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Mckesson Corp (MCK) SEC Filing 10-Q Quarterly Report for the period ending Friday, December 31, 2021

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Mckesson Corp

CIK: 927653 Ticker: MCK

Exhibit 99.1

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McKESSON REPORTS FISCAL 2022 THIRD-QUARTER RESULTS

Third-Quarter Highlights, Year-over-Year:
Total revenues of $68.6 billion increased 10%.
Loss per diluted share from continuing operations of ($0.04), an increase of $38.99 due to a prior year pre-tax charge of $8.1 billion related to opioid litigation.
Adjusted Earnings per Diluted Share of $6.15 increased 34%.
As part of the ongoing leadership refreshment of our Board of Directors, James H. Hinton and Kathleen Wilson-Thompson joined the company’s Board of Directors on January 13, 2022.
Our Board elected Donald R. Knauss as independent chair effective April 1, 2022, following a planned transition led by current independent chair Edward A. Mueller.

Fiscal 2022 Outlook:
Increased fiscal 2022 Adjusted Earnings per Diluted Share guidance range to $23.55 to $23.95, from the previous range of $22.35 to $22.95, representing 37% to 39% growth compared to prior year.
Fiscal 2022 Adjusted Earnings per Diluted Share guidance includes approximately $2.99 to $3.59 of impacts attributable to the following:
$1.75 to $2.15 related to the U.S. government's COVID-19 vaccine distribution, kitting, and storage programs;
$0.75 to $0.95 related to the COVID-19 tests and impairments for personal protective equipment and related products, increased from the previous range of $0.50 to $0.75;
$0.49 related to year-to-date gains and losses associated with McKesson Ventures’ equity investments.
Excluding the impacts of the above items from both fiscal 2022 guidance and fiscal 2021 results indicate 27% to 33% forecasted growth compared to prior year.

IRVING, Texas, February 2, 2022 - McKesson Corporation (NYSE:MCK) today reported third-quarter results for the period ended December 31, 2021.
Fiscal 2022 Third-Quarter Result Summary
Third-Quarter
Year-to-Date
($ in millions, except per share amounts)FY22FY21ChangeFY22FY21Change
Revenues$68,614 $62,599 10 %$197,864 $179,086 10 %
Income (loss) from Continuing Operations 1
(7)(6,226)(100)749 (5,204)114 
Adjusted Earnings 1,2
944 741 27 2,782 1,978 41 
Earnings (loss) per Diluted Share 1
(0.04)(39.03)(100)4.81 (32.28)115 
Adjusted Earnings per Diluted Share 1,2
6.15 4.60 34 17.86 12.17 47 
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


The following information was filed by Mckesson Corp (MCK) on Wednesday, February 2, 2022 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.
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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 December 31, 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
mck-20211231_g1.jpg
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. 149,798,378 shares of the issuer’s common stock were outstanding as of December 31, 2021.


McKESSON CORPORATION

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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 December 31, Nine Months Ended December 31,
 2021202020212020
Revenues$68,614 $62,599 $197,864 $179,086 
Cost of sales(65,186)(59,448)(188,052)(170,235)
Gross profit3,428 3,151 9,812 8,851 
Selling, distribution, general, and administrative expenses(3,105)(2,291)(8,006)(6,625)
Claims and litigation charges, net(7)(8,067)(193)(7,936)
Goodwill impairment charges— — — (69)
Restructuring, impairment, and related charges
(18)(155)(208)(271)
Total operating expenses(3,130)(10,513)(8,407)(14,901)
Operating income (loss)298 (7,362)1,405 (6,050)
Other income, net20 54 202 152 
Loss on debt extinguishment— — (191)— 
Interest expense(41)(55)(135)(165)
Income (loss) from continuing operations before income taxes277 (7,363)1,281 (6,063)
Income tax benefit (expense)(238)1,189 (396)1,011 
Income (loss) from continuing operations39 (6,174)885 (5,052)
Loss from discontinued operations, net of tax— — (3)(1)
Net income (loss)39 (6,174)882 (5,053)
Net income attributable to noncontrolling interests(46)(52)(136)(152)
Net income (loss) attributable to McKesson Corporation$(7)$(6,226)$746 $(5,205)
Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations
$(0.04)$(39.03)$4.81 $(32.28)
Discontinued operations
— — (0.02)(0.01)
Total
$(0.04)$(39.03)$4.79 $(32.29)
Basic
Continuing operations
$(0.04)$(39.03)$4.87 $(32.28)
Discontinued operations
— — (0.02)(0.01)
Total
$(0.04)$(39.03)$4.85 $(32.29)
Weighted-average common shares outstanding
Diluted151.6 159.5 155.8 161.2 
Basic151.6 159.5 154.0 161.2 

