McKesson

Making Better Health Possible

Annual Report  | Fiscal Year Ended March 31, 2018

At McKesson, we see a future in which patients are at the center of their care. Where all participants 
in the healthcare supply chain — from biopharma companies to community providers — are 
empowered with the insights, technology and solutions they need to make patient-centered care 
a reality. Together, with our customers and partners, we’re bringing this future to life today. 

We’re making better health possible.

$100M 
to create non-profit 
foundation to fight
opioid 
epidemic

185 years
of making better 
health possible

1/3 of all 
prescription 
medicine
delivered in 
North America 

2.1M+ 
customers 
served each 
day across 
13 European 
countries

16,000+
owned and banner 
pharmacies 
delivering 
patient care

 9,100+ 
oncologists & 
other specialists 
supported with
specialty
solutions

275,000+ 
SKUs of brand & 
private label  
medical-surgical 
supplies

$100M+ 
invested in
emerging healthcare 
companies through 
McKesson 
Ventures

73,000+
patients enrolled in 
1,600+ 
clinical trials

80,000+ 
cancer 
patients 
cared for 
through 
Giving Comfort

6.7M+
patients supported 
through
co-pay
assistance

Dear Shareholder:

McKesson’s mission of delivering better health is what drives our 78,000+ employees each and every day. Through

our work with partners across the healthcare ecosystem, we play an integral role in helping people live healthier, more

productive lives.

In Fiscal 2018, our Company delivered solid performance across many of our businesses. Despite some industry-wide

headwinds, we produced strong returns and invested to enhance our ability to deliver value to our manufacturing 

partners, our customers and patients.

The Company generated revenues of $208.4 billion compared to $198.5 billion in Fiscal 2017 and produced adjusted

earnings of $12.62 per diluted share compared to $12.54 in Fiscal 2017. 

Most important, we positioned ourselves to lead in areas of patient-care delivery that present powerful new growth

opportunities. Our recently announced Multi-Year Strategic Growth Initiative articulates a clear path for McKesson in 

areas such as specialty pharmaceuticals and manufacturer services, which are poised for the next significant wave of 

healthcare innovation.

We are also streamlining our Company with a focus on improving our cost position and agility. Every major function

has set a three-year path driven by recent reorganizations to accomplish a new, more focused and efficient company.

We believe this initiative will produce accelerated long-term growth for shareholders while improving our overall

business performance and enabling us to deliver more value to our partners and customers. The healthcare industry 

continues to evolve, and McKesson is more focused and growth-driven than ever. Our future and promise as a leader 

in healthcare is outstanding.

Pivoting to the Patient

$208 
billion

Total revenues

$12.62 

Adjusted 
earnings per 
diluted share

Throughout our history, McKesson has constantly evolved in response to changing customer needs and market dynamics. 

Over the past decade, we have focused on rapidly expanding segments of healthcare, while directing our businesses 

toward higher-margin offerings within areas where we provide the most value.

Our new Multi-Year Strategic Growth Initiative reflects our vision of healthcare’s future and the leadership role we can

play in helping patients get the pharmaceutical treatments and care they need, while our partners and customers along 

the supply chain benefit from our insights and collaboration. 

In simple terms, our strategic growth initiative is about expanding the value we create throughout the supply chain to
improve patient care and drive incremental long-term earnings growth. To that end, we are sharpening our focus on our
core distribution businesses and honing in on the following priorities:

•  Expanding our value proposition to manufacturers

•  Enhancing our solutions to support the specialty drug pipeline

•  Evolving the current retail pharmacy model to expand the role of the pharmacist as a provider of care through an 

    omnichannel experience

•  Leveraging sophisticated data and analytics capabilities to support our customers, partners and patients

In addition to pursuing these specific opportunities, we have begun to streamline processes, lower costs, create more

efficiencies and better align our operations. The savings will be largely reinvested to support our growth objectives.

Enhancing Value for Our Partners

Fundamentally, McKesson has always been a wholesaler, serving as a conduit between the pharmaceutical innovations

and the needs of care providers. Ultimately, we help patients get the treatment and care they need. 

Our job at the center of that supply chain has been to be world class and highly efficient in delivering competitive

pricing at scale while expanding our value upstream and downstream through technology, services, data and analytics

and solutions. 

Upstream, the complexity of bringing products to market requires an integrated approach, which we are uniquely 

able to provide. For example, to launch a new therapy, today’s biopharma companies must prove clinical effectiveness, 

establish reasonable reimbursement terms with payers, form relationships with prescribers, find the right patients

and prove successful outcomes with patients. Our solutions support manufacturers in getting their products to market

more quickly and providing them with evidence of effectiveness while ensuring patients can access innovative therapies 

and helping them adhere to those therapies long term. 

Our US Oncology Network illustrates the crucial role we play. Over 30% of new, approved oncology drugs have gone 

through our clinical trials. We are the only organization through which manufacturers can apply their specialty therapies 

to the patient populations that need them most, while participating in a data-based feedback loop that helps physicians,

patients and manufacturers continue to improve efficacy, adherence and outcomes.

We have made a number of strategic moves over the past 12 to 24 months to build value with our manufacturer partners.

These investments have brought new services and solutions that, when combined with our existing offerings, make us 
a stronger partner for both our pharmaceutical and biotechnology manufacturer partners and our customers.

“

Our strategic growth initiative is about expanding the  
value we create throughout the supply chain to improve patient  
care and drive incremental long-term earnings growth.

The addition of RxCrossroads, as an example, greatly enhances our commercialization solutions for manufacturers

of branded, specialty, generic and biosimilar drugs. And BDI Pharma complements our offerings in alternative side 

channels and provides support to our manufacturer partners with increased scale and customer penetration.

We’ve also been strategic in the ways we collaborate to help create more value for our partners and our shareholders.

ClarusONE, our generic sourcing joint venture with Walmart, is a terrific example of this innovative approach to the 

changing dynamics in healthcare. We’ve been extremely pleased with the business’s overall performance this year while 
contracting with a diverse range of manufacturers. This has benefited all our customers who purchase generics through 
us, helping them be more successful in a competitive and dynamic market.

Helping Create Better Health for Patients

We support our customers’ patient care in a variety of settings — in emergency rooms, ambulatory centers, clinics and

pharmacies. We have our own retail pharmacies and affiliated oncology practices. And we offer practice management

solutions to make care providers more efficient and help create the best care experience and outcome for the patient. 

Our acquisition of intraFUSION, a provider of management services for physician office infusion centers, is another 

example of how we’re deploying our capital to strengthen our core businesses. IntraFUSION broadens our offerings to

community-based physician practices.

We also have a significant footprint in retail pharmacy, with more than 16,000 owned and banner pharmacies in North 

America and Europe. Patients today seek the convenience of receiving care in a way that suits them, whether online 

or in person. Increasingly, they will look to pharmacies for healthcare services they once sought from physicians, such

as diabetes or hypertension management. 

Our vision is to build a single platform for this omnichannel care experience so that customers can use our services

to receive pharmaceutical deliveries at home, pick them up at a store, do research online or consult with a pharmacist

in person. With our recent acquisition of Well.ca, we have strengthened our e-commerce capabilities to provide an 

omnichannel presence for customers.

”

And our suite of retail pharmacy services is broad. We connect patients digitally with pharmacists to provide medication 

education, treatment protocols and medication scheduling reminders, driving adherence across our global retail footprint.
Through RelayHealth Pharmacy, we also collect data and provide analytics that help retail pharmacists manage
individual patients, drive adherence and deliver better health outcomes. 

Finally, our Medical-Surgical business continues to be one of the fastest-growing businesses in our portfolio, benefiting

from the industry-wide shift to lower sites of care. Our sales representatives have a deep understanding of the needs of 

physicians, hospitals and ambulatory clinics, helping our partners improve the services they offer patients. 

There is no doubt that the needs of our partners and our customers will continue to evolve as the needs of patients 

and the healthcare system overall change. While reduced reimbursements and other economic pressures create challenges 

across the industry, we believe that low-cost settings of care are an important part of the solution to improving affordability, 

access and patient health. 

We will also continue to find new ways to help our customers be more successful — both clinically and financially.

Whether it is through an innovative partnership like ClarusONE or a strategic investment like intraFUSION, we are

focused on what’s ultimately most important: helping deliver better health.

Helping Fight the Opioid Epidemic

We are deeply concerned about the impact the opioid crisis is having on families and communities across the United

States. We have seen it touch the lives of McKesson employees, our family members and neighbors. That’s why we have 

focused tremendous energy and resources on helping fight the opioid epidemic.

As a pharmaceutical distributor, we recognize that we operate as one component within the pharmaceutical supply 

chain, which also includes drug manufacturers, regulatory bodies like the U.S. Drug Enforcement Administration (DEA) 

and state pharmacy boards, insurance companies, prescribing doctors and dispensing pharmacists. 

In response to the epidemic, we have invested millions of dollars to strengthen our anti-diversion program and are

actively supporting a set of solutions that we believe will help prevent diversion and misuse of opioids and other

commonly abused medications. 

In partnership with others in the industry, we are committed to developing and deploying tools and resources to help

minimize abuse, combat overprescribing and increase doctor and patient education. In Fiscal 2018, we also committed 

$100 million to form a foundation dedicated to combatting the crisis.

We expect the foundation’s focus to be on improving education for patients, caregivers and providers, addressing key
policy issues, and increasing access to life-saving treatments, such as opioid overdose reversal medications.

Within McKesson, we are also embarking on the following critical initiatives:

•  A national prescription safety-alert system

We are developing a real-time workflow solution for pharmacists and providers that will flag patients at risk 

of opioid abuse or misuse.

•  E-prescribing

We are helping to transition customers to e-prescribing of opioids and will stop selling opioids to customers

who cannot process e-prescriptions of controlled substances during 2019.

•  Limited dose packaging

We will work with manufacturing partners to develop plans for limited dose packaging to make it easier for 
doctors to prescribe and pharmacists to dispense opioids in smaller doses.

•  Fast-track distribution of new non-opioid pain medications

We will work with our manufacturing partners to help bring to market non-opioid pain medications as soon 
as FDA approval has been secured.

•  Pharmacist training on opioid overdose reversal medications

We are providing complimentary training to pharmacists, developed by third-party experts, on how to administer 
opioid overdose reversal medications such as naloxone. 

We will develop an annual report to track our progress on these initiatives and share our learnings and insights with 

the public. 

One of McKesson’s primary goals is to help ensure that medicines prescribed by licensed doctors are delivered to 

licensed pharmacies so they are available for patients who need them, when they need them and where they need

them. We are committed to being a responsible partner in the fight against prescription drug diversion, while safely 

delivering medicine for legitimate use to patients in need.

Our People and Culture

McKesson’s success is built on the foundation of our ICARE shared principles. These values are core to who we are and 

help guide our priorities and decisions while reinforcing the highest standards of ethical behavior at every level. In

this environment, our talented and passionate people thrive. They recognize that financial performance and creating 
value for our investors are critical parts of our mission, yet our truest measure of accomplishment is based on how 

well we meet the needs of our customers, including patients. 

McKesson is proud to be ranked #1 as the World’s Most Admired Company in the Healthcare Wholesaler category by

Fortune Magazine, voted among the Best Places to Work for LGBT individuals by HRC Corporate Equality Index, and

recognized as a Military Friendly Employer by Military Friendly.

In our work, we demonstrate our commitment to patients and their families every day and strive to be a great corporate

citizen. McKesson employees logged 25,468 volunteer hours, supported 1,183 organizations, added 2,214 new bone 

marrow donors to the national marrow registry, and supported hurricane relief efforts and California wildfire relief 

efforts, among many other important causes.

People are inspired by many different things. Most are motivated by more than financial reward. At McKesson, we have

a competitive (and friendly) culture, and our employees enjoy being part of a winning organization. But we also have 

a humble sense of service and know that we are privileged to work in an industry that cares for those in need.

A Bold Vision of Our Future 

As a shareholder, you should feel confident in the present and future of our Company. 

Our array of strategic assets and solutions positions us extremely well against our competitors in every market. Our 

operations are highly efficient and we have a strong financial position. Our employees are passionate about what they

do. In our distribution centers, this ethic is articulated by our employees with the saying, “It’s not a package, it’s
a patient.” That powerful slogan reflects a deep understanding within our culture that patients and their families rely 
on the work we do. It inspires us to do that work better each day. Our strategic growth initiative will deepen our focus

on patients and drive new growth. It will help us find better ways to work. It will help us improve lives.

The healthcare pipeline that we’ve built over the past 185 years continues to change and grow in innovative and

connective ways. Yet, one principle remains the same: when the patient wins, we all win. 

On behalf of our entire Company, thank you for your commitment to McKesson. 

John H. Hammergren

Chairman of the Board, 

President and Chief Executive Officer, 

McKesson Corporation

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2018

OR
‘ 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

McKESSON CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

One Post Street, San Francisco, California
(Address of principal executive offices)

94-3207296
(I.R.S. Employer
Identification No.)

94104
(Zip Code)

(415) 983-8300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)

Common stock, $0.01 par value

(Name of each exchange on which registered)

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ‘ No È
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 È No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer È
Non-accelerated filer ‘ (Do not check if a smaller reporting company)

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 È
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to
the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, September 30, 2017, was
approximately $32 billion.

Number of shares of common stock outstanding on April 30, 2018: 202,050,986

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III of this

Annual Report on Form 10-K.

McKESSON CORPORATION

TABLE OF CONTENTS

Item

1. Business

1A. Risk Factors

1B. Unresolved Staff Comments

2.

3.

Properties

Legal Proceedings

4. Mine Safety Disclosures

Executive Officers of the Registrant

PART I

PART II

5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

6.

Selected Financial Data

7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

7A. Quantitative and Qualitative Disclosures About Market Risk

8.

Financial Statements and Supplementary Data

9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

9A. Controls and Procedures

9B. Other Information

10. Directors, Executive Officers and Corporate Governance

11. Executive Compensation

PART III

12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

13. Certain Relationships and Related Transactions and Director Independence

14. Principal Accounting Fees and Services

15. Exhibits and Financial Statement Schedule

Signatures

PART IV

Page

3

12

29

29

29

29

30

31

34

36

64

65

150

150

150

151

151

151

153

153

154

162

McKESSON CORPORATION

PART I

Item 1.

Business.

General

McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns), currently
ranked 6th on the FORTUNE 500, is a global leader in healthcare supply chain management solutions, retail
pharmacy, community oncology and specialty care, and healthcare information technology. We partner with
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’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references

in this document to a particular year shall mean the Company’s fiscal year.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act,”) are available free of charge on our website (www.mckesson.com
under the “Investors — Financial Information — SEC Filings” caption) as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC” or the
“Commission”). The content on any website referred to in this Annual Report on Form 10-K is not incorporated
by reference into this report, unless expressly noted otherwise.

The public may also read or copy any materials that we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains
reports, proxy and information statements, and other information regarding issuers, including the Company, that
file electronically with the SEC. The address of the website is www.sec.gov.

Business Segments

Through the end of 2018, we operated our business through two reportable segments: McKesson

Distribution Solutions (“MDS”) and McKesson Technology Solutions (“MTS”).

Our Distribution Solutions segment distributes brand, generic, specialty, biosimilar and over-the-counter
(“OTC”) pharmaceutical drugs and other healthcare-related products worldwide. This segment provides practice
management, technology, clinical support and business solutions to community-based oncology and other
specialty practices. This segment also provides solutions for manufacturers including offering multiple
distribution channels and clinical trial access to our network of oncology physicians. It also provides medical-
surgical supply distribution, equipment, logistics, and other services to healthcare providers within the United
States. Additionally,
this segment operates retail pharmacy chains in Europe and Canada, and supports
independent pharmacies within North America and Europe. It also sells financial, operational and clinical
solutions to pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing and other services.

Our Technology Solutions segment provides clinical, financial and supply chain management solutions to
healthcare organizations and owns approximately 70% equity interest in a joint venture, Change Healthcare
Holdings, LLC (“Change Healthcare”), which was formed in the fourth quarter of 2017.

Distribution Solutions segment:

Our Distribution Solutions segment consists of the following businesses: North America pharmaceutical
International pharmaceutical distribution and services and Medical-Surgical

distribution and services,
distribution and services.

3

McKESSON CORPORATION

North America pharmaceutical distribution and services

Our North America pharmaceutical distribution and services business is the largest pharmaceutical
distributor in the United States with more than 40,000 customers and is comprised of the following business
units: U.S. Pharmaceutical Distribution, McKesson Specialty Health, McKesson Canada and McKesson
Prescription Technology Solutions (“MRxTS”).

U.S. Pharmaceutical Distribution

This business is the largest pharmaceutical distributor in the United States with more than 40,000 customers.
This business supplies brand, generic, specialty, biosimilar and OTC pharmaceutical drugs and other healthcare-
related products to customers throughout the United States and Puerto Rico through three primary customer
channels: (1) Retail national accounts which includes national and regional chains, food and drug combinations,
mail order pharmacies and mass merchandisers; (2) Independent retail pharmacies; and (3) Institutional
healthcare providers such as hospitals, health systems, integrated delivery networks and long-term care providers.
This business also provides solutions and services to pharmaceutical manufacturers. This business provides
secondary distribution of generics and medical supplies and consulting services. We also source generic
pharmaceutical drugs through our joint sourcing entity, ClarusONE Sourcing Services, LLP (“ClarusONE”),
which was formed in 2017.

Our U.S. pharmaceutical distribution business operates and serves customer locations in all 50 states and
Puerto Rico through a network of 27 distribution centers, as well as a primary redistribution center, two strategic
redistribution centers and two repackaging facilities. We invest in technology and other systems at all of our
distribution centers to enhance safety and reliability and product availability. For example, we offer McKesson
ConnectSM, an internet-based ordering system that provides item lookup and real-time inventory availability as
well as ordering, purchasing,
third-party reconciliation and account management functionality. We make
extensive use of technology as an enabler to ensure customers have the right products at the right time in the right
place.

To maximize distribution efficiency and effectiveness, we follow the Six Sigma methodology — an
analytical approach that emphasizes setting high-quality objectives, collecting data and analyzing results to a fine
degree in order to improve processes, reduce costs, enhance service accuracy and safety. We provide solutions to
our customers including supply management
technology, world-class marketing programs, managed care,
repackaging products and services to help them meet their business and quality goals. We continue to implement
information systems to help achieve greater consistency and accuracy both internally and for our customers.

The major customer groups of our U.S. Pharmaceutical Distribution business can be categorized as: retail

national accounts, independent retail pharmacies and institutional healthcare providers.

Retail National Accounts: We provide business solutions that help retail national account customers

increase revenues and profitability. Solutions include:

• Central FillSM — Prescription refill service that enables pharmacies to more quickly refill prescriptions
remotely, more accurately and at a lower cost, while reducing inventory levels and improving customer
service.

• Redistribution Centers — Two facilities totaling over 750,000 square feet that offer access to inventory
for single source warehouse purchasing, including pharmaceuticals and biologics. These distribution
centers also provide the foundation for a two-tiered distribution network that supports best-in-class
direct store delivery.

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McKESSON CORPORATION

• McKesson SynerGx® — Generic pharmaceutical purchasing program and inventory management that
helps pharmacies maximize their cost savings with a broad selection of generic drugs, competitive
pricing and one-stop shopping.

• RxPakSM — Bulk-to-bottle repackaging service that leverages our purchasing scale and supplier
relationships to provide pharmaceuticals at reduced prices, help increase inventory turns and reduce
working capital investment.

•

Inventory Management — An integrated solution comprising forecasting software and automated
replenishment technologies that reduce inventory-carrying costs.

• ExpressRx Track™ — Pharmacy automation solution featuring state-of-the-art robotics, upgraded
imaging and expanded vial capabilities, and industry-leading speed and accuracy in a small footprint.

Independent Retail Pharmacies: We provide managed care contracting, branding and advertising,
merchandising, purchasing, operational efficiency and automation that help independent pharmacists focus on
patient care while improving profitability. Solutions include:

• Health Mart® — Health Mart® is a national network of more than 4,800 independently-owned
pharmacies and is one of the industry’s most comprehensive pharmacy franchise programs. Health
Mart® provides franchisees support for managed care contracting, branding and local marketing
solutions, the Health Mart private label line of products, merchandising solutions and programs for
enhanced patient support.

• Health Mart Atlas® — Comprehensive managed care and reconciliation assistance services that help
independent pharmacies save time, access competitive reimbursement rates and improve cash flow.

• McKesson Reimbursement AdvantageSM (“MRA”) — MRA is one of

the industry’s most
comprehensive reimbursement optimization packages, comprising financial services (automated claim
resubmission), analytic services and customer care.

• McKesson OneStop Generics® — Generic pharmaceutical purchasing program that helps pharmacies
maximize their cost savings with a broad selection of generic drugs, competitive pricing and one-stop
shopping.

•

•

Sunmark® — Complete line of more than 600 products that provide independent retail pharmacies with
value-priced alternatives to national brands.

FrontEdge™ — Strategic planning, merchandising and price maintenance program that helps
independent pharmacies maximize store profitability.

• McKesson Sponsored Clinical Services (“SCS”) Network — Access to patient-support services that

allows pharmacists to earn service fees and to develop stronger patient relationships.

Institutional Healthcare Providers: We provide electronic ordering/purchasing and supply chain
management systems that help customers improve financial performance, increase operational efficiencies and
deliver better patient care. Solutions include:

•

Fulfill-RxSM — Ordering and inventory management system that empowers hospitals to optimize the
often complicated processes related to unit-based cabinet replenishment and inventory management.

• Asset Management — Award-winning inventory optimization and purchasing management program

that helps institutional providers lower costs while ensuring product availability.

•

SKY Packaging — Blister-format packaging containing the most widely prescribed dosages and
strengths in generic oral-solid medications. SKY Packaging enables acute care, long-term care and
institutional pharmacies to provide cost-effective, uniform packaging.

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McKESSON CORPORATION

• McKesson Plasma and Biologics — A full portfolio of plasma-derivatives and biologic products. In the

second quarter of 2018, we acquired BDI Pharma, LLC (“BDI”).

• McKesson OneStop Generics® — Described above.

McKesson Specialty Health (“MSH”)

Our MSH business provides a range of services and solutions to oncology and other specialty practices
operating in communities across the country, to pharmaceutical and biotechnology suppliers who manufacture
specialty drugs and vaccines, and to payers and hospitals. This business is focused on three core business lines:
Manufacturer Solutions, Practice Management and Provider Solutions.

Manufacturer Solutions: This business helps manufacturers accelerate the approval and successful
commercialization of specialty pharmaceuticals across the product life cycle. Our offerings include supply chain
services,
including specialty pharmacy services and third-party logistics (“3PL”), provider and patient
engagement programs, clinical trial support, patient assistance programs, reimbursement services and analytics.
In addition, we help manufacturers minimize reimbursement challenges while offering affordable, safe access to
therapies through Risk Evaluation and Mitigation Strategies (“REMS”) programs.

In the fourth quarter of 2018, we completed our acquisition of RxCrossroads, a provider of tailored services
to pharmaceutical and biotechnology manufacturers. RxCrossroads is headquartered in Louisville, Kentucky.
This acquisition enhances our end-to-end solutions for manufacturers of branded, specialty, generic and
biosimilar drugs, including comprehensive patient support services, custom pharmacy solutions and third-party
logistics. In addition, this acquisition will add plasma logistics to our manufacturer solutions, complementing the
Company’s established customer-facing plasma offerings. This is a continuation of our strategy to achieve better
patient outcomes through efficiency and coordination across the supply chain, and throughout the patient
journey.

Practice Management: This business provides a variety of solutions,

including practice operations,
healthcare information technology, revenue cycle management and managed care contracting solutions,
evidence-based guidelines and quality measurements to support U.S. Oncology Network, one of the nation’s
largest networks of physician-led, integrated, community-based oncology practices dedicated to advancing high-
quality, evidence-based cancer care. We also support U.S. Oncology Research, one of the nation’s largest
research networks, specializing in oncology clinical trials.

offers

Provider

specialists

community

Solutions: This business

rheumatologists,
ophthalmologists, urologists, neurologists and other specialists) an extensive set of customizable products and
services designed to strengthen core practice operations, enhance value-based care delivery and expand their
service offering to patients. Tools and services include specialty drug distribution and group purchasing
organization (“GPO”) services, technology solutions, practice consulting services, and vaccine distribution,
including our exclusive distributor relationship with the Centers for Disease Control and Prevention’s (“CDC”)
Vaccines for Children program. Community-based physicians in this business line have broad flexibility and
discretion to select the products and commitment levels that best meet their practice needs. In the second quarter
of 2018, we acquired intraFUSION, Inc. (“intraFUSION”) of Houston, Texas, which provides management
services to physician office infusion centers.

(oncologists,

When we classify a pharmaceutical product or service as “specialty,” we consider the following factors:
diseases requiring complex treatment regimens such as cancer and rheumatoid arthritis; plasma and biologics
products; ongoing clinical monitoring requirements, high-cost, special handling, storage and delivery
requirements and, in some cases, exclusive distribution arrangements. Our use of the term “specialty” to define a
portion of our distribution business may not be comparable to that used by other industry participants, including
our competitors.

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McKESSON CORPORATION

McKesson Canada

McKesson Canada is one of the largest wholesale distributors and pharmacy retailers in Canada.

The wholesale business delivers their products to retail pharmacies, hospitals, long-term care centers, clinics
and institutions in Canada through a network of 13 distribution centers and provides logistics and distribution
services for manufacturers. Beyond wholesale pharmaceutical logistics and distribution, McKesson Canada
provides automation solutions to its retail and hospital customers. McKesson Canada also provides health
information exchange solutions that streamline clinical and administrative communication. Through specialty
solutions and services, McKesson Canada works with health care providers, manufacturers and payers to help
patients with complex diseases by improving access to life-saving treatments.

The retail business operates approximately 450 owned pharmacies under the Rexall Health brand in Canada
where we provide patients with greater choice and access, integrated pharmacy care and industry-leading service
levels. We also provide retail banner services that help independent pharmacists compete and grow through
innovative services and operations support. In the second quarter of 2018, we expanded our support for Canadian
banners to more than 2,400 independent pharmacies by adding more than 300 independent pharmacies in
Quebec, Canada, with our acquisition of the Uniprix Group.

MRxTS

This business is comprised of McKesson Pharmacy Technology and Services, RelayHealth Pharmacy and
CoverMyMeds. This business supports our customers, including physicians, with a comprehensive, expanded
portfolio of solutions designed to help them drive business growth, realize greater business efficiencies, deliver
high-quality care, enhance medication adherence and safety, and more effectively connect with other participants
in the pharmaceutical supply chain. MRxTS focuses on customers across the pharmacy industry, including
manufacturers, payers, providers, retail pharmacies, hospital pharmacies and government agencies.

International pharmaceutical distribution and services

Our International pharmaceutical distribution and services business provides distribution and services to
wholesale, institutional and retail customers in 13 European countries where we own, partner or franchise with
retail pharmacies, as further described below. The business consists of Pharmacy Solutions and Consumer
Solutions.

Our Pharmacy Solutions business delivers pharmaceutical and other healthcare-related products to
pharmacies across Europe. This business functions as a vital link connecting manufacturers to retail pharmacies.
This business supplies medicines to patients by procuring pharmaceuticals approved in each country as well as
supplying other products sold in pharmacies. Pharmaceutical and other healthcare-related products are stored at
regional wholesale branches using technology-enabled management systems. Our European business leverages
its scale and provides innovative and effective medical care services to create enhanced customer value.

Our Consumer Solutions business serves patients and consumers in European countries directly through
over 2,000 of our own pharmacies and over 7,000 participant pharmacies operating under brand partnership
arrangements. In addition, this business includes outpatient dispensing and homecare arrangements mainly in the
United Kingdom (“U.K.”). This business provides traditional prescription pharmaceuticals, non-prescription
products and medical services and operates under the Lloyds Pharmacy brand in Belgium, Ireland, Italy, Sweden
and the U.K.. In addition, we partner with independent pharmacies under our franchise program.

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Medical-Surgical distribution and services

Our Medical-Surgical distribution and services business provides medical-surgical supply distribution,
logistics and other services to healthcare providers, including physicians’ offices, surgery centers, extended care
facilities, hospital reference labs, and homecare and occupational health sites. Through a network of distribution
centers within the U.S., we offer more than 275,000 national brand products plus McKesson’s own line of high-
quality medical-surgical products. As a leading distributor of products and solutions to the full range of alternate-
site healthcare facilities, we care for our customers so they can care for their patients. We serve our customers
across the continuum of care to help improve efficiencies, profitability and compliance while promoting better
patient outcomes. Our comprehensive portfolio of medical-surgical products helps our customers increase
revenue with the right product mix. With 85% of patient visits happening beyond the hospital, each of these sites
has unique needs and challenges. We serve more than 200,000 medical practices, including physician offices,
surgery centers, seven of the top ten urgent care center chains and more than 1,800 community health centers.
We develop customized plans to address the clinical support needs of our customers, including tackling
reimbursements, reducing administrative burdens, and training and educating clinical staff.

On April 25, 2018, we entered into a definitive agreement to purchase Medical Specialties Distributors
LLC, a leading national distributor of infusion and medical-surgical supplies as well as provider of biomedical
services to alternate site and home health providers.

Technology Solutions Segment

Our Technology Solutions segment consists of our equity investment in Change Healthcare and our

Enterprise Information Solutions (“EIS”) business.

Equity investment in Change Healthcare:

On March 1, 2017, we finalized a contribution agreement (“Contribution Agreement”) with Change
Healthcare Holdings, Inc. (“Change”), a Delaware corporation, and others including shareholders of Change to
form a joint venture, Change Healthcare. Under the terms of the Contribution Agreement, we contributed the
majority of our McKesson Technology Solutions businesses (“Core MTS Business”) to Change Healthcare. In
exchange for the contribution, we own approximately 70% of the joint venture with the remaining equity
ownership held by Change shareholders. We retained our RelayHealth Pharmacy (“RHP”) and EIS businesses.
Our investment in Change Healthcare is accounted for using the equity method of accounting. Change Healthcare
is a healthcare technology company that leverages software and analytics, network solutions, and technology-
enabled services to enable better patient care, choice, and outcomes at scale. We transferred our RHP business to
our MDS segment, effective April 1, 2017.

Refer to Financial Note 2, “Healthcare Technology Net Asset Exchange” to the consolidated financial

statements appearing in this Annual Report on Form 10-K for additional information.

EIS:

This business provided clinical and financial information systems for healthcare organizations including

professional services, workflow management and supply chain management solutions.

On October 2, 2017, we sold our EIS business to a third party. We received net cash proceeds of
$169 million after $16 million of assumed net debt by the third party. We recognized a pre-tax gain of
$109 million (after-tax gain of $30 million) upon the disposition of this business in the third quarter of 2018.

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Fiscal 2019 Operating Segments

As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2017
and December 31, 2017, the executive who was our segment manager of the Distribution Solutions segment
retired from the Company in January 2018. As a result,
the Company’s chief operating decision maker
(“CODM”) evaluated our management and operating structure. In connection with the completion of this
evaluation in the first quarter of 2019, our operating structure is realigned, and we will report our financial results
in three reportable segments on a retrospective basis commencing in the first quarter of 2019: U.S.
Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions and Medical-Surgical Solutions. All
remaining operating segments and business activities that are not significant enough to require separate
reportable segment disclosure will be included in Other. Other primarily consists of McKesson Canada,
McKesson Prescription Technology Solutions and our equity method investment in Change Healthcare. The
segment changes will reflect how our CODM allocates resources and assesses performance commencing in the
first quarter of 2019. Refer to Financial Note 28, “Segments of Business” to the consolidated financial statements
appearing in this Annual Report on Form 10-K for additional information.

Business Combinations, Investments, Discontinued Operations and Divestitures

We have undertaken additional strategic initiatives in recent years designed to further focus on our core
healthcare businesses and enhance our competitive position. We expect to continue to undertake such strategic
initiatives in the future. These initiatives are detailed in Financial Notes 2, 5, 6 and 7, “Healthcare Technology
Net Asset Exchange,” “Divestitures,” “Business Combinations” and “Discontinued Operations” to the
consolidated financial statements appearing in this Annual Report on Form 10-K.

Competition

Our two reportable segments, Distribution Solutions and Technology Solutions, face highly competitive
global environments with strong competition from international, national, regional and local full-line, short-line
and specialty distributors, service merchandisers, self-warehousing chain drug stores, manufacturers engaged in
direct distribution, third-party logistics companies and large payer organizations. In addition, these segments face
competition from various other service providers and from pharmaceutical and other healthcare manufacturers as
well as other potential customers of the segment, which may from time-to-time decide to develop, for their own
internal needs, supply management capabilities that would otherwise be provided by the segment. In all areas,
key competitive factors include price, quality of service, breadth of product lines, innovation and, in some cases,
convenience to the customer.

Patents, Trademarks, Copyrights and Licenses

McKesson and its subsidiaries hold patents, copyrights, trademarks and trade secrets related to McKesson
products and services. We pursue patent protection for our innovation, and obtain copyrights covering our
original works of authorship, when such protection is advantageous. Through these efforts, we have developed a
portfolio of patents and copyrights in the U.S. and worldwide. In addition, we have registered or applied to
register certain trademarks and service marks in the U.S. and in foreign countries.

We believe that, in the aggregate, McKesson’s confidential information, patents, copyrights, and trademarks
are important to its operations and market position, but we do not consider any of our businesses to be dependent
upon any one patent, copyright, trademark, or trade secret, or any family or families of the same. We cannot
guarantee that our intellectual property portfolio will be sufficient to deter misappropriation, theft, or misuse of
our technology, nor that we can successfully enjoin infringers. We periodically receive notices alleging that our
products or services infringe on third party patents and other intellectual property rights. These claims may result

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in McKesson entering settlement agreements, paying damages, discontinuing use or sale of accused products, or
ceasing other activities. While the outcome of any litigation or dispute is inherently uncertain, we do not believe
that the resolution of any of these infringement notices would have a material adverse impact on our results of
operation.

We hold inbound licenses for certain intellectual property that is used internally, and in some cases, utilized
in McKesson’s products or services. While it may be necessary in the future to seek or renew licenses relating to
various aspects of our products and services, we believe, based upon past experience and industry practice, such
licenses generally can be obtained on commercially reasonable terms. We believe our operations and products
and services are not materially dependent on any single license or other agreement with any third party.

Other Information about the Business

Customers: During 2018, sales to our ten largest customers, including GPOs accounted for approximately
51.7% of our total consolidated revenues. Sales to our largest customer, CVS Health (“CVS”), accounted for
approximately 19.9% of our total consolidated revenues. At March 31, 2018, trade accounts receivable from our
ten largest customers were approximately 24.9% of total trade accounts receivable. Accounts receivable from
CVS were approximately 16.4% of total trade accounts receivable. We also have agreements with GPOs, each of
which functions as a purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers,
as well as with government entities and agencies. The accounts receivable balances are with individual members
of the GPOs, and therefore no significant concentration of credit risk exists. Substantially all of these revenues
and accounts receivable are included in our Distribution Solutions segment.

Suppliers: We obtain pharmaceutical and other products from manufacturers, none of which accounted for
more than 6% of our purchases in 2018. The loss of a supplier could adversely affect our business if alternate
sources of supply are unavailable. We believe that our relationships with our suppliers are generally sound. The
ten largest suppliers in 2018 accounted for approximately 41% of our purchases.

A significant portion of our distribution arrangements with the manufacturers provides us compensation
based on a percentage of our purchases.
In addition, we have certain distribution arrangements with
pharmaceutical manufacturers that include an inflation-based compensation component whereby we benefit when
the manufacturers increase their prices as we sell our existing inventory at the new higher prices. For these
manufacturers, a reduction in the frequency and magnitude of price increases, as well as restrictions in the
amount of inventory available to us, could have an adverse impact on our gross profit margin.

Research and Development: Research and development (“R&D”) costs were $125 million, $341 million and
$392 million during 2018, 2017 and 2016. Development expenditures in 2017 and 2016 were primarily incurred
by our MTS segment. R&D costs were lower in 2018 due to the 2017 contribution of the majority of our MTS
businesses. Additional
information regarding our development activities is included in Financial Note 1,
“Significant Accounting Policies,” to the consolidated financial statements appearing in this Annual Report on
Form 10-K.

Environmental Regulation: Our operations are subject to regulations under various federal, state, local and
foreign laws concerning the environment, including laws addressing the discharge of pollutants into the air and
water, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites.
We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party
damage or personal injury claims, if in the future we were to violate or become liable under environmental laws.

We are committed to maintaining compliance with all environmental laws applicable to our operations,
products and services and to reducing our environmental impact across all aspects of our business. We meet this
commitment through an environmental strategy and sustainability program.

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We sold our chemical distribution operations in 1987 and retained responsibility for certain environmental
obligations. Agreements with the Environmental Protection Agency and certain states may require environmental
assessments and cleanups at several closed sites. These matters are described further in Financial Note 24,
“Commitments and Contingent Liabilities,” to the consolidated financial statements appearing in this Annual
Report on Form 10-K.

The liability for environmental remediation and other environmental costs is accrued when the Company
considers it probable and can reasonably estimate the costs. Environmental costs and accruals, including that
related to our legacy chemical distribution operations, are presently not material to our operations or financial
position. Although there is no assurance that existing or future environmental laws applicable to our operations
or products will not have a material adverse impact on our operations or financial condition, we do not currently
anticipate material capital expenditures for environmental matters. Other than the expected expenditures that may
be required in connection with our legacy chemical distribution operations, we do not anticipate making
substantial capital expenditures either for environmental issues, or to comply with environmental laws and
regulations in the future. The amount of our capital expenditures for environmental compliance was not material
in 2018 and is not expected to be material in the next year.

Employees: On March 31, 2018, we employed approximately 78,000 employees, including approximately

20,000 part-time employees.

Financial Information About Foreign and Domestic Operations: Certain financial information relating to
foreign and domestic operations is included in Financial Note 28, “Segments of Business,” to the consolidated
financial statements appearing in this Annual Report on Form 10-K. See “Risk Factors” in Part I, Item 1A below
for information regarding risks associated with our foreign operations.

Forward-Looking Statements

This Annual Report on Form 10-K, including the Chairman’s 2018 letter, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report and the “Risk
Factors” in Item 1A of Part I of this report, contains forward-looking statements within the meaning of
section 27A of the Securities Act of 1933, as amended and section 21E of the Securities Exchange Act of 1934,
as amended. Some of these statements can be identified by use of forward-looking words such as “believes,”
“expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans” or “estimates,” or
the negative of these words, or other comparable terminology. The discussion of financial trends, strategy, plans
or intentions may also include forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied.
Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not
limited to, the factors discussed in Item 1A of Part I of this report under “Risk Factors.” The reader should not
consider the list to be a complete statement of all potential risks and uncertainties.

These and other risks and uncertainties are described herein and in other information contained in our
publicly available SEC filings and press releases. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date such statements were first made. Except to the
extent required by federal securities laws, we undertake no obligation to publicly release the result of any
revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect
the occurrence of unanticipated events.

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Item 1A. Risk Factors

The risks described below could have a material adverse impact on our financial position, results of
operations, liquidity and cash flows. Although it is not possible to predict or identify all such risks and
uncertainties, they may include, but are not limited to, the factors discussed below. Our business operations could
also be affected by additional factors that are not presently known to us or that we currently consider not to be
material. The reader should not consider this list to be a complete statement of all risks and uncertainties.

Changes in the United States healthcare industry and regulatory environment could have a material adverse
impact on our results of operations.

Many of our products and services are intended to function within the structure of the healthcare financing and
reimbursement system currently being used in the United States. In recent years, the healthcare industry in the
United States has changed significantly in an effort to enhance efficiencies, reduce costs and improve patient
outcomes. These changes have included cuts in Medicare and Medicaid reimbursement levels, changes in the basis
for payments, shifting away from fee-for-service and towards value-based payments and risk-sharing models,
increases in the use of managed care and consolidation in the healthcare industry. We expect the healthcare industry
in the United States to continue to change and for healthcare delivery models to evolve in the future.

Changes in the healthcare industry’s or our pharmaceutical suppliers’ pricing, selling, inventory, distribution
or supply policies or practices could significantly reduce our revenues and net income. Additionally, if we
experience disruptions in our supply of generic drugs, our margins could be adversely affected. Due to the
diverse range of healthcare supply management and healthcare information technology products and services that
we offer, such changes could have a material adverse impact on our results of operations, while not affecting
some of our competitors who offer a narrower range of products and services.

The majority of our U.S. pharmaceutical distribution business agreements with manufacturers are structured
to ensure that we are appropriately and predictably compensated for the services we provide. However, failure to
successfully renew these contracts in a timely and favorable manner could have a material adverse impact on our
results of operations. Certain distribution business agreements we entered into with manufacturers continue to
have pharmaceutical price inflation as a component of our compensation. Consequently, our results of operations
could be adversely affected if the frequency or magnitude of pharmaceutical price increases or decreases, which
we do not control. In addition, we distribute generic pharmaceuticals, which can be subject to both price deflation
and price inflation. Our generic pharmaceutical sourcing program has benefited from the joint sourcing entity,
ClarusONE. If ClarusONE does not continue to be successful, our margins could be adversely affected. Our
Distribution Solutions segment experienced weaker pharmaceutical pricing trends over the last three years.
Continued volatility in the availability, pricing trends or reimbursement of these generic drugs, or significant
fluctuations in the nature, frequency and magnitude of generic pharmaceutical launches, could have a material
adverse impact on our results of operations. Additionally, any future changes in branded and generics drug
pricing could be significantly different than our projections.

Generic drug manufacturers are increasingly challenging the validity or enforceability of patents on branded
pharmaceutical products. During the pendency of these legal challenges, a generics manufacturer may begin
manufacturing and selling a generic version of the branded product prior to the final resolution of its legal
challenge over the branded product’s patent. To the extent we source, contract manufacture, and distribute such
generic products, the brand-name company could assert infringement claims against us. While we generally
obtain indemnification against such claims from generic manufacturers as a condition of distributing their
products, there can be no assurances that these rights will be adequate or sufficient to protect us.

The healthcare industry is highly regulated, and further regulation of our distribution businesses and
technology products and services could impose increased costs, negatively impact our profit margins and the

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profit margins of our customers, delay the introduction or implementation of our new products, or otherwise
negatively impact our business and expose the Company to litigation and regulatory investigations.

Healthcare Fraud: We are subject to extensive and frequently changing local, state and federal laws and
regulations relating to healthcare fraud, waste and abuse. Local, state and federal governments continue to
strengthen their position and scrutiny over practices involving fraud, waste and abuse affecting Medicare, Medicaid
and other government healthcare programs. Our relationships with pharmaceutical and medical-surgical product
manufacturers and healthcare providers, as well as our provision of products and services to government entities,
subject our business to laws and regulations on fraud and abuse, which among other things: (1) prohibit persons
from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a patient for
treatment or to induce the ordering or purchasing of items or services that are in any way paid for by Medicare,
Medicaid or other government-sponsored healthcare programs; (2) impose a number of restrictions upon referring
physicians and providers of designated health services under Medicare and Medicaid programs; and (3) prohibit the
knowing submission of a false or fraudulent claim for payment to, and knowing retention of an overpayment by, a
federal healthcare program such as Medicare and Medicaid. Many of the regulations applicable to us, including
those relating to marketing incentives, are vague or indefinite and have not been interpreted by the courts. The
regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that could
require us to make changes in our operations. If we fail to comply with applicable laws and regulations, we could
become liable for damages and suffer civil and criminal penalties, including the loss of licenses or our ability to
participate in Medicare, Medicaid and other federal and state healthcare programs.

Reimbursements: Both our profit margins and the profit margins of our customers may be adversely affected
by laws and regulations reducing reimbursement rates for pharmaceuticals, medical treatments and related
services, or changing the methodology by which reimbursement levels are determined. For example, the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively the
“Affordable Care Act”), signed into law in 2010, revised, subject to rulemaking, the federal upper limits (“FUL”)
for Medicaid reimbursement for multiple source generic drugs available for purchase by retail community
pharmacies on a nationwide basis. On February 1, 2016, the Centers for Medicare and Medicaid Services
(“CMS”) published the Covered Outpatient Drugs final rule. The final rule, with limited exceptions, establishes
the FUL to be 175% of the weighted average (determined on the basis of utilization across a drug molecule when
multiple sources are available) of the most recently reported monthly average manufacturer price (“AMP”).
Additionally, the final rule established actual acquisition cost as the basis by which states should determine their
ingredient cost reimbursement, addressed the sufficiency of dispensing fees to reflect the cost of the pharmacist’s
professional services and cost to dispense drugs to Medicaid beneficiaries, and clarified that states are required to
evaluate the sufficiency of both ingredient cost and professional dispensing fee when proposing changes to either
component. Use of the revised AMP-based FUL may result in a reduction in the Medicaid reimbursement rates to
our customers for certain pharmaceuticals, which could indirectly impact the prices that we can charge our
customers and cause corresponding declines in our profitability.

The federal government may adopt measures that could reduce Medicare and/or Medicaid spending, or
impose additional requirements on healthcare entities. For example, under the terms of the Budget Control Act of
2011, an automatic 2% reduction of Medicare program payments for all healthcare providers became generally
effective for services provided on or after April 1, 2013. This automatic reduction is known as “sequestration.”
Medicare generally reimburses physicians for Part B drugs at the rate of average sales price (“ASP”) plus 6%.
The implementation of sequestration pursuant to the Budget Control Act of 2011 has effectively reduced
reimbursement below the ASP plus 6% level for the duration of sequestration (which lasts through fiscal 2024 in
the absence of additional legislation). On September 20, 2017, CMS issued a request for information seeking
recommendations for payment models, which could include prescription drug models under Medicare Parts B
and D and state Medicaid programs. CMS noted its interest in drug pricing and value-based purchasing models
involving “novel arrangements between plans, manufacturers, and stakeholders across the supply chain.”

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Additionally, CMS published a proposed rule on July 20, 2017 that would cut Medicare outpatient hospital
reimbursement for separately payable drugs (other than vaccines) purchased through the 340B drug pricing program
at ASP minus 22.5% (with certain exceptions), rather than ASP plus 6%. CMS finalized this rule on November 1,
2017. As another example, the Medicare Access and CHIP Reauthorization Act (“MACRA”), signed into law in
April 2015, seeks to reform Medicare reimbursement policy for physician fee schedule services and adopts a series
of policy changes affecting a wide range of providers and suppliers. Most notably, MACRA repeals the statutory
Sustainable Growth Rate formula, which has called for cuts in Medicare rates in recent years, but which Congress
routinely stepped in to override the full application of the formula. Instead, after a period of stable payment updates,
MACRA links physician payment updates to quality and value measurements and participation in alternative
payment models. MACRA also extends certain expiring Medicare and other health policy provisions, including
extending the Children’s Health Insurance Program. Additionally, concerns held by federal policymakers about the
federal deficit and national debt levels could result in enactment of further federal spending reductions, further
entitlement reform legislation affecting the Medicare program, or both. We cannot predict what alternative or
additional deficit reduction initiatives or Medicare payment reductions, if any, will ultimately be enacted into law,
or the timing or affect any such initiatives or reductions will have on us.

There can be no assurance that the preceding changes would not have a material adverse impact on our

results of operations.

Operating, Security and Licensure Standards: We are subject to the operating and security standards of the
Drug Enforcement Administration (“DEA”), the U.S. Food and Drug Administration (“FDA”), various state boards
of pharmacy, state health departments, the U.S. Department of Health and Human Services (“HHS”), the CMS and
other comparable agencies. Certain of our businesses may be required to register for permits and/or licenses with,
and comply with operating and security standards of, the DEA, FDA, HHS, CMS, various state boards of pharmacy,
state health departments and/or comparable state agencies as well as foreign agencies and certain accrediting bodies,
depending upon the type of operations and location of product development, manufacture, distribution, and sale. For
example, we are required to hold valid DEA and state-level registrations and licenses, meet various security and
operating standards and comply with the Controlled Substances Act and its accompanying regulations governing the
sale, marketing, packaging, holding, distribution, and disposal of controlled substances.

As part of these operating, security and licensure standards, we regularly receive requests for information
and occasionally subpoenas from government authorities. In some instances, these can lead to monetary penalties
and/or license revocation. In January 2017, we reached an agreement with the DEA and Department of Justice
pursuant to which we paid the sum of $150 million to settle all potential administrative and civil claims relating
to investigations about the Company’s suspicious order reporting practices for controlled substances. The DEA is
suspending, on a staggered basis for limited periods of time, McKesson’s DEA registrations to distribute certain
controlled substances from four McKesson distribution centers.

Although we have enhanced our procedures to ensure compliance, there can be no assurance that a
regulatory agency or tribunal would conclude that our operations are compliant with applicable laws and
regulations. In addition, there can be no assurance that we will be able to maintain or renew existing permits,
licenses or any other regulatory approvals or obtain without significant delay future permits, licenses or other
approvals needed for the operation of our businesses. Any noncompliance by us with applicable laws and
regulations or the failure to maintain, renew or obtain necessary permits and licenses could lead to litigation and
have a material adverse impact on our results of operations.

Pedigree Tracking: There have been increasing efforts by Congress and state and federal agencies,
including state boards of pharmacy and departments of health and the FDA, to regulate the pharmaceutical
distribution system in order to prevent the introduction of counterfeit, adulterated and/or mislabeled drugs into
the pharmaceutical distribution system, otherwise known as pedigree tracking. In November 2013, Congress

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passed and the President signed into law the Drug Quality and Security Act (“DQSA”). The DQSA establishes
federal standards requiring supply-chain stakeholders to participate in an electronic, interoperable, lot-level
prescription drug track and trace system. The law also preempts state drug pedigree requirements. The DSQA
also establishes new requirements for drug wholesale distributors and third-party logistics providers, including
licensing requirements in states that had not previously licensed such entities.

In addition, the Food and Drug Administration Amendments Act of 2007, which went into effect on
October 1, 2007, requires the FDA to establish standards and identify and validate effective technologies for the
purpose of securing the pharmaceutical supply chain against counterfeit drugs. These standards may include
track-and-trace or authentication technologies, such as radio frequency identification devices, 2D data matrix
barcodes and other similar technologies. On March 26, 2010, the FDA released the Serialized Numerical
Identifier (“SNI”) guidance for manufacturers who serialize pharmaceutical packaging. We expect to be able to
accommodate these SNI regulations in our distribution operations. The DQSA and other pedigree tracking laws
and regulations could increase the overall regulatory burden and costs associated with our pharmaceutical
distribution business, and could have a material adverse impact on our results of operations.

