Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

			Page
Management's Annual Report on Internal Control Over Financial Reporting			60
Report of Independent Registered Public Accounting Firm			61
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended March 31, 2023, 2022, and 2021			65
Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2023, 2022, and 2021			66
Consolidated Balance Sheets as of March 31, 2023 and 2022			67
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended March 31, 2023, 2022, and 2021			68
Consolidated Statements of Cash Flows for the years ended March 31, 2023, 2022, and 2021			69
Financial Notes			70
Note 1 - Significant Accounting Policies			70
Note 2 - Business Acquisitions and Divestitures			78
Note 3 - Restructuring, Impairment, and Related Charges, Net			84
Note 4 - Share-Based Compensation			87
Note 5 - Other Income, Net			91
Note 6 - Income Taxes			91
Note 7 - Redeemable Noncontrolling Interests and Noncontrolling Interests			95
Note 8 - Earnings (Loss) Per Common Share			97
Note 9 - Leases			98
Note 10 - Goodwill and Intangible Assets, Net			100
Note 11 - Debt and Financing Activities			103
Note 12 - Variable Interest Entities			106
Note 13 - Pension Benefits			106
Note 14 - Hedging Activities			113
Note 15 - Fair Value Measurements			116
Note 16 - Financial Guarantees and Warranties			119
Note 17 - Commitments and Contingent Liabilities			119
Note 18 - Stockholders' Equity (Deficit)			126
Note 19 - Related Party Balances and Transactions			129
Note 20 - Segments of Business			129

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, 2023.

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, 2023. This audit report appears on the following page of this Annual Report on Form 10-K.

May 8, 2023

/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, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended March 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, 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, 2023, 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.

Opioid litigation and related uncertain tax position - refer to Note 1, Note 6, and Note 17 to the financial statements

Critical Audit Matter Description

The Company and its affiliates are defendants in numerous cases asserting claims related to distribution of controlled substances, including opioids. Plaintiffs in these actions have included state attorneys general, county and municipal governments, tribal nations, as well as private plaintiffs such as hospitals, health and welfare funds, third-party payors, and individuals, as well as cases brought in Canada (“opioid litigation”). The Company recognizes a liability for loss contingencies, including opioid litigation, when it is probable that a liability has been incurred and the amount of loss or range of loss is reasonably estimable. The Company has recorded a $7.2 billion liability related to opioid litigation as of March 31, 2023. In connection with this liability, the Company recognized a related income tax benefit, and has an unrecognized tax benefit resulting from uncertainty in the amount that is more likely than not to be deductible for U.S. federal and state income tax purposes.

We identified opioid litigation as a critical audit matter because of the significant judgment in auditing management’s accounting and disclosure for these matters. Such judgment led to an increased extent of effort, including the need to involve specialists. Specifically, auditing management’s assessment of whether a loss in excess of the opioid litigation accrual is probable and reasonably estimable for unresolved cases is subjective and requires significant judgment given the novelty and complexity of the Company’s opioid litigation. There is also significant judgment associated with the Company’s disclosure of opioid litigation, including auditing management’s assertion that no range of loss can be estimated outside of the amount currently accrued. In addition, auditing management’s estimate of the amount of related income tax benefit deemed more-likely-than-not of being realized is challenging because the evaluation of the technical merits of such tax positions requires significant judgment and an increased extent of effort, including the need to involve our tax specialists.

Table of Contents			Item 8 Index

McKESSON CORPORATION

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 the Company’s internal controls related to opioid litigation and the related uncertain tax position.

• We inquired of the Company’s internal and external legal counsel and tax experts, as well as executives and other members of management, to understand the basis for the Company’s accounting conclusions, including any changes in facts potentially impacting the Company’s reserves for uncertain tax positions.

• We inspected responses to inquiry letters sent to both internal and external counsel.

• We evaluated management’s analysis of liabilities arising from opioid claims.

• With the assistance of our tax specialists, we evaluated management’s analysis of the uncertain tax position associated with the Company’s opioid litigation.

• We examined Board of Directors meeting minutes and compared to internal and external counsel’s written responses to our inquiry letters.

• We evaluated any events relevant to opioid litigation occurring subsequent to March 31, 2023.

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

• We examined terms related to settlements of opioid claims.

• We evaluated the adequacy of 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 opioid litigation.

Goodwill - Refer to Note 1 and Note 10 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 first 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 $9.9 billion as of March 31, 2023, of which $1.4 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.

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.

Table of Contents			Item 8 Index

McKESSON CORPORATION

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 8, 2023

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,
			2023						2022						2021
Revenues			$	276,711					$	263,966					$	238,228
Cost of sales			(264,353)						(250,836)						(226,080)
Gross profit			12,358						13,130						12,148
Selling, distribution, general, and administrative expenses			(7,776)						(10,537)						(8,849)
Claims and litigation charges, net			8						(274)						(7,936)
Goodwill impairment charges			—						—						(69)
Restructuring, impairment, and related charges, net			(209)						(281)						(334)
Total operating expenses			(7,977)						(11,092)						(17,188)
Operating income (loss)			4,381						2,038						(5,040)
Other income, net			497						259						223
Loss on debt extinguishment			—						(191)						—
Interest expense			(248)						(178)						(217)
Income (loss) from continuing operations before income taxes			4,630						1,928						(5,034)
Income tax benefit (expense)			(905)						(636)						695
Income (loss) from continuing operations			3,725						1,292						(4,339)
Loss from discontinued operations, net of tax			(3)						(5)						(1)
Net income (loss)			3,722						1,287						(4,340)
Net income attributable to noncontrolling interests			(162)						(173)						(199)
Net income (loss) attributable to McKesson Corporation			$	3,560					$	1,114					$	(4,539)
Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations			$	25.05					$	7.26					$	(28.26)
Discontinued operations			(0.02)						(0.03)						—
Total			$	25.03					$	7.23					$	(28.26)
Basic
Continuing operations			$	25.25					$	7.35					$	(28.26)
Discontinued operations			(0.02)						(0.03)						—
Total			$	25.23					$	7.32					$	(28.26)
Weighted-average common shares outstanding
Diluted			142.2						154.1						160.6
Basic			141.1						152.3						160.6

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

			Years Ended March 31,
			2023						2022						2021
Net income (loss)			$	3,722					$	1,287					$	(4,340)
Other comprehensive income, net of tax
Foreign currency translation adjustments			674						60						184
Unrealized gains (losses) on cash flow and other hedges			(63)						14						(36)
Changes in retirement-related benefit plans			62						41						22
Other comprehensive income, net of tax			673						115						170
Comprehensive income (loss)			4,395						1,402						(4,170)
Comprehensive income attributable to noncontrolling interests			(206)						(172)						(146)
Comprehensive income (loss) attributable to McKesson Corporation			$	4,189					$	1,230					$	(4,316)

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

			March 31,
			2023						2022
ASSETS
Current assets
Cash and cash equivalents			$	4,678					$	3,532
Receivables, net			19,410						18,583
Inventories, net			19,691						18,702
Assets held for sale			17						4,516
Prepaid expenses and other			496						898
Total current assets			44,292						46,231
Property, plant, and equipment, net			2,177						2,092
Operating lease right-of-use assets			1,635						1,548
Goodwill			9,947						9,451
Intangible assets, net			2,277						2,059
Other non-current assets			1,992						1,917
Total assets			$	62,320					$	63,298
LIABILITIES AND DEFICIT
Current liabilities
Drafts and accounts payable			$	42,490					$	38,086
Current portion of long-term debt			968						799
Current portion of operating lease liabilities			299						297
Liabilities held for sale			5						4,741
Other accrued liabilities			4,195						4,543
Total current liabilities			47,957						48,466
Long-term debt			4,626						5,080
Long-term deferred tax liabilities			1,387						1,418
Long-term operating lease liabilities			1,402						1,366
Long-term litigation liabilities			6,625						7,220
Other non-current liabilities			1,813						1,540
Commitments and contingent liabilities (Note 17)
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, 277 and 275 shares issued at March 31, 2023 and 2022, respectively			3						2
Additional paid-in capital			7,747						7,275
Retained earnings			12,295						9,030
Accumulated other comprehensive loss			(905)						(1,534)
Treasury shares, at cost, 141 and 130 shares at March 31, 2023 and 2022, respectively			(20,997)						(17,045)
Total McKesson Corporation stockholders’ deficit			(1,857)						(2,272)
Noncontrolling interests			367						480
Total deficit			(1,490)						(1,792)
Total liabilities and deficit			$	62,320					$	63,298

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												Retained Earnings						Accumulated Other Comprehensive Loss						Treasury												Noncontrolling Interests						Total Equity (Deficit)
			Shares						Amount						Common Shares						Amount
Balance, 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 standards			—						—						—												(13)						—						—						—						—						(13)
Balance, 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
Repurchase of common stock			—						—						—												—						—						(5)						(750)						—						(750)
Net income (loss)			—						—						—												(4,539)						—						—						—						156						(4,383)
Other comprehensive income			—						—						—												—						223						—						—						—						223
Cash dividends declared, $1.67 per common share			—						—						—												(270)						—						—						—						—						(270)
Payments to noncontrolling interests			—						—						—												—						—						—						—						(177)						(177)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						—						3												—						—						—						—						—						3
Other			—						—						16												2						—						—						—						—						18
Balance, March 31, 2021			273						2						6,925												8,202						(1,480)						(115)						(13,670)						196						175
Issuance of shares under employee plans, net of forfeitures			2						—						220												—						—						—						(71)						—						149
Share-based compensation			—						—						154												—						—						—						—						—						154
Repurchase of common stock			—						—						(204)												—						—						(15)						(3,304)						—						(3,508)
Net income			—						—						—												1,114						—						—						—						165						1,279
Other comprehensive income (loss)			—						—						—												—						116						—						—						(4)						112
Cash dividends declared, $1.83 per common share			—						—						—												(279)						—						—						—						—						(279)
Payments to noncontrolling interests			—						—						—												—						—						—						—						(155)						(155)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						—						178												—						(170)						—						—						—						8
Reclassification of McKesson Europe AG redeemable noncontrolling interests			—						—						—												—						—						—						—						287						287
Reclassification of recurring compensation to other accrued liabilities			—						—						—												—						—						—						—						(7)						(7)
Other			—						—						2												(7)						—						—						—						(2)						(7)
Balance, March 31, 2022			275						2						7,275												9,030						(1,534)						(130)						(17,045)						480						(1,792)
Issuance of shares under employee plans, net of forfeitures			2						1						163												—						—						—						(160)						—						4
Share-based compensation			—						—						161												—						—						—						—						—						161
Repurchase of common stock			—						—						127												—						—						(11)						(3,792)						—						(3,665)
Net income			—						—						—												3,560						—						—						—						162						3,722
Other comprehensive income			—						—						—												—						629						—						—						44						673
Cash dividends declared, $2.09 per common share			—						—						—												(296)						—						—						—						—						(296)
Payments to noncontrolling interests			—						—						—												—						—						—						—						(150)						(150)
Reclassification of recurring compensation to other accrued liabilities			—						—						—												—						—						—						—						(5)						(5)
Formation of SCRI Oncology, LLC			—						—						22												—						—						—						—						225						247
Derecognition of noncontrolling interests in McKesson Europe AG			—						—						—												—						—						—						—						(382)						(382)
Other			—						—						(1)												1						—						—						—						(7)						(7)
Balance, March 31, 2023			277						$	3					$	7,747											$	12,295					$	(905)					(141)						$	(20,997)					$	367					$	(1,490)

See Financial Notes

Table of Contents			Item 8 Index

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

			Years Ended March 31,
			2023						2022						2021
OPERATING ACTIVITIES
Net income (loss)			$	3,722					$	1,287					$	(4,340)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation			248						279						321
Amortization			360						481						566
Goodwill and long-lived asset impairment charges			72						175						242
Deferred taxes			(20)						34						(908)
Charges (credits) associated with last-in, first-out inventory method			1						(23)						(38)
Non-cash operating lease expense			249						241						334
Gain from sales of businesses and investments			(211)						(132)						(9)
European businesses held for sale			—						1,509						—
Other non-cash items			298						501						188
Changes in assets and liabilities, net of acquisitions:
Receivables			(1,082)						(1,843)						1,145
Inventories			(1,259)						(1,169)						(2,276)
Drafts and accounts payable			3,788						2,802						1,267
Operating lease liabilities			(338)						(356)						(362)
Taxes			363						243						(166)
Litigation liabilities			(1,088)						199						8,067
Other			56						206						511
Net cash provided by operating activities			5,159						4,434						4,542
INVESTING ACTIVITIES
Payments for property, plant, and equipment			(390)						(388)						(451)
Capitalized software expenditures			(168)						(147)						(190)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired			(867)						(6)						(35)
Proceeds from sales of businesses and investments, net			1,077						578						400
Other			(194)						(126)						(139)
Net cash used in investing activities			(542)						(89)						(415)
FINANCING ACTIVITIES
Proceeds from short-term borrowings			8,450						11,192						6,323
Repayments of short-term borrowings			(8,450)						(11,192)						(6,323)
Proceeds from issuances of long-term debt			997						498						500
Repayments of long-term debt			(1,274)						(1,648)						(1,040)
Payments for debt extinguishments			—						(184)						—
Common stock transactions:
Issuances			163						220						92
Share repurchases			(3,638)						(3,516)						(742)
Dividends paid			(292)						(277)						(276)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						(1,031)						(49)
Other			(324)						(383)						(178)
Net cash used in financing activities			(4,368)						(6,321)						(1,693)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			25						55						(61)
Cash, cash equivalents, and restricted cash classified within Assets held for sale			470						(540)						—
Net increase (decrease) in cash, cash equivalents, and restricted cash			744						(2,461)						2,373
Cash, cash equivalents, and restricted cash at beginning of year			3,935						6,396						4,023
Cash, cash equivalents, and restricted cash at end of year			4,679						3,935						6,396
Less: Restricted cash at end of year included in Prepaid expenses and other			(1)						(403)						(118)
Cash and cash equivalents at end of year			$	4,678					$	3,532					$	6,278
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest, net			$	224					$	186					$	220
Income taxes, net of refunds			562						359						379

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 partners 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. Refer to Financial Note 20, “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 instead 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.

