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Mckesson Corp (MCK) SEC Filing 10-Q Quarterly Report for the period ending Thursday, September 30, 2021

Mckesson Corp

CIK: 927653 Ticker: MCK

Exhibit 99.1


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McKESSON REPORTS FISCAL 2022 SECOND-QUARTER RESULTS

Second-Quarter Highlights, Year-over-Year:
Total revenues of $66.6 billion increased 9%
Earnings per diluted share from continuing operations of $1.71 decreased $1.83
Adjusted Earnings per Diluted Share of $6.15 increased 28%

Fiscal 2022 Outlook:
Increased fiscal 2022 Adjusted Earnings per Diluted Share guidance range to $21.95 to $22.55, from the previous range of $19.80 to $20.40, representing 27.5% to 31% growth compared to prior year.
Fiscal 2022 Adjusted Earnings per Diluted Share guidance includes approximately $2.30 to $3.05 of impacts attributable to the following:
$1.30 to $1.80 related to the U.S. government’s COVID-19 vaccine distribution, kitting, and storage programs
$0.50 to $0.75 related to COVID-19 tests and impairments for personal protective equipment and related products
$0.49 related to year-to-date gains or losses associated with McKesson Ventures’ equity investments
Excluding the impacts of the above items from both fiscal 2022 guidance and fiscal 2021 results, indicates 20% to 29% forecasted growth.

IRVING, Texas, November 1, 2021 -
McKesson Corporation (NYSE:MCK) today reported strong second-quarter results for the period ended September 30, 2021.
Fiscal 2022 Second-Quarter Result Summary
Second-Quarter
Year-to-Date
($ in millions, except per share amounts)FY22FY21ChangeFY22FY21Change
Revenues$66,576 $60,808 %$129,250 $116,487 11 %
Income from Continuing Operations 1
267 577 (54)756 1,022 (26)
Adjusted Earnings 1,2
958 784 22 1,838 1,237 49 
Earnings per Diluted Share 1
1.71 3.54 (52)4.82 6.26 (23)
Adjusted Earnings per Diluted Share 1,2
6.15 4.80 28 11.71 7.58 54 
1 Reflects continuing operations attributable to McKesson, net of tax
2 Represents a non-GAAP financial measure; refer to the reconciliations of non-GAAP financial measures included in accompanying schedules
"Our enterprise strategy is enabling us to successfully navigate a dynamic environment. McKesson delivered strong second-quarter results, including double-digit Adjusted Operating Profit growth across all segments," said Brian Tyler, chief executive officer. "We remain committed to investing in our growth strategies of biopharma services and oncology ecosystems, while simultaneously increasing shareholder returns.”


The following information was filed by Mckesson Corp (MCK) on Monday, November 1, 2021 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
Table of Contents                                          
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 1-13252
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McKESSON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware94-3207296
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
6555 State Hwy 161,
Irving, TX 75039
(Address of principal executive offices, including zip code)
(972) 446-4800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)(Trading Symbol)(Name of each exchange on which registered)
Common stock, $0.01 par valueMCKNew York Stock Exchange
1.500% Notes due 2025MCK25New York Stock Exchange
1.625% Notes due 2026MCK26New York Stock Exchange
3.125% Notes due 2029MCK29New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer 
Non-accelerated filer Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 152,682,166 shares of the issuer’s common stock were outstanding as of September 30, 2021.


McKESSON CORPORATION

TABLE OF CONTENTS
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McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended September 30, Six Months Ended September 30,
 2021202020212020
Revenues$66,576 $60,808 $129,250 $116,487 
Cost of sales(63,224)(57,808)(122,866)(110,787)
Gross profit3,352 3,000 6,384 5,700 
Selling, distribution, general, and administrative expenses(2,669)(2,237)(4,901)(4,334)
Claims and litigation charges, net(112)— (186)131 
Goodwill impairment charges— (69)— (69)
Restructuring, impairment, and related charges
(32)(60)(190)(116)
Total operating expenses(2,813)(2,366)(5,277)(4,388)
Operating income539 634 1,107 1,312 
Other income, net139 71 182 98 
Loss on debt extinguishment(191)— (191)— 
Interest expense(45)(50)(94)(110)
Income from continuing operations before income taxes442 655 1,004 1,300 
Income tax expense(132)(28)(158)(178)
Income from continuing operations310 627 846 1,122 
Loss from discontinued operations, net of tax— — (3)(1)
Net income310 627 843 1,121 
Net income attributable to noncontrolling interests(43)(50)(90)(100)
Net income attributable to McKesson Corporation$267 $577 $753 $1,021 
Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations
$1.71 $3.54 $4.82 $6.26 
Discontinued operations
— — (0.02)— 
Total
$1.71 $3.54 $4.80 $6.26 
Basic
Continuing operations
$1.73 $3.56 $4.87 $6.31 
Discontinued operations
— — (0.02)(0.01)
Total
$1.73 $3.56 $4.85 $6.30 
Weighted-average common shares outstanding
Diluted155.8 163.2 156.9 163.2 
Basic154.1 162.0 155.1 162.0 

See Financial Notes
3

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
 Three Months Ended September 30, Six Months Ended September 30,
 2021202020212020
Net income $310 $627 $843 $1,121 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
(48)41 (24)74 
Unrealized gains (losses) on cash flow hedges(19)(24)
Changes in retirement-related benefit plans
(9)(8)
Other comprehensive income (loss), net of tax(38)13 (12)42 
Comprehensive income272 640 831 1,163 
Comprehensive (income) loss attributable to noncontrolling interests(43)75 (93)(36)
Comprehensive income attributable to McKesson Corporation$229 $715 $738 $1,127 