Privacy: There are numerous federal and state laws and regulations related to the privacy and security of
personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) establish privacy and security standards that limit the use and disclosure
of individually identifiable health information (known as “protected health information”) and require the
implementation of administrative, physical and technological safeguards to protect the privacy of protected
health information and ensure the confidentiality,
integrity and availability of electronic protected health
information. We are directly subject to certain provisions of the regulations as a “Business Associate” through
our relationships with customers. We are also directly subject to the HIPAA privacy and security regulations as a
“Covered Entity” with respect to our operations as a healthcare clearinghouse, specialty pharmacy and medical
surgical supply business.

The privacy regulations established under HIPAA also provide patients with rights related to understanding
and controlling how their protected health information is used and disclosed. To the extent permitted by
applicable privacy regulations and our contracts with our customers, we may use and disclose protected health
information to perform our services and for other limited purposes, such as creating de-identified information.
Other uses and disclosures, such as marketing communications, require written authorization from the individual
or must meet an exception specified under the privacy regulations. Determining whether protected health
information has been sufficiently de-identified to comply with the HIPAA privacy standards and our contractual
obligations may require complex factual and statistical analyses and may be subject to interpretation.

If we are unable to properly protect the privacy and security of protected health information entrusted to us, we
could be found to have breached our contracts with our customers. Further, if we fail to comply with applicable
HIPAA privacy and security standards, we could face civil and criminal penalties. HHS performs compliance audits
of Covered Entities and Business Associates and enforces the HIPAA privacy and security standards. HHS has
become an increasingly active regulator and has signaled its intention to continue this trend. HHS has the discretion
to impose penalties without being required to attempt to resolve violations through informal means, such as
implementing a corrective action plan. HHS enforcement activity can result in financial liability and reputational
harm, and responses to such enforcement activity can consume significant internal resources. In addition to
enforcement by HHS, state attorneys general are authorized to bring civil actions seeking either injunctions or
damages in response to violations that threaten the privacy of state residents. Although we have implemented and
maintain policies and processes to assist us in complying with these regulations and our contractual obligations, we
cannot provide assurance regarding how these regulations will be interpreted, enforced or applied to our operations.
In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing
efforts to comply with evolving laws and regulations at the federal and state level might also require us to make
costly system purchases and/or modifications from time to time.

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Healthcare Reform: The Affordable Care Act (“ACA”) significantly expanded health insurance coverage to
uninsured Americans and changed the way healthcare is financed by both governmental and private payers.
While certain provisions of the ACA took effect immediately, others have delayed effective dates or require
further rulemaking action or regulatory guidance by governmental agencies to implement and/or finalize (e.g.
nondiscrimination in health programs and activities, excise tax on high-cost employer-sponsored health
coverage). Further, as a result of the November 2016 U.S. presidential election, there are continued uncertainties
associated with efforts to change or repeal certain provisions of the ACA or other healthcare reforms, and we
cannot predict their full effect on the Company at this time. A top legislative priority of the new presidential
administration and Congress may be significant reform of the ACA, as discussed above. While there is currently
a substantial lack of clarity around the likelihood, timing and details of any such policies and reforms, such
policies and reforms may have a material adverse impact on our results of operations.

FDA Regulation of Medical Software: The FDA has increasingly focused on the regulation of medical
software and health information technology products as medical devices under the federal Food, Drug and
Cosmetic Act. For example, in February 2015, the FDA issued guidance to inform manufacturers and distributors
of medical device data systems that it did not intend to enforce compliance with regulatory controls that apply to
medical device data systems, medical image storage devices, and medical image communication devices. If the
FDA chooses to regulate more of our products as medical devices, or subsequently changes or reverses its
guidance regarding not enforcing regulatory controls for certain medical device products, it can impose extensive
requirements upon us. If we fail to comply with the applicable requirements, the FDA could respond by imposing
fines, injunctions or civil penalties, requiring recalls or product corrections, suspending production, refusing to
grant pre-market clearance of products, withdrawing clearances and initiating criminal prosecution. Any
additional FDA regulations governing health information technology products, once issued, may increase the cost
and time to market of new or existing products or may prevent us from marketing our products. In December
2016, Congress passed and the President signed into law the 21st Century Cures Act. The 21st Century Cures Act
changes the way health IT would be regulated by the FDA. The bill also carves most health IT products out of
the FDA’s jurisdiction, but includes a clawback provision that would enable FDA to regulate products on a
case-by-case basis if it determined they pose a risk to patient safety.

Medical Billing and Coding: Medical billing, coding and collection activities are governed by numerous
federal and state civil and criminal laws. In connection with these laws, we may be subjected to federal or state
government investigations and possible penalties may be imposed upon us, false claims actions may have to be
defended, private payers may file claims against us and we may be excluded from Medicare, Medicaid or other
government-funded healthcare programs. Any such proceeding or investigation could have a material adverse
impact on our results of operations.

Our foreign operations subject us to a number of operating, economic, political and regulatory risks that may
have a material adverse impact on our financial position and results of operations.

We have operations based in, and we source and contract manufacture pharmaceutical and medical-surgical
products in, a number of foreign countries. Moreover, in Europe, McKesson Europe AG (“McKesson Europe”),
formerly known as Celesio AG, operates as a wholesale and retail company and provider of logistics and services
to the pharmaceutical and healthcare sector.

Our foreign operations expose us to a number of risks including changes in trade protection laws, policies
and measures and other regulatory requirements affecting trade and investment; changes in licensing regimes for
pharmacies; unexpected regulatory, social, political, or economic changes in a specific country or region;
changes in intellectual property, privacy and data protection; import/export regulations and trade sanctions in
both the United States and foreign countries and difficulties in staffing and managing foreign operations. Political
changes, labor strikes, acts of war or terrorism and natural disasters, some of which may be disruptive, can

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interfere with our supply chain, our customers and all of our activities in a particular location. We may also be
affected by potentially adverse tax consequences and difficulties associated with repatriating cash generated or
held abroad.

On June 23, 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the
European Union, which proposed exit (and the political, economic and other uncertainties it has raised) has
exacerbated and may further exacerbate many of the risks and uncertainties described above. Negotiations on
withdrawal and post-exit arrangements likely will be complex and protracted, and there can be no assurance
regarding the terms, timing or consummation of any such arrangements. The proposed withdrawal could, among
other potential outcomes, adversely affect the tax, tax treaty, currency, operational, legal and regulatory regimes
to which our businesses in the region are subject. The withdrawal could also, among other potential outcomes,
disrupt the free movement of goods, services and people between the United Kingdom and the European Union
and significantly disrupt trade between the United Kingdom and the European Union and other parties. Further,
uncertainty around these and related issues could lead to adverse effects on the economy of the United Kingdom
and the other economies in which we operate. There can be no assurance that any or all of these events will not
have a material adverse effect on our results of operations.

In addition, foreign operations are also subject to risks of violations of laws prohibiting improper payments
and bribery, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar regulations in
foreign jurisdictions. The U.K. Bribery Act, for example, prohibits both domestic and international bribery, as
well as bribery across both private and public sectors. An organization that fails to prevent bribery committed by
anyone associated with the organization can be charged under the U.K. Bribery Act unless the organization can
establish the defense of having implemented adequate procedures to prevent bribery. Failure to comply with
these laws could subject us to civil and criminal penalties that could have a material adverse impact on our
financial position and results of operations.

We also may experience difficulties and delays inherent in sourcing products and contract manufacturing
from foreign countries, including but not limited to: (1) difficulties in complying with the requirements of
applicable federal, state and local governmental authorities in the United States and of foreign regulatory
authorities; (2) inability to increase production capacity commensurate with demand or the failure to predict
market demand; (3) other manufacturing or distribution problems including changes in types of products
produced, limits to manufacturing capacity due to regulatory requirements, physical limitations, or scarce or
inadequate resources that could impact continuous supply; and (4) damage to our reputation due to real or
perceived quality issues. For example, the FDA has conducted investigations and banned certain generics
manufacturers from selling certain raw materials and drug ingredients in the U.S. from overseas plants due to
quality issues. Difficulties in manufacturing or access to raw materials could result in production shutdowns,
product shortages and other similar delays in product manufacturing that could have a material adverse impact on
our financial position and results of operations.

Changes in the Canadian healthcare industry and regulatory environment could have a material adverse
impact on our results of operations.

Provincial governments in Canada provide partial funding for the purchase of pharmaceuticals and
independently regulate the sale and reimbursement of drugs. Provincial governments in Canada have introduced
significant changes in recent years in an effort to reduce the costs of publicly funded health programs. For
instance, to reduce the cost for taxpayers, provincial governments have taken and will continue to take steps to
reform the rules regarding the sale of generic drugs. These changes include increased powers of investigation,
reporting and enforcement for provincial regulatory agencies, the significant lowering of prices for generic
pharmaceuticals and, in some provinces, changes to the allowable amounts of professional allowances paid to
pharmacists by generic manufacturers and the tendering of generic molecules on provincial drug formularies.

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These reforms may adversely affect the distribution of drugs as well as the pricing for prescription drugs for the
Company’s operations in Canada. Additional provinces have implemented or are considering similar changes,
which would also lower pharmaceutical pricing and service fees. Individually or in combination, such changes in
the Canadian healthcare environment may significantly reduce our Canadian revenue and operating profit.

General European economic conditions, together with austerity measures being taken by certain European
governments, could have a material adverse impact on our results of operations.

A slowdown within the European economy could affect our business in Europe by reducing the prices our
customers may be able or willing to pay for our products and services. A slowdown may also reduce the demand
for our products. Either of these could result in a material adverse impact on our results of operations.

In addition, in many European countries the government provides or subsidizes healthcare to consumers and
regulates pharmaceutical prices, patient eligibility, and reimbursement levels to control costs for the government-
sponsored healthcare system. In recent years, in response to the recessionary environment and financial crisis in
Europe, a number of European governments, including the government in the United Kingdom in the past year,
have announced or implemented austerity measures to reduce healthcare spending and constrain overall
government expenditures. These measures, which include efforts aimed at reforming healthcare coverage and
timelines for
reducing healthcare costs, continue to exert pressure on the pricing of and reimbursement
pharmaceuticals and may cause our customers to purchase fewer of our products and services and reduce the
prices they are willing to pay.

Countries with existing healthcare-related austerity measures may impose additional laws, regulations, or
requirements on the healthcare industry. In addition, European governments that have not yet
imposed
healthcare-related austerity measures may impose them in the future. New austerity measures may be similar to
or vary from existing austerity measures and could have a material adverse impact on our results of operations.

Changes in the European regulatory environment regarding privacy and data protection regulations could
have a material adverse impact on our results of operations.

In Europe, beginning May 25, 2018, we are subject to the General Data Protection Regulation, which
requires EU member states to impose restrictions on the collection and use of personal data that, in some
respects, are more stringent, and impose more significant burdens on subject businesses, than current privacy
standards in the United States. We may also face audits or investigations by one or more foreign government
agencies relating to our compliance with these regulations that could result in the imposition of penalties or fines.
The EU member state regulations establish several obligations that organizations must follow with respect to use
of personal data, including a prohibition on the transfer of personal information from the EU to other countries
whose laws do not protect personal data to an adequate level of privacy or security. In addition, certain member
states have adopted more stringent data protection standards. The costs of compliance with, and other burdens
imposed by, such laws, regulations and policies that are applicable to us may limit the use and adoption of our
products and solutions and could have a material adverse impact on our results of operations.

Our results of operations, which are stated in U.S. dollars, could be adversely impacted by fluctuations in
foreign currency exchange rates.

We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries,
including Euro, British pound sterling and Canadian dollar. Changes in foreign currency exchange rates could
have a significant adverse impact on our financial results that are reported in the U.S. dollar. We are also exposed
to foreign currency exchange rate risk related to our foreign subsidiaries,
including intercompany loans
denominated in non-functional currencies.

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We may from time to time enter into foreign currency contracts or other derivative instruments intended to
hedge a portion of our foreign currency exchange rate risks. Additionally, we may use foreign currency
borrowings to hedge some of our foreign currency exchange rate risks. These hedging activities may not
completely offset the adverse financial effects of unfavorable movements in foreign currency exchange rates
during the time the hedges are in place.

Our business could be hindered if we are unable to complete and integrate acquisitions successfully.

An element of our strategy is to identify, pursue and consummate acquisitions that either expand or
complement our business. Integration of acquisitions involves a number of significant risks, including the
diversion of management’s attention to the assimilation of the operations of businesses we have acquired;
difficulties in the integration of operations and systems; the realization of potential operating synergies; the
assimilation and retention of the personnel of the acquired companies; accounting, regulatory or compliance
issues that could arise, including internal control over financial reporting; and challenges retaining the customers
of the combined businesses. Further, acquisitions may have a material adverse impact on our operating results if
unanticipated expenses or charges to earnings were to occur,
including unanticipated depreciation and
amortization expenses over the useful lives of certain assets acquired, as well as costs related to potential
impairment charges, assumed litigation and unknown liabilities. In addition, we may potentially require
additional financing in order to fund future acquisitions, which may or may not be attainable and is subject to
potential volatility in the credit markets. If we are unable to successfully complete and integrate strategic
acquisitions in a timely manner, our business and our growth strategies could be negatively affected.

Achieving the anticipated benefits of any acquisition is subject to a number of risks and uncertainties,
including foreign exchange fluctuations, challenges of managing new domestic or international operations, and
whether we can ensure continued performance or market growth of products and services. The integration
process is subject to a number of uncertainties and no assurance can be given that the anticipated benefits of any
transaction will be realized or, if realized, the timing of its realization. It is possible that the integration process
could take longer than anticipated, and could result in the loss of employees, the disruption of each company’s
ongoing businesses, processes and systems, or inconsistencies in standards, controls, procedures, practices,
policies and compensation arrangements. Any of these events could adversely affect our ability to achieve the
anticipated benefits of an acquisition and which could have a material adverse impact on our results of
operations.

Any significant diversion of management’s attention away from the ongoing businesses, and any difficulties
encountered in the acquisition, transition and integration process, could adversely affect our financial results.
Moreover, the failure to achieve the anticipated benefits of a transaction could result in increased costs or
decreases in the amount of expected revenues, and could adversely affect our future business, financial position
and operating results. Events outside of our control, including changes in regulations and laws, as well as
economic trends, could also adversely affect our ability to realize the expected benefits from a transaction.

Our results of operations could be impacted if our investment in Change Healthcare fails to perform as
expected.

On March 1, 2017, McKesson contributed the majority of its Core MTS Business and Change contributed
substantially all of its businesses, excluding its pharmacy switch and prescription routing businesses, to form a
joint venture, Change Healthcare. The purpose of the transaction was to create a new healthcare information
technology company, bringing together the complementary strengths of the contributed assets to provide
software and analytics, network solutions and technology-enabled services that will help customers obtain
actionable insights, exchange mission-critical information, control costs, optimize revenue opportunities, increase
cash flow and effectively navigate the shift to value-based healthcare. Change Healthcare is jointly governed by

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McKesson and Change. Operating a business under joint governance of unaffiliated, controlling members could
lead to conflicts of interest or deadlocks on important and time-sensitive operational, financial or strategic
decisions, and will require additional organizational formalities as well as time-consuming procedures for sharing
information and making decisions. If we are unable to manage our joint venture relationship and to realize the
strategic and financial benefits that we expect, including an initial public offering of Change Healthcare, such
inability to manage the relationship or realize benefits may have a material adverse impact on our results of
operations.

Our business and results of operations could be impacted if we fail to manage and complete divestitures.

We regularly evaluate our portfolio in order to determine whether an asset or business may no longer help
us meet our objectives. When we decide to sell assets or a business, we may encounter difficulty in finding
buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement
of our strategic objectives. We may also experience greater dissynergies than expected, and the impact of the
divestiture on our revenue growth may be larger than projected. After reaching an agreement with a buyer, we
are subject to satisfaction of pre-closing conditions as well as to necessary regulatory and governmental
approvals, which, if not satisfied or obtained, may prevent us from completing the sale. Dispositions may also
involve continued financial involvement in the divested business, such as through continuing equity ownership,
guarantees, indemnities or other financial obligations. Under these arrangements, performance by the divested
businesses or other conditions outside of our control could have a material adverse impact on our results of
operations.

We are subject to legal and regulatory proceedings that could have a material adverse impact on our financial
position and results of operations.

the Company is a defendant

From time to time and in the ordinary course of our business, we and certain of our subsidiaries may
become involved in various legal and regulatory proceedings involving false claims, healthcare fraud and abuse,
antitrust, class actions, commercial, employment, environmental, intellectual property, licensing, tort and other
various claims. For example,
in many cases alleging claims related to the
distribution of controlled substances to pharmacies, often together with other pharmaceutical wholesale
distributors and pharmaceutical manufacturers and retail pharmacy chains named as defendants. The Company
has been served with many complaints, often brought by governmental entities (including counties and
municipalities) that allege violations of controlled substance laws and various other statutes in addition to
common law claims, including negligence and public nuisance, and seek monetary damages and equitable relief.
Some states and other governmental entities have indicated that they are considering filing similar suits. All such
legal proceedings are inherently unpredictable, and the outcome can result in excessive verdicts and/or injunctive
relief that may affect how we operate our business or we may enter into settlements of claims for monetary
payments. In some cases, substantial non-economic remedies or punitive damages may be sought. For some
complaints filed against the Company, we are currently unable to estimate the amount of possible losses that
might be incurred should these legal proceedings be resolved against the Company.

The outcome of litigation and other legal matters is always uncertain and outcomes that are not justified by
the evidence or existing law can occur. The Company believes that it has valid defenses to the legal matters
pending against it and is defending itself vigorously. Nevertheless, it is possible that resolution of one or any
combination of more than one legal matter could result in a material adverse impact on our financial position or
results of operations.

Litigation is costly, time-consuming and disruptive to normal business operations. The defense of these
matters could also result in continued diversion of our management’s time and attention away from business
operations, which could also harm our business. Even if these matters are not resolved against us, the uncertainty
and expense associated with unresolved legal proceedings could harm our business and reputation.

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Competition and industry consolidation may erode our profit.

regional and local

Our Distribution Solutions segment (and commencing in first quarter of 2019, our reportable segments
including U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, Medical-Surgical
Solutions and Other) faces a highly competitive global environment with strong competition from international,
national,
full-line, short-line and specialty distributors, service merchandisers, self-
warehousing chain drug stores, manufacturers engaged in direct distribution, third-party logistics companies and
large payer organizations. In addition, this segment faces competition from various other service providers and
from pharmaceutical and other healthcare manufacturers as well as other potential customers of the segment,
which may from time-to-time decide to develop, for their own internal needs, supply management capabilities
that would otherwise be provided by the segment. In all areas, key competitive factors include price, quality of
service, breadth of product lines, innovation and, in some cases, convenience to the customer.

In addition, in recent years, the healthcare industry has been subject to increasing consolidation. As a result,
a small number of very large pharmaceutical suppliers could control a significant share of the market.
Accordingly, we could depend on fewer suppliers for our products and therefore we may be less able to negotiate
price terms with suppliers. Many of our customers, including healthcare organizations that purchase our products
and services, have also consolidated to create larger enterprises with greater market power. If this consolidation
trend continues among our customers, suppliers and competitors,
it could reduce the number of market
participants and give the resulting enterprises greater bargaining power, which may lead to erosion of the prices
for our products and services. It would also increase counter-party credit risk as the number of market
participants decreases. In addition, when our customers combine, they often consolidate infrastructure including
IT systems, which in turn may erode the diversity of our customer and revenue base.

Our McKesson Prescription Technology Solutions business experiences substantial competition from many
companies, including other software services firms, consulting firms, shared service vendors, certain hospitals
and hospital groups, payers, care management organizations, hardware vendors and internet-based companies
with technology applicable to the healthcare industry. Competition varies in size from small to large companies,
in geographical coverage and in scope and breadth of products and services offered.

These competitive pressures and industry consolidation could have a material adverse impact on our results

of operations.

A material reduction in purchases or the loss of a large customer or group purchasing organization, as well as
substantial defaults in payment by a large customer or group purchasing organization, could have a material
adverse impact on our financial position and results of operations.

In recent years, a significant portion of our revenue growth has been with a limited number of large
customers. During 2018, sales to our ten largest customers, including group purchasing organizations (“GPOs”)
accounted for approximately 51.7% of our total consolidated revenues. Sales to our largest customer, CVS
Health (“CVS”), accounted for approximately 19.9% of our total consolidated revenues. At March 31, 2018,
trade accounts receivable from our ten largest customers were approximately 24.9% of total trade accounts
receivable. Accounts receivable from CVS were approximately 16.4% of total trade accounts receivable. As a
result, our sales and credit concentration is significant. We also have agreements with GPOs, each of which
functions as a purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers, as
well as with government entities and agencies. A material default in payment, a material reduction in purchases
from these or any other large customers, or the loss of a large customer or GPO could have a material adverse
impact on our financial position, results of operations and liquidity.

We generally sell our products and services to customers on credit that is short-term in nature and
unsecured. Any adverse change in general economic conditions can adversely reduce sales to our customers,

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affect consumer buying practices or cause our customers to delay or be unable to pay accounts receivable owed
to us, which may in turn materially reduce our revenue growth and cause a material decrease in our profitability
and cash flow. Further, interest rate fluctuations and changes in capital market conditions may also affect our
customers’ ability to obtain credit to finance their business under acceptable terms, which in turn may materially
reduce our revenue growth and cause a decrease in our profitability.

Contracts with foreign and domestic government entities and their agencies pose additional risks relating to
future funding and compliance.

Contracts with foreign and domestic government entities and their agencies are subject

to various
including oversight audits by various government authorities.
uncertainties, restrictions and regulations,
Government contracts also are exposed to uncertainties associated with funding. Contracts with the U.S. federal
government, for example, are subject to the uncertainties of Congressional funding. Governments are typically
under no obligation to maintain funding at any specific level, and funds for government programs may even be
eliminated. As a result, our government clients may terminate our contracts for convenience or decide not to
renew our contracts with little or no prior notice. The loss of such contracts could have a material adverse impact
on our results of operations.

In addition, because government contracts are subject to specific procurement regulations and a variety of
other socio-economic requirements, we must comply with such requirements. For example, for contracts with the
U.S. federal government, with certain exceptions, we must comply with the Federal Acquisition Regulation, the
U.S. False Claims Act, the Procurement Integrity Act, the Buy American Act and the Trade Agreements Act. We
must also comply with various other domestic and foreign government regulations and requirements as well as
various statutes related to employment practices, environmental protection, recordkeeping and accounting. These
regulations and requirements affect how we transact business with our clients and, in some instances, impose
additional costs on our business operations. Government contracts also contain terms that expose us to higher
levels of risk and potential liability than non-government contracts.

We also are subject

to government audits,

investigations, and oversight proceedings. For example,
government agencies routinely review and audit government contractors to determine whether contractors are
complying with specific contractual or legal requirements. If we violate these rules or regulations, fail to comply
with a contractual or other requirement, or do not satisfy an audit, a variety of penalties can be imposed by a
government including monetary damages and criminal and civil penalties. In addition, any of our government
contracts could be terminated or we could be suspended or debarred from all government contract work. The
occurrence of any of these actions could harm our reputation and could have a material adverse impact on our
results of operations.

Our future results could be materially affected by a number of public health issues whether occurring in the
United States or abroad.

Public health issues, whether occurring in the United States or abroad, could disrupt our operations, disrupt
the operations of suppliers or customers, or have a broader adverse impact on consumer spending and confidence
levels that would negatively affect our suppliers and customers. We have developed contingency plans to address
infectious disease scenarios and the potential impact on our operations, and we will continue to update these
plans as necessary. However, there can be no assurance that these plans will be effective in eliminating the
negative impact of any such diseases on the Company’s operating results. We may be required to suspend
operations in some or all of our locations, which could have a material adverse impact on our financial position
and results of operations.

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We rely on sophisticated computer systems to perform our business operations. Although we, our customers
and our external service providers use a variety of security measures to protect our and their computer
systems, a failure or compromise of our, our customers’ or our external service providers’ computer systems
from a cyberattack, natural disaster, or malfunction may result in material adverse operational and financial
consequences.

Our business relies on the secure electronic transmission, storage, and hosting of sensitive information,
including personally identifiable information, protected health information, financial information and other
sensitive information relating to our customers, company and workforce. We routinely process, store and
transmit large amounts of data in our operations, including sensitive personal information, protected health
information, financial information, and confidential information relating to our business or third parties. Some of
the data that we process, store and transmit may travel outside of the United States. Additionally, we outsource
some important IT functions to external service providers worldwide.

Our industry is subject to various evolving federal, state and international data and security laws and
regulations, which impose operational costs to achieve compliance. Any failure to comply with these laws and
regulations could result
in regulatory enforcement activity and fines. In addition, compliance with these
requirements could require changes in business practices, complicate our operations, and increase our oversight
needs.

The constant evolution of cyberattacks has caused us to spend more time and money to deal with
increasingly sophisticated attacks. Despite our
technical and
administrative security measures, our, our customers’ and our external service providers’ computer systems
to cyberattacks and unauthorized access, such as physical and electronic break-ins or
could be subject
unauthorized tampering. Like other global companies, we and our customers have experienced threats to data and
systems, including malware and ransomware attacks, unauthorized access, system failures, and disruptions.

implementation of a variety of physical,

A failure or compromise of our, our customers’ or our external service providers’ computer systems may
result in business disruption or jeopardize the confidential, proprietary, and sensitive information processed,
stored, and transmitted through such computer systems. Such an event may result in significant damage to our
reputation, financial
increased costs, regulatory penalties, notification costs, remediation
expenses, customer attrition, brand impairment, or other business harm. These risks may increase in the future as
we continue to expand our internet and mobile strategies and to build an integrated digital enterprise.

litigation,

losses,

We could experience losses or liability not covered by insurance.

In order to provide prompt and complete service to our major Distribution Solutions segment’s customers,
we maintain significant product inventory at certain of our distribution centers. While we seek to maintain
property insurance coverage in amounts sufficient for our business, there can be no assurance that our property
insurance will be adequate or available on acceptable terms. One or more large casualty losses caused by fire,
earthquake or other natural disaster in excess of our coverage limits could have a material adverse impact on our
results of operations.

Our business exposes us to risks that are inherent in the distribution, manufacturing, dispensing and
administration of pharmaceuticals and medical-surgical supplies, the provision of ancillary services, the conduct
of our payer businesses and the provision of products that assist clinical decision making and relate to patient
medical histories and treatment plans. If customers or individuals assert liability claims against our products and/
or services, any ensuing litigation, regardless of outcome, could result in a substantial cost to us, divert
management’s attention from operations and decrease market acceptance of our products. We attempt to limit our
liability to customers by contract; however, the limitations of liability set forth in the contracts may not be

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enforceable or may not otherwise protect us from liability for damages. Additionally, we may be subject to
claims that are not explicitly covered by contract, such as a claim directly by a patient. We also maintain general
liability coverage; however, this coverage may not continue to be available on acceptable terms, may not be
available in sufficient amounts to cover one or more large claims against us and may include larger self-insured
retentions or exclusions for certain products. In addition, the insurer might disclaim coverage as to any future
claim. A successful product or professional liability claim not fully covered by our insurance could have a
material adverse impact on our results of operations.

Transactions like our acquisitions of McKesson Europe and Rexall Health expose us to additional risks
related to providing pharmacy services. Pharmacies are exposed to risks inherent
in the packaging and
distribution of pharmaceuticals and other healthcare products, such as with respect to improper filling of
prescriptions, labeling of prescriptions, adequacy of warnings, unintentional distribution of counterfeit drugs and
expiration of drugs. Although we maintain liability insurance, the coverage may not be adequate to protect us
against future claims. If our insurance coverage proves to be inadequate or unavailable, or we suffer reputational
harm as a result of an error or omission, it could have a material adverse impact on our results of operations.

Proprietary protections may not be adequate, and products may be found to infringe the rights of third parties.

We rely on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other
contractual provisions and technical measures to protect our proprietary rights in our products and solutions.
There can be no assurance that these protections will be adequate or that our competitors will not independently
develop products or services that are equivalent or superior to ours. In addition, despite protective measures, we
may be subject to unauthorized use of our technology due to copying, reverse-engineering or other infringement.
Although we believe that our products and services do not infringe the proprietary rights of third parties, from
time to time third parties have asserted infringement claims against us, and there can be no assurance that third
parties will not assert infringement claims against us in the future. If we were found to be infringing others’
rights, we may be required to pay substantial damage awards and forced to develop non-infringing products or
services, obtain a license or cease selling or using the products or services that contain the infringing elements.
Additionally, we may find it necessary to initiate litigation to protect our trade secrets, to enforce our patent,
copyright and trademark rights and to determine the scope and validity of the proprietary rights of others. These
types of litigation can be costly and time consuming. These litigation expenses, damage payments or costs of
developing replacement products or services could have a material adverse impact on our results of operations.

System errors or failures of our products or services to conform to specifications could cause unforeseen
liabilities or injury, harm our reputation and have a material adverse impact on our results of operations.

The software and technology services that we sell or operate are complex. As with complex systems offered
by others, our software and technology services may contain errors, especially when first introduced. For
example, some of our systems are intended to provide information to healthcare professionals in the course of
delivering patient care. Therefore, users of our software and technology services have a greater sensitivity to
errors than the general market for software products. If clinicians’ use of our software and technology services
leads to faulty clinical decisions or injury to patients, we could be subject to claims or litigation by our
customers, clinicians or patients. In addition, such failures could damage our reputation and could negatively
affect future sales.

Failure of a customer’s system to perform in accordance with our documentation could constitute a breach
of warranty and could require us to incur additional expense in order to make the system comply with the
documentation. If such failure is not remedied in a timely manner, it could constitute a material breach under a
contract, allowing the client to cancel the contract, obtain refunds of amounts previously paid or assert claims for
significant damages.

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Various risks could interrupt customers’ access to their data residing in our service center, exposing us to
significant costs.

We provide remote hosting services that involve operating both our software and the software of third-party
vendors for our customers. The ability to access the systems and the data that we host and support on demand is
critical to our customers. Our operations and facilities are vulnerable to interruption and/or damage from a
number of sources, many of which are beyond our control, including, without limitation: (1) power loss and
telecommunications failures; (2) fire, flood, hurricane and other natural disasters; (3) software and hardware
errors, failures or crashes; and (4) cyberattacks, computer viruses, hacking and other similar disruptive problems.
We attempt to mitigate these risks through various means including disaster recovery plans, separate test systems
and change controls, information security procedures, and continued development and enhancement of our cyber
security, but our precautions may not protect against all risks. If customers’ access is interrupted because of
problems in the operation of our facilities, we could be exposed to significant claims, particularly if the access
interruption is associated with problems in the timely delivery of medical care. If customers’ access is interrupted
from failure or breach of our operational or information security systems, or those of our contractors or third-
party service providers, we could suffer reputational harm or be exposed to liabilities arising from the
unauthorized and improper use or disclosure of confidential or proprietary information. We must maintain
disaster recovery and business continuity plans that rely upon third-party providers of related services and if
those vendors fail us at a time that our center is not operating correctly, we could incur a loss of revenue and
liability for failure to fulfill our contractual service commitments. Any significant instances of system downtime
could negatively affect our reputation and ability to sell our remote hosting services.

We may be required to record a significant charge to earnings if our goodwill, intangible and other long-lived
assets, or investments become impaired.

We are required under U.S. generally accepted accounting principles (“GAAP”) to test our goodwill for
impairment annually or more frequently if indicators for potential
impairment exist. Indicators that are
considered include significant changes in performance relative to expected operating results, significant changes
in the use of the assets, significant negative industry, or economic trends or a significant decline in the
Company’s stock price and/or market capitalization for a sustained period of time. In addition, we periodically
review our intangible and other long-lived assets for impairment when events or changes in circumstances, such
as a divestiture, indicate the carrying value may not be recoverable. Factors that may be considered a change in
circumstances indicating that the carrying value of our intangible and other long-lived assets may not be
recoverable include slower growth rates, the loss of a significant customer, or divestiture of a business or asset
for less than its carrying value. We may be required to record a significant charge to earnings in our consolidated
financial statements during the period in which any impairment of our goodwill or intangible and other long-
lived assets is determined. This could have a material adverse impact on our results of operations. There are
inherent uncertainties in management’s estimates, judgments and assumptions used in assessing recoverability of
goodwill, intangible and other long-lived assets. Any material changes in key assumptions, including failure to
meet business plans, negative changes in government reimbursement rates, a deterioration in the U.S. and global
financial markets, an increase in interest rate or an increase in the cost of equity financing by market participants
within the industry or other unanticipated events and circumstances, may decrease the projected cash flows or
increase the discount rates and could potentially result in an impairment charge.

Our investment in Change Healthcare represents the fair value of our 70% equity interest in Change
Healthcare upon closing. We may experience declines in its fair value. A decline in the fair value of our Change
Healthcare investment may require that we review the carrying value for potential impairment, and such review
could result in an impairment charge to our consolidated statements of operations.

25

McKESSON CORPORATION

Tax legislation initiatives or challenges to our tax positions could have a material adverse impact on our
results of operations.

We are a large multinational corporation with operations in the United States and international jurisdictions.
As such, we are subject to the tax laws and regulations of the United States federal, state and local governments
and of many international jurisdictions. From time to time, legislation may be enacted that could adversely affect
our tax positions. There can be no assurance that our effective tax rate and the resulting cash flow will not be
adversely affected by these changes in legislation. On December 22, 2017, the Tax Cuts and Jobs Act of 2017
(the “2017 Tax Act”) was enacted and contains significant changes to U.S. income tax law. Effective in 2018, the
2017 Tax Act reduces the U.S. statutory tax rate from 35% to 21%. Effective in 2019, it creates new taxes
focused on foreign-sourced earnings and related-party payments. In addition, we were subject to a one-time
transition tax in 2018 on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The
SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) on December 22, 2017, which allows companies to
record provisional amounts during a measurement period not to extend beyond one year of the enactment date.
We have made reasonable estimates of the effects and recorded provisional amounts in our consolidated financial
statements for the year ended March 31, 2018, in accordance with SAB 118. The U.S. Treasury Department and
IRS have not yet issued regulations with respect to the 2017 Tax Act. Due to the potential for changes to tax laws
and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to the
2017 Tax Act), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations, the
complexity of our intercompany arrangements, uncertainties regarding the geographic mix of earnings in any
particular period, and other factors, material adjustments to our tax estimates impact our provision for income
taxes and our earnings per share, as well as our cash flows, in the period in which any such adjustments are
made. Refer to Financial Note 10, “Income Taxes,” to the accompanying consolidated financial statements
appearing in this Annual Report on Form 10-K for additional information.

The tax laws and regulations of the various countries where we have major operations are extremely
complex and subject to varying interpretations. For example, we operate in various countries that collect value
added taxes (“VAT”). The determination of the manner in which a VAT applies to our foreign operations is
subject to varying interpretations arising from the complex nature of the tax laws and regulations. Although we
believe that our historical tax positions are sound and consistent with applicable laws, regulations and existing
precedent, there can be no assurance that these tax positions will not be challenged by relevant tax authorities or
that we would be successful in any such challenge. Even if we are successful in maintaining our positions, we
may incur significant expense in defending challenges to our tax positions by tax authorities that could have a
material impact on our financial position and results of operations.

In addition, as jurisdictions enact legislation to implement the recommendations of the recently concluded
base erosion and profit shifting project undertaken by the Organization for Economic Cooperation and
Development or as a result of the European Commission’s investigations into illegal state aid, changes to long-
standing tax principles may result which could adversely impact our tax expense and cash flows.

Volatility and disruption to the global capital and credit markets may adversely affect our ability to access
credit, our cost of credit and the financial soundness of our customers and suppliers.

Volatility and disruption in the global capital and credit markets, including the bankruptcy or restructuring
of certain financial institutions, reduced lending activity by other financial institutions, or decreased liquidity and
increased costs in the commercial paper market, may adversely affect the availability and cost of credit already
arranged and the availability, terms and cost of credit in the future. Although we believe that our operating cash
flow, financial assets, current access to capital and credit markets, including our existing credit facilities, will
give us the ability to meet our financing needs for the foreseeable future, there can be no assurance that volatility
and disruption in the global capital and credit markets will not impair our liquidity or increase our costs of
borrowing.

26

McKESSON CORPORATION

Our business could also be negatively impacted if our customers or suppliers experience disruptions
resulting from tighter capital and credit markets or a slowdown in the general economy. As a result, customers
may modify, delay or cancel plans to purchase or implement our products or services and suppliers may increase
their prices, reduce their output or change their terms of sale. Additionally, if customers’ or suppliers’ operating
and financial performance deteriorates or if they are unable to make scheduled payments or obtain credit,
customers may not be able to pay, or may delay payment of accounts receivable owed to us and suppliers may
restrict credit, impose different payment terms or be unable to make payments due to us for fees, returned
products or incentives. Any inability of customers to pay us for our products and services or any demands by
suppliers for different payment terms, may have a material adverse impact on our results of operations and cash
flow.

Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other
standard-setting bodies may adversely affect our consolidated financial statements.

Our consolidated financial statements are subject to the application of U.S. GAAP, which is periodically
revised and/or expanded. From time to time, we are required to adopt new or revised accounting standards issued
by recognized authoritative bodies, including the FASB and the SEC. It is possible that future accounting
standards we are required to adopt, such as the amended guidance for leases, may require changes to the current
accounting treatment that we apply to our consolidated financial statements and may require us to make
significant changes to our systems. Such changes could result in a material adverse impact on our financial
position and results of operations.

We could face significant liability if we withdraw from participation in one or more multiemployer pension
plans in which we participate, or if one or more multiemployer plans in which we participate is underfunded.

We participate in various multiemployer pension plans. In the event that we withdraw from participation in
one of these plans, then applicable law could require us to make additional cash contributions to the plans in
installments. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan’s
funding of vested benefits. The multiemployer plans could have significant unfunded vested liabilities. Such
underfunding may increase in the event other employers become insolvent or withdraw from the applicable plan
or upon the inability or failure of withdrawing employers to pay their withdrawal liability. In addition, such
underfunding may increase as a result of lower than expected returns on pension fund assets or other funding
deficiencies. The occurrence of any of these events could have a material adverse impact on our consolidated
financial position, results of operations or cash flows.

We may not realize the expected benefits from our restructuring and business process initiatives.

From time to time, the Company may enter into restructuring and business process initiatives. In April 2018,
the Company announced a multi-year strategic growth initiative focused on creating innovative new solutions
that improve patient care delivery and drive incremental profit growth. The initiative includes a comprehensive
review of the Company’s operations and cost structure, designed to increase efficiency, accelerate execution and
improve long-term performance. In March 2016, the Company also committed to a restructuring plan to lower its
operating costs (“Cost Alignment Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce
and business process initiatives that will be substantially implemented prior to the end of 2019. These types of
initiatives could yield unintended consequences such as distraction of our management and employees, business
disruption, attrition beyond any planned reduction in workforce, inability to attract or retain key personnel, and
reduced employee productivity which could negatively affect our business, sales, financial condition and results
of operations. Moreover, our restructuring and business process initiatives result in charges and expenses that
impact our operating results. We cannot guarantee that the activities under any restructuring and business
initiative will result in the desired efficiencies and estimated cost savings.

27

McKESSON CORPORATION

We may experience difficulties with outsourcing and similar third-party relationships.

Our ability to conduct our business might be negatively impacted if we experience difficulties with
outsourcing and managing similar third-party relationships. We outsource certain business and administrative
functions and rely on third parties to perform certain services on our behalf. If we fail to develop, implement and
monitor our outsourcing strategies, such strategies prove to be ineffective or fail to provide expected cost
savings, or our third-party providers fail to perform as anticipated, we may experience operational difficulties
and increased costs may adversely affect the results of our operations.

Moreover, we utilize contractors and employees located outside of the United States to assist us in
performing services or providing support for our customers. Certain of these resources may have access to
personal information, including protected health information. Some of our customers have contractually limited
or may seek to limit our ability to use our offshore resources which may increase our costs due to concerns
regarding potential misuse of this information. Further, Congress and a number of states have considered
legislation that would restrict the transmission of personal information of United States residents offshore. Some
proposals impose liability on healthcare businesses resulting from misuse or prohibited transmission of personal
information to individuals or entities outside the United States and may require the prior consent of the
identifiable patient. Congress also has considered establishing a private civil cause of action enabling an
individual to recover damages sustained as a result of a violation of these proposed restrictions. If our ability to
utilize offshore resources is limited by our customers or legislative action, the work currently being performed
offshore may be done at a lower margin or at a loss and we may be subject to sanctions if we are unable to
comply with new legislative requirements. Use of offshore resources may increase our risk of violating data
security and privacy obligations to our customers, which could adversely affect our results of operations.

We may face risks associated with our retail expansion.

In recent years, we have expanded our retail operations through a number of acquisitions. As we expand our
retail footprint, we may face risks that are different from those we currently encounter. Our expansion into
additional retail markets, such as those in Europe and Canada, could result
in increased competitive,
merchandising and distribution challenges. We may encounter difficulties in attracting customers to our retail
locations due to a lack of customer familiarity with our brands and our lack of familiarity with local customer
preferences and seasonal differences in the market. Our ability to expand successfully will depend on acceptance
of our retail store experience by customers, including our ability to design our stores in a manner that resonates
locally and to offer the correct product assortment to appeal to consumers. Furthermore, our continued growth in
the retail sector may strain relations with certain of our distribution customers who also compete in the retail
pharmacy sector. There can be no assurance that our retail locations will be received as well as, or achieve net
sales or profitability levels consistent with, our projected targets or be comparable to those of our existing stores
in the time periods estimated by us, or at all. If our retail expansion fails to achieve, or unable to sustain,
acceptable net sales and profitability levels, our business, results of operations and growth prospects may be
materially adversely affected.

Our retail stores may require additional management time and attention. Failure to properly supervise the
operation and maintain the consistency of the customer experience in those retail stores could result in loss of
customers and potentially adversely affect our results of operations.

We may be unable to keep existing retail store locations or open new retail locations in desirable places, which
could materially adversely affect our results of operations.

We may be unable to keep existing retail locations or open new retail locations in desirable places in the
future. We compete with other retailers and businesses for suitable retail locations. Local land use, local zoning

28

McKESSON CORPORATION

issues, environmental regulations and other regulations may affect our ability to find suitable retail locations and
also influence the cost of leasing or buying them. We also may have difficulty negotiating real estate leases for
new stores, renewing real estate leases for existing stores or negotiating purchase agreements for new sites on
acceptable terms. In addition, construction, environmental, zoning and real estate delays may negatively affect
retail location openings and increase costs and capital expenditures. If we are unable to keep up our existing
retail store locations or open new retail store locations in desirable places and on favorable terms, our results of
operations could be materially adversely affected.

Item 1B. Unresolved Staff Comments.

None.

Item 2.

Properties.

Because of the nature of our principal businesses, our plant, warehousing, retail pharmacies, office and other
facilities are operated in widely dispersed locations, primarily throughout North America and Europe. The
warehouses and retail pharmacies are typically owned or leased on a long-term basis. We consider our operating
properties to be in satisfactory condition and adequate to meet our needs for the next several years without
lease
making capital expenditures materially higher
commitments is included in Financial Note 22, “Lease Obligations,” to the consolidated financial statements
appearing in this Annual Report on Form 10-K.

Information as to material

than historical

levels.

Item 3.

Legal Proceedings.

Certain legal proceedings in which we are involved are discussed in Financial Note 24, “Commitments and

Contingent Liabilities,” to the consolidated financial statements appearing in this Annual Report on Form 10-K.

Item 4. Mine Safety Disclosures.

Not applicable.

29

McKESSON CORPORATION

Executive Officers of the Registrant

The following table sets forth information regarding the executive officers of the Company, including their
principal occupations during the past five years. The number of years of service with the Company includes
service with predecessor companies.

There are no family relationships between any of the executive officers or directors of the Company. The
executive officers are elected on an annual basis generally and their term expires at the first meeting of the Board
of Directors (“Board”) following the annual meeting of stockholders, or until their successors are elected and
have qualified, or until death, resignation or removal, whichever is sooner.

Name

John H. Hammergren

Britt J. Vitalone

Jorge L. Figueredo

Kathleen D. McElligott

Bansi Nagji

Age

59

49

57

62

53

Lori A. Schechter

56

Position with Registrant and Business Experience

Chairman of the Board since July 2002; President and Chief Executive
Officer since April 2001; and a director since July 1999. Service with the
Company—22 years.

Executive Vice President and Chief Financial Officer since January
2018; Senior Vice President and Chief Financial Officer, U.S.
Pharmaceutical from July 2014 to December 2017; Senior Vice President
and Chief Financial Officer, U.S. Pharmaceutical and Specialty Health
from October 2017 to December 2017; Senior Vice President of
Corporate Finance and M&A Finance from March 2012 to June
2014. Service with the Company—12 years.

Executive Vice President, Human Resources since May 2008. Service
with the Company—10 years.

Executive Vice President, Chief
Information Officer and Chief
Technology Officer since July 2015; Chief Information Officer and Vice
President, Information Technology, Emerson Electric from 2010 to July
2015. Service with the Company—2 years.

Executive Vice President, Corporate Strategy and Business Development
since February 2015; Principal, Deloitte Consulting, LLP and Global
Leader, Monitor Deloitte (which was formed by the global merger of
Monitor Group with Deloitte) from January 2013 to February 2015;
President, Monitor Group from July 2012 to January 2013; Partner,
Monitor Group from 2001 to January 2013. Service with the Company—
3 years.

Executive Vice President, General Counsel and Chief Compliance
Officer since June 2014; Associate General Counsel from January 2012
to June 2014; Litigation Partner, Morrison & Foerster LLP from January
1995 to December 2011. Service with the Company—6 years.

30

McKESSON CORPORATION

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities.

(a) Market Information: The principal market on which the Company’s common stock is traded is the New

York Stock Exchange (“NYSE”).

The following table sets forth the high and low sales prices for our common stock as reported on NYSE

for each quarterly period of the two most recently completed fiscal years:

First quarter

Second quarter

Third quarter

Fourth quarter

2018

2017

High

Low

High

Low

$169.29

$133.82

$188.43

$154.33

$168.87

$145.13

$199.43

$163.57

$164.29

$134.25

$166.78

$114.53

$178.86

$137.10

$153.07

$134.17

(b) Holders: The number of record holders of the Company’s common stock at March 31, 2018 was

approximately 5,619.

(c) Dividends: In July 2017, the Company’s quarterly dividend was raised from $0.28 to $0.34 per common
share for dividends declared on or after such date by the Company’s Board of Directors (the “Board”). The
Company declared regular cash dividends of $1.30 and $1.12 per share in the years ended March 31, 2018
and 2017.

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

(d) Securities Authorized for Issuance under Equity Compensation Plans: Information relating to this item is

provided under Part III, Item 12, to this Annual Report on Form 10-K.

(e) Share Repurchase Plans: Stock repurchases may be made from time to time in open market transactions,
privately negotiated transactions, through accelerated share repurchase (“ASR”) programs, or by any
combination of such methods. The timing of any repurchases and the actual number of shares repurchased
will depend on a variety of factors, including our stock price, corporate and regulatory requirements,
restrictions under our debt obligations and other market and economic conditions.

During the last

three years, our share repurchases were transacted through both open market

transactions and ASR programs with third-party financial institutions.

In May and October 2015, the Board authorized the repurchase of up to $500 million and $2 billion of

the Company’s common stock.

In 2016, we repurchased 4.5 million of the Company’s shares for $854 million through open market
transactions at an average price per share of $192.27. In February 2016, we entered into an ASR program
with a third-party financial institution to repurchase $650 million of the Company’s common stock. The
ASR program was completed during the fourth quarter of 2016 and we repurchased 4.2 million shares at an
average price per share of $154.04. During 2016, we completed the May 2015 share repurchase
authorization. At March 31, 2016, $1.0 billion remained available for future authorized repurchases of the
Company’s common stock under the October 2015 authorization.

In 2016, we retired 115.5 million or $7.8 billion of the Company’s treasury shares previously
repurchased. Under the applicable state law, these shares resume the status of authorized and unissued

31

McKESSON CORPORATION

shares upon retirement. In accordance with our accounting policy, we allocate any excess of share
repurchase price over par value between additional paid-in capital and retained earnings. Accordingly, our
retained earnings and additional paid-in capital were reduced by $6.4 billion and $1.5 billion during 2016.

In October 2016, the Board authorized the repurchase of up to $4.0 billion of the Company’s common

stock.

In 2017, we repurchased 14.1 million of the Company’s shares for $2.0 billion through open market
transactions at an average price per share of $140.96. In March 2017, we entered into an ASR program with
a third-party financial institution to repurchase $250 million of the Company’s common stock. As of
March 31, 2017, we had received 1.4 million shares under this program. This ASR program was completed
in April 2017 and we received 0.3 million additional shares. The total number of shares repurchased under
this ASR program was 1.7 million shares at an average price per share of $143.19. During 2017, we
completed the October 2015 share repurchase authorization. The total authorization outstanding for
repurchases of the Company’s common stock was $2.7 billion at March 31, 2017.

In 2018, we repurchased 3.5 million of the Company’s shares for $500 million through open market
transactions at an average price per share of $144.43. In June 2017, August 2017 and March 2018, we
entered into three separate ASR programs with third-party financial institutions to repurchase $250 million,
$400 million and $500 million of the Company’s common stock. As of March 31, 2018, we completed and
received a total of 1.5 million shares under the June 2017 ASR program and a total of 2.7 million shares
under the August 2017 ASR program. In addition, we received 2.5 million shares representing the initial
number of shares due in March 2018 and an additional 0.5 million shares in April 2018 under the March
2018 ASR program. The total number of shares to be ultimately repurchased by the Company under the
March 2018 ASR program will be determined at the completion of the program based on the average daily
volume-weighted average price of the Company’s common stock during this program, less a discount. The
program is anticipated to be completed during the first quarter of 2019. The total authorization outstanding
for repurchase of the Company’s common stock was $1.1 billion at March 31, 2018.

In May 2018, the Board authorized the repurchase of up to $4.0 billion of the Company’s common
stock. The total authorization outstanding for repurchases of the Company’s common stock was increased to
$5.1 billion.