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

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, short-term deposits with financial institutions, and short-term commercial papers issued by non-financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of the Company’s foreign subsidiaries, including Canadian dollars, Euro, and British pounds sterling. Deposits could 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.

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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 consisted of $395 million held in escrow related to obligations under settlement agreements for opioid-related claims of governmental entities and all amounts were released during fiscal 2023, as discussed in more detail in Financial Note 17, “Commitments and Contingent Liabilities.” Additionally, restricted cash at March 31, 2022 included funds temporarily held on behalf of unaffiliated medical practice groups related to their business continuity borrowings as a result of the pandemic caused by the SARS-CoV-2 coronavirus (“COVID-19”). These amounts were 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 were recorded by the Company within “Other accrued liabilities” in the Company’s Consolidated Balance Sheets at March 31, 2022. These funds were fully disbursed during fiscal 2023.

Equity Method Investments: Investments in business entities in which the Company does not have control, but instead 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 could 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.

The Company is 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, collections on past due amounts, legal disputes, and bankruptcies, as well as reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance.

Trade accounts receivable represent the majority of the Company's financial assets, for which an allowance for credit losses of $111 million and $89 million were included in “Receivables, net” in the Consolidated Balance Sheets as of March 31, 2023 and 2022, respectively. Changes in the allowance for the year ended March 31, 2023 were primarily within the U.S Pharmaceutical and Medical-Surgical Solutions segments.

The following table presents the components of the Company’s receivables as of March 31, 2023 and 2022:

			March 31,
(In millions)			2023						2022
Customer accounts			$	17,160					$	16,438
Other			2,408						2,289
Total receivables			19,568						18,727
Allowances			(158)						(144)
Receivables, net			$	19,410					$	18,583

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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 fiscal 2023, sales to the Company’s ten largest customers, including group purchasing organizations (“GPOs”), accounted for approximately 68% of its total consolidated revenues and approximately 42% of total trade accounts receivable at March 31, 2023. Sales to the Company’s largest customer, CVS Health Corporation (“CVS”), accounted for approximately 27% of its total consolidated revenues in fiscal 2023 and comprised approximately 21% of total trade accounts receivable at March 31, 2023. 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 receivable 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, changes in reimbursement policies, and other factors. 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, 2023 and 2022, total inventories, net were $19.7 billion and $18.7 billion, respectively, in the Company’s Consolidated Balance Sheets. The LIFO method was used to value approximately 64% and 63% of the Company’s inventories at March 31, 2023 and 2022, respectively. If the Company had used the moving average method of inventory valuation, inventories would have been approximately $384 million and $383 million higher than the amounts reported at March 31, 2023 and 2022, 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 a LIFO charge of $1 million in fiscal 2023 and LIFO credits of $23 million and $38 million in fiscal 2022 and fiscal 2021, respectively, all within “Cost of sales” in its Consolidated Statements of Operations. The LIFO charge in fiscal 2023 compared to LIFO credits in fiscal 2022 and fiscal 2021 are primarily due to higher brand inflation and lower generics deflation, offset by significantly higher off patent launch activity in fiscal 2023. 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, 2023 and 2022, 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 $1.2 billion, $1.1 billion, and $1.0 billion were recognized in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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 during 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, “Business Acquisitions and Divestitures,” for additional information.

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 three 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, 2023 and 2022:

			March 31,
(In millions)			2023						2022
Land			$	109					$	104
Building and improvements			1,413						1,331
Machinery, equipment, and other			2,603						2,338
Construction in progress			283						313
Total property, plant, and equipment			4,408						4,086
Accumulated depreciation and amortization			(2,231)						(1,994)
Property, plant, and equipment, net			$	2,177					$	2,092

Total depreciation expense for property, plant, and equipment, net and amortization of the ROU assets of finance leases was $272 million, $312 million, and $344 million for the years ended March 31, 2023, 2022, and 2021, 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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. 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.

Refer to Financial Note 9, “Leases,” for additional information on the Company’s leases.

Goodwill: Goodwill is tested for impairment on an annual basis in the first fiscal 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 the 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 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 public 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 25 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 the 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 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, 2023 and 2022, capitalized software held for internal use was $353 million and $320 million, respectively, net of accumulated amortization of $1.5 billion and $1.4 billion, respectively, and is included in “Other non-current assets” in the Consolidated Balance Sheets. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Amortization expense for capitalized software held for internal use was $101 million, $116 million, and $117 million for the years ended March 31, 2023, 2022, and 2021, respectively.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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 17, “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.

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 99% and 1% of total revenues, respectively, for the year ended March 31, 2023, and approximately 98% and 2% of total revenues, respectively, for each of the years ended March 31, 2022 and 2021.

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 $3.1 billion, $3.2 billion, and $3.1 billion for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. Assets for the right to recover products from customers and the associated refund liabilities for return allowances were not material as of March 31, 2023 and 2022. 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, 2023 and 2022. 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 could be different than the Company’s estimate. The supplier reserves primarily pertain to the Company’s U.S. Pharmaceutical segment.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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% 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.

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’ 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’ deficit section of the Consolidated Balance Sheets. 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 for the years ended March 31, 2023, 2022, or 2021. 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 has used foreign currency-denominated notes and uses 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’ 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. Any cash flows received or paid as part of the termination of derivative financial instruments are classified within the Consolidated Statements of Cash Flows in accordance with the nature of the hedged item. 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 14, “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’ 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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 third-party equity interests in the Company’s consolidated entities, including: ClarusONE Sourcing Services LLP (“ClarusONE”), a joint venture established between McKesson and Walmart Inc. in fiscal 2017; Vantage Oncology Holdings, LLC (“Vantage”), a provider of integrated oncology and radiation services acquired in fiscal 2017; and SCRI Oncology, LLC (“SCRI Oncology”), an oncology research business formed in the third quarter of fiscal 2023 combining McKesson’s U.S. Oncology Research (“USOR”) and HCA Healthcare, Inc.’s (“HCA”) Sarah Cannon Research Institute (“SCRI”). Net income attributable to noncontrolling interests also included recurring compensation that the Company was 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. The Company’s noncontrolling interest in McKesson Europe was included in the divestiture of certain of the Company’s businesses in the European Union (“E.U.”) in October 2022. 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’ deficit in the Company’s Consolidated Balance Sheets. Refer to Financial Note 7, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” for additional information on noncontrolling and redeemable noncontrolling interests, and Financial Note 2, “Business Acquisitions and Divestitures,” for additional information on the acquisition and divestiture activity discussed above.

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 4, “Share-Based Compensation,” for additional information.

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 17, “Commitments and Contingent Liabilities,” for additional information related to 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Business Combinations: The Company accounts for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, 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 variation of the income approach, whereby a forecast of future cash flows attributable to the asset is 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.

Contingent consideration liabilities are measured at their fair value as of the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of projected operational and financial information, the probability of achievement of performance milestones or other agreed-upon events, and the risk-adjusted discount rate used to calculate the present value of the probability-weighted projected financial information. Contingent liabilities are remeasured to fair value at each reporting date until the liability is resolved. Changes in any of the inputs could result in a significant adjustment to the fair value.

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, including any excise tax recognized as a result of the IR Act, 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

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

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of such equity security, and requires additional disclosure requirements. ASU 2022-03 is effective for the Company on a prospective basis for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not expect that this guidance will have a material impact on its consolidated financial statements or related disclosures.

2. Business Acquisitions and Divestitures

Acquisitions

Rx Savings Solutions, LLC

On November 1, 2022, the Company completed its acquisition of 100% of the shares of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to further connect biopharma and payer services to patients. RxSS is a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. The purchase consideration included a payment of $600 million in cash made upon closing and a maximum of $275 million of contingent consideration based on RxSS’ operational and financial performance through calendar year 2025. The payment made upon closing was funded from cash on hand. The financial results of RxSS are included in the Company’s RxTS segment as of the acquisition date. The transaction was accounted for as a business combination.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company recorded a liability for the contingent consideration at its fair value of $92 million as of the acquisition date. As of March 31, 2023, the current portion of $83 million is included within “Other accrued liabilities” and the long-term portion of $9 million is included within “Other non-current liabilities” in the Company’s Consolidated Balance Sheet. The fair value of the contingent consideration liability was estimated using a Monte Carlo simulation model, utilizing internal cash flow projections which are Level 3 inputs under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. The contingent liability will be remeasured to fair value at each reporting date until the liability is resolved with changes in fair value being recognized within “Selling, distribution, general, and administrative expenses” in the Company’s Consolidated Statements of Operations. Recognition of the initial fair value of this contingent consideration is a non-cash investing activity.

The purchase price allocation included acquired identifiable intangible assets of $229 million, primarily representing customer relationships and technology with a weighted average amortization period of 12 years, and goodwill of $463 million. Goodwill has been allocated to the Company’s RxTS segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition is deductible for tax purposes.

The following table summarizes the preliminary purchase price allocation for this acquisition:

(In millions)			Amounts Recognized as of Acquisition Date
Purchase consideration:
Cash			$	600
Contingent consideration			92
Total purchase consideration			$	692
Identifiable assets acquired and liabilities assumed:
Current assets			$	5
Intangible assets			229
Other non-current assets			3
Current liabilities			(8)
Total identifiable net assets			229
Goodwill			463
Net assets acquired			$	692

SCRI Oncology, LLC

On October 31, 2022, the Company completed a transaction with HCA to form SCRI Oncology, an oncology research business, combining McKesson’s USOR and HCA’s SCRI based in Nashville, Tennessee, to advance cancer care and increase access to oncology clinical research. Upon consummation of the transaction, McKesson owns a 51% controlling interest in the combined business, and the financial results are consolidated by the Company and reported within its U.S. Pharmaceutical segment as of the acquisition date. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and $173 million of cash paid to HCA, which was funded from cash on hand. The transaction was accounted for as a business combination.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The purchase price allocation included acquired identifiable intangible assets of $177 million, primarily representing customer relationships as well as trademarks and trade names with a weighted average amortization period of 17 years, and goodwill of $120 million. Goodwill has been allocated to the Company’s U.S. Pharmaceutical segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition of $49 million is deductible for tax purposes. The Company recorded noncontrolling interest of $225 million as a component of equity, which includes HCA’s proportionate interest in the identifiable net assets of SCRI at fair value of $205 million and its proportionate interest in the contributed net assets of USOR at carrying value of $20 million. The difference between the fair value of the Company’s acquired interest in SCRI net assets and the $173 million of cash paid to HCA was recognized as additional paid in capital, as well as the Company’s reduction in ownership interest in USOR net assets.