See Financial Notes
4

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
September 30, 2021March 31, 2021
ASSETS
Current assets
Cash and cash equivalents$2,151 $6,278 
Receivables, net20,140 19,181 
Inventories, net19,342 19,246 
Assets held for sale3,086 12 
Prepaid expenses and other861 665 
Total current assets45,580 45,382 
Property, plant, and equipment, net2,222 2,581 
Operating lease right-of-use assets1,768 2,100 
Goodwill9,473 9,493 
Intangible assets, net2,385 2,878 
Other non-current assets2,173 2,581 
Total assets$63,601 $65,015 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
Current liabilities
Drafts and accounts payable$38,922 $38,975 
Current portion of long-term debt39 742 
Current portion of operating lease liabilities348 390 
Liabilities held for sale2,337 
Other accrued liabilities4,429 3,987 
Total current liabilities46,075 44,103 
Long-term debt5,946 6,406 
Long-term deferred tax liabilities1,352 1,411 
Long-term operating lease liabilities1,605 1,867 
Long-term litigation liabilities7,146 8,067 
Other non-current liabilities1,564 1,715 
Redeemable noncontrolling interests— 1,271 
McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding
— — 
Common stock, $0.01 par value, 800 shares authorized and 275 and 273 shares issued at September 30, 2021 and March 31, 2021, respectively
Additional paid-in capital7,311 6,925 
Retained earnings8,812 8,202 
Accumulated other comprehensive loss(1,665)(1,480)
Treasury shares, at cost, 122 and 115 shares at September 30, 2021 and March 31, 2021, respectively
(15,031)(13,670)
Total McKesson Corporation stockholders’ deficit(571)(21)
Noncontrolling interests484 196 
Total equity (deficit)(87)175 
Total liabilities, redeemable noncontrolling interests, and equity (deficit)$63,601 $65,015 
See Financial Notes
5

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In millions, except per share amounts)
(Unaudited)

Three Months Ended September 30, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive
Loss
TreasuryNoncontrolling
Interests
Total
Equity (Deficit)
SharesAmountCommon SharesAmount
Balances, June 30, 2021
274 $$7,057 $8,618 $(1,627)(119)$(14,579)$484 $(45)
Issuance of shares under employee plans, net of forfeitures— 40 — — — (1)— 39 
Share-based compensation— — 43 — — — — — 43 
Payments to noncontrolling interests— — — — — — — (40)(40)
Other comprehensive loss— — — — (38)— — — (38)
Net income— — — 267 — — — 43 310 
Repurchase of common stock— — 171 — — (3)(451)— (280)
Reclassification of recurring compensation to other accrued liabilities— — — — — — — (2)(2)
Cash dividends declared, $0.47 per common share
— — — (74)— — — — (74)
Other— — — — — — (1)— 
Balances, September 30, 2021
275 $$7,311 $8,812 $(1,665)(122)$(15,031)$484 $(87)


Three Months Ended September 30, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Equity
SharesAmountCommon SharesAmount
Balances, June 30, 2020
272 $$6,711 $13,384 $(1,735)(110)$(12,916)$207 $5,653 
Issuance of shares under employee plans, net of forfeitures— 18 — — — — — 18 
Share-based compensation— — 36 — — — — — 36 
Payments to noncontrolling interests— — — — — — — (50)(50)
Other comprehensive income— — — — 138 — — — 138 
Net income— — — 577 — — — 40 617 
Repurchase of common stock— — — — — (2)(269)— (269)
Cash dividends declared, $0.42 per common share
— — — (69)— — — — (69)
Other— — 15 (2)— — — 16 
Balances, September 30, 2020
273 $$6,780 $13,890 $(1,597)(112)$(13,185)$200 $6,090 
See Financial Notes
6

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In millions, except per share amounts)
(Unaudited)

Six Months Ended September 30, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive
Loss
TreasuryNoncontrolling
Interests
Total
Equity (Deficit)
SharesAmountCommon SharesAmount
Balances, March 31, 2021
273 $$6,925 $8,202 $(1,480)(115)$(13,670)$196 $175 
Issuance of shares under employee plans, net of forfeitures— 111 — — — (60)— 51 
Share-based compensation— — 76 — — — — — 76 
Payments to noncontrolling interests— — — — — — — (79)(79)
Other comprehensive loss— — — — (15)— — — (15)
Net income— — — 753 — — — 82 835 
Exercise of put right by noncontrolling shareholders of McKesson Europe AG— — 178 — (170)— — — 
Repurchase of common stock— — 21 — — (7)(1,301)— (1,280)
Reclassification of McKesson Europe AG redeemable noncontrolling interests— — — — — — — 287 287 
Reclassification of recurring compensation to other accrued liabilities— — — — — — — (2)(2)
Cash dividends declared, $0.89 per common share
— — — (139)— — — — (139)
Other— — — (4)— — — — (4)
Balances, September 30, 2021
275 $$7,311 $8,812 $(1,665)(122)$(15,031)$484 $(87)


Six Months Ended September 30, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Equity
SharesAmountCommon SharesAmount
Balances, March 31, 2020
272 $$6,663 $13,022 $(1,703)(110)$(12,892)$217 $5,309 
Opening retained earnings adjustments: adoption of new accounting standard— — — (13)— — — — (13)
Balances, April 1, 2020272 6,663 13,009 (1,703)(110)(12,892)217 5,296 
Issuance of shares under employee plans, net of forfeitures— 39 — — — (24)— 15 
Share-based compensation— — 59 — — — — — 59 
Payments to noncontrolling interests— — — — — — — (93)(93)
Other comprehensive income— — — — 106 — — — 106 
Net income— — — 1,021 — — — 79 1,100 
Exercise of put right by noncontrolling shareholders of McKesson Europe AG— — — — — — — 
Repurchase of common stock— — — — — (2)(269)— (269)
Cash dividends declared, $0.83 per common share
— — — (136)— — — — (136)
Other— — 16 (4)— — — (3)
Balances, September 30, 2020
273 $$6,780 $13,890 $(1,597)(112)$(13,185)$200 $6,090 
See Financial Notes
7

McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Six Months Ended September 30,
 20212020
OPERATING ACTIVITIES
Net income$843 $1,121 
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation148 154 
Amortization265 285 
Goodwill and long-lived asset impairment charges127 104 
Deferred taxes(18)(35)
Credits associated with last-in, first-out inventory method(46)(104)
Non-cash operating lease expense152 172 
Loss (gain) from sales of businesses and investments(101)
European businesses held for sale470 — 
Other non-cash items381 17 
Changes in assets and liabilities, net of acquisitions:
Receivables(2,311)981 
Inventories(1,164)(1,396)
Drafts and accounts payable1,431 (1,305)
Operating lease liabilities(186)(185)
Taxes40 (58)
Litigation liabilities151 — 
Other(12)207 
Net cash provided by (used in) operating activities170 (41)
INVESTING ACTIVITIES
Payments for property, plant, and equipment(186)(174)
Capitalized software expenditures(93)(91)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired(4)(8)
Proceeds from sales of businesses and investments, net179 
Other(53)(14)
Net cash used in investing activities(157)(278)
FINANCING ACTIVITIES
Proceeds from short-term borrowings3,020 5,303 
Repayments of short-term borrowings(3,020)(5,303)
Proceeds from issuances of long-term debt498 — 
Repayments of long-term debt(1,636)(5)
Payments for debt extinguishments(184)— 
Common stock transactions:
Issuances
111 39 
Share repurchases(1,272)(248)
Dividends paid(134)(140)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG(1,031)(49)
Other(246)
Net cash used in financing activities(3,894)(401)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash18 (63)
Net decrease in cash, cash equivalents, and restricted cash(3,863)(783)
Cash, cash equivalents, and restricted cash at beginning of period6,396 4,023 
Cash, cash equivalents, and restricted cash at end of period2,533 3,240 
Less: Restricted cash at end of period included in Prepaid expenses and other
(382)(149)
Cash and cash equivalents at end of period
$2,151 $3,091 
See Financial Notes
8

McKESSON CORPORATION
FINANCIAL NOTES
(UNAUDITED)

1.    Significant Accounting Policies
Nature of Operations: McKesson Corporation (“McKesson,” or the “Company,”) is a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. McKesson partners with pharmaceutical manufacturers, providers, pharmacies, governments, and other organizations in healthcare to help provide the right medicines, medical products, and healthcare services to the right patients at the right time, safely, and cost-effectively. 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 more information.
Basis of Presentation: The condensed consolidated financial statements of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled companies. For those consolidated subsidiaries where the Company’s ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation including the intercompany portion of transactions with equity method investees.
The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) of America (“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.
To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts may differ from these estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the coronavirus disease 2019 (“COVID-19”) pandemic. As COVID-19 further evolves, the Company’s accounting estimates and assumptions may change over time and may change materially in future periods. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows of McKesson for the interim periods presented.
The results of operations for the three and six months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies, and financial notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, previously filed with the SEC on May 12, 2021 (“2021 Annual Report”).
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.
Certain prior year amounts have been reclassified to conform to the current year presentation.

9

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Recently Adopted Accounting Pronouncements
In the first quarter of 2022, the Company prospectively adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies and clarifies certain other aspects of accounting for income taxes. The adoption of this amended guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
2.    Held for Sale
Assets and liabilities to be disposed of by sale (“disposal groups”) are reclassified into “held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use. The reclassification occurs when the disposal group is available for immediate sale and the sale is probable. These criteria are generally met when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying amount or fair value less costs to sell and long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less cost to sell is reported as an adjustment to the carrying value of the disposal group. Assets and liabilities that have met the classification of held for sale were $3.1 billion and $2.3 billion, respectively, at September 30, 2021 and $12 million and $9 million, respectively, at March 31, 2021. The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation.
European Divestiture Activities
On July 5, 2021, the Company entered into an agreement to sell certain of its businesses in the European Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.4 billion) adjusted for certain items, including cash, net debt and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. The transaction is anticipated to close within the next twelve months, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of September 30, 2021, the E.U. disposal group, consisting of $3.1 billion of assets and $2.3 billion of liabilities primarily within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for sale” in the Condensed Consolidated Balance Sheet.
During the three and six months ended September 30, 2021, the Company recorded charges totaling $491 million to remeasure the E.U. disposal group to the lower of its carrying value or fair value less costs to sell. These charges also included impairments of individual assets, such as certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole. The remeasurement adjustment includes a $226 million loss related to the accumulated other comprehensive income balances associated with the E.U. disposal group. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.


10

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The total assets and liabilities of the E.U. disposal group that have met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheets are as follows:
(In millions)September 30, 2021
Assets
Current assets
Receivables, net$1,298 
Inventories, net886 
Prepaid expenses and other113 
Property, plant, and equipment, net301 
Operating lease right-of-use assets224 
Intangible assets, net279 
Other non-current assets348 
Remeasurement of assets of businesses held for sale to fair value less cost to sell (1)
(370)
Total assets held for sale$3,079 
Liabilities
Current liabilities
Drafts and accounts payable$1,398 
Current portion of long-term debt
Current portion of operating lease liabilities34 
Other accrued liabilities449 
Long-term debt15 
Long-term deferred tax liabilities48 
Long-term operating lease liabilities198 
Other non-current liabilities184 
Total liabilities held for sale$2,330 
(1)Excludes charges related to the impairment of individual assets, which are primarily comprised of a $113 million impairment of internally developed software recorded directly against the gross value of the assets impacted.
On November 1, 2021, the Company announced an agreement to sell its retail and distribution businesses in the United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited for purchase consideration of £325 million (or, approximately $438 million). The transaction is anticipated to close during the fourth quarter of 2022, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals. Beginning in the third quarter of 2022, the U.K. disposal group will be reflected in the Company’s condensed consolidated financial statements as held for sale and will be remeasured to the lower of its carrying amount or fair value less costs to sell, which the Company estimates will result in a charge of between $700 million and $900 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the U.K. disposal group. While this range reflects the Company’s best estimate as of the date of this Quarterly Report on Form 10-Q, actual charges could differ based on operating results, changes in foreign exchange rates, and other factors prior to closing of the transaction.
3.    Restructuring, Impairment, and Related Charges
The Company recorded restructuring, impairment, and related charges of $32 million and $190 million during the three and six months ended September 30, 2021, respectively, and $60 million and $116 million during the three and six months ended September 30, 2020, respectively. These charges are included in “Restructuring, impairment, and related charges” in the Condensed Consolidated Statements of Operations. In addition, charges related to restructuring initiatives are included in “Cost of sales” in the Condensed Consolidated Statements of Operations and were not material for the three and six months ended September 30, 2021 and 2020.

