated Statements of Operations.

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

20. Related Party Balances and Transactions

McKesson Europe has investments in pharmacies located across Europe that are accounted for under the equity method. McKesson Europe maintains distribution arrangements with these pharmacies for the sale of related goods and services under which revenues of $137 million, $178 million, and $141 million are included in the Consolidated Statements of Operations for the years ended March 31, 2022, 2021, and 2020, respectively, and receivables related to these transactions included in the Consolidated Balance Sheets were not material as of March 31, 2022 and 2021. Predominately all of these pharmacies were divested from the Company in the fourth quarter of 2022 as part of the completed sale of the Company’s Austrian business, while certain other remaining pharmacies are included in the E.U. disposal group and U.K. disposal group. Refer to Financial Note 2, “Held for Sale,” for additional information.

In 2022, 2021, and 2020, the Company’s pharmaceutical sales to one of its equity method investees in the U.S. Pharmaceutical segment totaled $100 million, $111 million, and $60 million, respectively. Trade receivables related to these transactions from this investee were not material as of March 31, 2022 and 2021. During 2022, the Company’s investment in this investee was no longer accounted for using the equity method and is not considered a related party as of March 31, 2022.

Refer to Financial Note 4, “Business Acquisitions and Divestitures,” for information regarding related party balances and transactions with Change and the Change Healthcare JV.

21. Segments of Business

Commencing with the second quarter of 2021, the Company began reporting under four reportable segments: U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and International. Other, for retrospective periods presented, consists of the Company’s previous equity method investment in the Change Healthcare JV, which was split-off from McKesson in the fourth quarter of 2020. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. The Company evaluates the performance of its operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income taxes. Assets by operating segment are not reviewed by management for the purpose of assessing performance or allocating resources.

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

The RxTS segment serves McKesson’s biopharma and life sciences partners and patients to address medication challenges for patients throughout their journeys. RxTS works across healthcare to connect pharmacies, providers, payers, and biopharma companies to deliver innovative access and adherence solutions designed to benefit stakeholders and help people get the medicine they need to live healthier lives. RxTS also offers third-party logistics and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

The International segment includes the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 11 European countries where it owns, partners, or franchises with retail pharmacies and operates through two businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. In 2022, the Company entered into agreements to sell the E.U. disposal group and U.K. disposal group, and completed the sale of its Austrian business. Refer to Financial Note 2, “Held for Sale,” for more information.

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

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

			Years Ended March 31,
(In millions)			2022						2021						2020
Segment revenues (1)
U.S. Pharmaceutical			$	212,149					$	189,274					$	181,700
Prescription Technology Solutions			3,864						2,890						2,705
Medical-Surgical Solutions			11,608						10,099						8,305
International			36,345						35,965						38,341
Total revenues			$	263,966					$	238,228					$	231,051
Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)			$	2,879					$	2,763					$	2,745
Prescription Technology Solutions			500						395						396
Medical-Surgical Solutions (4)			959						707						499
International (5)			(968)						(37)						(161)
Other (6)			—						—						(1,113)
Subtotal			3,370						3,828						2,366
Corporate expenses, net (7)			(1,073)						(8,645)						(973)
Loss on debt extinguishment (8)			(191)						—						—
Interest expense			(178)						(217)						(249)
Income (loss) from continuing operations before income taxes			$	1,928					$	(5,034)					$	1,144
Segment depreciation and amortization (9)
U.S. Pharmaceutical			$	228					$	211					$	208
Prescription Technology Solutions			82						87						85
Medical-Surgical Solutions			129						130						136
International			204						334						357
Corporate			117						125						136
Total depreciation and amortization			$	760					$	887					$	922
Segment expenditures for long-lived assets (10)
U.S. Pharmaceutical			$	137					$	246					$	109
Prescription Technology Solutions			10						22						23
Medical-Surgical Solutions			74						57						36
International			177						212						218
Corporate			137						104						120
Total expenditures for long-lived assets			$	535					$	641					$	506

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

(2)Segment operating profit (loss) includes gross profit, net of total operating expenses, as well as other income (expense), net, for the Company’s reportable segments. For retrospective periods presented, operating loss for Other reflects equity earnings and charges from the Company’s previous equity method investment in the Change Healthcare JV, which was split-off from McKesson in the fourth quarter of 2020.