The following table provides information on the Company’s share repurchases during the fourth

quarter of 2018:

(In millions, except price per share)

January 1, 2018 — January 31, 2018

February 1, 2018 — February 28, 2018

March 1, 2018 — March 31, 2018

Total

Share Repurchases (1)

Average Price
Paid per Share

$ —

152.00

155.87 (2)

Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
Programs

—

0.7

3.5

4.2

$1,846

1,734

1,096

Total
Number of
Shares
Purchased

—

0.7

3.5

4.2

(1) This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises
of employee stock options or shares tendered to satisfy tax-withholding obligations in connection with
employee equity awards.

(2) The average price paid per share computation includes the initial share settlement of 2.5 million shares from
the March 2018 ASR program, of which the actual average price of shares will be determined at the
termination of the program.

32

McKESSON CORPORATION

(f)

Stock Price Performance Graph*: The following graph compares the cumulative total stockholder return on
the Company’s common stock for the periods indicated with the Standard & Poor’s 500 Index and the S&P
500 Health Care Index. The S&P 500 Health Care Index was selected as a comparator because it is
generally available to investors and broadly used by other companies in the same industry.

$300

$250

$200

$150

$100

$50

D
O
L
L
A
R
S

$0

2013

2014

2015

2016

2017

2018

McKesson Corporation

S&P 500 Index

S&P 500 Health Care Index

McKesson Corporation

S&P 500 Index

March 31,

2013

2014

2015

2016

2017

2018

$100.00

$164.63

$211.91

$148.16

$140.65

$133.64

$100.00

$121.86

$137.37

$139.82

$163.83

$186.75

S&P 500 Health Care Index

$100.00

$129.24

$163.09

$154.64

$172.57

$192.01

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, 2013 and that all

dividends are reinvested.

33

Item 6.

Selected Financial Data.

McKESSON CORPORATION

FIVE-YEAR HIGHLIGHTS

(In millions, except per share data and ratios)
Operating Results
Revenues

Percent change

Gross profit
Income from continuing operations before income taxes (2)
Income (loss) after income taxes
Continuing operations (2)
Discontinued operations

Net income

Net (income) loss attributable to noncontrolling

interests (1)

Net income attributable to McKesson Corporation (2)

Financial Position
Working capital
Days sales outstanding for: (3)
Customer receivables
Inventories
Drafts and accounts payable

Total assets
Total debt, including capital lease obligations
Total McKesson stockholders’ equity (4)
Payments for property, plant and equipment
Acquisitions, net of cash and cash equivalents acquired
Common Share Information
Common shares outstanding at year-end
Shares on which earnings per common share were based

Diluted
Basic

Diluted earnings (loss) per common share attributable to

McKesson Corporation (5)
Continuing operations
Discontinued operations

Total
Cash dividends declared
Cash dividends declared per common share
Book value per common share (5) (6)
Market value per common share—year-end
Supplemental Data
Debt to capital ratio (7)
Average McKesson stockholders’ equity (8)
Return on McKesson stockholders’ equity (9)

As of and for the Years Ended March 31,

2018

2017

2016

2015

2014

$208,357

$198,533

$190,884

$179,045

$137,392

4.9%

4.0%

6.6%

30.3%

12.4%

$ 11,184
239

$ 11,271
6,891

$ 11,416
3,250

$ 11,411
2,657

$

8,352
2,171

292
5
297

(230)
67

5,277
(124)
5,153

(83)
5,070

2,342
(32)
2,310

(52)
2,258

1,842
(299)
1,543

(67)
1,476

1,414
(156)
1,258

5
1,263

$

451

$

1,336

$

3,366

$

3,173

$

3,221

25
30
60
$ 60,381
7,880
9,804
405
2,893

27
30
61
$ 60,969
8,545
11,095
404
4,237

28
32
59
$ 56,523
8,114
8,924
488
40

26
31
54
$ 53,870
9,844
8,001
376
170

29
33
54
$ 51,759
10,594
8,522
278
4,634

202

209
208

211

223
221

225

233
230

232

235
232

231

233
229

$

0.30
0.02
0.32
270
1.30
48.53
140.87

$

23.28
(0.55)
22.73
249
1.12
52.58
148.26

$

9.84
(0.14)
9.70
249
1.08
39.66
157.25

$

7.54
(1.27)
6.27
226
0.96
34.49
226.20

$

6.08
(0.67)
5.41
214
0.92
36.89
176.57

40.6%

$ 11,016

$

0.6%

39.2%
9,282
54.6%

$

43.6%
8,688
26.0%

50.3%

$

8,703

$

17.0%

55.4%
7,803
16.2%

34

McKESSON CORPORATION

Footnotes to Five-Year Highlights:
(1) Primarily reflects guaranteed dividends for 2015 and annual recurring compensation for 2016, 2017 and
2018 that McKesson became obligated to pay to the noncontrolling shareholders of McKesson Europe upon
the effectiveness of the Domination Agreement in December 2014. 2018 and 2017 also include net income
attributable to third-party equity interests in our consolidated entities including Vantage and ClarusONE
Sourcing Services LLP, which was formed in 2017.

(2) 2018 includes non-cash goodwill impairment charges (pre-tax and after-tax) of $1,738 million for our
McKesson Europe and Rexall Health reporting units. 2017 includes a pre-tax gain of $3,947 million
($3,018 million after-tax) from the contribution of our Core MTS Business in connection with Healthcare
Technology Net Asset Exchange.

(3) Based on year-end balances and sales or cost of sales for the last 90 days of the year.
(4) Excludes noncontrolling and redeemable noncontrolling interests.
(5) Certain computations may reflect rounding adjustments.
(6) Represents McKesson stockholders’ equity divided by year-end common shares outstanding.
(7) Ratio is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity

excluding accumulated other comprehensive income (loss).

(8) Represents a five-quarter average of McKesson stockholders’ equity.
(9) Ratio is computed as net income attributable to McKesson Corporation for the last four quarters, divided by

a five-quarter average of McKesson stockholders’ equity.

35

McKESSON CORPORATION

FINANCIAL REVIEW

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL

Management’s discussion and analysis of financial condition and results of operations, referred to as the
Financial Review, is intended to assist the reader in the understanding and assessment of significant changes and
trends related to the results of operations and financial position of McKesson Corporation (“McKesson,” the
“Company,” or “we” and other similar pronouns) together with its subsidiaries. This discussion and analysis
should be read in conjunction with the consolidated financial statements and accompanying financial notes in
Item 8 of Part II of this Annual Report on Form 10-K. 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 statements in this report constitute forward-looking statements. See Item 1 — Business — Forward-
Looking Statements in Part I of this Annual Report on Form 10-K for additional factors relating to these
statements; also see Item 1A — Risk Factors in Part I of this Annual Report on Form 10-K for a list of certain
risk factors applicable to our business, financial condition and results of operations.

We conduct our business through two reportable segments: McKesson Distribution Solutions (“MDS”) and
McKesson Technology Solutions. Refer to Financial Note 28, “Segments of Business,” to the consolidated
financial statements appearing in this Annual Report on Form 10-K for a description of these segments.

36

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

RESULTS OF OPERATIONS

Overview:

(Dollars in millions, except per share data and ratios)

2018

2017

2016

Years Ended March 31,

Revenues

Gross Profit

Gross Profit Margin

Operating Expenses

Operating Expenses

Goodwill impairment charges

Restructuring and asset impairment charges

Gains from sales of businesses

Gain on healthcare technology net asset

exchange, net

Change

2018

5%

2017

4%

$208,357

$198,533

$190,884

$ 11,184

$ 11,271

$ 11,416

(1)%

(1)%

$

5.37

$

5.68

$

5.98

(31)bp

(30)bp

$ (8,263)

$ (7,801)

$ (7,771)

6% — %

(1,738)

(567)

109

(290)

(18)

—

—

499

(203) 3,050

103

NM

NM

(91)

NM

37

3,947

—

(99)

NM

Total Operating Expenses

$ (10,422)

$ (4,162)

$ (7,871)

150% (47)%

Loss from Equity Method Investment in Change

Healthcare

Loss on Debt Extinguishment

Income from Continuing Operations Before Income

Taxes

Income Tax Benefit (Expense)

Income from Continuing Operations

Income (Loss) from Discontinued Operations, Net of

Tax

Net Income

Net Income Attributable to Noncontrolling Interests

Net Income Attributable to McKesson Corporation

Diluted Earnings (Loss) Per Common Share
Attributable to McKesson Corporation

Continuing Operations

Discontinued Operations

Total

$

$

$

$

$

$

(248)

$ — $ —

(122)

$ — $ —

NM

NM

NM

NM

239

53

292

5

297

(230)

$

6,891

$

3,250

(97)% 112%

(1,614)

(908)

(103)

78

5,277

2,342

(94)

125

(124)

5,153

(83)

(32)

(104)

2,310

(52)

(94)

177

288

123

60

67

$

5,070

$

2,258

(99)% 125%

0.30

0.02

$

23.28

(0.55)

0.32

$

22.73

$

$

9.84

(99)% 137%

(0.14)

(104)

293

9.70

(99)% 134%

Weighted Average Diluted Common Shares

209

223

233

(6)%

(4)%

bp—basis points
NM—not meaningful

37

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Revenues for 2018 and 2017 increased 5% and 4% compared to the same periods a year ago primarily due
to market growth, reflecting growing drug utilization and price increases, our business acquisitions and expanded
business with existing customers within our North America pharmaceutical distribution businesses. These
increases for 2018 and 2017 were partially offset by price deflation associated with brand to generic drug
conversion and loss of customers and for 2018 also by the contribution of the majority of our McKesson
Technology Solutions businesses (“Core MTS Business”) to a joint venture in March 2017, as further discussed
below.

Gross profit and gross profit margin decreased in 2018 and 2017 compared to the same periods a year ago.
The decrease for 2018 was primarily due to the contribution of the Core MTS Business, significant government
reimbursement reductions in the United Kingdom (“U.K.”), the competitive sell-side environment and weaker
pharmaceutical manufacturer pricing trends. These decreases in 2018 were partially offset by market growth,
sourcing entity, ClarusONE Sourcing Services LLP
procurement benefits
(“ClarusONE”), higher last-in, first-out (“LIFO”) credits and our business acquisitions.

realized through the joint

Gross profit and gross profit margin decreased in 2017 primarily due to weaker pharmaceutical
manufacturer pricing trends, the competitive sell-side pricing environment, our mix of business and lower
compensation from a branded pharmaceutical manufacturer from our U.S. Pharmaceutical distribution business.
These decreases for 2017 were partially offset by our business acquisitions, LIFO inventory credits, higher cash
receipts from antitrust legal settlements and higher procurement benefits. Gross profit for 2017 and 2016
benefited from $144 million and $76 million of cash receipts representing our share of antitrust legal settlements.
LIFO credits were $99 million and $7 million in 2018 and 2017 and LIFO charges were $244 million in 2016.
LIFO credits were higher in 2018 compared to 2017 due to higher net effect of price declines, partially offset by
the lower inventory level. LIFO expense was recognized in 2016 primarily due to net effects of price increases.

Our Distribution Solutions segment experienced weaker pharmaceutical manufacturer pricing trends over

the last three years.

On March 1, 2017, we contributed our Core MTS Business to the newly formed joint venture, Change
Healthcare, LLC (“Change Healthcare”) under the terms of a contribution agreement entered into between
McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including shareholders of Change. We
retained our RelayHealth Pharmacy (“RHP”) and Enterprise Information Solutions (“EIS”) businesses. The RHP
business was transferred to our MDS segment, effective April 1, 2017, and the EIS business was sold to a third
party in the third quarter of 2018. We accounted for this transaction as a sale of the Core MTS Business and a
subsequent purchase of a 70% interest in the newly formed joint venture. Refer to Financial Note 2, “Healthcare
Technology Net Asset Exchange,” to the accompanying consolidated financial statements appearing in this
Annual Report on Form 10-K for additional information.

Total operating expenses increased in 2018 and decreased in 2017 compared to the same periods a year ago
primarily due to a pre-tax gain of $3,947 million (after-tax gain of $3,018 million) recognized in 2017 from the
contribution of the Core MTS Business.

2018 total operating expenses also increased due to:

• Total non-cash goodwill

impairment charges (pre-tax and after-tax) of $1,738 million for our
McKesson Europe AG (“McKesson Europe”) and Rexall Health reporting units, as further described
below. The charges were recorded within our Distribution Solutions segment. There were no tax
benefits associated with these goodwill impairment charges.

38

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

• Non-cash pre-tax long-lived asset impairment charges of $446 million ($410 million after-tax) and
pre-tax restructuring charges of $74 million ($67 million after-tax) primarily representing employee
severance and lease exit costs for our McKesson Europe business;

• Higher expenses due to our business acquisitions; and

•

Pre-tax charitable contribution expense of $100 million ($64 million after-tax) to a public benefit
California foundation (“Foundation”), as further described below.

These increases in 2018 total operating expenses were partially offset by a pre-tax gain of $109 million
(after-tax gain of $30 million) from the 2018 third quarter sale of our EIS business in our Technology Solutions
segment.

Excluding the gain on Healthcare Technology Net Asset Exchange, 2017 total operating expenses increased
primarily due to a non-cash pre-tax goodwill impairment charge of $290 million ($282 million after-tax) related
to our EIS business within our Technology Solutions segment and higher expenses due to our business
acquisitions. 2017 total operating expenses benefited from lower restructuring charges and cost savings
associated with a cost alignment plan implemented in the fourth quarter of 2016 and ongoing expense
management efforts.

Our investment in Change Healthcare is accounted for using the equity method of accounting. During 2018,
we recorded our proportionate share of loss from Change Healthcare of $248 million under the caption, “Loss
from Equity Method Investment in Change Healthcare,” in our consolidated statements of operations. We
recorded our proportionate share of a provisional net benefit recognized by Change Healthcare from the
enactment of the December 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) of $76 million primarily due to a
reduction in future applicable tax rate.

In the fourth quarter of 2018, we recognized a pre-tax loss of $122 million ($78 million after-tax) on debt
extinguishment related to our February 2018 tender offers to redeem a portion of our existing outstanding long-
term debt. Refer to Financial Note 16, “Debt and Financing Activities,” to the accompanying consolidated
financial statements appearing in this Annual Report on Form 10-K for additional information.

Income from continuing operations before income taxes decreased in 2018 and increased in 2017 compared
to the same periods a year ago primarily due to the pre-tax gain recognized in 2017 from the contribution of the
Core MTS Business. Income from continuing operations before income taxes decreased in 2018 also due to the
goodwill impairment charges within our Distribution Solutions segment, the restructuring and asset impairment
charges, our proportionate share of loss from our equity method investment in Change Healthcare and loss on
debt extinguishment.

Our reported income tax benefit rate was 22.2% in 2018 and income tax expense rates were 23.4% and
27.9% in 2017 and 2016. Fluctuations in our reported income tax rates are primarily due to change in tax laws,
including the recently enacted 2017 Tax Act, the impact of nondeductible impairment charges and varying
proportions of income attributable to foreign countries that have income tax rates different from the U.S. rate.

During 2018, as a result of the 2017 Tax Act, we have recognized a provisional tax benefit of $1,324 million
due to the re-measurement of certain deferred taxes to the lower U.S. federal tax rate and a provisional tax
expense of $457 million for the one-time tax imposed on certain accumulated earnings and profits (“E&P”) of
our foreign subsidiaries. Refer to Financial Note 10, “Income Taxes,” to the accompanying consolidated financial
statements appearing in this Annual Report on Form 10-K for additional information.

39

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Loss from discontinued operations, net of tax, for 2017 includes an after-tax loss from discontinued
operations of $113 million resulting from the 2017 first quarter sale of our Brazilian pharmaceutical distribution
business.

Net income attributable to McKesson Corporation was $67 million, $5,070 million and $2,258 million in
2018, 2017 and 2016 and diluted earnings per common share attributable to McKesson Corporation from
continuing operations were $0.30, $23.28 and $9.84. Diluted income (loss) per common share attributable to
McKesson Corporation from discontinued operations were $0.02, ($0.55) and ($0.14) in 2018, 2017 and 2016.
Additionally, our 2018 diluted earnings per share reflect the cumulative effects of share repurchases.

Foundation

During the fourth quarter of 2018, the Foundation was established to provide opioid education to patients,
caregivers, and providers, address policy issues, and increase patient access to life-saving treatments. In March
2018, we made a pledge to the Foundation and incurred a pre-tax charitable contribution expense of $100 million
($64 million after-tax) for 2018, which was recorded in operating expenses within Corporate Expenses. The
pledge is binding and enforceable and is expected to be paid in the first quarter of 2019.

Goodwill Impairments

McKesson Europe: In 2018, we recorded total non-cash pre-tax and after-tax charges of $1,283 million to

impair the carrying value of goodwill for our McKesson Europe reporting unit.

test

During the second quarter of 2018, our McKesson Europe reporting unit had a decline in its estimated future
cash flows, primarily in our United Kingdom (“U.K.”) retail business, driven by significant government
reimbursement reductions affecting retail pharmacy economics across the U.K. market. As a result, we
performed the interim impairment
in the second quarter of 2018 and recorded a non-cash goodwill
impairment charge of $350 million (pre-tax and after-tax). During the fourth quarter of 2018, this reporting unit
had a further decline in its estimated future cash flows driven by weakening script growth projections in our U.K.
business and by a more competitive environment in France. Based on the annual goodwill impairment test, we
recorded non-cash charges of $933 million (pre-tax and after-tax) in the fourth quarter of 2018 to impair this
reporting unit’s goodwill balance. The discount rates and terminal growth rates were 7.5% and 1.25% for the
2018 second quarter interim test and 8.0% and 1.25% for the 2018 annual test, compared to 7.0% and 1.5% in
our 2017 annual impairment test. At March 31, 2018, this reporting unit had a remaining goodwill balance of
$1,851 million.

Rexall Health: As a result of the 2018 annual impairment test, we recognized a non-cash goodwill
impairment charge (pre-tax and after-tax) of $455 million in 2018. During the fourth quarter of 2018, this
reporting unit had a decline in its estimated future cash flows primarily driven by significant generics
reimbursement reductions across Canada and minimum wage increases in multiple provinces which can only be
partially mitigated through the business’ cost saving efforts. The discount rate and terminal growth rate used in
the annual impairment testing were 10.0% and 2.0%. At March 31, 2018, the Rexall Health reporting unit had no
remaining goodwill related to our acquisition of Rexall Health.

Other risks, expenses and future developments that we were unable to anticipate as of the testing dates in
2018 may require us to further revise the estimated future cash flows, which could adversely affect the fair value
of our reporting units in future periods. As a result, we may be required to record additional impairment charges.
Refer to Financial Note 3, “Goodwill Impairment Charges,” to the accompanying consolidated financial
statements appearing in this Annual Report on Form 10-K for additional information.

40

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Restructuring and Asset Impairments

McKesson Europe: Due to the previously described decline in future estimated cash flows related to our
U.K. retail business, we also recorded total non-cash pre-tax charges of $189 million ($157 million after-tax) to
impair the carrying value of certain intangible assets (primarily pharmacy licenses) and store assets during the
second quarter of 2018. Additionally, during the fourth quarter of 2018, due to further declines in estimated
future cash flows in our European business, we also recorded a non-cash pre-tax charge of $257 million
($253 million after-tax)
the carrying value of certain intangible assets (primarily customer
relationships) and capitalized software assets.

to impair

On September 29, 2017, we committed to a restructuring plan, which primarily consists of the closures or
sales of underperforming retail stores in the U.K. and a reduction in workforce. The plan is expected to be
substantially implemented prior to the first half of 2019. As part of this plan, we recorded pre-tax restructuring
charges of $74 million ($67 million after-tax) in operating expenses during 2018 primarily representing
employee severance and lease exit costs.

Refer

to Financial Note 4, “Restructuring and Asset

Impairment Charges,” to the accompanying

consolidated financial statements appearing in this Annual Report on Form 10-K for more information.

Revenues:

(Dollars in millions)

Distribution Solutions

Years Ended March 31,

Change

2018

2017

2016

2018

2017

North America pharmaceutical distribution &

services

$174,186 $164,832 $158,469

6%

4%

International pharmaceutical distribution &

services

27,320

24,847

23,497

Medical-Surgical distribution & services

6,611

6,244

6,033

Total Distribution Solutions

208,117

195,923

187,999

10

6

6

Technology Solutions—products and services

240

2,610

2,885

(91)

Total Revenues

$208,357 $198,533 $190,884

5%

6

3

4

(10)

4%

Revenues increased 5% and 4% in 2018 and 2017 compared to the same periods a year ago primarily driven

by our Distribution Solutions segment.

Distribution Solutions

North America pharmaceutical distribution and services revenues increased over the last two years primarily
due to market growth, reflecting growing drug utilization, price increases, higher revenues associated with our
acquisitions and expanded business with existing customers. These increases were partially offset by price
deflation associated with brand to generic drug conversion and loss of customers.

International pharmaceutical distribution and services revenues increased 10% and 6% in 2018 and 2017.
Excluding foreign currency effects, revenues increased 5% in 2018 and 11% in 2017 primarily due to our
business acquisitions and market growth.

41

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Medical-Surgical distribution and services revenues increased over the last two years primarily due to

market growth.

Technology Solutions

Technology Solutions revenues for 2018 and 2017 decreased primarily due to the 2017 fourth quarter
contribution of the Core MTS Business to form the Change Healthcare joint venture, the April 2017 transition of
our RHP business to our Distribution Solutions segment and the 2018 third quarter sale of our EIS business. As a
result, this segment’s 2018 revenues included only our EIS business.

Gross Profit:

(Dollars in millions, except ratios)

2018

2017

2016

2018

2017

Years Ended March 31,

Change

Gross Profit

Distribution Solutions (1)

Technology Solutions

Total

Gross Profit Margin

Distribution Solutions

Technology Solutions

Total

bp—basis points

$11,064

$ 9,856

$ 9,948

120

1,415

1,468

$11,184

$11,271

$11,416

12%

(92)

(1)%

(1)%

(4)

(1)%

5.32%

5.03%

5.29%

29bp

(26)bp

50.00

5.37

54.21

5.68

50.88

5.98

(421)

(31)

333

(30)

(1) Distribution Solutions segment’s gross profit includes LIFO credits of $99 million and $7 million in 2018
and 2017 and LIFO charges of $244 million in 2016. Gross profit for 2017 and 2016 also includes
$144 million and $76 million of net cash proceeds representing our share of antitrust legal settlements.

Gross profit and gross profit margin decreased in 2018 and 2017 compared to the same periods a year ago.
The decreases in 2018 were primarily due the previously described contribution of our Core MTS Business to
Change Healthcare.

Distribution Solutions

Distribution Solutions segment’s gross profit increased 12% in 2018 and decreased 1% in 2017. As a

percentage of revenues, gross profit increased by 29 bp in 2018 and decreased by 26 bp in 2017.

Gross profit and gross profit margin for 2018 increased compared to the same period a year ago primarily
due to market growth, procurement benefits realized through ClarusONE, higher LIFO inventory credits, our
business acquisitions and the transfer of our RHP business from our Technology Solutions segment. These
increases were partially offset by significant government reimbursement reductions in the U.K., the competitive
sell-side pricing environment, weaker pharmaceutical manufacturer pricing trends and our mix of business. Gross
profit and gross profit margin for 2017 decreased primarily due to weaker pharmaceutical manufacturer pricing
trends, the competitive sell-side pricing environment and lower compensation from a branded pharmaceutical

42

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

manufacturer in our U.S. Pharmaceutical distribution business, partially offset by LIFO inventory credits, higher
cash receipts representing our share of antitrust legal settlements, higher procurement benefits and our business
acquisitions. Gross profit also reflects the impact of recent customer consolidation activities.

Our Distribution Solutions segment experienced weaker pharmaceutical manufacturer pricing trends over

the last three years.

Our LIFO inventory credits were $99 million and $7 million in 2018 and 2017 and LIFO charges were
$244 million in 2016. Our North America distribution business uses the LIFO method of accounting for the
majority of its inventories, which results in cost of sales that more closely reflects replacement cost than under
other accounting methods. The business’ practice is to pass on to customers published price changes from
suppliers. Manufacturers generally provide us with price protection, which limits price-related inventory losses.
A LIFO charge is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical
products held in inventory exceeds the net
including the effect of branded
pharmaceutical products that have lost market exclusivity. A LIFO credit is recognized when the net effect of
price declines exceeds the net impact of price increases on pharmaceutical and non-pharmaceutical products held
in inventory. Our annual LIFO charge or credit is affected by changes in year-end inventory quantities, product
mix and manufacturer pricing practices, which may be influenced by market and other external factors. Changes
to any of the above factors could have a material impact to our annual LIFO credit or expense. LIFO credits were
higher in 2018 compared to 2017 due to higher net effect of price declines, partially offset by lower inventory
level. LIFO expense was recognized in 2016 primarily due to net effects of price increases. As of March 31, 2018
and 2017, pharmaceutical inventories at LIFO did not exceed current replacement cost.

impact of price declines,

Technology Solutions

Technology Solutions segment’s gross profit decreased in 2018 and 2017. Gross profit and gross profit
margin for 2018 decreased primarily due to the 2017 fourth quarter contribution of the Core MTS Business, the
transfer of our RHP business to our Distribution Solutions segment and the 2018 third quarter sale of our EIS
business. As a result, this segment’s 2018 gross profit and gross profit margin included only our EIS business.

Gross profit for 2017 decreased due to one less month of gross profit from the Core MTS Business, which
was contributed to the joint venture on March 1, 2017. Gross profit margin for 2017 increased primarily due to a
decline in hospital software revenues, lower severance charges, ongoing cost management efforts and the prior
year sales of businesses, partially offset by a lower margin from our hospital software business. Gross profit
margin for 2017 also benefited from lower depreciation and amortization expenses related to the Core MTS
Business’ assets, which were classified as held for sale since the second quarter of 2017. Depreciation and
amortization related to the long-lived assets ceased as of the date they were determined as held for sale.

43

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Operating Expenses, Other Income, Net and Loss from Equity Method Investment:

(Dollars in millions, except ratios)

Operating Expenses

Distribution Solutions

Years Ended March 31,

Change

2018

2017

2016

2018

2017

Operating Expenses (1)

$ 7,648

$ 6,540

$6,280

17%

4%

Goodwill impairment charges

Restructuring and asset impairment charges

Total Distribution Solutions

Technology Solutions

Operating Expenses (2)

Gains from sales of businesses

Gain on healthcare technology net asset

exchange, net

Goodwill impairment charge

Total Technology Solutions

Corporate

Total

Operating Expenses as a Percentage of Revenues

Distribution Solutions

Technology Solutions

Total

Other Income, Net

Distribution Solutions

Technology Solutions

Corporate

Total

Loss from Equity Method Investment in Change

Healthcare—Technology Solutions

bp—basis points
NM—not meaningful

1,738

567

9,953

42

(109)

(37)

—

(104)

573

—

19

—

156

NM

2,884

NM

(88)

6,559

6,436

52%

2%

858

—

(3,947)

290

(2,799)

402

1,002

(95)% (14)%

(51)

NM

NM

—

—

951

484

(99)

NM

NM

NM

(96)% (394)%

43

(17)

$10,422

$ 4,162

$7,871

150%

(47)%

4.78%

3.35%

3.42%

143bp

(7)bp

(43.33)

(107.24)

5.00

2.10

32.96

4.12

NM

290

NM

(202)

$

120

$

1

9

130

$

64

1

25

90

$

$

41

2

15

58

88%

56%

—

(64)

(50)

67

44%

55%

248

$ —

$ —

NM

NM

$

$

(1) The amounts exclude the goodwill impairment charges and restructuring and asset impairment charges.
2016 includes a pre-tax gain of $52 million from the 2016 third quarter sale of our ZEE Medical business.
(2) The amounts exclude the gain from sale of business, gain on healthcare technology net asset exchange, net,

and goodwill impairment charge.

44

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Operating Expenses

Total operating expenses increased in 2018 and decreased in 2017 compared to the same periods a year ago

primarily due to the gain recognized from the 2017 fourth quarter contribution of the Core MTS Business.

Distribution Solutions

Distribution Solutions segment’s total operating expenses increased 52% for 2018 and 2% for 2017
compared to the same periods a year ago. Excluding foreign currency effects, operating expenses increased 47%
for 2018 and 5% for 2017.

Total operating expenses increased in 2018 compared to 2017 primarily due to:

• Non-cash goodwill impairment charges (pre-tax and after-tax) of $1,283 million for our McKesson

Europe reporting unit and $455 million for our Rexall Health reporting unit;

• Non-cash pre-tax long-lived asset impairment charges of $446 million ($410 million after-tax) and
pre-tax restructuring charges of $74 million ($67 million after-tax) for our McKesson Europe business;

• Non-cash charges of $33 million (pre-tax and after-tax) to impair the carrying value of certain
intangible assets (primarily customer relationships) for our Rexall Health business. The impairment
was primarily due to the decline in the estimated future cash flows from certain pharmacies of Rexall
Health’s business, driven primarily by generics reimbursement reductions implemented across Canada;
and

• Higher expenses due to our business acquisitions.

We expect to record total pre-tax restructuring charges of approximately $90 million to $130 million for our
McKesson Europe business, of which $74 million of pre-tax charges were recorded through the end of
2018. Estimated remaining restructuring charges primarily consist of lease termination and other exit costs.

Total operating expenses increased in 2017 compared to 2016 primarily due to our acquisitions and higher
acquisition-related expenses and intangible amortization, partially offset by lower restructuring charges and cost
savings associated with the 2016 Cost Alignment Plan, ongoing expense management efforts and lower bad debt
expense. Total operating expenses for 2016 include a pre-tax gain from the 2016 sale of a business.

Technology Solutions

Technology Solutions segment had operating credits of $104 million and $2,799 million in 2018 and 2017

primarily due to gains that offset operating expenses.

Total operating expenses for 2018 benefited from a pre-tax gain of $109 million (after-tax gain of $30
million) from the 2018 third quarter sale of our EIS business, a pre-tax credit of $46 million ($30 million
after-tax) from the re-measurement of the liability related to a tax receivable agreement with Change Healthcare
shareholders and a pre-tax gain of $37 million (after-tax gain of $22 million) representing the final net working
capital and other adjustments from the 2017 Healthcare Technology Net Asset Exchange.

On August 1, 2017, we entered into an agreement with a third party to sell our EIS business for
$185 million, subject to adjustments for net debt and working capital. On October 2, 2017, the transaction closed
upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust
laws. We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party. We
recognized a pre-tax gain of $109 million (after-tax gain of $30 million) upon the disposition of this business in
the third quarter of 2018 within operating expenses in our Technology Solutions segment.

45

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Total operating expenses for 2017 benefited from the pre-tax gain of $3,947 million (after-tax gain of
$3,018 million) from the contribution of Core MTS Business, partially offset by a non-cash pre-tax goodwill
impairment charge of $290 million ($282 million after-tax) for the EIS reporting unit, cost savings from the 2016
Cost Alignment Plan and ongoing cost management efforts and one less month of expenses from the Core MTS
Business. Total operating expenses for 2016 include a pre-tax gain from the 2016 sale of a business.

Corporate

Corporate expenses increased 43% in 2018 compared to the prior year primarily due to a charitable
contribution expense of $100 million ($64 million after-tax) to the Foundation and higher professional fees
incurred for Corporate initiatives.

Corporate expenses decreased 17% in 2017 compared to the prior year primarily due to lower restructuring
charges and cost savings associated with the 2016 Cost Alignment Plan, including lower compensation and
benefit costs and outside service fees. Corporate expenses for 2017 also benefited from a pre-tax gain of
$15 million from the sale-leaseback transaction of our corporate headquarters building.

Other Income, Net: Other income, net for 2018 increased primarily due to a pre-tax gain of $43 million
($26 million after-tax) recognized from the sale of an equity method investment within our Distribution Solutions
segment, partially offset by lower rental income for Corporate. Other income, net for 2017 increased primarily
due to higher equity investment income within our Distribution Solutions segment.

Loss from Equity Method Investment in Change Healthcare: 2018 included our proportionate share of loss
from Change Healthcare of $248 million, which primarily consisted of transaction and integration expenses
incurred by the joint venture and fair value adjustments including amortization expenses associated with equity
method intangible assets, partially offset by a tax benefit of $76 million primarily due to a reduction in the future
applicable tax rate related to the 2017 Tax Act.

Acquisition-Related Expenses and Adjustments

Acquisition-related expenses, which included transaction and integration expenses directly related to
business acquisitions and the gain on the Healthcare Technology Net Asset Exchange were $168 million,
$(3,797) million and $114 million in 2018, 2017 and 2016. 2018 includes $37 million gain associated with the
final net working capital and other adjustments from the Healthcare Technology Net Asset Exchange and our
proportionate share of transaction and integration expenses incurred by Change Healthcare. 2017 includes a
pre-tax gain of $3,947 million from the Healthcare Technology Net Asset Exchange. Expenses in 2018 were
higher primarily due to our proportionate share of transaction and integration expenses incurred by Change
Healthcare. Expenses in 2017 were higher primarily due to our business acquisitions of UDG, Vantage, Biologics
and Rexall Health, partially offset by a decline in expenses associated with our February 2014 acquisition of
McKesson Europe and February 2013 acquisition of PSS World Medical, Inc. (“PSSI”). Our integration of PSSI
and McKesson Europe were substantially completed in 2017.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Acquisition-related expenses and adjustments were recorded as follows:

(Dollars in millions)

Operating Expenses

Years Ended March 31,

2018

2017

2016

Gain on Change Healthcare Net Asset Exchange, net

$ (37)

$(3,947)

$—

Transaction closing expenses

Restructuring, severance and relocation

Other

Total

Other Expenses (1)

15

36

54

68

30

10

25 —

85

(3,807)

100

110

4

100

10

Total Acquisition-Related Expenses and Adjustments

$168

$(3,797)

$114

(1) Fiscal 2018 includes our proportionate share of transaction and integration expenses incurred by Change
Healthcare, excluding certain fair value adjustments, which was recorded within “Loss from Equity Method
Investment in Change Healthcare”.

Acquisition-related expenses and adjustments by segment were as follows:

(Dollars in millions)

Distribution Solutions

Technology Solutions

Corporate

Total Acquisition-Related Expenses and Adjustments (1)

Years Ended March 31,

2018

2017

2016

$ 99

$

133

$112

60

9

(3,936) —

6

2

$168

$(3,797)

$114

(1) The amounts were recorded in operating expenses, other income, net and loss from equity method

investment in Change Healthcare.

Amortization Expenses of Acquired Intangible Assets

Amortization expenses of acquired intangible assets directly related to business acquisitions and the
formation of the Change Healthcare joint venture were $792 million, $440 million and $423 million in 2018,
2017 and 2016. These expenses were primarily recorded in our operating expenses and in our proportionate share
of loss from the equity method investment in Change Healthcare. Amortization expenses increased in 2018
primarily due to amortization expenses of equity method intangibles associated with the Change Healthcare joint
venture and our acquisition of CMM. Amortization expenses increased in 2017 primarily due to our acquisitions
of UDG, Biologics, Vantage and Rexall Health, partially offset by lower amortization expense related to Core
MTS Business assets which were classified as held for sale since the 2017 second quarter.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Amortization expense by segment were as follows:

(Dollars in millions)

Distribution Solutions

Technology Solutions (1)

Total

Years Ended March 31,

2018

2017

2016

$503

$418

$389

289

22

34

$792

$440

$423

(1) Fiscal 2018 primarily represents amortization expenses of equity method intangibles associated with the
Change Healthcare joint venture, which were recorded in our proportionate share of the loss from Change
Healthcare.

Segment Operating Profit, Corporate Expenses, Net and Interest Expense:

(Dollars in millions, except ratios)

2018

2017

2016

2018

2017

Years Ended March 31,

Change

Segment Operating Profit (Loss) (1) (2)

Distribution Solutions (3)

Technology Solutions (4)

Subtotal

Corporate Expenses, Net (2) (5)

Loss on Debt Extinguishment

Interest Expense

$1,231

$ 3,361

$3,553

(63)%

(5)%

(23)

1,208

(564)

(122)

(283)

4,215

7,576

(377)

—

519

(101)

4,072

(469)

—

(84)

50

NM

(8)

(308)

(353)

712

86

(20)

NM

(13)

Income From Continuing Operations Before Income

Taxes

$ 239

$ 6,891

$3,250

(97)%

112%

Segment Operating Profit (Loss) Margin

Distribution Solutions

Technology Solutions

bp—basis points
NM—not meaningful

0.59%

1.72%

1.89% (113)bp

(17)bp

NM

161.49

17.99

NM

14,350

(1) Segment operating profit (loss) includes gross profit, net of operating expenses, as well as other income, net,

(2)

for our two reportable segments.
In connection with the 2016 Cost Alignment Plan, we recorded pre-tax restructuring charges of $229 million
in 2016. 2016 pre-tax charges were recorded as follows: $161 million, $51 million and $17 million within
our Distribution Solutions segment, Technology Solutions segment and Corporate expenses, net.

(3) Distribution Solutions segment’s operating profit for 2018 includes non-cash pre-tax goodwill impairment
charges of $1,283 million for our McKesson Europe reporting unit and $455 million for our Rexall Health
reporting unit. This segment’s operating profit for 2018 also includes non-cash pre-tax long-lived asset
impairment charges of $446 million and pre-tax restructuring charges of $74 million for our McKesson
Europe business. 2016 includes a pre-tax gain of $52 million from the 2016 third quarter sale of our ZEE
Medical business.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

(4) Technology Solutions segment’s operating profit for 2018 includes our proportionate share of loss from
Change Healthcare of $248 million, partially offset by a pre-tax gain of $109 million from the 2018 third
quarter sale of our EIS business. Operating profit for 2017 includes a pre-tax gain of $3,947 million
recognized from the Healthcare Technology Net Asset Exchange, net of transaction and related expenses
and a non-cash pre-tax charge of $290 million for goodwill impairment related to the EIS reporting unit.
Operating profit for 2016 includes a pre-tax gain of $51 million recognized from the sale of our nurse triage
business.

(5) Corporate expenses, net for 2018 include a pre-tax charitable contribution of $100 million to the

Foundation.

Segment Operating Profit (Loss)

Distribution Solutions: Operating profit and operating profit margin decreased for 2018 compared to the
same period a year ago primarily due to higher operating expenses as a percentage of revenues driven primarily
by a goodwill impairment charges and restructuring and long-lived asset impairment charges related to our
McKesson Europe and Rexall Health businesses. These decreases were partially offset by the improved gross
profit margin primarily due to market growth within our North America distribution businesses, procurement
benefits, our business acquisitions and higher LIFO credits. 2018 operating profit and operating profit margin
were also unfavorably affected by government reimbursement reductions in the U.K. and the competitive sell-
side pricing environment.

Operating profit margin decreased for 2017 primarily due to a decline in gross profit margin reflecting
weaker pharmaceutical manufacturer pricing trends, the competitive sell-side pricing environment and lower
compensation from a branded pharmaceutical manufacturer from our U.S. Pharmaceutical distribution business.
Operating profit and operating profit margin in 2017 benefited from LIFO credits, our acquisitions, lower
restructuring charges and cost savings associated with the 2016 Cost Alignment Plan and higher cash receipts
representing our share of antitrust legal settlements.

Technology Solutions: Operating profit decreased for 2018 primarily due to the 2017 contribution of our
Core MTS Business and loss from the equity method investment in Change Healthcare. The decrease is partially
offset by a gain from the sale of our EIS business. Operating profit and operating profit margin increased in 2017
primarily due to the gain from the 2017 contribution of the Core MTS Business, which was partially offset by the
non-cash EIS goodwill impairment pre-tax charge of $290 million. 2017 operating profit benefited from lower
restructuring charges and cost savings from the 2016 Cost Alignment Plan. Operating profit for 2017 was
unfavorably affected by one less month of operating profit from the Core MTS business, which was contributed
to Change Healthcare on March 1, 2017.

Corporate: Corporate expenses, net, increased for 2018 primarily due to higher operating expenses driven
by a charitable contribution expense of $100 million, Corporate initiatives and lower other income compared to
the same period a year ago. Corporate expenses, net, decreased in 2017 primarily due to lower restructuring
charges and a pre-tax gain from a sale-leaseback transaction.

Loss on Debt Extinguishment: We recognized a pre-tax loss on debt extinguishment of $122 million
($78 million after-tax) primarily representing premiums related to our February 2018 tender offers to redeem a
portion of our existing outstanding long-term debt.

Interest Expense: Interest expense over the last two years decreased primarily due to the refinancing of debt
at lower interest rates, partially offset by an increase relating to the issuance of commercial paper. Interest

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

expense fluctuates based on timing, amounts and interest rates of term debt repaid and new term debt issued, as
well as amounts incurred associated with financing fees.

Income Taxes

During 2018, 2017 and 2016, our income tax benefit was $53 million and income tax expenses were
$1,614 million and $908 million related to continuing operations. Our reported income tax benefit rate was
22.2% in 2018 and income tax expense rates were 23.4% and 27.9% in 2017 and 2016. Fluctuations in our
reported income tax rates are primarily due to change in tax laws, including the recently enacted 2017 Tax Act,
the impact of nondeductible impairment charges and varying proportions of income attributable to foreign
countries that have income tax rates different from the U.S. rate.

Our reported income tax benefit rate for 2018 was favorably impacted by the 2017 Tax Act enacted on
December 22, 2017. As a result of the 2017 Tax Act, we recognized a provisional tax benefit of $1,324 million
due to the re-measurement of certain deferred taxes to the lower U.S. federal tax rate and a provisional tax
expense of $457 million for the one-time tax imposed on certain accumulated E&P of our foreign subsidiaries.

Our reported income tax benefit rate for 2018 was unfavorably impacted by non-cash pre-tax charges
totaling $1,738 million to impair the carrying value of goodwill related to our McKesson Europe and Rexall
Health reporting units within our Distribution Solutions segment, given that no tax benefit was recognized for
these charges. Our reported income tax expense rate for 2017 was unfavorably affected by a non-cash pre-tax
charge of $290 million to impair the carrying value of goodwill related to our EIS business within our
Technology Solutions segment given that the majority of this charge was not deductible for income tax purposes.
Refer to Financial Note 3, “Goodwill Impairment Charges,” to the accompanying consolidated financial
statements appearing in this Annual Report on Form 10-K for additional information.

On December 19, 2016, we sold various software relating to our Technology Solutions business between
wholly owned legal entities within the McKesson group that are based in different tax jurisdictions. The
transferor entity recognized a gain on the sale of assets that was not subject to income tax in its local jurisdiction;
such gain was eliminated upon consolidation. An entity based in the U.S. was the recipient of the software and is
entitled to amortize the fair value of the assets for book and tax purposes. For U.S. GAAP purposes, the tax
benefit associated with the amortization of these assets is recognized over the tax lives of the assets. As a result, a
net tax benefit of $137 million was recognized prior to the contribution of a portion of these assets to Change
Healthcare as described in Financial Note 2, “Healthcare Technology Net Asset Exchange”. In 2018, a net tax
benefit of $178 million was recognized associated with the amortization of the software.

In October 2016, amended guidance was issued to require entities to recognize income tax consequences of
an intra-entity transfer of an asset other than inventory when the transfer occurs. The amended guidance is
effective for us commencing in the first quarter of 2019 on a modified retrospective basis. Upon adoption, the
Company anticipates recording approximately $130 million to $160 million of deferred tax assets with a
corresponding cumulative-effect increase to retained earnings in the beginning of the period of adoption on its
consolidated financial statements for the tax consequences relating to the intra-entity transfer of software.

On March 1, 2017, we contributed assets to Change Healthcare as further described in Financial Note 2,
“Healthcare Technology Net Asset Exchange”. While this transaction was predominantly structured as a tax free
asset contribution for U.S. federal income tax purposes under Section 721(a) of the Internal Revenue Code, we
recorded tax expense of $929 million on the gain. The tax expense was primarily driven by the recognition of a
deferred tax liability on the excess book over tax basis in our equity investment in Change Healthcare.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Significant judgments and estimates are required in determining the consolidated income tax provision and
evaluating income tax uncertainties. Although our major taxing jurisdictions include the U.S., Canada and the
United Kingdom, we are subject to income taxes in numerous foreign jurisdictions. Our income tax expense,
deferred tax assets and liabilities and uncertain tax liabilities reflect management’s best assessment of estimated
current and future taxes to be paid. We believe that we have made adequate provision for all income tax
uncertainties.

We signed the Revenue Agent’s Report from the U.S. Internal Revenue Service (“IRS”) relating to their
audit of the fiscal years 2010 through 2012 on December 29, 2017. We file income tax returns in the U.S. federal
jurisdiction, various U.S. state and local jurisdictions and various foreign jurisdictions. We are subject to audit by
the IRS for fiscal years 2013 through the current fiscal year. We are generally subject to audit by taxing
authorities in various U.S. states and in foreign jurisdictions for fiscal years 2010 through the current fiscal year.

Income (Loss) from Discontinued Operations, Net of Tax

Income (Losses) from discontinued operations, net of tax, were $5 million, ($124 million) and ($32 million)

in 2018, 2017 and 2016.

Loss from discontinued operations, net for 2017 includes an after-tax loss of $113 million related to the sale
of our Brazilian pharmaceutical distribution business within our Distribution Solutions segment, which we
acquired through our February 2014 acquisition of McKesson Europe. In 2015, we committed to a plan to sell
this business and the results of operations and cash flows for this business had been classified as discontinued
operations since 2015. On May 31, 2016, we completed the sale of this business and recognized the loss
primarily for the settlement of certain indemnification matters as well as the release of the cumulative translation
losses. We made a payment of approximately $100 million related to the sale in 2017.

Refer to Financial Note 7, “Discontinued Operations,” to the consolidated financial statements appearing in

this Annual Report on Form 10-K for additional information.

Net Income Attributable to Noncontrolling Interests: Net income attributable to noncontrolling interests
for all periods presented includes the annual recurring compensation that we are obligated to pay to the
noncontrolling shareholders of McKesson Europe under the domination and profit and loss transfer agreement
(the “Domination Agreement”). In 2018 and 2017, net income attributable to noncontrolling interests also
includes third-party equity interests in our consolidated entities including Vantage and ClarusONE Sourcing
Services LLP, which was established between McKesson and Walmart, Inc. in 2017. Noncontrolling interests
with redemption features, such as put rights, that are not solely within the Company’s control are considered
redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of Stockholders’
Equity on our consolidated balance sheet. Refer to Financial Note 11, “Redeemable Noncontrolling Interests and
Noncontrolling Interests,” to the consolidated financial statements appearing in this Annual Report on Form
10-K for additional information.

Net Income Attributable to McKesson Corporation: Net income attributable to McKesson Corporation was
$67 million, $5,070 million and $2,258 million in 2018, 2017 and 2016 and diluted earnings per common share
were $0.32, $22.73 and $9.70.

Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share was
calculated based on a weighted average number of shares outstanding of 209 million, 223 million and
233 million for 2018, 2017 and 2016. Weighted average diluted common shares outstanding is affected by the
exercise and settlement of share-based awards and in 2018 and 2017, and the cumulative effect of share
repurchases.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Foreign Operations

Our foreign operations represented approximately 18%, 17% and 17% of our consolidated revenues in 2018,
2017 and 2016. Foreign operations are subject to certain risks, including currency fluctuations. We monitor our
operations and adopt strategies responsive to changes in the economic and political environment in each of the
countries in which we operate. We conduct our business worldwide in local currencies including Euro, British
pound sterling and Canadian dollar. As a result, the comparability of our results reported in U.S. dollars can be
affected by changes in foreign currency exchange rates. In discussing our operating results, we may use the term
“foreign currency effect”, which refers to the effect of changes in foreign currency exchange rates used to
convert the local currency results of foreign countries where the functional currency is not the U.S. dollar. We
present this information to provide a framework for assessing how our business performed excluding the effect of
foreign currency rate fluctuations. In computing foreign currency effect, we translate our current year results in
local currencies into U.S dollars by applying average foreign exchange rates of the corresponding prior year
periods, and we subsequently compare those results to the previously reported results of the comparable prior
year periods in U.S. dollars. Additional information regarding our foreign operations is included in Financial
Note 28, “Segments of Business,” to the consolidated financial statements appearing in this Annual Report on
Form 10-K.

Business Combinations

Recently Announced Business Acquisition

On April 25, 2018, we entered into a definitive agreement to purchase Medical Specialties Distributors LLC
(“MSD”) for $800 million, which will be funded from cash on hand. MSD is a leading national distributor of
infusion and medical-surgical supplies as well as provider of biomedical services to alternate site and home
health providers. The acquisition is subject to regulatory approval and expected to close during the first half of
2019. Upon closing, the financial results of MSD will be included in our consolidated statements of operations
within our Medical-Surgical Solutions business.

Other Business Acquisitions

Refer to Financial Note 6, “Business Combinations,” to the consolidated financial statements appearing in

this Annual Report on Form 10-K for additional information.

Fiscal 2019 Operating Segments

As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2017
and December 31, 2017, the executive who was our segment manager of the Distribution Solutions segment
the Company’s chief operating decision maker
retired from the Company in January 2018. As a result,
(“CODM”) evaluated our management and operating structure. In connection with the completion of this
evaluation in the first quarter of 2019, our operating structure is realigned, and we will report our financial results
in three reportable segments on a retrospective basis commencing in the first quarter of 2019, as follows:

• U.S. Pharmaceutical and Specialty Solutions;

• European Pharmaceutical Solutions; and

• Medical-Surgical Solutions.

All remaining operating segments and business activities that are not significant enough to require separate
reportable segment disclosure will be included in Other. Other primarily consists of McKesson Canada,

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

McKesson Prescription Technology Solutions and our equity method investment in Change Healthcare. The
segment changes will reflect how our CODM allocates resources and assesses performance commencing in the
first quarter of 2019. The segment changes will not affect the previously issued consolidated financial statements
nor earnings per common share of McKesson for historical periods.

Strategic Growth Initiative

On April 25, 2018, the Company announced a multi-year strategic growth initiative, focused on creating
innovative new solutions that improve patient care delivery and drive incremental profit growth. The initiative
includes a comprehensive review of the Company’s operations and cost structure, designed to increase
efficiency, accelerate execution and improve long-term performance. As part of the preliminary phase of this
initiative, in April 2018, we committed to a restructuring plan to optimize our operating model and cost structure
which will be substantially implemented by the end of 2019. We expect to record total after-tax charges of
approximately $150 million to $210 million during 2019. The charges under this plan primarily consist of
employee severance, exit-related costs and other charges.