11

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Restructuring Initiatives
During the first quarter of 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily includes the rationalization of the Company’s office space in North America. Where it determines to cease using office space, the Company plans to exit the portion of the facility no longer used. It also may retain and repurpose certain other office locations. The Company expects to incur total charges of approximately $180 million to $280 million for this initiative, consisting primarily of exit related costs, accelerated depreciation and amortization of long-lived assets, and asset impairments. The Company recorded charges of $15 million and $110 million, respectively, in the three and six months ended September 30, 2021. This initiative is anticipated to be completed in 2022. Charges primarily relate to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization.
During the first quarter of 2021, the Company committed to an initiative within the U.K., which is included in the Company’s International segment, to further drive operational changes in technologies and business processes, efficiencies, and cost savings. The initiative includes reducing the number of retail pharmacy stores, decommissioning obsolete technologies and processes, reorganizing and consolidating certain business operations, and related headcount reductions. The Company expects to incur total charges of approximately $85 million to $90 million, of which $64 million of charges were recorded to date. The Company recorded charges of $1 million and $7 million, respectively, in the three and six months ended September 30, 2021 and $27 million and $41 million, respectively, in the three and six months ended September 30, 2020, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. The initiative is anticipated to be substantially complete in 2022 and estimated remaining charges primarily consist of accelerated amortization of long-lived assets, facility and other exit costs, and employee-related costs.
Restructuring, impairment, and related charges during the three and six months ended September 30, 2021 consisted of the following:
Three Months Ended September 30, 2021
(In millions)
U.S. Pharmaceutical (1)
Prescription Technology SolutionsMedical-Surgical Solutions
International
Corporate (1)
Total
Severance and employee-related costs, net $— $(1)$$(2)$$(1)
Exit and other-related costs (2)
— 10 
Asset impairments and accelerated depreciation— 12 23 
Total$10 $— $$$19 $32 
(1)Costs primarily relate to the transition to the partial remote work model described above.
(2)Exit and other-related costs primarily consist of accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred.

12

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Six Months Ended September 30, 2021
(In millions)
U.S. Pharmaceutical (1)
Prescription Technology Solutions (1)
Medical-Surgical Solutions (1)
International (2)
Corporate (1)
Total
Severance and employee-related costs, net $$(1)$$10 $$13 
Exit and other-related costs (3)
15 27 50 
Asset impairments and accelerated depreciation16 17 36 53 127 
Total$22 $18 $$61 $81 $190 
(1)Costs primarily relate to the transition to the partial remote work model described above.
(2)Primarily represents costs related to the transition to the partial remote work model and U.K. operating model and cost optimization efforts described above, as well as costs for optimization programs in Canada.
(3)Exit and other-related costs primarily consist of accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred.
Restructuring, impairment, and related charges during the three and six months ended September 30, 2020 consisted of the following:
Three Months Ended September 30, 2020
(In millions)U.S. Pharmaceutical Prescription Technology SolutionsMedical-Surgical Solutions
International (1)
Corporate (2)
Total
Severance and employee-related costs, net $$— $$$$16 
Exit and other-related costs (3)
— (1)15 
Asset impairments and accelerated depreciation— — 27 29 
Total$10 $— $$35 $12 $60 
(1)Primarily represents costs associated with the U.K. operating model and cost optimization efforts described above.
(2)Primarily represents costs associated with an operating model and cost optimization initiative and with the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed in the year ended March 31, 2021.
(3)Exit and other-related costs primarily include project consulting fees.
Six Months Ended September 30, 2020
(In millions)U.S. Pharmaceutical Prescription Technology SolutionsMedical-Surgical Solutions
International (1)
Corporate (2)
Total
Severance and employee-related costs, net $$— $$20 $24 $54 
Exit and other-related costs (3)
— 14 28 
Asset impairments and accelerated depreciation— — 31 34 
Total$12 $— $$58 $40 $116 
(1)Primarily represents costs associated with the U.K. operating model and cost optimization efforts described above, and an operating model and cost optimization initiative which was substantially completed in the year ended March 31, 2021.
(2)Primarily represents costs associated with an operating model and cost optimization initiative and with the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed in the year ended March 31, 2021.
(3)Exit and other-related costs primarily include project consulting fees.

13

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The following table summarizes the activity related to the restructuring liabilities associated with the Company’s restructuring initiatives for the six months ended September 30, 2021:
(In millions)U.S. PharmaceuticalPrescription Technology SolutionsMedical-Surgical SolutionsInternationalCorporateTotal
Balance, March 31, 2021 (1)
$19 $$$66 $59 $151 
Restructuring, impairment, and related charges 22 18 61 81 190 
Non-cash charges(16)(17)(5)(36)(53)(127)
Cash payments(9)(1)(4)(14)(13)(41)
Other— — — (6)(6)(12)
Balance, September 30, 2021 (2)
$16 $$$71 $68 $161 
(1)As of March 31, 2021, the total reserve balance was $151 million, of which $99 million was recorded in “Other accrued liabilities” and $52 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.
(2)As of September 30, 2021, the total reserve balance was $161 million, of which $95 million was recorded in “Other accrued liabilities,” $36 million was recorded in “Liabilities held for sale,” and $30 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.
4.    Income Taxes
During the three months ended September 30, 2021 and 2020, the Company recorded income tax expense of $132 million and $28 million, respectively. During the six months ended September 30, 2021 and 2020, the Company recorded income tax expense of $158 million and $178 million, respectively. The Company’s reported income tax rates were 29.9% and 4.3% for the three months ended September 30, 2021 and 2020, respectively and 15.7% and 13.7% for the six months ended September 30, 2021 and 2020, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to non-cash charges related to remeasuring the value of its E.U. disposal group held for sale, changes in the mix of earnings between various taxing jurisdictions, and discrete items recognized in the quarters.
During the second quarter of 2022, the Company recorded non-cash pre-tax charges totaling $491 million primarily to remeasure the E.U. disposal group to the lower of its carrying value or fair value less costs to sell, as described in Financial Note 2, “Held for Sale.” The Company’s reported income tax rates for the three and six months ended September 30, 2021 were unfavorably impacted by this due to the non-deductible nature of the majority of these charges for income tax purposes.
During the second quarter of 2022, the Company recognized a net discrete tax benefit of $55 million primarily related to a decrease in the global intangible low-tax income (“GILTI”) in its 2021 U.S. Federal income tax return.
During the second quarter of 2021, the Company sold intellectual property between wholly-owned legal entities within McKesson that are based in different tax jurisdictions. The transferor entity recognized a gain on the sale of assets which was not subject to income tax in its local jurisdiction; such gain was eliminated upon consolidation. The acquiring entity of the intellectual property is entitled to amortize the purchase price of the assets for tax purposes. In accordance with ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” a discrete tax benefit of $105 million, which reduced the Company’s reported income tax rates by 16.0 percentage points and 8.1 percentage points for the three and six months ended September 30, 2020, respectively, was recognized with a corresponding increase to a deferred tax asset for the temporary difference arising from the buyer’s excess tax basis.
As of September 30, 2021, the Company had $1.7 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the six months ended September 30, 2021, the Company recognized a net discrete tax benefit of $97 million primarily related to statute of limitation expirations in various taxing jurisdictions. During the next twelve months, the Company does not anticipate any material reduction in its unrecognized tax benefits. However, this may change as the Company continues to have ongoing negotiations with various taxing authorities throughout the year. The unrecognized tax benefit may also increase or decrease due to future developments in the Opioid related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

