McKesson

Because he knows patients 
need his time more than ever.

Improving 
healthcare in 
every setting

Because she wants to give 
her patients every chance 
for better health.

Because she has more 
brownies to bake.

Annual Report  |  Fiscal Year Ended March 31, 2020

Our work connects and 
supports all parts of the 
healthcare community. 

We enable healthcare providers to deliver innovative 
treatments and dedicate more personal attention to their 
patients. Together, we help patients receive the medications 
and care they need — patients like Abby Bray, whose family 
turned to us for assistance in locating and accessing the 
scarce supply of her life-saving medication.

We’re improving healthcare in every setting, because each 
moment matters in the lives of patients.

Distribution Excellence

Distributing 1/3 of all 
prescription medicines 
in North America

12,000+ owned and 
banner pharmacies
across Canada & Europe

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

Specialty Leadership

1/3 of all cancer 
therapies supported
through US Oncology 
Research

76K+ patients enrolled
in 1.6K+ clinical trials

#1 distributor 
in community oncology
and key specialties

Manufacturer Partnership

150+ biopharma
customers served

400+ drug copay 
and voucher patient savings 
programs supported

90% of all therapeutic
areas supported

Technology Differentiation

$18B+ annual pharmacy 
transactions processed 
through RelayHealth

Connected to payers 
representing 94% 
of U.S. prescription volume

Integrated with 
700K+ providers
to initiate prior authorization 
at point of prescribing

To Our Valued Shareholders:

When I wrote to you this time last year, I told you about a sign in our 
distribution centers that reads: “It’s not just a package, it’s a patient.” 
For all of us at McKesson, those words are something we think about 
every day, especially now—given our current role in fighting the 
COVID-19 pandemic that emerged in the fourth quarter of our fiscal 
year, and even more so when we have the opportunity to meet some of 
the patients who benefit from our work. 

a powerful reminder of why we get up 
every morning to work hard on behalf 
of our customers and patients like Abby.

Since my last communication with you, we 
have begun the important work to transform 
our company, accelerate innovation and 
build long-term growth. I am pleased to be 
able to share an update on the significant 
progress we have made against the key 
priorities we outlined last year, which has 
resulted in the strong performance we 
delivered for our shareholders in FY20.

We achieved these results by focusing 
on strengthening our inclusive culture 
and the behaviors that determine how 
we work together, and on our growth 
strategies. The strength of our culture 
helped us greatly in responding with speed 
and agility to the COVID-19 pandemic. We 
acted quickly to address the needs of our 
business operations, the personal and 
safety needs of our employees and their 
families, as well as our customers and our 
communities. While the COVID-19 crisis was 
unexpected, the progress we made over the 
past year allowed us to address it with an 
enterprise-first mindset and an unrelenting 
focus on the needs of our customers 
and the global healthcare community.

In October, I had the honor of meeting 
one of these very important patients who 
made a big impression on me personally 
and on many of my McKesson colleagues.

Abby Bray, who is featured on the cover of 
our report, is a razor-sharp nine-year-old 
who loves Harry Potter and sharing a room 
with her older sister. She also is battling 
acute lymphoblastic leukemia, a potentially 
fatal disease. When a nationwide shortage 
of Abby’s critical medicine threatened 
her recovery, her mother Laura reached 
out directly to us for help. Over a weekend, 
a group of McKesson employees quickly 
swung into action to find a supply of 
Abby’s medicine and get it to her hospital 
in time for her to continue treatment. 

What started as a one-time event has turned 
into an ongoing effort that will benefit 
many more patients. Abby’s mother was so 
motivated by their own experience that she 
founded Angels for Change, a non-profit 
organization to help others get access to 
lifesaving drugs. We also knew there was 
more that McKesson could do to support 
this effort. We pulled together a team of 
experts from various parts of our company 
who are working with Angels for Change 
to secure medicines for other patients 
in need—while also using our extensive 
network of manufacturer contacts to 
improve the process for securing critical 
medicines and prevent future shortages. 

All of us at McKesson have been touched 
by Abby and Laura’s story and by 
their desire to look beyond their own 
circumstances and help others. It is 

FY20 Milestones

Our FY20 performance highlights include 
the return to growth across all of our 
business segments: 

•  US Pharmaceuticals & Specialty Solutions 

returned to growth, primarily driven 
by Specialty, which includes our provider 
solutions and practice management 
businesses that serve the community 
setting and our life sciences business 
that leverages our provider footprint and 
differentiated services to drive solutions 
upstream for our manufacturer partners. 
We saw significant gains in the specialty 
provider and health systems markets where 
we have a differentiated portfolio of assets and 
capabilities, particularly oncology. We also were 
successful in renewing contracts with several 
large customers, including being selected 
once again by the Department of Veterans 
Affairs as their prime pharmaceutical vendor. 

•  McKesson Medical Surgical Solutions 

had solid growth across multiple markets 
and product categories, such as our home 
care delivery business and pharmaceutical 
sales in primary care markets. We executed 
significant expansion and enhancements 
of our distribution center network to 
support ongoing integrations and continued 
growth. And we continued to enhance the 
customer experience on a variety of fronts.

•  McKesson Prescription Technology Solutions 
grew as we continued to invest in innovative 
products. These products harness the power of 
connectivity to help make it easier and faster 
for patients to access needed medicines while 
automating and eliminating inefficiencies for 
payor and providers. We are combining the 
connectivity and reach of our CoverMyMeds 
provider technology network with our decades 
of experience in patient access and adherence 
programs, to deliver new capabilities at 
accelerated speed. 

•  McKesson Canada’s distribution, specialty 

health and retail pharmacy technology 
businesses demonstrated strong year-
over-year performance. We also began the 
deployment of a major investment in the 
distribution center network in Canada to 
enhance and innovate our supply chain.

•  McKesson Europe made consistent progress, 

delivering improved performance in the 
second half of the year. We also announced 
plans to create a joint venture with Walgreens 
Boots Alliance for our German pharmaceutical 
wholesale operations, which is expected to 
enhance our ability to compete and deliver 
high customer satisfaction in this large and 
competitive marketplace. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Together, all these achievements helped 
us to deliver a strong financial return for 
investors, with FY20 total shareholder return of 
15 percent. We also returned $2.2 billion of cash to 
shareholders as we continue to work to improve 
our five-year shareholder return performance.

As I mentioned earlier, we have taken 
important steps to advance our company 
culture and behaviors—a priority area 
for me and my leadership team in FY20. 
The foundation for this is our ICARE and 
ILEAD values, which define who we are as a 
company, what we believe in and how we act.

Over the past year, we have built on this strong 
base to establish and embed key behaviors 
(debate, decide and commit, open and 
candid, and enterprise-first) as well as critical 
business disciplines, including speed and focus. 
Together, these behaviors and disciplines have 
strengthened both how we act and what we 
do, and they remain vital to transforming our 
company and driving our long-term future growth.

As part of the work to strengthen our culture, 
we are committed to furthering inclusion and 
diversity across McKesson. We are reflecting, 
engaging in courageous discourse, and 
breaking down barriers wherever we can. These 
efforts demand even greater attention and 
urgency as result of recent events. We have 
and will continue to facilitate open and candid 
discussions about how we can all live our shared 
commitment to inclusion and take the actions 
required to bring about meaningful change. 

In FY20, we advanced more diverse leaders 
into our executive ranks. We also leveraged 

our headquarters relocation from California to 
Texas to increase our diverse representation 
for women and people of 
color in critical management 
positions as well as in roles at 
all levels in the organization.

Finally, we have enhanced the 
critical area of compliance 
in FY20, including the 
establishment of a dedicated 
Chief Compliance Officer position with a 
comprehensive focus on compliance matters 
across the enterprise. As one of the leading 
healthcare companies in the world, regulatory 
excellence is paramount to our current and 
future success. We are prioritizing this 
mindset in our leadership team and building 
increased scrutiny into our planning and 
our processes across the organization.

Strategy update
We took important steps in FY20 to simplify 
the business and align our product portfolios 
with our growth priorities. We completed the 
split-off of Change Healthcare, which unlocked 
value for McKesson shareholders. As noted 
above, we announced plans to create a joint 
venture with Walgreens Boots Alliance 
for our German pharmaceutical wholesale 
operations, we divested Patient Care Solutions, 
a patient billing business, and announced 
we are exiting our packaging business.

We continued to drive operational efficiencies 
and cost savings programs across the company, 
giving us additional resources to invest in 
the overall business and particularly in our 
growth opportunities. Our annual pre-tax 
gross cost savings target remains $400 million 
to $500 million, which we are on track to 
substantially realize for the end of FY21. Our 
focus on utilizing data & analytics capabilities 
helped boost our profitability as well.

I am especially pleased that our enterprise-first 
mentality is helping us look beyond our distinct 
business functions and partner across the 
enterprise to develop innovative approaches 
to better serve the needs of our customers and 
create new growth opportunities. A good example 

of this is our Access for More Patients (AMP) 
initiative, which we launched in FY20.

This unique, collaborative effort—bringing together 
our RxCrossroads solution and our CoverMyMeds 
network—provides a technology-based solution 
to transform and enhance patient access to 
specialty medications. Our teams took AMP 
from idea to first customer adoption in just a few 
months, and it is already significantly reducing 
the time it takes patients to access their therapies. 

We advanced our strategy to grow and 
transform our company in FY20. Following 
an in-depth analysis of our portfolio and 
businesses, we are focusing our investments in 
areas where we believe we have differentiated 
capability and opportunity for growth, such 
as oncology and biopharma services; where 
markets are expanding and where we believe 
we can win; and where need remains great 
for innovative approaches and solutions.

Opioid crisis update
We continue to be deeply concerned about the 
impact that the opioid crisis is having on families 
and communities across the U.S. and are intent 
on using McKesson’s capabilities to be part of 
the solution. This includes partnering with 
government, industry, non-profit organizations 
and other players to help bring this crisis to an end.

McKesson has made investments in programs, 
processes and technologies, all dedicated to 
preventing diversion of opioids. These efforts 
include educating our pharmacy and hospital 
customers about the importance of compliance 
with Drug Enforcement Administration 
regulations; creating a nationwide clinical 
alert system to patients at risk of opioid 
overuse, abuse, addiction or misuse; and 
actively advocating for public policies that 
will help address the opioid epidemic.

Last year, I told you about our $100 million 
contribution to establish the Foundation 
for Opioid Response Effort (FORE), whose 
sole purpose is to accelerate action to end 
the opioid crisis. I am pleased to say that 
FORE recently announced its first round 
of grant awards to support 19 organizations 

that are working in diverse and innovative 
ways to increase access to opioid use 
disorder treatment and recovery services.

McKesson believes it is important to engage 
with all who share our dedication to acting 
with urgency to address pressing needs 
in this area. For more information about 
our efforts, please visit mckesson.com/
about-mckesson/fighting-opioid-abuse/.

Our response to COVID-19
Late in the fourth quarter of FY20, as COVID-19 
began to impact people and societies worldwide, 
we rapidly adjusted our priorities to focus on two 
critical areas: protecting the health and safety 
of our employees and leveraging our extensive 
expertise in managing complex logistics to 
get vital medicines and medical supplies to 
healthcare providers fighting the pandemic.

We moved quickly and earlier than many other 
companies to shift many of our employees to 
work from home status. We also put in place 
a number of measures to protect and reward 
individuals whose work required them to 
come into McKesson facilities, including 
distribution center employees, transportation 
professionals and call center staff, as well as 
our employees in our retail pharmacies in 
Canada and Europe. In March, we invested 

more than $30 million in special one-time 
bonus payments to reward the hard work of 
our employees on the front line and bring 
some comfort to their families. Additionally, 
we designated a special $5 million donation to 

the McKesson Foundation’s “Taking Care of 
Our Own” Fund to provide additional financial 
help to our eligible employees facing personal 
hardship due to the pandemic. We also rapidly 
implemented a broad range of other programs 
to help employees and their families, including 
free COVID-19 testing and covered medical 
treatment, financial assistance and workplace 
policy flexibility, including providing additional 
personal time off (PTO) to employees and 
allowing them to donate their PTO to colleagues. 

Responding to unprecedented demand arising 
from the crisis, we worked with our thousands of 
customers—healthcare providers, nursing homes, 
surgery centers, first responders and others—to 
help secure the medications and health supplies 
they needed. We also coordinated closely with 
federal, state and local agencies on efforts to 
bring personal protective equipment (PPE) and 
other essential supplies to healthcare facilities.

We were an important partner with the Federal 
Emergency Management Administration 
and U.S. Department of Health and Human 
Services to accelerate resupply of critical 
products around the US. We also worked with 
Walmart to quickly establish new sources 
and suppliers of PPE gowns to healthcare 
providers on the front lines. This innovative 
partnership leveraged McKesson’s deep 
expertise in medical products and supply 
chain logistics, and Walmart’s expertise and 
relationships in textile manufacturing.

Our company and Foundation have also 
made monetary donations to help people and 
communities experiencing difficulties as a 
result of the COVID-19 crisis. We contributed a 
total of $10 million to the McKesson Foundation 
to support COVID-19-related relief efforts. The 
Foundation provided initial seed funding 
of $250,000 to United Way of Metropolitan 
Dallas—where our corporate headquarters is 
located—to meet urgent and long-term needs 
in North Texas. As we move into FY21, we are 
continuing to support the communities where 
we live and work with a $3 million donation from 
the McKesson Foundation to local food banks 
in communities where McKesson distribution 
centers are located around the country.

Looking ahead
McKesson is a different company than we were a 
year ago. We have built a stronger culture focused 
on our key behaviors and strategic priorities that 
will drive our future growth. We have become 
more adept at operating as one company, with 
an enterprise-first mindset. And we are a 
company with our sights squarely on the future.  

In this time of crisis and uncertainty from 
COVID-19, McKesson has a unique opportunity 
to make an even bigger difference. We will 
continue to play an essential role in delivering 
medicines and other important health 
supplies to our customers. We will continue 
to dedicate the teams and resources necessary 
to help healthcare providers deliver the 
highest quality care to those in need. And 
we will continue to engage with government 
and business partners to find new solutions 
and approaches to help even more people.

In the near term, we expect that our business will 
be affected by the slow reopening of economies 
and the gradual return to a more normal way 
of life which includes the regular provision 
of healthcare. While the fundamentals of our 
business remain strong over the long-term, 
we anticipate that the COVID-19 pandemic 
will have an impact on our FY21 financial 
results, with a more significant impact  in 
the first half of FY21. We expect continued 
improvement over the second half of the year.

While we address the near-term challenges, 
we remain committed to investing in our 
future by delivering against our strategic 
growth priorities, serving our customers and 
supporting the communities where we live 
and work. This commitment is part of our 187-
year legacy of navigating through uncertainty 
and adapting quickly to new circumstances. 
We have proven our resiliency and natural 
ability to lead during difficult times, and the 
lessons learned from this experience—along 
with our strong business discipline and 
focus—will continue to serve us well.

We also benefit greatly from the dedication 
and spirit of our 80,000 McKesson employees 
around the world. They are the biggest reason 
why I believe so passionately in our company’s 
bright future. I want to thank all of them for 
their extraordinary work on behalf of our 
customers and their patients, particularly as 

they balanced the challenges of new work 
procedures and the impacts on their home 
lives following the COVID-19 outbreak.

I also want to thank and recognize our Board 
of Directors, whose support has been critical 
as we move forward with the transformation 
of our company. Their guidance and 
encouragement—drawing on an impressive 
and diverse array of perspectives—have 
helped us move ahead with confidence 
and resolve in executing our strategy.

Finally, I want to express my sincere 
appreciation to you, our shareholders. 
Your belief in our company—and in our 
vision to improve care in every setting, one 
product, one partner, one patient at a time—
makes it possible for us to do what we do.

I am proud of what we have accomplished 
in FY20 but recognize that we have more 
work ahead of us to make this great company 
even more successful, as we find new ways to 
meet healthcare needs in an ever-changing 
landscape. With your support, we’ll 
continue to help patients like Abby, serve 
our customers, be a great place to work and 
build a career, strengthen our communities 
and deliver against our vision—as we create 
an even better McKesson for the future.

