Item 1. Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

									Three Months Ended June 30,
															2022						2021
Revenues															$	67,154					$	62,674
Cost of sales															(64,131)						(59,642)
Gross profit															3,023						3,032
Selling, distribution, general, and administrative expenses															(1,959)						(2,232)
Claims and litigation charges, net															(5)						(74)
Restructuring, impairment, and related charges, net															(23)						(158)
Total operating expenses															(1,987)						(2,464)
Operating income															1,036						568
Other income, net															15						43
Interest expense															(45)						(49)
Income from continuing operations before income taxes															1,006						562
Income tax expense															(199)						(26)
Income from continuing operations															807						536
Income (loss) from discontinued operations, net of tax															2						(3)
Net income															809						533
Net income attributable to noncontrolling interests															(41)						(47)
Net income attributable to McKesson Corporation															$	768					$	486
Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations															$	5.25					$	3.09
Discontinued operations															0.01						(0.02)
Total															$	5.26					$	3.07
Basic
Continuing operations															$	5.31					$	3.13
Discontinued operations															0.01						(0.02)
Total															$	5.32					$	3.11
Weighted-average common shares outstanding
Diluted															145.9						158.1
Basic															144.2						156.2

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

									Three Months Ended June 30,
															2022						2021
Net income															$	809					$	533
Other comprehensive income, net of tax
Foreign currency translation adjustments															582						24
Unrealized gains on cash flow hedges															18						—
Changes in retirement-related benefit plans															36						2
Other comprehensive income, net of tax															636						26
Comprehensive income															1,445						559
Comprehensive income attributable to noncontrolling interests															(91)						(50)
Comprehensive income attributable to McKesson Corporation															$	1,354					$	509

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)

			June 30, 2022						March 31, 2022
ASSETS
Current assets
Cash and cash equivalents			$	2,233					$	3,532
Receivables, net			19,900						18,583
Inventories, net			19,505						18,702
Assets held for sale			3,155						4,516
Prepaid expenses and other			590						898
Total current assets			45,383						46,231
Property, plant, and equipment, net			2,083						2,092
Operating lease right-of-use assets			1,598						1,548
Goodwill			9,368						9,451
Intangible assets, net			1,976						2,059
Other non-current assets			1,887						1,917
Total assets			$	62,295					$	63,298
LIABILITIES AND DEFICIT
Current liabilities
Drafts and accounts payable			$	39,708					$	38,086
Current portion of long-term debt			799						799
Current portion of operating lease liabilities			293						297
Liabilities held for sale			2,324						4,741
Other accrued liabilities			4,077						4,543
Total current liabilities			47,201						48,466
Long-term debt			4,976						5,080
Long-term deferred tax liabilities			1,541						1,418
Long-term operating lease liabilities			1,364						1,366
Long-term litigation liabilities			7,132						7,220
Other non-current liabilities			1,553						1,540
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 and 277 and 275 shares issued at June 30, 2022 and March 31, 2022, respectively			3						2
Additional paid-in capital			7,350						7,275
Retained earnings			9,732						9,030
Accumulated other comprehensive loss			(948)						(1,534)
Treasury shares, at cost, 133 and 130 shares at June 30, 2022 and March 31, 2022, respectively			(18,141)						(17,045)
Total McKesson Corporation stockholders’ deficit			(2,004)						(2,272)
Noncontrolling interests			532						480
Total deficit			(1,472)						(1,792)
Total liabilities and deficit			$	62,295					$	63,298

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

(Unaudited)