See Financial Notes
3

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
 Three Months Ended December 31, Nine Months Ended December 31,
 2021202020212020
Net income (loss)$39 $(6,174)$882 $(5,053)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
16 107 (8)181 
Unrealized gains (losses) on cash flow hedges(6)(12)(36)
Changes in retirement-related benefit plans
(2)24 16 
Other comprehensive income (loss), net of tax119 (4)161 
Comprehensive income (loss)47 (6,055)878 (4,892)
Comprehensive income attributable to noncontrolling interests(44)(77)(137)(113)
Comprehensive income (loss) attributable to McKesson Corporation$$(6,132)$741 $(5,005)

See Financial Notes
4

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
December 31, 2021March 31, 2021
ASSETS
Current assets
Cash and cash equivalents$2,754 $6,278 
Receivables, net18,355 19,181 
Inventories, net19,024 19,246 
Assets held for sale5,534 12 
Prepaid expenses and other831 665 
Total current assets46,498 45,382 
Property, plant, and equipment, net2,064 2,581 
Operating lease right-of-use assets1,581 2,100 
Goodwill9,462 9,493 
Intangible assets, net2,130 2,878 
Other non-current assets1,973 2,581 
Total assets$63,708 $65,015 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
Current liabilities
Drafts and accounts payable$37,183 $38,975 
Short-term borrowings372 — 
Current portion of long-term debt438 742 
Current portion of operating lease liabilities294 390 
Liabilities held for sale4,833 
Other accrued liabilities4,332 3,987 
Total current liabilities47,452 44,103 
Long-term debt5,518 6,406 
Long-term deferred tax liabilities1,369 1,411 
Long-term operating lease liabilities1,391 1,867 
Long-term litigation liabilities7,153 8,067 
Other non-current liabilities1,612 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 December 31, 2021 and March 31, 2021, respectively
Additional paid-in capital7,411 6,925 
Retained earnings8,734 8,202 
Accumulated other comprehensive loss(1,655)(1,480)
Treasury shares, at cost, 125 and 115 shares at December 31, 2021 and March 31, 2021, respectively
(15,766)(13,670)
Total McKesson Corporation stockholders’ deficit(1,274)(21)
Noncontrolling interests487 196 
Total equity (deficit)(787)175 
Total liabilities, redeemable noncontrolling interests, and equity (deficit)$63,708 $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 December 31, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Deficit
SharesAmountCommon SharesAmount
Balances, September 30, 2021
275 $$7,311 $8,812 $(1,665)(122)$(15,031)$484 $(87)
Issuance of shares under employee plans, net of forfeitures— — 63 — — — (7)— 56 
Share-based compensation— — 36 — — — — — 36 
Payments to noncontrolling interests— — — — — — — (38)(38)
Other comprehensive income (loss)— — — — 10 — — (2)
Net income (loss)— — — (7)— — — 46 39 
Repurchase of common stock— — — — (3)(728)— (728)
Reclassification of recurring compensation to other accrued liabilities— — — — — — — (3)(3)
Cash dividends declared, $0.47 per common share
— — — (72)— — — — (72)
Other— — — — — — 
Balances, December 31, 2021
275 $$7,411 $8,734 $(1,655)(125)$(15,766)$487 $(787)


Three Months Ended December 31, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Equity (Deficit)
SharesAmountCommon SharesAmount
Balances, September 30, 2020
273 $$6,780 $13,890 $(1,597)(112)$(13,185)$200 $6,090 
Issuance of shares under employee plans, net of forfeitures— — 16 — — — (2)— 14 
Share-based compensation— — 51 — — — — — 51 
Payments to noncontrolling interests— — — — — — — (41)(41)
Other comprehensive income— — — — 94 — — — 94 
Net income (loss)— — — (6,226)— — — 41 (6,185)
Repurchase of common stock— — — — — (2)(231)— (231)
Cash dividends declared, $0.42 per common share
— — — (67)— — — — (67)
Other— — — (2)— — — — (2)
Balances, December 31, 2020
273 $$6,847 $7,595 $(1,503)(114)$(13,418)$200 $(277)
See Financial Notes
6