Brian S. Tyler  
Chief Executive Officer

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, 2020
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)

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

6555 State Hwy 161,
Irving, TX 75039
(Address of principal executive offices, including zip code)
(972) 446-4800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

(Title of each class)

(Trading Symbol)

(Name of each exchange on which registered)

Common stock, $0.01 par value
0.625% Notes due 2021
1.500% Notes due 2025
1.625% Notes due 2026
3.125% Notes due 2029

MCK
MCK21A
MCK25
MCK26
MCK29

New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
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, every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes È No ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer È
Non-accelerated filer ‘

‘
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. È

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, 2019, was
approximately $25 billion.

Number of shares of common stock outstanding on April 30, 2020: 161,853,218

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2020 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

16. Form 10-K Summary

Signatures

PART IV

Page

3

11

22

22

22

22

23

24

27

29

57

58

148

148

148

149

149

149

151

151

152

152

160

McKESSON CORPORATION

PART I

Item 1.

Business.

General

is a global

McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns), originally
leader in healthcare supply chain management solutions, retail pharmacy,
founded in 1833,
community oncology and specialty care, and healthcare information technology. McKesson partners with life
sciences companies, manufacturers, providers, pharmacies, governments and other healthcare organizations 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. The Company was incorporated on
July 7, 1994 in the State of Delaware.

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 the Company’s website
(www.mckesson.com under the “Investors — Financials — SEC Filings” caption) as soon as reasonably
practicable after such material
the Securities and Exchange
is electronically filed with, or furnished to,
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 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

The Company operates its business through 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 require separate reportable segment disclosure
are referred to and included in Other.

Our U.S. Pharmaceutical and Specialty Solutions segment distributes branded, generic, specialty, biosimilar
and over-the-counter (“OTC”) pharmaceutical drugs and other healthcare-related products. 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 life sciences companies including offering
multiple distribution channels and clinical trial access to specific patient populations through our network of
oncology physicians. In addition, the segment sells financial, operational and clinical solutions to pharmacies
(retail, hospital, alternate site) and provides consulting, outsourcing and other services.

Our European Pharmaceutical Solutions segment 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.

Our Medical-Surgical Solutions segment distributes medical-surgical supplies and provides logistics and

other services to healthcare providers in the United States.

Other primarily consists of the following:

• McKesson Canada which provides better, safer care by delivering vital medicines, supplies and

information technologies throughout Canada and operates Rexall Health retail pharmacies;

3

McKESSON CORPORATION

• McKesson Prescription Technology Solutions (“MRxTS”) which provides innovative technological
and connectivity solutions to pharmaceutical companies, retail pharmacies, health systems, clinics and
payers across the healthcare industry; and

• Our investment in the Change Healthcare joint venture, which was separated from the Company in the

fourth quarter of 2020 as discussed in more detail below.

U.S. Pharmaceutical and Specialty Solutions Segment:

Our U.S. Pharmaceutical and Specialty Solutions segment provides distribution and logistics services for
branded, generic, specialty, biosimilar and OTC pharmaceutical drugs along with other healthcare-related
products to customers. This business provides solutions and services to pharmacies, hospitals, pharmaceutical
manufacturers, physicians, payers and patients throughout the United States and Puerto Rico. We also source
generic pharmaceutical drugs
sourcing entity, ClarusONE Sourcing Services LLP
(“ClarusONE”).

through our

joint

Our U.S. Pharmaceutical and Specialty Solutions segment operates and serves customers through a network
of 30 distribution centers, as well as a primary redistribution center and a strategic redistribution center, along
with four third-party logistics sites within our McKesson Life Sciences business. We invest in technology and
other systems at all of our distribution centers to enhance safety, reliability and product availability. For example,
we offer McKesson ConnectSM, an internet-based ordering system that provides item look-up 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, which is 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 and 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.

We have three primary customer pharmaceutical distribution channels: (i) retail national accounts which
include national and regional chains,
food and drug combinations, mail order pharmacies and mass
merchandisers, (ii) independent, small and medium chain retail pharmacies, and (iii) institutional healthcare
providers such as hospitals, health systems, integrated delivery networks and long-term care 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 830,000 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.

• 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.

4

McKESSON CORPORATION

•

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, Small and Medium Chain 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 5,000 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 retail independent 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

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

• McKesson RxOwnership Program — Assist independent pharmacist owners with the opportunity to

remain independent via succession planning and business operation loans.

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, Unit of Use and Unit dose 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.

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

• McKesson OneStop Generics® — Described above.

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McKESSON CORPORATION

This segment also provides a range of 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. We have two core specialty business lines: Specialty Provider
Organization and McKesson Life Sciences.

Specialty Provider Organization: This business offers community specialists (oncologists, 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. These services include specialty drug distribution, group purchasing organizations
(“GPO”) like Onmark®, 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 have broad flexibility and discretion to select
the products and commitment levels that best meet their practice needs. This business also 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.

McKesson Life Sciences: This business helps life sciences companies drive faster and greater market access,
optimize patient experiences and deliver better business results with a comprehensive suite of solutions for
biopharmaceutical products. RxCrossroads provides a comprehensive suite of solutions for life sciences
companies including program pharmacy services, third-party logistics (“3PL”), clinical trial support, patient
for pharmaceutical
assistance programs, access and adherence solutions, and other
manufacturers. In addition, we help life sciences companies minimize reimbursement challenges while offering
affordable, safe access to therapies through Risk Evaluation and Mitigation Strategies (“REMS”) programs.
Biologics by McKesson specialty pharmacy solutions help pharmaceutical and biotech partners to effectively
distribute oral and self-administered specialty products to patients across the country.

tailored services

When we discuss specialty products or services, 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” may not be comparable to that used
by other industry participants, including our competitors.

European Pharmaceutical Solutions Segment:

Our European Pharmaceutical Solutions segment 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 segment consists of two businesses: Pharmaceutical Distribution and
Retail Pharmacy.

Our Pharmaceutical Distribution business delivers pharmaceutical and other healthcare-related products to
pharmacies across Europe. This business functions as a vital link connecting manufacturers to retail pharmacies,
supplying medicines and 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 Retail Pharmacy business serves patients and consumers in European countries directly through
approximately 2,200 of our own pharmacies and 7,900 participant pharmacies operating under brand partnership

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arrangements. In addition, this business includes outpatient dispensing and homecare arrangements mainly in the
United Kingdom (“U.K.”) and 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.

Medical-Surgical Solutions Segment:

Our Medical-Surgical Solutions segment delivers medical-supply distribution, logistics, biomedical and
other services to healthcare providers across the alternate-site spectrum. Our more than 200,000 customers
include physicians’ offices, surgery centers, post-acute care facilities, hospital reference labs, home health
agencies, and occupational and alternative health sites. To support the country’s efforts to fight the coronavirus
disease 2019 (“COVID-19”) pandemic, in the fourth quarter of 2020 McKesson began working closely with
government agencies such as the U.S. Federal Emergency Management Agency and the U.S. Department of
Health and Human Services (“HHS”) to get critical supplies to healthcare providers who need them. We
distribute medical-surgical supplies (such as gloves, needles, syringes and wound care products), infusion pumps,
laboratory equipment and pharmaceuticals. Through a network of distribution centers within the U.S., we offer
more than 275,000 products from national brand manufacturers and McKesson’s own high-quality product line.
Through the right mix of products and services, we help improve efficiencies, profitability and compliance. We
also never lose focus on helping customers improve patient and business outcomes. We develop customized
plans to address the product, operational and clinical support needs of our customers, including tackling
inventory management, reducing administrative burdens, and training and educating clinical staff. We care for
our customers, so they can care for their patients.

Other:

Other primarily consists of the following operating segments and business activities: McKesson Canada,

MRxTS and our investment in the Change Healthcare LLC joint venture.

McKesson Canada: This business is one of the largest pharmaceutical wholesale and retail distributors 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 15 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. The retail
business operates more than 400 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.

MRxTS: This business provides innovative technologies that support retail pharmacies and manufacturers
that ultimately enable patients to fulfill their prescriptions. This business supports our customers, 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 players in the pharmaceutical supply chain.

Change Healthcare: Our equity ownership interest in Change Healthcare LLC (“Change Healthcare JV”), a
joint venture, has been accounted for using the equity method of accounting. Change Healthcare LLC provides
software and analytics, network solutions and technology-enabled services that deliver wide-ranging financial,
operational and clinical benefits to payers, providers and consumers. On March 10, 2020, we completed the
separation of our interest in the Change Healthcare JV through a split-off transaction. This transaction reduced
our investment in the Change Healthcare JV to zero. Refer to Financial Note 2, “Investment in Change
Healthcare Joint Venture,” to the consolidated financial statements appearing in this Annual Report on Form
10-K for additional information related to this transaction.

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Restructuring, Business Combinations, Investments 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. These initiatives are detailed in Financial Notes 2, 3,
4 and 5, “Investment in Change Healthcare Joint Venture,” “Held for Sale,” “Restructuring, Impairment and
Related Charges,” and “Business Acquisitions and Divestitures” to the consolidated financial statements
appearing in this Annual Report on Form 10-K.

Competition

We face highly competitive global environments. Additionally, in recent years the healthcare industry has
been subject to increasing consolidation. In the pharmaceutical distribution environment in which our U.S.
Pharmaceutical and Specialty Solutions and European Pharmaceutical Solutions segments and McKesson Canada
business operate, we face 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. Our retail businesses, which
primarily operate in our European Pharmaceutical Solutions segment and McKesson Canada business, face
including chain and independent
competition from various local, regional, national and global retailers,
to be
pharmacies. We consider our
AmerisourceBergen Corporation and Cardinal Health, Inc.

in distribution, wholesaling and logistics

largest competitors

Our Medical-Surgical Solutions segment operates primarily in providing distribution and logistics services
to physicians’ offices, surgery centers, post-acute care facilities, hospital reference labs, home health agencies,
and occupational and alternative health sites and faces competition from a wide range of medical and surgical
supply and equipment distributors throughout the United States.

Our MRxTS business experiences substantial competition from many companies, including other software
services firms, consulting firms, shared service vendors and internet-based companies with technology applicable
to the healthcare industry. Competition in this business varies in size from small to large companies, in
geographical coverage and in scope and breadth of products and services offered.

In addition, we compete with other service providers, pharmaceutical and other healthcare manufacturers as
well as other potential customers of our businesses, which may from time-to-time decide to develop, for their
own internal needs, supply management capabilities that might otherwise be provided by our businesses. We
believe that our scale and diversity of product and service offerings are our primary competitive advantages. 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 innovations and obtain copyright protection for 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, trademarks and
intellectual property licenses 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

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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 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 2020, sales to our ten largest customers, including GPOs accounted for approximately
51% of our total consolidated revenues. Sales to our largest customer, CVS Health Corporation (“CVS”),
accounted for approximately 20% of our total consolidated revenues in 2020. In May 2019, we extended our
pharmaceutical distribution relationship with CVS to June 2023. Our ten largest customers comprised
approximately 37%, and CVS was approximately 20%, of total trade accounts receivable at March 31, 2020. 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 U.S.
Pharmaceutical and Specialty Solutions segment.

Suppliers: We obtain pharmaceutical and other products from manufacturers, none of which accounted for
more than 6% of our purchases in 2020. 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 2020 accounted for approximately 44% of our purchases.

Some 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”) expenses were $96 million, $71 million
and $125 million during 2020, 2019 and 2018. R&D costs were higher in 2018 prior to the sale of our Enterprise
Information Solutions (“EIS”) business.

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 21,
“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, presently are 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 2020 and is not expected to be material in the next year.

Employees: On March 31, 2020, we employed approximately 80,000 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 24, “Segments of Business,” to the consolidated
financial statements appearing in this Annual Report on Form 10-K. See “Risk Factors” in Item 1A of Part I
below for information regarding risks associated with our foreign operations.

Forward-Looking Statements

This Annual Report on Form 10-K, including “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.”

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 discussion below identifies certain representative risks that might cause our actual business results to
materially differ from our estimates. It is not practical to identify or describe all risks and uncertainties that might
materially impact our business operations, reputation, financial position or results of operations. Our business
could be materially affected by risks that we have not yet identified or that we currently consider to be
immaterial. This is not a complete statement of all potential risks and uncertainties.

Litigation and Regulatory Risks

We experience costly and disruptive legal disputes.

We are routinely named as a defendant in litigation or regulatory proceedings and other legal disputes,
which may include asserted class action litigation, such as those described in Financial Note 21, “Commitments
and Contingent Liabilities,” to the consolidated financial statements in this report. Regulatory proceedings might
involve allegations such as false claims, healthcare fraud and abuse, and antitrust violations. Civil litigation
proceedings might involve commercial, employment, environmental, intellectual property, tort and other claims.
Despite valid defenses that we assert, legal disputes are often costly, time-consuming, distracting to management
and disruptive to normal business operations. The outcome of legal disputes is difficult to predict. Outcomes can
occur that are not justified by the evidence or existing law. The uncertainty and expense associated with
unresolved legal disputes might harm our business and reputation even if the matter is favorably resolved.
Accordingly, any legal dispute might have a materially adverse impact on our reputation, our business operations
and our financial position or results of operations.

We might experience losses not covered by insurance.

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. For example, pharmacy operations are exposed to risks such as improper
filling of prescriptions, mislabeling of prescriptions, inadequacy of warnings, unintentional distribution of
counterfeit drugs and expiration of drugs. Although we seek to maintain adequate insurance coverage, such as
property insurance for inventory and professional and general liability insurance, coverages on acceptable terms
might be unavailable, or coverages might not cover our losses. We generally seek to limit our contractual
exposure, but limitations of liability or indemnity provisions in our contracts may not be enforceable or
adequately protect us from liability. Uninsured losses might have a materially adverse impact on our business
operations and our financial position or results of operations.

We experience costly legal disputes, government actions and adverse publicity regarding our role in
distributing controlled substances such as opioids.

The Company is a defendant in over 3,000 cases alleging claims related to the distribution of controlled
substances (opioids), as described in Financial Note 21, “Commitments and Contingent Liabilities,” to the
consolidated financial statements in this report. We regularly are named as a defendant in similar, new cases. The
plaintiffs in those cases include governmental entities (such as states, provinces, counties and municipalities) as well
as businesses, groups and individuals. The cases allege violations of controlled substance laws and other laws, and
they make common law claims such as negligence and public nuisance. Many of these cases raise novel theories of
liability. Any proceedings can have unexpected outcomes that are not justified by evidence or existing law. All
proceedings involve significant expense, management time and distraction, and risk of loss that can be difficult to
predict or quantify. It is not uncommon for claims to be resolved over many years. Proceedings can result in
monetary damages, penalties and fines, and injunctive or other relief. Although the Company has valid defenses and
is vigorously defending itself, some proceedings are resolved by negotiated outcome. Our reputation is impacted by

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McKESSON CORPORATION

publicity regarding the impacts of opioid use. The adverse outcome of legal proceedings might have a materially
adverse impact on our business operations and our financial position or results of operations.

We might experience increased costs to distribute controlled substances such as opioids.

Legislative, regulatory or industry measures related to the distribution of controlled substances such as
prescription opioids could affect our business in ways that we may not be able to predict. For example, some
states have passed legislation that could require us to pay taxes or assessments on the distribution of opioid
medications in those states and other states have considered similar legislation. Liabilities for taxes or
assessments or other costs of compliance under any such laws might have a materially adverse impact on our
business operations and our financial position or results of operations.

We are subject to extensive, complex and challenging healthcare and other laws.

Our 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 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. For example, we are subject to
many environmental and hazardous materials regulations,
including those relating to radiation-emitting
equipment operated at U.S. Oncology Network practices. Any noncompliance by us with applicable laws or the
failure to maintain, renew or obtain necessary permits and licenses could lead to litigation and might have a
materially adverse impact on our business operations and our financial position or results of operations.

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 many 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 these laws, including those relating to marketing incentives, are vague or
indefinite and have not been interpreted by the courts. The laws 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. Failures to
comply with applicable laws subject us to federal or state government investigations or qui tam actions, and to
liability for damages and civil and criminal penalties, including the loss of licenses or our ability to participate in
Medicare, Medicaid and other federal and state healthcare programs. These sanctions might have a materially
adverse impact on our business operations and our financial position or results of operations.

We might lose our ability to purchase, compound, store or distribute pharmaceuticals and controlled
substances.