			Three Months Ended June 30, 2022
			Common Stock												Additional Paid-in Capital												Retained Earnings						Accumulated Other Comprehensive Loss						Treasury												Noncontrolling Interests						Total Deficit
			Shares						Amount						Common Shares						Amount
Balance, March 31, 2022			275						$	2					$	7,275											$	9,030					$	(1,534)					(130)						$	(17,045)					$	480					$	(1,792)
Issuance of shares under employee plans, net of forfeitures			2						1						91												—						—						—						(152)						—						(60)
Share-based compensation			—						—						40												—						—						—						—						—						40
Payments to noncontrolling interests			—						—						—												—						—						—						—						(36)						(36)
Other comprehensive income			—						—						—												—						586						—						—						50						636
Net income			—						—						—												768						—						—						—						41						809
Repurchase of common stock			—						—						(56)												—						—						(3)						(944)						—						(1,000)
Reclassification of recurring compensation to other accrued liabilities			—						—						—												—						—						—						—						(2)						(2)
Cash dividends declared, $0.47 per common share			—						—						—												(67)						—						—						—						—						(67)
Other			—						—						—												1						—						—						—						(1)						—
Balance, June 30, 2022			277						$	3					$	7,350											$	9,732					$	(948)					(133)						$	(18,141)					$	532					$	(1,472)

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

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

			Three Months Ended June 30,
			2022						2021
OPERATING ACTIVITIES
Net income			$	809					$	533
Adjustments to reconcile to net cash used in operating activities:
Depreciation			61						80
Amortization			87						138
Long-lived asset impairment charges			—						104
Deferred taxes			109						36
Credits associated with last-in, first-out inventory method			(13)						(23)
Non-cash operating lease expense			63						90
Gain from sales of businesses and investments			(33)						—
European businesses held for sale			20						—
Other non-cash items			102						194
Changes in assets and liabilities, net of acquisitions:
Receivables			(1,584)						(1,045)
Inventories			(955)						(901)
Drafts and accounts payable			1,006						(609)
Operating lease liabilities			(94)						(90)
Taxes			37						(54)
Litigation liabilities			(370)						74
Other			(186)						(149)
Net cash used in operating activities			(941)						(1,622)
INVESTING ACTIVITIES
Payments for property, plant, and equipment			(71)						(93)
Capitalized software expenditures			(29)						(66)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired			(1)						(1)
Proceeds from sales of businesses and investments, net			240						83
Other			(100)						(22)
Net cash provided by (used in) investing activities			39						(99)
FINANCING ACTIVITIES
Repayments of long-term debt			(2)						(2)
Common stock transactions:
Issuances			91						71
Share repurchases			(1,000)						(1,008)
Dividends paid			(71)						(69)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG			—						(1,031)
Other			(199)						(112)
Net cash used in financing activities			(1,181)						(2,151)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			18						11
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale			470						—
Net decrease in cash, cash equivalents, and restricted cash			(1,595)						(3,861)
Cash, cash equivalents, and restricted cash at beginning of period			3,935						6,396
Cash, cash equivalents, and restricted cash at end of period			2,340						2,535
Less: Restricted cash at end of period included in Prepaid expenses and other			(107)						(112)
Cash and cash equivalents at end of period			$	2,233					$	2,423

See Financial Notes

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McKESSON CORPORATION

FINANCIAL NOTES

(UNAUDITED)

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 14, “Segments of Business,” for additional information.

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

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

The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control but can 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 of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts could differ from those estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the pandemic caused by the SARS-CoV-2 coronavirus (“COVID-19”), and therefore the Company’s accounting estimates and assumptions may change over time and may change materially in future periods. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows of McKesson for the interim periods presented.

The results of operations for the three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies, and financial notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, previously filed with the SEC on May 9, 2022 (“2022 Annual Report”).

Recently Adopted Accounting Pronouncements

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 an 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 is currently evaluating the impact of this guidance but does not expect it to have a material impact on its consolidated financial statements or related disclosures.

Subsequent Events

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

2**.** Held for Sale

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

Assets and liabilities to be disposed of by sale (“disposal groups”) are 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 an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying amount or fair value less costs to sell, and long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less 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. The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations.