Fiscal 2019 Outlook

Information regarding the Company’s fiscal 2019 outlook is contained in our Form 8-K dated May 24,
2018. This Form 8-K should be read in conjunction with the sections Item 1—Business—Forward-Looking
Statements and Item 1A—Risk Factors in Part I of this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We consider an accounting estimate to be critical if the estimate requires us to make assumptions about
matters that were uncertain at the time the accounting estimate was made and if different estimates that we
reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely
to occur from period to period, could have a material impact on our financial condition or results from
operations. Below are the estimates that we believe are critical to the understanding of our operating results and
financial condition. Other accounting policies are described in Financial Note 1, “Significant Accounting
Policies,” to the consolidated financial statements appearing in this Annual Report on Form 10-K. Because of the
uncertainty inherent in such estimates, actual results may differ from these estimates.

Allowance for Doubtful Accounts: We provide short-term credit and other customer financing arrangements
to customers who purchase our products and services. Other customer financing primarily relates to guarantees
provided to our customers, or their creditors, regarding the repurchase of inventories. We also provide financing
to certain customers related to the purchase of pharmacies, which serve as collateral for the loans. We estimate
the receivables for which we do not expect full collection based on historical collection rates and specific
knowledge regarding the current creditworthiness of our customers and record an allowance in our consolidated
financial statements for these amounts.

In determining the appropriate allowance for doubtful accounts, which includes general and specific
reserves, the Company reviews accounts receivable aging, industry trends, customer financial strength, credit
standing, historical write-off trends and payment history to assess the probability of collection. If the frequency
and severity of customer defaults due to our customers’ financial condition or general economic conditions
change, our allowance for uncollectible accounts may require adjustment. As a result, we continuously monitor
outstanding receivables and other customer financing and adjust allowances for accounts where collection may
be in doubt. During 2018, sales to our ten largest customers, including group purchasing organizations (“GPOs”)

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

accounted for approximately 51.7% of our total consolidated revenues. Sales to our largest customer, CVS
Health (“CVS”), accounted for approximately 19.9% of our total consolidated revenues. At March 31, 2018,
trade accounts receivable from our ten largest customers were approximately 24.9% of total trade accounts
receivable. Accounts receivable from CVS were approximately 16.4% of total trade accounts receivable. As a
result, our sales and credit concentration is significant. We also have agreements with GPOs, each of which
functions as a purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers, as
well as with government entities and agencies. The accounts receivables balances are with individual members of
the GPOs, and therefore no significant concentration of credit risk exists. A material default in payment, a
material reduction in purchases from these or any other large customers, or the loss of a large customer or GPO
could have a material adverse impact on our financial position, results of operations and liquidity.

Reserve methodologies are assessed annually based on historical losses and economic, business and market
trends. In addition, reserves are reviewed quarterly and updated if unusual circumstances or trends are present.
We believe the reserves maintained and expenses recorded in 2018 are appropriate and consistent with historical
methodologies employed. At this time, we are not aware of any internal process or customer issues that might
lead to a significant increase in our allowance for doubtful accounts as a percentage of net revenue in the
foreseeable future.

At March 31, 2018, trade and notes receivables were $14,480 million prior to allowances of $187 million. In
2018, 2017 and 2016, our provision for bad debts was $44 million, $93 million and $113 million. At March 31,
2018 and 2017, the allowance as a percentage of trade and notes receivables was 1.3% and 1.7%. An increase or
decrease of a hypothetical 0.1% in the 2018 allowance as a percentage of trade and notes receivables would result
in an increase or decrease in the provision for bad debts of approximately $14 million. The selected 0.1%
hypothetical change does not reflect what could be considered the best or worst-case scenarios. Additional
information concerning our allowance for doubtful accounts may be found in Schedule II included in this Annual
Report on Form 10-K.

Inventories: Prior to 2018, we reported inventories at the lower of cost or market (“LCM”). Effective in the
first quarter of 2018, we report inventories at the lower of cost or net realizable value, except for inventories
determined using the LIFO method. Inventories for our Distribution Solutions segment consist of merchandise
held for resale. For our Distribution Solutions segment, the majority of the cost of domestic inventories is
determined using the LIFO method. The majority of the cost of inventories held in foreign locations is based on
weighted average purchase price using the first-in, first-out method (“FIFO”). Rebates, cash discounts and other
incentives received from vendors relating to the purchase or distribution of inventory are considered as product
discounts and are accounted for as a reduction in the cost of inventory and are recognized when the inventory is
sold. Total inventories, net were $16,310 million and $15,278 million at March 31, 2018 and 2017.

to our LIFO reserves. Our LIFO valuation amount

The LIFO method was used to value approximately 63% and 70% of our inventories at March 31, 2018 and
2017. If we had used the FIFO method of inventory valuation, inventories would have been approximately
$906 million and $1,005 million higher than the amounts reported at March 31, 2018 and 2017. These amounts
are equivalent
includes both pharmaceutical and
non-pharmaceutical products. We recognized net LIFO credits of $99 million and $7 million in 2018 and 2017
and net LIFO charges of $244 million in 2016 within our consolidated statements of operations. A LIFO charge
is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in
inventory exceeds the impact of price declines including the effect of branded pharmaceutical products that have
lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of
price increases on pharmaceutical and non-pharmaceutical products held in inventory.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

We believe that the average inventory costing method provides a reasonable estimation of the current cost of
replacing inventory (i.e., “market”). As such, our LIFO inventory is valued at the lower of LIFO or market. As of
March 31, 2018 and 2017, inventories at LIFO did not exceed market.

In determining whether inventory valuation allowance is required, we consider various factors including
estimated quantities of slow-moving inventory by reviewing on-hand quantities, outstanding purchase obligations
and forecasted sales. Shifts in market trends and conditions, changes in customer preferences due to the
introduction of generic drugs or new pharmaceutical products or the loss of one or more significant customers are
factors that could affect the value of our inventories. We write down inventories which are considered excess and
obsolete as a result of these reviews. These factors could make our estimates of inventory valuation differ from
actual results.

Business Combinations: We account for acquired businesses using the acquisition method of accounting,
which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed,
including amounts attributed to noncontrolling interests, be recorded at the date of acquisition at their respective
fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded
as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of
the expected future net cash flows associated with each asset. These cash flows are then adjusted to present value
by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some
of the more significant estimates and assumptions inherent in the income method or other methods include the
amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the
future cash flows and the assessment of the asset’s life cycle and the competitive trends impacting the asset,
including consideration of any technical, legal, regulatory, or economic barriers to entry. Determining the useful
life of an intangible asset also requires judgment as different types of intangible assets will have different useful
lives. Refer to Financial Note 6, “Business Combinations,” to the consolidated financial statements appearing in
this Annual Report on Form 10-K for additional information regarding our acquisitions.

Goodwill and Long-Lived Assets: As a result of acquiring businesses, we have $10,924 million and
$10,586 million of goodwill at March 31, 2018 and 2017, $4,102 million and $3,665 million of intangible assets,
net at March 31, 2018 and 2017. We perform an impairment test on goodwill balances annually in the fourth
quarter or more frequently if indicators for potential impairment exist. Indicators that are considered include
significant declines in performance relative to expected operating results, significant changes in the use of the
assets, significant negative industry or economic trends, or a significant decline in the Company’s stock price
and/or market capitalization for a sustained period of time.

Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an
operating segment or a component, one level below our Distribution Solutions and Technology Solutions
operating segments, for which discrete financial information is available and segment management regularly
reviews the operating results of that reporting unit.

In 2018, we elected to early adopt on a prospective basis, the amended guidance that simplifies goodwill
impairment testing by eliminating the second step of the impairment test. The one-step impairment test under the
amended guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and
recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value, if any.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

To estimate the fair value of our reporting units, we use a combination of the market approach and the
income approach. Under the market approach, we estimate fair value by comparing the business to similar
businesses, or guideline companies whose securities are actively traded in public markets. Under the income
approach, we use a discounted cash flow (“DCF”) model in which cash flows anticipated over several periods,
plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate
expected rate of return. In addition, we compare the aggregate of the reporting units’ fair values to our market
capitalization as further corroboration of the fair values.

Estimates of fair value result from a complex series of judgments about future events and uncertainties and
rely heavily on estimates and assumptions at a point in time. Judgments made in determining an estimate of fair
value may materially impact our results of operations. The valuations are based on information available as of the
impairment review date and are based on expectations and assumptions that have been deemed reasonable by
management. Any material changes in key assumptions, including failure to meet business plans, negative
changes in government reimbursement rates, deterioration in the U.S. and global financial markets, an increase in
interest rate or an increase in the cost of equity financing by market participants within the industry or other
unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rates and
could potentially result in an impairment charge. For example, some of the more significant estimates and
assumptions inherent in the goodwill impairment estimation process using the market approach include the
selection of appropriate guideline companies, the determination of market value multiples for both the guideline
companies and the reporting unit, the determination of applicable premiums and discounts based on any
differences in marketability between the business and the guideline companies and for the income approach, the
required rate of return used in the DCF method, which reflects capital market conditions and the specific risks
associated with the business. Under the income approach, the fair value estimates in the goodwill impairment
analysis are highly sensitive to the discount rates used in the discounting of expected cash flows attributable to
the reporting units. The discount rates are the weighted average cost of capital measuring the reporting unit’s cost
of debt and equity financing weighted by the percentage of debt and percentage of equity in a company’s target
capital. The unsystematic risk premium is an input factor used in calculating discount rate that specifically
addresses uncertainty related to the reporting units’ future cash flow projections. Increases in the unsystematic
risk premium increases the discount rate.

In 2016, we concluded that there were no impairments of goodwill as the fair value of each reporting unit
exceeded its carrying value. In 2017, we recorded a non-cash charge to impair the carrying value of our EIS
reporting unit’s goodwill. In 2018, we recorded non-cash charges to impair the carrying value of goodwill
balance for our McKesson Europe and Rexall Health reporting units. Refer to Financial Note 3, “Goodwill
Impairment Charges” to the consolidated financial statements appearing in this Annual Report on Form 10-K for
additional information.

Commencing in the first quarter of 2019, our operating structure will be realigned into three reportable
segments, U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions and Medical-
Surgical Solutions. All remaining operating segments and business activities that are not significant enough to be
reportable segments are combined into Other.

This change in our operating segment structure will result in two new reporting units within the European
Pharmaceutical Solutions segment. As a result, we will be required to perform a goodwill impairment test for the
impacted new reporting units immediately before and after the segment change. While we believe the
assumptions used in our 2018 impairment analysis are reasonable and representative of expected results for our
2018 reporting unit structure, we may recognize an additional goodwill impairment charge immediately after the
segment change as the reassigned carrying values of the reporting units may exceed their respective estimated

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

fair values. We are currently evaluating the impact and are unable to reasonably estimate the additional goodwill
impairment charge upon the segment change. At March 31, 2018, the total remaining goodwill balance for these
two reporting units was $1,851 million.

A further decrease in the estimated future cash flows, an increase in the discount rate and/or a decrease in

the terminal growth rate, could also result in an additional goodwill impairment charge for these reporting units.

Currently, all of our intangible and other long-lived assets are amortized or depreciated based on the pattern
of their economic consumption or on a straight-line basis over their estimated useful lives, ranging from one to
38 years. We review intangible assets for impairment at an asset group level whenever events or changes in
circumstances indicate that
the carrying value of the assets may not be recoverable. Determination of
recoverability of intangible assets is based on the lowest level of identifiable estimated future undiscounted cash
flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based
on the excess of the carrying value of the asset over its fair value. Assumptions and estimates about future values
and remaining useful lives of our purchased intangible assets are complex and subjective. They can be affected
by a variety of factors, including external factors such as industry and economic trends, and internal factors such
as changes in our business strategy and our internal forecasts. During 2018, we performed an impairment test of
intangible and other long-lived assets, and recognized non-cash asset impairment charges of $479 million pre-tax
($443 million after-tax) for McKesson Europe and Rexall Health businesses to impair the carrying value of
certain intangible and other long-lived assets. We utilized an income approach (DCF method) or a combination
of an income approach and a market approach for estimating the fair value of intangible assets. The fair value of
the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable
inputs developed using company specific information. There were no material impairments of intangibles and
other long-lived assets in 2017 or 2016 within our continuing operations. Our ongoing consideration of all the
factors described previously could result in further impairment charges in the future, which could adversely
affect our net income. Refer to Financial Note 4, “Restructuring and Asset Impairment Charges” to the
consolidated financial statements appearing in this Annual Report on Form 10-K for additional information.

Supplier Reserves: We establish reserves against amounts due from suppliers relating to various price and
rebate incentives, including deductions or billings taken against payments otherwise due to them. These reserve
estimates are established based on judgment after considering the status of current outstanding claims, historical
experience with the suppliers, the specific incentive programs and any other pertinent information available. We
evaluate the amounts due from suppliers on a continual basis and adjust the reserve estimates when appropriate
based on changes in factual circumstances. As of March 31, 2018 and 2017, supplier reserves were $227 million
and $201 million. The final outcome of any outstanding claims may differ from our estimate. All of the supplier
reserves at March 31, 2018 and 2017 pertain to our Distribution Solutions segment. An increase or decrease in
the supplier reserve as a hypothetical 0.1% of trade payables at March 31, 2018 would result in an increase or
decrease in the cost of sales of approximately $32 million in 2018. The selected 0.1% hypothetical change does
not reflect what could be considered the best or worst case scenarios.

Income Taxes: Our income tax expense and deferred tax assets and liabilities reflect management’s best
assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and
numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated
income tax provision and in evaluating income tax uncertainties. We review our tax positions at the end of each
quarter and adjust the balances as new information becomes available.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition
of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

positive and negative evidence including our past operating results, the existence of cumulative net operating
losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we
develop assumptions including the amount of future federal, state and foreign pre-tax operating income, the
reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These
assumptions require significant judgment about the forecasts of future taxable income and are consistent with the
plans and estimates we use to manage the underlying businesses.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.
Should tax laws change, including those laws pertaining to LIFO, our tax expense and cash flows could be
materially impacted.

In addition, the calculation of our tax liabilities includes estimates for uncertainties in the application of
complex new tax regulations across multiple global jurisdictions where we conduct our operations. For example,
on December 22, 2017, the U.S. government enacted comprehensive new tax legislation referred to as the 2017
Tax Act. The 2017 Tax Act makes broad and complex changes to the U.S. tax code. Although our accounting for
the impact of the 2017 Tax Act is incomplete, we have made estimates based on management judgment and
recorded provisional amounts. Refer to Financial Note 10, “Income Taxes,” to the accompanying consolidated
financial statements appearing in this Annual Report on Form 10-K for additional information.

We recognize liabilities for tax and related interest for issues in the U.S. and other tax jurisdictions based on
our estimate of whether, and the extent to which, additional taxes and related interest will be due. If our current
estimate of tax and interest liabilities is less than the ultimate settlement, an additional charge to income tax
expense may result. If our current estimate of tax and interest liabilities is more than the ultimate settlement, a
reduction to income tax expense may be recognized.

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

Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is
reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at
least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable
estimate of the potential loss or range of the loss can be made. As discussed above, development of a meaningful
estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations
with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such
factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of
high and low estimate.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We expect our available cash generated from operations and our short-term investment portfolio, together
with our existing sources of liquidity from our credit facilities and commercial paper issuance, will be sufficient

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FINANCIAL REVIEW (Continued)

to fund our long-term and short-term capital expenditures, working capital and other cash requirements. In
addition, we may access the long-term debt capital markets from time to time.

Net cash flow provided from operating activities was $4,345 million in 2018 compared to $4,744 million in
2017 and $3,672 million in 2016. Operating activities for 2018 were primarily affected by a decrease in
receivables primarily due to timing of receipts and loss of customers and increases in drafts and accounts payable
reflecting longer payment terms for certain purchases. Operating activities for 2017 and 2016 were primarily
affected by an increase in drafts and accounts payable reflecting longer payment terms for certain purchases and
increases in receivables primarily associated with our revenue growth. Cash flows from operations can be
significantly impacted by factors such as the timing of receipts from customers and payments to vendors.
Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements and
vendor payment terms. Operating activities for 2017 and 2016 included cash generated from our Core MTS
business. Operating activities for 2017 were also affected by $150 million of settlement payment.

Net cash used in investing activities was $1,522 million in 2018 compared to $3,796 million in 2017 and
$1,557 million in 2016. Investing activities for 2018 include $2,893 million of net cash payments for
acquisitions,
including $1.3 billion and $724 million for our acquisitions of CoverMyMeds, LLC and
RxCrossroads, $405 million and $175 million in capital expenditures for property, plant and equipment, and
capitalized software, $374 million of net cash proceeds from sales of businesses and other assets and
$126 million cash payment received related to the Healthcare Technology Net Asset Exchange.

Investing activities for 2017 included $4,237 million of net cash payments for acquisitions including
$2.1 billion for our acquisition of Rexall Health, $1,228 million of net payments received on Healthcare
Technology Net Asset Exchange, $404 million and $158 million in capital expenditures for property, plant and
equipment, and capitalized software, and $206 million of net cash proceeds from sales of businesses and equity
investments. Investing activities for 2016 included $40 million of net cash payments for acquisitions,
$488 million and $189 million in capital expenditures for property, plant and equipment, and capitalized
software, and $210 million of cash proceeds from sales of our automation business and an equity investment.

Financing activities utilized $3,084 million, $2,069 million and $3,453 million of cash in 2018, 2017 and
2016. Financing activities for 2018 include cash receipts of $20,542 million and payments of $20,725 million
from short-term borrowings (primarily commercial paper). We received cash from long-term debt issuances of
$1,522 million and made repayments on long-term debt of $2,287 million in 2018. Financing activities in 2018
also include $1,650 million of cash paid for stock repurchases, $262 million of dividends paid and $112 million
of payments for debt extinguishments.

Financing activities for 2017 include cash receipts of $8,294 million and payments of $8,124 million from
short-term borrowings. We received cash from long-term debt issuances of $1,824 million and made repayments
on long-term debt of $1,601 million in 2017. Financing activities in 2017 also include $2,250 million of cash
paid for stock repurchases and $253 million of dividends paid.

Financing activities for 2016 include cash receipts of $1,561 million and payments of $1,688 million from
short-term borrowings. We made repayments on long-term debt of $1,598 million in 2016. Financing activities in
2016 also include $1,504 million of cash paid for stock repurchases and $244 million of dividends paid.

The Company’s Board has authorized the repurchase of McKesson’s common stock from time-to-time in
open market transactions, privately negotiated transactions, accelerated share repurchase (“ASR”) programs, or
by any combination of such methods. The timing of any repurchases and the actual number of shares repurchased
will depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions
under our debt obligations and other market and economic conditions.

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FINANCIAL REVIEW (Continued)

The Board authorized the repurchase of the Company’s common stock up to $4 billion in October 2016. In
2016, we repurchased 8.7 million of our shares through a combination of an ASR program and open market
transactions. In 2017, we repurchased 14.1 million of our shares through open market
transactions and
1.4 million of our shares through an ASR program. We received 0.3 million additional shares in April 2017 for
the 2017 ASR program. In 2018, we repurchased 3.5 million of our shares through open market transactions and
6.7 million of our shares through ASR programs. We received an additional 0.5 million shares in April 2018
under the March 2018 ASR program.

(In millions, except per share data)

Number of shares repurchased (1)

Average price paid per share

Total value of shares repurchased (1)

Years Ended March 31,

2018

10.5

2017

2016

15.5

8.7

$151.06 (2) $141.16

$173.64

$ 1,650

$ 2,250

$ 1,504

(1) Excludes shares surrendered for tax withholding.
(2) The average price paid per share computation includes the initial share settlement of 2.5 million shares from
the March 2018 ASR program, of which the actual average price of shares will be determined at the
termination of the program in the first quarter of 2019.

At March 31, 2018, the total authorization outstanding was $1.1 billion available under the October 2016
share repurchase plan for future repurchases of the Company’s common stock. In May 2018, the Board
authorized the repurchase of up to $4.0 billion of the Company’s common stock. The total authorization
outstanding for repurchases of the Company’s common stock was increased to $5.1 billion.

We believe that our operating cash flow, financial assets and current access to capital and credit markets,
including our existing credit facilities, will give us the ability to meet our financing needs for the foreseeable
future. However, there can be no assurance that continued or increased volatility and disruption in the global
capital and credit markets will not impair our liquidity or increase our costs of borrowing.

Selected Measures of Liquidity and Capital Resources:

(Dollars in millions, except ratios)

Cash and cash equivalents

Working capital

Debt to capital ratio (1)

Return on McKesson stockholders’ equity (2)

March 31,

2018

2017

2016

$2,672

$2,783

$4,048

451

1,336

3,366

40.6%

39.2%

43.6%

0.6

54.6

26.0

(1) Ratio is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity, which
excludes noncontrolling and redeemable noncontrolling interests and accumulated other comprehensive
income (loss).

(2) Ratio is computed as net income attributable to McKesson Corporation for the last four quarters, divided by
a five-quarter average of McKesson stockholders’ equity, which excludes noncontrolling and redeemable
noncontrolling interests.

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FINANCIAL REVIEW (Continued)

Cash equivalents, which are available-for-sale, are carried at fair value. Cash equivalents are primarily
invested in AAA rated prime and U.S. government money market funds denominated in U.S. dollars, overnight
repurchase agreements collateralized by U.S. government securities, Canadian government securities and/or
securities that are guaranteed or sponsored by the U.S. government and an AAA rated prime money market fund
denominated in British pound sterling.

The remaining cash and cash equivalents are deposited with several financial institutions. We mitigate the
institutions and

risk of our short-term investment portfolio by depositing funds with reputable financial
monitoring risk profiles and investment strategies of money market funds.

Working capital primarily includes cash and cash equivalents, receivables and inventories net of drafts and
accounts payable, short-term borrowings, current portion of long-term debt, deferred revenue and other current
liabilities. Our Distribution Solutions segment requires a substantial investment in working capital that is
susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands.
Inventory purchase activity is a function of sales activity and other requirements.

Consolidated working capital decreased at March 31, 2018 compared to March 31, 2017 primarily due to
increases in drafts and accounts payable and a decrease in receivables, partially offset by an increase in
inventories. Consolidated working capital decreased at March 31, 2017 compared to March 31, 2016 primarily
due to a decrease in the cash and cash equivalents balance and an increase in drafts and accounts payable and
deferred tax liabilities, partially offset by increases in receivables.

Our debt to capital ratio increased for 2018 primarily due to a decrease in stockholders’ equity and

decreased for 2017 primarily due to an increase in stockholders’ equity.

In July 2017, the Company’s quarterly dividend was raised from $0.28 to $0.34 per common share for
dividends declared on or after such date by the Board. Dividends were $1.30 per share in 2018, $1.12 per share in
2017 and $1.08 per share in 2016. The Company anticipates that it will continue to pay quarterly cash dividends
in the future. However, the payment and amount of future dividends remain within the discretion of the Board
and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.
In 2018, 2017 and 2016, we paid total cash dividends of $262 million, $253 million and $244 million.
Additionally, as required under the Domination Agreement, we are obligated to pay an annual recurring
compensation amount of €0.83 per McKesson Europe share (effective January 1, 2015) to the noncontrolling
shareholders of McKesson Europe.

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FINANCIAL REVIEW (Continued)

Contractual Obligations:

The table and information below presents our significant financial obligations and commitments at

March 31, 2018:

(In millions)

On balance sheet

Long-term debt (1)

Other (2) (3)

Off balance sheet

Interest on borrowings (4)

Purchase obligations (5)

Operating lease obligations (6)

Other (7)

Total

Total

Within 1 Over 1 to 3 Over 3 to 5

After 5

Years

$ 7,880

$1,129

$ 690

$1,037

$5,024

666

230

229

62

145

2,090

4,369

3,072

338

223

4,356

502

178

396

9

826

25

355

4

610

28

1,116

—

1,134

107

$18,415

$6,618

$2,175

$2,096

$7,526

(1) Represents maturities of the Company’s long-term obligations including an immaterial amount of capital

(2)

(3)

lease obligations.
including assumed executive lump sum payments, for the
Includes our estimated benefit payments,
unfunded benefit plans and minimum funding requirements for the pension plans. Actual lump sum
payments could significantly differ from the estimated amounts depending on the timing of executive
retirements and the lump sum interest rate in effect upon retirement. The estimated benefit payments do not
reflect the potential effect of the termination of the U.S. defined benefit pension plan approved by the
Company’s Board of Directors on May 23, 2018. Refer to Financial Note 30, “Subsequent Events” to the
consolidated financial statements appearing in this Annual Report on Form 10-K for additional information.
Includes our contingent consideration liability relating to our business acquisition and a pledge payable to a
public benefit California foundation.

(4) Primarily represents interest that will become due on our fixed rate long-term debt obligations.
(5) A purchase obligation is defined as an arrangement to purchase goods or services that is enforceable and
legally binding on the Company. These obligations primarily relate to inventory purchases, capital
commitments and outsourcing service agreements.

(6) Represents minimum rental payments for operating leases.
(7)

Includes agreements under which we have guaranteed the repurchase of our customers’ inventory and our
customers’ debt in the event these customers are unable to meet their obligations to those financial
institutions.

The contractual obligations table above excludes the following obligations:

At March 31, 2018, the liability recorded for uncertain tax positions, excluding associated interest and
penalties, was approximately $970 million. The ultimate amount and timing of any related future cash
settlements cannot be predicted with reasonable certainty.

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FINANCIAL REVIEW (Continued)

At March 31, 2018, we had a $90 million noncurrent liability payable to Change Healthcare shareholders
associated with a tax receivable agreement entered into in connection with Healthcare Technology Net Asset
Exchange. The amount is based on certain estimates and could become payable in periods after a disposition of
our investment in Change Healthcare.

Our banks and insurance companies have issued $259 million of standby letters of credit and surety bonds at
March 31, 2018. These were issued on our behalf and are mostly related to our customer contracts and to meet
the security requirements for statutory licenses and permits, court and fiduciary obligations and our workers’
compensation and automotive liability programs.

The carrying value of redeemable noncontrolling interests related to McKesson Europe was $1.46 billion at
March 31, 2018, which exceeded the maximum redemption value of $1.35 billion. The balance of redeemable
noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each
reporting date. Upon the effectiveness of the Domination Agreement on December 2, 2014, the noncontrolling
shareholders of McKesson Europe received a put right that enables them to put their McKesson Europe shares to
McKesson at €22.99 per share, which price is increased annually for interest in the amount of 5 percentage points
above a base rate published semiannually by the German Bundesbank, less any compensation amount or
guaranteed dividend already paid (“Put Amount”). The redemption value is the Put Amount adjusted for
exchange rate fluctuations each period. The ultimate amount and timing of any future cash payments related to
the Put Amount are uncertain.

Additionally, we are obligated to pay an annual recurring compensation of €0.83 per McKesson Europe
share (the “Compensation Amount”) to the noncontrolling shareholders of McKesson Europe under the
Domination Agreement, which became effective in December 2014. The Compensation Amount is recognized
ratably during the applicable annual period. The Domination Agreement does not have an expiration date and can
be terminated by McKesson without cause in writing no earlier than March 31, 2020.

Refer to Financial Note 11, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the

consolidated financial statements appearing in this Annual Report on Form 10-K for additional information.

Credit Resources:

We fund our working capital requirements primarily with cash and cash equivalents as well as short-term
borrowings from our credit facilities and commercial paper issuances. Funds necessary for future debt maturities
and our other cash requirements are expected to be met by existing cash balances, cash flow from operations,
existing credit sources and other capital market transactions. Detailed information regarding our debt and
financing activities is included in Financial Note 16, “Debt and Financing Activities,” to the consolidated
financial statements appearing in this Annual Report on Form 10-K.

RELATED PARTY BALANCES AND TRANSACTIONS

Information regarding our related party balances and transactions is included in Financial Note 26, “Related
Party Balances and Transactions,” to the consolidated financial statements appearing in this Annual Report on
Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements that we have recently adopted, as well as those that have been recently
issued but not yet adopted by us, are included in Financial Note 1, “Significant Accounting Policies,” to the
consolidated financial statements appearing in this Annual Report on Form 10-K.

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FINANCIAL REVIEW (Continued)

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk: Our long-term debt bears interest predominately at fixed rates, whereas our short-term

borrowings are at variable interest rates.

Our cash and cash equivalents balances earn interest at variable rates. At March 31, 2018 and 2017, we had
$2.7 billion and $2.8 billion and in cash and cash equivalents. The effect of a hypothetical 50 bp increase in the
underlying interest rate on our cash and cash equivalents, net of short-term borrowings and variable rate debt,
would have resulted in a favorable impact to earnings in 2018 and 2017 of approximately $10 million and
$19 million.

Foreign exchange risk: We conduct our business worldwide in U.S. dollars and the functional currencies of
our foreign subsidiaries, including Euro, British pound sterling and Canadian dollars. Changes in foreign
currency exchange rates could have a material adverse impact on our financial results that are reported in U.S.
dollars. We are also exposed to foreign exchange rate risk related to our foreign subsidiaries, including
intercompany loans denominated in non-functional currencies.

We have certain foreign exchange rate risk programs that use foreign currency forward contracts and cross-
currency swaps. The forward contracts and cross-currency swaps are designated to reduce the income statement
effects from fluctuations in foreign exchange rates and have been designated as cash flow hedges. These
programs reduce but do not entirely eliminate foreign exchange risk.

As of March 31, 2018 and 2017, the effect of a hypothetical adverse 10% change in the underlying foreign
currency exchange rates would have impacted the fair value of our foreign exchange contracts by approximately
$458 million and $357 million. However, our risk management programs are designed such that the potential loss
in value of these risk management portfolios described above would be largely offset by changes in the value of
the underlying exposure. Refer to Financial Note 20, “Hedging Activities,” for more information on our foreign
currency forward contracts and cross-currency swaps.

The selected hypothetical change in interest rates and foreign currency exchange rates does not reflect what

could be considered the best or worst case scenarios.

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Item 8.

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

Management’s Annual Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Consolidated Statements of Operations for the years ended March 31, 2018, 2017 and 2016

Consolidated Statements of Comprehensive Income for the years ended March 31, 2018, 2017 and

2016

Consolidated Balance Sheets as of March 31, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended March 31, 2018, 2017 and 2016

Financial Notes

Page

66

67

69

70

71

72

73

74

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McKESSON CORPORATION

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of McKesson Corporation is responsible for establishing and maintaining an adequate
system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). With the participation of the Chief Executive Officer and the Chief Financial Officer, our management
conducted an assessment of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management has
concluded that our internal control over financial reporting was effective as of March 31, 2018.

Deloitte & Touche LLP, an independent registered public accounting firm, audited the financial statements
included in this Annual Report on Form 10-K and has also audited the effectiveness of the Company’s internal
control over financial reporting as of March 31, 2018. This audit report appears on page 67 of this Annual Report
on Form 10-K.

May 24, 2018

/s/ John H. Hammergren
John H. Hammergren
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)

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

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McKESSON CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of McKesson Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of McKesson Corporation and subsidiaries
(the “Company”) as of March 31, 2018 and 2017,
the related consolidated statements of operations,
comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended
March 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as
the “financial statements”). We also have audited the Company’s internal control over financial reporting as of
March 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of March 31, 2018 and 2017, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2018, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of March 31, 2018, based on criteria established in Internal
Control—Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

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

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Definition and Limitations of Internal Control over Financial Reporting

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP
San Francisco, California
May 24, 2018

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

68

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)

Revenues

Cost of Sales

Gross Profit

Operating Expenses

Selling, distribution and administrative expenses

Research and development

Goodwill impairment charges

Restructuring and asset impairment charges

Gains from sales of businesses

Gain on healthcare technology net asset exchange, net

Total Operating Expenses

Operating Income

Other Income, Net

Loss from Equity Method Investment in Change Healthcare

Loss on Debt Extinguishment

Interest Expense

Income from Continuing Operations Before Income Taxes

Income Tax Benefit (Expense)

Income from Continuing Operations

Income (Loss) from Discontinued Operations, Net of Tax

Net Income

Net Income Attributable to Noncontrolling Interests

Net Income Attributable to McKesson Corporation

Earnings (Loss) Per Common Share Attributable to McKesson Corporation

Diluted

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

Weighted Average Common Shares

Diluted

Basic

See Financial Notes

69

Years Ended March 31,

2018

2017

2016

$ 208,357

$ 198,533

$ 190,884

(197,173)

(187,262)

(179,468)

11,184

11,271

11,416

(8,138)

(125)

(1,738)

(567)

109

37

(10,422)

762

130

(248)

(122)

(283)

239

53

292

5

297

(230)

(7,460)

(341)

(290)

(18)

—

3,947

(4,162)

7,109

90

—

—

(308)

6,891

(1,614)

5,277

(124)

5,153

(83)

(7,379)

(392)

—

(203)

103

—

(7,871)

3,545

58

—

—

(353)

3,250

(908)

2,342

(32)

2,310

(52)

$

$

$

$

$

67

$

5,070

$

2,258

0.30

0.02

0.32

0.30

0.02

0.32

209

208

$

$

$

$

$

$

$

$

23.28

(0.55)

22.73

23.50

(0.55)

22.95

223

221

9.84

(0.14)

9.70

9.96

(0.14)

9.82

233

230

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Net Income

Other Comprehensive Income (Loss), Net of Tax

Foreign currency translation adjustments arising during the period

Unrealized gains (losses) on cash flow hedges arising during the period

Retirement-related benefit plans

Other Comprehensive Income (Loss), Net of Tax

Comprehensive Income

Comprehensive (Income) Attributable to Noncontrolling Interests

Years Ended March 31,

2018

2017

2016

$ 297

$ 5,153

$ 2,310

624

(30)

15

609

906

(415)

(632)

(19)

(8)

(659)

4,494

(4)

113

9

50

172

2,482

(72)

Comprehensive Income Attributable to McKesson Corporation

$ 491

$ 4,490

$ 2,410

See Financial Notes

70

McKESSON CORPORATION

CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)

ASSETS
Current Assets

Cash and cash equivalents
Receivables, net
Inventories, net
Prepaid expenses and other

Total Current Assets

Property, Plant and Equipment, Net
Goodwill
Intangible Assets, Net
Equity Method Investment in Change Healthcare
Other Noncurrent Assets

Total Assets

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND

EQUITY

Current Liabilities

Drafts and accounts payable
Short-term borrowings
Deferred revenue
Current portion of long-term debt
Other accrued liabilities

Total Current Liabilities

Long-Term Debt
Long-Term Deferred Tax Liabilities
Other Noncurrent Liabilities
Commitments and Contingent Liabilities (Note 24)
Redeemable Noncontrolling Interests
McKesson Corporation Stockholders’ Equity

Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or

outstanding

Common stock, $0.01 par value, 800 shares authorized at March 31, 2018 and

2017, 275 and 273 shares issued at March 31, 2018 and 2017

Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Other
Treasury Stock, at Cost, 73 and 62 shares at March 31, 2018 and 2017

Total McKesson Corporation Stockholders’ Equity

Noncontrolling Interests

Total Equity
Total Liabilities, Redeemable Noncontrolling Interests and Equity

See Financial Notes

71

March 31,

2018

2017

$ 2,672
17,711
16,310
443
37,136
2,464
10,924
4,102
3,728
2,027
$60,381

$32,177
—
63
1,129
3,316
36,685
6,751
2,804
2,625

$ 2,783
18,215
15,278
672
36,948
2,292
10,586
3,665
4,063
3,415
$60,969

$31,022
183
346
1,057
3,004
35,612
7,305
3,678
1,774

1,459

1,327

—

—

3
6,188
12,986
(1,717)
(1)
(7,655)

9,804
253
10,057
$60,381

3
6,028
13,189
(2,141)
(2)
(5,982)

11,095
178
11,273
$60,969

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended March 31, 2018, 2017 and 2016
(In millions, except per share amounts)

Common
Stock

Shares Amount

384
3

$

4
—

McKesson Corporation Stockholders’ Equity

Additional
Paid-in
Capital

Other
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

$ (7)

$12,705

$(1,713)

$ 6,968
123
130

117

Treasury

Common

Shares Amount

(152)
(1)

$(9,956)
(109)

Non
controlling
Interests

$ 84

152

2,258

(6,354)

(249)

(9)
116

(1,504)
7,848

5
$ (2)

$ 8,360

$(1,561)

(46)

$(3,721)
(61)

(116)

(1)

(1,493)

271
3

$

3
—

$ 5,845
125
110

(1)
273
2

$

3
—

7

5,070

(580)

(50)

(2)
$ 6,028
126
67

(36)

3

(249)
1
$13,189

—
$ (2)

67

(270)

(16)

(2,200)

$(2,141)

(62)

$(5,982)
(59)

424

(11)

(1,614)

275

$

3

$ 6,188

1
$ (1)

$12,986

$(1,717)

(73)

$(7,655)

8

(8)
$ 84

89

39

(34)
$178

(98)

187

(14)
$253

Total
Equity

$ 8,085
14
130

117
152
2,266
(1,504)
—

(249)
(3)
$ 9,008
64
110

7
89
(580)
5,109
(2,250)

(249)
(35)
$11,273
67
67
(98)
424
254
(1,650)

3

(270)
(13)
$10,057

Balances, March 31, 2015
Issuance of shares under employee plans
Share-based compensation
Tax benefit related to issuance of shares

under employee plans
Other comprehensive income
Net income
Repurchase of common stock
Retirement of common stock
Cash dividends declared, $1.08 per

common share

Other
Balances, March 31, 2016
Issuance of shares under employee plans
Share-based compensation
Tax benefit related to issuance of shares

under employee plans
Acquisition of Vantage
Other comprehensive loss
Net income
Repurchase of common stock
Cash dividends declared, $1.12 per

common share

Other
Balances, March 31, 2017
Issuance of shares under employee plans
Share-based compensation
Payments to noncontrolling interests
Other comprehensive income
Net income
Repurchase of common stock
Exercise of put right by noncontrolling
shareholders of McKesson Europe

Cash dividends declared, $1.30 per

common share

Other
Balances, March 31, 2018

See Financial Notes

72

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

Operating Activities
Net income
Adjustments to reconcile to net cash provided by operating activities:

Depreciation
Amortization
Gain on Healthcare Technology Net Asset Exchange, net
Goodwill and other asset impairment charges
Loss from equity method investment in Change Healthcare
Deferred taxes
Share-based compensation expense
Charges (credits) associated with last-in-first-out inventory method
Loss (gain) from sales of businesses and equity investments
Other non-cash items

Changes in operating assets and liabilities, net of acquisitions:

Receivables
Inventories
Drafts and accounts payable
Deferred revenue
Taxes

Settlement payment
Other

Net cash provided by operating activities

Investing Activities
Payments for property, plant and equipment
Capitalized software expenditures
Acquisitions, net of cash and cash equivalents acquired
Proceeds from sale of businesses and other assets, net
Payments received on Healthcare Technology Net Asset Exchange, net
Restricted cash for acquisitions
Other

Net cash used in investing activities

Financing Activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from issuances of long-term debt
Repayments of long-term debt
Payments for debt extinguishments
Common stock transactions:

Issuances
Share repurchases, including shares surrendered for tax withholding

Dividends paid
Other

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental Cash Flow Information
Cash paid for:

Interest
Income taxes, net of refunds

See Financial Notes

73

Years Ended March 31,

2018

2017

2016

$

297

$ 5,153

$ 2,310

303
648
(37)
2,217
248
(868)
69
(99)
(169)
(2)

1,175
(458)
271
(143)
671
—
222
4,345

(405)
(175)
(2,893)
374
126
1,469
(18)
(1,522)

20,542
(20,725)
1,522
(2,287)
(112)

132
(1,709)
(262)
(185)
(3,084)
150
(111)
2,783
$ 2,672

324
586
(3,947)
290
—
882
115
(7)
94
88

(762)
320
2,070
(87)
146
(150)
(371)
4,744

(404)
(158)
(4,237)
206
1,228
(506)
75
(3,796)

8,294
(8,124)
1,824
(1,601)
—

281
604
—

8

—
64
123
244
(103)
108

(1,957)
(1,251)
3,302
(120)
(78)
—
137
3,672

(488)
(189)
(40)
210
—
(939)
(111)
(1,557)

1,561
(1,688)
—
(1,598)
—

120
(2,311)
(253)
(18)
(2,069)
(144)
(1,265)
4,048
$ 2,783

123
(1,612)
(244)
5
(3,453)
45
(1,293)
5,341
$ 4,048

$
$

298
144

$
$

315
587

$
$

337
923

McKESSON CORPORATION

FINANCIAL NOTES

1. Significant Accounting Policies

Nature of Operations: McKesson Corporation (“McKesson,” the “Company,” the “Registrant” or “we” and
other similar pronouns) delivers a comprehensive offering of pharmaceuticals and medical supplies and provides
services to help our customers improve the efficiency and effectiveness of their healthcare operations. We
managed our business through two reportable segments, McKesson Distribution Solutions and McKesson
Technology Solutions, as further described in Financial Note 28, “Segments of Business.”

Basis of Presentation: The consolidated financial statements and accompanying notes are prepared in
accordance with U. S. generally accepted accounting principles (“GAAP”). The consolidated financial statements
of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled
companies. For those consolidated subsidiaries where our 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” on the consolidated statements of operations. Intercompany balances and transactions have been
eliminated in consolidation including the intercompany portion of transactions with equity method investees.

We consider ourselves to control an entity if we are the majority owner of or have voting control over such
entity. We also assess control through means other than voting rights (“variable interest entities” or “VIEs”) and
determine which business entity is the primary beneficiary of the VIE. We consolidate VIEs when it is
determined that we are the primary beneficiary of the VIE.

Fiscal Period: The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted,

all references to a particular year shall mean the Company’s fiscal year.

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

presentation.

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires that we
make estimates and assumptions that affect the reported amounts in the consolidated financial statements and
accompanying notes. Actual amounts could differ from those estimated amounts.

Cash and Cash Equivalents: All highly liquid debt and money market instruments purchased with original

maturity of three months or less at the date of acquisition are included in cash and cash equivalents.

Cash equivalents are carried at fair value. Cash equivalents are primarily invested in AAA rated prime and
repurchase agreements
U.S. government money market
collateralized by U.S. government securities, Canadian government securities and/or securities that are
guaranteed or sponsored by the U.S. government and an AAA rated prime money market fund denominated in
British pound sterling.

funds denominated in U.S. dollars, overnight

The remaining cash and cash equivalents are deposited with several financial institutions. Deposits may
exceed the amounts insured by the Federal Deposit Insurance Corporation in the U.S. and similar deposit
insurance programs in other jurisdictions. We mitigate the risk of our short-term investment portfolio by
depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of
money market funds.

Restricted Cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is
classified as restricted cash and is included within “Prepaid expenses and other” and “Other Noncurrent Assets”
in the consolidated balance sheets. At March 31, 2018, our restricted cash balance was nil. At March 31, 2017,
our restricted cash balance was $1.5 billion, which primarily represents cash paid into the escrow accounts for
our acquisitions that closed in the first quarter of 2018.

74

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Marketable Securities Available-for-Sale: Our marketable securities, which are available-for-sale, are
carried at fair value and are included within “Prepaid expenses and other” in the consolidated balance sheets. The
unrealized gains and losses, net of the related tax effect, computed in marking these securities to market have
been reported within stockholders’ equity. At March 31, 2018 and 2017, marketable securities were not material.

In determining whether an other-than-temporary decline in market value has occurred, we consider the
duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and
future prospects of the issuer or underlying collateral of a security, and our intent and ability to retain the security
in order to allow for an anticipated recovery in fair value. Other-than-temporary declines in fair value from
amortized cost for available-for-sale equity securities that we intend to sell or would more likely than not be
required to sell before the expected recovery of the amortized cost basis are charged to other income, net, in the
period in which the loss occurs.

Equity Method Investments: Investments in business entities in which we do not have control, but have the
ability to exercise significant influence over operating and financial policies, are accounted for using the equity
method. We evaluate our equity method investments for impairment whenever an event or change in
circumstances occurs that may have a significant adverse impact on the carrying value of the investment. If a loss
in value has occurred that is deemed to be other-than-temporary, an impairment loss is recorded. Refer to
Financial Note 2, “Healthcare Technology Net Asset Exchange” for further information relating to our equity
method investment in Change Healthcare, LLC (“Change Healthcare”).

total consolidated revenues. Sales to our

Concentrations of Credit Risk and Receivables: Our trade accounts receivable are subject to concentrations
of credit risk with customers primarily in our Distribution Solutions segment. During 2018, sales to our ten
largest customers, including group purchasing organizations (“GPOs”) accounted for approximately 51.7% of
our
largest customer, CVS Health (“CVS”), accounted for
approximately 19.9% of our total consolidated revenues. At March 31, 2018, trade accounts receivable from our
ten largest customers were approximately 24.9% of total trade accounts receivable. Accounts receivable from
CVS were approximately 16.4% of total trade accounts receivable. As a result, our sales and credit concentration
is significant. We also have agreements with GPOs, each of which functions as a purchasing agent on behalf of
member hospitals, pharmacies and other healthcare providers, as well as with government entities and agencies.
The accounts receivables balances are with individual members of the GPOs, and therefore no significant
concentration of credit risk exists. A default in payment, a material reduction in purchases from these or any
other large customers, or the loss of a large customer or customer groups could have a material adverse impact on
to
our financial condition, results of operations and liquidity. In addition,
concentrations of credit risk with customers in the institutional, retail and healthcare provider sectors, which can
be affected by a downturn in the economy and changes in reimbursement policies. This credit risk is mitigated by
the size and diversity of the customer base as well as its geographic dispersion. We estimate the receivables for
which we do not expect full collection based on historical collection rates and ongoing evaluations of the
creditworthiness of our customers. An allowance is recorded in our consolidated financial statements for these
estimated amounts.

trade receivables are subject

Financing Receivables: We assess and monitor credit risk associated with financing receivables, primarily
lease and notes receivables, through regular review of our collection experience in determining our allowance for
loan losses. On an ongoing basis, we also evaluate credit quality of our financing receivables utilizing aging of
receivables and write-offs, as well as considering existing economic conditions, to determine if an allowance is
required. Financing receivables are derecognized if legal title to them has been transferred and all related risks
and rewards incidental to ownership have passed to the buyer. As of March 31, 2018 and 2017, financing
receivables and the related allowance were not material to our consolidated financial statements.

75

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Inventories: Prior to 2018, we reported inventories at the lower of cost or market (“LCM”). Effective in the
first quarter of 2018, we report inventories at the lower of cost or net realizable value, except for inventories
determined using the last-in, first-out (“LIFO”) method. Inventories for our Distribution Solutions segment
consist of merchandise held for resale. For our Distribution Solutions segment, the majority of the cost of
domestic inventories is determined using the LIFO method. The majority of the cost of inventories held in
foreign locations is based on weighted average purchase prices using the first-in, first-out method (“FIFO”).
Rebates, cash discounts, and other incentives received from vendors are recognized within cost of sales upon the
sale of the related inventory.

to our LIFO reserves. Our LIFO valuation amount

The LIFO method was used to value approximately 63% and 70% of our inventories at March 31, 2018 and
2017. If we had used the FIFO method of inventory valuation, inventories would have been approximately
$906 million and $1,005 million higher than the amounts reported at March 31, 2018 and 2017. These amounts
are equivalent
includes both pharmaceutical and
non-pharmaceutical products. We recognized LIFO credits of $99 million and $7 million in 2018 and 2017 and
net LIFO charges of $244 million in 2016 in cost of sales within our consolidated statements of operations. A
LIFO charge is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical
products held in inventory exceeds the impact of price declines, including the effect of branded pharmaceutical
products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines
exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory.

We believe that the average inventory costing method provides a reasonable estimation of the current cost of
replacing inventory (i.e., “market”). As such, our LIFO inventory is valued at the lower of LIFO cost or
market. As of March 31, 2018 and 2017, inventories at LIFO did not exceed market.

Shipping and Handling Costs: We include costs to pack and deliver inventory to our customers in selling,
distribution and administrative expenses. Shipping and handling costs of $914 million, $814 million, and
$789 million were included in our selling, distribution and administrative expenses in 2018, 2017 and 2016.

Property, Plant and Equipment: We state our property, plant and equipment (“PPE”) at cost and depreciate
them under the straight-line method at rates designed to distribute the cost of PPE over estimated service lives
ranging from one to thirty years. When certain events or changes in operating conditions occur, an impairment
assessment may be performed on the recoverability of the carrying amounts.

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

The goodwill testing requires us to compare the estimated fair value of a reporting unit to its carrying
value. If the carrying value of the reporting unit is lower than its estimated fair value, no further evaluation is
required. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is
recorded for that excess, limited to the total amount of goodwill allocated to that reporting unit.

To estimate the fair value of our reporting units, we use a combination of the market approach and the
income approach. Under the market approach, we estimate fair value by comparing the business to similar
businesses or guideline companies whose securities are actively traded in public markets. Under the income
approach, we use a discounted cash flow (“DCF”) model in which cash flows anticipated over future periods,
plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate
expected rate of return. The fair value estimates in the goodwill impairment analysis are highly sensitive to the

76

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

discount rates used in the expected cash flows attributable to the reporting units. The discount rates are the
weighted average cost of capital measuring the reporting unit’s cost of debt and equity financing weighted by the
percentage of debt and percentage of equity in a company’s target capital. Other estimates inherent in both the
market and income approaches include long-term growth rates, projected revenues, earnings and cash flow
forecasts for the reporting units. In addition, we compare the aggregate of the reporting units’ fair value to the
Company’s market capitalization as a further corroboration of the fair values. Goodwill testing requires a
complex series of assumptions and judgments by management in projecting future operating results, selecting
guideline companies for comparisons and assessing risks. The use of alternative assumptions and estimates could
affect the fair values and change the impairment determinations.

Intangible Assets: Currently all of our intangible assets are subject to amortization and are amortized based
on the pattern of their economic consumption or on a straight-line basis over their estimated useful lives, ranging
from one to 38 years. We review intangible assets for impairment at an asset group level whenever events or
changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of
recoverability is based on the lowest level of identifiable estimated future undiscounted cash flows resulting from
use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the
carrying value of the asset over its estimated fair market value.