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FINANCIAL NOTES (Continued)

(3)The Company’s U.S. Pharmaceutical segment’s operating profit for 2022, 2021, and 2020 includes credits of $23 million, $38 million, and $252 million, respectively, related to the LIFO method of accounting for inventories. Operating profit for 2022, 2021, and 2020 also includes $46 million, $181 million, and $22 million, respectively, of cash receipts for the Company’s share of antitrust legal settlements. In addition, operating profit for 2021 includes a charge of $50 million recorded in connection with the Company’s estimated liability under the State of New York’s OSA, as further discussed in Financial Note 18, “Commitments and Contingent Liabilities.”

(4)The Company’s Medical-Surgical Solutions segment’s operating profit for 2022 and 2021 includes inventory charges of $164 million and $136 million, respectively, on certain PPE and other related products.

(5)The Company’s International segment’s operating loss for 2022, 2021, and 2020 reflects the following:

• 2022 includes charges of $1.1 billion to remeasure assets and liabilities of the U.K. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale;”

• 2022 includes charges of $383 million to remeasure assets and liabilities of the E.U. disposal group to fair value less costs to sell and to impair certain assets, including internal-use software that will not be utilized in the future, as discussed in more detail in Financial Note 2, “Held for Sale;”

• 2022 includes a gain of $59 million related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business;

• 2022 includes a gain of $42 million related to the sale of the Company’s 30% interest in its German pharmaceutical wholesale joint venture to WBA. 2021 and 2020 includes charges of $58 million and $275 million, respectively, related to the contribution of a majority of its German pharmaceutical wholesale business to the joint venture with WBA completed on November 1, 2020. See Financial Note 2, “Held for Sale,” and Financial Note 6, “Other Income, Net,” for further details;

• 2021 includes a goodwill impairment charge of $69 million related to one of the Company’s reporting units in Europe, as discussed in more detail in Financial Note 11, “Goodwill and Intangible Assets, Net;” and

• 2021 and 2020 includes long-lived asset impairment charges of $115 million and $112 million, respectively, primarily related to retail pharmacy businesses in Canada and Europe, as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net.”

(6)Operating loss for Other for 2020 includes an impairment charge of $1.2 billion and a dilution loss of $246 million associated with the Company’s previous investment in the Change Healthcare JV, partially offset by a net gain of $414 million (pre-tax and after-tax) related to the separation of its interest in the Change Healthcare JV completed during the fourth quarter of 2020. Operating loss for 2020 also includes the Company’s proportionate share of loss from the Change Healthcare JV of $119 million.

(7)Corporate expenses, net, for 2022, 2021, and 2020 reflects the following:

• 2022 includes charges of $55 million primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale;”

• 2022 includes charges of $42 million primarily related to the effect of accumulated other comprehensive loss components from the U.K. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale;”

• 2022 and 2021 includes charges of $274 million and $8.1 billion, respectively, related to the estimated liability for opioid-related claims, as discussed in more detail in Financial Note 18, “Commitments and Contingent Liabilities;"

• 2022 and 2021 includes net gains of $98 million and $133 million, respectively, associated with certain of the Company’s equity investments, as discussed in more detail in Financial Note 16, “Fair Value Measurements;”

• 2021 includes a net gain of $131 million recorded in connection with insurance proceeds received from the settlement of the shareholder derivative action related to the Company’s controlled substances monitoring program;

• 2020 includes settlement charges of $122 million for the termination of the Company’s defined benefit pension plan; and

• 2020 includes a settlement charge of $82 million related to opioid claims.

(8)Loss on debt extinguishment for 2022 consists of a charge of $191 million related to the Company’s July 2021 tender offer to redeem a portion of its existing debt, as discussed in more detail in Financial Note 12, “Debt and Financing Activities.”

(9)Amounts primarily consist of amortization of acquired intangible assets purchased in connection with business acquisitions and capitalized software for internal use as well as depreciation and amortization of property, plant, and equipment, net.

(10)Long-lived assets consist of property, plant, and equipment, net and capitalized software.

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McKESSON CORPORATION

FINANCIAL NOTES (Concluded)

Segment assets and long-lived assets by geographic areas were as follows:

			March 31,
(In millions)			2022						2021
Segment assets
U.S. Pharmaceutical			$	38,346					$	35,236
Prescription Technology Solutions			3,528						3,446
Medical-Surgical Solutions			5,830						5,986
International			13,717						14,987
Corporate			1,877						5,360
Total assets			$	63,298					$	65,015
Long-lived assets (1)
United States			$	2,060					$	2,110
Foreign			352						984
Total long-lived assets			$	2,412					$	3,094

(1)Long-lived assets consist of property, plant, and equipment, net and capitalized software and excludes amounts classified as assets held for sale.

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McKESSON CORPORATION