McKESSON CORPORATION

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

Nine Months Ended December 31, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Equity (Deficit)
SharesAmountCommon SharesAmount
Balances, March 31, 2021
273 $$6,925 $8,202 $(1,480)(115)$(13,670)$196 $175 
Issuance of shares under employee plans, net of forfeitures— 174 — — — (67)— 107 
Share-based compensation— — 112 — — — — — 112 
Payments to noncontrolling interests— — — — — — — (117)(117)
Other comprehensive loss— — — — (5)— — (2)(7)
Net income— — — 746 — — — 128 874 
Exercise of put right by noncontrolling shareholders of McKesson Europe AG— — 178 — (170)— — — 
Repurchase of common stock— — 21 — — (10)(2,029)— (2,008)
Reclassification of McKesson Europe AG redeemable noncontrolling interests— — — — — — — 287 287 
Reclassification of recurring compensation to other accrued liabilities— — — — — — — (5)(5)
Cash dividends declared, $1.36 per common share
— — — (211)— — — — (211)
Other— — (3)— — — — (2)
Balances, December 31, 2021
275 $$7,411 $8,734 $(1,655)(125)$(15,766)$487 $(787)


Nine Months Ended December 31, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTreasuryNoncontrolling
Interests
Total
Equity (Deficit)
SharesAmountCommon SharesAmount
Balances, March 31, 2020
272 $$6,663 $13,022 $(1,703)(110)$(12,892)$217 $5,309 
Opening retained earnings adjustments: adoption of new accounting standard— — — (13)— — — — (13)
Balances, April 1, 2020272 6,663 13,009 (1,703)(110)(12,892)217 5,296 
Issuance of shares under employee plans, net of forfeitures— 55 — — — (26)— 29 
Share-based compensation— — 110 — — — — — 110 
Payments to noncontrolling interests— — — — — — — (134)(134)
Other comprehensive income— — — — 200 — — — 200 
Net income (loss)— — — (5,205)— — — 120 (5,085)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG— — — — — — — 
Repurchase of common stock— — — — — (4)(500)— (500)
Cash dividends declared, $1.25 per common share
— — — (203)— — — — (203)
Other— — 16 (6)— — — (3)
Balances, December 31, 2020
273 $$6,847 $7,595 $(1,503)(114)$(13,418)$200 $(277)
See Financial Notes
7

McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Nine Months Ended December 31,
 20212020
OPERATING ACTIVITIES
Net income (loss)$882 $(5,053)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation215 237 
Amortization383 429 
Goodwill and long-lived asset impairment charges128 236 
Deferred taxes12 (1,520)
Credits associated with last-in, first-out inventory method(79)(115)
Non-cash operating lease expense198 264 
Loss (gain) from sales of businesses and investments(117)50 
European businesses held for sale1,271 — 
Other non-cash items452 67 
Changes in assets and liabilities, net of acquisitions:
Receivables(1,925)1,500 
Inventories(1,659)(2,046)
Drafts and accounts payable1,612 (1,240)
Operating lease liabilities(276)(291)
Taxes176 184 
Litigation liabilities146 8,067 
Other128 403 
Net cash provided by operating activities1,547 1,172 
INVESTING ACTIVITIES
Payments for property, plant, and equipment(253)(293)
Capitalized software expenditures(127)(134)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired(6)(33)
Proceeds from sales of businesses and investments, net197 325 
Other(83)(75)
Net cash used in investing activities(272)(210)
FINANCING ACTIVITIES
Proceeds from short-term borrowings3,642 5,455 
Repayments of short-term borrowings(3,270)(5,303)
Proceeds from issuances of long-term debt498 500 
Repayments of long-term debt(1,646)(1,030)
Payments for debt extinguishments(184)— 
Common stock transactions:
Issuances
174 55 
Share repurchases(1,986)(500)
Dividends paid(206)(209)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG(1,031)(49)
Other(323)(95)
Net cash used in financing activities(4,332)(1,176)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash35 (77)
Cash, cash equivalents, and restricted cash classified within Assets held for sale(215)— 
Net decrease in cash, cash equivalents, and restricted cash(3,237)(291)
Cash, cash equivalents, and restricted cash at beginning of period6,396 4,023 
Cash, cash equivalents, and restricted cash at end of period3,159 3,732 
Less: Restricted cash at end of period included in Prepaid expenses and other
(405)(155)
Cash and cash equivalents at end of period
$2,754 $3,577 
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 nine months ended December 31, 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.