Capitalized Software Held for Internal Use: We capitalize costs of software held for internal use during the
application development stage of a project and amortize those costs over their estimated useful lives ranging
from one to ten years. As of March 31, 2018 and 2017, capitalized software held for internal use was
$425 million and $455 million, net of accumulated amortization of $1,182 million and $1,177 million, and was
included in other assets in the consolidated balance sheets.

Insurance Programs: Under our insurance programs, we seek to obtain coverage for catastrophic exposures
as well as those risks required to be insured by law or contract. It is our policy to retain a significant portion of
certain losses primarily related to workers’ compensation and comprehensive general, product and vehicle
liability. Provisions for losses expected under these programs are recorded based on our estimate of the aggregate
liability for claims incurred as well as for claims incurred but not yet reported. Such estimates utilize certain
actuarial assumptions followed in the insurance industry.

Revenue Recognition:

Distribution Solutions

Revenues for our Distribution Solutions segment are recognized when persuasive evidence of an
arrangement exists, product is delivered and title passes to the customer or when services have been rendered and
there are no further obligations to the customer, the price is fixed or determinable, and collection of the amounts
are reasonably assured.

Revenues for our Distribution Solutions segment include large volume sales of pharmaceuticals primarily to
a limited number of large customers who warehouse their own products. We order bulk product from the
manufacturer, receive and process the product primarily through our central distribution facilities and deliver the
bulk product (generally in the same form as received from the manufacturer) directly to our customers’
warehouses. We also record revenues for direct store deliveries of shipments from the manufacturer to our
customers. We assume the primary liability to the manufacturer for these products.

Revenues are recorded gross when we are the primary party obligated in the transaction, take title to and
possession of the inventory, are subject to inventory risk, have latitude in establishing prices, assume the risk of

77

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

loss for collection from customers as well as delivery or return of the product, are responsible for fulfillment and
other customer service requirements, or the transactions have several but not all of these indicators.

Revenues are recorded net of sales returns, allowances, rebates and other incentives. Our sales return policy
generally allows customers to return products only if they can be resold for value or returned to suppliers for
credit. Sales returns are accrued based on estimates at the time of sale to the customer. Sales returns from
customers were approximately $3.1 billion in 2018, 2017 and 2016. We collect taxes from customers and remit
to governmental authorities. We report all revenues net of taxes assessed by governmental authorities.

This segment also provides software as a service (“SaaS”) and claims processing. Revenues for SaaS-based

subscription and transaction processing fees are recognized ratably over the contract terms.

Technology Solutions

Revenues for our Technology Solutions segment are generated primarily by licensing software and software
systems consisting of software, hardware and maintenance support, providing SaaS or SaaS-based solutions,
outsourcing and professional services. Revenue for this segment is recognized as follows:

Software systems are marketed under information systems agreements as well as service agreements.
Perpetual software arrangements are recognized at the time of delivery or under the percentage-of-completion
method if the arrangements require significant production, modification or customization of the software.
Contracts accounted for under the percentage-of-completion method are generally measured based on the ratio of
labor hours incurred to date to total estimated labor hours to be incurred. Changes in estimates to complete and
revisions in overall profit estimates on these contracts are charged to earnings in the period in which they are
determined. We accrue for contract losses if and when the current estimate of total contract costs exceeds total
contract revenue.

Revenue from time-based software license agreements is recognized ratably over the term of the agreement.
Software implementation fees are recognized as the work is performed or under the percentage-of-completion
method. Maintenance and support agreements are marketed under annual or multi-year agreements and are
recognized ratably over the period covered by the agreements. Hardware revenues are generally recognized upon
delivery.

SaaS-based subscription, content and transaction processing fees are generally marketed under annual and
multi-year agreements and are recognized ratably over the contracted terms beginning on the service start date
for fixed fee arrangements and recognized as transactions are performed beginning on the service start date for
per-transaction fee arrangements. Remote processing service fees are recognized monthly as the service is
performed. Outsourcing service revenues are recognized as the service is performed.

We also offer certain products on an application service provider basis, making our software functionality
available on a remote hosting basis from our data centers. The data centers provide system and administrative
support, as well as hosting services. Revenue on products sold on an application service provider basis is
recognized on a monthly basis over the term of the contract beginning on the service start date of products
hosted.

This segment engages in multiple-element arrangements, which may contain any combination of software,
hardware, implementation, SaaS-based offerings, consulting services or maintenance services. For multiple-
element arrangements that do not include software, revenue is allocated to the separate elements based on their
relative selling price and recognized in accordance with the revenue recognition criteria applicable to each
element. Relative selling price is determined based on vendor-specific objective evidence (“VSOE”) of selling

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price if available, third-party evidence (“TPE”), if VSOE of selling price is not available, or estimated selling
price (“ESP”) if neither VSOE of selling price nor TPE is available. For multiple-element arrangements
accounted for in accordance with specific software accounting guidance when some elements are delivered prior
to others in an arrangement and VSOE of fair value exists for the undelivered elements, revenue for the delivered
elements is recognized upon delivery of such items. The segment establishes VSOE for hardware and
implementation and consulting services based on the price charged when sold separately, and for maintenance
services, based on renewal rates offered to customers. Revenue for the software element is recognized under the
residual method only when fair value has been established for all of the undelivered elements in an arrangement.
If fair value cannot be established for any undelivered element, all of the arrangement’s revenue is deferred until
the delivery of the last element or until the fair value of the undelivered element is determinable. For multiple-
element arrangements with both software and nonsoftware elements, arrangement consideration is allocated
between the software elements as a whole and nonsoftware elements. The segment then further allocates
consideration to the individual elements within the software group, and revenue is recognized for all elements
under the applicable accounting guidance and our policies described above.

Supplier Incentives: Fees for services and other incentives received from suppliers, relating to the purchase
or distribution of inventory, are generally reported as a reduction to cost of sales. We consider these fees and
other incentives to represent product discounts and as a result, the amounts are recognized within cost of sales
upon the sale of the related inventory.

Supplier Reserves: We establish reserves against amounts due from suppliers relating to various fees for
services and price and rebate incentives, including deductions taken against payments otherwise due to them.
These reserve estimates are established based on judgment after considering the status of current outstanding
claims, historical experience with the suppliers,
the specific incentive programs and any other pertinent
information available. We evaluate the amounts due from suppliers on a continual basis and adjust the reserve
estimates when appropriate based on changes in facts and circumstances. Adjustments to supplier reserves are
generally included within cost of sales. The ultimate outcome of any outstanding claims may be different than
our estimate. As of March 31, 2018 and 2017, supplier reserves were $227 million and $201 million. All of the
supplier reserves at March 31, 2018 and 2017 pertain to our Distribution Solutions segment.

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

Foreign Currency Translation: The reporting currency of the Company and its subsidiaries is the U.S.
dollar. Our foreign subsidiaries generally consider their local currency to be their functional currency. Foreign
currency-denominated assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at
period-end exchange rates, revenues and expenses are translated at average exchange rates during the
corresponding period and stockholders’ equity accounts are primarily translated at historical exchange rates.
Foreign currency translation adjustments are included in other comprehensive income or loss in the consolidated
statements of comprehensive income, and the cumulative effect is included in the stockholders’ equity section of
the consolidated balance sheets. Realized gains and losses from currency exchange transactions are recorded in

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operating expenses in the consolidated statements of operations and were not material to our consolidated results
of operations in 2018, 2017 or 2016. We release cumulative translation adjustments from stockholders’ equity
into net income as a gain or loss only upon complete or substantially complete liquidation of a controlling
interest in a subsidiary or a group of assets within a foreign entity. We also release all or a pro rata portion of the
cumulative translation adjustments into net income upon the sale of an equity method investment that is a foreign
entity.

Derivative Financial Instruments: Derivative financial instruments are used principally in the management
of foreign currency exchange and interest rate exposures and are recorded on the consolidated balance sheets at
fair value. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. We use foreign
currency-denominated notes and cross-currency swaps to hedge a portion of our net investment in our foreign
subsidiaries. We use cash flow hedges primarily to reduce the effects of foreign currency exchange rate risk
related to intercompany loans denominated in non-functional currencies. If the financial instrument is designated
as a cash flow hedge or net investment hedge, the effective portions of changes in the fair value of the derivative
are included in other comprehensive income or loss in the consolidated statements of comprehensive income, and
the cumulative effect is included in the stockholders’ equity section of the consolidated balance sheets. The
cumulative changes in fair value are reclassified to the same line as the hedged item in the consolidated
statements of operations when the hedged item affects earnings. We evaluate hedge effectiveness at the inception
and on an ongoing basis, and ineffective portions of changes in the fair value of cash flow hedges and net
investment hedges are recognized as a charge or credit to earnings. In the fourth quarter of 2018, we adopted
amended guidance for derivatives and hedging which eliminates the existing requirement to recognize periodic
hedge ineffectiveness in earnings for cash flow hedges and net investment hedges that are highly effective. The
adoption had no material impact on our financial statements as there was no ineffectiveness recognized on our
cash flow hedges or net investment hedges prior to adoption. Derivative instruments not designated as hedges are
marked-to-market at the end of each accounting period with the change included in earnings.

Comprehensive Income: Comprehensive income consists of two components, net

income and other
comprehensive income. Other comprehensive income refers to revenue, expenses, and gains and losses that under
income. Our other
GAAP are recorded as an element of stockholders’ equity but are excluded from net
comprehensive income primarily consists of foreign currency translation adjustments from those subsidiaries where
the local currency is the functional currency including gains and losses on net investment hedges, unrealized gains
and losses on cash flow hedges, as well as unrealized gains and losses on retirement-related benefit plans.

Noncontrolling Interests and Redeemable Noncontrolling Interests: Noncontrolling interests represent the
portion of profit or loss, net assets and comprehensive income that is not allocable to McKesson Corporation. In
2018, 2017 and 2016, net income attributable to noncontrolling interests included recurring compensation that
McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe AG (“McKesson
Europe”), formerly known as Celesio AG, under the domination and profit and loss transfer agreement. In 2018
and 2017, net income attributable to noncontrolling interests also included third-party equity interests in our
consolidated entities including Vantage Oncology Holdings, LLC (“Vantage”) and ClarusONE Sourcing Services
LLP (“ClarusONE”), which was established between McKesson and Walmart, Inc in 2017. Noncontrolling
interests with redemption features, such as put rights, that are not solely within the Company’s control are
considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of
stockholders’ equity on our consolidated balance sheets. Refer
to Financial Note 11, “Redeemable
Noncontrolling Interests and Noncontrolling Interests,” for more information.

Share-Based Compensation: We account for all share-based compensation transactions using a fair-value
based measurement method. The share-based compensation expense, for the portion of the awards that is

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ultimately expected to vest, is recognized on a straight-line basis over the requisite service period. The share-
based compensation expense recognized has been classified in the consolidated statements of operations or
capitalized on the consolidated balance sheets in the same manner as cash compensation paid to our employees.

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

Disclosure is also provided when it is reasonably possible that a material loss will be incurred or when it is
reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at
least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable
estimate of the loss or a range of the loss can be made. As discussed above, development of a meaningful
estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations
with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such
factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of a
high and low estimate.

Restructuring Charges: Employee severance costs are generally recognized when payments are probable
and amounts are estimable. Costs related to contracts without future benefit or contract
termination are
recognized at the earlier of the contract termination or the cease-use dates. Other exit-related costs are recognized
as incurred.

Business Combinations: We account for acquired businesses using the acquisition method of accounting,
which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed,
including amounts attributable to noncontrolling interests, be recorded at the date of acquisition at their respective
fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as
goodwill. Acquisition-related expenses and related integration and restructuring costs are expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, we typically use the income method. This method starts with a forecast of all of
the expected future net cash flows for each asset. These cash flows are then adjusted to present value by applying
an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more
significant estimates and assumptions inherent in the income method or other methods include the amount and
timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash
flows and the assessment of the asset’s life cycle and the competitive trends impacting the asset, including
consideration of any technical, legal, regulatory, or economic barriers to entry. Determining the useful life of an
intangible asset also requires judgment as different types of intangible assets will have different useful lives and
certain assets may even be considered to have indefinite useful lives.

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Recently Adopted Accounting Pronouncements

Income Taxes: In the fourth quarter of 2018, we adopted amended guidance as issued by SEC staff in
December 2017 which provides clarification for entities that may not have completed their accounting in the
period of enactment for the income tax effects of the 2017 Tax Cut and Jobs Act (“2017 Tax Act”), which for us
was the third quarter of 2018. The amended guidance provides a provisional one-year measurement period for
entities to finalize their accounting for the income tax effects. Under the amended guidance, we are required to
reflect the income tax effects in the enactment period of those aspects of the 2017 Tax Act for which the
accounting is complete. We are required to record a provisional estimate in our consolidated financial statements
if the accounting for certain aspects of the 2017 Tax Act are incomplete provided that the effects are reasonably
determinable. Such provisional amounts are subject to further adjustments during the measurement period until
the accounting for the income tax effects is finalized. If the effects of the 2017 Tax Act are not reasonably
determinable, we would continue to apply the accounting guidance that was in effect immediately before the
2017 Tax Act’s enactment date until the provisional amounts become reasonably estimable. The SEC staff
guidance also requires additional disclosures when the accounting related to the 2017 Tax Act is not complete.
Refer to Financial Note 10, “Income Taxes,” for more information regarding the impact of this amended
guidance on our consolidated financial statements.

Derivatives and Hedging: In the fourth quarter of 2018, we elected to early adopt amended guidance for
derivatives and hedging on a modified retrospective basis. The amended guidance was issued to improve the
accounting for hedging activities and to better align an entity’s risk management activities and financial reporting
for hedging relationships. The amended guidance, among other provisions, eliminates the existing requirement to
recognize periodic hedge ineffectiveness in earnings for cash flow hedges and net investment hedges that are
highly effective and requires that all items that affect earnings be classified in the same income statement line as
the hedged item. The adoption of this amended guidance did not have a material effect on our consolidated
financial statements.

Goodwill Impairment Testing: In the second quarter of 2018, we elected to adopt amended guidance which
simplifies goodwill impairment testing by eliminating the second step of the impairment test. The amended
guidance requires an impairment charge to be recognized for the amount by which the carrying amount of a
reporting unit exceeds its fair value under a one-step impairment test. Refer to Financial Note 3, “Goodwill
Impairment Charges” for more information.

Investments: In the first quarter of 2018, we adopted amended guidance for the equity method of
accounting. The amended guidance simplifies the transition to the equity method of accounting. This standard
eliminates the requirement that when an existing cost method investment qualifies for use of the equity method,
an investor must restate its historical financial statements, as if the equity method had been used during all
previous periods. Additionally, at the point an investment qualifies for the equity method, any unrealized gain or
loss in accumulated other comprehensive income (loss) will be recognized through earnings. The adoption of this
amended guidance did not have a material effect on our consolidated financial statements.

Derivatives and Hedging: In the first quarter of 2018, we adopted amended guidance for derivative
instrument novations. The amendments clarify that a novation, a change in the counterparty, to a derivative
instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of
that hedging relationship provided all other hedge accounting criteria continue to be met. The adoption of this
amended guidance did not have an effect on our consolidated financial statements.

Consolidation: In the first quarter of 2018, we adopted amended guidance for VIEs. The amended guidance
requires a single decision maker of a VIE to consider indirect economic interests in the entity held through

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related parties that are under common control on a proportionate basis when determining whether it is the
primary beneficiary of that VIE. This amendment does not change the existing characteristics of a primary
beneficiary. The adoption of this amended guidance did not have a material effect on our consolidated financial
statements.

Inventories: In the first quarter of 2018, we adopted amended guidance for the subsequent measurement of
inventory. The amended guidance requires entities to measure inventory at the lower of cost or net realizable
value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. The requirement replaced the lower of cost or
market evaluation previously applied. Accounting guidance is unchanged for inventory measured using the LIFO
or the retail method. The adoption of this amended guidance did not have a material effect on our consolidated
financial statements.

Share-Based Payments: In the first quarter of 2017, we adopted amended guidance for employee share-
based payment awards. Under the amended guidance, all excess tax benefits (“windfalls”) and deficiencies
(“shortfalls”) related to employee share-based compensation arrangements are recognized within income tax
expense. Under the previous guidance, windfalls were recognized in additional paid-in capital (“APIC”) and
shortfalls were only recognized to the extent they exceeded the pool of windfall tax benefits. The amended
guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows,
rather than a financing activity. The primary impact of the adoption was the recognition of excess tax benefits in
the income statement on a prospective basis, rather than APIC. As a result, discrete tax benefits of $54 million
were recognized in income tax expense in 2017. We also elected to adopt the cash flow presentation of the excess
tax benefits prospectively commencing in the first quarter of 2017. None of the other provisions in this amended
guidance had a material impact on our consolidated financial statements.

Business Combinations: In the first quarter of 2017, we adopted amended guidance for an acquirer’s
accounting for measurement-period adjustments. The amended guidance eliminates the requirement that an
acquirer in a business combination account for measurement-period adjustments retrospectively and instead
requires that measurement-period adjustments be recognized during the period in which it determines the
adjustment. In addition, the amended guidance requires that the acquirer record, in the same period’s financial
statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a
result of the change to the provisional amounts, calculated as if the accounting had been completed at the
acquisition date. The adoption of this amended guidance did not have a material effect on our consolidated
financial statements.

Fair Value Measurement: In the first quarter of 2017, we adopted amended fair value guidance on a
retrospective basis. This amended guidance limits disclosures and removes the requirement
to categorize
investments within the fair value hierarchy if the fair value of the investment is measured using the net asset
value (“NAV”) per share practical expedient. The amended guidance primarily affected our fiscal 2017 annual
disclosures related to our pension benefits. Refer to Financial Note 18, “Pension Benefits,” for more information
regarding the impact of this amended guidance on our pension benefits. The adoption of this amended guidance
did not have a material effect on our consolidated financial statements.

Fees Paid in a Cloud Computing Arrangement: In the first quarter of 2017, we adopted amended guidance
for a customer’s accounting for fees paid in a cloud computing arrangement. The amended guidance requires
customers to determine whether or not an arrangement contains a software license element. If the arrangement
contains a software license element, the related fees paid should be accounted for as an acquisition of a software
license. If the arrangement does not contain a software license, it is accounted for as a service contract. The
adoption of this amended guidance did not have a material effect on our consolidated financial statements.

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Debt Issuance Costs: In the first quarter of 2017, we adopted amended guidance for the balance sheet
presentation of debt issuance costs on a retrospective basis. The amended guidance requires debt issuance costs
related to a recognized debt liability to be reported on the balance sheet as a direct deduction from the carrying
amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected
by the amended guidance. In August 2015, a clarification was added to this amended guidance that debt issuance
costs related to line-of-credit arrangements can continue to be deferred and presented as an asset on the balance
sheet. Upon adoption, unamortized debt issuance costs of $40 million were reclassified primarily from other
noncurrent assets to long-term debt at March 31, 2016.

Consolidation: In the first quarter of 2017, we adopted amended guidance for consolidating legal entities in
which a reporting entity holds a variable interest. The amended guidance modifies the evaluation of whether
limited partnerships and similar legal entities are VIEs and changes the consolidation analysis of reporting
entities that are involved with VIEs that have fee arrangements and related party relationships. The adoption of
this amended guidance did not have a material effect on our consolidated financial statements.

Discontinued Operations: In the first quarter of 2016, we adopted amended guidance for reporting of
discontinued operations and disclosures of disposals of components. The amended guidance revises the criteria
for disposals to qualify as discontinued operations and permits significant continuing involvement and continuing
cash flows with the discontinued operation. In addition, the amended guidance requires additional disclosures for
discontinued operations and new disclosures for individually material disposal transactions that do not meet the
definition of a discontinued operation. Refer to Financial Note 7, “Discontinued Operations,” for more
information regarding the impact of this amended guidance on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Accumulated Other Comprehensive Income: In February 2018, amended guidance was issued to address a
narrow-scope financial reporting issue that arose as a consequence of the 2017 Tax Act. Existing guidance
requires that deferred tax liabilities and assets be adjusted for a change in tax laws with the effect included in
income from continuing operations in the reporting period that includes the enactment date. That guidance is
applicable even in situations in which the related income tax effects of
items in accumulated other
comprehensive income were originally recognized in other comprehensive income rather in net income, such as
amounts related to benefit plans and hedging activity. As a result, the tax effects of items within accumulated
other comprehensive income do not reflect the appropriate tax rate. This difference is referred to as stranded tax
effects. The amended guidance allows for a reclassification of only those amounts related to the 2017 Tax Act to
retained earnings thereby eliminating the stranded tax effects. The amended guidance also requires certain
disclosures about stranded tax effects. The amended guidance is effective for us beginning in the first quarter of
2020 on a prospective or retrospective basis. Early adoption is permitted. We are currently evaluating the impact
of this amended guidance on our consolidated financial statements.

Share-Based Payments: In May 2017, amended guidance was issued for employee share-based payment
awards. This amendment provides guidance on which changes to terms or conditions of a share-based payment
award require an entity to apply modification accounting. Under the amended guidance, we are required to
account for the effects of a modification if the fair value, the vesting conditions or the classification (as an equity
instrument or a liability instrument) of the modified award change from that of the original award immediately
before the modification. The amended guidance is effective for us commencing in the first quarter of 2019 on a
prospective basis. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a
material effect on our consolidated financial statements.

Premium Amortization of Purchased Callable Debt Securities: In March 2017, amended guidance was
issued to shorten the amortization period for certain callable debt securities held at a premium. The amended

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guidance requires the premium of callable debt securities to be amortized to the earliest call date but does not
require an accounting change for securities held at a discount as they would still be amortized to maturity. The
amended guidance is effective for us on a modified retrospective basis commencing in the first quarter of
2020. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our
consolidated financial statements.

Compensation—Retirement Benefits: In March 2017, amended guidance was issued which requires us to
report the service cost component of defined benefit pension plans and other postretirement plans in the same
line item as other compensation costs arising from services rendered by the pertinent employees during the
period. Other components of net benefit cost are required to be presented in the statements of operations
separately from the service cost component outside of operating income. This amended guidance is effective for
us in the first quarter of 2019 on a retrospective basis. Early adoption is permitted. We expect the adoption of this
amended guidance to have a material effect on our consolidated financial statements. This amended guidance is
expected to only result in a change in presentation of other components of net benefit costs on our consolidated
statement of operations (a reclassification from operating income to other income, net).

Derecognition of Nonfinancial Assets: In February 2017, amended guidance was issued that defines the term
“in substance nonfinancial asset” as a financial asset promised to a counterparty in a contract if substantially all
of the fair value of the asset that is promised is concentrated in nonfinancial assets. The scope of this amendment
includes nonfinancial assets transferred within a legal entity including a parent entity’s transfer of nonfinancial
assets by transferring ownership interests in consolidated subsidiaries. The amendment excludes all businesses
and nonprofit activities from its scope and therefore all entities, with limited exceptions, are required to account
for the derecognition of a business or nonprofit activity in accordance with the consolidation guidance once this
amended guidance becomes effective. We are required to apply this amended guidance at the same time we apply
the amended revenue guidance in the first quarter of 2019. It allows for either full retrospective or modified
retrospective adoption. Early adoption is permitted. We do not expect the adoption of this amended guidance to
have a material effect on our consolidated financial statements.

Business Combinations: In January 2017, amended guidance was issued to clarify the definition of a
business to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or
businesses. The amended guidance provides a practical screen to determine when an integrated set of assets and
activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of
the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar
identifiable assets, the set is not a business. If the screen is not met, the amended guidance requires that to be
considered a business, a set must include an input and a substantive process that together significantly contribute
to the ability to create output. The amended guidance is effective for us commencing in the first quarter of 2019
on a prospective basis. Early adoption is permitted in certain circumstances. We do not expect the adoption of
this amended guidance to have a material effect on our consolidated financial statements.

Restricted Cash: In November 2016, amended guidance was issued that requires restricted cash and
restricted cash equivalents
to be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Transfers
between cash and cash equivalents and restricted cash or restricted cash equivalents are not reported as cash flow
activities in the statement of cash flows. The amended guidance is effective for us commencing in the first
quarter of 2019 on a retrospective basis. Early adoption is permitted. We expect the adoption of this amended
guidance to have no effect on our consolidated statements of operations, comprehensive income or our
consolidated balance sheets. This amended guidance is expected to only result in a change in presentation of
restricted cash and restricted cash equivalents on our consolidated statement of cash flows.

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Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory: In October 2016, amended guidance
was issued to require entities to recognize income tax consequences of an intra-entity transfer of an asset other
than inventory when the transfer occurs. The amended guidance is effective for us commencing in the first
quarter of 2019 on a modified retrospective basis. Upon adoption of this amended guidance in the first quarter of
2019, we anticipate recording approximately $130 million to $160 million of deferred tax assets with a
corresponding cumulative-effect increase to the beginning balance of retained earnings in our consolidated
financial statements for the tax consequences relating to an intra-entity transfer of certain software.

Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments: In August 2016,
amended guidance was issued to provide clarification on cash flow classification related to eight specific issues
including contingent consideration payments made after a business combination and distributions received from
equity method investees. The amended guidance is effective for us commencing in the first quarter of 2019 on a
retrospective basis. Early adoption is permitted. We intend to make policy elections within the amended standard
that are consistent with our current classification. We do not expect the adoption of this amended guidance to
have a material effect on our consolidated financial statements.

Financial Instruments—Credit Losses: In June 2016, amended guidance was issued, which will change the
impairment model for most financial assets and require additional disclosures. The amended guidance requires
financial assets that are measured at amortized cost be presented at the net amount expected to be collected. The
allowance for credit losses is a valuation account that is deducted from the amortized cost basis of financial
assets. The amended guidance also requires us to consider historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectibility of the reported amount in estimating credit
losses. The amended guidance becomes effective for us commencing in the first quarter of 2021 and will be
applied through a cumulative-effect adjustment to the beginning retained earnings in the year of adoption. Early
adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated
financial statements.

Leases: In February 2016, amended guidance was issued for lease arrangements. The amended guidance
will require lessees to recognize assets and liabilities on the balance sheet for all leases with terms longer than 12
months and provide enhanced disclosures on key information of leasing arrangements. The amended guidance is
effective for us commencing in the first quarter of 2020. Early adoption is permitted. We plan to adopt the
amended guidance on the effective date and expect that the adoption of the amended lease guidance will
materially affect our consolidated balance sheet and will require certain changes to our systems and processes.

Financial Instruments: In January 2016, amended guidance was issued that requires equity investments to
be measured at fair value with changes in fair value recognized in net income and enhanced disclosures about
those investments. This guidance also simplifies the impairment assessments of equity investments without
readily determinable fair value. The investments that are accounted for under the equity method of accounting or
result in consolidation of the investee are excluded from the scope of this amended guidance. The amended
guidance will become effective for us commencing in the first quarter of 2019 and will be applied through a
cumulative-effect adjustment. Early adoption is not permitted except for certain provisions. We do not expect the
adoption of this amended guidance to have a material effect on our consolidated financial statements.

Revenue Recognition: In May 2014, amended guidance was issued for recognizing revenue from contracts
with customers. Under the amended guidance, revenues will be recognized when an entity satisfies a
performance obligation by transferring control of a promised good or service to a customer in an amount that
reflects the consideration to which the entity expects to be entitled for that good or service. The amended
guidance also requires additional quantitative and qualitative disclosures. Additional amendments were also

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issued subsequently, including clarifications on principal versus agent considerations, performance obligations,
and certain scope improvements and practical expedients. The amended guidance is effective for us commencing
in the first quarter of 2019. We will adopt this amended guidance on a modified retrospective basis in our first
quarter of 2019. Our equity method investee, Change Healthcare, will adopt the amended guidance in our first
quarter of 2020. Change Healthcare is currently evaluating the adoption impact.

We continue to make progress on our evaluation of the adoption impact including a review of the amended
guidance as compared to our current accounting policies and customer contract reviews. We substantially
completed our assessment during the fourth quarter of 2018. Our revenue is primarily generated from sales of
pharmaceutical products, which will continue to be recognized when goods are transferred to the customer. We
have substantially similar performance obligations under the amended guidance as compared with deliverables
and units of account currently being recognized. Accordingly, we generally anticipate that the timing of
recognition of distribution revenue will be substantially unchanged under the amended guidance. Upon adoption
of this amended guidance, we expect to recognize an immaterial adjustment to retained earnings reflecting the
cumulative impact for estimated variable consideration, subject to the constraint.

2. Healthcare Technology Net Asset Exchange

On March 1, 2017, we contributed the majority of our McKesson Technology Solutions businesses (“Core
MTS Business”) to the newly formed joint venture, Change Healthcare, under the terms of a contribution agreement
previously entered into between McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including
shareholders of Change. We retained our RelayHealth Pharmacy (“RHP”) and Enterprise Information Solutions
(“EIS”) businesses. The EIS business was subsequently sold to a third party in the third quarter of 2018. In
exchange for the contribution, we own 70% of the joint venture with the remaining equity ownership held by
shareholders of Change. The joint venture is jointly governed by us and shareholders of Change.

Gain from Healthcare Technology Net Asset Exchange

We accounted for this transaction as a sale of the Core MTS Business and a subsequent purchase of a 70%
interest in the newly formed joint venture. Accordingly, in the fourth quarter of 2017, we deconsolidated the
Core MTS Business and recorded a pre-tax gain of $3,947 million (after-tax gain of $3,018 million). The pre-tax
gain was calculated based on the difference between the fair value of our 70% equity interest in the joint venture,
less the carrying amount of the contributed Core MTS Business’ net assets of $1,132 million and $1,258 million
of promissory notes, a $136 million noncurrent liability associated with a tax receivable agreement (as described
below) and transaction and other related expenses. The $1,258 million of promissory notes were subsequently
repaid in cash from proceeds of Change Healthcare’s long term debt issuance. Additionally, in the first quarter of
2018, we recorded a pre-tax gain of $37 million (after-tax gain of $22 million) in operating expenses upon the
finalization of net working capital and other adjustments. During the second quarter of 2018, we received
$126 million in cash from Change Healthcare representing the final settlement of the net working capital and
other adjustments.

Equity Method Investment in Change Healthcare

Our investment in the joint venture is accounted for using the equity method of accounting on a one-month
reporting lag. In 2018, we recorded our proportionate share of loss from Change Healthcare of $248 million, which
included transaction and integration expenses incurred by the joint venture and fair value adjustments including
incremental intangible assets amortization associated with basis differences, partially offset by a provisional tax
benefit of $76 million recognized by Change Healthcare primarily due to a reduction in the future applicable tax rate
related to the December 2017 enactment of the 2017 Tax Act. This amount was recorded under the caption, “Loss
from Equity Method Investment in Change Healthcare,” in our consolidated statement of operations.

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At March 31, 2018 and 2017, our carrying value in our investment was $3,728 million and $4,063 million,
which exceeded our proportionate share of the joint venture’s book value of net assets by approximately
$4,472 million and $4,762 million, primarily reflecting equity method intangible assets, goodwill and other fair
value adjustments.

Related Party Transactions

In connection with the transaction, McKesson, Change Healthcare and certain shareholders of Change
entered into various ancillary agreements, including transition services agreements (“TSA”), a transaction and
advisory fee agreement (“Advisory Agreement”), a tax receivable agreement (“TRA”) and certain other
commercial agreements.

Pursuant to the TRA, McKesson may be required to make certain payments or may be entitled to receive
certain payments related to the cash tax savings attributable to the utilization of certain tax attributes, including
certain amortizable tax basis in software contributed by McKesson to Change Healthcare. No such payments
were required to be made or received for 2017 and 2018. At March 31, 2018 and 2017, we had $90 million and
$136 million of noncurrent liability payable to shareholders of Change associated with the TRA. During 2018,
we recorded a credit of $46 million in operating expense to reduce this liability to $90 million reflecting a
reduction in future applicable tax rate related to the 2017 Tax Act. The TRA liability remained at $90 million at
March 31, 2018. The amount of liability is determined based on certain estimates and could become payable in
periods after a disposition of our investment in Change Healthcare.

The total fees charged by us to the joint venture for various transition services under the TSA were
$91 million in 2018 and were not material in 2017. Transition services fees are included within operating
expenses in our consolidated statements of operations.

In 2018 and 2017, we did not earn material transaction and advisory fees under the Advisory Agreement.

Revenues recognized and expenses incurred under commercial arrangements with Change Healthcare were

not material during 2018 and 2017.

At March 31, 2018 and 2017, receivables due from the joint venture were not material.

3. Goodwill Impairment Charges

We recorded non-cash pre-tax goodwill impairment charges of $1,738 million within the Distribution
Solutions segment in 2018 and $290 million within the Technology Solutions segment in 2017. The charges were
recorded under the caption, “Goodwill Impairment Charges” in the accompanying consolidated statements of
operations.

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

The fair value of the reporting unit was determined using a combination of an income approach based on a
DCF model and a market approach based on guideline public companies’ revenues and earnings before interest,
tax, depreciation and amortization multiples. Fair value estimates result from a complex series of judgments

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about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed
reasonable by management as of the measurement date. Any changes in key assumptions, including failure to
improve operations of certain retail pharmacy stores, additional government
reductions,
deterioration in the financial market, an increase in interest rates or an increase in the cost of equity financing by
market participants within the industry, or other unanticipated events and circumstances, may affect such
estimates. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the
significance of unobservable inputs developed using company specific information.

reimbursement

Fiscal 2018

McKesson Europe

In 2018, we recorded total non-cash pre-tax and after-tax charges of $1,283 million to impair the carrying
value of goodwill for our McKesson Europe reporting unit within our Distribution Solutions segment, as further
described below. There were no tax benefits associated with these goodwill impairment charges. At March 31,
2018, this reporting unit had a remaining goodwill balance of $1,851 million.

During the second quarter of 2018, our McKesson Europe reporting unit had a decline in its estimated future
cash flows, primarily in our United Kingdom (“U.K.”) retail business, driven by significant government
reimbursement reductions affecting retail pharmacy economics across the U.K. market. Accordingly, we
performed an interim one-step goodwill impairment test under the amended goodwill guidance for this reporting
unit prior to our annual impairment test. As a result of the interim impairment test, the estimated fair value of this
reporting unit was determined to be lower than the carrying value and we recorded a non-cash goodwill
impairment charge (pre-tax and after-tax) of $350 million. The discount rate and terminal growth rate used in our
2018 second quarter impairment testing were 7.5% and 1.25% compared to 7.0% and 1.5% in our 2017 annual
impairment test.

Additionally, as a result of the 2018 annual impairment test, we determined that the carrying value of the
McKesson Europe reporting unit further exceeded its estimated fair value and recognized a non-cash goodwill
impairment charge (pre-tax and after-tax) of $933 million in the fourth quarter of 2018. This reporting unit had a
further decline in its estimated future cash flows driven by weakening script growth outlook in our U.K. business
and by a more competitive environment in France during the fourth quarter of 2018. The discount rate and
terminal growth rate used in our 2018 annual impairment testing were 8.0% and 1.25%.

Rexall Health

As a result of the 2018 annual impairment test, we determined that the carrying value of our Rexall Health
reporting unit within our Distribution Solutions segment exceeded its estimated fair value and recognized a
non-cash goodwill impairment charge (pre-tax and after-tax) of $455 million in the fourth quarter of 2018. The
impairment was the result of a decline in estimated future cash flows primarily driven by significant generics
reimbursement reductions across Canada and minimum wage increases in multiple provinces which can only be
partially mitigated through the business’ cost saving efforts. The discount rate and terminal growth rate used in
our impairment testing for this reporting unit were 10.0% and 2.0%. At March 31, 2018, the Rexall Health
reporting unit had no remaining goodwill related to our acquisition of Rexall Health.

Other risks, expenses and future developments that we were unable to anticipate as of the testing dates in
2018 may require us to further revise the future projected cash flows, which could adversely affect the fair value
of our reporting units in future periods. As a result, we may be required to record additional impairment charges.
Also, refer to Financial Note 4, “Restructuring and Asset Impairment Charges,” for more information.

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FINANCIAL NOTES (Continued)

Fiscal 2017

Enterprise Information Solutions

In conjunction with the 2017 Healthcare Technology Net Asset Exchange, we evaluated strategic options for
our EIS business, which was a reporting unit within our Technology Solutions segment. In the second quarter of
2017, we recorded a non-cash pre-tax charge of $290 million ($282 million after-tax) to impair the carrying value
of this reporting unit’s goodwill. The impairment primarily resulted from a decline in estimated cash flows. The
amount of goodwill impairment for the EIS business was determined under the former accounting guidance on
goodwill impairment testing, and computed as the excess of the carrying value of the reporting unit’s goodwill
over its implied fair value of its goodwill. The charge was recorded under the caption, “Goodwill Impairment
Charges,” in the accompanying consolidated statements of operations. Most of the goodwill impairment for this
reporting unit was not deductible for income tax purposes. Refer to Financial Note 5, “Divestitures” for more
information on the sale of the EIS business.

Refer to Financial Note 21, “Fair Value Measurements,” for more information on this nonrecurring fair

value measurement.

4. Restructuring and Asset Impairment Charges

We recorded pre-tax restructuring and asset impairment charges of $567 million in 2018 primarily within
the Distribution Solutions segment, $18 million in 2017 and $203 million in 2016 within the Distribution
Solutions segment, Technology Solutions segment and Corporate. These charges were recorded under the
caption, “Restructuring and asset
impairment charges” in the accompanying consolidated statements of
operations.

Fiscal 2018

McKesson Europe

In 2018, we recorded total non-cash pre-tax asset impairment charges of $446 million ($410 million
after-tax) and pre-tax restructuring charges of $74 million ($67 million after-tax) primarily representing
employee severance and lease exit costs for our McKesson Europe business, as further discussed below.

In the second quarter of 2018, we recorded non-cash pre-tax charges of $189 million ($157 million
after-tax) to impair the carrying value of certain intangible assets (primarily pharmacy licenses) and store assets
(primarily fixtures). The impairment was primarily driven by our U.K. retail business due to the previously
discussed decline in estimated future cash flows which resulted from significant government reimbursement
reductions in the U.K.

In the fourth quarter of 2018, we recorded non-cash pre-tax charges of $257 million ($253 million after-tax)
to impair the carrying value of certain intangible assets (primarily customer relationships) and capitalized
software assets due to further declines in estimated future cash flows in our European business.

We utilized an income approach (DCF method) or a combination of an income approach and a market
approach for estimating the fair value of long-lived assets. The fair value of the intangible assets is considered a
Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific
information.

On September 29, 2017, we committed to a restructuring plan, which primarily consists of the closures of
underperforming retail stores in the U.K. and a reduction in workforce. The plan is expected to be substantially

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FINANCIAL NOTES (Continued)

implemented prior to the first half of 2019. As part of this plan, we recorded pre-tax restructuring charges of
$74 million ($67 million after-tax) in operating expenses during 2018 primarily representing employee severance
and lease exit costs. We made $10 million of cash payments, primarily related to employee severance. The
reserve balance as of March 31, 2018 includes $42 million recorded in other accrued liabilities in our
consolidated balance sheets.

We expect to record total pre-tax restructuring charges of approximately $90 million to $130 million for our
McKesson Europe business, of which $74 million of pre-tax charges were recorded to date. Estimated remaining
restructuring charges primarily consist of lease termination and other exit costs.

Rexall Health

In the fourth quarter of 2018, we recorded non-cash pre-tax and after-tax charges of $33 million to impair
the carrying value of certain intangible assets (primarily customer relationships). The impairment was the result
of a decline in estimated future cash flows primarily driven by significant generics reimbursement reductions
across Canada and minimum wage increases in multiple provinces which can only be partially mitigated through
the business’ cost saving efforts. We utilized an income approach (DCF method) for estimating the fair value of
long-lived assets. The fair value of the intangible assets is considered a Level 3 fair value measurement due to the
significance of unobservable inputs developed using company specific information.

Fiscal 2016

Cost Alignment Plan

On March 14, 2016, we committed to a restructuring plan to lower our operating costs (the “Cost Alignment
Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce, and business process initiatives
that will be substantially implemented prior to the end of 2019. Business process initiatives primarily include
plans to reduce operating costs of our distribution and pharmacy operations, administrative support functions,
and technology platforms, as well as the disposal and abandonment of certain non-core businesses. As a result of
the Cost Alignment Plan, we expect
to record total pre-tax charges of approximately $250 million to
$270 million, of which $256 million of pre-tax charges were recorded to date. The remaining charges under this
program primarily consist of exit-related costs and accelerated depreciation and amortization related to our
Distribution Solutions segment.

We recorded restructuring charges of $13 million in 2018 and $14 million in 2017 including asset
impairment and accelerated depreciation and amortization, which were primarily recorded within operating
expenses within our Distribution Solutions segment. We recorded restructuring charges of $229 million primarily
related to severance and employee-related costs, in which restructuring charges of $26 million were recorded in
cost of sales and $203 million were recorded in operating expenses in 2016.

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FINANCIAL NOTES (Continued)

Restructuring charges for our Cost Alignment Plan for the year ended March 31, 2016 consisted of the

following:

(In millions)

Distribution
Solutions

Technology
Solutions

Corporate

Total

Severance and employee-related costs, net (1)

$147

$44

$ 16

$207

Exit-related costs

Asset impairments and accelerated depreciation and amortization (2)

Total

Cost of Sales

Operating Expenses

Total

3

11

$161

$

5

156

$161

1

6

$51

$21

30

$51

1

—

$ 17

$—

17

$ 17

5

17

$229

$ 26

203

$229

(1) Severance and employee-related costs, net, include charges of $117 million and $90 million, for a total of

$207 million, for a reduction in workforce and business process initiatives.

(2) Asset impairments and accelerated depreciation and amortization charges primarily include impairments for

capitalized software projects and software licenses due to abandonments.

The following table summarizes the activity related to the restructuring liabilities associated with the Cost

Alignment Plan for the years ended March 31, 2018 and 2017:

(In millions)

Balance, March 31, 2016

Net restructuring charges recognized

Non-cash charges

Cash payments

Other

Balance, March 31, 2017 (1)

Net restructuring charges recognized

Non-cash charges

Cash payments

Other

Distribution
Solutions

Technology
Solutions

Corporate

Total

$156

$ 45

$ 21

$ 222

19

(10)

(67)

(8)

(10)

—

(20)

(5)

5

1

(19)

(2)

14

(9)

(106)

(15)

$ 90

$ 10

$

6

$ 106

13

—

(36)

(3)

—

—

(4)

(6)

—

—

(5)

4

5

13

—

(45)

(5)

$ 69

Balance, March 31, 2018 (2)

$ 64

$—

$

(1) The reserve balance as of March 31, 2017 includes $71 million recorded in other accrued liabilities and

$35 million recorded in other noncurrent liabilities on our consolidated balance sheet.

(2) The reserve balance as of March 31, 2018 includes $39 million recorded in other accrued liabilities and

$30 million recorded in other noncurrent liabilities on our consolidated balance sheet.

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FINANCIAL NOTES (Continued)

5. Divestitures

Fiscal 2018

Enterprise Information Solutions

On August 1, 2017, we entered into an agreement with a third party to sell our EIS business for
$185 million, subject to adjustments for net debt and working capital. On October 2, 2017, the transaction closed
upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust
laws. We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party. We
recognized a pre-tax gain of $109 million (after-tax gain of $30 million) upon the disposition of this business in
the third quarter of 2018 within operating expenses in our Technology Solutions segment.

Equity Investment

On July 18, 2017, we completed the sale of an equity method investment in our Distribution Solutions
segment to a third party for total cash proceeds of $42 million and recognized a pre-tax gain of $43 million
($26 million after-tax) within other income, net, in the second quarter of 2018.

Fiscal 2017

There were no material divestitures in 2017.

Fiscal 2016

During the second quarter of 2016, we sold our ZEE Medical business within our Distribution Solutions
segment for total proceeds of $134 million and recorded a pre-tax gain of $52 million ($29 million after-tax)
from this sale.

During the first quarter of 2016, we sold our nurse triage business within our Technology Solutions segment
for net sale proceeds of $84 million and recorded a pre-tax gain of $51 million ($38 million after-tax) from the
sale.

These divestitures did not meet the criteria to be reported as discontinued operations since they did not
constitute a significant strategic business shift. Accordingly, pre-tax gains from 2018 and 2016 divestitures were
recorded within continuing operations of our consolidated statements of operations. Pre- and after-tax income of
divested businesses were not material for 2018 and 2016.

6. Business Combinations

2018 Acquisitions

RxCrossroads

On January 2, 2018, we completed our acquisition of RxCrossroads for the net purchase consideration of
$724 million, which was funded from cash on hand. RxCrossroads is headquartered in Louisville, Kentucky and
provides tailored services to pharmaceutical and biotechnology manufacturers. This acquisition will enhance our
existing commercialization solutions for manufacturers of branded, specialty, generic and biosimilar drugs. The
financial results of the acquired business are included in our North America pharmaceutical distribution and
services business within our Distribution Solutions segment since the acquisition date.

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The provisional fair value of assets acquired and liabilities assumed as of the acquisition date, excluding
goodwill and intangibles, were $133 million and $43 million. Approximately $368 million of the preliminary
purchase price allocation has been assigned to goodwill, which reflects the expected future benefits of certain
synergies and intangible assets that do not qualify for separate recognition. The preliminary purchase price
allocation included acquired identifiable intangibles of $262 million primarily representing customer
relationships and trade names with a weighted average life of 18 years. Amounts of assets and liabilities
recognized as of the acquisition date are provisional and subject to change within the measurement period as our
fair value assessments are finalized.

CoverMyMeds LLC (“CMM”)

On April 3, 2017, we completed our acquisition of CMM for the net purchase consideration of $1.3 billion,
which was funded from cash on hand. The cash consideration was initially paid into an escrow account prior to
our 2017 fiscal year end, and was included in “Other Noncurrent Assets” within our consolidated balance sheet at
March 31, 2017. CMM is headquartered in Columbus, Ohio and provides electronic prior authorization solutions
to pharmacies, providers, payers, and pharmaceutical manufacturers. The financial results of CMM are included
in our North America pharmaceutical distribution and services business within our Distribution Solutions
segment since the acquisition date.

Pursuant to the agreement, McKesson may pay up to an additional $160 million of contingent consideration
based on CMM’s financial performance for 2018 and 2019. As a result, we recorded a liability for this remaining
contingent consideration at its estimated fair value of $113 million as of the acquisition date on our consolidated
balance sheet. The contingent consideration was estimated using a Monte Carlo simulation, which utilized
Level 3 inputs under the fair value measurement and disclosure guidance, including estimated financial forecasts.
The contingent liability is re-measured at fair value at each reporting date until the liability is extinguished with
changes in fair value being recorded in our consolidated statements of operations. As of March 31, 2018, the
contingent consideration liability was $124 million. The initial fair value of this contingent consideration was a
non-cash investing activity. In May 2018, we made a cash payment of $68 million representing the contingent
consideration for 2018.

The fair value of assets acquired and liabilities assumed of CMM as of the acquisition date were finalized
upon completion of the measurement period. As of March 31, 2018, the final amounts of fair value recognized
for the assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were
$53 million and $8 million. Approximately $870 million of the final purchase price allocation has been assigned
to goodwill, which reflects the expected future benefits of certain synergies and intangible assets that do not
qualify for separate recognition. The final purchase price allocation included acquired identifiable intangibles of
$487 million primarily representing customer relationships with a weighted average life of 17 years.

Other

During 2018, we also completed our acquisitions of intraFUSION, Inc. (“intraFUSION”), BDI Pharma,
LLC (“BDI”) and Uniprix Group (“Uniprix”) for net cash consideration of $485 million, which was funded from
cash on hand. intraFUSION is a healthcare management company based in Houston, Texas and provides services
to physician office infusion centers. BDI is a plasma distributor headquartered in Columbia, South Carolina. We
acquired the Uniprix banner which serves more than 300 independent pharmacies in Quebec, Canada. The
adjusted provisional fair value of assets acquired and liabilities assumed for these acquisitions as of the
acquisition date, excluding goodwill and intangibles, were $292 million and $154 million. Approximately
$240 million of the adjusted preliminary purchase price allocation has been assigned to goodwill, which reflects

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the expected future benefits of certain synergies and intangible assets that do not qualify for separate recognition.
Included in the adjusted preliminary purchase price allocation for these acquisitions are acquired identifiable
intangibles of $118 million primarily representing customer relationships. Amounts recognized as of the
acquisition date are provisional and subject to change within the measurement period until our fair value
assessments are finalized. The financial results of intraFUSION, BDI and Uniprix are included within our
Distribution Solutions segment since the acquisition dates.

The fair value of acquired intangibles from these acquisitions was primarily determined by applying the
income approach, using several significant unobservable inputs for projected cash flows and a discount rate.
These inputs are considered Level 3 inputs.

2017 Acquisitions

In 2017, we completed our acquisitions of Rexall Health, a division of the Katz Group Canada Inc.,

Vantage, Biologics, Inc. (“Biologics”) and UDG Healthcare Plc (“UDG”), as further discussed below.

Rexall Health

On December 28, 2016, we completed our acquisition of Rexall Health which operates approximately 450
retail pharmacies in Canada, primarily in Ontario and Western Canada. The net cash purchase consideration of
$2.9 billion Canadian dollars (or, approximately $2.1 billion) was funded from cash on hand. As part of the
transaction, McKesson agreed to divest 27 local stores that the Competition Bureau of Canada (the “Bureau”)
identified during its review of the transaction. During 2018, we completed the sales of all 27 stores and received
net cash proceeds of $116 million Canadian dollars (or, approximately $94 million) from a third-party buyer. We
also received $147 million Canadian dollars (or, approximately $119 million) in cash from the third-party seller
of Rexall Health as the settlement of the post-closing purchase price adjustment related to these store
divestitures. No gain or loss was recognized from the sales of these stores. On May 23, 2018, as the result of
resolving certain indemnity and other claims, $126 million Canadian dollars (or, approximately $98 million)
including accrued interest, was released to us from an escrow account. The receipt of this cash will be recorded
as a settlement gain within operating expenses in our consolidated financial statements during the first quarter of
2019. The financial results of Rexall Health are included in our North America pharmaceutical distribution and
services business within our Distribution Solutions segment since the acquisition date.