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,
HHS, the Centers for Medicare & Medicaid Services (“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

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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. Noncompliance with these
requirements has resulted in monetary penalties and/or licensing sanctions. For example, under a January 2017
agreement with the DEA and Department of Justice we paid $150 million to settle potential administrative and
civil claims about our practices for reporting suspicious orders of controlled substances and the DEA suspended,
on a staggered basis for limited periods of time, our registrations to distribute certain controlled substances from
four distribution centers. As of March 31, 2020, one DEA registration was in suspension, and three were expired.
If we are not able to obtain, maintain or renew permits, licenses or other regulatory approvals needed for the
operation of our businesses, it might have a materially adverse impact on our business operations and our
financial position or results of operations.

Pedigree tracking laws increase our compliance burden and our pharmaceutical distribution costs.

There have been increasing efforts by governments 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. For example, the U.S. Drug Quality and Security Act
of 2013 (“DQSA”) requires us to participate in a federal prescription drug track and trace system that preempts
state drug pedigree requirements, and the U.S. Food and Drug Administration Amendments Act of 2007 requires
the FDA to establish standards and identify and validate effective technologies, such as track and trace or
authentication technologies, to secure the pharmaceutical supply chain against counterfeit drugs. We also have
record-keeping and other obligations under the E.U. Falsified Medicines Directive. Pedigree tracking laws such
as these increase our compliance burden and our pharmaceutical distribution costs, and they might have a
materially adverse impact on our business operations and our financial position or results of operations.

Privacy and data protection laws increase our compliance burden.

We are subject to a variety of privacy and data protection laws that change frequently and have requirements
the Health Insurance Portability and
that vary from jurisdiction to jurisdiction. For example, under
Accountability Act of 1996 (“HIPAA”) we must maintain administrative, physical and technological safeguards
to protect
individually identifiable health information (“protected health information”) and ensure the
confidentiality, integrity and availability of electronic protected health information. We are subject to significant
compliance obligations under privacy laws such as the General Data Protection Regulation in the European
Union (“GDPR”), the Personal Information Protection and Electronic Documents Act (“PIPEDA”) in Canada,
and the California Consumer Protection Act (“CCPA”). Some privacy laws prohibit the transfer of personal
information to certain other jurisdictions. We are subject to privacy and data protection compliance audits or
investigations by various government agencies. Failure to comply with these laws subjects us to potential
regulatory enforcement activity, fines, private litigation including class actions, and other costs. We also have
contractual obligations to customers that might be breached if we fail to comply with privacy laws. Our efforts to
comply with privacy laws complicates our operations and adds to our compliance costs. A significant privacy
breach or failure to comply with privacy laws might have a materially adverse impact on our reputation, business
operations and our financial position or results of operations.

Anti-bribery and anti-corruption laws increase our compliance burden.

We are subject to 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

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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. Our failure to comply with these laws might subject us to civil and
criminal penalties that might have a materially adverse impact on our business operations and our financial
position or results of operations.

Company and Operational Risks

We might record significant charges from impairment to goodwill, intangibles and other assets or investments.

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, burdensome new laws or divestiture of a business or asset for less than its carrying
value. 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. For example, the
COVID-19 pandemic has disrupted the global economy and exacerbated uncertainties inherent in estimates,
judgments and assumptions used in our forecasts and impairment assessments. 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, which might have a materially adverse impact
on our business operations and our financial position or results of operations.

We experience cybersecurity incidents and might experience significant computer system compromises or data
breaches.

types of personal

We and our external service providers use sophisticated computer systems to perform our business
operations, such as the secure electronic transmission, processing, storage and hosting of sensitive information,
financial
including protected health information and other
information, proprietary information, and other sensitive information relating to our customers, company and
workforce. Many of these systems have experienced and are subject to cybersecurity incidents, despite physical,
technical and administrative security measures. Cyber incidents include actual or attempted unauthorized access,
tampering, malware insertion, ransomware attacks or other system integrity events. The risk of cyber incidents
may be increased while many of our personnel are working remotely due to the COVID-19 pandemic. A
cybersecurity incident might involve a material data breach or other material impact to the integrity and
operations of these computer systems, which might result in litigation or regulatory action, loss of customers or
revenue, increased expense, any of which might have a materially adverse impact on our business operations,
reputation and our financial position or results of operations.

information, confidential

We might experience significant problems with information systems or networks.

We rely on sophisticated information systems and networks to perform our business operations, such as to
obtain, rapidly process, analyze and manage data that facilitate the purchase and distribution of thousands of

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McKESSON CORPORATION

inventory items from distribution centers. Our dependence on network availability is increased while many of our
personnel are working remotely due to the COVID-19 pandemic. If those information systems are unsuccessfully
implemented, fail, suffer errors or interruptions, or become unavailable, it might have a materially adverse
impact on our business operations and our financial position or results of operations.

Our products or services might not conform to specifications or perform as we intend.

We sell and provide services involving complex software and technology that may contain errors, especially
when first introduced to market. Healthcare professionals delivering patient care tend to have heightened
sensitivity to system and software errors. If our software and technology services are alleged to have contributed
to faulty clinical decisions or injury to patients, we might be subject to claims or litigation by users of or software
or services or their patients. Errors or failures might damage our reputation and negatively affect future sales. A
failure of a system or software to conform to specifications might constitute a breach of warranty that could
result in repair costs, contract termination, refunds of amounts previously paid or claims for damages. Any of
these types of errors or failures might have a materially adverse impact on our business operations and our
financial position or results of operations.

We might be impeded in providing customers online services and data access.

We provide remote services that involve hosting customer data and operating software on our own or third
party systems. Our customers rely on their ability to access the systems and their data as needed. The networks
and hosting systems are vulnerable to interruption or damage from sources beyond our control, such as power
loss, telecommunications failures, fire, natural disasters, software and hardware failures and cyberattacks. If the
timely delivery of medical care or other customer business requirements are impaired by data access, network or
systems problems, we could be exposed to significant claims and reputational harm. Any such problems might
have a materially adverse impact on our business operations and our financial position or results of operations.

We might not realize expected benefits from business process initiatives.

We may implement restructuring, cost reduction or other business process initiatives that might result in
extraordinary charges and expenses, failures to achieve our desired objectives, or 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. Any of these risks
might have a materially adverse impact on our business operations and our financial position or results of
operations.

We might be unable to successfully complete or integrate acquisitions or other business combinations.

Our growth strategy includes consummating acquisitions or other business combinations that either expand
or complement our business. To fund acquisitions, we may require financing that may not be available on
acceptable terms. We may not receive regulatory approvals needed to complete proposed transactions, or such
approvals may be subject to delays or conditions that reduce transaction benefits. Achieving the desired
outcomes of business combinations involves significant risks including: diverting management’s attention from
other business operations; challenges with assimilating the acquired businesses, such as integration of operations
and systems; failure or delay in realizing operating synergies; difficulty retaining key acquired company
personnel; unanticipated accounting or financial systems issues with the acquired business, which might affect
our internal controls over financial reporting; unanticipated compliance issues in the acquired business;
challenges retaining customers of the acquired business; unanticipated expenses or charges to earnings, including
depreciation and amortization or potential impairment charges; and risks of known and unknown assumed
liabilities in the acquired business. Any of these risks could adversely affect our ability to achieve the anticipated

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McKESSON CORPORATION

benefits of an acquisition and might have a materially adverse impact on our business operations and our
financial position or results of operations.

We might be adversely impacted by delays or other difficulties with divestitures.

When we decide to sell assets or a business, we may encounter difficulty in finding buyers or exit strategies
on acceptable terms or in a timely manner, which could delay the achievement of our strategic objectives. After
the disposition, we might experience greater dissynergies than expected, and the impact of the divestiture on our
revenue or profit might be larger than we expected. We might have difficulties with pre-closing conditions such
as regulatory and governmental approvals, which could delay or prevent the divestiture. We might have financial
exposure in a divested business, such as through minority equity ownership, financial or performance guarantees,
indemnities or other obligations, such that conditions outside of our control might negate the expected benefits of
the disposition. Any of these risks could adversely affect our ability to achieve the anticipated benefits of a
divestiture and might have a materially adverse impact on our business operations and our financial position or
results of operations.

We might not realize the expected tax treatment from our split-off of Change Healthcare.

On March 10, 2020, the Company completed a separation of its interest in Change Healthcare LLC
(“Change Healthcare JV”). The divestiture was effected through the split-off of PF2 SpinCo, Inc. (“SpinCo”), a
wholly owned subsidiary of the Company that held all of the Company’s interest in the Change Healthcare JV, to
certain of the Company’s stockholders through an exchange offer (the “Exchange Offer”), followed by a merger
of SpinCo with and into Change Healthcare Inc. (“Change”), with Change surviving the merger (the “Merger”
and, together with the Exchange Offer, the “Transactions”). The Company received an opinion from outside legal
counsel to the effect that the Transactions qualified as generally tax-free transactions to the Company and its
shareholders for U.S. federal income tax purposes. An opinion of legal counsel is not binding on the Internal
Revenue Service (the “IRS”) or the courts, and the IRS or the courts may not agree with the intended tax-free
treatment of the Transactions. In addition,
the opinion could not be relied upon if certain assumptions,
representations and undertakings upon which the opinion was based are materially inaccurate or incomplete, or
are violated in any material respect. If the intended tax-free treatment of the Transactions is not sustained, the
Company and its stockholders who participated in the Transactions may be required to pay substantial U.S.
federal income taxes. In connection with the Transactions, the Company, SpinCo, Change and the Change
Healthcare JV entered into the Tax Matters Agreement, which governs their respective rights, responsibilities and
obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding
U.S. federal, state and local, and non-U.S. taxes, other tax matters and related tax returns. Under the Tax Matters
Agreement, Change is required to indemnify the Company if the Transactions become taxable as a result of
certain actions by Change or SpinCo, or as a result of certain changes in ownership of the stock of Change after
the Merger. If Change does not honor its obligations to indemnify the Company, or if the Transactions fail to
qualify for the intended tax-free treatment for reasons not related to a disqualifying action by Change or SpinCo,
the resulting tax to the Company could have a significant adverse effect on our financial position or results of
operations.

We might be adversely impacted by outsourcing or similar third-party relationships.

We rely on third parties to perform certain business and administrative functions for us. We might not
adequately develop, implement and monitor these outsourced service providers, and we might not realize
expected cost savings or other benefits. Third-party services providers might fail to perform as anticipated, or we
might experience unanticipated operational difficulties, compliance requirements or increased costs related to
outsourced services. For example, our ability to use outsourcing resources in certain jurisdictions might be
limited by legislative action or customer contracts, with the result that the work must be performed at greater

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McKESSON CORPORATION

expense or we may be subject to sanctions for non-compliance. Any of these risks might have a materially
adverse impact on our business operations and our financial position or results of operations.

We may be unsuccessful in retail pharmacy operations or maintaining profitability.

Our business strategy included expanding our retail pharmacy operations. Our retail pharmacy operations
involve numerous risks, such as the following ones. We might encounter difficulties attracting and retaining
customers to our retail locations due to their unfamiliarity with our brands or our inexperience with local market
preferences. Competition from our retail pharmacy operations might strain relationships with our retail pharmacy
customers. Consolidation of retail pharmacies with third party payers, expansion of large retail pharmacy
networks, reductions in reimbursement rates, shifts in the mix of branded and generic pharmaceutical sales, and
exclusion from preferred pharmacy networks can impair our retail pharmacy sales and profitability. Failure to
maintain profitable retail pharmacy operations may result in significant costs, including those associated with site
closures and reductions in workforce. If our retail pharmacy operations fail to achieve, or are unable to sustain,
acceptable net sales and profitability levels, it might have a materially adverse impact on our business operations
and our financial position or results of operations.

We might be harmed by large customer purchase reductions, payment defaults or contract non-renewal.

We derive a significant portion of our revenue from, and have a significant portion of our accounts
receivable with, a small number of customers. At March 31, 2020, sales to our largest customer represented
approximately 20% of our consolidated revenues and approximately 20% of our trade receivables, and those of
our ten largest customers combined accounted for approximately 51% of our consolidated revenues and
approximately 37% of our trade receivables. A material default in payment, reduction in purchases, or the loss of
business from a large customer might have a materially adverse impact on our business operations and our
financial position or results of operations.

Our contracts with government entities involve future funding and compliance risks.

Our contracts with government entities are subject to risks such as lack of funding and legal compliance. For
example, government contract purchase obligations are typically subject to the availability of funding, which
may be eliminated. Our government contracts might not be renewed or might be terminated for convenience with
little or no prior notice. Government contracts typically expose us to higher potential liability than do other types
of contracts. In addition, government contracts typically are subject to procurement laws that include socio-
economic, employment practices, environmental protection,
recordkeeping and accounting and other
requirements. For example, our contracts with the U.S. government generally require us to comply with the
Federal Acquisition Regulations, U.S. False Claims Act, Procurement Integrity Act, Buy American Act and
Trade Agreements Act. We are subject
investigations and oversight proceedings.
to government audits,
Government agencies routinely review and audit government contractors to determine whether they are
complying with contractual and legal requirements. If we fail to comply with these requirements, or we fail an
audit, we are subject to various sanctions such as monetary damages, criminal and civil penalties, termination of
contracts and suspension or debarment from government contract work. These requirements complicate our
business and increase our compliance burden. The occurrence of any of these risks could harm our reputation and
might have a materially adverse impact on our business operations and our financial position or results of
operations.

We might be harmed by changes in our relationships or contracts with suppliers.

We attempt to structure our pharmaceutical distribution agreements with manufacturers to ensure that we
are appropriately and predictably compensated for the services we provide. Certain distribution agreements with

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McKESSON CORPORATION

manufacturers include pharmaceutical price inflation as a component of our compensation, and we cannot control
the frequency or magnitude of pharmaceutical price changes. We might be unable to renew pharmaceutical
distribution agreements with manufacturers in a timely and favorable manner. Any of these risks might have a
materially adverse impact on our business operations and our financial position or results of operations.

We might infringe intellectual property rights or our intellectual property protections might be inadequate.

We believe that our products and services do not infringe the proprietary rights of third parties, but third
parties have asserted infringement claims against us and may do so in the future. If a court were to hold that we
infringed other’s rights, we might be required to pay substantial damages, develop non-infringing products or
services, obtain a license, stop selling or using the infringing products or services, or incur other sanctions. We
rely on trade secret, patent, copyright and trademark laws, nondisclosure obligations and other contractual
provisions and technical measures to protect our proprietary rights in our products and solutions. We might
initiate costly and time-consuming 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. Our intellectual
property protection efforts might be inadequate to protect our
rights. Our competitors might develop
non-infringing products or services equivalent or superior to ours. Any of these risks might have a materially
adverse impact on our business operations and our financial position or results of operations.

We might be unable to successfully recruit and retain qualified employees.

Our ability to attract, engage, develop and retain qualified and experienced employees, including key
executives and other talent, is essential for us to meet our objectives. We compete with many other businesses to
attract and retain employees. Competition among potential employers might result in increased salaries, benefits
or other employee-related costs, or in our failure to recruit and retain employees. We may experience sudden loss
of key personnel due to a variety of causes, such as illness, and must adequately plan for succession of key
management roles. Employees might not successfully transition into new roles. Any of these risks might have a
materially adverse impact on our business operations and our financial position or results of operations.

Industry and Economic Risks

We might be adversely impacted by healthcare reform such as changes in pricing and reimbursement models.

Many of our products and services are designed and intended to function within the structure of current
healthcare financing and reimbursement systems. The healthcare industry and related government programs are
changing significantly as they seek to increase efficiencies, reduce costs and improve patient outcomes. These
changes increase our risks and create uncertainties for our business.

For example, reimbursement methodologies (including government rates) for pharmaceuticals, medical
treatments and related services reduce profit margins for us and our customers and impose new legal
requirements on healthcare providers. 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, and increases in the use of managed care.

In the U.S.,

the Patient Protection and 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. There are continued efforts to challenge the ACA. There are also efforts to broaden healthcare
coverage. U.S.
including requiring price
in significant changes in the
transparency and drug importation measures. These proposals might result
pharmaceutical value chain as manufacturers, PBM, managed care organizations and other industry stakeholders
look to implement new transactional flows and adapt their business models.

lawmakers also have explored proposals to reduce drug prices,

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McKESSON CORPORATION

Provincial governments in Canada that provide partial funding for the purchase of pharmaceuticals and
independently regulate the sale and reimbursement of drugs have sought to reduce the costs of publicly funded
health programs. For example, provincial governments have taken steps to reduce consumer prices for generic
pharmaceuticals and,
in some provinces, change professional allowances paid to pharmacists by generic
manufacturers.