The following table summarizes the preliminary purchase price allocation for this acquisition:

(In millions)			Amounts Recognized as of Acquisition Date
Purchase consideration:
Cash			$	173
Contribution of USOR			40
Total purchase consideration			$	213
Identifiable assets acquired and liabilities assumed:
Receivables			$	224
Property, plant, and equipment			22
Operating lease right-of-use assets			31
Intangible assets			177
Current liabilities			(42)
Long-term operating lease liabilities			(29)
Other non-current liabilities			(43)
Total identifiable net assets			340
Noncontrolling interest			(225)
Additional paid-in capital			(22)
Goodwill			120
Net assets acquired			$	213

The fair value of the acquired identifiable intangible assets from the acquisitions discussed above were determined by applying the income approach, using a discounted cash flow model in which cash flows anticipated over several periods are discounted to their present value using an appropriate rate that is commensurate with the risk inherent with the transaction. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. Due to the recent timing of these acquisitions, the amounts presented above are subject to change as the Company’s fair value assessments are finalized. Pro forma financial information has not been provided as these acquisitions did not have a material impact, individually, or in the aggregate, to the Company’s consolidated results of operations.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Divestitures

In July 2021, the Company announced its intention to exit its businesses in Europe (“European Divestiture Activities”), as discussed in more detail below. Assets and liabilities of $4.5 billion and $4.7 billion, respectively as of March 31, 2022, met the criteria for classification as held for sale in the Company’s Consolidated Balance Sheet, primarily consisting of disposal groups related to the Company’s European Divestiture Activities within the International segment. At March 31, 2023, the Company had no assets or liabilities related to these divestiture activities that met the classification of held for sale and the decrease in these amounts during fiscal 2023 was driven by the divestiture of the Company’s E.U. disposal group (as defined below) in October 2022 and U.K. disposal group (as defined below) in April 2022, each as discussed in more detail below. 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 Euro and British pound sterling. Net gains and charges related to these divestiture activities during the years ended March 31, 2023 and 2021 were not material. The gains and charges for each year were recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. The Company determined that the disposal groups did not meet the criteria for classification as discontinued operations.

European Divestiture Activities

On October 31, 2022, the Company completed its previously announced transaction to sell certain of its businesses in the 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. As part of the transaction, the Company received cash proceeds of $892 million and divested net assets of $1.3 billion, including cash of $319 million, derecognized the carrying value of its noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) of $382 million, and released $153 million of net accumulated other comprehensive loss.

During the years ended March 31, 2023 and 2022, the Company recorded net gains of $66 million and net charges totaling $438 million, respectively, to remeasure the E.U. disposal group to fair value less costs to sell. The charges for the year ended March 31, 2022 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 and net losses of $151 million related to the accumulated other comprehensive loss 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 Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The total assets and liabilities of the E.U. disposal group that met the classification of held for sale in the Company’s Consolidated Balance Sheet at March 31, 2022 were 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 in fiscal 2022 related to the impairment of individual assets, including a $113 million impairment of internally developed software recorded directly against the gross value of the assets impacted.

On April 6, 2022, the Company completed the previously announced sale of its retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. As part of the transaction, the Company divested net assets of $615 million and released $731 million of accumulated other comprehensive loss and the buyer assumed and repaid a note payable to the Company of $118 million. 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 included a $734 million loss related to the accumulated other comprehensive loss 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The total assets and liabilities of the U.K. disposal group that met the classification of held for sale in the Company’s Consolidated Balance Sheet at March 31, 2022 were as follows:

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

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 and the buyer assumed a note payable to the Company of approximately $63 million which was paid to McKesson in the fourth quarter of fiscal 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.

Subsequent to the divestiture activities discussed above, the Company’s European operations primarily consist of its retail and distribution businesses in Norway.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

German Pharmaceutical Wholesale Joint Venture

On November 1, 2020, the Company completed a transaction with Walgreens Boots Alliance (“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 fiscal 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 fiscal 2021. In conjunction with the contribution, the Company recorded charges of $58 million in the year ended March 31, 2021, 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 Statement 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. Refer to Financial Note 5, “Other Income, Net,” for information regarding the divestiture of this investment.

Other

For the periods presented, the Company also completed de minimis acquisitions and divestitures within its operating segments. Financial results for the Company’s business acquisitions have been included in its consolidated financial statements as of their respective acquisition dates. Purchase prices for business acquisitions have been allocated based on estimated fair values at the respective acquisition dates.

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net, of $209 million, $281 million, and $334 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively. These charges are included in “Restructuring, impairment, and related charges, net” in the Consolidated Statements of Operations.

Restructuring Initiatives

During the fourth quarter of fiscal 2023, the Company approved a broad set of initiatives to drive operational efficiencies and increase cost optimization efforts, with the intent of simplifying its infrastructure and realizing long-term sustainable growth. These initiatives include headcount reductions and the exit or downsizing of certain facilities. The Company anticipates total charges of approximately $125 million across its RxTS and U.S. Pharmaceutical segments as well as Corporate, consisting primarily of employee severance and other employee-related costs, facility and other exit-related costs, as well as long-lived asset impairments. The Company recorded charges of $60 million for the year ended March 31, 2023 related to this program, which reflects severance and other employee-related costs within its RxTS segment as well as asset impairments and accelerated depreciation, including certain asset impairments primarily within its U.S. Pharmaceutical segment and real estate charges within Corporate. This restructuring program is anticipated to be substantially complete by the end of fiscal 2024.

During the first quarter of fiscal 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily 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 fiscal 2022 after which immaterial charges will continue to be incurred through the termination date of certain leases.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

During the first quarter of fiscal 2021, the Company committed to an initiative within the U.K., which was 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 fiscal 2022.

During the fourth quarter of fiscal 2019, the Company committed to certain programs to continue its operating model and cost optimization efforts. The Company implemented centralization of certain functions and outsourcing through an expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also included 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 for the year ended March 31, 2021, consisting primarily of employee severance, accelerated depreciation expense, and project consulting fees. This initiative was substantially complete in fiscal 2021.

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 for the year ended March 31, 2021, consisting primarily of employee retention expenses, severance, long-lived asset impairments, and accelerated depreciation. The relocation was substantially complete in January 2021.

Fiscal 2023

Restructuring, impairment, and related charges, net for the year ended March 31, 2023 consisted of the following:

			Year Ended March 31, 2023
(In millions)			U.S. Pharmaceutical (1)						Prescription Technology Solutions (1)						Medical-Surgical Solutions						International						Corporate (1)						Total
Severance and employee-related costs, net			$	6					$	23					$	2					$	4					$	—					$	35
Exit and other-related costs (2)			7						7						3						21						64						102
Asset impairments and accelerated depreciation			25						13						5						10						19						72
Total			$	38					$	43					$	10					$	35					$	83					$	209

(1)Includes costs related to operational efficiencies and cost optimization efforts described above to support the Company’s technology solutions.

(2)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. Corporate includes costs for business transformation and optimization efforts related to the Company’s technology organization. The International segment includes costs related to the Company’s European divestitures.

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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)

The following table summarizes the activity related to the restructuring liabilities associated with the Company’s restructuring initiatives for the years ended March 31, 2023 and 2022:

(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Corporate						Total
Balance, March 31, 2021			$	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 (1)			(7)						—						—						(23)						(10)						(40)
Balance, March 31, 2022 (2)			11						3						1						56						59						130
Restructuring, impairment, and related charges, net			38						43						10						35						83						209
Non-cash charges			(25)						(13)						(5)						(10)						(19)						(72)
Cash payments			(9)						(7)						(3)						(10)						(86)						(115)
Other (1)			—						—						—						(58)						(2)						(60)
Balance, March 31, 2023 (3)			$	15					$	26					$	3					$	13					$	35					$	92

(1) Other primarily includes cumulative translation adjustments and transfers to certain other liabilities. For the Company’s International segment, other also includes a reduction to the liability for the divestitures of the E.U. disposal group and the U.K. disposal group in fiscal 2023, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(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.

(3) As of March 31, 2023, the total reserve balance was $92 million, of which $66 million was recorded in “Other accrued liabilities” and $26 million was recorded in “Other non-current liabilities” in the Company’s Consolidated Balance Sheets.

Long-Lived Asset Impairments

Fiscal 2023

There were no material long-lived asset impairments recorded in fiscal 2023.

Fiscal 2022

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

Fiscal 2021

In fiscal 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.

4. 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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.

Impact on Net Income

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

			Years Ended March 31,
(In millions)			2023						2022						2021
Restricted stock unit awards (1)			$	149					$	148					$	137
Stock options			—						2						4
Employee stock purchase plan			13						11						10
Share-based compensation expense			162						161						151
Tax benefit for share-based compensation expense (2)			(87)						(35)						(23)
Share-based compensation expense, net of tax			$	75					$	126					$	128

(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 benefit for fiscal 2023, fiscal 2022, and fiscal 2021 included discrete income tax benefit of $58 million and $10 million, and discrete income tax expense of $1 million, respectively.

Stock Plans

In April 2022, the Company’s stockholders approved the McKesson Corporation 2022 Stock Plan (the “2022 Stock Plan”), to replace the McKesson Corporation 2013 Stock Plan (the “2013 Stock Plan”), which expired in 2023. The 2022 Stock Plan permits the grant of awards in the form of restricted stock, RSUs, PSUs, stock options, and other share-based awards to selected employees, officers, and non-employee directors. The shares previously reserved under the 2013 Stock Plan described below are no longer available for issuance pursuant to the 2022 Stock Plan. As of March 31, 2023, 4.9 million shares remain available for future grant under the 2022 Stock Plan.

In July 2013, the Company’s stockholders approved the 2013 Stock Plan to replace the McKesson Corporation 2005 Stock Plan (the “2005 Stock Plan”), which expired in 2013. Under these stock plans, the Company issued restricted stock, RSUs, PSUs, stock options, and other share-based awards to selected employees, officers, and non-employee directors. The 2013 Stock Plan reserved 30.0 million shares plus unused reserved shares under the 2005 Stock Plan. As of March 31, 2023, no 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, 2023, approximately 37,000 RSUs for the Company’s directors were vested.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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.

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

			Years Ended March 31,
			2023						2022						2021
Expected stock price volatility			34		%				35		%				36		%
Expected dividend yield			0.6		%				0.9		%				1.1		%
Risk-free interest rate			2.7		%				0.3		%				0.2		%
Expected life (in years)			3						3						3

The following table summarizes activity for restricted stock unit awards (RSUs and PSUs) during fiscal 2023:

(In millions, except per share data)			Shares (1)						Weighted- Average Grant Date Fair Value Per Share
Nonvested, March 31, 2022			3						$	160.47
Granted			—						332.86
Cancelled			—						201.79
Vested			(1)						149.11
Nonvested, March 31, 2023			2						$	238.77

(1)Amounts less than a million are shown as zero in the table above.

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

			Years Ended March 31,
(In millions)			2023						2022						2021
Total fair value of shares vested			$	200					$	144					$	79
Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock unit awards not yet recognized, pre-tax			$	192					$	165					$	147
Weighted-average period in years over which restricted stock unit award cost is expected to be recognized			2						2						2

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, 2023, 2022, and 2021.

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.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following is a summary of stock options outstanding at March 31, 2023:

												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			—			$182.78						—						1						$	154.36					—						$	154.36

The following table summarizes stock option activity during fiscal 2023:

(In millions, except per share data)			Shares						Weighted- Average Exercise Price						Weighted- Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (2)
Outstanding, March 31, 2022			1						$	175.23					2						$	114
Granted			—						—
Cancelled			—						125.02
Exercised			(1)						191.12
Outstanding, March 31, 2023			—						154.36						1						73
Vested and expected to vest (1)			—						154.36						1						73
Vested and exercisable, March 31, 2023			—						154.36						1						73

(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)			2023						2022						2021
Weighted-average grant date fair value per stock option			$	—					$	—					$	—
Aggregate intrinsic value on exercise			$	69					$	28					$	5
Cash received upon exercise			$	93					$	157					$	38
Tax benefits realized related to exercise			$	4					$	5					$	4
Total fair value of stock options vested			$	1					$	5					$	10
Total compensation cost, net of estimated forfeitures, related to unvested stock options not yet recognized, pre-tax			$	—					$	—					$	2
Weighted-average period in years over which stock option compensation cost is expected to be recognized			0						0						2

Employee Stock Purchase Plan

The Company has an ESPP under which 23.1 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 fiscal 2023, fiscal 2022, and fiscal 2021. At March 31, 2023, 3.6 million shares remain available for issuance.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

5. Other Income, Net

Other income, net consists of the following:

			Years Ended March 31,
(In millions)			2023						2022						2021
Interest income (1)			$	107					$	10					$	12
Equity in earnings, net (2)			5						43						48
Net gains on investments in equity securities (3)			106						98						133
Other, net (4)			279						108						30
Total			$	497					$	259					$	223

(1)The increase in interest income for fiscal 2023 compared to fiscal 2022 and fiscal 2021 is primarily due to higher interest rates on certain cash balances.

(2)Primarily recorded within the Company’s International segment for fiscal 2022 and fiscal 2021.

(3)Represents net realized and unrealized gains as well as impairment charges 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 the disposal of certain of these investments, including a gain of $142 million for the year ended March 31, 2023 related to the exit of one of the Company’s investments in equity securities in July 2022 for proceeds of $179 million. Refer to Financial Note 15, “Fair Value Measurements” for more information on these types of investments.