14

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2013 through the current fiscal year.
5.     Redeemable Noncontrolling Interests and Noncontrolling Interests
Redeemable Noncontrolling Interests
The Company’s redeemable noncontrolling interests primarily related to its consolidated subsidiary, McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million during the three months ended June 30, 2021, and $10 million and $21 million during the three and six months ended September 30, 2020, respectively. All amounts were recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statements of Operations and the corresponding liability balance was recorded in “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheets.
Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”). Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of McKesson Europe initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court (the “Court”) to challenge the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed dividend. During the pendency of the Appraisal Proceedings, such amount was paid as specified in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remained unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. On April 12, 2021, the Company received notice that the Stuttgart Court of Appeals ruled that the Put Amount shall remain €22.99, thereby rejecting the lower court’s increase, and the recurring compensation remained at €0.83 per share.
During the six months ended September 30, 2021 and 2020, the Company paid $1.0 billion and $49 million, respectively, to purchase 34.5 million and 1.8 million shares, respectively, of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the noncontrolling interests by $983 million and $49 million, respectively, for the six months ended September 30, 2021 and 2020, and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million and $3 million, respectively, as an increase to McKesson’s stockholders additional paid-in capital. The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, with a carrying value of $287 million, were transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” in the Condensed Consolidated Balance Sheet.
The redeemable noncontrolling interest was adjusted each period for the proportion of other comprehensive income, primarily due to changes in foreign currency exchange rates, attributable to the noncontrolling shareholders. Prior to expiration of the Put Right, the balance of the redeemable noncontrolling interests was reported as the greater of its carrying value or its maximum redemption value at each reporting date. At March 31, 2021, the carrying value of $1.3 billion exceeded the maximum redemption value of $1.2 billion and the Company owned approximately 78% of McKesson Europe’s outstanding common shares.

15

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Noncontrolling Interests
Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021 noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. At September 30, 2021, the Company owned approximately 95%, of McKesson Europe’s outstanding common shares. The Company’s noncontrolling interest in McKesson Europe will be included in the sale of the E.U. disposal group, as discussed in Financial Note 2, “Held for Sale.” The Company allocated $43 million and $82 million of net income to noncontrolling interests during the three and six months ended September 30, 2021, respectively, and $40 million and $79 million during the three and six months ended September 30, 2020, respectively.
Changes in redeemable noncontrolling interests and noncontrolling interests for the three and six months ended September 30, 2021 were as follows:
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, June 30, 2021$484 $
Net income attributable to noncontrolling interests43 — 
Reclassification of recurring compensation to other accrued liabilities
(2)— 
Payments to noncontrolling interests
(40)— 
Other(1)(7)
Balance, September 30, 2021$484 $— 
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, March 31, 2021$196 $1,271 
Net income attributable to noncontrolling interests82 
Other comprehensive income— 
Reclassification of recurring compensation to other accrued liabilities
(2)(8)
Payments to noncontrolling interests
(79)— 
Exercises of Put Right— (983)
Reclassification of McKesson Europe redeemable noncontrolling interests287 (287)
Other— (4)
Balance, September 30, 2021$484 $— 
Changes in redeemable noncontrolling interests and noncontrolling interests for the three and six months ended September 30, 2020 were as follows:
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, June 30, 2020$207 $1,414 
Net income attributable to noncontrolling interests40 10 
Other comprehensive loss— (151)
Reclassification of recurring compensation to other accrued liabilities
— (10)
Payments to noncontrolling interests
(50)— 
Other
Balance, September 30, 2020$200 $1,265 

16

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, March 31, 2020$217 $1,402 
Net income attributable to noncontrolling interests79 21
Other comprehensive loss— (90)
Reclassification of recurring compensation to other accrued liabilities
— (21)
Payments to noncontrolling interests
(93)— 
Exercises of Put Right— (49)
Other
(3)
Balance, September 30, 2020$200 $1,265 
6.    Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Less than 1 million of potentially dilutive securities for the three and six months ended September 30, 2021 and approximately 2 million of potentially dilutive securities for the three and six months ended September 30, 2020 were excluded from the computation of diluted earnings per common share as they were anti-dilutive.

17

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The computations for basic and diluted earnings or loss per common share are as follows:
Three Months Ended September 30, Six Months Ended September 30,
(In millions, except per share amounts)2021202020212020
Income from continuing operations$310 $627 $846 $1,122 
Net income attributable to noncontrolling interests(43)(50)(90)(100)
Income from continuing operations attributable to McKesson Corporation267 577 756 1,022 
Loss from discontinued operations, net of tax— — (3)(1)
Net income attributable to McKesson Corporation$267 $577 $753 $1,021 
Weighted-average common shares outstanding:
Basic154.1 162.0 155.1 162.0 
Effect of dilutive securities:
Stock options0.2 — 0.2 — 
Restricted stock units (1)
1.5 1.2 1.6 1.2 
Diluted155.8 163.2 156.9 163.2 
Earnings (loss) per common share attributable to McKesson: (2)
Diluted
Continuing operations$1.71 $3.54 $4.82 $6.26 
Discontinued operations— — (0.02)— 
Total
$1.71 $3.54 $4.80 $6.26 
Basic
Continuing operations$1.73 $3.56 $4.87 $6.31 
Discontinued operations— — (0.02)(0.01)
Total
$1.73 $3.56 $4.85 $6.30 
(1)Includes dilutive effect from restricted stock units, performance-based restricted stock units, and performance-based stock units.
(2)Certain computations may reflect rounding adjustments.
7.    Goodwill and Intangible Assets, Net
In the second quarter of 2021, the Company implemented a new segment reporting structure which prompted changes in multiple reporting units across the Company. As a result, goodwill included in the impacted reporting units was reallocated using a relative fair value approach and assessed for impairment before and after the reallocation. The Company recorded a goodwill impairment charge of $69 million in the three and six months ended September 30, 2020 as the estimated fair value of the Europe Retail Pharmacy reporting unit was lower than its reassigned carrying value based on changes in the composition of this reporting unit within the International segment. This impairment charge is included in “Goodwill impairment charges” in the Condensed Consolidated Statements of Operations.