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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
In July 2021, the Company announced its intention to exit its businesses in Europe. Assets and liabilities of certain European businesses 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. Assets and liabilities that have met the classification of held for sale were $5.5 billion and $4.8 billion, respectively, at December 31, 2021 and $12 million and $9 million, respectively, at March 31, 2021. The amounts at December 31, 2021 primarily consisted of disposal groups related to the Company’s European divestiture activities, as discussed below. During the three and nine months ended December 31, 2021, the Company recorded charges totaling $879 million and $1.4 billion, respectively, primarily to remeasure the assets and liabilities of the disposal groups related to European divestiture activities discussed below to the lower of their carrying value or fair value less costs to sell. These charges were largely driven by declines in the British pound sterling and the Euro. During the three and nine months ended December 31, 2020, the Company recorded losses of $47 million and $57 million, respectively, related to the contribution of its German pharmaceutical wholesale business to the joint venture with Walgreens Boots Alliance which was completed on November 1, 2020. 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 first half of fiscal year 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of December 31, 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,” respectively, in the Condensed Consolidated Balance Sheet.
During the three and nine months ended December 31, 2021, the Company recorded charges totaling $26 million and $517 million, respectively, 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 net losses of $230 million related to the accumulated other comprehensive income balances associated with the E.U. disposal group, driven by declines in the Euro. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the 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 Sheet are as follows:
(In millions)December 31, 2021
Assets
Current assets
Receivables, net$1,346 
Inventories, net913 
Prepaid expenses and other75 
Property, plant, and equipment, net296 
Operating lease right-of-use assets221 
Intangible assets, net274 
Other non-current assets348 
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)
(387)
Total assets held for sale$3,086 
Liabilities
Current liabilities
Drafts and accounts payable$1,433 
Current portion of long-term debt
Current portion of operating lease liabilities32 
Other accrued liabilities440 
Long-term debt12 
Long-term deferred tax liabilities47 
Long-term operating lease liabilities187 
Other non-current liabilities165 
Total liabilities held for sale$2,321 
(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 a purchase price of £325 million (or, approximately $440 million), subject to certain adjustments. As of December 31, 2021, the U.K. disposal group, consisting of $1.9 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,” respectively, in the Condensed Consolidated Balance Sheet. The transaction is expected to close in the fourth quarter of 2022.
During the three and nine months ended December 31, 2021, the Company recorded charges totaling $823 million to remeasure the U.K. disposal group to the lower of its carrying value or fair value less costs to sell. The remeasurement adjustment includes a $731 million loss related to the accumulated other comprehensive income balances associated with the U.K. disposal group, driven by declines in the British pound sterling. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the U.K. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.





11

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The total assets and liabilities of the U.K. disposal group that have met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet are as follows:
(In millions)December 31, 2021
Assets
Current assets
Cash and cash equivalents$206 
Receivables, net1,212 
Inventories, net698 
Prepaid expenses and other76 
Property, plant, and equipment, net91 
Operating lease right-of-use assets259 
Intangible assets, net120 
Other non-current assets78 
Remeasurement of assets of businesses held for sale to fair value less costs to sell(822)
Total assets held for sale$1,918 
Liabilities
Current liabilities
Drafts and accounts payable$1,756 
Current portion of operating lease liabilities51 
Other accrued liabilities141 
Long-term operating lease liabilities269 
Other non-current liabilities57 
Total liabilities held for sale$2,274 
On December 20, 2021, the Company announced an agreement with Quadrifolia Management GmbH for a management-led buyout of its Austrian business for a purchase price of €226 million (or, approximately $257 million), subject to certain adjustments. At December 31, 2021, the net assets of the Austrian business of $290 million, primarily within the Company’s International segment, were classified as “Assets held for sale” and “Liabilities held for sale” in the Condensed Consolidated Balance Sheet. The transaction closed on January 31, 2022. In the three and nine months ended December 31, 2021, the Company recognized a loss of $30 million to remeasure the assets and liabilities of the business to the lower of its carrying value or fair value less costs to sell. The charge was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations.
3.    Restructuring, Impairment, and Related Charges
The Company recorded restructuring, impairment, and related charges of $18 million and $208 million during the three and nine months ended December 31, 2021, respectively, and $155 million and $271 million during the three and nine months ended December 31, 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 were included in “Cost of sales” in the Condensed Consolidated Statement of Operations and were not material for the nine months ended December 31, 2020.