(4)Other, net for year ended March 31, 2023 includes the following:

• a gain of $126 million related to a cash payment received for the early termination of a tax receivable agreement (“TRA”) exercised by Change Healthcare Inc. (“Change”) in October 2022. The Company was a party to a TRA entered into as part of the formation of the joint venture with Change, from which McKesson has since exited. The TRA generally required Change to pay the Company 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the amortization allocated to Change by the joint venture. In October 2022, Change exercised its right pursuant to the TRA to terminate the agreement; and

• a gain of $97 million recognized from the termination of certain forward starting fixed interest rate swaps, as discussed in more detail in Financial Note 14, “Hedging Activities.”

Other, net for the year ended March 31, 2022 includes a gain of $42 million as part of the completed sale of the Company’s previously held 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.

6. Income Taxes

			Years Ended March 31,
(In millions)			2023						2022						2021
Income (loss) from continuing operations before income taxes
U.S.			$	3,308					$	1,944					$	(6,019)
Foreign			1,322						(16)						985
Income (loss) from continuing operations before income taxes			$	4,630					$	1,928					$	(5,034)

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, except percentages)			2023						2022						2021
Current
Federal			$	619					$	233					$	(15)
State			126						129						47
Foreign			180						240						181
Total current			925						602						213
Deferred
Federal			(46)						88						(562)
State			36						(16)						(204)
Foreign			(10)						(38)						(142)
Total deferred			(20)						34						(908)
Income tax expense (benefit)			$	905					$	636					$	(695)
Reported income tax rate			19.5		%				33.0		%				(13.8)		%

Fluctuations in the Company’s reported income tax rates are primarily due to non-cash charges related to remeasuring the value of the E.U. disposal group and U.K. disposal group held for sale to fair value less costs to sell in fiscal 2022, the impact of opioid-related claims, including charges of $8.1 billion ($6.8 billion after-tax) in fiscal 2021, changes in the mix of earnings between various taxing jurisdictions, and other discrete items recognized in each fiscal year.

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 was as follows:

			Years Ended March 31,
(In millions)			2023						2022						2021
Income tax expense (benefit) at federal statutory rate			$	972					$	405					$	(1,057)
State income taxes, net of federal tax benefit			134						85						(206)
Tax effect of foreign operations			(145)						(186)						(77)
Unrecognized tax benefits and settlements			6						(26)						41
Opioid-related litigation and claims			9						38						715
Net tax benefit on intellectual property transfer			—						—						(105)
E.U. disposal transaction loss			(8)						345						—
Share-based compensation			(58)						(10)						1
Other, net (1)			(5)						(15)						(7)
Income tax expense (benefit)			$	905					$	636					$	(695)

(1)The Company’s effective tax rates were impacted by other favorable U.S. federal permanent differences, including research and development credits of $4 million in each of fiscal 2023 and fiscal 2022, and $5 million in fiscal 2021.

During the year ended March 31, 2023, the Company recognized discrete tax benefits primarily consisting of $115 million related to statute of limitation expirations and tax settlements in various taxing jurisdictions and $58 million related to the tax impact of share-based compensation.

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 to fair value less costs to sell, as described in Financial Note 2, “Business Acquisitions and Divestitures.”

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company’s reported income tax rate for fiscal 2022 and fiscal 2021 was impacted by the charge for opioid-related claims of $274 million ($237 million after-tax) and $8.1 billion ($6.8 billion after-tax), respectively, as described in Financial Note 17, “Commitments and Contingent Liabilities.”

The Company’s reported income tax rate for fiscal 2021 was unfavorably impacted by a non-deductible, non-cash pre-tax charge of $58 million, primarily to remeasure the carrying value of assets and liabilities held for sale related to the formation of a German pharmaceutical wholesale joint venture, which the Company exited in fiscal 2022. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” and Financial Note 5, “Other Income, Net,” for more information.

During fiscal 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 were recognized for fiscal 2021, with a corresponding increase to a deferred tax asset for the temporary difference arising from the buyer’s excess tax basis.

Deferred tax balances consisted of the following:

			March 31,
(In millions)			2023						2022
Assets
Receivable allowances			$	51					$	49
Opioid-related litigation and claims			699						755
Compensation and benefit related accruals			265						285
Net operating loss and credit carryforwards			760						739
Lease obligations			427						422
Other			127						83
Subtotal			2,329						2,333
Less: valuation allowance			(696)						(726)
Total assets			1,633						1,607
Liabilities
Inventory valuation and other assets			(2,079)						(1,993)
Fixed assets and systems development costs			(32)						(184)
Intangibles			(267)						(233)
Lease right-of-use assets			(412)						(401)
Other			(19)						(17)
Total liabilities			(2,809)						(2,828)
Net deferred tax liability			$	(1,176)					$	(1,221)
Long-term deferred tax asset			$	211					$	197
Long-term deferred tax liability			(1,387)						(1,418)
Net deferred tax liability			$	(1,176)					$	(1,221)

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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 $696 million and $726 million in fiscal 2023 and fiscal 2022, 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 $30 million in the current fiscal year relates primarily to the remeasurement of foreign loss carryforwards and their related valuation allowance for foreign exchange fluctuations, 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 $49 million, $3.4 billion, and $2.0 billion at March 31, 2023, respectively. Federal and state net operating losses will expire at various dates from 2024 through 2043. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has foreign capital loss carryforwards of $701 million with indefinite lives.

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

			Years Ended March 31,
(In millions)			2023						2022						2021
Unrecognized tax benefits at beginning of period			$	1,523					$	1,754					$	958
Additions based on tax positions related to prior years			—						14						53
Reductions based on tax positions related to prior years			(26)						(131)						(5)
Additions based on tax positions related to current year			21						14						755
Reductions based on settlements			(96)						(20)						(8)
Reductions based on the lapse of the applicable statutes of limitations			(16)						(102)						(12)
Exchange rate fluctuations			(7)						(6)						13
Unrecognized tax benefits at end of period			$	1,399					$	1,523					$	1,754

As of March 31, 2023, the Company had $1.4 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate, if recognized. The decreases in unrecognized tax benefits in each fiscal year are primarily attributable to statute of limitation expirations in various taxing jurisdictions.

During the next twelve months, the Company does not expect any material reduction in its unrecognized tax benefits. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year. The unrecognized tax benefit may also increase or decrease due to future developments in opioid-related litigation and claims, as discussed in Financial Note 17, “Commitments and Contingent Liabilities.”

During the fourth quarter of fiscal 2023, the Internal Revenue Service (“IRS”) communicated proposed adjustments to taxable income reported in the Company’s fiscal 2018 and fiscal 2019 U.S. Federal Corporate Income Tax returns. The adjustments would increase federal income tax liability in the range of $600 million to $700 million. The Company disagrees with the proposed adjustments and intends to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. The Company expects it could take several years to reach a final resolution on these matters. Although the final resolution of these matters is uncertain, the Company believes in the merits of its tax positions and believes that it has adequately reserved for any adjustments to the provision of income taxes that may ultimately result. However, if the IRS prevails in these matters, the assessed tax and interest, if any, could have a material adverse effect on the Company’s financial position, results of operations, and cash flows in the period of resolution.

The Company reports interest and penalties on income taxes as income tax expense. It recognized income tax expense of $31 million, $8 million, and $9 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively, representing interest and penalties, in its Consolidated Statements of Operations. As of March 31, 2023 and 2022, the Company accrued cumulatively $138 million and $108 million, respectively, in interest and penalties on unrecognized tax benefits in its Consolidated Balance Sheets.

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 Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal 2015 through the current fiscal year.

Undistributed earnings of the Company’s foreign operations of approximately $4.8 billion were considered indefinitely reinvested at March 31, 2023. Following the 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.

7. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s previously recognized redeemable noncontrolling interests primarily related to its former 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. The Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million and $43 million for the years ended March 31, 2022 and 2021, 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 fiscal 2022 and fiscal 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 redeemable 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. 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.

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, Vantage, and SCRI Oncology. As discussed above, after June 15, 2021, noncontrolling interests also represented minority shareholder equity interests in McKesson Europe and at March 31, 2022, the Company owned approximately 95% of McKesson Europe’s outstanding common shares. The Company’s noncontrolling interest in McKesson Europe was included in the divestiture of the E.U. disposal group in October 2022, as discussed in Financial Note 2, “Business Acquisitions and Divestitures.”

Noncontrolling interests in the Company’s Consolidated Balance Sheets were $367 million and $480 million at March 31, 2023 and 2022, respectively. For the years ended March 31, 2023, 2022, and 2021, the Company allocated a total of $162 million, $165 million, and $156 million of net income to noncontrolling interests, respectively.

Changes in redeemable noncontrolling interests and noncontrolling interests for the years ended March 31, 2023, 2022, and 2021 were as follows:

(In millions)						Noncontrolling Interests						Redeemable Noncontrolling Interests
Balance, March 31, 2020						$	217					$	1,402
Net income attributable to noncontrolling interests						156						43
Other comprehensive loss						—						(79)
Payments to noncontrolling interests						(177)						—
Reclassification of recurring compensation to other accrued liabilities						—						(43)
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
Payments to noncontrolling interests						(155)						—
Reclassification of recurring compensation to other accrued liabilities						(7)						(8)
Exercises of Put Right						—						(983)
Reclassification of McKesson Europe redeemable noncontrolling interests						287						(287)
Other						(2)						(4)
Balance, March 31, 2022						480						—
Net income attributable to noncontrolling interests						162						—
Other comprehensive income						44						—
Payments to noncontrolling interests						(150)						—
Reclassification of recurring compensation to other accrued liabilities						(5)						—
Formation of SCRI Oncology						225						—
Derecognition of noncontrolling interests in McKesson Europe						(382)						—
Other						(7)						—
Balance, March 31, 2023						$	367					$	—

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

8. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is 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.

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. Less than 1 million of potentially dilutive securities for fiscal 2023 and fiscal 2022 were excluded from the computation of diluted earnings (loss) per common share as they were anti-dilutive.

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

			Years Ended March 31,
(In millions, except per share amounts)			2023						2022						2021
Income (loss) from continuing operations			$	3,725					$	1,292					$	(4,339)
Net income attributable to noncontrolling interests			(162)						(173)						(199)
Income (loss) from continuing operations attributable to McKesson Corporation			3,563						1,119						(4,538)
Loss from discontinued operations, net of tax			(3)						(5)						(1)
Net income (loss) attributable to McKesson Corporation			$	3,560					$	1,114					$	(4,539)
Weighted-average common shares outstanding:
Basic			141.1						152.3						160.6
Effect of dilutive securities:
Stock options			0.2						0.2						—
Restricted stock units (1)			0.9						1.6						—
Diluted			142.2						154.1						160.6
Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations			$	25.05					$	7.26					$	(28.26)
Discontinued operations			(0.02)						(0.03)						—
Total			$	25.03					$	7.23					$	(28.26)
Basic
Continuing operations			$	25.25					$	7.35					$	(28.26)
Discontinued operations			(0.02)						(0.03)						—
Total			$	25.23					$	7.32					$	(28.26)

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

(2)Certain computations may reflect rounding adjustments.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

9. Leases

Lessee

Supplemental balance sheet information related to leases was as follows:

			March 31,
(In millions, except lease term and discount rate)			2023						2022
Operating leases (1)
Operating lease right-of-use assets (2)			$	1,635					$	1,548
Current portion of operating lease liabilities			$	299					$	297
Long-term operating lease liabilities			1,402						1,366
Total operating lease liabilities (2)			$	1,701					$	1,663
Finance leases
Property, plant, and equipment, net			$	180					$	206
Current portion of long-term debt			$	29					$	25
Long-term debt			173						185
Total finance lease liabilities			$	202					$	210
Weighted-average remaining lease term (years) (3)
Operating leases			6.9						6.9
Finance leases			7.8						8.8
Weighted-average discount rate (3)
Operating leases			3.03		%				2.47		%
Finance leases			2.66		%				2.50		%

(1)As discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” in fiscal 2022, the Company rationalized its office space, including certain property leases in North America, and in fiscal 2023, management approved further changes to its real estate footprint as part of a broader set of initiatives. 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. These initiatives 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 well as 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 completed in fiscal 2023 as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.” These amounts were included under the caption “Assets held for sale” and “Liabilities held for sale” in the Consolidated Balance Sheet as of March 31, 2022. Amortization of the assets ceased upon classification as held for sale.