European Divestiture Activities

On July 5, 2021, the Company entered into an agreement to sell certain of its businesses in the European Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.3 billion) adjusted for certain items, including cash, net debt and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. The transaction is anticipated to close within the second half of fiscal 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of June 30, 2022 and March 31, 2022, the E.U. disposal group within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the Condensed Consolidated Balance Sheet.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

(In millions)			June 30, 2022						March 31, 2022
Assets
Current assets
Receivables, net			$	1,277					$	1,322
Inventories, net			819						809
Prepaid expenses and other			92						72
Property, plant, and equipment, net			291						304
Operating lease right-of-use assets			217						224
Intangible assets, net			253						267
Other non-current assets			312						328
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)			(279)						(302)
Total assets held for sale			$	2,982					$	3,024
Liabilities
Current liabilities
Drafts and accounts payable			$	1,406					$	1,826
Current portion of long-term debt			4						4
Current portion of operating lease liabilities			30						33
Other accrued liabilities			403						473
Long-term debt			11						11
Long-term deferred tax liabilities			60						55
Long-term operating lease liabilities			168						180
Other non-current liabilities			122						138
Total liabilities held for sale			$	2,204					$	2,720

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

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

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $23 million and $158 million for the three months ended June 30, 2022 and 2021, respectively. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.

Restructuring Initiatives

During the first quarter of fiscal 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily 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 $95 million for the three months ended June 30, 2021 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 and remaining costs the Company expects to record under this initiative are not material.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Restructuring, impairment, and related charges, net, for the three months ended June 30, 2022 and 2021 consisted of the following:

			Three Months Ended June 30, 2022
(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Corporate						Total
Severance and employee-related costs, net			$	3					$	—					$	—					$	—					$	(1)					$	2
Exit and other-related costs (1)			1						2						1						2						15						21
Asset impairments and accelerated depreciation			—						5						—						—						(5)						—
Total			$	4					$	7					$	1					$	2					$	9					$	23

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

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

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

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

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

The following table summarizes the activity related to the liabilities associated with the Company’s restructuring initiatives for the three months ended June 30, 2022:

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

(1)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 Condensed Consolidated Balance Sheet.

(2)Other primarily includes cumulative translation adjustments and transfers to certain other liabilities.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

(3)As of June 30, 2022, the total reserve balance was $116 million, of which $62 million was recorded in “Other accrued liabilities,” $26 million was recorded in “Liabilities held for sale,” and $28 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.

4. Income Taxes

During the three months ended June 30, 2022 and 2021, the Company recorded income tax expense of $199 million and $26 million, respectively. The Company’s reported income tax expense rate was 19.8% and 4.6% for the three months ended June 30, 2022 and 2021, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to discrete benefits recognized in the quarter. During the three months ended June 30, 2022, the Company recognized a net discrete tax benefit of $45 million primarily related to the tax impact of share-based compensation. During the three months ended June 30, 2021, the Company recognized a net discrete tax benefit of $97 million primarily related to statute of limitation expirations in various taxing jurisdictions.

As of June 30, 2022, the Company had $1.5 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by as much as $150 million to $190 million due to settlements of tax examinations and statute of limitation expirations based on the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year or statute of limitations expire, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to future developments in opioid-related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

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

5. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

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

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of 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”). During the three months ended June 30, 2021, the Company paid $1.0 billion to purchase 34.5 million shares 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 for the three months ended June 30, 2021, and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million 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 Condensed Consolidated Balance Sheet.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021, noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. The Company’s noncontrolling interest in McKesson Europe will be included in the sale of the E.U. disposal group, as discussed in Financial Note 2, “Held for Sale.” The Company allocated $41 million and $39 million of net income to noncontrolling interests during the during the three months ended June 30, 2022 and 2021, respectively, which was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statements of Operations.