12

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 $140 million to $180 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 $5 million and $115 million, respectively, in the three and nine months ended December 31, 2021. Charges primarily relate to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative is anticipated to be substantially complete in 2022 after which immaterial charges will continue to be incurred through the termination date of certain leases.
During the first quarter of 2021, the Company committed to an initiative within the United Kingdom (“U.K.”), which is included in the Company’s International segment, to further drive operational changes in technologies and business processes, efficiencies, and cost savings. The initiative included reducing the number of retail pharmacy stores, decommissioning obsolete technologies and processes, reorganizing and consolidating certain business operations, and related headcount reductions. Charges incurred for this initiative were not material for the three and nine months ended December 31, 2021 and were $9 million and $50 million for the three and nine months ended December 31, 2020, respectively, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. This initiative was substantially complete in the third quarter of 2022, and remaining costs the Company expects to record under this initiative are not material.
Restructuring, impairment, and related charges during the three and nine months ended December 31, 2021 consisted of the following:
Three Months Ended December 31, 2021
(In millions)U.S. PharmaceuticalPrescription Technology SolutionsMedical-Surgical Solutions
International
CorporateTotal
Severance and employee-related costs, net $— $— $— $— $$
Exit and other-related costs (1)
— 16 
Asset impairments and accelerated depreciation— — — (1)
Total$$— $$$$18 
(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.

13

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Nine Months Ended December 31, 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 $$14 
Exit and other-related costs (3)
21 33 66 
Asset impairments and accelerated depreciation16 17 35 55 128 
Total$25 $18 $$66 $90 $208 
(1)Costs primarily relate to the transition to the partial remote work model described above.
(2)Primarily represents costs related to optimization programs in Canada as well as the transition to a partial remote work model and the U.K. operating model and cost optimization efforts both described above.
(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 nine months ended December 31, 2020 consisted of the following:
Three Months Ended December 31, 2020
(In millions)U.S. Pharmaceutical Prescription Technology SolutionsMedical-Surgical Solutions
International (1)
Corporate (2)
Total
Severance and employee-related costs, net $$— $(3)$$$
Exit and other-related costs (3)
— 15 
Asset impairments and accelerated depreciation— — — 16 
Total$$— $(2)$16 $20 $40 
(1)Primarily represents costs associated with the U.K. operating model and cost optimization efforts described above.
(2)Primarily represents costs associated with an operating model and cost optimization initiative and with the relocation of the Company’s corporate headquarters. Both of these initiatives were substantially completed in the year ended March 31, 2021.
(3)Exit and other-related costs primarily include project consulting fees.
Nine Months Ended December 31, 2020
(In millions)U.S. Pharmaceutical Prescription Technology SolutionsMedical-Surgical Solutions
International (1)
Corporate (2)
Total
Severance and employee-related costs, net $10 $— $— $22 $31 $63 
Exit and other-related costs (3)
— 12 20 43 
Asset impairments and accelerated depreciation— — 40 50 
Total$18 $— $$74 $60 $156 
(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.