(3)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 completed in fiscal 2023 as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The components of lease cost were as follows:

			Years Ended March 31,
(In millions)			2023						2022						2021
Short-term lease cost			$	20					$	43					$	32
Operating lease cost			384						431						465
Finance lease cost:
Amortization of right-of-use assets			24						33						23
Interest on lease liabilities			6						5						6
Total finance lease cost			30						38						29
Variable lease cost (1)			128						127						125
Sublease income			(33)						(41)						(36)
Total lease cost (2)			$	529					$	598					$	615

(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)			2023						2022						2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	(338)					$	(356)					$	(362)
Operating cash flows from finance leases			(1)						—						(4)
Financing cash flows from finance leases			(29)						(31)						(31)
Right-of-use assets obtained in exchange for lease obligations:
Operating leases			$	462					$	286					$	321
Finance leases			17						32						75

Maturities of lease liabilities as of March 31, 2023 were as follows:

(In millions)			Operating Leases						Finance Leases						Total
Fiscal 2024			$	340					$	33					$	373
Fiscal 2025			321						31						352
Fiscal 2026			273						29						302
Fiscal 2027			230						28						258
Fiscal 2028			183						26						209
Thereafter			547						79						626
Total lease payments (1)			1,894						226						2,120
Less imputed interest			(193)						(24)						(217)
Present value of lease liabilities			$	1,701					$	202					$	1,903

(1)Total lease payments are not reduced by future minimum sublease income of $191 million which is due under noncancellable subleases.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

As of March 31, 2023, the Company entered into additional leases primarily for facilities that have not yet commenced with future lease payments of $98 million that are not reflected in the table above. These operating leases will commence in calendar year 2023 with noncancellable lease terms of two to ten years.

Lessor

The Company leases certain owned equipment, classified as direct financing or sales-type leases, to physician practices. As of March 31, 2023 and 2022, the total lease receivable was $342 million and $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, 2023, 2022, and 2021.

10. 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, 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
Goodwill acquired			160						463						—						5						628
Foreign currency translation adjustments, net			(21)						—						—						(99)						(120)
Other adjustments			(12)						—						—						—						(12)
Balance, March 31, 2023			$	4,050					$	2,005					$	2,453					$	1,439					$	9,947

Goodwill Impairment Charges

The Company evaluates goodwill for impairment on an annual basis 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. During the first quarter of fiscal 2023, the Company voluntarily changed its annual goodwill impairment testing date from October 1st to April 1st to align with a change in the timing of the Company’s annual long-term planning process. Accordingly, management determined that the change in accounting principle is preferable under the circumstance. This change has been applied prospectively from April 1, 2022, as a retrospective application is deemed impracticable due to the inability to objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight. This change was not material to the Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The fair value of the reporting units is 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 relies 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 fiscal 2023, fiscal 2022, and fiscal 2021 did not indicate any impairment of goodwill.

In the second quarter of fiscal 2021, the Company implemented a new segment reporting structure which resulted in the Company’s current 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 fiscal 2021 as the estimated fair value of the former 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, 2023 and 2022, the balance of goodwill in the International segment primarily relates to the Company’s McKesson Canada reporting unit.

Refer to Financial Note 15, “Fair Value Measurements,” for more information on this nonrecurring fair value measurement. As of March 31, 2023 and 2022, accumulated goodwill impairment losses in the Company’s International segment were approximately $700 million. 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 were as follows:

			March 31, 2023																								March 31, 2022
(Dollars in millions)			Weighted- Average Remaining Amortization Period (Years)						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			12						$	2,971					$	(1,765)					$	1,206					$	2,777					$	(1,691)					$	1,086
Service agreements			10						1,137						(623)						514						1,085						(573)						512
Trademarks and trade names			12						833						(430)						403						819						(386)						433
Technology			11						264						(129)						135						128						(116)						12
Other			10						193						(174)						19						187						(171)						16
Total									$	5,398					$	(3,121)					$	2,277					$	4,996					$	(2,937)					$	2,059		(1)

(1)Excludes net intangible assets of approximately $384 million related to the European divestiture activities discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.” 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 fiscal 2022.

All intangible assets were subject to amortization as of March 31, 2023 and 2022. Amortization expense of intangible assets was $236 million, $332 million, and $422 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. Estimated annual amortization expense of intangible assets was as follows: $246 million, $240 million, $208 million, $201 million, and $197 million for fiscal 2024 through fiscal 2028, respectively, and $1.2 billion thereafter.

Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for a description of the goodwill and intangible assets recognized as part of the RxSS acquisition and formation of SCRI Oncology.

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

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

11. Debt and Financing Activities

Long-term debt consisted of the following:

			March 31,
(In millions)			2023						2022
U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022			$	—					$	400
2.85% Notes due March 15, 2023			—						360
3.80% Notes due March 15, 2024			918						918
0.90% Notes due December 3, 2025			500						500
5.25% Notes due February 15, 2026			499						—
1.30% Notes due August 15, 2026			498						498
7.65% Debentures due March 1, 2027			150						150
3.95% Notes due February 16, 2028			343						343
4.75% Notes due May 30, 2029			196						196
6.00% Notes due March 1, 2041			218						217
4.88% Notes due March 15, 2044			255						255
Foreign currency notes (1) (3)
1.50% Euro Notes due November 17, 2025			649						662
1.63% Euro Notes due October 30, 2026			542						554
3.13% Sterling Notes due February 17, 2029			555						582
Lease and other obligations (4)			271						244
Total debt			5,594						5,879
Less: Current portion			968						799
Total long-term debt			$	4,626					$	5,080

(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, “Business Acquisitions and Divestitures.” 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, 2023 and 2022, $5.6 billion and $5.9 billion, respectively, of total debt was outstanding, of which $968 million and $799 million, respectively, was included in “Current portion of long-term debt” in the Company’s Consolidated Balance Sheets.

On February 15, 2023, the Company completed a public offering of 5.25% Notes due 2026 (the “February 2026 Notes”) in a principal amount of $500 million. Interest on the February 2026 Notes is payable semi-annually on February 15th and August 15th of each year, commencing on August 15, 2023. Proceeds received from this note issuance, net of discounts and offering expenses, were $497 million. The Company utilized the net proceeds from this note issuance to repay existing debt. On or after February 15, 2024, the Company may redeem the February 2026 Notes at its option, in whole or in part, at any time and from time to time, for cash at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest thereon to, but not including, the redemption date.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On August 12, 2021, the Company completed a public offering of 1.30% Notes due August 15, 2026 (the “August 2026 Notes”) in a principal amount of $500 million. Interest on the August 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 issuance 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 issuance for general corporate purposes.

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 as those of other Series issued by the Company. Upon required notice to holders of notes with fixed interest rates, the Company may redeem those notes at any time prior to maturity, in whole or in part, for cash at redemption prices. In the event of the occurrence of both (1) a change of control of the Company and (2) a downgrade of a Series below an investment grade rating by each of the Ratings Agencies (as defined in the applicable Officer’s Certificate) 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 March 15, 2023, the Company retired its $360 million outstanding principal amount of 2.85% Notes due 2023 upon maturity. On December 15, 2022, the Company retired its $400 million outstanding principal amount of 2.70% Notes due 2022 upon maturity. On July 17, 2021, the Company redeemed its €600 million (or, approximately $709 million) outstanding principal amount of Euro-denominated 0.63% Notes due 2021, prior to maturity at par value. On December 1, 2020, the Company redeemed its $323 million outstanding principal amount of 4.75% Notes due 2021 prior to maturity. On November 30, 2020, the Company retired its $700 million outstanding principal amount of 3.65% Notes due 2020 upon maturity. All of these notes were repaid or redeemed using cash on hand.

Tender Offer

On July 23, 2021, the Company completed a cash tender offer for a portion of its existing outstanding (i) 2.85% Notes due 2023, (ii) 3.80% Notes due 2024, (iii) 7.65% Debentures due 2027, (iv) 3.95% Notes due 2028, (v) 4.75% Notes due 2029, (vi) 6.00% Notes due 2041, and (vii) 4.88% Notes due 2044 (collectively referred to herein as the “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 Tender Offer 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 for 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 $968 million, $39 million, $1.7 billion, $1.2 billion, and $376 million for fiscal 2024 through fiscal 2028, respectively, and $1.3 billion thereafter.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Revolving Credit Facilities

On November 7, 2022, the Company entered into a Credit Agreement (the “2022 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. The 2022 Credit Facility replaced the Company’s previous syndicated $4.0 billion five-year senior unsecured credit facility, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), which was scheduled to mature in September 2024. The 2020 Credit Facility was terminated in connection with the execution of the 2022 Credit Facility. There were no borrowings under the 2020 Credit Facility during the years ended March 31, 2023, 2022, and 2021, and no amounts outstanding at the time of its termination.

Borrowings under the 2022 Credit Facility bear interest based upon the Term Secured Overnight Financing Rate (“SOFR”) for credit extensions denominated in U.S. dollars, the Sterling Overnight Index Average Reference Rate for credit extensions denominated in British pound sterling, the Euro Interbank Offered Rate for credit extensions denominated in Euros, the Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates, as applicable, plus agreed upon margins. The 2022 Credit Facility 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 2022 Credit Facility. If the Company does not comply with these covenants, its ability to use the 2022 Credit Facility may be suspended and repayment of any outstanding balances under the 2022 Credit Facility may be required. At March 31, 2023, the Company was in compliance with all covenants under the 2022 Credit Facility. The 2022 Credit Facility also permits the Company to establish key performance indicators with respect to certain sustainability targets of the Company in consultation with certain sustainability coordinators. The Company may enter into an amendment to the 2022 Credit Facility to provide for certain adjustments to the otherwise applicable facility fee and margins based on the Company’s performance against any established key performance indicators. The 2022 Credit Facility is scheduled to mature in November 2027. The remaining terms and conditions of the 2022 Credit Facility are substantially similar to those previously in place under the 2020 Credit Facility. The Company can use funds obtained under the 2022 Credit Facility for general corporate purposes. There were no borrowings under the 2022 Credit Facility during the year ended March 31, 2023 and no amounts outstanding at March 31, 2023.

2022 Term Loan Credit Facility

On November 7, 2022, the Company entered into a Credit Agreement (the “2022 Term Loan Credit Facility”) pursuant to which the Company had an unsecured delayed draw term loan facility up to $500 million which was available for borrowing for 90 days after the closing date in up to three separate borrowings. During the third quarter of fiscal 2023, the Company borrowed $500 million under the 2022 Term Loan Credit Facility at an interest rate of three-month Term SOFR plus 110 basis points, which was payable quarterly and had an original maturity date of November 7, 2025. The funds obtained were used for general corporate purposes. In February 2023, the Company repaid all borrowings outstanding under the 2022 Term Loan Credit Facility, at which point this facility was terminated in its entirety.

Other Facilities

The Company also maintained 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, which were transferred as part of the divestiture of the E.U. disposal group in October 2022. Borrowings and repayments were not material during the years ended March 31, 2023, 2022, and 2021, and amounts outstanding under these credit lines were not material at March 31, 2022.

Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. During the years ended March 31, 2023, 2022, and 2021, the Company borrowed $8.5 billion, $11.2 billion, and $6.3 billion, respectively, and repaid $8.5 billion, $11.2 billion, and $6.3 billion, respectively, under the program. At March 31, 2023 and 2022, there were no commercial paper notes outstanding.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

12. 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 or Consolidated Statements of Cash Flows. Total assets and liabilities included in its Consolidated Balance Sheets for these VIEs were $621 million and $53 million, respectively, at March 31, 2023, and $660 million and $65 million, respectively, at March 31, 2022.

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 business in the fourth quarter of fiscal 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 at March 31, 2023 and 2022, 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 16, “Financial Guarantees and Warranties.” The Company believes there is no material loss exposure on these assets or from these relationships.

13. Pension Benefits

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

Non-U.S. Defined Benefit Pension Plans

As of March 31, 2023, the Company’s non-U.S. defined benefit pension plans cover eligible employees located predominantly in Norway 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.

As part of the European divestiture activities discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” pension liabilities of $85 million, as part of the E.U. disposal group, and pension assets of $49 million, as part of the U.K. disposal group, were included under the captions “Liabilities held for sale” and “Assets held for sale,” respectively, in the Consolidated Balance Sheet as of March 31, 2022. During the third quarter of fiscal 2023, the Company divested pension liabilities totaling $75 million and released $13 million of gains from accumulated other comprehensive loss related to the divestiture of the E.U. disposal group. During the first quarter of fiscal 2023, the Company divested pension assets of $49 million and released $30 million of accumulated other comprehensive loss related to the divestiture of the U.K. disposal group.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

During the fourth quarter of fiscal 2022, the Company divested $43 million of pension liabilities and released $11 million of accumulated other comprehensive loss related to the sale of its Austrian business. During the third quarter of fiscal 2021, the Company divested $187 million of pension liabilities and released $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, “Business Acquisitions and Divestitures.”