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

(In millions)			Noncontrolling Interests
Balance, March 31, 2022			$	480
Net income attributable to noncontrolling interests			41
Other comprehensive income			50
Reclassification of recurring compensation to other accrued liabilities			(2)
Payments to noncontrolling interests			(36)
Other			(1)
Balance, June 30, 2022			$	532

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

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

6. Earnings (Loss) Per Common Share

Basic earnings per common share are computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings per common share is similar to that of basic earnings 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. Fewer than 1 million potentially dilutive securities for each of the three months ended June 30, 2022 and 2021, respectively, were excluded from the computation of diluted earnings per common share as they were anti-dilutive.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

			Three Months Ended June 30,
(In millions, except per share amounts)			2022						2021
Income from continuing operations			$	807					$	536
Net income attributable to noncontrolling interests			(41)						(47)
Income from continuing operations attributable to McKesson Corporation			766						489
Income (loss) from discontinued operations, net of tax			2						(3)
Net income attributable to McKesson Corporation			$	768					$	486
Weighted-average common shares outstanding:
Basic			144.2						156.2
Effect of dilutive securities:
Stock options			0.3						0.1
Restricted stock units (1)			1.4						1.8
Diluted			145.9						158.1
Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations			$	5.25					$	3.09
Discontinued operations			0.01						(0.02)
Total			$	5.26					$	3.07
Basic
Continuing operations			$	5.31					$	3.13
Discontinued operations			0.01						(0.02)
Total			$	5.32					$	3.11

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

(2)Certain computations may reflect rounding adjustments.

7. Goodwill and Intangible Assets, Net

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

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Changes in the carrying amount of goodwill were as follows:

(In millions)			U.S. Pharmaceutical						Prescription Technology Solutions						Medical-Surgical Solutions						International						Total
Balance, March 31, 2022			$	3,923					$	1,542					$	2,453					$	1,533					$	9,451
Foreign currency translation adjustments, net			(33)						—						—						(48)						(81)
Other adjustments			(3)						—						—						1						(2)
Balance, June 30, 2022			$	3,887					$	1,542					$	2,453					$	1,486					$	9,368

Information regarding intangible assets is as follows:

			June 30, 2022																								March 31, 2022
(Dollars in millions)			Weighted- Average Remaining Amortization Period (Years)						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			12						$	2,747					$	(1,695)					$	1,052					$	2,777					$	(1,691)					$	1,086
Service agreements			9						1,078						(584)						494						1,085						(573)						512
Trademarks and trade names			11						802						(397)						405						819						(386)						433
Technology			1						127						(118)						9						128						(116)						12
Other			9						188						(172)						16						187						(171)						16
Total									$	4,942					$	(2,966)					$	1,976					$	4,996					$	(2,937)					$	2,059

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

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

8. Debt and Financing Activities

Long-term debt consisted of the following:

(In millions)			June 30, 2022						March 31, 2022
U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022			$	400					$	400
2.85% Notes due March 15, 2023			360						360
3.80% Notes due March 15, 2024			918						918
0.90% Notes due December 3, 2025			500						500
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			217						217
4.88% Notes due March 15, 2044			255						255
Foreign currency notes (1) (3)
1.50% Euro Notes due November 17, 2025			627						662
1.63% Euro Notes due October 30, 2026			524						554
3.13% Sterling Notes due February 17, 2029			548						582
Lease and other obligations			239						244
Total debt			5,775						5,879
Less: Current portion			799						799
Total long-term debt			$	4,976					$	5,080

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

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

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

Long-Term Debt

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

Revolving Credit Facilities

The Company has a Credit Agreement, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), that provides a syndicated $4.0 billion five-year senior unsecured credit facility with a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and Euro. Borrowings under the 2020 Credit Facility bear interest based upon the London Interbank Offered Rate (“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The 2020 Credit Facility matures in September 2024 and had no borrowings during the three months ended June 30, 2022 and 2021 and no amounts outstanding as of June 30, 2022 and March 31, 2022.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The 2020 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 amended credit agreement. If the Company does not comply with these covenants, its ability to use the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit Facility may be required. At June 30, 2022, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in Euros with a committed amount of $1 million and an uncommitted amount of $105 million as of June 30, 2022. Borrowings and repayments were not material during the three months ended June 30, 2022 and 2021. Amounts outstanding under these credit lines were not material as of June 30, 2022 and 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 three months ended June 30, 2022 and 2021, there were no material borrowings under the program. At June 30, 2022 and March 31, 2022, there were no commercial paper notes outstanding.