14

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 nine months ended December 31, 2021:
(In millions)U.S. PharmaceuticalPrescription Technology SolutionsMedical-Surgical SolutionsInternationalCorporateTotal
Balance, March 31, 2021 (1)
$19 $$$66 $59 $151 
Restructuring, impairment, and related charges 25 18 66 90 208 
Non-cash charges(16)(17)(5)(35)(55)(128)
Cash payments(15)(1)(5)(22)(26)(69)
Other— — — (11)(7)(18)
Balance, December 31, 2021 (2)
$13 $$$64 $61 $144 
(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 December 31, 2021, the total reserve balance was $144 million, of which $52 million was recorded in “Other accrued liabilities,” $44 million was recorded in “Liabilities held for sale,” and $48 million was recorded in “Other non-current liabilities” in the Condensed Consolidated Balance Sheet.
Long-Lived Asset Impairments
During the third quarter of 2021, the Company recognized charges of $115 million to impair certain long-lived assets within the Company’s International segment. These charges primarily related to long-lived assets associated with the Company’s retail pharmacy businesses in Canada and Europe and were due to declines in estimated future cash flows partially driven by a revised outlook regarding the impacts of COVID-19. The Company used both an income approach (a discounted cash flow (“DCF”) method) and a market approach to estimate the fair value of the long-lived assets.
The fair value of the long-lived assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information. Refer to Financial Note 11, “Fair Value Measurements,” for more information on nonrecurring fair value measurements.
4.    Income Taxes
During the three months ended December 31, 2021 and 2020, the Company recorded income tax expense of $238 million and an income tax benefit of $1.2 billion, respectively. During the nine months ended December 31, 2021 and 2020, the Company recorded income tax expense of $396 million and an income tax benefit of $1.0 billion, respectively. The Company’s reported income tax expense rate was 85.9% and an income tax benefit rate of 16.1% for the three months ended December 31, 2021 and 2020, respectively, and an income tax expense rate of 30.9% and an income tax benefit rate of 16.7% for the nine months ended December 31, 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. and U.K disposal groups held for sale to the lower of its carrying value or fair value less costs to sell, changes in the mix of earnings between various taxing jurisdictions, and discrete items recognized in the quarters.
During the nine months ended December 31, 2021, the Company recorded non-cash pre-tax charges of $517 million primarily to remeasure the E.U. disposal group to the lower of its carrying value or fair value less costs to sell, and, during the three and nine months ended December 31, 2021, the Company recorded non-cash pre-tax charges of $853 million to remeasure the U.K. disposal group and the Austrian business to the lower of 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 nine months ended December 31, 2021 were unfavorably impacted by the non-deductible nature of the majority of these charges for income tax purposes.
The Company’s reported income tax rates for the nine months ended December 31, 2021 and 2020 were impacted by the charges for opioid-related claims of $193 million ($160 million after-tax) and $8.1 billion ($6.7 billion after-tax), respectively, as described further in Financial Note 12, “Commitments and Contingent Liabilities.”

15

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
During the third quarter of 2022, the Company recognized a net discrete tax benefit of $42 million primarily related to a decrease in the income recognized pursuant to the global intangible low-tax income (“GILTI”) regime in its 2021 U.S. Federal income tax return and the statute of limitation expirations in various taxing jurisdictions.
During the nine months ended December 31, 2020, 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 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 December 31, 2021, the Company had $1.6 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the nine months ended December 31, 2021, the Company recognized a net discrete tax benefit of $115 million 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 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 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 $11 million and $32 million during the three and nine months ended December 31, 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.

16

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
During the nine months ended December 31, 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 nine months ended December 31, 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 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.
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 December 31, 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 $46 million and $128 million of net income to noncontrolling interests during the three and nine months ended December 31, 2021, respectively, and $41 million and $120 million during the three and nine months ended December 31, 2020, respectively.
Changes in redeemable noncontrolling interests and noncontrolling interests for the three and nine months ended December 31, 2021 were as follows:
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, September 30, 2021$484 $— 
Net income attributable to noncontrolling interests46 — 
Other comprehensive loss(2)— 
Reclassification of recurring compensation to other accrued liabilities
(3)— 
Payments to noncontrolling interests
(38)— 
Balance, December 31, 2021$487 $— 
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, March 31, 2021$196 $1,271 
Net income attributable to noncontrolling interests128 
Other comprehensive income (loss)(2)
Reclassification of recurring compensation to other accrued liabilities
(5)(8)
Payments to noncontrolling interests
(117)— 
Exercises of Put Right— (983)
Reclassification of McKesson Europe redeemable noncontrolling interests287 (287)
Other— (4)
Balance, December 31, 2021$487 $— 

17

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Changes in redeemable noncontrolling interests and noncontrolling interests for the three and nine months ended December 31, 2020 were as follows:
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, September 30, 2020$200 $1,265 
Net income attributable to noncontrolling interests41 11 
Other comprehensive income— 25 
Reclassification of recurring compensation to other accrued liabilities
— (11)
Payments to noncontrolling interests
(41)— 
Other
— 
Balance, December 31, 2020$200 $1,292 
(In millions)Noncontrolling InterestsRedeemable Noncontrolling Interests
Balance, March 31, 2020$217 $1,402 
Net income attributable to noncontrolling interests120 32 
Other comprehensive loss— (65)
Reclassification of recurring compensation to other accrued liabilities
— (32)
Payments to noncontrolling interests
(134)— 
Exercises of Put Right— (49)
Other
(3)
Balance, December 31, 2020$200 $1,292 
6.    Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Diluted loss per common share for the three months ended December 31, 2021 and the three and nine months ended December 31, 2020 was calculated by excluding potentially dilutive securities from the denominator of the share computation due to their anti-dilutive effects. Less than 1 million of potentially dilutive securities for the nine months ended December 31, 2021 were excluded from the computation of diluted earnings per common share as they were anti-dilutive.