Many European governments provide or subsidize healthcare to consumers and regulate pharmaceutical
prices, patient eligibility and reimbursement levels in order to control government healthcare system costs. Some
European governments have implemented or are considering austerity measures to reduce healthcare spending.
These measures exert pressure on the pricing and reimbursement timelines for pharmaceuticals and may cause
our customers to purchase fewer of our products and services or influence us to reduce prices.

Although there is substantial uncertainty about the likelihood, timing and results of these health reform
efforts, their implementation might have a materially adverse impact on our business operations and our financial
position or results of operations.

We might be adversely impacted by competition and industry consolidation.

regional and local

Our businesses face a highly competitive global environment with strong competition from international,
full-line, short-line and specialty distributors, service merchandisers, self-
national,
warehousing chain drug stores, manufacturers engaged in direct distribution, third-party logistics companies and
large payer organizations. In addition, our businesses face competition from various other service providers and
from pharmaceutical and other healthcare manufacturers as well as other potential customers, which may from
time-to-time decide to develop, for their own internal needs, supply management capabilities that might
otherwise be provided by our businesses. Due to consolidation, a few large suppliers control a significant share of
the pharmaceuticals market. This concentration reduces our ability to negotiate favorable terms with suppliers
and causes us to depend on a smaller number of suppliers. Many of our customers, including healthcare
organizations, have consolidated and have greater power to negotiate favorable prices. Consolidation by our
customers, suppliers and competitors might reduce the number of market participants and give the remaining
enterprises greater bargaining power, which might lead to erosion in our profit margin. Consolidation might
increase counter-party credit risk because credit purchases increase for fewer market participants. These
competitive pressures and industry consolidation might have a materially adverse impact on our business
operations and our financial position or results of operations.

We might be adversely impacted by changes or disruptions in product supply.

Our supply arrangements might be interrupted or adversely affected by a variety of causes over which we
have no control, such as export controls or trade sanctions, labor disputes, unavailability of key manufacturing
sites, inability to procure raw materials, quality control concerns, ethical sourcing issues, supplier’s financial
distress, natural disasters, civil unrest or acts of war. Our inventory might be requisitioned, diverted or allocated
by government order such as under emergency, disaster and civil defense declarations. For example, government
actions in response to the COVID-19 pandemic affect our supply allocation, and those and our own allocation
decisions can impact our customer relationships. Changes in the healthcare industry’s or our suppliers’ pricing,
selling, inventory, distribution or supply policies or practices could significantly reduce our revenues and net
income. We might experience disruptions in our supply of higher margin pharmaceuticals, including generic
pharmaceuticals. Any of these changes or disruptions might have a materially adverse impact on our business
operations and our financial position or results of operations.

We might be adversely impacted as a result of our distribution of generic pharmaceuticals.

Our generic pharmaceuticals distribution business is subject to pricing risks. We might be adversely
impacted if our ClarusONE generic pharmaceutical sourcing joint venture with Walmart, Inc. is unsuccessful or

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McKESSON CORPORATION

experiences margins declines. Generic drug manufacturers often offer a generic version of branded
pharmaceuticals while they challenge the validity or enforceability branded pharmaceutical patents. The patent
holder might assert infringement claims against us for distributing those generic versions and the generic drug
manufactures may not fully indemnify us against such claims. These risks, as well as changes in the availability,
pricing volatility, reimbursement rates for generic drugs, or significant changes in the nature, frequency or
magnitude of generic pharmaceutical
launches, might have a materially adverse impact on our business
operations and our financial position or results of operations.

We might be adversely impacted by an economic slowdown or recession.

An economic slowdown or recession affecting our businesses in one or more regions could reduce the prices
our customers are able or willing to pay for our products and services and the volume of their purchases. This
risk is increased by the COVID-19 pandemic. Any economic slowdown or recession might have a materially
adverse impact on our business operations and our financial position or results of operations.

Disruption or other changes in capital and credit markets might impede access to credit and increase
borrowing costs for us and our customers and suppliers and might impair the financial soundness of our
customers and suppliers.

institutions, reduced lending activity by financial

Volatility and disruption in global capital and credit markets, including the bankruptcy or restructuring of
certain financial
institutions, or decreased liquidity and
increased costs in the commercial paper market, might adversely affect our borrowing ability and cost of
borrowing. We generally sell our products and services under short-term unsecured credit arrangements. An
adverse change in general economic conditions or access to capital might cause our customers to reduce their
purchases from us, or delay or fail paying amounts owed to us. Suppliers might increase their prices, reduce their
output or change their terms of sale due to limited availability of credit. Suppliers might be unable to make
payments due to us for fees, returned products or incentives. These risks are increased by the COVID-19
pandemic. Interest rate increases or changes in capital market conditions might impede our or our customers’ or
suppliers’ ability or cost to obtain credit. For example, interest rate costs on types of borrowings that have
historically been linked to the London Inter-Bank Offered Rate (“LIBOR”) may increase when LIBOR is
replaced by reference rates such as the Secured Overnight Financing Rate (“SOFR”). Any of these risks might
have a material adverse impact on our business operations and our financial position or results of operations.

We may have difficulties in sourcing or selling products due to a variety of causes.

We might experience difficulties and delays in sourcing and selling products due to a variety of causes, such
as: difficulties in complying with the legal requirements for export or import of pharmaceuticals or components;
suppliers’ failure to satisfy production demand; manufacturing or supply problems such as inadequate resources;
and real or perceived quality issues. Difficulties in product manufacturing or access to raw materials could result
in supplier production shutdowns, product shortages and other supply disruptions. The FDA banned certain
manufacturers from selling raw materials and drug ingredients in the U.S. due to quality issues. The COVID-19
pandemic adversely affects the availability of some products, resulting in product allocation and delivery delays.
Any of these risks might have a materially adverse impact on our business operations and our financial position
or results of operations.

We might be adversely impacted by tax legislation or challenges to our tax positions.

We are subject to the tax laws in the United States at the federal, state and local government levels and to
the tax laws of many other jurisdictions in which we operate or sell products or services. Tax laws might change
in ways that adversely affect our tax positions, effective tax rate and cash flow. The tax laws are extremely

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McKESSON CORPORATION

complex and subject to varying interpretations. We are subject to tax examinations in various jurisdictions that
might assess additional tax liabilities against us. Our tax reporting positions might be challenged by relevant tax
authorities, we might incur significant expense in our efforts to defend those challenges, and we might be
unsuccessful those efforts. Developments in examinations and challenges might materially change our provision
for taxes in the affected periods and might differ materially from our historical tax accruals. Any of these risks
might have a materially adverse impact on our business operations, our cash flows and our financial position or
results of operations

We might be adversely impacted by the Brexit withdrawal of the United Kingdom from the European Union.

We have operations in the U.K. and the European Union (“E.U.”) and face risks associated with the
uncertainty and potential disruptions that might follow the United Kingdom withdrawing from the European
Union (“Brexit”). Brexit could adversely affect political, regulatory, economic or market conditions and
contribute to instability in global political institutions, regulatory agencies and financial markets. For example,
we might experience volatility in exchange rates and interest rates and changes in laws regulating our U.K.
operations. Customers might reduce purchases due to the uncertainty caused by Brexit. Any of these risks might
have a materially adverse impact on our business operations and our financial position or results of operations.

We might be adversely impacted by fluctuations in foreign currency exchange rates.

We conduct our business in various currencies, including the U.S. dollar, euro, British pound sterling and
Canadian dollar. Changes in foreign currency exchange rates could reduce our revenues, increase our costs or
otherwise adversely affect our financial results reported in U.S. dollars. For example, we are exposed to
transactional currency exchange risk due to our import and export of products that are purchased or sold in
currencies other than the U.S. dollar. We also have currency exchange risk due to intercompany loans
denominated in various currencies. The COVID-19 pandemic has affected and might increase currency exchange
rate volatility. We may from time to time enter into foreign currency contracts, foreign currency borrowings or
other techniques intended to hedge a portion 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. Any of these risks might have a materially adverse impact on our
business operations and our financial position or results of operations.

Other Risks

We might be adversely impacted by events outside of our control, such as widespread public health issues,
natural disasters, political events and other catastrophic events.

We might be adversely affected by events outside of our control, including: widespread public health issues,
such as epidemic or pandemic infectious diseases; natural disasters such as earthquakes, hurricanes or floods;
political events such as terrorism, military conflicts and trade wars; and other catastrophic events. These events
might disrupt operations for us, our suppliers and our customers. They might affect consumer confidence levels
and spending. In response to these events, we might suspend operations, implement extraordinary procedures,
seek alternate sources for product supply, or suffer consequences that are unexpected and difficult to mitigate. In
particular, the rapid and widespread transmission of the SARS-CoV-2 novel coronavirus beginning in late 2019
impacts us in significant ways. For example, to mitigate the spread of the COVID-19 disease caused by SARS-
CoV-2, we implemented travel restrictions and remote working arrangements for most of our employees in order
to minimize physical contact, and we implemented additional sanitation and personal protection measures in our
warehouse, retail pharmacy and delivery operations. These measures might not fully mitigate COVID-19 risks to
our workforce and we could experience unusual levels of absenteeism that might impair operations and delay
delivery of products. The COVID-19 pandemic affects product manufacturing, supply and transport availability

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McKESSON CORPORATION

and cost. The pandemic reduces demand for some products due to delays or cancellations of elective medical
procedures, consumer self-isolation and business closures, among other reasons. The COVID-19 pandemic
influences shortages of some products, with product allocation resulting in delivery delays for customers. The
ongoing impacts of the pandemic might cause a general economic slowdown or recession in one or more
markets, disruptions and volatility in global capital markets and other broad and adverse effects on the economy,
business conditions, commercial activity and the healthcare industry. The pandemic might impact our business
operation, financial position and results of operation in unpredictable ways that depend on highly-uncertain
future developments, such as determining the effectiveness of current or future government actions to address the
public health or economic impacts of the pandemic. Any of these risks might have a materially adverse impact on
our business operations and our financial position or results of operations.

We might be adversely impacted by changes in accounting standards.

Our consolidated financial statements are subject to the application of U.S. GAAP, which periodically is
revised or reinterpreted. From time to time, we are required to adopt new or revised accounting standards issued
by recognized authoritative bodies, including the Financial Accounting Standards Board (“FASB”) and the SEC.
It
in our
consolidated financial statements and may require us to make significant changes to our financial systems. Such
changes might have a materially adverse impact on our financial position or results of operations.

is possible that future accounting standards may require changes to the accounting treatment

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
making capital expenditures materially higher
lease
commitments is included in Financial Note 13, “Leases,” 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 21, “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.

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McKESSON CORPORATION

Information about our Executive Officers

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

Age

Position with Registrant and Business Experience

Brian S. Tyler

Britt J. Vitalone

Tracy Faber

Nancy Flores

Lori A. Schechter

53 Chief Executive Officer since April 2019; President and Chief Operating
Officer from August 2018 to March 2019; Chairman of the Management Board
of McKesson Europe AG from 2017 to 2018; President and Chief Operating
Officer, McKesson Europe from 2016 to 2017; President of North America
Distribution and Services from 2015 to 2016; Executive Vice President,
Corporate Strategy and Business Development from 2012 to 2015; and a
director since April 2019. Service with the Company — 23 years.

51 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 — 14 years.

50 Executive Vice President and Chief Human Resources Officer since October
2019. Previously, Senior Vice President of Human Resources. Service with the
Company — 9 years.

53 Executive Vice President, Chief Information Officer and Chief Technology
Officer since January 2020; Chief Information Officer, Johnson Controls from
2018 to July 2019. Corporate Officer and Vice President of Business and
Technology Services, Abbott Laboratories from 1996 to 2018. Service with the
Company — less than 1 year.

58 Executive Vice President, Chief Legal Officer and General Counsel since June
2014; Associate General Counsel from January 2012 to June 2014; Litigation
Partner, Morrison & Foerster LLP from 1995 to December 2011. Service with
the Company — 8 years.

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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 our common stock is traded is the New York Stock

Exchange (“NYSE”) under the trading symbol of “MCK”.

(b) Holders: The number of record holders of our common stock at March 31, 2020 was approximately 5,034.

(c) Dividends: In July 2019, our quarterly dividend was raised from $0.39 to $0.41 per common share for
dividends declared on or after such date by the Board. We declared regular cash dividends of $1.62 and
$1.51 per share in the years ended March 31, 2020 and 2019.

We anticipate that we 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 our 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 2018, we repurchased 3.5 million 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 our
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
1.0 million shares in the first quarter of 2019. The March 2018 ASR program was completed at an average price
per share of $143.66 during the first quarter of 2019. The total authorization outstanding for repurchase of our
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 our common stock. The total
authorization outstanding for repurchases of our common stock was increased to $5.1 billion at that time. During
2019, we repurchased 10.4 million shares for $1.4 billion through open market transactions at an average price
per share of $132.14. In December 2018, we entered into an ASR program with a third-party financial institution
to repurchase $250 million of our common stock. The total number of shares repurchased under this ASR
program was 2.1 million shares at an average price per share of $117.98. The total authorization outstanding for
repurchase of our common stock was $3.5 billion at March 31, 2019.

In 2019, we retired 5.0 million or $542 million of our 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 $472 million and $70 million during 2019.

In 2020, we repurchased 9.2 million shares for $1.3 billion through open market transactions at an average
price per share of $144.68. In May 2019, we entered into an ASR program with a third-party financial institution

24

McKESSON CORPORATION

to repurchase $600 million of our common stock. The total number of shares repurchased under this ASR
program was 4.7 million shares at an average price per share of $127.68. The total authorization outstanding for
repurchase of our common stock was $1.5 billion at March 31, 2020.

The following table provides information on our share repurchases during the fourth quarter of 2020:

(In millions, except price per share)

January 1, 2020 — January 31, 2020

February 1, 2020 — February 29, 2020

March 1, 2020 — March 31, 2020

Total

Share Repurchases (1)

Total
Number of
Shares
Purchased (2)

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs (2)

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

—

—

15.4

15.4

$—

—

—

—

—

15.4

15.4

$1,535

1,535

1,535

(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) On March 9, 2020, we completed the previously announced separation (“Split-off”) of our interest in
the Change Healthcare JV. In connection with the Split-off, we distributed all 176.0 million
outstanding shares of common stock of our wholly owned subsidiary, PF2 SpinCo, Inc. (“SpinCo”),
which held all of McKesson’s interests in the Change Healthcare JV, to participating holders of our
common stock in exchange for 15.4 million shares of McKesson stock which now are held as treasury
stock on our consolidated balance sheet. Refer to Financial Note 22, “Stockholders’ Equity,” to the
accompanying consolidated financial statements included in this Annual Report on Form 10-K for
more information.

25

McKESSON CORPORATION

(f)

Stock Price Performance Graph*: The following graph compares the cumulative total stockholder return on
our 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.

160

140

120

100

80

60

40

20

0

2015

2016

2017

2018

2019

2020

McKesson Corporation

S & P 500 Index

S & P 500 Health Care Index

McKesson Corporation

S&P 500 Index

March 31,

2015

2016

2017

2018

2019

2020

$100.00

$ 69.92

$ 66.37

$ 63.06

$ 52.40

$ 60.55

$100.00

$101.78

$119.26

$135.95

$148.86

$138.47

S&P 500 Health Care Index

$100.00

$ 94.82

$105.81

$117.74

$135.27

$133.90

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, 2015 and that all

dividends are reinvested.