9. Pension Benefits

The net periodic expense for defined benefit pension plans was not material for each of the three months ended June 30, 2022 and 2021. Cash contributions to these plans were $3 million and $14 million for the three months ended June 30, 2022 and 2021, respectively. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and expected life expectancy.

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

10. Hedging Activities

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Non-Derivative Instruments Designated as Hedges

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

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

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

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

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

Derivative Instruments

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

															June 30, 2022						March 31, 2022
(In millions)			Currency						Maturity Date						Notional
Derivatives designated as net investment hedges: (1)
Cross-currency swaps (2)			CAD						Nov-24						$	500					$	500
Derivatives designated as fair value hedges: (1)
Cross-currency swaps (3)			GBP						Feb-23						£	450					£	450
Floating interest rate swaps (4)			USD						Aug-27						$	180					$	—
Derivatives designated as cash flow hedges: (1)
Cross-currency swaps (2)			CAD						Jul-22 to Jan-24						$	1,678					$	1,678
Fixed interest rate swaps (5)			USD						Mar-23						$	500					$	500

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

(2)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.

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

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

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

Net Investment Hedges

The Company uses cross-currency swaps to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in accumulated 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.

Fair Value Hedges

The Company uses cross-currency swaps to hedge the changes in the fair value of British pound sterling notes resulting from changes in benchmark interest rates and foreign exchange rates. 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.

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

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 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 Condensed Consolidated Statements of Operations were not material for the three months ended June 30, 2022 and 2021.

Derivatives Not Designated as Hedges

Derivative instruments not designated as hedges are mark-to-market at the end of each accounting period with the change in fair value included in earnings. From time to time, the Company enters into forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. Changes in the fair values for contracts not designated as hedges are recorded directly into earnings in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. Changes in the fair values were not material for the three months ended June 30, 2022 and 2021. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Other Information on Derivative Instruments

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

			Three Months Ended June 30,
(In millions)			2022						2021
Derivatives designated as net investment hedges:
Cross-currency swaps			$	12					$	(5)
Derivatives designated as cash flow hedges:
Cross-currency swaps			$	(2)					$	(2)
Fixed interest rate swaps			27						2

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

			Balance Sheet Caption			June 30, 2022																		March 31, 2022
			Fair Value of Derivative												U.S. Dollar Notional						Fair Value of Derivative												U.S. Dollar Notional
(In millions)			Asset						Liability									Asset						Liability
Derivatives designated for hedge accounting:
Cross-currency swaps (current)			Prepaid expenses and other/Other accrued liabilities			$	4					$	30					$	1,537					$	30					$	39					$	1,537
Cross-currency swaps (non-current)			Other non-current liabilities			—						15						679						—						36						679
Fixed interest rate swaps (current)			Prepaid expenses and other			57						—						500						31						—						500
Floating interest rate swaps (non-current)			Other non-current assets			2						—						180						—						—						—
Total						$	63					$	45											$	61					$	75

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

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(UNAUDITED)

11. Fair Value Measurements

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

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

Level 2 - significant other observable market-based inputs.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at June 30, 2022 and March 31, 2022 included investments in money market funds of $547 million 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. Fair values for the Company’s marketable securities were not material at June 30, 2022 and March 31, 2022.

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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

Other Fair Value Disclosures

At June 30, 2022 and March 31, 2022, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.

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

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(UNAUDITED)

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

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

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

Restricted Cash

Restricted cash, included within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheets primarily consists of $100 million and $395 million as of June 30, 2022 and March 31, 2022, respectively, held in escrow related to obligations under settlement agreements for opioid-related claims of governmental entities, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities.”