18

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Changes in the carrying amount of goodwill were as follows:
(In millions)U.S. PharmaceuticalPrescription Technology SolutionsMedical-Surgical SolutionsInternationalTotal
Balance, March 31, 2021$3,963 $1,542 $2,453 $1,535 $9,493 
Goodwill acquired— — — 
Foreign currency translation adjustments, net(9)— — (15)(24)
Balance, September 30, 2021$3,954 $1,542 $2,453 $1,524 $9,473 
Information regarding intangible assets is as follows:
 September 30, 2021March 31, 2021
(Dollars in millions)Weighted-
Average
Remaining
Amortization
Period
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships12$3,241 $(2,017)$1,224 $3,739 $(2,269)$1,470 
Service agreements101,082 (542)540 1,081 (513)568 
Pharmacy licenses22308 (209)99 497 (244)253 
Trademarks and trade names12872 (394)478 925 (394)531 
Technology3136 (116)20 150 (122)28 
Other7255 (231)24 254 (226)28 
Total $5,894 $(3,509)$2,385 
(1)
$6,646 $(3,768)$2,878 
(1)Excludes net intangible assets of approximately $279 million related to the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” This amount was included under the caption “Assets held for sale” in the Condensed Consolidated Balance Sheet as of September 30, 2021. Amortization of these assets ceased upon reclassification to Assets held for sale in the second quarter of 2022.
Amortization expense of intangible assets was $84 million and $182 million during the three and six months ended September 30, 2021, respectively, and $106 million and $212 million during the three and six months ended September 30, 2020, respectively. Estimated amortization expense of these assets is as follows: $167 million, $242 million, $230 million, $225 million, and $192 million for the remainder of 2022 and each of the succeeding years through 2026 and $1.3 billion thereafter. All intangible assets were subject to amortization as of September 30, 2021 and March 31, 2021.

19

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
8.    Debt and Financing Activities
Long-term debt consisted of the following:
(In millions)September 30, 2021March 31, 2021
U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022
$400 $400 
2.85% Notes due March 15, 2023
360 400 
3.80% Notes due March 15, 2024
918 1,100 
0.90% Notes due December 3, 2025
500 500 
1.30% Notes due August 15, 2026
498 — 
7.65% Debentures due March 1, 2027
150 167 
3.95% Notes due February 16, 2028
343 600 
4.75% Notes due May 30, 2029
197 400 
6.00% Notes due March 1, 2041
220 282 
4.88% Notes due March 15, 2044
255 411 
Foreign currency notes (1) (3)
0.63% Euro Notes due August 17, 2021
— 704 
1.50% Euro Notes due November 17, 2025
703 700 
1.63% Euro Notes due October 30, 2026
588 587 
3.13% Sterling Notes due February 17, 2029
602 627 
Lease and other obligations (4)
251 270 
Total debt5,985 7,148 
Less: Current portion39 742 
Total long-term debt$5,946 $6,406 
(1)These notes are unsecured and unsubordinated obligations of the Company.
(2)Interest on these notes is payable semi-annually.
(3)Interest on these foreign currency notes is payable annually.
(4)Excludes current and long-term debt of approximately $4 million and $15 million, respectively, as of September 30, 2021 related to the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Liabilities held for sale” in the Condensed Consolidated Balance Sheet as of September 30, 2021.
Long-Term Debt
The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. Debt outstanding totaled $6.0 billion and $7.1 billion at September 30, 2021 and March 31, 2021, respectively, of which $39 million and $742 million, respectively, was included under the caption “Current portion of long-term debt” within the Company’s Condensed Consolidated Balance Sheets.
On August 12, 2021, the Company completed a public offering of 1.30% Notes due August 15, 2026 (the “2026 Notes”) in a principal amount of $500 million. Interest on the 2026 Notes is payable semi-annually on February 15th and August 15th of each year, commencing on February 15, 2022. Proceeds received from this note issuance, net of discounts and offering expenses, were $495 million. The Company utilized the net proceeds from this note for general corporate purposes.