26

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

Percent change

Income from continuing operations before income taxes (1)
Income (Loss) after income taxes
Continuing operations (1)
Discontinued operations

Net income

Net income attributable to noncontrolling interests (2)
Net income attributable to McKesson Corporation (1)

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

Total assets
Total debt, including finance lease obligations (4)
Total McKesson stockholders’ equity (5)
Payments for property, plant and equipment
Acquisitions, net of cash, cash equivalents and restricted

cash 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 (6) (7)
Market value per common share — year-end
Supplemental Data
Debt to capital ratio (8)
Average McKesson stockholders’ equity (9)
Return on McKesson stockholders’ equity (10)

As of and for the Years Ended March 31,

2020

2019

2018

2017

2016

$231,051

$214,319

$208,357

$198,533

$190,884

7.8%

2.9%

4.9%

4.0%

6.6%

$ 12,023

$ 11,754

$ 11,184

$ 11,271

$ 11,416

2.3%

$

1,144

$

5.1%
610

$

(0.8)%
239

(1.3)%

— %

$

6,861

$

3,250

1,126
(6)
1,120
(220)
900

254
1
255
(221)
34

292
5
297
(230)
67

5,277
(124)
5,153
(83)
5,070

2,342
(32)
2,310
(52)
2,258

$

(402)

$

839

$

451

$

1,336

$

3,366

26
27
61
$ 61,247
7,387
5,092
362

26
31
62
$ 59,672
7,595
8,094
426

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

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

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

133

162

182
181

905

190

197
196

2,893

4,212

202

209
208

211

223
221

40

225

233
230

$

4.99
(0.04)
4.95
294
1.62
31.43
135.26

$

0.17
—
0.17
298
1.51
42.60
117.06

$

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

52.1%
6,743
13.3%

$

43.3%
9,163

0.4%

40.6%

$ 11,016

$

0.6%

39.2%
9,282
54.6%

$

43.6%
8,688
26.0%

$

27

McKESSON CORPORATION

Footnotes to Five-Year Highlights:
(1) 2020 includes a pre-tax other-than-temporary impairment charge of $1.2 billion ($864 million after-tax) and
a pre-tax dilution loss of $246 million ($184 million after-tax) related to our investment in the Change
Healthcare Joint Venture, charges of $275 million (pre-tax and after-tax) to remeasure to fair value the
assets and liabilities of the Company’s German wholesale business to be contributed to a joint venture and
an estimated gain of $414 million relating to the split-off of its investment in the Change Healthcare Joint
Venture. 2019 includes pre-tax goodwill impairment charges of $1.8 billion (pre-tax and after-tax) primarily
for our two reporting units within our European Pharmaceutical Solutions segment. 2018 includes total
goodwill impairment charges of $1.7 billion (pre-tax and after-tax) for our European Pharmaceutical
Solutions segment and Other. The goodwill impairment charges are generally not deductible for income tax
purposes. 2020, 2019 and 2018 also include asset impairment charges of $82 million ($66 million after tax),
$210 million ($172 million after-tax) and $446 million ($410 million after-tax) primarily for our U.K. retail
businesses. 2017 includes a pre-tax gain of $3.9 billion ($3.0 billion after-tax) from the contribution of the
majority of our Core MTS Business in connection with the Healthcare Technology Net Asset Exchange as
discussed in Financial Note 2, “Investment in Change Healthcare Joint Venture.”
Includes annual recurring compensation McKesson is obligated to pay to the noncontrolling shareholders of
McKesson Europe. 2020, 2019, 2018 and 2017 include net income attributable to third-party equity interests
in our consolidated entities including Vantage Oncology Holdings, LLC and ClarusONE Sourcing Services
LLP, which was formed in 2017.

(2)

(3) Based on year-end balances and sales or cost of sales for the last 90 days of the year.
(4) Total debt includes finance lease obligations for 2020. Prior to the adoption of the amended lease guidance
in 2020, these were capital lease obligations. Refer to Financial Note 1, “Significant Accounting Policies,”
for additional information.

(5) Excludes noncontrolling and redeemable noncontrolling interests.
(6) Certain computations may reflect rounding adjustments.
(7) Represents McKesson stockholders’ equity divided by year-end common shares outstanding.
(8) Ratio is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity

excluding accumulated other comprehensive income (loss).

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

divided by a five-quarter average of McKesson stockholders’ equity.

28

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 together with its
subsidiaries (collectively, the “Company,” “we,” “our,” or “us” and other similar pronouns). 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. Our fiscal year begins on April 1 and ends on
March 31. Unless otherwise noted, all references to a particular year shall mean our 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.

Overview of Our Business:

We are a global leader in healthcare supply chain management solutions, retail pharmacy, community
oncology and specialty care, and healthcare technology. We partner with life sciences companies, manufacturers,
providers, pharmacies, governments and other healthcare organizations to help provide the right medicines,
medical products and healthcare services to the right patients at the right time, safely and cost-effectively.

We conduct our business through 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 require separate reportable segment disclosure are included
in Other, which primarily consists of McKesson Canada, McKesson Prescription Technology Solutions
(“MRxTS”) and our investment in Change Healthcare LLC (“Change Healthcare JV”), which was split-off from
the Company in the fourth quarter of 2020 as further discussed in this Financial Review. Our organizational
structure also includes Corporate, which consists of income and expenses associated with administrative
functions and projects, and the results of certain investments. The factors for determining the reportable segments
include the manner in which management evaluates the performance of the Company combined with the nature
of the individual business activities. We evaluate the performance of our operating segments on a number of
measures, including revenues and operating profit before interest expense and income taxes. Refer to Financial
Note 24, “Segments of Business,” to the accompanying consolidated financial statements included in this Annual
Report on Form 10-K for a description of these segments.

Executive Summary:

The following executive summary provides highlights and key factors that impacted our business, operating
results and liquidity for the year ended March 31, 2020. The coronavirus disease 2019 (“COVID-19”) did not
significantly impact our financial condition, results of operations or liquidity in 2020. For a more in-depth
discussion of how COVID-19 impacted our business, operations, and outlook, see the COVID-19 section of
“Trends and Uncertainties” included below.

• Revenues of $231.1 billion, reflecting an 8% increase from the prior year driven primarily by market
growth in our U.S. Pharmaceutical and Specialty Solutions segment, including branded pharmaceutical
price increases and higher volumes from retail national account customers;

29

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

• Gross profit increased 2% from the prior year primarily driven by market growth in our Medical-

Surgical Solutions segment;

• On October 21, 2019, we disclosed an opioid-related litigation settlement with two Ohio counties and

recorded a related charge of $82 million in total operating expenses;

• On December 12, 2019, McKesson and Walgreens Boots Alliance announced an agreement to create a
joint venture that is expected to combine their respective pharmaceutical wholesale businesses in
Germany. As a result of this agreement, we recognized fair value remeasurement charges of
$275 million in total operating expenses within our European Pharmaceutical Solutions segment;

• On March 10, 2020, we completed the previously announced separation of our investment in Change
Healthcare JV and recognized an estimated gain of $414 million related to this transaction. We no
longer hold an interest
in any securities of Change Healthcare JV or Change Healthcare, Inc.
(“Change”) following the separation. During the second quarter of 2020, we recorded an other-than-
temporary-impairment (“OTTI”) charge of $1.2 billion and a dilution loss of $246 million related to
our investment in Change Healthcare JV;

• Diluted earnings per common share from continuing operations attributable to McKesson Corporation
in 2020 of $4.99 reflects the aforementioned items and a lower share count compared to the prior year
driven largely by share repurchases; and

• We returned $2.2 billion of cash to shareholders through $1.9 billion of common stock repurchases and

$294 million of dividend payments.

Trends and Uncertainties:

COVID-19

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19,
was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency
of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020.

We continue to evaluate the nature and extent COVID-19 may have to our business and operations. The
pandemic is developing rapidly and the full extent to which COVID-19 will impact us depends on future
developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

In response to the COVID-19 pandemic, federal, state, and local government directives and policies have
been put in place in the United States to enhance availability of medications and supplies to meet the increased
demand, assist front-line healthcare providers, manage public health concerns by creating social distancing, and
address the economic impacts, including sharply reduced business activity, increased unemployment, and overall
uncertainty presented by this new healthcare challenge. Similar governmental actions have occurred in Canada
and Europe.

As a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology
and specialty care, and healthcare information technology, we are uniquely positioned to respond to the COVID-
19 pandemic in the United States, Canada, and Europe. We are working closely with national and local
governments, agencies, and industry partners to ensure supplies, including personal protective equipment, and
medicine reach our customers and patients when they need them.

We have taken the necessary steps to ensure that we continue to supply our customers and protect the safety
of our employees. The various responses we put in place to mitigate the impact of COVID-19 on our business

30

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

operations, including telecommuting and work-from-home policies, restricted travel requirements, employee
support programs, and enhanced safety measures are intended to limit exposure to COVID-19. These successful
steps in our fourth quarter of 2020 have resulted in limited disruption of our normal business operations,
productivity trends, and slightly compressed operating margins due to increased operating expenses.

The financial impact to the year ended March 31, 2020 is muted due to the timing of the COVID-19
pandemic late in our fourth quarter. We experienced higher pharmaceutical distribution volumes in March,
however, these increases were partially offset by decreases in specialty drug volumes and decreased demand
within primary care medical-surgical supplies. Specialty drug volumes were negatively impacted by lower
demand for infusions, elective specialty drugs, oncology, and dermatology practice sales. Demand for primary
care medical-surgical supplies were negatively impacted by deferrals in elective procedures in hospitals and
surgery centers as well as decreased traffic or closures in doctor’s offices. These positive and negative COVID-
19 impacts drove increased consolidated revenues by less than 1% in 2020.

The increased volumes and revenue due to COVID-19 favorably impacted income from continuing
operations before income taxes, but were mostly offset by increased variable labor costs, enhanced sterilization
procedures to sanitize operating facilities, costs of personal protection equipment for our employees, and
increased costs of transport as well as increased other operating expenses. Additionally, as previously mentioned,
decreased specialty drug volumes and demand challenges for primary care medical-surgical supplies weighed
negatively on income from continuing operations before income taxes. We also expanded temporary employee
benefits and incentives targeted for our front-line employees to not only protect their safety, but to provide
further support including additional medical benefits, emergency leave as well as added compensation. The
overall impact to income from continuing operations before income taxes from the favorable and unfavorable
items mentioned above largely offset each other, however, impacts to future periods due to COVID-19 may
differ based on future developments, including the duration and spread of the virus as well as potential
seasonality of new outbreaks. Overall operating margins were compressed due to higher pharmaceutical
distribution volumes, shifts in product mix, higher demand by retail national accounts and increased operating
expenses.

Our consolidated balance sheets and ability to maintain financial liquidity remains strong. We have
experienced no material impacts to our liquidity or net working capital. With many of our customers anticipating
extended declines in their businesses due to the COVID-19 pandemic, we are monitoring closely for trends that
may impact their timing or ability to pay amounts owed to us. We remain well-capitalized with access to
liquidity from our revolving credit facility. Long-term debt markets and commercial paper markets, our primary
sources of capital after cash flow from operations, have remained open during the COVID-19 pandemic. While
there are signs of stress in both markets, we do not have an immediate need to access these markets and could use
our revolving credit facility to meet any near-term liquidity needs. We have seen some improvement in
conditions in the debt markets and commercial paper markets as the Federal Reserve has taken steps to stabilize
the markets. We believe we have the ability to meet the covenants of our credit agreements.

We continue to monitor the COVID-19 pandemic impact on our supply chain. We were able to maintain
appropriate labor and overall vendor supply levels under the circumstances in the fourth quarter, despite
challenges including higher sickness rates and service level issues with suppliers. Supplier shortages and stock-
outs for certain products have occurred in specific instances as demand in excess of supply escalated for certain
items tied to the COVID-19 pandemic response, such as personal protective equipment and other preventive
products. Our inventory levels have fluctuated in response to these supply dynamics and increased concentrated
customer orders for certain products, with varying inventory level impacts depending on the specific product
within our portfolio of offerings.

31

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Although the availability of various products is dependent on our suppliers, their location and the extent to
which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers, industry
partners, and government agencies to meet the needs of our customers during the pandemic. We have assembled
a Critical Care Drug Task Force, made up of our procurement specialists, clinical health systems pharmacists,
and supply chain professionals, focused on securing additional product where available, sourcing back-up
products, adjusting allocations to ensure equitable distribution and to protect our operations across all locations
and facilities. We have a robust Business Continuity and Disaster Recovery Program (“BCRP”) and we have
proactively enhanced our BCRP in response to the COVID-19 pandemic.

The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth
quarter of 2020. Although the financial impact on our overall 2020 results is limited due to the timing of the
outbreak, we face numerous uncertainties in estimating the direct and indirect effects on our future business
operations, financial condition, results of operations, and liquidity. Additionally, responses from authorities and
regulators at all levels of government may materially impact us in future periods. Due to several rapidly changing
variables related to the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the
timing of when stability will return. Refer to Item 1A — Risk Factors in Part I of this Annual Report on Form
10-K for a disclosure of risk factors related to COVID-19.

Opioid-Related Litigation and Claims

We are a defendant in over 3,000 legal proceedings asserting claims related to distribution of controlled
substances (opioids) in federal and state courts throughout the United States, and in Puerto Rico and Canada. We
are vigorously defending ourselves against such claims and proceedings and are a party to discussions with the
objective of achieving broad resolution of the remaining claims. Because of the large number of parties involved,
together with the novelty and complexity of the issues, for which there may be different considerations among
the parties, we cannot predict the successful resolution through a negotiated settlement. An adverse judgment or
negotiated resolution in any of these matters could have a material adverse impact on our financial position, cash
flows or liquidity, or results of operations. Refer to Financial Note 21, “Commitments and Contingent
Liabilities,” to the accompanying consolidated financial statements included in this Annual Report on Form 10-K
for more information.

32

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

RESULTS OF OPERATIONS

Overview of Consolidated Results:

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

2020

2019

2018

2020

2019

Years Ended March 31,

Change

Revenues

Gross Profit

Gross Profit Margin

Total Operating Expenses

Total Operating Expenses as a Percentage of

Revenues

Other Income, Net

Equity Earnings and Charges from Investment in

Change Healthcare Joint Venture

Loss on Debt Extinguishment

Interest Expense

Income from Continuing Operations Before Income

Taxes

Income Tax (Expense) Benefit

Income from Continuing Operations

Income (Loss) from Discontinued Operations, Net of

Tax

Net Income

Net Income Attributable to Noncontrolling Interests

$231,051

$214,319

$208,357

12,023

11,754

11,184

8%

2

3%

5

5.20%

5.48%

5.37% (28)bp

11bp

$ (9,534)

$ (10,868)

$ (10,422)

(12)%

4%

4.13%

5.07%

5.00% (94)bp

$

12

$

182

$

130

(93)%

7bp

40%

(1,108)

—

(249)

1,144

(18)

1,126

(6)

1,120

(220)

(194)

—

(264)

610

(356)

254

1

255

(221)

(248)

471

(122) NM

(283)

(6)

239

53

292

88

(95)

343

5

(700)

297

339

(230) —

(22)

(100)

(7)

155

(772)

(13)

(80)

(14)

(4)

Net Income Attributable to McKesson Corporation

$

900

$

34

$

67

NM

(49)%

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

Continuing operations

Discontinued operations

Total

Weighted Average Diluted Common Shares

bp — basis points
NM — not meaningful

Revenues

$

$

4.99

(0.04)

4.95

182

$

$

0.17

—

0.17

197

$

$

0.30

0.02

0.32

209

NM

NM

NM

(43)%

(100)

(47)%

(8)%

(6)%

Revenues increased for the years ended March 31, 2020 and 2019 compared to the respective prior years
primarily due to market growth,
including expanded business with existing customers within our U.S.
Pharmaceutical and Specialty Solutions segment. Market growth includes growing drug utilization, price

33

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

increases and newly launched products, partially offset by price deflation associated with brand to generic drug
conversion. The increase in revenues for 2019 was also due to our 2019 first quarter acquisition of Medical
Specialties Distributors LLC (“MSD”), partially offset by loss of customers within our U.S. Pharmaceutical and
Specialty Solutions segment. The impact from COVID-19 increased revenues by less than 1% for the year ended
March 31, 2020 and was primarily attributable to our U.S. Pharmaceutical and Specialty Solutions and European
Pharmaceutical Solutions segments.

Gross Profit

Gross profit increased for the year ended March 31, 2020 compared to the prior year primarily due to market
growth in our Medical-Surgical Solutions segment, partially offset by unfavorable effects of foreign currency
exchange fluctuations. Gross profit and gross profit margin for the year ended March 31, 2020 compared to the
prior year were unfavorably impacted by a decrease in net cash proceeds received of $22 million in 2020
compared to $202 million in 2019 representing our share of antitrust legal settlements, partially offset by higher
last-in, first-out (“LIFO”) credits in 2020 due to higher generic deflation. The impact from COVID-19 increased
gross profit by less than 1% and decreased gross profit margin by less than 10 basis points for the year ended
March 31, 2020.