Goodwill

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

Long-lived Assets

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

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

12. Commitments and Contingent Liabilities

In addition to commitments and obligations incurred in the ordinary course of business, the Company is subject to a variety of claims and legal proceedings, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations, and other matters. The Company and its affiliates are parties to the legal claims and proceedings described below and in Financial Note 18 to the Company’s 2022 Annual Report, which disclosure is incorporated in this footnote by this reference. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

I. Litigation and Claims Involving Distribution of Controlled Substances

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

The Company and the two other national pharmaceutical distributors (collectively “Distributors”) settled with 46 of 49 eligible states and their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). If all conditions to the Settlement are satisfied, including the receipt of approval by relevant courts of consent decrees to dismiss the lawsuits, the Distributors would pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Under the Settlement, a minimum of 85% of the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Distributors do not admit liability or wrongdoing and do not waive any defenses pursuant to the Settlement.

Three eligible states, Alabama, Washington, and Oklahoma did not join the Settlement, but they have all now reached agreements in principle with the Company. With respect to the claims of the Alabama attorney general, the Company has negotiated an agreement in principle under which the Company will pay $141 million in ten equal annual installments and an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state of Alabama and its subdivisions. On May 3, 2022, the Distributors announced an agreement with the attorney general of Washington to settle the claims of the state of Washington and its subdivisions. Under that agreement, Washington and its subdivisions would be paid up to $518 million over 18 years, of which the Company’s portion would be 38.1% (or approximately $197 million), consistent with Washington’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. On June 27, 2022, an agreement was announced between the Distributors and the attorney general of Oklahoma to settle claims of the state of Oklahoma and its subdivisions. Under that agreement, Oklahoma and its subdivisions would be paid up to $250 million over 18 years, of which the Company’s portion would be 38.1%, consistent with Oklahoma’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. The Company’s loss contingency accruals for these three states and their subdivisions reflect the amounts of these agreements in principle.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company previously settled with the state of West Virginia, and West Virginia and its subdivisions were not eligible to participate in the comprehensive Settlement. Claims of various West Virginia subdivisions remain pending in both state and federal courts. Trial in the case of Cabell County and City of Huntington occurred in the U.S. District Court for the Southern District of West Virginia and concluded on July 28, 2021. On July 4, 2022, the court entered judgment in defendants’ favor. On August 2, 2022, the plaintiffs filed an appeal. The claims of certain other West Virginia subdivisions are pending in the federal Multi-district Litigation and before the state Mass Litigation Panel. On September 30, 2021, the Mass Litigation Panel issued an order scheduling a liability-only trial on the public nuisance claims of certain political subdivisions against the Distributors for July 5, 2022. On July 5, 2022, the Mass Litigation Panel entered an order postponing the trial in light of an agreement in principle between a group of plaintiffs’ attorneys representing the municipalities and the three companies. Under that agreement in principle, the three companies would pay $400 million over approximately 11 years, with the Company responsible for 38.1% of the total amount (or approximately $152 million). The agreement in principle is contingent on participation of certain litigating subdivisions in West Virginia, but does not include school districts or the claims of Cabell County and the City of Huntington. The Company’s loss contingency accruals for the West Virginia subdivisions are reflected in the estimated liability for the opioid-related claims as of June 30, 2022.

With respect to the claims of Native American tribes, on September 28, 2021, the Company announced that the Distributors reached an agreement with the Cherokee Nation to pay approximately $75 million over 6.5 years to resolve opioid-related claims, of which the Company’s portion would be 38.1% (or, approximately $29 million). The Company has also negotiated a broad resolution of opioid-related claims brought by Native American tribes. Under the proposed agreement, which has been endorsed by the leadership committee of counsel representing the tribes, the Distributors would pay the Native American tribes, other than the Cherokee Nation, approximately $440 million over 6 years, of which the Company’s portion would be 38.1% (or, approximately $167 million). This broad resolution is contingent on the participation of a substantial majority of the Native American tribes that have brought opioid-related claims against the Distributors. Under these agreements, a minimum of 85% of the settlement payments must be used by the Native American tribes to remediate the opioid epidemic. The Company’s loss-contingency accruals for the Native American tribes reflect these amounts and are reflected in the estimated liability for the opioid-related claims as of June 30, 2022.