18

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
The computations for basic and diluted earnings or loss per common share are as follows:
Three Months Ended December 31, Nine Months Ended December 31,
(In millions, except per share amounts)2021202020212020
Income (loss) from continuing operations$39 $(6,174)$885 $(5,052)
Net income attributable to noncontrolling interests(46)(52)(136)(152)
Income (loss) from continuing operations attributable to McKesson Corporation(7)(6,226)749 (5,204)
Loss from discontinued operations, net of tax— — (3)(1)
Net income (loss) attributable to McKesson Corporation$(7)$(6,226)$746 $(5,205)
Weighted-average common shares outstanding:
Basic151.6 159.5 154.0 161.2 
Effect of dilutive securities:
Stock options— — 0.2 — 
Restricted stock units (1)
— — 1.6 — 
Diluted151.6 159.5 155.8 161.2 
Earnings (loss) per common share attributable to McKesson: (2)
Diluted
Continuing operations$(0.04)$(39.03)$4.81 $(32.28)
Discontinued operations— — (0.02)(0.01)
Total
$(0.04)$(39.03)$4.79 $(32.29)
Basic
Continuing operations$(0.04)$(39.03)$4.87 $(32.28)
Discontinued operations— — (0.02)(0.01)
Total
$(0.04)$(39.03)$4.85 $(32.29)
(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 nine months ended December 31, 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 Statement of Operations.
The Company evaluates goodwill for impairment on an annual basis as of October 1, and at an interim date, if indicators of potential impairment exist. The annual impairment testing performed for 2022 and 2021 did not indicate any impairment of goodwill.

19

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Changes in the carrying amount of goodwill were as follows:
(In millions)U.S. PharmaceuticalPrescription Technology SolutionsMedical-Surgical Solutions
International (1)
Total
Balance, March 31, 2021$3,963 $1,542 $2,453 $1,535 $9,493 
Goodwill acquired— — — 
Foreign currency translation adjustments, net(21)— — (15)(36)
Balance, December 31, 2021$3,942 $1,542 $2,453 $1,525 $9,462 
(1)    Remaining goodwill for this segment primarily relates to the McKesson Canada reporting unit.
Information regarding intangible assets is as follows:
 December 31, 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$2,842 $(1,718)$1,124 $3,739 $(2,269)$1,470 
Service agreements91,083 (558)525 1,081 (513)568 
Pharmacy licenses— — — 497 (244)253 
Trademarks and trade names12816 (371)445 925 (394)531 
Technology2128 (113)15 150 (122)28 
Other8192 (171)21 254 (226)28 
Total $5,061 $(2,931)$2,130 
(1)
$6,646 $(3,768)$2,878 
(1)Excludes net intangible assets of approximately $452 million related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” This amount was included under the caption “Assets held for sale” in the Condensed Consolidated Balance Sheet as of December 31, 2021. Amortization of these assets ceased upon classification as Assets held for sale in the second and third quarters of 2022.
Amortization expense of intangible assets was $80 million and $262 million during the three and nine months ended December 31, 2021, respectively, and $108 million and $320 million during the three and nine months ended December 31, 2020, respectively. Estimated amortization expense of these assets is as follows: $70 million, $226 million, $215 million, $209 million, and $177 million for the remainder of 2022 and each of the succeeding years through 2026, respectively, and $1.2 billion thereafter. All intangible assets were subject to amortization as of December 31, 2021 and March 31, 2021.

20

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
8.    Debt and Financing Activities
Long-term debt consisted of the following:
(In millions)December 31, 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
196 400 
6.00% Notes due March 1, 2041
217 282 
4.88% Notes due March 15, 2044
255 411 
Foreign currency notes (1) (3)
0.63% Euro Notes due August 17, 2021
— 704 
1.50% Euro Notes due November 17, 2025
680 700 
1.63% Euro Notes due October 30, 2026
568 587 
3.13% Sterling Notes due February 17, 2029
618 627 
Lease and other obligations (4)
253 270 
Total debt5,956 7,148 
Less: Current portion438 742 
Total long-term debt$5,518 $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 $5 million and $12 million, respectively, as of December 31, 2021 related to the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included under the caption “Liabilities held for sale” in the Condensed Consolidated Balance Sheet as of December 31, 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 December 31, 2021 and March 31, 2021, respectively, of which $438 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.