Gross profit and gross profit margin increased for the year ended March 31, 2019 compared to the prior
year. Gross profit increased due to market growth, partially offset by loss of customers. The increase in gross
profit and gross profit margin for 2019 was also due to the receipt of net cash proceeds representing our share of
antitrust legal settlements of $202 million, higher LIFO credits and our business acquisitions. These increases in
2019 were partially offset by the incremental government reimbursement reductions in the United Kingdom
(“U.K.”), government imposed generic price cuts in Canada and the 2018 third quarter sale of our Enterprise
Information Solutions (“EIS”) business.

Gross profit for the years ended March 31, 2020, 2019 and 2018 included LIFO inventory credits of
$252 million, $210 million and $99 million. Refer to the “Critical Accounting Policies and Estimates” section
included in this Financial Review for further information.

Total Operating Expenses

A summary of the components of our total operating expenses for the years ended March 31, 2020, 2019

and 2018 is as follows:

(Dollars in millions, except ratios)

Years Ended March 31,

Change

2020

2019

2018

2020

2019

Selling, distribution and administrative expenses

$9,168

$ 8,403

$ 8,138

9%

3%

Research and development

Goodwill impairment charges

Restructuring, impairment and related charges

Gain from sale of business

Gain on healthcare technology net asset exchange, net

Total Operating Expenses

Percent of Revenues

96

2

268

—

—

71

1,797

597

—

—

125

35

(43)

1,738

(100)

567

(55)

3

5

(109) NM

(37) NM

(100)

(100)

$9,534

$10,868

$10,422

(12)%

4.13%

5.07%

5.00% (94)bp

4%

7bp

34

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Total operating expenses and total operating expenses as a percentage of revenues decreased for the year
ended March 31, 2020 compared to the prior year and increased for the year ended March 31, 2019 compared to
the prior year.

Total operating expenses for the years ended March 31, 2020, 2019 and 2018 were affected by the following

significant items:

2020

•

•

Selling, distribution and administrative expenses (“SD&A”) includes charges of $275 million to
remeasure assets and liabilities held for sale to the lower of carrying value or fair value less costs to sell
related to the expected contribution of the majority of our German wholesale business to create a joint
venture in which McKesson will have a non-controlling interest within our European Pharmaceutical
Solutions segment. Refer to Financial Note 3, “Held for Sale,” to the accompanying consolidated
financial statements included in this Annual Report on Form 10-K for more information;

SD&A includes opioid-related expenses of $232 million, primarily litigation and related expenses,
including the second quarter settlement charge of $82 million recorded in connection with an
agreement executed in December 2019 to settle all opioid-related claims filed by two Ohio counties;

• Restructuring,

impairment and related charges includes long-lived asset

impairment charges of
$112 million, primarily for our U.K. business (mainly pharmacy licenses) and Rexall Health retail
business (“Rexall Health”) in Other (mainly customer relationships), and the remaining $156 million
primarily represents employee severance and exit-related costs related to our 2019 restructuring
initiatives, as further discussed below; and

• Total operating expenses includes higher SD&A due to our business acquisitions and to support
business growth, as well as our technology initiatives, partially offset by favorable effects of foreign
currency exchange fluctuations.

2019

• Goodwill impairment charges of $1.8 billion in our Retail Pharmacy (“RP”, formerly “Consumer
Solutions”) and Pharmaceutical Distribution (“PD”, formerly “Pharmacy Solutions”) reporting units
within the European Pharmaceutical Solutions segment. Of these impairment charges, $238 million
was recognized upon the 2019 first quarter segment changes, which resulted in two new reporting
units. The remaining charges primarily were due to declines in the reporting units’ estimated future
cash flows and the selection of higher discount rates. These impairment charges generally were not
deductible for income tax purposes. The declines in estimated future cash flows primarily were
attributed to additional government reimbursement reductions and competitive pressures within the
U.K. The risk of successfully achieving certain business initiatives was the primary factor in the use of
a higher discount rate. At March 31, 2019, both RP and PD reporting units had no remaining goodwill
balances;

• Restructuring, impairment and related charges primarily includes employee severance and exit-related
costs of $331 million for our 2019 restructuring initiatives, as further discussed below and long-lived
asset impairment charges of $245 million primarily for our U.K. business (mainly pharmacy licenses)
driven by additional government reimbursement reductions and competitive pressures in the U.K.; and

•

SD&A includes opioid-related costs of $151 million primarily related to litigation expenses and
increased expenses due to our business acquisitions and to support growth, partially offset by a gain

35

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

from an escrow settlement of $97 million representing certain indemnity and other claims related to our
2017 acquisition of Rexall Health and a credit of $90 million for the derecognition of a liability related
to the tax receivable agreement (“TRA”) payable to the shareholders of Change.

2018

• Goodwill impairment charges of $1.3 billion for the European Pharmaceutical Solutions segment and
$455 million for Rexall Health. There were no tax benefits associated with these goodwill impairment
charges. The impairments for Europe were triggered primarily by government reimbursement
reductions in our retail business in the U.K. and a more competitive environment in France. The
impairments for Rexall Health were primarily driven by significant generics reimbursement reductions
across Canada and minimum wage increases in multiple provinces. At March 31, 2018, Rexall Health
had no remaining goodwill related to our acquisition of Rexall Health;

• Restructuring, impairment and related charges primarily includes long-lived asset impairment charges
of $446 million due to the declines in estimated future cash flows in our European business including
those declines in our U.K. retail business driven by government reimbursement reductions. In addition,
we recorded employee severance and lease exit costs of $74 million for our 2018 restructuring plan in
our McKesson Europe business. The plan was substantially completed in 2020;

•

•

SD&A includes a charitable contribution expense of $100 million to a public benefit California
foundation (the “Foundation”);

SD&A includes increased expenses due to our business acquisitions, partially offset by a gain from sale
of business of $109 million related to the sale of our EIS business within Other.

Goodwill Impairments

The impairment testing performed in 2020 did not indicate any material impairment of goodwill. As of the
testing date, other risks, expenses and future developments, such as additional government actions, increased
regulatory uncertainty and material changes in key market assumptions limit our ability to estimate projected
cash flows, which could adversely affect the fair value of various reporting units in future periods, including our
McKesson Canada reporting unit in Other where the risk of a material goodwill impairment is higher than other
reporting units. Refer to “Critical Accounting Policies and Estimates” included in this Financial Review for
further information.

On October 1, 2019, we voluntarily changed our annual goodwill impairment testing date from January 1 to
October 1 to better align with the timing of our annual long-term planning process. This change was not material
to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill
impairment charge. Refer to Note 14, “Goodwill and Intangible Assets, Net,” to the accompanying consolidated
financial statements included in this Annual Report on Form 10-K for further information.

2019 Restructuring Initiatives

On April 25, 2018, we announced a strategic growth initiative intended to drive long-term incremental profit
growth and increase operational efficiency. The initiative consists of multiple growth priorities and plans to
optimize our operating models and cost structures primarily through the centralization, cost management and
outsourcing of certain administrative functions. As part of the growth initiative, we committed to implement
certain actions including a reduction in workforce, facility consolidation and store closures. This set of the
initiatives was substantially complete by the end of 2020 and we recorded charges of $15 million and
$135 million in 2020 and 2019 primarily representing employee severance, exit-related costs and asset
impairment charges. Any remaining charges primarily consist of exit-related costs.

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

As previously announced on November 30, 2018, we relocated our corporate headquarters from San
Francisco, California to Irving, Texas to improve efficiency, collaboration and cost competitiveness, effective
April 1, 2019. We anticipate that the relocation will be complete by January 2021. We expect to incur total
charges of approximately $80 million to $130 million, of which charges of $44 million and $33 million were
impairments and
recorded in 2020 and 2019 primarily representing employee retention expenses, asset
accelerated depreciation. The estimated remaining charges primarily consist of lease and other exit-related costs,
and employee-related expenses including retention.

During the fourth quarter of 2019, we committed to additional programs to continue our operating model
and cost optimization efforts. We continue to implement centralization of certain functions and outsourcing
through the expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also
include reorganization and consolidation of our business operations and related headcount reductions, closures of
retail pharmacy stores in Europe and closures of other facilities. We anticipate these additional programs will be
substantially complete by the end of 2021. We expect to incur total charges of approximately $300 million to
$350 million for these programs, of which charges of $72 million and $163 million were recorded in 2020 and
2019 primarily representing employee severance, accelerated depreciation expense and project consulting fees.
The estimated remaining charges primarily consist of facility and other exit costs and employee-related costs.

Refer to Financial Note 4, “Restructuring, Impairment and Related Charges,” to the accompanying

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

Other Income, Net

Other income, net, for the year ended March 31, 2020 decreased compared to the prior year primarily due to
the 2020 pension settlement charges of $122 million related to our previously approved termination of the frozen
U.S. defined benefit pension plan and higher gains recognized from the sale of investments in 2019, partially
offset by higher settlement gains in 2020 from our derivative contracts. In connection with the pension plan
termination, we purchased annuity contracts from an insurer that will pay and administer the future pension
benefits of the remaining participants.

Other income, net for the year ended March 31, 2019 increased compared to the prior year primarily due to

higher gains recognized from the sales of investments.

Equity Earnings and Charges from Investment in Change Healthcare Joint Venture

Our investment in Change Healthcare JV is accounted for using the equity method of accounting. Excluding
the impairment and transaction-related items described below, our proportionate share of loss from our
investment in Change Healthcare JV for the years ended March 31, 2020, 2019 and 2018 was $119 million,
$194 million and $248 million, which primarily includes transaction and integration expenses incurred by the
joint venture and basis differences between the joint venture and McKesson including amortization of fair value
adjustments. 2018 also includes certain transaction expenses, 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 Cuts and Jobs Act (the “2017
Tax Act”). During the first quarter of 2020 and for the years ended March 31, 2019 and 2018, we owned
approximately 70% of this joint venture.

On June 27, 2019, common stock and certain other securities of Change began trading on the NASDAQ
(“IPO”). On July 1, 2019, upon the completion of its IPO, Change contributed net cash proceeds it received from
its offering of common stock to Change Healthcare JV in exchange for additional membership interests of

37

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Change Healthcare JV (“LLC Units”) at the equivalent of its offering price of $13 per share. The proceeds from
the concurrent offering of other securities were also used by Change to acquire certain securities of Change
Healthcare JV. As a result, McKesson’s equity interest in Change Healthcare JV was reduced to approximately
58.5%, which was used to recognize our proportionate share in net
loss from Change Healthcare JV,
commencing the second quarter of 2020. As a result of the ownership dilution to 58.5% from 70%, we
recognized a dilution loss of approximately $246 million in the second quarter of 2020. Additionally, our
proportionate share of income or loss from this investment was subsequently reduced as immaterial settlements
of stock option exercises occurred after the IPO and further diluted our ownership.

In the second quarter of 2020, we recorded an OTTI charge of $1.2 billion to our investment in Change
Healthcare JV, representing the difference between the carrying value of our investment and the fair value
derived from the corresponding closing price of Change’s common stock at September 30, 2019. This charge was
in Change Healthcare joint venture in our
included within equity earnings and charges from investment
consolidated statements of operations for the year ended March 31, 2020.

On March 10, 2020, we completed the previously announced separation of our interest

in Change
Healthcare JV. The separation was effected through the split-off of SpinCo, a wholly owned subsidiary of the
Company that held all of our interest in Change Healthcare JV, to certain of our stockholders through an
exchange offer (“Split-off”), followed by the merger of SpinCo with and into Change, with Change surviving the
merger (“Merger”).

In connection with the exchange offer, on March 9, 2020, we distributed all 176.0 million outstanding
shares of common stock of SpinCo to participating holders of the Company’s common stock in exchange for
15.4 million shares of McKesson common stock. Following consummation of the exchange offer, on March 10,
2020, the Merger was consummated, with each share of SpinCo common stock converted into one share of
Change common stock, par value $0.001 per share, with cash being paid in lieu of fractional shares of Change
common stock. The Split-off and Merger are intended to be generally tax-free transactions to McKesson and its
shareholders for U.S. federal income tax purposes. Following the Split-off, we do not beneficially own any of
Change’s outstanding securities. In connection with this transaction, we recognized an estimated gain for
financial reporting purposes of $414 million during the fourth quarter of 2020, which was largely driven by the
reversal of a related deferred tax liability.

After the separation, Change Healthcare JV is required under the TRA to pay McKesson 85% of the net
cash tax savings realized, or deemed to be realized, resulting from depreciation or amortization allocated to
Change by McKesson. The receipt of any payments under the TRA is dependent upon Change benefiting from
this depreciation or amortization in future tax return filings, which creates uncertainty over the amount, timing
and probability of the gain recognized. As such, we account for the TRA as a gain contingency, with no
receivable recognized as of March 31, 2020.

Loss on Debt Extinguishment

In 2018, we recognized a loss on debt extinguishment of $122 million 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 decreased in 2020 compared to the prior year primarily due to a decrease in the issuance of
commercial paper, partially offset by a decrease in interest income from our derivative contracts. Interest expense

38

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

decreased in 2019 compared to the prior year primarily due to the refinancing of debt at lower interest rates,
partially offset by an increase in the issuance of commercial paper. Interest 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 Tax (Expense) Benefit

We recorded income tax expense of $18 million and $356 million and tax benefit of $53 million related to
continuing operations for the years ended March 31, 2020, 2019 and 2018. Our reported income tax expense
rates were 1.6% and 58.4% in 2020 and 2019, and our income tax benefit rate was 22.2% in 2018.

Our reported income tax expense rate for 2020 was favorably impacted by an estimated gain on the Change
Healthcare JV divestiture of $414 million (pre-tax and after-tax), which was intended to generally be a tax-free
split-off for U.S. federal income tax purposes, and unfavorably impacted by charges of $275 million (pre-tax and
after-tax) to remeasure the carrying value of assets and liabilities held for sale related to the expected formation
of a new German wholesale joint venture within our European Pharmaceutical Solutions segment. Refer to
in Change Healthcare Joint Venture” and Note 3,“Held for Sale,” to the
Financial Note 2,“Investment
accompanying consolidated financial statements included in this Annual Report on Form 10-K for more
information.

Our reported income tax expense rate for 2019 was unfavorably impacted by charges of $1.8 billion (pre-tax
and after-tax) to impair the carrying value of goodwill for our European Pharmaceutical Solutions segment, given
that these charges are generally not deductible for tax purposes. The reported income tax benefit rate for 2018
was unfavorably impacted by the goodwill impairment charges of $1.7 billion (pre-tax and after-tax), given that
these charges are generally not deductible for tax purposes. Refer to Financial Note 14, “Goodwill and Intangible
Assets, Net,” to the accompanying consolidated financial statements included in this Annual Report on Form
10-K for additional information. As a result of the enactment of the 2017 Tax Act, the 2018 income tax benefit
rate included a tax benefit of $1.3 billion from the remeasurement of certain deferred taxes to the lower U.S.
federal tax rate, partially offset by a tax expense of $457 million representing the one-time tax imposed on
certain accumulated earnings and profits of our foreign subsidiaries.

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
U.K., 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.

Income (Loss) from Discontinued Operations, Net of Tax

Income (loss) from discontinued operations, net of tax, was a loss of $6 million for the year ended

March 31, 2020 and income of $1 million and $5 million for the years ended March 31, 2019 and 2018.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests primarily represents ClarusONE Sourcing Services LLP,
Vantage Oncology Holdings, LLC and the accrual of the annual recurring compensation amount of €0.83 per
McKesson Europe AG (“McKesson Europe”) share that McKesson is obligated to pay to the noncontrolling
shareholders of McKesson Europe under a domination and profit and loss transfer agreement (the “Domination

39

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

Agreement”). Noncontrolling interests with redemption features, such as put rights, that are not solely within our
control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented
outside of Stockholders’ Equity on our consolidated balance sheet. Refer to Financial Note 9, “Redeemable
Noncontrolling Interests and Noncontrolling Interests,” to the accompanying consolidated financial statements
included in this Annual Report on Form 10-K for additional information.

Net Income Attributable to McKesson Corporation

Net income attributable to McKesson Corporation was $900 million, $34 million and $67 million for the
years ended March 31, 2020, 2019 and 2018. Diluted earnings per common share attributable to McKesson
Corporation was $4.95, $0.17 and $0.32 for the years ended March 31, 2020, 2019 and 2018. Additionally, our
2020, 2019 and 2018 diluted earnings per share reflect the cumulative effects of share repurchases.