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 were as follows:

			Years Ended March 31,
(In millions)			2023						2022						2021
Service cost - benefits earned during the year			$	5					$	11					$	15
Interest cost on projected benefit obligation			7						14						19
Expected return on assets			(5)						(19)						(20)
Amortization of unrecognized actuarial loss and prior service costs			1						3						5
Curtailment/settlement gain			(1)						(5)						—
Net periodic pension expense			$	7					$	4					$	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.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

						Years Ended March 31,
(In millions)												2023						2022
Change in benefit obligations
Benefit obligation at beginning of period (1)												$	701					$	875
Service cost												5						11
Interest cost												7						14
Actuarial gain												(65)						(55)
Benefits paid												(11)						(35)
Curtailment/settlement												(3)						(32)
Expenses paid												(1)						(1)
Divestitures (2)												(408)						(43)
Foreign exchange impact and other												(53)						(33)
Benefit obligation at end of period (1)												$	172					$	701
Change in plan assets
Fair value of plan assets at beginning of period												$	681					$	735
Actual return on plan assets												(51)						(4)
Employer and participant contributions												7						43
Benefits paid												(11)						(35)
Expenses paid												(1)						(1)
Settlements												(3)						(24)
Divestitures (2)												(393)						—
Foreign exchange impact and other												(55)						(33)
Fair value of plan assets at end of period												$	174					$	681
Funded status at end of period												$	2					$	(20)
Amounts recognized on the balance sheet
Current assets (3)												$	—					$	49
Long-term assets												24						40
Current liabilities (3)												(1)						(90)
Long-term liabilities												(21)						(19)
Total												$	2					$	(20)

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

(2)Relates to the completed divestitures of the E.U. disposal group and U.K. disposal group in fiscal 2023 and the completed divestiture of the Company’s Austrian business in fiscal 2022 as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(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, which was divested in fiscal 2023. 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, which was divested in fiscal 2023. Refer to Financial Note 2, “Business Acquisitions and Divestitures” for additional information.

The actuarial gain of $65 million in fiscal 2023 was primarily attributable to:

• Discount rates ($69 million gain): The weighted average discount rate for Non-U.S. plans increased to 4.54% as of March 31, 2023 from 2.67% as of March 31, 2022.

Table of Contents			Item 8 Index

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

• Demographic and assumption changes ($4 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.

The actuarial gain of $55 million in fiscal 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.

*•*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 European divestitures in fiscal 2022.

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:

						March 31,
(In millions)												2023						2022
Projected benefit obligation												$	172					$	701
Accumulated benefit obligation												171						689
Fair value of plan assets												174						681

Amounts recognized in accumulated other comprehensive loss consist of:

						March 31,
(In millions)												2023						2022
Net actuarial loss												$	49					$	70
Prior service cost (credit)												1						(2)
Total												$	50					$	68

Other changes in accumulated other comprehensive loss were as follows:

						Years Ended March 31,
(In millions)																		2023						2022						2021
Net actuarial gain																		$	(7)					$	(32)					$	(9)
Prior service cost																		1						—						—
Amortization of:
Net actuarial loss																		(9)						(14)						(35)
Prior service credit																		2						1						1
Foreign exchange impact and other																		(5)						(5)						15
Total recognized in other comprehensive income																		$	(18)					$	(50)					$	(28)

In fiscal 2023, the Company recognized $17 million in actuarial losses for pension plans to stockholders’ deficit as a result of the sale of its E.U. disposal group and U.K. disposal group. In fiscal 2022, the Company recognized $11 million in actuarial losses for pension plans to stockholders’ deficit as a result of the sale of its Austrian business. In fiscal 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, “Business Acquisitions and Divestitures,” for more information on the Company’s European divestiture activities.

Projected benefit obligations related to the Company’s unfunded plans were $18 million and $101 million at March 31, 2023 and 2022, respectively. Funding obligations for its plans vary based on the laws of each jurisdiction.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Expected benefit payments for the Company’s pension plans were as follows: $8 million, $9 million, $9 million, $9 million, and $9 million for fiscal 2024 to fiscal 2028, respectively, and $50 million for fiscal 2029 through fiscal 2033. 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 $3 million for fiscal 2024.

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

						Years Ended March 31,
																		2023						2022						2021
Net periodic pension expense
Discount rates																		2.67		%				1.89		%				1.89		%
Rate of increase in compensation																		3.67						3.20						3.20
Expected long-term rate of return on plan assets																		1.63						2.56						2.56
Benefit obligation
Discount rates																		4.54		%				2.67		%				1.89		%
Rate of increase in compensation																		3.21						3.67						3.20

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. The Company’s defined benefit pension plan liabilities are valued using a weighted-average discount rate of 4.54%, which represents an increase of 187 basis points from its fiscal 2022 weighted-average discount rate of 2.67%.

Plan Assets

Investment Strategy: For plan assets, the investment strategies are subject to local regulations and the asset/liability profiles of the plans in each individual country. Plan assets 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 plan assets as of March 31, 2023 and 2022, using the fair value hierarchy by asset class:

			March 31, 2023																								March 31, 2022
(In millions)			Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3						Total
Cash and cash equivalents			$	7					$	—					$	—					$	7					$	15					$	—					$	—					$	15
Equity securities:
Equity commingled funds			—						18						—						18						—						38						—						38
Fixed income securities:
Government securities			—						—						—						—						—						6						—						6
Corporate bonds			—						—						—						—						—						11						—						11
Fixed income commingled funds			—						7						—						7						336						25						—						361
Other:
Annuity contracts			—						—						110						110						—						—						173						173
Real estate funds and Other			—						2						—						2						31						4						2						37
Total			$	7					$	27					$	110					$	144					$	382					$	84					$	175					$	641
Assets held at NAV practical expedient (1):
Other																					30																								40
Total plan assets																					$	174																							$	681

(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.

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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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, 2023 and 2022, this includes $30 million and $35 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 years ended March 31, 2023 and 2022:

(In millions)			Level 3
Balance, March 31, 2021			$	4
Purchases			196
Return on assets			(25)
Balance, March 31, 2022			$	175
Purchases			—
Return on assets			(65)
Balance, March 31, 2023			$	110

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. multiemployer pension plans were not material for the years ended March 31, 2023, 2022, and 2021. Contributions to the POA for non-U.S. plans exceeding 5% of total plan contributions were $19 million, $20 million, and $22 million for the years ended March 31, 2023, 2022, and 2021, respectively. Based on actuarial calculations, the Company estimates the funded status for its non-U.S. Plans to be approximately 85% as of March 31, 2023. No amounts were accrued for liability associated with the POA as the Company has no intention to withdraw from the plan.

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 $125 million, $116 million, and $102 million for the years ended March 31, 2023, 2022, and 2021, respectively.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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, 2023, 2022, and 2021. The benefit obligation at March 31, 2023 and 2022 was $45 million and $56 million, respectively.

14. 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 as described below. In accordance with the Company’s policy, derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes. The Company uses different counterparties for its derivative contracts to minimize the exposure to credit risk but does not anticipate non-performance by these parties.

Foreign Currency Exchange Risk

The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign subsidiaries, including Canadian dollars, Euro, and British pounds sterling. 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 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, the Company had €1.1 billion of Euro-denominated notes designated as non-derivative net investment hedges. These hedges were 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 were designated as net investment hedges and met effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates were recorded as 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 were ineffective, changes in carrying value attributable to the change in spot rates were recorded in earnings.

In connection with the sale of the E.U. disposal group in October 2022, the Company reclassified $112 million of gains from accumulated other comprehensive loss to “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2023. This amount related to the €1.1 billion of Euro-denominated notes described above, along with certain other Euro-denominated notes which were previously accounted for as net investment hedges and matured in prior periods, and was included in the fiscal 2023 and fiscal 2022 calculations of charges to remeasure the assets and liabilities of the disposal group to fair value less costs to sell.

In connection with the sale of the U.K. disposal group in April 2022, the Company reclassified $26 million of gains from accumulated other comprehensive loss to “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2023. This amount related to the Company’s £450 million of British pound sterling-denominated notes, which were previously accounted for as net investment hedges until de-designated in fiscal 2020, and was included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities of the disposal group to fair value less costs to sell.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

			Years Ended March 31,
(In millions)			2023						2022						2021
Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes (2)			$	7					$	73					$	(118)

(1)There was no ineffectiveness in these hedges for the years ended March 31, 2023, 2022 and 2021.

(2)For the year ended March 31, 2023, includes amounts reclassified to earnings of $112 million.

Derivative Instruments

At March 31, 2023 and 2022, the notional amounts of the Company’s outstanding derivatives were as follows:

															March 31, 2023						March 31, 2022
(In millions)			Currency						Maturity Date (1)						Notional
Derivatives designated as net investment hedges: (2)
Cross-currency swaps (3)			CAD						Nov-24 to Mar-25						C$	1,500					C$	500
Derivatives designated as fair value hedges: (2)
Cross-currency swaps (4)			GBP						Nov-28						£	450					£	450
Cross-currency swaps (4)			EUR						Aug-25 to Jul-26						€	1,100					€	—
Floating interest rate swaps (5)			USD						Feb-26 to Sep-29						$	1,250					$	—
Derivatives designated as cash flow hedges: (2)
Cross-currency swaps (3)			CAD						Jan-24						C$	400					C$	1,678
Fixed interest rate swaps (6)			USD						Jun-33						$	450					$	500

(1)The maturity date reflected is for outstanding derivatives as of March 31, 2023.

(2)There was no ineffectiveness in these hedges for the years ended March 31, 2023, 2022, and 2021.

(3)The Company agreed 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.

(4)In fiscal 2023, represents cross-currency fixed-to-fixed interest rate swaps to mitigate the foreign currency exchange fluctuations on its foreign currency-denominated notes. In fiscal 2022, represents fixed interest payments in British pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread.

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

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

Net Investment Hedges

The Company uses cross-currency swaps to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in accumulated other comprehensive loss and offset foreign currency translation gains and losses recorded on the Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Fair Value Hedges

The Company uses cross-currency swaps to hedge the changes in the fair value of its foreign currency notes resulting from changes in benchmark interest rates and foreign currency exchange rates. In February 2023, £450 million of cross-currency swaps matured and the Company executed new cross-currency swaps with similar terms to continue to mitigate interest rate and foreign exchange rate risks.

During the year ended March 31, 2023, the Company entered into cross-currency fixed-to-fixed interest rate swaps with a total notional amount of €1.1 billion to hedge the changes in the fair value of its underlying Euro-denominated notes resulting from changes in benchmark interest rates and foreign currency exchange rates.

In fiscal 2023, the Company also entered into floating interest rate swaps to convert $1.3 billion of its fixed rate debt to floating interest rate in order to hedge the changes in fair value caused by fluctuations in the benchmark interest rate. The changes in the fair value of these derivatives are recorded in “Interest expense” in the Consolidated Statements of Operations.

The changes in the fair value of these derivatives and the offsetting changes in the fair value of the hedged notes are recorded in earnings. Gains from the changes in the Company’s fair value hedges recorded in earnings were largely offset by the losses recorded in earnings on the hedged item. For components excluded from the assessment of hedge effectiveness, the initial value of the excluded component is recognized in accumulated other comprehensive income (loss) and then released into earnings over the life of the hedging instrument. The difference between the change in the fair value of the excluded component and the amount amortized into earnings during the period is recorded in other comprehensive income (loss).

Cash Flow Hedges

From time to time, the Company enters into cross-currency swaps to hedge intercompany loans denominated in non-functional currencies to reduce the income statement effects arising from fluctuations in foreign currency rates and also enters into forward contracts to hedge the variability of future benchmark interest rates on planned bond issuances. The effective portion of changes in the fair value of these 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. Gains or losses reclassified from accumulated other comprehensive loss and recorded in “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations were not material for the years ended March 31, 2023, 2022, and 2021.

During the year ended March 31, 2023, the Company terminated its $500 million notional forward starting fixed interest rate swaps and recognized a gain of $97 million within “Other income, net” in the Consolidated Statements of Operations.

In fiscal 2023, the Company also entered into forward starting fixed interest rate swaps designated as cash flow hedges, with a combined notional amount of $450 million, to hedge the variability of future benchmark interest rates on a planned bond issuance.

Derivatives Not Designated as Hedges

Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the change in fair value included in earnings. Prior to the divestitures of the E.U. disposal group and U.K. disposal group, the Company had entered into forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. Changes in the fair values for contracts not designated as hedges were 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 for the years ended March 31, 2022 and 2021, and the Company did not have any outstanding derivative instruments not designated as hedges during fiscal 2023. Gains or losses from these contracts were largely offset by changes in the value of the underlying intercompany obligations.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Other Information on Derivative Instruments

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

			Years Ended March 31,
(In millions)			2023						2022						2021
Derivatives designated as net investment hedges:
Cross-currency swaps			$	28					$	(4)					$	(119)
Derivatives designated as cash flow and other hedges:
Cross-currency swaps (1)			$	(54)					$	(18)					$	(33)
Fixed interest rate swaps			(30)						39						(9)

(1)Includes other comprehensive income related to the excluded component of certain fair value hedges.