20

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The 2026 Notes, which constitutes a “Series,” are an unsecured and unsubordinated obligation of the Company and rank equally with all of the Company’s existing, and from time-to-time, future unsecured and unsubordinated indebtedness outstanding. The 2026 Notes are governed by materially similar indentures and officers’ certificates as those of other Series issued by the Company. Upon required notice to holders of notes with fixed interest rates, the Company may redeem those notes at any time prior to maturity, in whole or in part, for cash at redemption prices. In the event of the occurrence of both (1) a change of control of the Company and (2) a downgrade of a Series below an investment grade rating by each of Fitch Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, an offer must be made to purchase the 2026 Notes from the holders at a price equal to 101% of the then outstanding principal amount of the 2026 Notes, plus accrued and unpaid interest to, but not including, the date of repurchase. The indenture and the related officers’ certificate for the 2026 Note, subject to the exceptions and in compliance with the conditions as applicable, specify that the Company may not consolidate, merge or sell all or substantially all of its assets, incur liens, or enter into sale-leaseback transactions exceeding specific terms, without lenders’ consent. The indentures also contain customary events of default provisions.
On July 17, 2021, the Company redeemed its 0.63% €600 million (or, approximately $709 million) total principal Euro-denominated notes, originally due on August 17, 2021, prior to maturity. The notes were redeemed at par value using cash on hand.
Tender Offer
On July 23, 2021, the Company completed a cash tender offer for a portion of its existing outstanding (i) 2.85% Notes due 2023, (ii) 3.80% Notes due 2024, (iii) 7.65% Debentures due 2027, (iv) 3.95% Notes due 2028, (v) 4.75% Notes due 2029, (vi) 6.00% Notes due 2041, and (vii) 4.88% Notes due 2044 (collectively referred to herein as the “Tender Offer Notes”). In connection with the tender offer, the Company paid an aggregate consideration of $1.1 billion to redeem $922 million principal amount of the notes at a redemption price equal to 100% of the principal amount and premiums of $182 million, plus accrued and unpaid interest of $14 million. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment. As a result of the redemption, the Company incurred a pre-tax loss on debt extinguishment of $191 million, which included premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred totaling $9 million.
Revolving Credit Facilities
The Company has a Credit Agreement, dated as of September 25, 2019 (the “2020 Credit Facility”), that provides a syndicated $4.0 billion five-year senior unsecured credit facility with a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and Euro. Borrowings under the 2020 Credit Facility bear interest based upon the London Interbank Offered Rate (“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The 2020 Credit Facility matures in September 2024 and had no borrowings during the three and six months ended September 30, 2021 and 2020 and no amounts outstanding as of September 30, 2021 and March 31, 2021.
On March 31, 2021, the Company entered into Amendment No. 2 to the 2020 Credit Facility, which superseded Amendment No. 1, dated as of February 1, 2021. The 2020 Credit Facility, as amended, contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a maximum Total Debt to Consolidated EBITDA ratio, as defined in the amended credit agreement. If the Company does not comply with these covenants, its ability to use the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit Facility may be required. At September 30, 2021, the Company was in compliance with all covenants.
The Company also maintains bilateral credit facilities primarily denominated in Euro with a committed amount of $7 million and an uncommitted amount of $116 million as of September 30, 2021. Borrowings and repayments were not material during the three and six months ended September 30, 2021 and 2020, and amounts outstanding under these credit lines were not material as of September 30, 2021 and March 31, 2021.

21

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Commercial Paper
The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. During the six months ended September 30, 2021, the Company borrowed $3.0 billion and repaid $3.0 billion under the program. During the six months ended September 30, 2020, the Company borrowed $5.3 billion and repaid $5.3 billion under the program. At September 30, 2021 and March 31, 2021, there were no commercial paper notes outstanding.
9.    Pension Benefits
The net periodic expense for defined benefit pension plans was approximately $2 million for the three and six months ended September 30, 2021 and $7 million and $14 million for the three and six months ended September 30, 2020, respectively.
Cash contributions to these plans were $3 million and $17 million for the three and six months ended September 30, 2021, respectively, and $4 million and $11 million for the three and six months ended September 30, 2020, respectively. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and expected life expectancy.
As part of the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale,” pension liabilities of approximately $108 million were included under the caption “Liabilities held for sale” in the Condensed Consolidated Balance Sheet as of September 30, 2021.
10.    Hedging Activities
In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. At times, the Company limits these risks through the use of derivatives such as cross-currency swaps, foreign currency forward contracts, and interest rate swaps. In accordance with the Company’s policy, derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes.
Foreign Currency Exchange Risk
The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. Changes in foreign currency exchange rates could have a material adverse impact on the Company’s financial results that are reported in U.S. dollars. The Company is also exposed to foreign currency exchange rate risk related to its foreign subsidiaries, including intercompany loans denominated in non-functional currencies. The Company has certain foreign currency exchange rate risk programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans and other obligations denominated in non-functional currencies. These programs reduce but do not entirely eliminate foreign currency exchange rate risk.
Non-Derivative Instruments Designated as Hedges
At September 30, 2021 and March 31, 2021, the Company had €1.1 billion and €1.7 billion, respectively, of Euro-denominated notes designated as non-derivative net investment hedges. These hedges are utilized to hedge portions of the Company’s net investments in non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For all notes that are designated as net investment hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates are recorded in foreign currency translation adjustments in “Accumulated other comprehensive loss” in the 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.

22

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Gains or losses from net investment hedges recorded within Other comprehensive income were gains of $33 million and $11 million during the three and six months ended September 30, 2021, respectively, and losses of $83 million and $117 million during the three and six months ended September 30, 2020, respectively. There was no ineffectiveness in non-derivative net investment hedges during the three and six months ended September 30, 2021 and 2020.
Derivatives Designated as Hedges
At September 30, 2021 and March 31, 2021, the Company had cross-currency swaps designated as net investment hedges with a total gross notional amount of $500 million Canadian dollars. Under the terms of the cross-currency swap contracts, the Company agrees with third parties to exchange fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon notional amounts. These swaps are utilized to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in “Accumulated other comprehensive loss” in the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) where they offset foreign currency translation gains and losses recorded on the Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings. There was no ineffectiveness in the Company’s net investment hedges for the three and six months ended September 30, 2021 and 2020. The remaining cross-currency swaps will mature November 2024.
Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in Other comprehensive income were gains of $10 million and $5 million during the three and six months ended September 30, 2021, respectively, and losses of $12 million and $63 million during the three and six months ended September 30, 2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three and six months ended September 30, 2021 and 2020.
The Company is a party to a number of cross-currency swaps designated as fair value hedges with total notional amounts of £450 million British pound sterling. Under the terms of the cross-currency swap contracts, the Company agreed with third parties to exchange fixed interest payments in British pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread. These swaps are utilized to hedge the changes in the fair value of the underlying £450 million British pound sterling notes resulting from changes in benchmark interest rates and foreign exchange rates. The changes in the fair value of these derivatives, which are designated as fair value hedges, and the offsetting changes in the fair value of the hedged notes are recorded in earnings. Gains from these fair value hedges recorded in earnings were largely offset by the losses recorded in earnings related to these notes. The swaps will mature in February 2023.
From time to time, the Company also enters into cross-currency swaps to hedge intercompany loans denominated in non-functional currencies. For cross-currency swap transactions, the Company agrees with third parties to exchange fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon notional amounts. These cross-currency swaps are designed to reduce the income statement effects arising from fluctuations in foreign exchange rates and have been designated as cash flow hedges. At September 30, 2021 and March 31, 2021, the Company had cross-currency swaps with total gross notional amounts of approximately $2.4 billion and $2.6 billion, respectively, which are designated as cash flow hedges. These swaps will mature between October 2021 and January 2024.
For forward contracts and cross-currency swaps that are designated as cash flow hedges, the effective portion of changes in the fair value of the hedges is recorded in Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings.