Weighted Average Diluted Common Shares

Diluted earnings per common share was calculated based on a weighted average number of shares
outstanding of 182 million, 197 million and 209 million for the years ended March 31, 2020, 2019 and 2018.
Weighted average diluted common shares outstanding is impacted by the exercise and settlement of share-based
awards and the cumulative effect of share repurchases, including the impact of shares exchanged as part of the
split-off from our investment in Change Healthcare JV, as discussed above.

Overview of Segment Results:

Revenues:

Years Ended March 31,

Change

(Dollars in millions)

2020

2019

2018

U.S. Pharmaceutical and Specialty Solutions

$183,341

$167,763

$162,587

27,390

27,242

27,320

8,305

7,618

6,611

12,015

11,696

11,839

$231,051

$214,319

$208,357

8%

2020

9%

1

9

3

2019

3%

—

15

(1)

3%

European Pharmaceutical Solutions

Medical-Surgical Solutions

Other

Total Revenues

U.S. Pharmaceutical and Specialty Solutions

2020 vs. 2019

U.S. Pharmaceutical and Specialty Solutions revenues for the year ended March 31, 2020 increased 9%
compared to the prior year primarily due to market growth, including branded pharmaceutical price increases,
higher volumes from retail national account customers and growth in specialty pharmaceuticals, partially offset
by brand to generic drug conversions.

2019 vs. 2018

U.S. Pharmaceutical and Specialty Solutions revenues for the year ended March 31, 2019 increased 3%
compared to the prior year primarily due to market growth, including expanded business with existing customers,
growth of specialty pharmaceuticals and our business acquisitions, partially offset by loss of customers.

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FINANCIAL REVIEW (Continued)

European Pharmaceutical Solutions

2020 vs. 2019

European Pharmaceutical Solutions revenues for the year ended March 31, 2020 increased 1% compared to
the prior year. Excluding the unfavorable effect of foreign currency exchange fluctuations, revenues for this
segment increased 4% primarily due to market growth in our pharmaceutical distribution business.

2019 vs. 2018

European Pharmaceutical Solutions revenues remained flat for the year ended March 31, 2019 compared to
the prior year. Excluding the unfavorable effect of foreign currency exchange fluctuations, revenues for this
segment increased 1% primarily due to market growth, partially offset by the impact of retail pharmacy closures
and additional government reimbursement reductions in the U.K., and the competitive environment in France.

Medical-Surgical Solutions

2020 vs. 2019

Medical-Surgical Solutions revenues for the year ended March 31, 2020 increased 9% compared to the prior

year primarily due to market growth in our primary care business.

2019 vs. 2018

Medical-Surgical Solutions revenues for the year ended March 31, 2019 increased 15% compared to the

prior year primarily due to our 2019 first quarter acquisition of MSD and market growth.

Other

2020 vs. 2019

Revenues in Other for March 31, 2020 increased 3% compared to the prior year primarily due to market

growth in our Canadian and MRxTS businesses.

2019 vs. 2018

Revenues in Other for the year ended March 31, 2019 decreased 1% compared to the prior year primarily
due to unfavorable effects of foreign currency exchange fluctuations of 2% and the effect of government imposed
generic price cuts and retail pharmacy closures related to our Canadian business. In addition, revenues in Other
for 2019 were negatively impacted by the 2018 sale of our EIS business. These decreases are partially offset by
growth in our Canadian and MRxTS businesses and the effects of acquisitions in Canada.

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FINANCIAL REVIEW (Continued)

Segment Operating Profit and Corporate Expenses, Net:

(Dollars in millions, except ratios)

2020

2019

2018

2020

2019

Years Ended March 31,

Change

Segment Operating Profit (Loss) (1)

U.S. Pharmaceutical and Specialty

Solutions

$ 2,767

$ 2,697

$ 2,535

(1,978)

(1,681)

European Pharmaceutical Solutions (2)

Medical-Surgical Solutions

Other (3)

Subtotal

Corporate Expenses, Net (4)

Loss on Debt Extinguishment

Interest Expense

(261)

499

(595)

2,410

(1,017)

—

(249)

455

394

1,568

(694)

—

(264)

3%

(87)

10

461

(107)

(251)

1,208

(564)

(122)

(283)

54

47

NM

(6)

6%

18

(1)

468

30

23

(100)

(7)

Income from Continuing Operations Before

Income Taxes

$ 1,144

$

610

$

239

88%

155%

Segment Operating Profit (Loss) Margin

U.S. Pharmaceutical and Specialty

Solutions

European Pharmaceutical Solutions

Medical-Surgical Solutions

bp — basis points
NM — not meaningful

1.51%

1.61%

1.56%

(10)bp

5bp

(0.95)

6.01

(7.26)

5.97

(6.15)

6.97

631

4

(111)

(100)

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

(expense), net, for our reportable segments and Other.

(2) Operating loss of our European Pharmaceutical Solutions segment for the year ended March 31, 2020
includes charges of $275 million to remeasure to fair value the assets and liabilities of our German
wholesale business to be contributed to a joint venture as well as long-lived asset impairment charges of
$82 million. This segment’s operating loss for the years ended March 31, 2019 and 2018 include goodwill
impairment charges of $1.8 billion and $1.3 billion as well as long-lived asset impairment charges of
$210 million and $446 million.

(3) Operating loss for Other for the year ended March 31, 2020 includes an impairment charge of $1.2 billion
and a dilution loss of $246 million related to our investment in Change Healthcare JV, partially offset by an
estimated gain of $414 million related to the completed separation of our interest in Change Healthcare JV
during the fourth quarter of 2020.

(4) Corporate expenses, net for the year ended March 31, 2020 includes a pension settlement charge of

$122 million and a settlement charge of $82 million related to opioid claims.

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FINANCIAL REVIEW (Continued)

U.S. Pharmaceutical and Specialty Solutions

2020 vs. 2019

Operating profit increased for the year ended March 31, 2020 compared to the prior year primarily due to
market growth in our specialty business. Operating profit and operating profit margin were favorably impacted
by a charge related to a customer bankruptcy in 2019 and higher LIFO credits in 2020. Operating profit and
operating profit margin were unfavorably impacted by customer mix and lower net cash proceeds received of
$22 million in 2020 compared to $202 million in 2019 representing our share of antitrust legal settlements.

2019 vs. 2018

Operating profit increased for the year ended March 31, 2019 compared to the prior year primarily due to
market growth, including growth in our specialty business, partially offset by loss of customers. Operating profit
and operating profit margin for 2019 benefited from the net cash proceeds of $202 million representing our share
of antitrust legal settlements and higher LIFO credits of $210 million in 2019 compared to $99 million in 2018,
partially offset by a $61 million charge related to a customer bankruptcy.

European Pharmaceutical Solutions

2020 vs. 2019

Operating loss and operating loss margin improved for the year ended March 31, 2020 compared to the prior
year primarily due to 2019 goodwill
impairment charges of $1.8 billion and decreased long-lived asset
impairment charges of $82 million in 2020 compared to $210 million in 2019, partially offset by 2020 charges of
$275 million for the fair value remeasurement related to our German wholesale business to be contributed to a
joint venture.

2019 vs. 2018

Operating loss and operating loss margin were negatively impacted for the year ended March 31, 2019
compared to the prior year primarily due to goodwill impairment charges of $1.8 billion in 2019 compared to
$1.3 billion in 2018, the effect of government reimbursement reductions and lower sales volume in the U.K., and
increased competition in France. This was partially offset by market growth and long-lived asset impairment
charges of $210 million in 2019 compared to $446 million in 2018.

Medical-Surgical Solutions

2020 vs. 2019

Operating profit and operating profit margin increased for the year ended March 31, 2020 compared to prior
year primarily due to market growth in our primary care business and lower restructuring charges, partially offset
by the remeasurement of assets and liabilities to fair value related to a divestiture that was completed in the
fourth quarter of 2020 and higher operating expenses, including an increase in our provision for bad debts.

2019 vs. 2018

Operating profit decreased for the year ended March 31, 2019 compared to the prior year primarily due to
higher restructuring charges, partially offset by market growth. Operating profit margin for 2019 decreased
primarily due to higher restructuring charges and changes in our mix of business, partially offset by ongoing cost
management.

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FINANCIAL REVIEW (Continued)

Other

Operating profit for Other decreased for 2020 and increased in 2019 compared to the respective prior years.
Operating profit for Other for the years ended March 31, 2020, 2019 and 2018 were affected by the following
significant items:

2020

• OTTI charge of $1.2 billion and the dilution loss of $246 million related to our investment in Change
Healthcare JV both recognized in the second quarter of 2020, partially offset by an estimated gain of
$414 million related to the completed separation of our interest in Change Healthcare JV during the
fourth quarter of 2020;

• Long-lived asset impairment charges of $30 million recognized for Rexall Health; and

• Market growth in our MRxTS and Canadian businesses.

2019

• Market growth in our MRxTS business;

• Lower operating profit due to the 2018 sale of our EIS business;

• Gain from an escrow settlement of $97 million related to our 2017 acquisition of Rexall Health;

• Credit of $90 million for the derecognition of a liability related to the TRA payable to the shareholders

of Change;

• Higher restructuring and asset impairment charges related to closures of our retail pharmacy stores in

Canada;

• Lower amount of our proportionate share of losses from our equity method investment in Change

Healthcare JV during 2019;

• Goodwill and long-lived asset impairment charges of $56 million recognized for Rexall Health;

• Gain of $56 million from the divestiture of an equity investment; and

• Government imposed generic price cuts in Canada.

2018

• Lower operating profit due to the 2017 contribution of the Core MTS Business to the Change

Healthcare JV;

• Goodwill charges of $455 million and long-lived asset impairment charges of $33 million recognized

for Rexall Health;

• Market growth in our MRxTS business;

• Our proportionate share of losses from our equity method investment in Change Healthcare JV during

2018;

$109 million gain from the sale of our EIS business in 2018;

$46 million credit representing a reduction of our TRA liability related to the adoption of the 2017 Tax
Act; and

•

•

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FINANCIAL REVIEW (Continued)

• Gain of $37 million resulting from the finalization of net working capital and other adjustments related

to the contribution of the Core MTS Business to Change Healthcare JV.

Corporate

2020 vs. 2019

Corporate expenses, net, increased for the year ended March 31, 2020 compared to the prior year primarily
due to a $122 million pension settlement charge, an $82 million opioid claim settlement charge and higher costs
for technology initiatives, partially offset by higher net settlement gains in 2020 from our derivative contracts.
Corporate expenses, net, for 2020 also included charitable contribution expenses of approximately $20 million
primarily for the McKesson Foundation.

2019 vs. 2018

Corporate expenses, net, increased for the year ended March 31, 2019 compared to the prior year primarily
due to an increase in opioid-related costs, higher restructuring-related charges and costs for technology
initiatives. Corporate expenses, net, for 2018 included a charitable contribution expense of $100 million for the
Foundation.

Foreign Operations

Our foreign operations represented approximately 17% of our consolidated revenues in 2020 and
approximately 18% in each of 2019 and 2018. 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 24, “Segments of Business,” to the consolidated financial
statements appearing in this Annual Report on Form 10-K.

Business Combinations

Refer to Financial Note 5, “Business Acquisitions and Divestitures,” to the consolidated financial statements

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

Fiscal 2021 Outlook

Information regarding the Company’s fiscal 2021 outlook is contained in our Form 8-K dated
May 20, 2020. That Form 8-K should be read in conjunction with the forward-looking statements in Item 7 —
Trends and Uncertainties, and the cautionary statements in Item 1 — Business — Forward-Looking Statements
and Item 1A — Risk Factors in Part I of this Annual Report on Form 10-K.

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FINANCIAL REVIEW (Continued)

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.

Sales to the Company’s ten largest customers, including GPOs, accounted for approximately 51% of total
consolidated revenues in 2020 and comprised approximately 37% of total
trade accounts receivable at
March 31, 2020. Sales to our largest customer, CVS Health Corporation (“CVS”), accounted for approximately
20% of our total consolidated revenues in 2020 and comprised approximately 20% of total trade accounts
receivable March 31, 2020. 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.
With many of our customers anticipating extended declines in their businesses due to COVID-19, we are
monitoring closely for trends that may impact their timing or ability to pay amounts owed to us. We believe the
reserves maintained and expenses recorded in 2020 are appropriate and consistent in the context of historical
methodologies employed, as well as assessment of trends currently available.

At March 31, 2020, trade and notes receivables were $17.6 billion prior to allowances of $252 million. In
2020, 2019 and 2018, our provision for bad debts was $91 million, $132 million and $44 million. At March 31,
2020 and 2019, the allowance as a percentage of trade and notes receivables was 1.4% and 1.8%. An increase or

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

decrease of a hypothetical 0.1% in the 2020 allowance as a percentage of trade and notes receivables would result
in an increase or decrease in the provision for bad debts of approximately $18 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: Inventories consist of merchandise held for resale. 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, last-out (“LIFO”) method which are
valued at the lower of LIFO cost or market. LIFO method presumes that the most recent inventory purchases are
the first items sold and the inventory cost under LIFO approximates market. The majority of the cost of domestic
inventories is determined using the LIFO method. The majority of the cost of inventories held in foreign and
certain domestic locations is based on first-in, first-out (“FIFO”) method and weighted average purchase prices.
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.

At March 31, 2020 and 2019, total inventories, net were $16.7 billion on our consolidated balance sheets.
The LIFO method was used to value approximately 60% and 62% of our inventories at March 31, 2020 and
2019. If we had used the moving average method of inventory valuation,
inventories would have been
approximately $444 million and $696 million higher than the amounts reported at March 31, 2020 and 2019.
These amounts are equivalent to our LIFO reserves. Our LIFO valuation amount includes both pharmaceutical
and non-pharmaceutical products. We recognized LIFO credits of $252 million, $210 million and $99 million in
2020, 2019 and 2018 in 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
including the effect of branded pharmaceutical products that have lost market
impact of price declines,
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 moving 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, 2020 and 2019, inventories at LIFO did not exceed market.

In determining whether an 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: The Company accounts for business combinations using the acquisition method of
accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling
interest in the acquired business, are recorded at their estimated fair values as of the date that the Company
obtains control of the acquired business. Any purchase consideration in excess of the estimated fair values of the
net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are
expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, we typically use a method that is a form or variation of the income approach,

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

whereby a forecast of future cash flows attributable to the asset are discounted to present value using a risk-
adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach
include the amount and timing of projected future cash flows, the discount rate selected to measure the risks
inherent in the future cash flows and the assessment of the asset’s expected useful life. Refer to Financial Note 5,
“Business Acquisitions and Divestitures,” to the consolidated financial statements included 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 $9.4 billion of goodwill at
March 31, 2020 and 2019, and $3.2 billion and $3.7 billion of intangible assets, net at March 31, 2020 and 2019.
On October 1, 2019, we voluntarily changed our annual goodwill impairment testing date from January 1 to
October 1 to better align with the timing of our annual long-term planning process. This change was not material
to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill
impairment charge. Refer to Note 14, “Goodwill and Intangible Assets, Net,” to the consolidated financial
statements included in this Annual Report on Form 10-K for further information.

We perform an impairment test on goodwill balances annually 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 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
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair
value, if any, up to the amount of goodwill the entity has recorded.

To estimate the fair value of our reporting units, we generally 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
rate that is commensurate with the risk inherent within the reporting unit. 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 testing 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 rates 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. Under the market approach, significant estimates and
assumptions also include the selection of appropriate guideline companies and the determination of appropriate

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McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

valuation multiples to apply to the reporting unit. Under the income approach, significant estimates and
assumptions also includes the determination of discount rates. The discount rates represent the weighted average
cost of capital measuring the reporting unit’s cost of debt and equity financing, which are weighted by the
percentage of debt and percentage of equity in a company’s target capital structure. Included in the estimate of
the weighted average cost of capital is the assumption of an unsystematic risk premium to address incremental
uncertainty related to the reporting units’ future cash flow projections. An increase in the unsystematic risk
premium increases the discount rate.