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

			Balance Sheet Caption			March 31, 2023																		March 31, 2022
			Fair Value of Derivative												U.S. Dollar Notional						Fair Value of Derivative												U.S. Dollar Notional
(In millions)			Asset						Liability									Asset						Liability
Derivatives designated for hedge accounting:
Cross-currency swaps (current)			Prepaid expenses and other/Other accrued liabilities			$	5					$	—					$	301					$	30					$	39					$	1,537
Cross-currency swaps (non-current)			Other non-current assets/liabilities			74						2						2,760						—						36						679
Interest rate swaps (current)			Prepaid expenses and other			—						—						—						31						—						500
Interest rate swaps (non-current)			Other non-current assets/liabilities			1						15						1,700						—						—						—
Total						$	80					$	17											$	61					$	75

Refer to Financial Note 15, “Fair Value Measurements,” for more information on these recurring fair value measurements.

15. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with 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.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at March 31, 2023 and 2022 included investments in money market funds of $1.4 billion and $981 million, respectively, which are reported at fair value. The fair value of money market funds was determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash equivalents approximates their fair value due to their relatively short-term nature. The fair values for the Company’s marketable securities were not material at March 31, 2022, and were liquidated during fiscal 2023.

Fair values of the Company’s interest rate swaps and cross-currency swaps were determined using observable inputs from available market information, including quoted interest rates, foreign currency exchange rates, and other observable inputs from available market information. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note 14, “Hedging Activities,” for fair values and other information on the Company’s derivatives.

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 $237 million and $346 million at March 31, 2023 and 2022, 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 fiscal 2023, the Company recognized impairment charges and realized gains on the exit of certain investments. During fiscal 2022, certain of the Company’s investments in equity securities without readily determinable fair values were remeasured to fair value based on transactions which resulted in changes in the observable price of those securities. During fiscal 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 fiscal 2021. The Company recognized net losses of $36 million, including impairments of $59 million, for the year ended March 31, 2023, and recognized net gains of $98 million and $133 million for the years ended March 31, 2022 and 2021, respectively. These amounts 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,” or as a result of charges to remeasure assets classified as held for sale to fair value less costs to sell.

At March 31, 2023, the contingent consideration liability related to the Company’s acquisition of RxSS in November 2022 was measured at fair value on a nonrecurring basis. 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. The E.U. disposal group was divested in October 2022 and the U.K. disposal group was divested in April 2022. Refer to Financial Note 2, “Business Acquisitions and Divestitures" for more information on these transactions. 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 previous operations in Denmark and its retail pharmacy businesses in Canada, as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net.”

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 related to changes in observable price are considered Level 2 under the fair value measurements and disclosure guidance and may not be representative of actual values that could have been realized or that will be realized in the future. Inputs related to impairments of investments are generally considered Level 3 fair value measurements due to their inherently unobservable nature based on significant assumptions by management and use of company-specific information.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

There were no other material assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2023 and 2022.

Other Fair Value Disclosures

At March 31, 2023 and 2022, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short-term maturity of these financial instruments.

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

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

			March 31, 2023												March 31, 2022
(In millions)			Carrying Value						Fair Value						Carrying Value						Fair Value
Long-term debt, including current maturities			$	5,594					$	5,386					$	5,879					$	5,999

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

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 10, “Goodwill and Intangible Assets, Net,” for more information regarding goodwill impairment charges recorded for certain reporting units during fiscal 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*.*

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

16. 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 five 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, 2023, the maximum amounts of inventory repurchase guarantees and customers’ debt guarantees were $343 million and $17 million, respectively, of which the Company has not accrued any material amounts. The expirations of these financial guarantees were as follows: $18 million, $108 million, $195 million, $10 million, and $8 million from fiscal 2024 through fiscal 2028, respectively, and $21 million thereafter.

At March 31, 2023, the Company’s banks and insurance companies have issued $206 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.

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 as of March 31, 2023 and 2022.

17. 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 is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates 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 pharmacies. 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 have sought 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. Because of the many uncertainties associated with opioid-related litigation matters, the Company is not able to conclude that a liability is probable or to reasonably estimate a range of ultimate possible loss for opioid-related litigation matters other than those for which an accrual is described below.

State and Local Government Claims

The majority of these cases were brought by state and local government entities in the U.S. The Company and two other national pharmaceutical distributors (collectively “Distributors”) entered into a settlement agreement (the “Settlement”) with 48 states and their participating subdivisions, as well as the District of Columbia and all eligible territories (the “Settling Governmental Entities”). The Company has paid the Settling Governmental Entities approximately $1.0 billion as of March 31, 2023, and, under the Settlement, will pay the Settling Governmental Entities additional amounts up to approximately $6.8 billion through 2038. A minimum of 85% of the Settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and is payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Distributors do not admit liability or wrongdoing and do not waive any defenses pursuant to the Settlement. Consent judgments have been entered in all participating states and territories, and approximately 2,300 cases have been dismissed pursuant to the Settlement.

Alabama and West Virginia did not participate in the Settlement. Under a separate agreement with Alabama and its subdivisions, the Company has paid approximately $42 million as of March 31, 2023, and will pay additional amounts totaling approximately $132 million through 2031. The Company previously settled with the state of West Virginia in 2018, and West Virginia and its subdivisions were not eligible to participate in the Settlement. After a trial, the claims of two West Virginia subdivisions, Cabell County and the City of Huntington, were decided in the Company’s favor on July 4, 2022. That decision is under appeal. The claims of certain other West Virginia subdivisions were settled pursuant to an agreement requiring the Company to pay approximately $152 million over 11 years. The Company has paid the settling subdivisions $38 million as of March 31, 2023, and will pay additional amounts totaling approximately $114 million through 2033. All participating litigating subdivisions have dismissed their claims against the Company, but the agreement does not include school districts or the claims of Cabell County and the City of Huntington.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Some subdivisions did not participate in the Settlement, including certain municipal governments, government hospitals, school districts, and government-affiliated third-party payors. The Company contends these claims are foreclosed by the Settlement or otherwise subject to strong defenses, while the non-participating subdivisions assert that they are not bound by the Settlement for a variety of reasons. The Company intends to defend itself vigorously in these matters. The City of Baltimore, Maryland, is one jurisdiction that did not participate in the settlement. Trial of the City of Baltimore’s claims is currently scheduled to begin September 26, 2024. The Company’s loss contingency accruals for these subdivisions are reflected in the estimated liability for opioid-related claims consistent with what would be allocated under the framework of the Settlement.

Native American Tribe Claims

With respect to the claims of Native American tribes, the Company has reached agreements that achieve a broad resolution of opioid-related claims brought by federally recognized Native American tribes. Under the agreements, the Company will pay approximately $196 million over 6.5 years to resolve the claims of participating Native American tribes. The Company has paid the settling Native American tribes $56 million as of March 31, 2023, and will pay additional amounts totaling approximately $140 million through 2027. 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 estimated accrued liability for the opioid-related claims of U.S. governmental entities, including Native American tribes, was as follows:

(In millions)			March 31, 2023						March 31, 2022
Current litigation liabilities (1)			$	548					$	1,046
Long-term litigation liabilities			6,625						7,220
Total litigation liabilities			$	7,173					$	8,266

(1)These amounts, recorded in “Other accrued liabilities” in the Consolidated Balance Sheets, are the amounts estimated to be paid within the next twelve months following each respective period end date.

During fiscal 2023 and fiscal 2022, the Company paid $1.1 billion and $74 million, respectively, associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes. In conjunction with the payments made in fiscal 2023, all funds have been released from escrow.

Non-Governmental Plaintiff Claims

Though 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. 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. 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.

One such case was brought by a group of individual plaintiffs in Glynn County, Georgia Superior Court seeking to recover for damages allegedly arising from their family members’ abuse of prescription opioids. Poppell v. Cardinal Health, Inc., CE19-00472. On March 1, 2023, the jury in that case returned a verdict in favor of the defendants, including the Company. That verdict is now the subject of post-trial motions, including a plaintiffs’ motion for a new trial.

In another, several hospitals brought suit in the Circuit Court of Conecuh County, Alabama; trial on the claims of eight of these hospitals is currently scheduled for July 24, 2023. Fort Payne Hospital Corporation et al. v. McKesson Corp., CV-2021-900016.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Canadian Plaintiff Claims

In addition to the opioid-related claims brought in the U.S., the Company and its Canadian affiliate are also defendants in four cases pending in Canada. These cases involve the claims of the provincial governments, a group representing indigenous people, as well as one case brought by an individual. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense. 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.

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.

Qui Tam Litigation

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.

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 California Court of Appeal, which affirmed the dismissal on February 24, 2023.

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 filed 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, which the Company has appealed to the U.S. Court of Appeals for the Ninth Circuit.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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. The Company appealed the finding of liability and the plaintiffs cross-appealed the denial of class certification and the ruling denying treble damages.

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 November 16, 2018, the relators filed a fourth amended complaint; that complaint was dismissed with prejudice on December 1, 2021. On March 28, 2023, the Court of Appeals for the Second Circuit affirmed dismissal.

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 United States 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 or about April 25, 2018, a second amended qui tam complaint filed in the U.S. District Court for the Eastern District of New York was served on 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. by Omni Healthcare, Inc. as relator, purportedly on behalf of the United States and 33 cities and states 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 of America ex rel. Omni Healthcare, Inc. v. McKesson Corp., et al., Case No. 1:12-cv-06440 (E.D.N.Y.). The United States and the other governmental plaintiffs declined to intervene in the suit. In February 2019, the court dismissed all of the defendants except McKesson Corporation and Oncology Therapeutics Network Corp. On February 2, 2022, the court entered a scheduling order under which non-government fact discovery was set to close on June 15, 2022. On June 14, 2022, relator moved for additional discovery and an extension of the discovery schedule. On October 13, 2022, the Court granted relator permission to take certain additional discovery, directed relator to move for leave to amend its complaint, and otherwise denied relator's motion without prejudice. On November 14, 2022, relator served its motion for leave to amend its complaint, which remains pending.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

On or about March 2, 2020, another qui tam complaint filed in the U.S. District Court for the Eastern District of New York was served on US Oncology, Inc. by the same relator purportedly on behalf of the United States and 33 cities and states alleging the same misconduct and seeking the same relief. United States ex rel. Omni Healthcare, Inc. v. US Oncology, Inc., Civil Action No. 1:19-cv-05125. The United States and the other governmental plaintiffs declined to intervene in the suit. On July 21, 2022, the Court granted defendant’s motion to dismiss without prejudice. Relator subsequently filed an amended complaint. On October 21, 2022, defendant moved to dismiss the amended complaint and that motion remains pending.

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 May 25, 2022, the district court granted distributor defendants’ motion to dismiss the complaint, but granted the plaintiffs leave to amend the complaint. Plaintiffs filed an amended complaint on July 1, 2022.

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 April 10, 2019, the lead plaintiff filed an amended complaint that added insider trading allegations against defendant Hammergren. In October 2022, the parties reached an agreement in principle to settle this class action lawsuit for an amount covered in full by the Company’s insurance policy. The settlement is subject to, among other things, final approval by the court. This settlement does not include any admission of liability, and defendants expressly deny wrongdoing. The Company’s estimated probable loss, entirely offset by probable loss recovery from the Company’s insurers, was $141 million, both of which were recognized in the Condensed Consolidated Balance Sheet as of September 30, 2022 within “Other accrued liabilities” and “Prepaid expenses and other.” In February 2023, the insurance carriers funded the settlement, and the probable loss and loss recovery of $141 million have been reversed in the Consolidated Balance Sheet as of March 31, 2023.

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 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. The relator filed the second amended complaint on June 7, 2022, which was dismissed again on March 28, 2023, but the district court granted the plaintiff leave to amend. On April 7, 2023, Plaintiff advised the court he would not amend and asked the court to enter the final judgment dismissing the complaint. Once the court issues the final judgment, that decision will be appealable to the Second Circuit Court of Appeals.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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 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.

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

In April 2018, the State of New York Opioid Stewardship Act (“OSA”) imposed an aggregate $100 million annual surcharge for 2017 and 2018 on all manufacturers and distributors licensed to sell or distribute opioids in New York. Pending resolution of a challenge to the OSA filed by the Healthcare Distribution Alliance (“HDA”), the Company accrued its estimated OSA surcharges as a $50 million provision 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. In December 2021, after the HDA challenge was dismissed, the Company paid $26 million for the 2017 OSA surcharge assessment. On May 18, 2022, the Company filed a lawsuit in New York state court challenging the constitutionality of the OSA. In November 2022, the Company received a 2018 OSA surcharge assessment of approximately $42 million, and therefore the Company accrued an additional $18 million provision in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2023. On December 14, 2022, the state court ruled that the OSA is constitutional. In December 2022, the Company paid $11 million as the first installment of the 2018 OSA surcharge assessment, and in March 2023, the Company paid another $11 million as the second installment. The Company’s OSA challenge is pending before the New York Supreme Court Appellate Division. The Company reserves its rights and intends to vigorously challenge the OSA and the OSA surcharge assessments.