The fair value measurements of assets acquired and liabilities assumed of Rexall Health as of the acquisition
date were finalized upon completion of the measurement period. At December 31, 2017, the final amounts of fair
value recognized for the assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and
intangibles, were $560 million and $210 million. Approximately $948 million of the final purchase price
allocation was assigned to goodwill, which primarily reflects the expected future benefits of certain synergies and
intangible assets that do not qualify for separate recognition. The final purchase price allocation included
acquired identifiable intangibles of $872 million, net of intangibles classified as held for sale, primarily
representing trade names with a weighted average life of 19 years and customer relationships with a weighted
average life of 19 years.

Vantage & Biologics

On April 1, 2016, we acquired Vantage, which is headquartered in Manhattan Beach, California. Vantage
provides comprehensive oncology management services, including radiation oncology, medical oncology, and
other integrated cancer care services, through over 51 cancer treatment facilities in 13 states. The net purchase

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

consideration of $515 million was funded from cash on hand. On April 1, 2016, we also acquired Biologics for a
net purchase consideration of $692 million, which was funded from cash on hand. Biologics is one of the largest
independent oncology-focused specialty pharmacies in the U.S., and is headquartered in Cary, North Carolina.
Financial results for these acquisitions since the acquisition date are included in our consolidated statements of
operations within our North America pharmaceutical distribution and services business, which is part of our
Distribution Solutions segment. These acquisitions collectively enhance our specialty pharmaceutical distribution
scale and oncology-focused pharmacy offerings, provide solutions for manufacturers and payers, and expand the
scope of our community-based oncology and practice management services.

The following table summarizes the final amounts of the fair values recognized for the assets acquired and
liabilities assumed for these two acquisitions as of the acquisition date as well as adjustments made during the
measurement period:

(In millions)

Receivables

Other current assets, net of cash and cash equivalents acquired

Goodwill

Intangible assets

Other long-term assets

Current liabilities

Other long-term liabilities

Fair value of net assets, less cash and cash equivalents

Less: Noncontrolling Interests

Amounts
Previously
Recognized as of
Acquisition Date
(Provisional) (1)

Measurement
Period
Adjustments

Amounts
Recognized as of
Acquisition Date

$ 106

19

1,219

136

76

(117)

(80)

1,359

(152)

$ (5)

—

(87)

79

54

(15)

(89)

(63)

63

$ 101

19

1,132

215

130

(132)

(169)

1,296

(89)

Net assets acquired, net of cash and cash equivalents

$1,207

$—

$1,207

(1) As reported on Form 10-Q for the quarter ended June 30, 2016.

At March 31, 2017, approximately $558 million and $574 million of the final purchase price allocations for
Vantage and Biologics have been assigned to goodwill, which primarily reflects the expected future benefits of
synergies upon integrating the businesses. Goodwill represents the excess of the purchase price and the fair value
of noncontrolling interests over the fair value of the acquired net assets.

The final purchase price allocation included acquired identifiable intangibles of $22 million and
$193 million for Vantage and Biologics. Acquired intangibles for Vantage primarily consist of $13 million of
non-competition agreements with a weighted average life of 4 years, and for Biologics primarily consist of
$170 million of trade names with a weighted average life of 9 years. The final fair value of Vantage’s
noncontrolling interests as of the acquisition date was approximately $89 million, which represents the portion of
net assets of Vantage’s consolidated entities that is not allocable to McKesson.

UDG

In the first quarter of 2017, we completed our acquisition of the pharmaceutical distribution businesses of
UDG based in Ireland and the U.K. with a net purchase consideration of €380 million (or, approximately $431
million), which was funded with cash on hand. The acquired UDG businesses primarily provide pharmaceutical

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FINANCIAL NOTES (Continued)

and other healthcare products to retail and hospital pharmacies. The acquisition of UDG expands our offerings
and strengthens our market position in Ireland and the U.K. Financial results for UDG since the acquisition date
are included in our results of operations within our International pharmaceutical distribution and services
business, which is part of our Distribution Solutions segment.

The fair value measurements of assets acquired and liabilities assumed of UDG as of the acquisition date
were finalized upon completion of the measurement period. At March 31, 2017, the final amounts of fair value
recognized for the assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and
intangibles, were $469 million and $340 million. Included in the final purchase price allocation are acquired
identifiable intangibles of $120 million primarily comprised of customer relationships with a weighted average
life of 10 years. At March 31, 2017, $181 million of the final purchase price allocation has been assigned to
goodwill. Goodwill reflects the expected future benefits of synergies upon integrating the businesses. The net
effect of the cumulative adjustments was an increase in goodwill of approximately $16 million from the
provisional amounts as previously reported at June 30, 2016.

The fair value of acquired intangibles was primarily determined by applying the income approach, using
several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered
Level 3 inputs under the fair value measurements and disclosure guidance.

Other Acquisitions

During the three years presented, we also completed a number of other acquisitions within both of our
operating segments. Financial results for our business acquisitions have been included in our consolidated
financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have
been allocated based on estimated fair values at the date of acquisition.

Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax

purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes.

7. Discontinued Operations

On May 31, 2016, we completed the sale of our Brazilian pharmaceutical distribution business and
recognized an after-tax loss of $113 million within discontinued operations in the first quarter of 2017 primarily
for the settlement of certain indemnification matters as well as the release of the cumulative translation losses.
We made a payment of approximately $100 million related to the sale of this business.

The results of discontinued operations for the years ended March 31, 2018, 2017 and 2016 were not material
except for the loss recognized upon the disposition of our Brazilian business in 2017. As of March 31, 2018 and
2017, the carrying amounts of total assets and liabilities of discontinued operations were not material.

8. Share-Based Compensation

We provide share-based compensation to our employees, officers and non-employee directors, including
stock options, an employee stock purchase plan (“ESPP”), restricted stock units (“RSUs”), performance-based
restricted stock units (“PeRSUs”) and total shareholder return units (“TSRUs”) (collectively, “share-based
awards”). Most of our share-based awards are granted in the first quarter of each fiscal year.

Compensation expense for the share-based awards is recognized for the portion of awards ultimately
expected to vest. We estimate the number of share-based awards that will ultimately vest primarily based on

97

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

historical experience. The estimated forfeiture rate established upon grant is re-assessed throughout the requisite
service period and is adjusted when actual forfeitures occur. The actual forfeitures in future reporting periods
could be higher or lower than current estimates.

The compensation expense recognized has been classified in the consolidated statements of operations or
capitalized in the consolidated balance sheets in the same manner as cash compensation paid to our employees.
There were no material share-based compensation expenses capitalized as part of the cost of an asset in 2018,
2017 and 2016.

Impact on Net Income

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

(In millions)

Restricted stock unit awards (1)

Stock options

Employee stock purchase plan

Share-based compensation expense (2)

Tax benefit for share-based compensation expense (3)

Share-based compensation expense, net of tax

Years Ended March 31,

2018

$ 46

2017

$ 79

2016

$ 88

14

9

69

(28)

24

12

115

(92)

22

13

123

(41)

$ 41

$ 23

$ 82

(1)

Includes compensation expense recognized for RSUs, PeRSUs and TSRUs. Our TSRUs were awarded
beginning in 2015.

(2) 2016 includes non-cash credits of $14 million representing the reversal of previously recognized share-
based compensation expense, which was recorded due to employee terminations associated with the March
2016 Cost Alignment Plan.
Income tax benefit is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of
pre-tax compensation expense is not tax-deductible. Income tax expense for 2018 and 2017 included
discrete income tax benefits of $8 million and $54 million related to the adoption of the amended
accounting guidance on share-based compensation.

(3)

Stock Plans

In July 2013, our stockholders approved the 2013 Stock Plan to replace the 2005 Stock Plan. These stock
plans provide our employees, officers and non-employee directors the opportunity to receive equity-based, long-
term incentives in the form of stock options, restricted stock, RSUs, PeRSUs, TSRUs and other share-based
awards. The 2013 Stock Plan reserves 30 million shares plus the remaining number of shares reserved but unused
under the 2005 Stock Plan. As of March 31, 2018, 28 million shares remain available for future grant under the
2013 Stock Plan.

Stock Options

Stock options are granted with an exercise price at no less than the fair market value and those options
granted under the stock plans generally have a contractual term of seven years and follow a four year vesting
schedule.

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FINANCIAL NOTES (Continued)

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

• Expected stock price volatility is based on a combination of historical volatility of our common stock
and implied market volatility. We believe that this market-based input provides a reasonable estimate
of our future stock price movements and is consistent with employee stock option valuation
considerations.

• Expected dividend yield is based on historical experience and investors’ current expectations.

• The risk-free interest rate for periods within the expected life of the option is based on the constant

maturity U.S. Treasury rate in effect at the time of grant.

• Expected life of the options is based primarily on historical employee stock option exercises and other
behavior data and reflects the impact of changes in contractual life of current option grants compared to
our historical grants.

Weighted-average assumptions used to estimate the fair value of employee stock options were as follows:

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Expected life (in years)

Years Ended March 31,

2018

2017

2016

25% 21% 21%

0.8% 0.7% 0.4%

1.7% 1.1% 1.4%

4.5

4

4

The following is a summary of stock options outstanding at March 31, 2018:

Range of Exercise
Prices

$76.55 –$158.24

158.25 – 239.93

Options Outstanding

Options Exercisable

Number of Options
Outstanding
at Year End
(In millions)

Weighted-Average
Remaining
Contractual
Life (Years)

1

2

3

2

4

Weighted-
Average
Exercise Price

$108.17

190.18

Number of Options
Exercisable at
Year End
(In millions)

1

1

2

Weighted-
Average
Exercise Price

$106.05

199.13

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table summarizes stock option activity during 2018:

(In millions, except per share data)

Outstanding, March 31, 2017

Granted

Cancelled

Exercised

Outstanding, March 31, 2018

Vested and expected to vest (1)

Vested and exercisable, March 31, 2018

Weighted-
Average
Exercise
Price

$145.76

157.45

180.79

86.95

$161.27

$160.28

147.76

Shares

4

1

(1)

(1)

3

3

2

Weighted-Average
Remaining
Contractual
Term (Years)

4

4

4

2

Aggregate
Intrinsic
Value (2)

$97

$36

$35

35

(1) The number of options expected to vest takes into account an estimate of expected forfeitures.
(2) The intrinsic value is calculated as the difference between the period-end market price of the Company’s

common stock and the exercise price of “in-the-money” options.

The following table provides data related to stock option activity:

(In millions, except per share data)

Weighted-average grant date fair value per stock option

Aggregate intrinsic value on exercise

Cash received upon exercise

Tax benefits realized related to exercise

Total fair value of stock options vested

Total compensation cost, net of estimated forfeitures, related to unvested stock

options not yet recognized, pre-tax

Weighted-average period in years over which stock option compensation cost is

expected to be recognized

Years Ended March 31,

2018

2017

2016

$34.24

$32.19

$44.04

$

$

$

$

$

$

$

$

$

$

60

77

22

20

15

2

97

54

38

18

21

2

$ 107

$

$

$

$

47

42

18

20

2

Restricted Stock Unit Awards

RSUs, which entitle the holder to receive at the end of a vesting term a specified number of shares of the
Company’s common stock, are accounted for at fair value at the date of grant. Total compensation expense for
RSUs under our stock plans is determined by the product of the number of shares that are expected to vest and
the grant date market price of the Company’s common stock. The Compensation Committee determines the
vesting terms at the time of grant. These awards generally vest in three to four years. We recognize compensation
expense for RSUs on a straight-line basis over the requisite service period.

Non-employee directors receive an annual grant of RSUs, which vest immediately and are expensed upon
grant. The director may elect to receive the underlying shares immediately or defer receipt of the shares if they
meet director stock ownership guidelines. The shares will be automatically deferred for those directors who do
not meet the director stock ownership guidelines. At March 31, 2018, approximately 117,000 RSUs for our
directors are vested.

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FINANCIAL NOTES (Continued)

PeRSUs are RSUs for which the number of RSUs awarded is conditional upon the attainment of one or
more performance objectives over a specified period. Each year, the Compensation Committee approves the
target number of PeRSUs representing the base number of awards that could be granted if performance goals are
attained. PeRSUs are accounted for as variable awards until the performance goals are reached at which time the
grant date is established. Total compensation expense for PeRSUs is determined by the product of the number of
shares eligible to be awarded and expected to vest, and the market price of the Company’s common stock,
commencing at the inception of the requisite service period. During the performance period, the compensation
expense for PeRSUs is re-computed using the market price and the performance modifier at the end of a
reporting period. At the end of the performance period, if the goals are attained, the awards are granted and
classified as RSUs and accounted for on that basis. We recognize compensation expense for these awards on a
straight-line basis over the requisite aggregate service period of generally four years.

TSRUs replaced PeRSUs for our executive officers beginning in 2015. The number of vested TSRUs is
assessed at the end of a three-year performance period and is conditioned upon attainment of a total shareholder
return metric relative to a peer group of companies. We use the Monte Carlo simulation model to measure the
fair value of TSRUs. TSRUs have a requisite service period of approximately three years. Expense is attributed
to the requisite service period on a straight-line basis based on the fair value of the TSRUs. For TSRUs that are
designated as equity awards, the fair value is measured at the grant date. For TSRUs that are eligible for cash
settlement and designated as liability awards, we remeasure the fair value at the end of each reporting period and
also adjust a corresponding liability on our balance sheet for changes in fair value.

The weighted-average assumptions used to estimate the fair value of TSRUs are as follows:

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Expected life (in years)

Years Ended March 31,

2018

2017

2016

29% 23% 18%

0.8% 0.7% 0.4%

1.5% 1.1% 0.9%

3

3

3

The following table summarizes activity for restricted stock unit awards (RSUs, PeRSUs, and TSRUs)

during 2018:

(In millions, except per share data)

Nonvested, March 31, 2017

Granted

Vested

Nonvested, March 31, 2018

Weighted-
Average
Grant Date Fair
Value Per Share

$188.54

159.49

172.02

$176.74

Shares

2

1

(1)

2

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

(In millions)

Total fair value of shares vested

Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock

unit awards not yet recognized, pre-tax

Weighted-average period in years over which restricted stock unit award cost is expected

to be recognized

ESPP

Years Ended March 31,

2018

2017

2016

$156

$109

$104

$ 97

$ 99

$144

2

2

2

The Company has an ESPP under which 21 million shares have been authorized for issuance. The ESPP
allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions
occur over three-month purchase periods and the shares are then purchased at 85% of the market price at the end
of each purchase period. Employees are allowed to terminate their participation in the ESPP at any time during
the purchase period prior to the purchase of the shares. The 15% discount provided to employees on these shares
is included in compensation expense. The shares related to funds outstanding at the end of a quarter are included
in the calculation of diluted weighted average shares outstanding. These amounts have not been significant for all
the years presented. We recognize costs for employer matching contributions as ESPP expense over the relevant
purchase period. Shares issued under the ESPP were not material in 2018, 2017, and 2016. At March 31, 2018,
3 million shares remain available for issuance.

9. Other Income, Net

(In millions)

Interest income

Equity in earnings, net (1)

Gain from sale of equity method investment (2)

Other, net (1)

Total

Years Ended March 31,

2018

2017

2016

$ 48

$ 29

$ 18

32

30

43 —

7

31

15

—

25

$130

$ 90

$ 58

(1) Primarily recorded within our Distribution Solutions segment.
(2) Amount represented a pre-tax gain from the sale of an equity method investment from our Distribution

Solutions segment to a third party during the second quarter of 2018.

10. Income Taxes

(In millions)

Income from continuing operations before income taxes

U.S.

Foreign

Total income from continuing operations before income taxes

102

Years Ended March 31,

2018

2017

2016

$1,175

$5,772

$2,319

(936)

1,119

931

$ 239

$6,891

$3,250

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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

(In millions)

Current

Federal

State

Foreign

Total current

Deferred

Federal

State
Foreign

Total deferred

Income tax (benefit) expense

Years Ended March 31,

2018

2017

2016

$ 577

$ 524

$658

33

205

815

(767)

17
(118)

(868)

86

122

732

767

164
(49)

882

96

90

844

95

42
(73)

64

$ (53)

$1,614

$908

During 2018, income tax benefit was $53 million and during 2017 and 2016 income tax expenses were

$1,614 million and $908 million related to continuing operations.

Our reported income tax benefit rate was 22.2% in 2018 and income tax expense rates were 23.4%, and
27.9% in 2017 and 2016. Fluctuations in our reported income tax rates are primarily due to change in tax laws,
including the recently enacted 2017 Tax Act, the impact of nondeductible impairment charges, and varying
proportions of income attributable to foreign countries that have income tax rates different from the U.S. rate.

The reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal

income tax rate of 31.6% for 2018 and 35% for 2017 and 2016 to the income before income taxes is as follows:

(In millions)

Income tax expense at federal statutory rate

State income taxes net of federal tax benefit

Tax effect of foreign operations

Unrecognized tax benefits and settlements

Non-deductible goodwill

Share-based compensation

Net tax benefit on intellectual property transfer

Rate differential on gain from Change Healthcare Net Asset Exchange

Remeasurement of U.S. deferred taxes

Transition tax on foreign earnings

Other, net (1)

Income tax (benefit) expense

Years Ended March 31,

2018

2017

2016

$

75

50

(146)

454

585

(8)

(178)

—

(1,324)

457

(18)

(53)

$

$2,411

$1,137

153

(326)

57

106

(54)

(137)

(587)

—

—

92

(295)

(14)

—

—

—

—

—

—

(9)

(12)

$1,614

$ 908

(1) Our 2018 effective tax rate was impacted by other favorable U.S. federal permanent differences including

research and development credits of $11 million.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

In 2018, as a result of the 2017 Tax Act, we recognized a provisional tax benefit of $1,324 million due to
the re-measurement of certain deferred taxes to the lower U.S. federal tax rate and a provisional tax expense of
$457 million for the one-time tax imposed on certain accumulated earnings and profits (“E&P”) of our foreign
subsidiaries.

Our reported income tax benefit rate for 2018 was unfavorably impacted by non-cash pre-tax charges of
$1,738 million to impair the carrying value of goodwill related to our McKesson Europe and Rexall Health
reporting units within our Distribution Solutions segment, given that no tax benefit was recognized for these
charges. Our reported income tax expense rate for 2017 was unfavorably impacted by the non-cash pre-tax
charge of $290 million to impair the carrying value of goodwill related to our EIS business within our
Technology Solutions segment, given that the majority of this charge was not deductible for income tax
purposes. Refer to Financial Note 3, “Goodwill Impairment Charges,” for more information.

On December 19, 2016, we sold various software relating to our Technology Solutions business between
wholly owned legal entities within the McKesson group that are based in different tax jurisdictions. The
transferor entity recognized a gain on the sale of assets that was not subject to income tax in its local jurisdiction;
such gain was eliminated upon consolidation. A McKesson entity based in the U.S. was the recipient of the
software and is entitled to amortize the fair value of the assets for book and tax purposes. The tax benefit
associated with the amortization of these assets is being recognized over the tax lives of the assets. As a result,
we recognized a net tax benefit of $178 million and $137 million in 2018 and 2017.

On March 1, 2017, we contributed assets to Change Healthcare as described in Financial Note 2,
“Healthcare Technology Net Asset Exchange”. While this transaction was predominantly structured as a tax free
asset contribution for U.S. federal income tax purposes under Section 721(a) of the Internal Revenue Code, we
recorded tax expense of $929 million on the gain. The tax expense was primarily driven by the recognition of a
deferred tax liability on the excess book over tax basis in our equity investment in Change Healthcare.

In March 2016, amended guidance was issued for employee share-based payment awards. Under the
amended guidance, all windfalls and shortfalls related to employee share-based compensation arrangements are
recognized within income tax expense. We elected to early adopt this amended guidance in the first quarter of
2017. The primary impact of the adoption was the recognition of excess tax benefits in the income statement on a
prospective basis, rather than APIC. As a result, we recognized a net tax benefit of $8 million and $54 million in
2018 and 2017.

In 2016, we recognized a $19 million tax benefit due to a reduction in our deferred tax liabilities as a result
of enacted tax law changes in certain foreign jurisdictions and a $25 million tax benefit associated with the U.S.
Tax Court’s decision in Altera Corp. v. Commissioner related to the treatment of share-based compensation
expense in an intercompany cost-sharing agreement.

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FINANCIAL NOTES (Continued)

Deferred tax balances consisted of the following:

(In millions)

Assets

Receivable allowances

Compensation and benefit related accruals

Net operating loss and credit carryforwards

Long-term contractual obligations

Other

Subtotal

Less: valuation allowance

Total assets

Liabilities

Inventory valuation and other assets

Fixed assets and systems development costs

Intangibles

Change Healthcare Equity Investment

Other

Total liabilities

Net deferred tax liability

Long-term deferred tax asset

Long-term deferred tax liability

Net deferred tax liability

March 31,

2018

2017

$

58

345

811

59

279

$

124

593

594

107

241

1,552

(751)

801

1,659

(503)

1,156

(1,869)

(2,818)

(158)

(644)

(814)

(71)

(224)

(921)

(773)

(70)

(3,556)

(4,806)

$(2,755)

$(3,650)

49

28

(2,804)

(3,678)

$(2,755)

$(3,650)

We assess the available positive and negative evidence to determine whether deferred tax assets are more
likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain
deferred tax assets in various tax jurisdictions. The valuation allowance was approximately $751 million and
$503 million in 2018 and 2017. The increase of $248 million in valuation allowances in the current year relate
primarily to net operating and capital losses incurred in certain tax jurisdictions for which no tax benefit was
recognized.

We have federal, state and foreign net operating loss carryforwards of $111 million, $2,787 million and
$1,806 million. Federal and state net operating losses will expire at various dates from 2019 through 2039.
Substantially all our foreign net operating losses have indefinite lives. In addition, we have foreign capital loss
carryforwards of $756 million with indefinite lives.

105

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table summarizes the activity related to our gross unrecognized tax benefits for the last three

years:

(In millions)

Unrecognized tax benefits at beginning of period

Additions based on tax positions related to prior years

Reductions based on tax positions related to prior years

Additions based on tax positions related to current year

Reductions based on settlements

Reductions based on the lapse of the applicable statutes of limitations

Exchange rate fluctuations

Unrecognized tax benefits at end of period

Years Ended March 31,

2018

2017

2016

$ 486

$ 555

$ 616

47

(124)

778

7

(67)

105

116

(62)

28

(7)

(113)

(141)

—

3

—

(1)

(6)

4

$1,183

$ 486

$ 555

As of March 31, 2018, we had $1,183 million of unrecognized tax benefits, of which $1,042 million would
reduce income tax expense and the effective tax rate, if recognized. The increase in unrecognized tax benefits in
2018 compared to 2017 is primarily attributable to provisional amounts relating to the application of certain
provisions of the 2017 Tax Act, partially offset by a decrease in unrecognized tax benefit due to the resolution of
the Internal Revenue Services (“IRS”) relating to the fiscal years 2010 through 2012. During the next twelve
months, we do not expect any material reduction in our unrecognized tax benefits. However, this may change as
we continue to have ongoing negotiations with various taxing authorities throughout the year.

We report interest and penalties on income taxes as income tax expense. We recognized income tax benefits
of $1 million and $6 million in 2018 and 2017 and income tax expense of $12 million in 2016, related to interest
and penalties in our consolidated statements of operations. The income tax benefit for interest and penalties
recognized in 2018 and 2017 was primarily due to concluding certain tax authority examinations and lapses of
statutes of limitations. As of March 31, 2018 and 2017, we had accrued $37 million and $45 million cumulatively
in interest and penalties on unrecognized tax benefits.

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various
foreign jurisdictions. During the third quarter of 2018, we signed the Revenue Agent’s Report from the U.S. IRS
relating to their audit of the fiscal years 2010 through 2012 and recorded a $39 million tax benefit due to the
favorable resolution of various uncertain tax positions for those years. During the first quarter of 2017, we
reached an agreement with the IRS to settle all outstanding issues relating to the fiscal years 2007 through 2009
without a material impact to our provision for income taxes. We are subject to audit by the IRS for fiscal years
2013 through the current fiscal year. We are generally subject to audit by taxing authorities in various U.S. states
and in foreign jurisdictions for fiscal years 2010 through the current fiscal year.

On December 22, 2017, the U.S. government enacted comprehensive new tax legislation under the Tax Cuts
and Jobs Act. The 2017 Tax Act makes broad and complex changes to the U.S. tax code that affect our fiscal
year 2018 in multiple ways, including but not limited to, (1) reducing the U.S. federal corporate tax rate from
35 percent to 21 percent; and (2) requiring companies to pay a one-time tax on certain unrepatriated earnings of
foreign subsidiaries.

The 2017 Tax Act also establishes new tax provisions that will affect our fiscal year 2019, including, but not
limited to, (1) eliminating the corporate alternative minimum tax; (2) creating the base erosion anti-abuse tax

106

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(“BEAT”); (3) establishing new limitations on deductible interest expense and certain executive compensation;
(4) creating a new provision designed to tax global
intangible low-tax income (“GILTI”); (5) generally
eliminating U.S. federal income taxes on dividends from foreign subsidiaries; and (6) changing rules related to
uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

On December 22, 2017, the SEC staff issued guidance on income tax accounting for the 2017 Tax Act,
which was further incorporated into the U.S. GAAP guidance on income taxes in the fourth quarter of 2018.
Refer to Financial Note 1, “Significant Accounting Policies—Recently Adopted Accounting Pronouncements.”

Regarding the new GILTI tax rules, which apply to fiscal years beginning after December 31, 2017, we are
allowed to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S.
taxable income as a current-period expense when incurred or (2) reflect such portion of the future GILTI
inclusions in U.S. taxable income that relate to existing basis differences in the company’s current measurement
of deferred taxes. Our analysis of the new GILTI rules and how they may impact us is incomplete. Accordingly,
we have not made a policy election regarding the treatment of the GILTI tax. We will finalize our evaluation of
the GILTI tax rules during the measurement period.

Although our accounting for the impact of the 2017 Tax Act is incomplete, we have made reasonable

estimates and recorded provisional amounts as follows:

Reduction of U.S. federal corporate tax rate: The 2017 Tax Act reduces the corporate tax rate from
35 percent to 21 percent, effective January 1, 2018. U.S. tax law stipulates that our fiscal year 2018 is subject to a
blended tax rate of 31.6 percent, which is based on the pro rata number of days in the fiscal year before and after
the effective date. For the fiscal year 2019, the tax rate will be 21 percent. As a result, we have remeasured
certain deferred tax assets and deferred tax liabilities and recorded a provisional net tax benefit of $1,324 million,
mainly driven by a decrease in our deferred tax liabilities for inventories and investments. During the fourth
quarter of 2018, this provisional tax benefit increased by $68 million mainly due to changes to the state effect of
adjustments made to federal temporary differences. While we were able to make a reasonable estimate of the
impact of the reduction in the corporate tax rate, it may be affected by, among other items, changes to estimates
the Company has made to calculate our existing temporary differences.

Deemed Repatriation Transition Tax (“Transition Tax”): The 2017 Tax Act imposes a tax on certain
accumulated E&P of our foreign subsidiaries. We were able to make a reasonable estimate of the impact of the
new tax and recorded a provisional tax expense of $457 million. During the fourth quarter of 2018, this
provisional tax expense increased by $23 million mainly due to changes in estimated amounts of post-1986 E&P
of the relevant subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. This estimate
may change as we gather additional information to more precisely compute the amount of tax.

Prior to the 2017 Tax Act, undistributed earnings of our foreign operations totaling $5,854 million were
considered indefinitely reinvested. While the Company has accrued the 2017 Tax Act’s new tax on these
earnings, we were unable to determine a reasonable estimate of the remaining tax liability, if any, for its
remaining outside basis differences or assess how the 2017 Tax Act will impact the Company’s existing assertion
of indefinite reinvestment. As such, no change has been made with respect to this assertion for the year ended
March 31, 2018. The Company will complete its analysis of the impact of the 2017 Tax Act on our indefinite
reinvestment assertion and record amounts, such as foreign withholding taxes and state income taxes, if
necessary, during the measurement period.

Our accounting for the income tax effects of the 2017 Tax Act will be completed during the measurement

period and we will record any necessary adjustments in the period such adjustments are identified.

107

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

11. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

Our redeemable noncontrolling interests relate to our 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 and a one-time guaranteed dividend for calendar year 2014 of €0.83 per
share reduced accordingly for any dividend paid by McKesson Europe in relation to that year. As a result, during
2018, 2017 and 2016, we recorded a total attribution of net income to the noncontrolling shareholders of
McKesson Europe of $43 million, $44 million and $44 million. All amounts were recorded in our consolidated
statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the
corresponding liability balance was recorded within other accrued liabilities on our consolidated balance sheets.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe have a right to put
(“Put Right”) their noncontrolling shares at €22.99 per share increased annually for interest in the amount of 5
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”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. During
2018, we paid $50 million to purchase 1.9 million shares of McKesson Europe through the exercises of the Put
Right by the noncontrolling shareholders, which decreased the carrying value of redeemable noncontrolling
interests by $53 million. The balance of redeemable noncontrolling interests is reported as the greater of its
carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount
adjusted for exchange rate fluctuations each period. At March 31, 2018 and 2017, the carrying value of
redeemable noncontrolling interests of $1.46 billion and $1.33 billion exceeded the maximum redemption value
of $1.35 billion and $1.21 billion. At March 31, 2018 and 2017, we owned approximately 77% and 76% of
McKesson Europe’s outstanding common shares.

Appraisal Proceedings

Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of McKesson
Europe initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court to challenge
the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed dividend. During
the pendency of the Appraisal proceedings, such amount will be paid as specified currently in the Domination
Agreement. If any such Appraisal Proceedings result in an adjustment, we would be required to make certain
additional payments for any shortfall to all McKesson Europe noncontrolling shareholders who previously
received the Put Amount, compensation amount or guaranteed dividend.

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in our consolidated entities primarily related
to ClarusONE and Vantage, which were $253 million and $178 million at March 31, 2018 and 2017 on our
consolidated balance sheets. During 2018, 2017 and 2016, we allocated a total of $187 million, $39 million
and $8 million of net income to noncontrolling interests.

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FINANCIAL NOTES (Continued)

Changes in redeemable noncontrolling interests and noncontrolling interests for the years ended March 31,

2018 and 2017 were as follows:

(In millions)

Balance, March 31, 2016

Net income attributable to noncontrolling interests

Other comprehensive loss

Reclassification of recurring compensation to other accrued liabilities

Purchases of noncontrolling interests (1)

Other

Balance, March 31, 2017

Net income attributable to noncontrolling interests

Other comprehensive income

Reclassification of recurring compensation to other accrued liabilities

Payments to noncontrolling interests

Exercises of Put Right

Other

Balance, March 31, 2018

Noncontrolling
Interests

$ 84

39

—

—

89

(34)

$178

187

—

—

(98)

—

(14)

Redeemable
Noncontrolling
Interests

$1,406

44

(78)

(44)

—

(1)

$1,327

43

185

(43)

—

(53)

—

$253

$1,459

(1) Represents the fair value of noncontrolling interests we purchased related to our 2016 acquisition of

Vantage. Refer to Financial Note 6, “Business Combinations,” for more information.

The effect of changes in our ownership interests related to redeemable noncontrolling interests on our equity
of $3 million resulting from exercises of Put Right was recorded as a net increase to McKesson’s stockholders’
paid-in capital during 2018. Changes from net income attributable to McKesson and transfers from redeemable
noncontrolling interests were $70 million during 2018.

12. Earnings Per Common Share

Basic earnings per common share are computed by dividing net income by the weighted average number of
common shares outstanding during the reporting period. Diluted earnings per common share are computed
similar to basic earnings per common share except that it reflects the potential dilution that could occur if dilutive
securities or other obligations to issue common stock were exercised or converted into common stock.

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FINANCIAL NOTES (Continued)

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

(In millions, except per share amounts)

Income from continuing operations

Net income attributable to noncontrolling interests

Income from continuing operations attributable to McKesson

Income (Loss) from discontinued operations, net of tax

Net income attributable to McKesson

Weighted average common shares outstanding:

Basic

Effect of dilutive securities:

Options to purchase common stock

Restricted stock units

Diluted

Earnings (loss) per common share attributable to McKesson: (1)

Diluted

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

Years Ended March 31,

2018

2017

2016

$ 292

$5,277

$2,342

(230)

(83)

(52)

62

5

5,194

2,290

(124)

(32)

$ 67

$5,070

$2,258

208

221

230

—

1

209

1

1

1

2

223

233

$0.30

$23.28

$ 9.84

0.02

(0.55)

(0.14)

$0.32

$22.73

$ 9.70

$0.30

$23.50

$ 9.96

0.02

(0.55)

(0.14)

$0.32

$22.95

$ 9.82

(1) Certain computations may reflect rounding adjustments.

Potentially dilutive securities include outstanding stock options, restricted stock units and performance-
based and other restricted stock units. Approximately 2 million of potentially dilutive securities were excluded
from the computations of diluted net earnings per common share in 2018, 2017 and 2016, as they were anti-
dilutive.

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FINANCIAL NOTES (Continued)

13. Receivables, Net

(In millions)

Customer accounts

Other

Total

Allowances

Net

March 31,

2018

2017

$14,349

$14,602

3,578

17,927

3,893

18,495

(216)

(280)

$17,711

$18,215

Other receivables primarily include amounts due from suppliers. The allowances are primarily for estimated

uncollectible accounts.

14. Property, Plant and Equipment, Net

(In millions)

Land

Building, machinery, equipment and other

Total property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

March 31,

2018

2017

$

187

$

166

3,746

3,933

3,637

3,803

(1,469)

(1,511)

$ 2,464

$ 2,292

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FINANCIAL NOTES (Continued)

15. Goodwill and Intangible Assets, Net

Changes in the carrying amount of goodwill were as follows:

(In millions)

Balance, March 31, 2016

Goodwill acquired

Acquisition accounting, transfers and other adjustments

Goodwill impairment

Amount reclassified to assets held for sale

Goodwill disposed (1)

Foreign currency translation adjustments, net

Balance, March 31, 2017

Goodwill acquired

Acquisition accounting, transfers and other adjustments (2)

Goodwill impairment (3)

Goodwill disposed (1)

Amount reclassified to assets held for sale

Foreign currency translation adjustments, net

Balance, March 31, 2018

Distribution
Solutions

Technology
Solutions

Total

$ 7,987

$ 1,799

$ 9,786

2,836

(146)

—

(165)

(30)

(350)

22

1

(290)

—

2,858

(145)

(290)

(165)

(1,078)

(1,108)

—

(350)

$10,132

$

454

$10,586

1,707

369

(1,738)

(48)

(2)

504

—

(330)

—

(124)

—

—

1,707

39

(1,738)

(172)

(2)

504

$10,924

$ —

$10,924

(1) 2017 Technology Solutions segment amount represents goodwill disposal associated with Healthcare
Technology Net Asset Exchange transaction. Refer to Financial Note 2, “Healthcare Technology Net Asset
Exchange” for more information. 2018 Technology Solutions segment amount represents goodwill disposal
associated with the sale of our EIS business. Refer to Financial Note 5, “Divestitures” for more information.
(2) Effective April 1, 2017, our RHP business was transferred from the Technology Solutions segment to the

(3)

Distribution Solutions segment.
In 2018, goodwill
impairment charges from our international businesses were translated at average
exchange rates during the corresponding period and accumulated goodwill impairment losses described
below were translated at year-end exchange rates.

As of March 31, 2018, accumulated goodwill impairment

loss was $1,755 million primarily in our
Distribution Solutions segment. As of March 31, 2017,
loss was
$290 million primarily in our Technology Solutions segment. Refer to Financial Note 3, “Goodwill Impairment
Charges,” for more information on the impairment charges recorded in 2018 and 2017.

the accumulated goodwill

impairment

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FINANCIAL NOTES (Continued)

Information regarding intangible assets is as follows:

March 31, 2018

March 31, 2017

Weighted
Average
Remaining
Amortization
Period
(Years)

12

12

26

14

4

4

(Dollars in millions)

Customer relationships

Service agreements

Pharmacy licenses

Trademarks and trade names

Technology

Other

Total

Gross
Carrying
Amount

$3,619

1,037

684

932

147

262

Accumulated
Amortization

Net
Carrying
Amount

$(1,550)

$2,069

(386)

(196)

(187)

(84)

(176)

651

488

745

63

86

Gross
Carrying
Amount

$2,893

1,009

741

845

69

201

Accumulated
Amortization

Net
Carrying
Amount

$(1,295)

$1,598

(316)

(150)

(124)

(64)

(144)

693

591

721

5

57

$6,681

$(2,579)

$4,102

$5,758

$(2,093)

$3,665

Amortization expense of intangible assets was $503 million, $444 million and $431 million for 2018, 2017
and 2016. Estimated annual amortization expense of intangible assets is as follows: $440 million, $422 million,
$405 million, $373 million and $262 million for 2019 through 2023, and $2,200 million thereafter. All intangible
assets were subject to amortization as of March 31, 2018 and 2017.

Refer to Financial Note 4, “Restructuring and Asset Impairment Charges,” for more information on

intangible asset impairment charges recorded in 2018.

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FINANCIAL NOTES (Continued)

16. Debt and Financing Activities

Long-term debt consisted of the following:

(In millions)

U.S. Dollar notes (1) (2)

1.40% Notes due March 15, 2018

7.50% Notes due February 15, 2019

2.28% Notes due March 15, 2019

4.75% Notes due March 1, 2021

2.70% Notes due December 15, 2022

2.85% Notes due March 15, 2023

3.80% Notes due March 15, 2024

7.65% Debentures due March 1, 2027

3.95% Notes due February 16, 2028

6.00% Notes due March 1, 2041

4.88% Notes due March 15, 2044

Foreign currency notes (1) (3)

4.50% Euro Bonds due April 26, 2017

Floating Rate Euro Notes due February 12, 2020 (4)

0.63% Euro Notes due August 17, 2021

1.50% Euro Notes due November 17, 2025

1.63% Euro Notes due October 30, 2026

3.13% Sterling Notes due February 17, 2029

Lease and other obligations

Total debt

Less: Current portion

Total long-term debt

March 31,

2018

2017

$ — $ 500

—

350

1,100

1,100

323

400

400

599

400

400

1,100

1,100

167

600

282

411

—

337

695

691

669

630

75

175

—

493

800

533

—

638

635

—

564

75

7,880

1,129

8,362

1,057

$6,751

$7,305

(1) These notes are unsecured and unsubordinated obligations of the Company.
(2)
(3)
(4)

Interest on these notes is payable semiannually.
Interest on these foreign bonds and notes is payable annually, except the 2020 Floating Rate Euro Notes.
Interest on these notes is payable quarterly.

Long-Term Debt

Our long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. At March 31,
2018 and March 31, 2017, $7,880 million and $8,362 million of total debt were outstanding, of which
$1,129 million and $1,057 million were included under the caption “Current portion of long-term debt” within
our consolidated balance sheets.

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FINANCIAL NOTES (Continued)

Fiscal 2018

On February 12, 2018, we completed a public offering of Euro-denominated floating rate notes due
February 12, 2020 (the “2020 Floating Rate Euro Notes”) in an aggregate principal amount of €250 million and
1.63% Euro-denominated notes due October 30, 2026 (the “2026 Euro Notes”) in an aggregate principal amount
of €500 million. On February 16, 2018, we completed a public offering of 3.95% notes due February 16, 2028
(the “2028 USD Notes”) in an aggregate principal amount of $600 million. The 2020 Floating Rate Euro Notes
bear an interest at a rate equal to the three-month Euro Interbank Offered Rate plus 0.15%. Interest on the 2020
Floating Rate Euro Notes is payable on February 12, May 12, August 12 and November 12 of each year,
commencing on May 12, 2018. Interest on the 2026 Euro Notes is payable on October 30 of each year,
commencing on October 30, 2018. Interest on the 2028 USD Notes is payable on February 16 and August 16 of
each year, commencing on August 16, 2018. We utilized the net proceeds from these notes of $1.5 billion, net of
discounts and offering expenses, to finance the purchase of certain outstanding notes and for working capital and
general corporate purposes.

Fiscal 2017

On February 17, 2017, we completed a public offering of 0.63% Euro-denominated notes due August 17,
2021 (the “2021 Euro Notes”) in an aggregate principal amount of €600 million, 1.50% Euro-denominated notes
due November 17, 2025 (the “2025 Euro Notes”) in an aggregate principal amount of €600 million and 3.13%
British pound sterling-denominated notes due February 17, 2029 (the “2029 Sterling Notes”) in an aggregate
principal amount of £450 million. Interest on the 2021 Euro Notes is payable on August 17th of each year.
Interest on the 2025 Euro Notes is payable on November 17th of each year. Interest on the 2029 Sterling Notes is
payable on February 17th of each year. We utilized the net proceeds from these notes of $1.8 billion, net of
discounts and offering expenses for general corporate purposes including the repayments of long-term debt.

Each note, which constitutes a “Series”, is an unsecured and unsubordinated obligation of the Company and
ranks equally with all of the Company’s existing and, from time-to-time, future unsecured and unsubordinated
indebtedness outstanding. Each Series is governed by materially similar indentures and officers’ certificates.
Upon required notice to holders of notes with fixed interest rates, we may redeem those notes at any time prior to
maturity, in whole or in part, for cash at redemption prices that may include a make-whole premium plus accrued
and unpaid interest, as specified in the indenture and officers’ certificate relating to that Series. The 2020
Floating Rate Euro Notes are not redeemable at our option. 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
Ratings, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, an
offer must be made to purchase that Series from the holders at a price equal to 101% of the then outstanding
principal amount of that Series, plus accrued and unpaid interest to, but not including, the date of repurchase. The
indenture and the related officers’ certificate for each Series, subject to the exceptions and in compliance with the
conditions as applicable, specify that we may not consolidate, merge or sell all or substantially all of our assets,
incur liens, or enter into sale-leaseback transactions exceeding specific terms, without lenders’ consent. The
indentures also contain customary events of default provisions.

Tender Offers and Early Repayments

On February 7, 2018, we commenced cash tender offers for a portion of our existing outstanding (i) 7.50%
Notes due 2019, (ii) 4.75% Notes due 2021, (iii) 7.65% Debentures due 2027, (iv) 6.00% Notes due 2041 and (v)
4.88% Notes due 2044 (collectively referred to herein as the “Tender Offer Notes”). In connection with the
tender offers and an additional repurchase, we paid an aggregate consideration of $1.05 billion to redeem
$936 million principal amount of the notes at a redemption price equal to 100% of the principal amount and

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FINANCIAL NOTES (Continued)

premiums of $99 million, plus accrued and unpaid interest of $20 million. The redemption of the Tender Offer
Notes was accounted for as a debt extinguishment. As a result of the redemption, we incurred a pre-tax loss on
debt extinguishment of $109 million ($70 million after-tax), which included premiums of $99 million and the
write-off of unamortized debt issuance costs of $10 million.

On March 26, 2018, we paid an aggregate consideration of $317 million to redeem $302 million principal
amount of the 7.500% Notes due 2019 at a redemption price equal to 100% of the principal amount plus accrued
and unpaid interest of $2 million, and the applicable redemption premium of $13 million pursuant to the terms of
the indentures. As a result of the redemption, we incurred a pre-tax loss on debt extinguishment of $13 million
($8 million after-tax), which primarily represented the premiums.

Repayments at maturity
In 2018, we repaid at maturity our €500 million Euro-denominated bond due April 26, 2017 and our
$500 million 1.40% notes due March 15, 2018. In 2017, we repaid at maturity our €350 million Euro-
denominated bond (or, approximately $385 million) due October 18, 2016, our $500 million 5.70% notes due
March 1, 2017 and our $700 million 1.29% notes due March 10, 2017. In 2016, we repaid at maturity our
$400 million floating rate notes due September 10, 2015, our $500 million 0.95% notes due December 4, 2015,
our $600 million 3.25% notes due March 1, 2016 and a term loan balance of $93 million.

Other Information

Scheduled principal payments of long-term debt are $1,129 million in 2019, $353 million in 2020,

$337 million in 2021, $634 million in 2022, $403 million in 2023 and $5,024 million thereafter.

Revolving Credit Facilities

We have a syndicated $3.5 billion five-year senior unsecured revolving credit facility (the “Global
Facility”), which has a $3.15 billion aggregate sublimit of availability in Canadian dollars, British pound sterling
and Euros. The Global Facility matures on October 22, 2020. Borrowings under the Global Facility bear interest
based upon the London Interbank Offered Rate, Canadian Dealer Offered Rate for credit extensions denominated
in Canadian Dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The Global
Facility contains a financial covenant which obligates the Company to maintain a debt to capital ratio of no
greater than 65% and other customary investment grade covenants. If we do not comply with these covenants,
our ability to use the Global Facility may be suspended and repayment of any outstanding balances under the
Global Facility may be required. At March 31, 2018, we were in compliance with all covenants. There were no
borrowings under this facility during 2018, 2017 and 2016, and no borrowings outstanding as of March 31, 2018
and 2017.

We also maintain bilateral credit

lines primarily denominated in Euros with a total committed and
uncommitted balance of $242 million as of March 31, 2018. Borrowings and repayments were not material in
2018 and 2017. During 2016, we borrowed $641 million and repaid $635 million under these credit lines
primarily related to short-term borrowings. These credit lines have interest rates ranging from 0.2% to 6%. As of
March 31, 2018, borrowings outstanding under these credit lines were not material.

Commercial Paper

We maintain a commercial paper program to support our working capital requirements and for other general
corporate purposes. Under the program, the Company can issue up to $3.5 billion in outstanding commercial

116

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

paper notes. During 2018 and 2017, we borrowed $20,542 million and $8,283 million and repaid $20,725 million
and $8,100 million under the program. During 2016, there were no material commercial paper issuances. At
March 31, 2018, there were no commercial paper notes outstanding. At March 31, 2017, we had $183 million
commercial paper notes outstanding with a weighted average interest rate of 1.20%.

17. Variable Interest Entities

We evaluate our ownership, contractual and other interests in entities to determine if they are VIEs, if we
have a variable interest in those entities and the nature and extent of those interests. These evaluations are highly
complex and involve management judgment and the use of estimates and assumptions based on available
historical information, among other factors. Based on our evaluations, if we determine we are the primary
beneficiary of such VIEs, we consolidate such entities into our financial statements.

Consolidated Variable Interest Entities

We consolidate VIEs when we have the power to direct the activities that most significantly impact the
VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE and,
as a result, are considered the primary beneficiary of the VIE. We consolidate certain single-lessee leasing
entities where we, as the lessee, have the majority risk of the leased assets due to our minimum lease payment
obligations to these leasing entities. As a result of absorbing this risk, the leases provide us with the power to
direct the operations of the leased properties and the obligation to absorb losses or the right to receive benefits of
the entity. Consolidated VIEs do not have a material impact on our consolidated statements of operations and
cash flows. Total assets and liabilities included in our consolidated balance sheets for these VIEs were
$819 million and $92 million at March 31, 2018 and $821 million and $149 million at March 31, 2017.

Investments in Unconsolidated Variable Interest Entities

We are involved with VIEs which we do not consolidate because we do not have the power to direct the
activities that most significantly impact their economic performance and thus are not considered the primary
beneficiary of the entities. Our relationships include equity method investments and lending, leasing, contractual
or other relationships with the VIEs. Our most significant relationships are with oncology and other specialty
practices. Under these practice arrangements, we generally own or lease all of the real estate and equipment used
by the affiliated practices and manage the practices’ administrative functions. We also have relationships with
certain pharmacies in Europe with whom we may provide financing, have equity ownership and/or a supply
agreement whereby we supply the vast majority of the pharmacies’ purchases. Our maximum exposure to loss
(regardless of probability) as a result of all unconsolidated VIEs was $1.1 billion at March 31, 2018 and 2017,
which primarily represents the value of intangible assets related to service agreements, equity investments and
lease and loan receivables. This amount excludes the customer loan guarantees discussed in Financial Note 23,
“Financial Guarantees and Warranties.” We believe there is no material loss exposure on these assets or from
these relationships.

18. Pension Benefits

We maintain a number of qualified and nonqualified defined benefit pension plans and defined contribution

plans for eligible employees.

Defined Benefit Pension Plans

Eligible U.S. employees who were employed by the Company as of December 31, 1995 are covered under
the Company-sponsored defined benefit retirement plan. In 1997, the plan was amended to freeze all plan

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

benefits as of December 31, 1996. Benefits for the defined benefit retirement plan are based primarily on age of
employees at date of retirement, years of creditable service and the average of the highest 60 months of pay
during the 15 years prior to the plan freeze date. We also have defined benefit pension plans for eligible
employees outside of the U.S., as well as an unfunded nonqualified supplemental defined benefit plan for certain
U.S. executives.

Our non-U.S. defined benefit pension plans cover eligible employees located predominantly in Norway,
United Kingdom, Germany, and Canada. Benefits for these plans are based primarily on each employee’s final
salary, with annual adjustments for inflation. The obligations in Norway are largely related to the state-regulated
pension plan which is managed by the Norwegian Public Service Pension Fund (“SPK”). According to the terms
of the SPK, the plan assets of state regulated plans in Norway must correspond very closely to the pension
obligation calculated using the principles codified in Norwegian law. The shortfall may not exceed 1% of the
obligation. If the shortfall exceeds this threshold, it must be remedied within two years. In the United Kingdom,
we have subsidiaries that participate in a joint pension plan. This plan is largely funded by contractual trust
arrangements that hold Company assets that may only be used to pay pension obligations. The Trustee Board
decides on the minimum contribution to the plan in association with selected employees of the entity. A valuation
is performed at regular intervals in order to determine the amount of the contribution and to ensure that the
minimum contribution is made. The pension obligation in Germany is unfunded with the exception of the
contractual trust arrangement used to fund pensions of McKesson Europe’s Management Board.

Defined benefit plan assets and obligations are measured as of the Company’s fiscal year-end.