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

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

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

(In millions)			June 30, 2022						March 31, 2022
Current litigation liabilities (1)			$	759					$	1,046
Long-term litigation liabilities			7,132						7,220
Total litigation liabilities			$	7,891					$	8,266

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

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

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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.

III. Government Subpoenas and Investigations

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

IV. State Opioid Statutes

Legislative, regulatory, or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that it may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On July 6, 2018, the Healthcare Distribution Alliance filed a lawsuit challenging the constitutionality of the law and seeking an injunction against its enforcement. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. The State appealed that decision. On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision on procedural grounds. The Company has accrued a $50 million pre-tax charge ($37 million after-tax) as its estimated share of the OSA surcharge for calendar years 2017 and 2018. This OSA provision was recognized in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. The State of New York adopted an excise tax on sales of opioids in the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA does not apply to sales or distributions occurring after December 31, 2018. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its mandate pending the filing and disposition of a petition for writ of certiorari before the U.S. Supreme Court. That petition was denied on October 4, 2021. In December 2021, McKesson paid $26 million for the assessment for calendar year 2017 while reserving all rights to challenge the constitutionality of the assessment. McKesson filed a new lawsuit challenging the constitutionality of the OSA on May 18, 2022.

13. Stockholders' Equity (Deficit)

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

In July 2022, the 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 anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements, and other factors.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

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

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

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

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

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Accumulated Other Comprehensive Loss

Information regarding changes in accumulated other comprehensive loss, including noncontrolling interests and redeemable noncontrolling interests, by components for the three months ended June 30, 2022 and 2021 are as follows:

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

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

(2)Amounts recorded for the three months ended June 30, 2022 include gains of $64 million related to net investment hedges from Euro-denominated notes and gains of $12 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense of $31 million.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

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

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

14. Segments of Business

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The International segment includes the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 10 European countries where it owns, partners, or franchises with retail pharmacies and operates through two businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. In the second quarter of fiscal 2022, the Company entered into an agreement to sell the E.U. disposal group which is anticipated to close within the second half of fiscal 2023. International segment assets at June 30, 2022 were $10.9 billion, a decrease during the first quarter of fiscal 2023 primarily due to the completed the sale of the U.K. disposal group. Refer to Financial Note 2, “Held for Sale,” for more information.

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

			Three Months Ended June 30,
(In millions)			2022						2021
Segment revenues (1)
U.S. Pharmaceutical			$	56,947					$	50,019
Prescription Technology Solutions			1,066						881
Medical-Surgical Solutions			2,592						2,528
International			6,549						9,246
Total revenues			$	67,154					$	62,674
Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)			$	696					$	682
Prescription Technology Solutions			144						104
Medical-Surgical Solutions (4)			256						75
International (5)			(6)						53
Subtotal			1,090						914
Corporate expenses, net (6)			(39)						(303)
Interest expense			(45)						(49)
Income from continuing operations before income taxes			$	1,006					$	562

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, less than 35% of the RxTS segment’s total revenues, less than 1% 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 derived in the U.S.

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

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

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

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

(6)Corporate expenses, net includes the following:

• gains of $106 million for the three months ended June 30, 2022 primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale;”

• charges of $5 million and $74 million for the three months ended June 30, 2022 and 2021, respectively, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities;”

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McKESSON CORPORATION

FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

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

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

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McKESSON CORPORATION

FINANCIAL REVIEW

(UNAUDITED)