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 four 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 four sites is $24 million, net of amounts anticipated from third parties. The $24 million is expected to be paid out between April 2023 and March 2053. The Company has accrued $24 million for the estimated probable loss for these environmental matters in its Consolidated Balance Sheet as of March 31, 2023.

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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. For one such site, the Company was one of multiple recipients of a New Jersey Department of Environmental Protection directive and a separate U.S. Environmental Protection Agency (“EPA”) directive concerning natural resources damages to the Passaic River associated with the Company’s Newark, New Jersey facility. In March 2016, the EPA selected a preferred remedy for this Lower Passaic River site with an estimated cost of approximately $1.4 billion. In December 2022, the Company entered into a Consent Decree with the EPA that is currently pending approval by the U.S. District Court for the District of New Jersey and requires the Company to pay $3 million, which had already been accrued for in the Consolidated Balance Sheets based on past estimated probable loss. Accordingly, the Company’s estimated probable loss at the remaining 13 sites is approximately $23 million, which has been accrued for in the Consolidated Balance Sheets as of March 31, 2023.

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 $129 million, $46 million, and $181 million in fiscal 2023, fiscal 2022, and fiscal 2021, 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.

18. 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 participate equally in any dividends declared by the Company’s Board of Directors (the “Board”).

In July 2022, the Company’s quarterly dividend was raised from $0.47 to $0.54 per common share for dividends declared on or after such date by the Board. The Company declared regular cash dividends of $2.09, $1.83, and $1.67 per share for the years ended March 31, 2023, 2022, and 2021, respectively. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company’s future earnings, financial condition, capital requirements, and other factors.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Share Repurchase Plans

The Board has authorized the repurchase of McKesson’s common stock. 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, as amended. 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, tax implications, restrictions under the Company’s debt obligations, and other market and economic conditions. During the last three fiscal years, the Company’s share repurchases were transacted through both open market transactions and ASR programs with third-party financial institutions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

Information regarding share repurchase activity over the last three fiscal years were 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, 2020																		$	1,535
Share repurchase authorization increase in fiscal 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)
Share repurchase authorization increase in fiscal 2022																		4,000
Shares repurchased - February 2022 ASR (4)						4.8						$	265.56					(1,500)
Balance, March 31, 2022																		3,278
Shares repurchased - February 2022 ASR (4)						0.3						$	295.16					—
Shares repurchased - May 2022 ASR						3.1						$	321.05					(1,000)
Share repurchase authorization increase in fiscal 2023																		4,000
Shares repurchased - December 2022 ASR						2.6						$	369.20					(972)
Shares repurchased - Open market (5)						4.7						$	363.24					(1,693)
Balance, March 31, 2023																		$	3,613

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

(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, included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2022, for share repurchases that were executed in late March 2021 and settled in early April 2021.

(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 total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received 4.8 million shares as the initial share settlement in the fourth quarter of fiscal 2022 based on an initial share purchase price, and in May 2022, it received an additional 0.3 million shares upon the completion of this ASR program.

(5)Of the total dollar value, $27 million was accrued within “Other accrued liabilities” in the Company’s Consolidated Balance Sheet as of March 31, 2023 for share repurchases that were executed in late March 2023 and settled in early April 2023.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Accumulated Other Comprehensive Loss

Information regarding changes in the Company’s accumulated other comprehensive loss by component were 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 and Other Hedges, Net of Tax						Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax						Total Accumulated Other Comprehensive Loss
Balance, 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 (3)			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, 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 (4)			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, March 31, 2022			(1,504)						10						27						(67)						(1,534)
Other comprehensive income (loss) before reclassifications			(329)						112						10						28						(179)
Amounts reclassified to earnings and other (5)			1,027						(136)						(73)						34						852
Other comprehensive income (loss)			698						(24)						(63)						62						673
Less: amounts attributable to noncontrolling interests			41						—						—						3						44
Other comprehensive income (loss) attributable to McKesson			657						(24)						(63)						59						629
Balance, March 31, 2023			$	(847)					$	(14)					$	(36)					$	(8)					$	(905)

(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 fiscal 2023, fiscal 2022, and fiscal 2021 include gains (losses) of $7 million, $73 million, and $(118) million, respectively, related to net investment hedges from Euro-denominated notes and gains (losses) of $28 million, $(4) million, and $(119) million, respectively, related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit (expense) of $(33) million, $(23) million, and $62 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively.

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FINANCIAL NOTES (Continued)

(3)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, “Business Acquisitions and Divestitures” and Financial Note 5, “Other Income, Net.” These amounts were included in the fiscal 2021 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.

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

(5)Primarily includes adjustments for amounts related to the divestitures of the E.U. disposal group in October 2022, including the impact of amounts previously attributed to the noncontrolling interest in McKesson Europe, and the U.K. disposal group in April 2022, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.” These amounts were included in the fiscal 2023 and fiscal 2022 calculations of charges to remeasure the assets and liabilities of the disposal groups to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. Amounts reclassified to earnings and other includes a net income tax impact of $6 million.

19. Related Party Balances and Transactions

McKesson Europe had investments in pharmacies located across Europe that were accounted for under the equity method. McKesson Europe maintained distribution arrangements with these pharmacies for the sale of related goods and services under which revenues of $137 million and $178 million are included in the Consolidated Statements of Operations for the years ended March 31, 2022 and 2021, respectively, and receivables related to these transactions included in the Consolidated Balance Sheet were not material as of March 31, 2022. Predominately all of these pharmacies were divested from the Company in the fourth quarter of fiscal 2022 as part of the completed divestiture of the Company’s Austrian business, and in fiscal 2023 as part of the completed divestitures of the E.U. disposal group and U.K. disposal group. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for additional information on the Company’s European divestiture activities.

For the years ended March 31, 2022 and 2021, the Company’s pharmaceutical sales to one of its equity method investees in the U.S. Pharmaceutical segment totaled $100 million and $111 million, respectively. During fiscal 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.

20. Segments of Business

The Company reports its financial results in four reportable segments: U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and International. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments 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 helps solve medication access, affordability, and adherence challenges for patients by working across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies. RxTS serves our biopharma and life sciences partners, delivering innovative solutions that help people get the medicine they need to live healthier lives. RxTS also offers prescription price transparency, benefit insight, dispensing support services, 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 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 completed the divestitures of its Austrian business in January 2022, the U.K. disposal group in April 2022, and the E.U. disposal group in October 2022. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for more information. The Company’s remaining operations in Europe provide distribution and services to wholesale, institutional, and retail customers in Norway where it owns, partners, or franchises with retail pharmacies. The Company’s Canadian operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies.

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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 was as follows:

			Years Ended March 31,
(In millions)			2023						2022						2021
Segment revenues (1)
U.S. Pharmaceutical			$	240,616					$	212,149					$	189,274
Prescription Technology Solutions			4,387						3,864						2,890
Medical-Surgical Solutions			11,110						11,608						10,099
International			20,598						36,345						35,965
Total revenues			$	276,711					$	263,966					$	238,228
Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)			$	3,206					$	2,879					$	2,763
Prescription Technology Solutions (4)			566						500						395
Medical-Surgical Solutions (5)			1,117						959						707
International (6)			136						(968)						(37)
Subtotal			5,025						3,370						3,828
Corporate expenses, net (7)			(147)						(1,073)						(8,645)
Loss on debt extinguishment (8)			—						(191)						—
Interest expense			(248)						(178)						(217)
Income (loss) from continuing operations before income taxes			$	4,630					$	1,928					$	(5,034)
Segment depreciation and amortization (9)
U.S. Pharmaceutical			$	212					$	228					$	211
Prescription Technology Solutions			77						82						87
Medical-Surgical Solutions			80						129						130
International			115						204						334
Corporate			124						117						125
Total depreciation and amortization			$	608					$	760					$	887
Segment expenditures for long-lived assets (10)
U.S. Pharmaceutical			$	154					$	137					$	246
Prescription Technology Solutions			35						10						22
Medical-Surgical Solutions			117						74						57
International			79						177						212
Corporate			173						137						104
Total expenditures for long-lived assets			$	558					$	535					$	641

(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 2% 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.

(3)The Company’s U.S. Pharmaceutical segment’s operating profit includes the following:

• cash receipts for the Company’s share of antitrust legal settlements were $129 million, $46 million, and $181 million for the years ended March 31, 2023, 2022, 2021, respectively;

• a charge of $1 million for the year ended March 31, 2023 and credits of $23 million and $38 million for the years ended March 31, 2022 and 2021, respectively, related to the LIFO method of accounting for inventories;

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FINANCIAL NOTES (Continued)

• a gain of $142 million for the year ended March 31, 2023 related to the exit of one of the Company’s investments in equity securities in July 2022 for proceeds of $179 million, which is reflected within “Other income, net” in the Company’s Consolidated Statement of Operations; and

• charges of $18 million and $50 million for fiscal 2023 and fiscal 2021, respectively, recorded in connection with the Company’s estimated liability under the State of New York’s OSA, as further discussed in Financial Note 17, “Commitments and Contingent Liabilities.”

(4)The Company’s RxTS segment’s operating profit for fiscal 2023 includes restructuring charges of $43 million primarily for severance and employee-related costs, as well as asset impairments and accelerated depreciation. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net” for further information.

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

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

• charges of $240 million and $383 million for the years ended March 31, 2023 and 2022, respectively, to remeasure the assets and liabilities of the E.U. disposal group to fair value less costs to sell and, in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures;”

• a charge of $1.1 billion for the year ended March 31, 2022 to remeasure the 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, “Business Acquisitions and Divestitures;”

• a gain of $59 million for the year ended March 31, 2022 related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business;

• a gain of $42 million for the year ended March 31, 2022 related to the sale of the Company’s previously held 30% interest in its German pharmaceutical wholesale joint venture to WBA. See Financial Note 2, “Business Acquisitions and Divestitures,” and Financial Note 5, “Other Income, Net,” for further details;

• a goodwill impairment charge of $69 million for the year ended March 31, 2021 related to one of the Company’s reporting units in Europe, as discussed in more detail in Financial Note 10, “Goodwill and Intangible Assets, Net;” and

• a long-lived asset impairment charge of $115 million for the year ended March 31, 2021 primarily related to the retail pharmacy businesses in Canada and Europe, as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net.”

(7)Corporate expenses, net, includes the following:

• a gain of $126 million for the year ended March 31, 2023 related to a cash payment received for the early termination of a TRA exercised by Change in October 2022 and was recorded within “Other income, net” in the Consolidated Statement of Operations, as discussed in more detail in Financial Note 5, “Other Income, Net;”

• a gain of $306 million in fiscal 2023 and a charge of $55 million in fiscal 2022 primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures;”

• a gain of $97 million for the year ended March 31, 2023 from the termination of certain forward starting fixed interest rate swaps, as discussed in more detail in Financial Note 14, “Hedging Activities;”

• a charge of $42 million in fiscal 2022 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, “Business Acquisitions and Divestitures;”

• a credit of $8 million, and charges of $274 million and $8.1 billion for the years ended March 31, 2023, 2022, and 2021, respectively, related to the estimated liability for opioid-related claims, as discussed in more detail in Financial Note 17, “Commitments and Contingent Liabilities;"

• charges of $36 million, $130 million, and $153 million for the years ended March 31, 2023, 2022, and 2021, respectively, of opioid-related costs, primarily litigation expenses;

• charges of $83 million, $100 million, and $105 million for the years ended March 31, 2023, 2022, and 2021, respectively, for restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net;”

• a net loss of $36 million, and net gains of $98 million and $133 million for the years ended March 31, 2023, 2022, and 2021, respectively, associated with certain of the Company’s equity investments, as discussed in more detail in Financial Note 15, “Fair Value Measurements;” and

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

(8)Loss on debt extinguishment for fiscal 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 11, “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.

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FINANCIAL NOTES (Concluded)

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

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

			March 31,
(In millions)			2023						2022
Segment assets
U.S. Pharmaceutical			$	41,793					$	38,346
Prescription Technology Solutions			4,168						3,528
Medical-Surgical Solutions			5,780						5,830
International (1)			6,226						13,717
Corporate			4,353						1,877
Total assets			$	62,320					$	63,298
Long-lived assets (2)
United States			$	2,207					$	2,060
Foreign			323						352
Total long-lived assets			$	2,530					$	2,412

(1)The decrease in assets within the International segment is due to the completed divestitures of the U.K. disposal group in April 2022 and the E.U. disposal group in October 2022. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for more information.

(2)Long-lived assets consist of property, plant, and equipment, net and capitalized software and fiscal 2022 excludes amounts classified as assets held for sale.

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McKESSON CORPORATION