The net periodic expense for our pension plans is as follows:

(In millions)

Service cost—benefits earned during the year

Interest cost on projected benefit obligation

Expected return on assets

Amortization of unrecognized actuarial loss and prior

service costs

Curtailment/settlement loss (gain)

Net periodic pension expense

U.S. Plans
Years Ended March 31,

Non-U.S. Plans
Years Ended March 31,

2018

$ 3

14

(19)

2017

$

5

13

(15)

2016

$ 4

18

(19)

2018

$ 15

22

(26)

2017

$ 15

23

(26)

2016

$ 20

24

(30)

6

2

11

—

42

2

5

1

4

3

(2) —

$ 6

$ 14

$ 47

$ 17

$ 14

$ 17

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

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FINANCIAL NOTES (Continued)

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

(In millions)

Change in benefit obligations

U.S. Plans
Years Ended March 31,

Non-U.S. Plans
Years Ended March 31,

2018

2017

2018

2017

Benefit obligation at beginning of period (1)

$ 513

$ 535

$ 943

$ 899

Service cost

Interest cost

Actuarial loss (gain)

Benefits paid

Expenses paid

Amendments

Acquisitions

Foreign exchange impact and other

3

14

1

(44)

(2)

—

—

—

5

13

(11)

(26)

(3)

—

—

—

15

22

(15)

(42)

(1)

(2)

—

115

15

23

98

(34)

(1)

—

37

(94)

Benefit obligation at end of period (1)

$ 485

$ 513

$1,035

$ 943

Change in plan assets

Fair value of plan assets at beginning of period

$ 293

$ 262

$ 623

$ 607

Actual return on plan assets

Employer and participant contributions

Benefits paid

Expenses paid

Acquisitions

Foreign exchange impact and other

35

53

(44)

(2)

—

—

22

38

(26)

(3)

—

—

21

17

(42)

(1)

—

69

76

16

(34)

(1)

35

(76)

Fair value of plan assets at end of period

$ 335

$ 293

$ 687

$ 623

Funded status at end of period

$(150)

$(220)

$ (348)

$(320)

Amounts recognized on the balance sheet

Assets

Current liabilities

Long-term liabilities

Total

$ 10

$ —

$

19

$

4

(39)

(121)

(17)

(203)

(7)

(7)

(360)

(317)

$(150)

$(220)

$ (348)

$(320)

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

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FINANCIAL NOTES (Continued)

The following table provides the projected benefit obligation, accumulated benefit obligation and fair value

of plan assets for all our pension plans with an accumulated benefit obligation in excess of plan assets.

(In millions)

Projected benefit obligation

Accumulated benefit obligation

Fair value of plan assets

U.S. Plans
March 31,

Non-U.S. Plans
March 31,

2018

2017

2018

2017

$485

$513

$1,035

$943

485

335

513

293

990

687

902

623

Amounts recognized in accumulated other comprehensive income (pre-tax) consist of:

(In millions)

Net actuarial loss

Prior service credit

Total

U.S. Plans
March 31,

Non-U.S. Plans
March 31,

2018

2017

2018

$134

$157

$162

2017

$160

—

—

(5)

(3)

$134

$157

$157

$157

Other changes in accumulated other comprehensive income (pre-tax) were as follows:

(In millions)

Net actuarial loss (gain)

Prior service credit

Amortization of:

Net actuarial loss

Prior service credit (cost)

Foreign exchange impact and other

U.S. Plans
Years Ended March 31,

Non-U.S. Plans
Years Ended March 31,

2018

2017

2016

2018

2017

2016

$ (15)

$ (17)

$

9

$ (11)

$ 47

$(38)

—

—

—

(2) —

(8)

(11)

(44)

(6)

—

—

—

—

—

—

—

19

(4)

2

(10)

(5)

(5)

2

(1)

Total recognized in other comprehensive loss

(income)

$ (23)

$ (28)

$ (35)

$—

$ 35

$(47)

We expect to amortize $9 million of actuarial loss for the pension plans from stockholders’ equity to

pension expense in 2019. The comparable 2018 amount was $14 million of actuarial loss.

Projected benefit obligations related to our unfunded U.S. plans were $160 million and $176 million at
March 31, 2018 and 2017. Pension obligations for our unfunded plans are based on the recommendations of
independent actuaries. Projected benefit obligations relating to our unfunded non-U.S. plans were $297 million
and $276 million at March 31, 2018 and 2017. Funding obligations for our non-U.S. plans vary based on the laws
of each non-U.S. jurisdiction.

Expected benefit payments, including assumed executive lump sum payments, for our pension plans are as
follows: $97 million, $184 million, $65 million, $70 million and $67 million for 2019 to 2023 and $339 million
for 2024 through 2028. Expected benefit payments are based on the same assumptions used to measure the
benefit obligations and include estimated future employee service. Expected contributions to be made for our
pension plans are $55 million for 2019.

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FINANCIAL NOTES (Continued)

Weighted-average assumptions used to estimate the net periodic pension expense and the actuarial present

value of benefit obligations were as follows:

Net periodic pension expense

Discount rates

Rate of increase in compensation

Expected long-term rate of return on plan assets

Benefit obligation

Discount rates

U.S. Plans
Years Ended March 31,

Non-U.S. Plans
Years Ended March 31,

2018

2017

2016

2018

2017

2016

3.55% 3.40% 3.36% 2.34% 2.72% 2.36%

4.00

6.25

4.00

6.25

4.00

6.75

2.72

4.03

2.76

4.51

2.80

4.87

3.69% 3.39% 3.27% 2.35% 2.35% 2.84%

Rate of increase in compensation

N/A (1) 4.00

4.00

2.59

3.18

2.98

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

for the remaining active participants.

Our defined benefit pension plan liabilities are valued using a discount rate based on a yield curve
developed from a portfolio of high quality corporate bonds rated AA or better whose maturities are aligned with
the expected benefit payments of our plans. For March 31, 2018, our U.S. defined benefit liabilities are valued
using a weighted average discount rate of 3.69%, which represents an increase of 30 basis points from our 2017
weighted-average discount rate of 3.39%. Our non-U.S. defined benefit pension plan liabilities are valued using a
weighted-average discount rate of 2.35%, which represents no change from 2017.

Plan Assets

Investment Strategy: The overall objective for U. S. pension plan assets is to generate long-term investment
returns consistent with capital preservation and prudent investment practices, with a diversification of asset types
and investment strategies. Periodic adjustments are made to provide liquidity for benefit payments and to
rebalance plan assets to their target allocations.

The target allocations for U.S. plan assets at March 31, 2018 and 2017 are 26% and 50% equity
investments, 70% and 45% fixed income investments including cash and cash equivalents and 4% and 5% real
estate. Equity investments include common stock, preferred stock, and equity commingled funds. Fixed income
investments include corporate bonds, government securities, mortgage-backed securities, asset-backed securities,
other directly held fixed income investments, and fixed income commingled funds. The real estate investments
are in a commingled real estate fund.

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

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

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FINANCIAL NOTES (Continued)

Fair Value Measurements: The following tables represent our pension plan assets as of March 31, 2018 and
2017, using the fair value hierarchy by asset class. The fair value hierarchy has three levels based on the
reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on unadjusted
quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other
observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.

(In millions)

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

Cash and cash equivalents

$ 39

$— $— $ 39

$

3

$— $— $

3

U.S. Plans
March 31, 2018

Non-U.S. Plans
March 31, 2018

Equity securities:

Common and preferred stock

7 —

Equity commingled funds

Fixed income securities:

Government securities

Corporate bonds

Mortgage-backed securities

Asset-backed securities and other

Fixed income commingled funds

Other:

Real estate funds

Other

Total

Assets held at NAV practical expedient (1)

Equity commingled funds

Fixed income commingled funds

Real estate funds

Other

Total plan assets

—

135

118

250

—

—

64

2

26

$598

27

—

—

62

$687

—

—

—

—

—

—

—

—

—

—

7 —

—

—

—

41

94 —

—

85 —

58 —

7 —

21 —

85

58

5

114

7 —

21 —

113 —

136 —

—

—

—

—

—

64 —

—

—

—

—

—

—

—

—

—

2 —

—

22 —

4

4

$ 46

$171

$— $217

$187

$407

$

54

53

11

—

$335

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FINANCIAL NOTES (Continued)

(In millions)

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

Cash and cash equivalents

$

8

$— $— $

8

$

2

$— $— $

2

U.S. Plans
March 31, 2017

Non-U.S. Plans
March 31, 2017

Equity securities:

Common and preferred stock

17 —

Equity commingled funds

Fixed income securities:

Government securities

Corporate bonds

Mortgage-backed securities

Asset-backed securities and other

Fixed income commingled funds

Other:

Real estate funds

Total

Assets held at NAV practical expedient (1)

Equity commingled funds

Fixed income commingled funds

Real estate funds

Other

Total plan assets

—

—

—

—

—

—

—

—

—

—

27 —

12 —

10 —

19 —

17 —

—

—

—

27

12

13

24

69

10 —

19 —

40 —

68 —

120

—

—

10

—

—

20

29 —

—

53

92

199

—

—

49

—

—

—

—

—

—

2 —

6

8

$ 25

$ 68

$— $ 93

$130

$257

$ 16

$403

131

59

10

—

$293

94

53

13

60

$623

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

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

Common and preferred stock—This investment class consists of common and preferred shares issued by
U.S. and non-U.S. corporations. Common shares are traded actively on exchanges and price quotes are readily
available. Preferred shares may not be actively traded. Holdings of common shares are generally classified as
Level 1 investments.

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

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FINANCIAL NOTES (Continued)

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

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

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

Other—At March 31, 2018 and 2017, this includes $38 million and $37 million of plan asset value relating
to the SPK. In principle, the SPK is organized as a pay-as-you-go system guaranteed by the Norwegian
government as it holds no Company-owned assets to back the pension liabilities. The Company pays a pension
premium used to fund the plan, which is paid directly to the Norwegian government who establishes an account
for each participating employer to keep track of the financial status of the plan, including managing the
contributions and the payments. Further, the investment return credited to this account is determined annually by
the SPK based on the performance of long-term government bonds.

The activity attributable to Level 3 plan assets was insignificant in the years ended March 31, 2018 and

2017.

Multiemployer Plans

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

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

Contributions and amounts accrued for U.S. Plans were not material for the years ended March 31, 2018,
2017, and 2016. Contributions to the POA for non-U.S. Plans exceeding 5% of total plan contributions
were $16 million, $18 million and $23 million in 2018, 2017 and 2016. Based on actuarial calculations, we
estimate the funded status for our non-U.S. Plans to be approximately 75% as of March 31, 2018. No amounts
were accrued for liability associated with the POA as we have no intention to withdraw from the plan.

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FINANCIAL NOTES (Continued)

Defined Contribution Plans

We have a contributory retirement savings plan (“RSP”) for U.S. eligible employees. Eligible employees
may contribute to the RSP up to 75% of their eligible compensation on a pre-tax or post-tax basis not to exceed
IRS limits. The Company makes matching contributions in an amount equal to 100% of the employee’s first 3%
of pay contributed and 50% for the next 2% of pay contributed. The Company also may make an additional
annual matching contribution for each plan year to enable participants to receive a full match based on their
annual contribution. The Company also contributed to non-U.S. plans that are available in certain countries.
Contribution expenses for the RSP and non-U.S. plans were $82 million, $98 million and $99 million for the
years ended March 31, 2018, 2017, and 2016.

19. Postretirement Benefits

We maintain a number of postretirement benefits, primarily consisting of healthcare and life insurance
(“welfare”) benefits, for certain eligible U.S. employees. Eligible employees consist of those who retired before
March 31, 1999 and those who retired after March 31, 1999, but were an active employee as of that date, after
meeting other age-related criteria. We also provide postretirement benefits for certain U.S. executives. Defined
benefit plan obligations are measured as of the Company’s fiscal year-end.

The net periodic (credit) expense for our postretirement welfare benefits is as follows:

(In millions)

Service cost—benefits earned during the year

Interest cost on accumulated benefit obligation

Amortization of unrecognized actuarial gain and prior service credit

Net periodic postretirement (credit) expense

Years Ended March 31,

2018

2017

2016

$ 1

2

(6)

$ 1

2

$ 1

4

(1) —

$(3)

$ 2

$

5

Information regarding the changes in benefit obligations for our postretirement welfare plans is as follows:

(In millions)

Benefit obligation at beginning of period

Service cost

Interest cost

Actuarial gain

Benefit payments

Years Ended March 31,

2018

$82

1

2

(1)

(6)

2017

$ 98

1

2

(13)

(6)

Benefit obligation at end of period

$78

$ 82

The components of the amount recognized in accumulated other comprehensive income for the Company’s
other postretirement benefits at March 31, 2018 and 2017 were net actuarial gains of $8 million and $11 million
and net prior service credits of $11 million and $14 million. Other changes in benefit obligations recognized in
other comprehensive income were net actuarial gains of $3 million and $14 million in 2018 and 2017 and net
prior service credits of $3 million and $3 million in 2018 and 2017.

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FINANCIAL NOTES (Continued)

We estimate that the amortization of the actuarial income from stockholders’ equity to other postretirement

gain in 2019 will be $5 million. Comparable 2018 amount was an expense of $6 million.

Other postretirement benefits are funded as claims are paid. Expected benefit payments for our
postretirement welfare benefit plans are as follows: $8 million, $7 million, $7 million, $7 million and $7 million
for 2019 to 2023 and $28 million cumulatively for 2024 through 2028. Expected benefit payments are based on
the same assumptions used to measure the benefit obligations and include estimated future employee service.
Expected contributions to be made for our postretirement welfare benefit plans are $8 million for 2019.

Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 3.83%,
3.68% and 3.59% for 2018, 2017 and 2016. Weighted-average discount rates for the actuarial present value of
benefit obligations were 3.92%, 3.82% and 3.68% for 2018, 2017 and 2016.

Actuarial gain or loss for the postretirement welfare benefit plan is amortized to income or expense over a
three-year period. The assumed healthcare cost trends used in measuring the accumulated postretirement benefit
obligation were 3.00% for 2018 and 2017. For 2018, 2017 and 2016, a one-percentage-point increase or decrease
in the assumed healthcare cost trend rate would not have a material impact on the postretirement benefit
obligations.

Pursuant to various collective bargaining agreements, we contribute to multiemployer health and welfare
plans that cover union-represented employees. Our liability is limited to the contractual dollar obligations set
forth by the collective bargaining agreements. Contributions to the plans and amounts accrued were not material
for the years ended March 31, 2018, 2017, and 2016.

20. Hedging Activities

In the normal course of business, we are exposed to interest rate and foreign currency exchange rate
fluctuations. At times, we limit these risks through the use of derivatives such as interest rate swaps, cross-
currency swaps and foreign currency forward contracts. In accordance with our policy, derivatives are only used
for hedging purposes. We do not use derivatives for trading or speculative purposes.

Foreign currency exchange risk

We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries,
including Euro, British pound sterling and Canadian dollars. Changes in foreign currency exchange rates could
have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to
foreign currency exchange rate risk related to our
including intercompany loans
denominated in non-functional currencies. We have 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 denominated in
non-functional currencies. These programs reduce but do not entirely eliminate foreign currency exchange rate
risk.

foreign subsidiaries,

At March 31, 2018, we had €1.95 billion Euro-denominated notes and £450 million British pound sterling-
denominated notes designated as non-derivative net
investment hedges which hedge portions of our 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

126

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

recorded in foreign currency translation adjustments within Accumulated Other Comprehensive Income in the
statement of stockholders’ equity where they offset foreign currency translation gains and losses recorded on our
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. Losses
from net investment hedges recorded in other comprehensive income were $268 million and $13 million for the
years ended March 31, 2018 and 2017. There was no ineffectiveness in our net investment hedges for the years
ended March 31, 2018 and 2017.

Derivatives Designated as Hedges

In March 2018, we entered into cross-currency swap contracts with total gross notional amounts of
£432 million, which are designated as net investment hedges. Under the terms of the cross-currency swap
contracts, we agree 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 our net investments denominated in British pound sterling 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 Income in the statement of
stockholders’ equity where they offset foreign currency translation gains and losses recorded on our net
investments denominated in British pound sterling. Losses from these net investment hedges recorded in other
comprehensive income were $7 million for the year ended March 31, 2018. These cross-currency swaps will
mature between February 2022 and February 2024.

At March 31, 2018 and 2017, we had forward contracts to hedge the U.S. dollar against cash flows
denominated in Canadian dollars with total gross notional amounts of $162 million and $243 million, which were
designated as cash flow hedges. These contracts will mature between March 2019 and March 2020.

From time to time, we enter into cross-currency swaps to hedge intercompany loans denominated in
non-functional currencies. For our cross-currency swap transactions, we agree with third parties to exchange
fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and
to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon
notional amounts. These cross-currency swaps are designed to reduce the income statement effects arising from
fluctuations in foreign exchange rates and have been designated as cash flow hedges.

At March 31, 2018 and March 31, 2017, we had cross-currency swaps with total gross notional amounts of
approximately $3,412 million and $2,663 million, which are designated as cash flow hedges. These swaps will
mature between July 2018 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 Income 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. Losses of $30 million and
$19 million in 2018 and 2017 and gains of $9 million in 2016 were recorded in other comprehensive income
from cash flow hedges. Gains or losses reclassified from Accumulated Other Comprehensive Income and
recorded in operating expenses in the consolidated statements of operations were not material in 2018, 2017 and
2016. There was no ineffectiveness in our cash flow hedges for the years ended March 31, 2018, 2017 and 2016.

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FINANCIAL NOTES (Continued)

Derivatives Not Designated as Hedges

Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period

with the change in value included in earnings.

At March 31, 2017, we had a forward contract to primarily hedge the U.S. dollar against cash flows
denominated in Canadian dollars with a total gross notional amount of $173 million. This contract matured in
April 2017 and was not designated for hedge accounting. Gains or losses from this contract were not material for
the year ended March 31, 2017.

We also have a number of forward contracts to hedge the Euro against cash flows denominated primarily in
British pound sterling and other European currencies. At March 31, 2018 and 2017, the total gross notional
amounts of these contracts were $29 million and $62 million.

These contracts will mature through December 2018 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
and accordingly, net gains of nil, $5 million and $60 million in 2018, 2017 and 2016, were recorded within
operating expenses. Gains or losses from these contracts are largely offset by changes in the value of the
underlying intercompany foreign currency loans.

128

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FINANCIAL NOTES (Continued)

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

(In millions)

Derivatives designated for hedge

accounting

Foreign exchange

contracts (current)

Foreign exchange

contracts (non-current)

Cross-currency

swaps (current)

Cross-currency

swaps (non-current)

Total

Derivatives not designated for hedge

accounting

Foreign exchange

contracts (current)

Foreign exchange

contracts (current)

Total

March 31, 2018

March 31, 2017

Balance Sheet
Caption

Fair Value of
Derivative

Asset

Liability

U.S.
Dollar
Notional

Fair Value of
Derivative

Asset

Liability

U.S.
Dollar
Notional

Prepaid expenses
and other

Other
Noncurrent
Assets

Prepaid expenses
and other/
Other Accrued
Liabilities

Other
Noncurrent
Assets/
Liabilities

Prepaid expenses
and other

Other accrued
liabilities

$ 15

$—

$

81

$ 17

$—

$

81

14 —

81

32 —

162

—

7

504

17 —

174

—

222

3,508

90 —

2,489

$ 29

$229

$156

$—

$— $—

$

13

$

1

$—

$ 198

—

—

$— $—

16 —

$

1

—

$—

37

Refer to Financial Note 21, “Fair Value Measurements,” for more information on these recurring fair value

measurements.

21. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. There is a three-level hierarchy that
prioritizes the inputs used in determining fair value by their reliability and preferred use, as follows:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on quoted prices in active markets for similar assets and liabilities, quoted prices
for identical or similar assets or liabilities in inactive markets, or other inputs that are observable
or can be corroborated by observable market data.

Level 3—Valuations based on inputs that are both significant

to the fair value measurement and

unobservable.

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FINANCIAL NOTES (Continued)

At March 31, 2018 and 2017, 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 fair value of our commercial paper was determined using quoted prices in active markets for identical

liabilities, which are considered to be Level 1 inputs.

Our long-term debt is carried at amortized cost. The carrying amounts and estimated fair values of these
liabilities were $7.9 billion and $8.1 billion at March 31, 2018 and $8.4 billion and $8.7 billion at
March 31, 2017. The estimated fair value of our long-term debt was determined using quoted market prices in a
less active market and other observable inputs from available market information, which are considered to be
Level 2 inputs, and may not be representative of actual values that could have been realized or that will be
realized in the future.

Assets Measured at Fair Value on a Recurring Basis

Cash and cash equivalents included investments in money market funds of $799 million and $478 million at
March 31, 2018 and 2017. The fair value of the money market funds was determined by 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 our marketable securities were not material at
March 31, 2018 and 2017.

Fair values of our forward foreign currency contracts were determined using observable inputs from
available market information. Fair values of our cross-currency swaps were determined using quoted 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 20,
“Hedging Activities,” for fair value and other information on our foreign currency derivatives including forward
foreign currency contracts and cross-currency swaps.

There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the years

ended March 31, 2018 and 2017.

Assets Measured at Fair Value on a Nonrecurring Basis

At March 31, 2018, assets measured at fair value on a nonrecurring basis consisted of goodwill, intangible
and other long-lived assets for our McKesson Europe and Rexall Health reporting units within our Distribution
Solutions segment.

At March 31, 2017, assets measured at fair value on a nonrecurring basis primarily consisted of our equity
method investment in Change Healthcare (Refer to Financial Note 2, “Healthcare Technology Net Asset
Exchange,”) and goodwill for our EIS reporting unit within our Technology Solutions segment.

Goodwill

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

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FINANCIAL NOTES (Continued)

Refer to Financial Note 3, “Goodwill Impairment Charges,” for more information regarding goodwill

impairment charges recorded for these reporting units during 2018 and 2017.

Intangible and Other Long-Lived Assets

We measure certain intangible and other long-lived assets at fair value on a nonrecurring basis when they
are deemed to be other-than-temporarily impaired. An impairment charge is recorded when the cost of the asset
exceeds its fair value and this condition is determined to be other-than-temporary.

As discussed in Financial Note 4, “Restructuring and Asset Impairment Charges,” we recorded non-cash
pre-tax charges of $479 million ($443 million after-tax) during 2018 to impair the carrying values of certain
long-lived assets including intangible assets and capitalized software assets. We utilized an income approach
(DCF method) or a combination of an income approach and a market approach for estimating the fair value of
intangible assets. The future cash flows used in the analysis are based on internal cash flow projections based on
our long-range plans and include significant assumptions by management. Accordingly, the fair value assessment
of the long-lived assets is considered a Level 3 fair value measurement.

Liabilities Measured at Fair Value on a Nonrecurring Basis

At March 31, 2018, we remeasured the contingent consideration liability related to our acquisition of CMM
at fair value on a nonrecurring basis. Refer to Financial Note 6, “Business Combinations,” for more information
on the fair value of the contingent consideration liability. There were no liabilities measured at fair value on a
nonrecurring basis at March 31, 2017.

22. Lease Obligations

We lease facilities and equipment almost solely under operating leases. At March 31, 2018, future minimum
lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess
of one year for years ending March 31 are:

(In millions)

2019

2020

2021

2022

2023

Thereafter

Total minimum lease payments (1)

Noncancelable
Operating
Leases

$ 502

443

383

333

277

1,134

$3,072

(1) Amount

includes future minimum lease payments for the sale-leaseback transaction of $62 million.
Minimum lease payments have not been reduced by minimum sublease income of $147 million due under
future noncancelable subleases.

Rent expense under operating leases was $568 million, $474 million and $433 million in 2018, 2017 and
2016. Rent expense increased in 2018 due to our December 2017 acquisition of Rexall Health. We recognize rent

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expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor incentives
for tenant improvements, periods where no rent payment is required and escalations in rent payments over the
term of the lease. Deferred rent is recognized for the difference between the rent expense recognized on a
straight-line basis and the payments made per the terms of the lease. Remaining terms for facilities leases
generally range from one to sixteen years, while remaining terms for equipment leases range from one to seven
years. Most real property leases contain renewal options (generally for five-year increments) and provisions
requiring us to pay property taxes and operating expenses in excess of base period amounts. Sublease rental
income was not material for 2018, 2017 and 2016.

23. Financial Guarantees and Warranties

Financial Guarantees

We have agreements with certain of our customers’ financial institutions, mainly in Canada and Europe,
under which we have guaranteed the repurchase of our customers’ inventory or our customers’ debt in the event
these customers are unable to meet their obligations to those financial institutions. For our inventory repurchase
agreements, among other requirements, inventories must be in resalable condition and any repurchase would be
at a discount. The inventory repurchase agreements mostly relate to certain Canadian customers and generally
range from one to two years. Customers’ debt guarantees range from one to twelve years and are primarily
provided to facilitate financing for certain customers. The majority of our customers’ debt guarantees are secured
by certain assets of the customer. At March 31, 2018, the maximum amounts of inventory repurchase guarantees
and customers’ debt guarantees were $234 million and $104 million, of which we have not accrued any material
amounts. The expirations of these financial guarantees are as follows: $178 million, $18 million, $7 million,
$10 million and $18 million from 2019 through 2023 and $107 million thereafter.

At March 31, 2018, our banks and insurance companies have issued $259 million of standby letters of credit
and surety bonds, which were issued on our behalf mostly related to our customer contracts and in order to meet
the security requirements for statutory licenses and permits, court and fiduciary obligations and our workers’
compensation and automotive liability programs.

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

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

Warranties

In the normal course of business, we provide certain warranties and indemnification protection for our
products and services. For example, we provide warranties that the pharmaceutical and medical-surgical products
we distribute are in compliance with the U.S. Food, Drug and Cosmetic Act and other applicable laws and
regulations. We have received the same warranties from our suppliers, which customarily are the manufacturers

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of the products. In addition, we have indemnity obligations to our customers for these products, which have also
been provided to us from our suppliers, either through express agreement or by operation of law.

this may result

We also provide warranties regarding the performance of software and products we sell. Our liability under
these warranties is to bring the product into compliance with previously agreed upon specifications. For software
products,
in additional project costs, which are reflected in our estimates used for the
percentage-of-completion method of accounting for software installation services within these contracts. In
addition, most of our customers who purchase our software and automation products also purchase annual
maintenance agreements. Revenues from these maintenance agreements are recognized on a straight-line basis
over the contract period and the cost of servicing product warranties is charged to expense when claims become
estimable. Accrued warranty costs were not material to the consolidated balance sheets.

24. Commitments and Contingent Liabilities

including claims with customers and vendors, pending and potential

In addition to commitments and obligations in the ordinary course of business, we are subject to various
claims,
legal actions for damages,
investigations relating to governmental laws and regulations and other matters arising out of the normal conduct
of our business. As described below, many of these proceedings are at preliminary stages and many seek an
indeterminate amount of damages.

When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best
estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often
difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable
based on the information available and the potential effect of future events and decisions by third parties that will
determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be
resolved over many years, during which time relevant developments and new information must be reevaluated at
least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate
a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the
proceeding is provided.

Disclosure is also provided when it is reasonably possible that a loss will be incurred or when it is
reasonably possible that the amount of a loss will exceed the recorded provision. We review all contingencies at
least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable
estimate of the potential loss or range of loss can be made. As discussed above, development of a meaningful
estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations
with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such
factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of
high and low estimates.

We are party to the legal proceedings described below. Unless otherwise stated, we are currently unable to
estimate a range of reasonably possible losses for the unresolved proceedings described below. Should any one or
a combination of more than one of these proceedings be successful, or should we determine to settle any or a
combination of these matters, we may be required to pay substantial sums, become subject to the entry of an
injunction or be forced to change the manner in which we operate our business, which could have a material
adverse impact on our financial position or results of operations.

I. Litigation and Claims

On September 7, 2007, McKesson Specialty Arizona Inc. was served with a complaint filed in the New
York Supreme Court, New York County by PSKW, LLC, alleging that McKesson Specialty Arizona

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misappropriated trade secrets and confidential information in launching its LoyaltyScript® program, PSKW, LLC
v. McKesson Specialty Arizona Inc., Index No. 602921/07. PSKW later amended its complaint twice to add
additional, but related claims. On March 9, 2017, the court entered judgment after trial in McKesson Specialty
Arizona’s favor on all claims. On April 6, 2017, PSKW appealed the trial court’s judgment. The appeal was
dismissed on March 27, 2018.

On April 16, 2013, the Company’s wholly-owned subsidiary, U.S. Oncology, Inc. (“USON”), was served
with a third amended qui tam complaint filed in the United States District Court for the Eastern District of New
York by two relators, purportedly on behalf of the United States, 21 states and the District of Columbia, against
USON and five other defendants, alleging that USON solicited and received illegal “kickbacks” from Amgen in
violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, and seeking
damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United
States ex rel. Piacentile v. Amgen Inc., et al., CV 04-3983 (SJ). Previously, the United States declined to
intervene in the case as to all allegations and defendants except for Amgen. On February 5, 2013, the United
States filed a motion to dismiss the claims pled against Amgen. On September 30, 2013, the court granted the
United States’ motion to dismiss. On April 4, 2014, USON filed a motion to dismiss the claims pled against it.
The court has not yet ruled on USON’s motion.

On May 17, 2013, the Company was served with a complaint filed in the United States District Court for the
Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited
marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by the
Junk Fax Protection Act of 2005 or JFPA, True Health Chiropractic Inc., et al. v. McKesson Corporation, et al.,
CV-13-02219 (HG). True Health Chiropractic later amended its complaint, adding McLaughlin Chiropractic
Associates as an additional named plaintiff and McKesson Technologies Inc. as a defendant. On August 22,
2016, the court denied plaintiffs’ motion for class certification. On November 18, 2016, plaintiffs were granted
leave to appeal that ruling to the United States Court of Appeals for the Ninth Circuit. Oral argument was heard
on the appeal, which has been fully briefed, on October 17, 2017. Separately, in the United States Court of
Appeals for the District of Columbia Circuit (“D.C. Circuit”), certain third parties challenged the Federal
Communications Commission’s
language on solicited faxes.
Simultaneously, other third parties challenged the FCC’s authority to grant waivers, like those granted to the
Company, of opt-out language requirements on solicited faxes. On March 31, 2017, the D.C. Circuit vacated the
FCC order requiring opt-out language on solicited faxes and dismissed as moot the challenge relating to waivers.
On February 20, 2018, the United States Supreme Court denied a petition for certiorari seeking review of the
D.C. Circuit’s ruling.

authority to require opt-out

(“FCC”)

On December 29, 2017, two investment funds holding shares in Celesio AG filed a complaint against
McKesson Europe Holdings (formerly known as “Dragonfly GmbH & Co KGaA”), a wholly-owned subsidiary
of the Company, in a German court in Stuttgart, Germany, Polygon European Equity Opportunity Master Fund
et al. v. McKesson Europe Holdings GmbH & Co. KGaA, No. 18 O 455/17 (the “Polygon” matter). The
complaint alleges that the public tender offer document published by McKesson Europe in its acquisition of
Celesio AG incorrectly stated that McKesson Europe’s acquisition of convertible bonds would not be treated as a
relevant acquisition of shares for the purposes of triggering minimum pricing considerations under Section 4 of
the German Takeover Offer Ordinance. On December 30, 2017, four additional investment funds which allegedly
entered into swap transactions regarding shares in Celesio AG that would have enabled them to decide whether to
accept the takeover offer filed a substantively identical claim, Davidson Kempner International (BVI) Ltd. et al.
v. McKesson Europe Holdings GmbH & Co. KGaA, No.16 O 475/17 (the “Davidson” matter). On March 9, 2018,
McKesson Europe filed its statement of defense in the Polygon matter. On May 11, 2018, the court in the
Polygon matter dismissed the claims against McKesson Europe. McKesson Europe filed its statement of defense
in the Davidson matter on April 12, 2018.

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On June 17, 2014, U.S. Oncology Specialty, LP (“USOS”) was served with a fifth amended qui tam
complaint filed in July 2008 in the United States District Court for the Eastern District of New York by a relator
against USOS, among others, alleging that USOS solicited and received illegal “kickbacks” from Amgen in
violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, and seeking
damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United
States ex rel. Hanks v. Amgen, Inc., et al., CV-08-03096 (SJ). Previously, the United States declined to intervene
in the case as to all allegations and defendants except for Amgen. On August 1, 2014, USOS filed a motion to
dismiss the claims pled against it and the hearing occurred on October 7, 2014. The court has not yet ruled on
USOS’s motion.

On January 26, 2016, the Company was served with an amended complaint filed in the Circuit Court of
Boone County, West Virginia, by the State of West Virginia, including the Attorney General of West Virginia,
alleging that since 2007, the Company has oversupplied controlled substances to West Virginia and failed to
report suspicious orders of controlled substances in violation of the West Virginia Controlled Substances Act, the
West Virginia Consumer and Protection Act, as well as common law claims for negligence, public nuisance and
unjust enrichment, and seeking injunctive relief, monetary damages and civil penalties, all in unspecified
amounts, State of West Virginia ex rel. Morrisey v. McKesson Corporation, Civil Action No.: 16-C-1. Following
removal to the United States District Court for the Southern District of West Virginia (Civil Action No.:
2:16-cv-01772), the court remanded the matter to state court in January 2017. On July 7, 2017, the Company
again removed the matter to the United States District Court for the Southern District of West Virginia (Civil
Action No. 2:16-cv-03555.) On February 15, 2018, the court remanded the matter to state court. The trial of the
matter is scheduled to begin on April 30, 2019. The Company’s motion for judgment on the pleadings is fully
briefed.

On May 2, 2017, the Company was served with a complaint filed in the District Court of the Cherokee
Nation by the Cherokee Nation against the Company and five other defendants, alleging that the defendants
oversupplied controlled substances to the Cherokee Nation in violation of the Cherokee National Unfair and
Deceptive Practices Act, as well as common law claims for nuisance, negligence, unjust enrichment and civil
conspiracy, and seeking injunctive relief, civil penalties, compensatory damages, restitution, punitive damages,
and attorneys’ fees and costs, all in unspecified amounts, Cherokee Nation v. AmerisourceBergen, et al.,
CV-2017-203. On June 8, 2017, the Company and the other defendants in this action filed suit in the United
States District Court for the Northern District of Oklahoma, seeking a declaratory judgment that the Cherokee
Nation District Court has no jurisdiction over the claims asserted by the Cherokee Nation in its suit, McKesson
Corporation, et al. v. Todd Hembree, et al., No.4:17-cv-00323. On January 9, 2018, the court granted the motion
for preliminary injunction enjoining the defendants from taking any action in the case pending in the tribal court.
On January 19, 2018, the Cherokee Nation refiled its suit against the Company and the five other original
defendants in the district court of Sequoyah County, Oklahoma, The Cherokee Nation v. McKesson Corporation,
et al., Case no. CT-2081-11. On February 26, 2018, the Company and the other defendants removed this case to
the United States District Court for the Eastern District of Oklahoma (Case No. 6:18-cv-00056). On March 1,
2018, the Cherokee Nation filed a motion to remand the matter to state court.

The Company is also a defendant in many cases alleging claims related to the distribution of controlled
substances to pharmacies, often together with other pharmaceutical wholesale distributors and pharmaceutical
manufacturers and retail pharmacy chains named as defendants. The plaintiffs in these actions include state
attorneys general, county and city municipalities, hospitals, Indian tribes, pension funds, and third-party payors.
The Company has been served with 394 complaints filed in state and federal courts in Alabama, Arizona,
Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, Nevada,

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New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania,
Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia,
Wisconsin and Wyoming. Since December 5, 2017, nearly all the cases pending in federal district courts have
been transferred to a multi-district litigation proceeding in the United States District Court for the Northern
District of Ohio captions In re: National Prescription Opiate Litigation, Case No. 17-md-28-04. On April 11,
2018, the court issued a case management order setting forth a briefing schedule to resolve legal issues across
several bellwether states and a discovery schedule and March 9, 2019 trial date for three Ohio cases, The County
of Summit, Ohio v. Purdue Pharma L.P., et al., Case No. 18-OP-45090 (N.D. Ohio); The County of Cuyahoga v.
Purdue Pharma, L.P., et al., Case No. 17-OP-45004 (N.D. Ohio); and City of Cleveland v. AmerisourceBergen
Drug Corp., et al., Case No. 18-OP-4532 (N.D. Ohio.)

On April 3, 2017, Eli Inzlicht, a purported shareholder, filed a shareholder derivative complaint in the
United States District Court for the Northern District of California against certain officers and directors of the
Company and the Company as a nominal defendant, alleging violations of fiduciary duties relating to the
Company’s previously disclosed agreement with the Drug Enforcement Administration (“DEA”) and the
Department of Justice and various United States Attorneys’ offices to settle all potential administrative and civil
the Company’s suspicious order reporting practices for controlled
claims relating to investigations about
substances, and seeking restitution and disgorgement of all profits, benefits and other compensation obtained by
the defendants from the Company and attorneys’ fees, all in unspecified amounts, Inzlicht v. McKesson
Corporation, et.al., No. 5:17-cv-01850. On July 26, 2017, Vladimir Gusinsky, as trustee for the Vladimir
Gusinsky Living Trust, a purported shareholder, filed a shareholder derivative complaint in the same court based
on similar allegations, Vladimir Gusinsky, as Trustee for the Vladimir Gusinsky Living Trust v. McKesson
Corporation, et.al., No. 5:17-cv-4248. On October 9, 2017, the court consolidated the two matters, In re
McKesson Corporation Derivative Litigation, No. 4:17-cv-1850. On January 5, 2018, the defendants moved to
dismiss the consolidated suit. On May 14, 2018, the court denied in part and granted in part the motions to
dismiss.

On October 17, 2017, Chaile Steinberg, a purported shareholder, filed a shareholder derivative complaint in
the Delaware Court of Chancery against certain officers and directors of the Company and the Company as a
nominal defendant, alleging violations of fiduciary duties relating to the Company’s previously disclosed
agreement with the DEA and the Department of Justice and various United States Attorneys’ offices to settle all
potential administrative and civil claims relating to investigations about
the Company’s suspicious order
reporting practices for controlled substances, and seeking damages and disgorgement of all profits, benefits and
other compensation obtained by the defendants from the Company and attorneys’ fees, all in unspecified
amounts, Steinberg v. McKesson Corporation, et.al., No. 2017-0736. Three similar suits were thereafter filed by
purported shareholders in the Court of Chancery of the State of Delaware, including Police & Fire Ret. Sys. of
the City of Detroit v. McKesson Corporation, et al., No. 2017-0803, Amalgamated Bank v. McKesson
Corporation, et al., No. 2017-0881, and Greene v. McKesson Corporation, et al., No. 2018-0042. The court
ordered that all four actions be consolidated, and the plaintiffs designated the complaint in the Steinberg action as
the operative complaint. The consolidated matter is captioned In re McKesson Corporation Stockholder
Derivative Litigation, No. 2017-0736. The defendants filed a motion to dismiss the complaint on January 18,
2018, and a hearing on that motion took place on March 7, 2018.

On March 5, 2018, Rxc Acquisition Company (d/b/a RxCrossroads) was served with a qui tam complaint
filed in July 2017 in the United States District Court for the Southern District of Illinois by a relator against Rxc
Acquisition Company, among others, alleging that UCB, Inc., provided illegal “kickbacks” to providers,
including nurse educator services and reimbursement assistance services provided through Rxc Acquisition
Company, in violation of the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes.

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United States ex rel. CIMZNHCA, LLC v. UCB, Inc., et al., No. 17-cv-00765. The complaint seeks treble
damages, civil penalties, and further relief, all in unspecified amounts. The United States and the states named in
the complaint have declined to intervene in the suit. The response of Rxc Acquisition Company is due on
May 25, 2018.

On April 3, 2018, a second amended qui tam complaint was filed in the United States District Court for the
Eastern District of New York by a relator, purportedly on behalf of the United States, 30 states, the District of
Columbia, and two cities against McKesson Corporation, McKesson Specialty Care Distribution Corporation,
McKesson Specialty Distribution LLC, McKesson Specialty Care Distribution Joint Venture, L.P., Oncology
Therapeutics Network Corporation, Oncology Therapeutics Network Joint Venture, L.P., US Oncology, Inc. and
US Oncology Specialty, L.P., alleging that from 2001 through 2010 the defendants repackaged and sold single-
dose syringes of oncology medications in a manner that violated the federal False Claims Act and various state
and local false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of
suit, all in unspecified amounts, United States ex rel. Omni Healthcare Inc. v. McKesson Corporation, et al.,
12-CV-06440 (NG). On April 16, 2018, the United States filed a notice declining to intervene in the case. On
May 9, 2018, the states filed a notice also declining to intervene in the case.

II. Government Subpoenas and Investigations

From time to time, the Company receives subpoenas or requests for information from various government
agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely
manner. These responses sometimes require time and effort and can result in considerable costs being incurred
by the Company. For example, in May 2017, the Company was served with a Civil Investigative Demand by the
U.S. Attorney’s Office for the Eastern District of New York relating to the certification it obtained for a software
product under the U.S. Department of Health and Human Services’ Electronic Health Record Incentive
Program. Also in May 2017, the Company received a request for information from the U.S. Attorney’s Office for
the Eastern District of Pennsylvania relating to the use of a Company pharmacy management software system to
process partially-filled prescriptions. In September 2017, the Company received a request for information and
documents from a group of approximately 40 state attorneys general related to an investigation into the factors
contributing to the increasing number of opioid-related hospitalizations and deaths in the United States. The
Company has also received civil investigative demands, subpoenas or requests for information from several other
state attorneys general on the same issues. The Company is currently responding to these requests. Such
subpoenas and requests also can lead to the assertion of claims or the commencement of civil or criminal legal
proceedings against the Company and other members of the health care industry, as well as to settlements.

In 2015, the Company recorded a pre-tax charge of $150 million relating to the Company’s previously
disclosed agreement with the DEA and the Department of Justice and various United States Attorneys’ offices to
settle all potential administrative and civil claims relating to investigations about the Company’s suspicious order
reporting practices for controlled substances. In January 2017, the Company finalized the settlements and paid
$150 million in cash.

III. Environmental Matters

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

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Based on a determination by the Company’s environmental staff, in consultation with outside environmental
specialists and counsel, the current estimate of the Company’s probable loss associated with the remediation
costs for these five sites is $9.5 million, net of amounts anticipated from third parties. The $9.5 million is
expected to be paid out between April 2018 and March 2048. The Company’s estimated probable loss for these
environmental matters has been entirely accrued for in the accompanying consolidated balance sheets.

In addition, the Company has been designated as a Potentially Responsible Party (“PRP”) under the
Superfund law for environmental assessment and cleanup costs as the result of its alleged disposal of hazardous
substances at 14 sites. With respect to these sites, numerous other PRPs have similarly been designated and while
the current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter, costs
of these sites are typically shared with other PRPs. At one of these sites, the United States Environmental
Protection Agency has selected a preferred remedy with an estimated cost of approximately $1.38 billion. It is
not certain at this point in time what proportion of this estimated liability will be borne by the Company or by the
numerous other PRPs. Accordingly, the Company’s estimated probable loss at those 14 sites is approximately
$21.6 million, which has been entirely accrued for in the accompanying consolidated balance sheets. However, it
is possible that the ultimate costs of these matters may exceed or be less than the reserves.

IV. Value Added Tax Assessments

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

V. Other Matters

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

25. Stockholders’ Equity

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

In July 2017, the Company’s quarterly dividend was raised from $0.28 to $0.34 per common share for
dividends declared on or after such date by the Board. Dividends were $1.30 per share in 2018, $1.12 per share in
2017 and $1.08 per share in 2016. The Company anticipates that it will continue to pay quarterly cash dividends
in the future. However, the payment and amount of future dividends remain within the discretion of the Board
and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.

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Share Repurchase Plans

Stock repurchases may be made from time-to-time in open market transactions, privately negotiated
transactions, through accelerated share repurchase (“ASR”) programs, or by any combination of such methods.
The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors,
including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other
market and economic conditions.

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

(In millions, except price per share data)

Balance, March 31, 2015

Shares repurchase plans authorized

May 2015

October 2015

Shares repurchased

Balance, March 31, 2016

Shares repurchase plans authorized

October 2016

Shares repurchased

Balance, March 31, 2017

Shares repurchased

Balance, March 31, 2018

Share Repurchases (1)

Total
Number of
Shares
Purchased (2) (4)

Average Price
Paid Per Share

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Programs

$ —

500

2,000

(1,504)

$

996

4,000

(2,250)

$ 2,746

(1,650)

$ 1,096

8.7

$173.64

15.5

$141.16

10.5

$151.06(3)

(1) This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises
of employee stock options or shares tendered to satisfy tax withholding obligations in connection with
employee equity awards.

(2) All of the shares purchased were part of the publicly announced programs.
(3) The average price paid per share computation includes the initial share settlement of 2.5 million shares from
the March 2018 ASR program, of which the actual average price of shares will be determined at the
termination of the program.

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

During the last three years, our share repurchases were transacted through both open market transactions

and ASR programs with third party financial institutions.

In May and October 2015, the Board authorized the repurchase of up to $500 million and $2 billion of the

Company’s common stock.

In 2016, we repurchased 4.5 million of the Company’s shares for $854 million through open market
transactions at an average price per share of $192.27. In February 2016, we entered into an ASR program with a
third-party financial institution to repurchase $650 million of the Company’s common stock. The ASR program

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

was completed during the fourth quarter of 2016 and we repurchased 4.2 million shares at an average price per
share of $154.04. During 2016, we completed the May 2015 share repurchase authorization. At March 31, 2016,
$1.0 billion remained available for future authorized repurchases of the Company’s common stock under the
October 2015 authorization.

In 2016, we retired 115.5 million or $7.8 billion of the Company’s treasury shares previously repurchased.
Under the applicable state law, these shares resume the status of authorized and unissued shares upon retirement.
In accordance with our accounting policy, we allocate any excess of share repurchase price over par value
between additional paid-in capital and retained earnings. Accordingly, our retained earnings and additional
paid-in capital were reduced by $6.4 billion and $1.5 billion during 2016.

In October 2016, the Board authorized the repurchase of up to $4.0 billion of the Company’s common stock.

In 2017, we repurchased 14.1 million of the Company’s shares for $2.0 billion through open market
transactions at an average price per share of $140.96. In March 2017, we entered into an ASR program with a
third-party financial institution to repurchase $250 million of the Company’s common stock. As of March 31,
2017, we had received 1.4 million shares under this program. This ASR program was completed in April 2017
and we received 0.3 million additional shares. The total number of shares repurchased under this ASR program
was 1.7 million shares at an average price per share of $143.19. During 2017, we completed the October 2015
share repurchase authorization. The total authorization outstanding for repurchases of the Company’s common
stock was $2.7 billion at March 31, 2017.

In 2018, we repurchased 3.5 million of the Company’s shares for $500 million through open market
transactions at an average price per share of $144.43. In June 2017, August 2017 and March 2018, we entered
into three separate ASR programs with third-party financial institutions to repurchase $250 million, $400 million
and $500 million of the Company’s common stock. As of March 31, 2018, we completed and received a total of
1.5 million shares under the June 2017 ASR program and a total of 2.7 million shares under the August 2017
ASR program. In addition, we received 2.5 million shares representing the initial number of shares due in March
2018 and an additional 0.5 million shares in April 2018 under the March 2018 ASR program. The total number
of shares to be ultimately repurchased by the Company under the March 2018 ASR program will be determined
at the completion of the program based on the average daily volume-weighted average price of the Company’s
common stock during this program, less a discount. The program is anticipated to be completed during the first
quarter of 2019. The total authorization outstanding for repurchase of the Company’s common stock was
$1.1 billion at March 31, 2018.

In May 2018, the Board authorized the repurchase of up to $4.0 billion of the Company’s common stock.
The total authorization outstanding for repurchases of the Company’s common stock was increased to
$5.1 billion.

140

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Other Comprehensive Income (Loss)

Information regarding other comprehensive income (loss) including noncontrolling interests and redeemable

noncontrolling interests, net of tax, by component is as follows:

(In millions)

Foreign currency translation adjustments:(1)

Foreign currency translation adjustments arising during period, net of income tax

expense (benefit) of nil, ($1) and ($23) (2) (3)

Reclassified to income statement, net of income tax expense of nil, nil and nil (4)

Unrealized gains (losses) on net investment hedges (5)

Unrealized gains (losses) on net investment hedges arising during period, net of

income tax benefit of $95, $5 and nil

Reclassified to income statement, net of income tax expense of nil, nil and nil

Years Ended March 31,

2018

2017

2016

$ 804

$(644)

$113

—

804

20 —

(624)

113

(180)

—

(180)

(8) —

—

—

(8) —

Unrealized gains (losses) on cash flow hedges:

Unrealized gains (losses) on cash flow hedges arising during period, net of

income tax benefit of $9, nil and nil

(30)

(19)

Reclassified to income statement, net of income tax expense of nil, nil and nil

—

—

Changes in retirement-related benefit plans:

Net actuarial gain (loss) and prior service credit (cost) arising during period, net

of income tax expense (benefit) of $2, $4 and $13 (6)

Amortization of actuarial gain (loss), prior service cost and transition obligation,

net of income tax expense (benefit) of $2, $4 and $18 (7)

Foreign currency translation adjustments and other, net of income tax expense of

nil, nil and nil

Reclassified to income statement, net of income tax expense of nil, nil and nil

(30)

(19)

25

5

(15)

—

15

(20)

9

3

—

(8)

6

3

9

23

30

(3)

—

50

Other Comprehensive Income (Loss), net of tax

$ 609

$(659)

$172

(1) Foreign currency translation adjustments primarily result from the conversion of non-U.S. dollar financial

statements of our foreign subsidiaries into the Company’s reporting currency, U.S. dollars.

(2) The 2018 net foreign currency translation gains of $804 million were primarily due to the strengthening of
the Euro, British pound sterling and Canadian dollar against the U.S. dollar from April 1, 2017 to March 31,
2018. The 2017 net foreign currency translation losses of $644 million were primarily due to the weakening
of the Euro and British pound sterling against the U.S. dollar from April 1, 2016 to March 31, 2017.

(3) 2018 includes net foreign currency translation gains of $189 million and 2017 includes net foreign currency
translation losses of $74 million attributable to noncontrolling and redeemable noncontrolling interests.

141

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(4) These net foreign currency losses were reclassified from accumulated other comprehensive income (loss) to
discontinued operations within our consolidated statement of operations due to the sale of our Brazilian
pharmaceutical distribution business.

(5) 2018 and 2017 include foreign currency losses of $268 million and $13 million on the net investment

hedges from the Euro and British pound sterling-denominated notes.

(6) The net actuarial losses of $4 million and $5 million were attributable to noncontrolling and redeemable

noncontrolling interests in 2018 and 2017.

(7) Pre-tax amount was reclassified into cost of sales and operating expenses in the consolidated statements of
operations. The related tax expense was reclassified into income tax expense in the consolidated statements
of operations.