21

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 in the nine months ended December 31, 2021, 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 nine months ended December 31, 2021 and 2020 and no amounts outstanding as of December 31, 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 December 31, 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 $114 million as of December 31, 2021. Borrowings and repayments were not material during the three and nine months ended December 31, 2021 and 2020. Amounts outstanding under these credit lines were not material as of December 31, 2021 and March 31, 2021.

22

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 nine months ended December 31, 2021, the Company borrowed $3.6 billion and repaid $3.3 billion under the program. During the nine months ended December 31, 2020, the Company borrowed $5.5 billion and repaid $5.3 billion under the program. At December 31, 2021 there were $372 million commercial paper notes outstanding at a weighted average interest rate of 0.29%. At 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 and $4 million for the three and nine months ended December 31, 2021, respectively, and $4 million and $17 million for the three and nine months ended December 31, 2020, respectively.
Cash contributions to these plans were $18 million and $35 million for the three and nine months ended December 31, 2021, respectively, and $8 million and $19 million for the three and nine months ended December 31, 2020, respectively. The cash contributions for the three and nine months ended December 31, 2021 included a $17 million payment to a U.K. pension plan. 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 assets of $52 million and pension liabilities of $148 million were included under the captions “Assets held for sale” and “Liabilities held for sale,” respectively, in the Condensed Consolidated Balance Sheet as of December 31, 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 December 31, 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.

23

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Gains or losses from net investment hedges recorded within Other comprehensive income were gains of $23 million and $34 million during the three and nine months ended December 31, 2021, respectively, and losses of $84 million and $201 million during the three and nine months ended December 31, 2020, respectively. There was no ineffectiveness in non-derivative net investment hedges during the three and nine months ended December 31, 2021 and 2020.
Derivatives Designated as Hedges
At December 31, 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 nine months ended December 31, 2021 and 2020. The remaining cross-currency swaps will mature in November 2024.
Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in Other comprehensive income were losses of $2 million and gains of $3 million during the three and nine months ended December 31, 2021, respectively, and losses of $45 million and $108 million during the three and nine months ended December 31, 2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three and nine months ended December 31, 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 December 31, 2021 and March 31, 2021, the Company had cross-currency swaps with total gross notional amounts of approximately $1.8 billion and $2.6 billion, respectively, which are designated as cash flow hedges. These swaps will mature between December 2022 and January 2024.
For forward contracts and cross-currency swaps that are designated as cash flow hedges, the effective portion of changes in the fair value of the hedges is recorded in Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings.

24

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 the second quarter of 2022 and the loss on termination of the swaps recorded in interest expense was not material for the nine months ended December 31, 2021. Refer to Financial Note 8, “Debt and Financing Activities,” for more information.
From September 20, 2021 to November 4, 2021, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with a combined notional amount of $500 million, to hedge the variability of future benchmark interest rates on a planned bond issuance. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $500 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR.
Gains or losses from cash flow hedges recorded in Other comprehensive income were losses of $8 million and gains of $3 million during the three and nine months ended December 31, 2021 and losses of $14 million and $42 million during the three and nine months ended December 31, 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 nine months ended December 31, 2021 and 2020. There was no ineffectiveness in the Company’s cash flow hedges for the three and nine months ended December 31, 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 had a number of forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At December 31, 2021 and March 31, 2021, the total gross notional amounts of these contracts were $5 million and $39 million, respectively. These contracts matured between October 2021 and January 2022 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 nine months ended December 31, 2021 and 2020. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

25

McKESSON CORPORATION
FINANCIAL NOTES (CONTINUED)
(UNAUDITED)
Information regarding the fair value of derivatives on a gross basis is as follows:
Balance Sheet
Caption
December 31, 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$$28 $570 $$47 $826 
Cross-currency swaps (non-current)Other non-current assets/liabilities66 56 2,205 72 92 2,663 
Forward starting interest rate swaps (current)Other accrued liabilities— — — — 704 
Forward starting interest rate swaps (non-current)Other non-current assets/liabilities500 — — — 
Total$69 $86 $76 $146 
Derivatives not designated for hedge accounting
Foreign exchange contracts (current)Prepaid expenses and other$— $—