23

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
On April 27, 2020, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with combined notional amounts of $500 million and €600 million, to hedge the variability of future benchmark interest rates on planned bond issuances. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $500 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR and to pay fixed interest payments for floating interest payments in Euros based on six-month Euro Interbank Offered Rate (“EURIBOR”) for the €600 million swaps. The $500 million swaps were terminated upon the issuance of the 2025 Notes in November 2020. The settlement loss on the swaps was not material and is being amortized on a straight-line basis as interest expense over the five-year life of the 2025 Notes. The €600 million swaps were terminated in July 2021 and the loss on termination of the swaps recorded in interest expense was not material for the three and six months ended September 30, 2021. Refer to Financial Note 8, “Debt and Financing Activities,” for more information.
From September 20, 2021 to October 27, 2021, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with a combined notional amount of $400 million, to hedge the variability of future benchmark interest rates on a planned bond issuance. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $400 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR.
Gains or losses from cash flow hedges recorded in Other comprehensive income were gains of $11 million during the three and six months ended September 30, 2021 and losses of $23 million and $28 million during the three and six months ended September 30, 2020, respectively. Gains or losses reclassified from Accumulated other comprehensive income and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations were not material in the three and six months ended September 30, 2021 and 2020. There was no ineffectiveness in the Company’s cash flow hedges for the three and six months ended September 30, 2021 and 2020.
Derivatives Not Designated as Hedges
Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the change in fair value included in earnings.
The Company has a number of forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At September 30, 2021 and March 31, 2021, the total gross notional amounts of these contracts were $19 million and $39 million, respectively. These contracts will predominantly mature between October 2021 and December 2021 and none of these contracts were designated for hedge accounting. Changes in the fair values for contracts not designated as hedges are recorded directly into earnings in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. Changes in the fair values were not material in the three and six months ended September 30, 2021 and 2020. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

24

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Information regarding the fair value of derivatives on a gross basis is as follows:
Balance Sheet
Caption
September 30, 2021March 31, 2021
Fair Value of
Derivative
U.S. Dollar NotionalFair Value of
Derivative
U.S. Dollar Notional
(In millions)AssetLiabilityAssetLiability
Derivatives designated for hedge accounting
Cross-currency swaps (current)Prepaid expenses and other/Other accrued liabilities$$36 $838 $$47 $826 
Cross-currency swaps (non-current)Other non-current assets/liabilities62 74 2,474 72 92 2,663 
Forward starting interest rate swaps (current)Other accrued liabilities— — — — 704 
Forward starting interest rate swaps (non-current)Other accrued liabilities— 200 — — — 
Total$67 $110 $76 $146 
Derivatives not designated for hedge accounting
Foreign exchange contracts (current)Prepaid expenses and other$— $— $$— $— $29 
Foreign exchange contracts (current)Other accrued liabilities— — 18 — 10 
Total$— $— $— $
Refer to Financial Note 11, "Fair Value Measurements," for more information on these recurring fair value measurements.
11.     Fair Value Measurements
The Company measures certain assets and liabilities at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:
Level 1 - quoted prices in active markets for identical assets or liabilities.
Level 2 - significant other observable market-based inputs.
Level 3 - significant unobservable inputs for which little or no market data exists and requires considerable assumptions that are significant to the fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Cash and cash equivalents at September 30, 2021 and March 31, 2021 included investments in money market funds of $361 million and $1.6 billion, respectively, which are reported at fair value. The fair value of money market funds was determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash equivalents approximates their fair value due to their relatively short-term nature. Fair values for the Company’s marketable securities were not material at September 30, 2021 and March 31, 2021.
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.

25

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry and which had carrying values of $357 million and $269 million, respectively, at September 30, 2021 and March 31, 2021. These investments primarily consist of equity securities without readily determinable fair values and are included in “Other non-current assets” in the Condensed Consolidated Balance Sheets. During the three months ended September 30, 2021, certain of the Company’s investments in equity securities without readily determinable fair values experienced transactions which resulted in changes in the observable price of those securities. During the three months ended September 30, 2020, three of the companies in which McKesson held investments in equity securities were converted into shares of public common stock through initial public offerings and an acquisition. Net gains related to the Company’s investments in these equity securities, primarily representing unrealized gains on the securities discussed above, were approximately $97 million and $104 million for the three and six months ended September 30, 2021 and $49 million and $59 million for the three and six months ended September 30, 2020, respectively. These net gains were recorded in “Other income, net,” in the Condensed Consolidated Statements of Operations. The carrying value of publicly traded investments was determined using quoted prices for identical investments in active markets and are considered to be Level 1 inputs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company’s assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.
At September 30, 2021, the assets and liabilities associated with the E.U. disposal group held for sale were measured at the lower of cost or fair value less cost to sell, as discussed in more detail in Financial Note 2, “Held for Sale." At September 30, 2021 and 2020, assets measured at fair value on a nonrecurring basis included long-lived assets associated with the Company’s restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges.” Assets measured at fair value on a nonrecurring basis as of September 30, 2020 included goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment. Refer to Financial Note 7, “Goodwill and Intangible Assets, Net,” for more information. At March 31, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets of the Company’s International segment and goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment.
The aforementioned investments in equity securities of U.S. growth stage companies include the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future.
There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2021 and March 31, 2021.
Other Fair Value Disclosures
At September 30, 2021 and March 31, 2021, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.
The Company determines the fair value of commercial paper using quoted prices in active markets for identical instruments, which are considered Level 1 inputs under the fair value measurements and disclosure guidance.
The Company’s long-term debt is recorded at amortized cost. The carrying value and fair value of the Company’s long-term debt was as follows:
September 30, 2021March 31, 2021
(In millions)Carrying ValueFair ValueCarrying ValueFair Value
Long-term debt, including current maturities$5,985 $6,496 $7,148 $