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in our accumulated other comprehensive income (loss) by component are as

follows:

Foreign Currency
Translation Adjustments

Foreign
Currency
Translation
Adjustments,
Net of Tax
$(1,323)

Unrealized
Losses on Net
Investment Hedges,
Net of Tax
$ —

Unrealized Gains
(Losses) on Cash
Flow Hedges,
Net of Tax
$ (12)

Unrealized Net
Gains (Losses)
and Other
Components of
Benefit Plans,
Net of Tax
$(226)

Total
Accumulated
Other
Comprehensive
Income (Loss)
$(1,561)

(644)
20

(8)

—

(19)
—

(17)
9

(688)
29

$ (624)

$

(8)

$ (19)

$

(8)

$ (659)

(74)

—

$ (550)
$(1,873)

804

—

$
$

(8)
(8)

(180)

—

—

$ (19)
$ (31)

(30)

—

(5)

(79)

$
(3)
$(229)

$ (580)
$(2,141)

10

5

604

5

$

804

$(180)

$ (30)

$ 15

$

609

(In millions)
Balance at March 31, 2016
Other comprehensive income

(loss) before reclassifications
Amounts reclassified to earnings
Other comprehensive income

(loss)

Less: amounts attributable to

noncontrolling and
redeemable noncontrolling
interests

Other comprehensive income

(loss) attributable to McKesson

Balance at March 31, 2017
Other comprehensive income

(loss) before reclassifications
Amounts reclassified to earnings

and other

Other comprehensive income

(loss)

Less: amounts attributable to

noncontrolling and
redeemable noncontrolling
interests

189

—

Other comprehensive income

(loss) attributable to McKesson

Balance at March 31, 2018

615
$
$(1,258)

$(180)
$(188)

142

—

$ (30)
$ (61)

(4)

185

$ 19
$(210)

424
$
$(1,717)

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

26. Related Party Balances and Transactions

During the fourth quarter of 2018, a public benefit California foundation (“Foundation”) was established to
provide opioid education to patients, caregivers, and providers, address policy issues, and increase patient access
to life-saving treatments. Certain officers of the Company also serve as directors and officers of the Foundation.
In March 2018, we made a pledge to the Foundation and incurred a pre-tax charitable contribution expense of
$100 million ($64 million after-tax) for 2018, which was recorded under the caption, “Selling, distribution and
administrative expenses,” in the accompanying consolidated statement of operations. The Company had a pledge
payable balance of $100 million to the Foundation as of March 31, 2018, which was included under the caption,
“Other accrued liabilities,” in our consolidated balance sheet. The pledge is binding and enforceable and is
expected to be paid in the first quarter of 2019.

McKesson Europe has investments in pharmacies located across Europe that are accounted for under the
equity method. McKesson Europe maintains distribution arrangements with these pharmacies for the sale of
related goods and services under which revenues of $154 million, $112 million, and $112 million are included in
our consolidated statements of operations for the years ended March 31, 2018, 2017 and 2016 and receivables of
$15 million and $12 million are included in our consolidated balance sheets as of March 31, 2018 and 2017.

Refer to Financial Note 2, “Healthcare Technology Net Asset Exchange,” for information regarding related

party balances and transactions with Change Healthcare.

27. Sale-Leaseback

During the fourth quarter of 2017, we completed a sale-leaseback transaction for our corporate headquarters
building in San Francisco, California. The transaction resulted in net cash proceeds of $223 million and a pre-tax
gain of $15 million, which represents the amount of total gain in excess of the present value of the minimum
lease payments. Additionally, we deferred a pre-tax gain of $48 million; such gain will be amortized on a
straight-line basis over the lease term as a reduction to selling, distribution, and administrative expense in the
accompanying consolidated statements of operations. Refer to Financial Note 22, “Lease Obligations,” for the
future minimum lease payments associated with this sale-leaseback.

28. Segments of Business

We report our operations in two reportable segments for 2018, 2017 and 2016: McKesson Distribution
Solutions and McKesson Technology Solutions. The factors for determining the reportable segments included the
manner in which management evaluates the performance of the Company combined with the nature of the
individual business activities. We evaluate the performance of our operating segments using a number of
measures,
income taxes and results from discontinued
operations.

including operating profit before interest expense,

specialty, biosimilar

Our Distribution Solutions

and OTC
segment distributes brand, generic,
pharmaceutical drugs and other healthcare-related products internationally and provides practice management,
technology, clinical support and business solutions to community-based oncology and other specialty practices.
This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers including
offering multiple distribution channels and clinical trial access to our network of oncology physicians. It also
provides medical-surgical supply distribution, logistics and other services to healthcare providers within the
United States. Additionally, this segment operates retail pharmacy chains in Europe and Canada, and supports
independent pharmacy networks within North America and Europe. It also supplies integrated pharmacy
management systems, automated dispensing systems and related services to retail, outpatient, central fill,
specialty and mail order pharmacies.

143

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Prior to March 2017, our McKesson Technology Solutions (“MTS”) segment delivered enterprise-wide
clinical, patient care, financial, supply chain, strategic management software solutions, as well as connectivity,
outsourcing and other services, including remote hosting and managed services, to healthcare organizations. On
March 1, 2017, upon the closing of Healthcare Technology Net Asset Exchange, we contributed the majority of
our MTS businesses to the newly formed joint venture, Change Healthcare. We retained our RHP and EIS
businesses. Effective April 1, 2017, our RHP business was transitioned to the Distributions Solution segment.
The EIS business was sold to a third party during 2018. Accordingly, the MTS segment only included our equity
method investment in Change Healthcare at the end of 2018. Refer to Financial Note 2, “Healthcare Technology
Net Asset Exchange” and Financial Note 5, “Divestitures,” for additional information about Change Healthcare
and the sale of our EIS business.

Corporate includes expenses associated with Corporate functions and projects, and the results of certain
investments. Corporate expenses are allocated to operating segments to the extent that these items are directly
attributable.

Financial information relating to our reportable segments and reconciliations to the consolidated totals is as

follows:

(In millions)

Revenues

Distribution Solutions (1)

Years Ended March 31,

2018

2017

2016

North America pharmaceutical distribution and services

$174,186

$164,832

$158,469

International pharmaceutical distribution and services

Medical-Surgical distribution and services

Total Distribution Solutions

Technology Solutions—products and services

Total Revenues

Operating profit

Distribution Solutions (2) (3)

Technology Solutions (4)

Total

Corporate Expenses, Net (5)

Loss on Debt Extinguishment

Interest Expense

Income From Continuing Operations Before Income Taxes

Depreciation and amortization (6)

Distribution Solutions

Technology Solutions

Corporate

Total

144

27,320

6,611

24,847

6,244

23,497

6,033

208,117

195,923

187,999

240

2,610

2,885

$208,357

$198,533

$190,884

$

1,231

$ 3,361

(23)

$

4,215

1,208

7,576

$

$

3,553

519

4,072

(564)

$

(377)

$

(469)

(122)

(283)

239

831

9

111

951

— $ —

$

$

$

$

(308)

6,891

735

65

110

910

$

$

$

$

(353)

3,250

669

107

109

885

$

$

$

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(In millions)

Expenditures for long-lived assets (7)

Distribution Solutions

Technology Solutions

Corporate

Total

Revenues, net by geographic area (8)

United States

Foreign

Total

Years Ended March 31,

2018

2017

2016

$

306

$

276

$

—

99

30

98

$

405

$

404

$

306

15

167

488

$169,943

$164,428

$158,255

38,414

34,105

32,629

$208,357

$198,533

$190,884

(1) Revenues derived from services represent less than 2% of this segment’s total revenues.
(2) Distribution Solutions segment’s operating profit for 2018 includes non-cash pre-tax goodwill impairment
charges of $1,283 million for our McKesson Europe reporting unit and $455 million for our Rexall Health
reporting unit. This segment’s operating profit for 2018 also includes non-cash pre-tax asset impairment
charges of $446 million and pre-tax restructuring charges of $74 million for our McKesson Europe business.
Operating profit for 2017 and 2016 includes $144 million and $76 million of net cash proceeds representing
our share of net settlements of antitrust class action lawsuits, and for 2016 also includes a pre-tax gain of
$52 million recognized from the sale of our ZEE Medical business.

(3) Distribution Solutions segment’s operating profit for 2018 and 2017 includes pre-tax credits of $99 million
and $7 million and for 2016 a pre-tax charge of $244 million related to our LIFO method of accounting for
inventories. LIFO credits were higher in 2018 compared to 2017 due to higher net effect of price declines,
partially offset by lower inventory level. LIFO expense was recognized in 2016 primarily due to net effects
of price increases.

(4) Technology Solutions segment’s operating profit for 2018 includes a pre-tax gain of $109 million from the
2018 third quarter sale of our EIS business. Operating profit for 2017 includes a pre-tax gain of
$3,947 million recognized from the Healthcare Technology Net Asset Exchange, net of transaction and
related expenses and a non-cash pre-tax charge of $290 million for goodwill impairment related to the EIS
reporting unit. Operating profit for 2016 includes a pre-tax gain of $51 million recognized from the sale of
our nurse triage business.
In 2016, the Company implemented the Cost Alignment Plan to reduce its operating expenses and recorded
pre-tax restructuring charges of $229 million. Pre-tax charges for 2016 were recorded as follows:
$161 million, $51 million and $17 million within our Distribution Solutions segment, Technology Solutions
segment and Corporate.

(5)

(6) Amounts primarily include amortization of acquired intangible assets purchased in connection with business

acquisitions, capitalized software held for sale and capitalized software for internal use.

(7) Long-lived assets consist of property, plant and equipment.
(8) Net revenues were attributed to geographic areas based on the customers’ shipment locations.

145

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Segment assets and property, plant and equipment, net by geographic areas were as follows:

(In millions)

Segment assets

Distribution Solutions

Technology Solutions

Corporate

Total

Property, plant and equipment, net

United States

Foreign

Total

March 31,

2018

2017

$53,915

$52,322

3,735

2,731

4,995

3,652

$60,381

$60,969

$ 1,529

$ 1,383

935

909

$ 2,464

$ 2,292

Assets by operating segment are not reviewed by management for the purpose of assessing performance or

allocating resources.

As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2017
and December 31, 2017, the executive who was our segment manager of the Distribution Solutions segment
retired from the Company in January 2018. As a result,
the Company’s chief operating decision maker
(“CODM”) evaluated our management and operating structure. In connection with the completion of this
evaluation in the first quarter of 2019, our operating structure is realigned, and we will report our financial results
in three reportable segments on a retrospective basis commencing in the first quarter of 2019, as follows:

• U.S. Pharmaceutical and Specialty Solutions;

• European Pharmaceutical Solutions; and

• Medical-Surgical Solutions.

All remaining operating segments and business activities that are not significant enough to require separate
reportable segment disclosure will be included in Other. Other will primarily consist of McKesson Canada,
McKesson Prescription Technology Solutions and our equity method investment in Change Healthcare. The
segment changes reflect how our CODM allocates resources and assesses performance commencing in the first
quarter of 2019.

146

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

29. Quarterly Financial Information (Unaudited)

The quarterly results of operations are not necessarily indicative of the results that may be expected for the

entire year. Selected quarterly financial information for the last two years is as follows:

(In millions, except per share amounts)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Fiscal 2018

Revenues

Gross profit (1)

Income (loss) after income taxes:

Continuing operations (1) (2) (3) (4) (5)

Discontinued operations

Net income (loss)

Net income (loss) attributable to McKesson

Earnings (loss) per common share attributable to McKesson (6)

Diluted (7)

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

$51,051

$52,061

$53,617

$51,628

2,560

2,834

2,715

3,075

$

$

$

363

2

365

309

$

$

$

56

—

56

1

$

$

$

960

$ (1,087)

1

961

903

2

$ (1,085)

$ (1,146)

$ 1.44

$

0.01

$

4.32

$ (5.58)

0.01

—

0.01

—

$

1.45

$

0.01

$

4.33

$ (5.58)

$ 1.46

$

0.01

$

4.34

$ (5.58)

—

—

0.01

—

$

1.46

$

0.01

$

4.35

$ (5.58)

(1) Gross profit for the first, second, third and fourth quarters of 2018 includes pre-tax charge of $26 million,
pre-tax credits of $29 million, $2 million and $94 million related to our last-in-first-out (“LIFO”) method of
accounting for inventories.

(2) Financial results for the second and fourth quarter of 2018 include non-cash goodwill impairment charges
(pre-tax and after-tax) of $350 million and $933 million for our McKesson Europe reporting unit. In
addition, financial results for the fourth quarter of 2018 include a non-cash goodwill impairment charge of
$455 million for our Rexall Health reporting unit. These charges were recorded within our Distribution
Solutions segment.

(3) Financial results for the second and fourth quarter of 2018 include non-cash pre-tax asset impairment

charges of $189 million and $257 million for our McKesson Europe business.

(4) Financial results for the third quarter of 2018 include a pre-tax gain of $109 million from the sale of our EIS

business.

(5) Financial results for the first, second, third and fourth quarters of 2018 include our proportionate share of

loss from Change Healthcare of $120 million, $61 million, $90 million and income of $23 million.

(6) Certain computations may reflect rounding adjustments.
(7) As a result of our reported net loss for the fourth quarter of 2018, potentially dilutive securities were

excluded from the 2018 fourth quarter per share computations due to their antidilutive effect.

147

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(In millions, except per share amounts)

Fiscal 2017

Revenues

Gross profit (1) (2) (3)

Income (loss) after income taxes:

Continuing operations (1) (2) (3) (4)

Discontinued operations

Net income

Net income attributable to McKesson

Earnings (loss) per common share attributable to McKesson (5)

Diluted

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$49,733

$49,957

$50,130

$48,713

2,907

2,756

2,812

2,796

$

$

$

673

(113)

560

542

$

$

$

325

(1)

324

307

$

$

$

649

$ 3,630

(3)

646

633

(7)

$ 3,623

$ 3,588

$ 2.88

$

1.35

$

2.86

$ 16.79

(0.50)

(0.01)

(0.01)

(0.03)

$

2.38

$

1.34

$

2.85

$ 16.76

$ 2.91

$

1.36

$

2.89

$ 16.95

(0.50)

—

(0.02)

(0.03)

$

2.41

$

1.36

$

2.87

$ 16.92

(1) Gross profit for the first, second, third and fourth quarters of 2017 includes pre-tax charge of $47 million,
pre-tax credits of $43 million, $155 million and pre-tax charge of $144 million related to our LIFO method
of accounting for inventories.

(2) Gross profit for the first and third quarters of 2017 includes $142 million and $2 million of cash proceeds

representing our share of net settlements of antitrust class action lawsuits.

(3) Financial results for the fourth quarter of 2017 include a pre-tax gain of $3,947 million ($3,018 million
after-tax) recognized from the Healthcare Technology Net Asset Exchange, net of transaction and related
expenses.

(4) Financial results for the second quarter of 2017 include a non-cash pre-tax charge of $290 million for

goodwill impairment related to the EIS reporting unit within our Technology Solutions segment.

(5) Certain computations may reflect rounding adjustments.

30. Subsequent Events

On April 25, 2018, the Company announced a multi-year strategic growth initiative. As part of the
preliminary phase of this initiative, in April 2018, we committed to a restructuring plan to optimize our operating
model and cost structure which will be substantially implemented by the end of 2019. We expect to record total
after-tax charges of approximately $150 million to $210 million during 2019. The charges under this plan
primarily consist of employee severance, exit-related costs and other charges.

On April 25, 2018, we entered into a definitive agreement to purchase Medical Specialties Distributors LLC
(“MSD”) for $800 million, which will be funded from cash on hand. MSD is a leading national distributor of
infusion and medical-surgical supplies as well as provider of biomedical services to alternate site and home

148

McKESSON CORPORATION

FINANCIAL NOTES (Concluded)

health providers. The acquisition is subject to regulatory approval and expected to close during the first half of
2019. Upon closing, the financial results of MSD will be included in our consolidated statements of operations
within our Medical-Surgical Solutions business.

On May 23, 2018, the Company’s Board of Directors approved the termination of our frozen U.S. defined
benefit pension plan (“Plan”). The distribution of plan assets pursuant to the termination will not be made until
the plan termination satisfies all regulatory requirements, which is expected to be completed by the second half
of 2020. Plan participants will receive their full accrued benefits from plan assets by electing either lump sum
distributions or annuity contracts with a qualifying third-party annuity provider. The plan termination is expected
to result in a one-time expense primarily representing pension settlement, which will be determined based on
prevailing market conditions, the actual lump sum distributions and annuity purchase rates at the date of
distribution. As a result, we are currently unable to reasonably estimate timing nor the amount of such settlement
charges. As of March 31, 2018, this defined benefit pension plan had an accumulated comprehensive loss of
approximately $120 million.

149

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

McKESSON CORPORATION

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, with the participation of other members of the
Company’s management, have evaluated the effectiveness of
the Company’s “disclosure controls and
procedures” (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period
covered by this report and have concluded that our disclosure controls and procedures are effective based on their
evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or
15d-15.

Internal Control over Financial Reporting

Management’s report on the Company’s internal control over financial reporting (as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) and the related report of our independent registered public
accounting firm are included in this Annual Report on Form 10-K, under the headings, “Management’s Annual
Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting
Firm” and are incorporated herein by reference.

Changes in Internal Controls

There were no changes in our internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our fourth
quarter of 2018 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

Item 9B. Other Information.

None.

150

McKESSON CORPORATION

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information about our Directors is incorporated by reference from the discussion under Item 1 of our Proxy
Statement for the 2018 Annual Meeting of Stockholders (the “Proxy Statement”) under the heading “Election of
Directors.” Information about compliance with Section 16(a) of the Exchange Act is incorporated by reference
from the discussion under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy
Statement. Information about our Audit Committee, including the members of the committee and our Audit
Committee Financial Expert, is incorporated by reference from the discussion under the headings “Audit
Committee,” “Audit Committee Financial Expert” and “Audit Committee Report” in our Proxy Statement.

Information about the Code of Conduct applicable to all employees, officers and directors can be found on
our website, www.mckesson.com, under the caption “Investors — Corporate Governance.” The Company’s
Corporate Governance Guidelines and Charters for the Audit, Compensation and Governance Committees can
also be found on our website under the same caption.

The Company intends to post on its website required information regarding any amendment to, or waiver
from, the Code of Conduct that applies to our Chief Executive Officer, Chief Financial Officer, Controller and
persons performing similar functions within four business days after any such amendment or waiver.

Item 11. Executive Compensation.

Information with respect to this item is incorporated by reference from the discussion under the heading

“Executive Compensation” in our Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters.

Information about security ownership of certain beneficial owners and management is incorporated by

reference from the discussion under the heading “Principal Shareholders” in our Proxy Statement.

The following table sets forth information as of March 31, 2018 with respect to the plans under which the

Company’s common stock is authorized for issuance:

Plan Category
(In millions, except per share amounts)

Equity compensation plans approved by

security holders

Equity compensation plans not approved by

security holders

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights (1)

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
the first column)

4.0(2)

—

$161.27

$ —

31.2(3)

—

(1) The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted
stock unit (“RSU”) awards, since recipients are not required to pay an exercise price to receive the shares
subject to these awards.

(2) Represents option and RSU awards outstanding under the following plans: (i) 1997 Non-Employee

Directors’ Equity Compensation and Deferral Plan; (ii) the 2005 Stock Plan; and (iii) the 2013 Stock Plan.

151

McKESSON CORPORATION

(3) Represents 3,462,328 shares available for purchase under the 2000 Employee Stock Purchase Plan and

27,706,614 shares available for grant under the 2013 Stock Plan.

The following are descriptions of equity plans that have been approved by the Company’s stockholders. The
plans are administered by the Compensation Committee of the Board of Directors, except for the portion of the
2013 Stock Plan and 2005 Stock Plan related to non-employee directors, which is administered by the Board of
Directors or its Governance Committee.

2013 Stock Plan: The 2013 Stock Plan was adopted by the Board of Directors on May 22, 2013 and
approved by the Company’s stockholders on July 31, 2013. The 2013 Stock Plan permits the grant of awards in
the form of stock options, stock appreciation rights, restricted stock (“RS”), restricted stock units (“RSUs”),
performance-based restricted stock units (“PeRSUs”), performance shares and other share-based awards. The
number of shares reserved for issuance under the 2013 Stock Plan equals the sum of (i) 30,000,000 shares,
(ii) the number of shares reserved but unissued under the 2005 Stock Plan as of the effective date of the 2013
Stock Plan, and (iii) the number of shares that become available for reuse under the 2005 Stock Plan following
the effective date of the 2013 Stock Plan. For any one share of common stock issued in connection with an RS,
RSU, performance share or other full share award, three and one-half shares shall be deducted from the shares
available for future grants. Shares of common stock not issued or delivered as a result of the net exercise of a
stock option, including in respect of the payment of applicable taxes, or shares repurchased on the open market
with proceeds from the exercise of options shall not be returned to the reserve of shares available for issuance
under the 2013 Stock Plan. Shares withheld to satisfy tax obligations relating to the vesting of a full-share award
shall be returned to the reserve of shares available for issuance under the 2013 Stock Plan.

Stock options are granted at no less than fair market value and those options granted under the 2013 Stock
Plan generally have a contractual term of seven years. Options generally become exercisable in four equal annual
installments beginning one year after the grant date. The vesting of RS or RSUs is determined by the
Compensation Committee at the time of grant. RS and RSUs generally vest over four years. PeRSUs vest three
years following the end of the performance period. Beginning in May 2014, the Company’s executive officers
are annually granted performance awards called Total Shareholder Return Units (“TSRUs”), which have a three-
year performance period and are payable in shares without an additional vesting period.

Non-employee directors may be granted an award on the date of each annual meeting of the stockholders for
up to 5,000 RSUs, as determined by the Board. Such non-employee director award is fully vested on the date of
the grant.

2005 Stock Plan: The 2005 Stock Plan was adopted by the Board of Directors on May 25, 2005 and
approved by the Company’s stockholders on July 27, 2005. The 2005 Stock Plan permits the granting of up to
42.5 million shares in the form of stock options, RS, RSUs, PeRSUs, performance shares and other share-based
awards. For any one share of common stock issued in connection with an RS, RSU, performance share or other
full-share award, two shares shall be deducted from the shares available for future grants. Shares of common
stock not issued or delivered as a result of the net exercise of a stock option, shares withheld to satisfy tax
obligations relating to the vesting of a full-share award or shares repurchased on the open market with proceeds
from the exercise of options shall not be returned to the reserve of shares available for issuance under the 2005
Stock Plan.

Following the effectiveness of the 2013 Stock Plan, no further shares were made subject to award under the
2005 Stock Plan. Shares reserved but unissued under the 2005 Stock Plan as of the effective date of the 2013
Stock Plan, and shares that become available for reuse under the 2005 Stock Plan following the effectiveness of
the 2013 Stock Plan, will be available for awards under the 2013 Stock Plan.

152

McKESSON CORPORATION

Stock options are granted at no less than fair market value and those options granted under the 2005 Stock
Plan generally have a contractual term of seven years. Options generally become exercisable in four equal annual
installments beginning one year after the grant date. The vesting of RS or RSUs is determined by the
Compensation Committee at the time of grant. RS and RSUs generally vest over four years. PeRSUs vest three
years following the end of the performance period.

Non-employee directors may be granted an award on the date of each annual meeting of the stockholders for
up to 5,000 RSUs, as determined by the Board. Such non-employee director award is fully vested on the date of
the grant.

1997 Non-Employee Directors’ Equity Compensation and Deferral Plan: The 1997 Non-Employee
Directors’ Equity Compensation and Deferral Plan was approved by the Company’s stockholders on July 30,
1997; however, stockholder approval of the 2005 Stock Plan on July 27, 2005 had the effect of terminating the
1997 Non-Employee Directors’ Equity Compensation and Deferral Plan such that no new awards would be
granted under the 1997 Non-Employee Directors’ Equity Compensation and Deferral Plan.

2000 Employee Stock Purchase Plan (the “ESPP”): The ESPP is intended to qualify as an “employee stock
purchase plan” within the meaning of Section 423 of the Internal Revenue Code. In March 2002, the Board
amended the ESPP to allow for participation in the plan by employees of certain of the Company’s international
and other subsidiaries. As to those employees, the ESPP does not qualify under Section 423 of the Internal
Revenue Code. Currently, 21.1 million shares have been approved by stockholders for issuance under the ESPP.

The ESPP is implemented through a continuous series of three-month purchase periods (“Purchase

Periods”) during which contributions can be made toward the purchase of common stock under the plan.

Each eligible employee may elect to authorize regular payroll deductions during the next succeeding
Purchase Period, the amount of which may not exceed 15% of a participant’s compensation. At the end of each
Purchase Period, the funds withheld by each participant will be used to purchase shares of the Company’s
common stock. The purchase price of each share of the Company’s common stock is 85% of the fair market
value of each share on the last day of the applicable Purchase Period. In general, the maximum number of shares
of common stock that may be purchased by a participant for each calendar year is determined by dividing
$25,000 by the fair market value of one share of common stock on the offering date.

There currently are no equity awards outstanding that were granted under equity plans that were not

submitted for approval by the Company’s stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information with respect to certain transactions with management is incorporated by reference from the
Proxy Statement under the heading “Certain Relationships and Related Transactions.” Additional information
regarding certain related party balances and transactions is included in the Financial Review section of this
Annual Report on Form 10-K and Financial Note 26, “Related Party Balances and Transactions,” to the
consolidated financial statements appearing in this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services.

Information regarding principal accounting fees and services is set forth under the heading “Ratification of
Appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for
Fiscal 2019” in our Proxy Statement and all such information is incorporated herein by reference.

153

McKESSON CORPORATION

PART IV

Item 15. Exhibits and Financial Statement Schedule.

(a)(1) Consolidated Financial Statements

Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the years ended March 31, 2018, 2017 and 2016

Consolidated Statements of Comprehensive Income for the years ended March 31, 2018, 2017 and 2016

Consolidated Balance Sheets as of March 31, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2018, 2017 and 2016

Consolidated Statements of Cash Flows for the years ended March 31, 2018, 2017 and 2016

Financial Notes

(a)(2) Financial Statement Schedule

Schedule II-Valuation and Qualifying Accounts

All other schedules not included have been omitted because of the absence of conditions under which they
are required or because the required information, where material, is shown in the financial statements,
financial notes or supplementary financial information.

(a)(3) Exhibits submitted with this Annual Report on Form 10-K as filed with the SEC and those

incorporated by reference to other filings are listed on the Exhibit Index

Page

67

69

70

71

72

73

74

155

156

154

McKESSON CORPORATION

SCHEDULE II

SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 2018, 2017 and 2016
(In millions)

Description

Year Ended March 31, 2018

Allowances for doubtful accounts

Other allowances

Year Ended March 31, 2017

Allowances for doubtful accounts

Other allowances

Year Ended March 31, 2016

Allowances for doubtful accounts

Other allowances

(1) Deductions:

Written off

Credited to other accounts

Total

Additions

Balance at
Beginning
of Year

Charged to
Costs and
Expenses

Charged to
Other
Accounts (3)

Deductions
From
Allowance
Accounts (1)

Balance at
End of
Year (2)

$243

42

$285

$212

41

$253

$141

33

$174

$ 44

—

$ 44

$ 93

—

$ 93

$113

—

$113

$13

(3)

$10

$ 7

2

$ 9

$ 2

(3)

$ (1)

$(113)

—

$(113)

$ (69)

(1)

$ (70)

$ (44)

11

$ (33)

$187

39

$226

$243

42

$285

$212

41

$253

2018

2017

2016

$(113)

$ (70)

$ (33)

—

—

—

$(113)

$ (70)

$ (33)

(2) Amounts shown as deductions from current and non-current receivables

$ 226

$285

$253

(3) Primarily represents reclassifications from other balance sheet accounts.

155

McKESSON CORPORATION

EXHIBIT INDEX

The agreements included as exhibits to this report are included to provide information regarding their terms
and not intended to provide any other factual or disclosure information about the Company or the other parties to
the agreements. The agreements may contain representations and warranties by each of the parties to the
applicable agreement that were made solely for the benefit of the other parties to the applicable agreement, and;

•

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating
the risk to one of the parties if those statements prove to be inaccurate;

• may apply standards of materiality in a way that is different from what may be viewed as material to

you or other investors; and

• were made only as of the date of the applicable agreement or such other date or dates as may be

specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date

they were made or at any other time.

Exhibits identified under “Incorporated by Reference” in the table below are on file with the Commission

and are incorporated by reference as exhibits hereto.

Exhibit
Number

2.1

2.2

3.1

3.2

4.1

Description

Agreement of Contribution and Sale, dated as of
June 28, 2016, by and among McKesson
Corporation, PF2 NewCo LLC, PF2 NewCo
Intermediate Holdings, LLC, PF2 NewCo
Holdings, LLC, HCIT Holdings, Inc., Change
Healthcare, Inc., Change Aggregator L.P. and
H&F Echo Holdings, L.P.

Amendment No. 1 to Agreement Contribution and
Sale, dated as of March 1, 2017, by and among by
and among Change Healthcare LLC, Change
Healthcare Intermediate Holdings, LLC, Change
Healthcare Holdings, LLC, HCIT Holdings, Inc.,
Change Healthcare, Inc., a Delaware corporation,
for itself and in its capacity as Echo
Representative, certain affiliates of The
Blackstone Group, L.P., certain affiliates of
Hellman & Friedman LLC, and McKesson
Corporation, a Delaware corporation.

Amended and Restated Certificate of
Incorporation of the Company, as filed with the
Delaware Secretary of State on July 27, 2011.

Amended and Restated By-Laws of the Company,
as amended July 29, 2015.

Indenture, dated as of March 11, 1997, by and
between the Company, as issuer, and The First
National Bank of Chicago, as trustee.

156

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

2.1

July 5, 2016

Form

8-K

8-K

1-13252

2.1

March 7, 2017

8-K

1-13252

3.1

August 2, 2011

8-K

1-13252

3.1

July 31, 2015

10-K

1-13252

4.4

June 19, 1997

McKESSON CORPORATION

Exhibit
Number

Description

Form File Number Exhibit

Filing Date

Incorporated by Reference

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

Officers’ Certificate, dated as of March 11, 1997,
and related Form of 2027 Note.

Indenture, dated as of March 5, 2007, by and
between the Company, as issuer, and The Bank of
New York Trust Company, N.A., as trustee.

Officers’ Certificate, dated as of March 5, 2007,
and related Form of 2017 Note.

Officers’ Certificate, dated as of February 12,
2009, and related Form of 2014 Note and Form of
2019 Note.

First Supplemental Indenture, dated as of
February 28, 2011, to the Indenture, dated as of
March 5, 2007, among the Company, as issuer, the
Bank of New York Mellon Trust Company, N.A.
(formerly known as The Bank of New York Trust
Company, N.A.), and Wells Fargo Bank, National
Association, as trustee, and related Form of 2016
Note, Form of 2021 Note and Form of 2041 Note.

Indenture, dated as of December 4, 2012, by and
between the Company, as issuer, and Wells Fargo
Bank, National Association, as trustee.

Officers’ Certificate, dated as of December 4,
2012, and related Form of 2015 Note and Form of
2022 Note.

Officers’ Certificate, dated as of March 8, 2013,
and related Form of 2018 Note and Form of 2023
Note.

Officers’ Certificate, dated as of March 10, 2014,
and related Form of Floating Rate Note, Form of
2017 Note, Form of 2019 Note, Form of 2024
Note, and Form of 2044 Note.

Officer’s Certificate, dated as of February 17,
2017, with respect to the Notes, and related Form
of 2021 Euro Note, Form of 2025 Euro Note, and
Form of 2029 Sterling Note.

Officer’s Certificate, dated as of February 12,
2018, with respect to the Euro Notes, and related
Form of Floating Rate Note and Form of Fixed
Rate Note.

Officer’s Certificate, dated as of February 16,
2018, with respect to the Notes, and related Form
of Note.

157

S-4

333-30899

4.2

July 8, 1997

8-K

1-13252

4.1

March 5, 2007

8-K

1-13252

4.2

March 5, 2007

8-K

1-13252

4.2

February 12, 2009

8-K

1-13252

4.2

February 28, 2011

8-K

1-13252

4.1

December 4, 2012

8-K

1-13252

4.2

December 4, 2012

8-K

1-13252

4.2

March 8, 2013

8-K

1-13252

4.2

March 10, 2014

8-K

1-13252

4.1

February 17, 2017

8-K

1-13252

4.1

February 13, 2018

8-K

1-13252

4.1

February 21, 2018

McKESSON CORPORATION

Exhibit
Number

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

Description

McKesson Corporation 1997 Non-Employee
Directors’Equity Compensation and Deferral Plan,
as amended through January 29, 2003.

McKesson Corporation Supplemental Profit
Sharing Investment Plan, as amended and restated
on January 29, 2003.

McKesson Corporation Supplemental Profit
Sharing Investment Plan II, as amended and
restated on July 29, 2014.

McKesson Corporation Deferred Compensation
Administration Plan, as amended and restated as
of October 28, 2004.

McKesson Corporation Deferred Compensation
Administration Plan II, as amended and restated as
of October 28, 2004, and Amendment No. 1
thereto effective July 25, 2007.

McKesson Corporation Deferred Compensation
Administration Plan III, as amended and restated
July 29, 2014.

McKesson Corporation Executive Benefit
Retirement Plan, as amended and restated on
October 24, 2008.

McKesson Corporation Executive Survivor
Benefits Plan, as amended and restated as of
January 20, 2010.

McKesson Corporation Severance Policy for
Executive Employees, as amended and restated as
of April 23, 2013.

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

10.4

June 10, 2004

Form

10-K

10-K

1-13252

10.6

June 6, 2003

10-Q

1-13252

10.1

October 28, 2014

10-K

1-13252

10.6

May 13, 2005

10-K

1-13252

10.7

May 7, 2008

10-Q

1-13252

10.2

October 28, 2014

10-Q

1-13252

10.3

October 29, 2008

8-K

1-13252

10.1

January 25, 2010

10-K

1-13252

10.11

May 7, 2013

10.10* McKesson Corporation Change in Control Policy

10-Q

1-13252

10.2

February 1, 2011

for Selected Executive Employees, as amended
and restated on October 26, 2010.

10.11* McKesson Corporation Management Incentive

8-K

1-13252

10.1

July 31, 2015

Plan, effective July 29, 2015.

10.12*

Form of Statement of Terms and Conditions
Applicable to Awards Pursuant to the McKesson
Corporation Management Incentive Plan, effective
May 26, 2015.

10-Q

1-13252

10.1

July 29, 2015

10.13* McKesson Corporation Long-Term Incentive

10-Q

1-13252

10.2

July 29, 2015

Plan, as amended and restated, effective May 26,
2015.

158

McKESSON CORPORATION

Exhibit
Number

10.14*

Description

Forms of Statement of Terms and Conditions
Applicable to Awards Pursuant to the McKesson
Corporation Long-Term Incentive Plan, effective
May 24, 2016.

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

10.14

May 5, 2016

Form

10-K

10.15* McKesson Corporation 2005 Stock Plan, as

10-Q

1-13252

10.4

July 30, 2010

10.16*

amended and restated on July 28, 2010.

Forms of (i) Statement of Terms and Conditions,
(ii) Stock Option Grant Notice and (iii), Restricted
Stock Unit Agreement, each as applicable to
Awards under the McKesson Corporation 2005
Stock Plan.

10-Q

1-13252

10.2

July 26, 2012

10.17* McKesson Corporation 2013 Stock Plan, as

8-K

1-13252

10.1

August 2, 2013

10-K

1-13252

10.18

May 5, 2016

8-K

1-13252

10.1

March 7, 2017

10-K

1-13252

10.19

May 5, 2016

8-K

1-13252

10.1

October 23, 2015

adopted on May 22, 2013.

10.18*

Forms of Statement of Terms and Conditions
Applicable to Awards Pursuant to the McKesson
Corporation 2013 Stock Plan.

10.19

10.20

10.21

Third Amended and Restated Limited Liability
Company Agreement of Change Healthcare LLC,
dated as of March 1, 2017.

Form of Commercial Paper Dealer Agreement
between McKesson Corporation, as Issuer, and the
Dealer.

Credit Agreement, dated as of October 22, 2015,
among the Company and Certain Subsidiaries, as
Borrowers, Bank of America, N.A. as
Administrative Agent, Bank of America, N.A.
(acting through its Canada Branch), Citibank, N.A.
and Barclays Bank PLC, as Swing Line Lenders,
Wells Fargo Bank, National Association as L/C
Issuer, Barclays Bank PLC, Citibank N.A., Wells
Fargo Bank, National Association as
Co-Syndication Agents, Goldman Sachs Bank
USA, JPMorgan Chase Bank, N.A., The Bank of
Tokyo-Mitsubishi UFJ, Ltd. as Co-Documentation
Agents, and The Other Lenders Party Thereto, and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Barclays Bank PLC, Citigroup
Global Markets Inc., Goldman Sachs Bank USA,
J.P. Morgan Securities, LLC, The Bank of
TokyoMitsubishi UFJ, Ltd. and Wells Fargo
Securities, LLC as Joint Lead Arrangers and Joint
Book Runners.

159

McKESSON CORPORATION

Incorporated by Reference

Form

8-K

File
Number

1-3252

Exhibit

Filing Date

10.1

February 5, 2014

Exhibit
Number

10.22

Description

Amendment No. 2, dated January 30, 2014, and
Amendment No. 1, dated November 15, 2013, to
the Credit Agreement and the Credit Agreement
dated as of September 23, 2011, among the
Company and McKesson Canada Corporation,
collectively, the Borrowers, Bank of America,
N.A. as Administrative Agent, Bank of America,
N.A. (acting through its Canada branch), as
Canadian Administrative Agent, JPMorgan Chase
Bank, N.A. and Wells Fargo Bank, National
Association, as Co-Syndication Agents, Wells
Fargo Bank, National Association as L/C Issuer,
The Bank of Tokyo-Mitsubishi UFJ, LTD., The
Bank of Nova Scotia and U.S. Bank National
Association as Co-Documentation Agents, and
The Other Lenders Party Thereto, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Sole
Lead Arranger and Sole Book Manager.

10.23* Amended and Restated Employment Agreement,

10-Q

1-13252

10.10 October 29, 2008

10.24*

10.25*

effective as of November 1, 2008, by and between
the Company and its Chairman, President and
Chief Executive Officer.

Letter dated March 27, 2012 relinquishing certain
rights provided in the Amended and Restated
Employment Agreement by and between the
Company and its Chairman, President and Chief
Executive Officer.

Letter dated February 27, 2014 relinquishing
certain rights provided in the McKesson
Corporation Executive Benefit Retirement Plan by
and between the Company and its Chairman,
President and Chief Executive Officer.

8-K

1-13252

10.1

April 2, 2012

8-K

1-13252

10.1

February 28, 2014

10.26* Amended and Restated Employment Agreement,

10-Q

1-13252

10.12 October 29, 2008

effective as of November 1, 2008, by and between
the Company and its Executive Vice President and
Group President.

10.27*

Form of Director and Officer Indemnification
Agreement.

12†

21†

23†

Computation of Ratio of Earnings to Fixed
Charges.

List of Subsidiaries of the Registrant.

Consent of Independent Registered Public
Accounting Firm, Deloitte & Touche LLP.

10-K

1-13252

10.27

May 4, 2010

—

—

—

—

—

—

—

—

—

—

—

—

160

McKESSON CORPORATION

Exhibit
Number

Description

24†

Power of Attorney.

31.1† Certification of Chief Executive Officer Pursuant

to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, and
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

Incorporated by Reference

Form

—

—

File
Number

—

—

Exhibit

Filing Date

—

—

—

—

31.2† Certification of Chief Financial Officer Pursuant

—

—

—

—

32††

101†

to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934 as amended, and
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

Certification Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

The following materials from the McKesson
Corporation Annual Report on Form 10-K for the
fiscal year ended March 31, 2018, formatted in
Extensible Business Reporting Language (XBRL):
(i) the Consolidated Statements of Operations,
(ii) Consolidated Statements of Comprehensive
Income, (iii) Consolidated Balance Sheets,
(iv) Consolidated Statements of Stockholders’
Equity, (v) Consolidated Statements of Cash
Flows, and (vi) related Financial Notes.

—

—

—

—

—

—

—

—

* Management contract or compensation plan or arrangement in which directors and/or executive officers are

eligible to participate.
†
Filed herewith.
†† Furnished herewith.

Registrant agrees to furnish to the Commission upon request a copy of each instrument defining the rights of
security holders with respect to issues of long-term debt of the registrant, the authorized principal amount of
which does not exceed 10% of the total assets of the registrant.

161

McKESSON CORPORATION

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date: May 24, 2018

MCKESSON CORPORATION

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

*

John H. Hammergren
Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)

*

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

*

Erin M. Lampert
Senior Vice President and Chief Accounting
Officer (Principal Accounting Officer)

*
Donald R. Knauss, Director

*
Marie L. Knowles, Director

Bradley E. Lerman, Director

*

*
Andy D. Bryant, Director

Edward A. Mueller, Director

*

N. Anthony Coles, M.D., Director

Susan R. Salka, Director

*

*

M. Christine Jacobs, Director

*

Date: May 24, 2018

/s/ Lori A. Schechter
Lori A. Schechter
*Attorney-in-Fact

162

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John H. Hammergren, certify that:

1.

I have reviewed this annual report on Form 10-K of McKesson Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision,
to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date: May 24, 2018

/s/ John H. Hammergren
John H. Hammergren
Chairman of the Board, President and Chief
Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Britt J. Vitalone, certify that:

1.

I have reviewed this annual report on Form 10-K of McKesson Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision,
to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant’s internal control over financial reporting.

Date: May 24, 2018

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

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of McKesson Corporation (the “Company”) on Form 10-K for the year
ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

1.

2.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.

/s/ John H. Hammergren
John H. Hammergren
Chairman of the Board, President and Chief Executive Officer
May 24, 2018

/s/ Britt J. Vitalone
Britt J. Vitalone
Executive Vice President and Chief Financial Officer
May 24, 2018

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and shall not,
except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to McKesson Corporation
and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon
request.

RECONCILIATION OF GAAP EARNINGS PER SHARE TO ADJUSTED EARNINGS PER SHARE
(NON-GAAP)

Appendix A

Diluted earnings per share from continuing operations, net of tax, attributable to McKesson

Corporation (GAAP)

Adjustments, net of tax:

Amortization of acquisition-related intangibles

Acquisition-related expenses and adjustments

LIFO inventory-related adjustments

Gains from antitrust legal settlements

Restructuring charges, net

Other adjustments, net

Adjusted earnings per diluted share (Non-GAAP) (1)

(1) Certain computations may reflect rounding adjustments.

Years Ended
March 31,

2018

2017

$ 0.30

$ 23.28

2.60

1.20

(0.31)

—

2.82

6.01

1.39

(13.00)

(0.01)

(0.39)

0.07

1.20

$12.62

$ 12.54

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

In an effort to provide investors with additional information regarding the Company’s financial results as
determined by generally accepted accounting principles (“GAAP”), McKesson Corporation (the “Company” or
“we”) also presents the following Non-GAAP measures in this press release. The Company believes the
presentation of Non-GAAP measures provides useful supplemental information to investors with regard to its
operating performance, as well as assists with the comparison of its past financial performance to the Company’s
future financial results. Moreover, the Company believes that the presentation of Non-GAAP measures assists
investors’ ability to compare its financial results to those of other companies in the same industry. However, the
Company’s Non-GAAP measures may be defined and calculated differently by other companies in the same
industry.

expenses

• Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as GAAP income from continuing
operations attributable to McKesson, excluding amortization of acquisition-related intangibles,
acquisition-related
inventory-related
adjustments, gains from antitrust legal settlements, restructuring charges, other adjustments as well as
the related income tax effects for each of these items, as applicable. The Company evaluates its
definition of Adjusted Earnings on a periodic basis and updates the definition from time to time. The
evaluation considers both the quantitative and qualitative aspects of the Company’s presentation of
Adjusted Earnings.

adjustments, Last-In-First-Out

(“LIFO”)

and

Amortization of acquisition-related intangibles—Amortization expenses of intangible assets directly
related to business combinations and/or the formation of joint ventures and equity method investments.

Acquisition-related expenses and adjustments—Transaction, integration and other expenses that are
the formation of joint ventures and the Healthcare
directly related to business combinations,
Technology Net Asset Exchange. Examples include transaction closing costs, professional service fees,
legal fees, restructuring or severance charges, retention payments and employee relocation expenses,
facility or other exit-related expenses, certain fair value adjustments including deferred revenues,
contingent consideration and inventory, recoveries of acquisition-related expenses or post-closing

expenses, bridge loan fees, gains or losses related to foreign currency contracts entered into directly
due to acquisitions, gains or losses on business combinations, and gain on the Healthcare Technology
Net Asset Exchange.

LIFO inventory-related adjustments—LIFO inventory-related non-cash expense or credit adjustments.

Gains from antitrust
antitrust lawsuit settlements.

legal settlements—Net cash proceeds representing the Company’s share of

Restructuring charges—Non-acquisition related restructuring charges that are incurred for programs in
which we change our operations, the scope of a business undertaken by our business units, or the
manner in which that business is conducted. Such charges may include employee severance, retention
bonuses, facility closure or consolidation costs, lease or contract termination costs, asset impairments,
accelerated depreciation and amortization, and other related expenses. The restructuring programs may
be implemented due to the sale or discontinuation of a product line, reorganization or management
structure changes, headcount rationalization, realignment of operations or products, and/or Company-
wide cost saving initiatives. The amount and/or frequency of these restructuring charges are not part of
our underlying business, which includes normal levels of reinvestment in the business. Any credit
adjustments due to subsequent changes in estimates are also excluded. These restructuring charges are
reflected under various captions within our operating expenses.

Other adjustments—The Company evaluates the nature and significance of transactions qualitatively
and quantitatively on an individual basis and may include them in the determination of our Adjusted
Earnings from time to time. While not all-inclusive, other adjustments may include: gains or losses
from divestitures of businesses that do not qualify as discontinued operations and from dispositions of
assets; asset impairments; adjustments to claim and litigation reserves for estimated probable losses;
certain discrete benefits related to the December 2017 enactment of the 2017 Tax Cuts and Jobs Act;
gains or losses from debt extinguishment; and other similar substantive and/or infrequent items as
deemed appropriate.

Income taxes on Adjusted Earnings are calculated in accordance with Accounting Standards
Codification (“ASC”) 740, “Income Taxes,” which is the same accounting principle used by the
Company when presenting its GAAP financial results.

Additionally, our equity method investments’ financial results are adjusted for the above noted items.

The Company internally uses Non-GAAP financial measures in connection with its own financial planning and
reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when
allocating resources, deploying capital and assessing business performance and employee incentive
compensation. Nonetheless, Non-GAAP financial results and related measures disclosed by the Company should
not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in
accordance with GAAP.

Directors and Officers

Corporate Information

Board of Directors

Corporate Officers

Common Stock

John H. Hammergren

Chairman of the Board,

President and

Chief Executive Officer,

McKesson Corporation

John H. Hammergren

Chairman of the Board,

President and

Chief Executive Officer,

McKesson Corporation

Andy D. Bryant

Britt J. Vitalone

Chairman of the Board,

Executive Vice President and

Intel Corporation

Chief Financial Officer

McKesson Corporation common stock is listed on the New York 

Stock Exchange (ticker symbol MCK) and is quoted in the daily 

stock tables carried by most newspapers.

Stockholder Information

EQ Shareowner Services, 1110 Centre Pointe Curve, Suite 101,

Mendota Heights, MN 55120-4100 acts as transfer agent, registrar,

dividend-paying agent and dividend reinvestment plan agent 

for McKesson Corporation stock and maintains all registered

stockholder records for the Company. For information about

N. Anthony Coles, M.D.

Jorge L. Figueredo

McKesson Corporation stock or to request replacement of lost 

Chairman and

Executive Vice President,

dividend checks, stock certificates or 1099-DIVs, or to have your 

Chief Executive Officer,

Human Resources

dividend check deposited directly into your checking or savings

Yumanity Therapeutics, LLC

M. Christine Jacobs

Chairman of the Board,

Kathleen D. McElligott

Executive Vice President,
Chief Information Officer

President and Chief Executive

and Chief Technology Officer

Officer, Retired, Theragenics

Corporation

Donald R. Knauss

Bansi Nagji

Executive Vice President,

Corporate Strategy and

Executive Chairman of the

Business Development

account, stockholders may call EQ Shareowner Services’ telephone

response center at (866) 614-9635. For the hearing impaired, call 

(651) 450-4144. EQ Shareowner Services also has a website —

https://www.shareowneronline.com — that stockholders may use

24 hours a day to request account information.

Dividends and Dividend Reinvestment Plan

Dividends are generally paid on the first business day of January, April,

July and October. McKesson Corporation’s Dividend Reinvestment Plan 

offers stockholders the opportunity to reinvest dividends in common 

Board, Retired, The Clorox

Company

Lori A. Schechter

stock and to purchase additional shares of common stock. Stock in an 

Executive Vice President,

individual’s Dividend Reinvestment Plan is held in book entry at the 

Marie L. Knowles

General Counsel and Chief

Company’s transfer agent, EQ Shareowner Services. For more informa-

Executive Vice President and

Compliance Officer

tion, or to request an enrollment form, call EQ Shareowner Services’ 

Chief Financial Officer, Retired, 

Atlantic Richfield Company

Erin M. Lampert

Senior Vice President and

telephone response center at (866) 614-9635. From outside the United

States, call +1-651-450-4064.

Bradley E. Lerman

Chief Accounting Officer

Annual Meeting

McKesson Corporation’s Annual Meeting of Stockholders will be 

held at 8:30 a.m. CDT, on July 25, 2018 at the Dallas/Fort Worth

Airport Marriott, 8440 Freeport Parkway, Irving, TX 75063.

Senior Vice President, General

Counsel and Corporate Secretary, 

Medtronic plc

Edward A. Mueller

Chairman of the Board and

Chief Executive Officer, Retired,

Brian P. Moore

Senior Vice President and

Treasurer

Paul A. Smith

Senior Vice President, Global Tax

Qwest Communications

Michele Lau

International Inc.

Susan R. Salka

Chief Executive Officer and

President, AMN Healthcare

Services, Inc.

Senior Vice President, Corporate 

Secretary and Associate General 

Counsel

McKesson Corporation

One Post Street 

San Francisco, CA 94104

www.mckesson.com

© 2018 McKesson Corporation. All rights reserved.