Based on the 2019 annual goodwill impairment tests, the estimated fair values of our reporting units
excluding the Retail Pharmacy (formerly, Consumer Solutions) and Pharmaceutical Distribution (formerly,
Pharmacy Solutions) reporting units in our European Pharmaceutical Solutions segment exceeded their carrying
values. However, other risks, expenses and future developments, such as additional government actions,
increased regulatory uncertainty and material changes in key market assumptions that we were unable to
anticipate as of the testing date may require us to further revise the projected cash flows, which could adversely
affect the fair value of our other reporting units in future periods. The estimated fair value of our McKesson
Canada reporting unit within Other exceeded the carrying value of this reporting unit by 11% in 2020. The
goodwill balance of this reporting unit was $1.4 billion at March 31, 2020 or approximately 15% of the
consolidated goodwill balance. Generally, a decline in estimated future cash flows in excess of 12% or an
increase in the discount rate in excess of 1% could result in an indication of goodwill impairment for this
reporting unit in future reporting periods. Refer to Financial Note 14, “Goodwill and Intangible Assets, Net,” to
the consolidated financial statements appearing in this Annual Report on Form 10-K for additional information.

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
the carrying value of the assets may not be recoverable. Determination of
circumstances indicate that
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 group 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.

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, Impairment
and Related Charges” to the consolidated financial statements appearing in this Annual Report on Form 10-K for
additional information.

Equity Method Investments: We evaluate our investments for other-than-temporary impairments when
circumstances indicate those assets may be impaired. When the decline in value is deemed to be other than
temporary, an impairment is recognized to the extent that the fair value is less than the carrying value of the
investment. We consider various factors in determining whether a loss in value of an investment is other than
temporary including: the length of time and the extent to which the fair value has been below cost; the financial
condition of the investees, and our intent and ability to retain the investment for a period of time sufficient to
allow for recovery of value. Management makes certain judgments and estimates in its assessment including but
not limited to: identifying if circumstances indicate a decline in value is other than temporary, expectations about
the business operations of investees, as well as industry, financial and market factors. Any significant changes in
assumptions or judgments in assessing impairments could result in an impairment charge.

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FINANCIAL REVIEW (Continued)

Restructuring Charges: We have certain restructuring reserves which require significant estimates related to
the timing and amount of future employee severance and other exit-related costs to be incurred when the
restructuring actions take place. We generally recognize employee severance costs 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. In connection with these restructuring actions, we also assess the recoverability of long-lived assets
used in the business, and as a result, we may recognize accelerated depreciation reflecting shortened useful lives
of the underlying assets.

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 and include those used to conclude on the
tax-free nature of the separation of the Change Healthcare JV. 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
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, 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.

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
material loss is reasonably possible or probable but a reasonable estimate cannot be made, disclosure of the
proceeding is provided. Legal fees are recognized as incurred when the legal services are provided.

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FINANCIAL REVIEW (Continued)

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. In conjunction with the preparation of the accompanying financial
statements, we considered matters related to ongoing controlled substances claims to which we are a party. While
we are not able to predict the outcome or reasonably estimate a range of possible losses in these matters, an
adverse judgment or negotiated resolution in any of these matters could have a material adverse effect on our
results of operations, consolidated financial position, cash flows or liquidity. Refer to Financial Note 21,
“Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual
Report on Form 10-K for additional information.

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 program, will be sufficient
to fund our long-term and short-term capital expenditures, working capital and other cash requirements. As
described within “Trends and Uncertainties” above, the COVID-19 pandemic is developing rapidly. We continue
to monitor its impact on demand within parts of our business, as well as trends potentially impacting the timing
or ability for some of our customers to pay amounts owed to us. We remain well-capitalized with access to
liquidity from our revolving credit facility. Additionally, long-term debt markets and commercial paper markets,
our primary sources of capital after cash flow from operations, have remained open during the COVID-19
pandemic. While there are signs of stress in both markets, we do not have an immediate need to access these
markets and could use our revolving credit facility to meet any near-term liquidity needs. We have seen some
improvement in conditions in the debt markets and commercial paper markets as the Federal Reserve has taken
steps to stabilize the markets. We believe we have the ability to meet the covenants of our credit agreements.

The following table summarizes the net change in cash, cash equivalents and restricted cash for the periods

shown:

(Dollars in millions)

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Years Ended March 31,

Change

2020

2019

2018

2020

2019

$ 4,374

$ 4,036

$ 4,345

$ 338

$ (309)

(579)

(1,381)

(2,993)

802

1,612

(2,734)

(2,227)

(3,084)

(507)

857

Effect of exchange rate changes on cash, cash equivalents

and restricted cash

(19)

(119)

150

100

(269)

Net change in cash, cash equivalents and restricted cash

$ 1,042

$

309

$(1,582)

$ 733

$1,891

Operating Activities

Net cash provided from operating activities was $4.4 billion, $4.0 billion and $4.3 billion for the years
ended March 31, 2020, 2019 and 2018. 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

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FINANCIAL REVIEW (Continued)

for the year ended March 31, 2020 were affected by increases in drafts and accounts payable primarily associated
with timing, replenishing inventory stocks and effective working capital management, and an increase in
receivables primarily due to revenue growth. Operating activities for the year ended March 31, 2019 were
primarily affected by an increase in receivables due to the overall increase in sales volume and timing of receipts,
and increases in drafts and accounts payable, primarily due to increased inventory purchases and timing of
payments. Operating activities for the year ended March 31, 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.

During the year ended March 31, 2020, we made a cash payment of $114 million from the executive benefit
retirement plan. Other non-cash items within operating activities for the year ended March 31, 2020 primarily
includes fair value remeasurement charges of $275 million related to our German wholesale business to be
contributed to a joint venture, a pension settlement charge of $122 million and stock-based compensation of
$119 million.

Investing Activities

Net cash used in investing activities was $579 million, $1.4 billion and $3.0 billion for the years ended
March 31, 2020, 2019 and 2018. Investing activities for the year ended March 31, 2020 include $362 million and
$144 million in capital expenditures for property, plant and equipment, and capitalized software and $133 million
of net cash payments for acquisitions.

Investing activities for the year ended March 31, 2019 include $905 million of net cash payments for
acquisitions, including $784 million for our acquisition of MSD, $426 million and $131 million in capital
expenditures for property, plant and equipment, and capitalized software, and $101 million of net cash proceeds
from sales of businesses and investments.

Investing activities for the year ended March 31, 2018 include $2.9 billion of net cash payments for
acquisitions,
including $1.3 billion and $720 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 investments and
$126 million cash payment received related to the Healthcare Technology Net Asset Exchange.

Financing Activities

Net cash used in financing activities was $2.7 billion, $2.2 billion and $3.1 billion for the years ended
March 31, 2020, 2019 and 2018. Financing activities for the year ended March 31, 2020 include cash receipts of
$21.4 billion and payments of $21.4 billion from short-term borrowings, primarily commercial paper. Financing
activities for the year ended March 31, 2020 also include $2.0 billion of cash paid for stock repurchases,
repayments of long-term debt of $298 million and $294 million of dividends paid.

Financing activities for the year ended March 31, 2019 include cash receipts of $37.3 billion and payments
of $37.3 billion from short-term borrowings, primarily commercial paper. We received cash from long-term debt
issuances of $1.1 billion and made repayments on long-term debt of $1.1 billion in 2019. Financing activities for
the year ended March 31, 2019 also include $1.6 billion of cash paid for stock repurchases and $292 million of
dividends paid.

Financing activities for the year ended March 31, 2018 include cash receipts of $20.5 billion and payments
of $20.7 billion from short-term borrowings, primarily commercial paper. We received cash from long-term debt

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FINANCIAL REVIEW (Continued)

issuances of $1.5 billion and made repayments on long-term debt of $2.3 billion in 2018. Financing activities for
the year ended March 31, 2018 also include $1.7 billion of cash paid for stock repurchases, $262 million of
dividends paid and $112 million of payments for debt extinguishment.

Share Repurchase Plans

The Company’s Board has authorized the repurchase of McKesson’s common stock from time-to-time in
open market transactions, privately negotiated transactions, 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.

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 1.0 million shares in the first quarter of 2019 under the
March 2018 ASR program. In 2019, we repurchased 10.4 million of our shares through open market transactions
and 2.1 million of our shares through the December 2018 ASR program.

In 2019, we retired 5.0 million or $542 million 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 $472 million and $70 million during 2019.

In 2020, we repurchased 9.2 million of the Company’s shares for $1.3 billion through open market
transactions at an average price per share of $144.68. We also entered into an ASR program with a third-party
financial institution to repurchase $600 million of the Company’s common stock. The total number of shares
repurchased under this ASR program was 4.7 million shares at an average price per share of $127.68.

On March 9, 2020, we completed the Split-off of our interest in the Change Healthcare JV. In connection
with the Split-off, we distributed all 176.0 million outstanding shares of SpinCo common stock, which held all of
the Company’s interests in the Change Healthcare JV, to participating holders of the Company’s common stock
in exchange for 15.4 million shares of McKesson stock, which are now held as treasury stock on our consolidated
balance sheet. Following consummation of the exchange offer, on March 10, 2020, SpinCo merged with and into
Change with each share of SpinCo common stock converted into one share of Change common stock, par value
$0.001 per share, with cash being paid in lieu of fractional shares of Change common stock. See Note 2,
“Investment
in Change Healthcare Joint Venture” to the accompanying consolidated financial statements
included in this Annual Report on Form 10-K for more information.

(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,

2020

2019

2018

13.9

13.5

10.5

$138.94

$130.72

$151.06

$ 1,934

$ 1,627

$ 1,650

(1) Excludes shares surrendered for tax withholding and shares related to the Company’s Split-off of the

Change Healthcare JV described above.

The total authorization outstanding for repurchase of the Company’s common stock was $1.5 billion at

March 31, 2020.

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FINANCIAL REVIEW (Continued)

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. As described within
“Trends and Uncertainties” above, the COVID-19 pandemic is developing rapidly. We continue to monitor its
impact on demand within parts of our business, as well as trends potentially impacting the timing or ability for
some of our customers to pay amounts owed to us.

Selected Measures of Liquidity and Capital Resources:

(Dollars in millions, except ratios)

Cash, cash equivalents and restricted cash

Working capital

Debt to capital ratio (1)

Return on McKesson stockholders’ equity (2)

March 31,

2020

2019

2018

$4,023

$2,981

$2,672

(402)

52.1%

13.3%

839

451

43.3%

40.6%

0.4%

0.6%

(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.

Cash equivalents, which are readily convertible to known amounts of cash, are carried at fair value. Cash
equivalents are primarily invested in AAA-rated U.S. government money market funds and overnight deposits
with financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the
functional currencies of our foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars.
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.

Our cash and cash equivalents balance as of March 31, 2020 and 2019 included approximately $1.7 billion
and $1.5 billion of cash held by our subsidiaries outside of the United States. Our primary intent is to utilize this
cash for foreign operations for an indefinite period of time. Although the vast majority of cash held outside the
United States is available for repatriation, doing so could subject us to foreign withholding taxes and state
income taxes. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the United
States is generally no longer taxable for federal income tax purposes.

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 and other current liabilities. We
require 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. The COVID-19 pandemic has potential to increase the variations in our working
capital, which we will continue to monitor closely.

Consolidated working capital decreased at March 31, 2020 compared to the prior year primarily due to an
increase in drafts and accounts payable and an increase in the current portion of long-term debt for term notes

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FINANCIAL REVIEW (Continued)

due in 2021, partially offset by an increase in receivables and cash and cash equivalents. Consolidated working
capital increased at March 31, 2019 compared to the prior year primarily due to an increase in the cash and cash
equivalents, receivables, inventories and a decrease in current portion of long-term debt, partially offset by an
increase in drafts and accounts payable.

Our debt to capital ratio increased for 2020 primarily due to decrease in stockholders’ equity driven by the
Split-off of our interest in Change Healthcare JV and share repurchases. Our debt to capital ratio increased for
2019 primarily due to a decrease in stockholder’s equity driven by share repurchases.

In July 2019, we raised our quarterly dividend from $0.39 to $0.41 per common share for dividends
declared on or after such date by the Board. Dividends were $1.62 per share in 2020, $1.51 per share in 2019 and
$1.30 per share in 2018. We anticipate that we 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 our future earnings, financial condition, capital requirements and other factors. In 2020, 2019 and
2018, we paid total cash dividends of $294 million, $292 million and $262 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.

Contractual Obligations:

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

March 31, 2020:

(In millions)

On balance sheet

Long-term debt (1)

Operating lease obligations (2)

Other (3)

Off balance sheet

Interest on borrowings (4)

Purchase obligations (5)

Other (6)

Total

Total

Within 1

Over 1 to 3 Over 3 to 5

After 5

Years

$ 7,387

$1,052

$1,517

$1,128

$3,690

2,274

284

1,824

6,964

403

398

39

228

6,889

222

681

64

384

48

30

465

50

298

27

42

730

131

914

—

109

$19,136

$8,828

$2,724

$2,010

$5,574

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

lease obligations.

(2) Represents undiscounted minimum operating lease obligations under non-cancelable operating leases
having an initial remaining term over one year and is not adjusted for imputed interest. Refer to Financial
Note 13, “Leases” to the consolidated financial statements appearing in this Annual Report on Form 10-K
for more information.
Includes our estimated benefit payments for the unfunded benefit plans and minimum funding requirements
for the pension plans.

(3)

(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 and capital
commitments.

55

McKESSON CORPORATION

FINANCIAL REVIEW (Continued)

(6)

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, 2020, the liability recorded for uncertain tax positions, excluding associated interest and
penalties, was approximately $784 million. The ultimate amount and timing of any related future cash
settlements cannot be predicted with reasonable certainty.

Our banks and insurance companies have issued $170 million of standby letters of credit and surety bonds at
March 31, 2020. 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 $1.4 billion at
March 31, 2020, which exceeded the maximum redemption value of $1.2 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. The Compensation Amount is recognized ratably during the applicable
annual period. The Domination Agreement does not expire, but it may be terminated at the end of any fiscal year
by giving at least six month’s advance notice.

Refer to Financial Note 9, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the

consolidated financial statements included 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 15, “Debt and Financing Activities,” to the consolidated
financial statements included 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 2,
in Change Healthcare Joint Venture,” and Financial Note 23, “Related Party Balances and

“Investment
Transactions,” to the consolidated financial statements included in this Annual Report on Form 10-K.

56

McKESSON CORPORATION

FINANCIAL REVIEW (Concluded)

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.

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, 2020 and 2019, we had
$4.0 billion and $3.0 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 2020 and 2019 of approximately $6.0 million and
$4.0 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, 2020 and 2019, 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
$435 million and $581 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 18, “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.

57

Item 8.

Financial Statements and Supplementary Data.

McKESSON CORPORATION

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, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended March 31, 2020, 2019 and

2018

Consolidated Balance Sheets as of March 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019 and 2018

Financial Notes

Page

59

60

65

66

67

68

69

70

58

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, 2020.

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, 2020. This audit report appears on page 60 of this Annual Report
on Form 10-K.

May 22, 2020

/s/ Brian S. Tyler
Brian S. Tyler
Chief Executive Officer
(Principal Executive Officer)

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

59

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 related consolidated statements of operations,
(the “Company”) as of March 31, 2020 and 2019,
comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended
March 31, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2020, 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, 2020, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 13 to the financial statements, effective April 1, 2019, the Company adopted the
Financial Accounting Standards Board’s (“FASB”) new standard related to leases using the modified
retrospective basis.

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.

60

McKESSON CORPORATION

Definition and Limitations of Internal Control over Financial Reporting

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the
financial statements that were communicated or required to be communicated to the audit committee and that
(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any
way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.

Contingent Liabilities — Litigation and Claims involving Distribution of Controlled Substances — Refer to
Note 21 to the financial statements

Critical Audit Matter Description

The Company and its affiliates are defendants in many cases asserting claims related to distribution of
controlled substances, including opioids. The Company is named as a defendant along with other pharmaceutical
wholesale distributors, pharmaceutical manufacturers and retail pharmacy chains. The plaintiffs in these actions
include state attorneys general, county and municipal governments, hospitals, Indian tribes, pension funds, third-
party payors and individuals. When a loss is considered probable and reasonably estimable, the Company records
a liability in the amount of its estimate for the ultimate loss. The Company reviews all loss contingencies at least
quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of
the loss or range of loss can be made. The Company also performs an assessment of loss contingencies where a
loss is reasonably possible. If it is reasonably possible that a loss may have been incurred and the effect on the
financial statements could be material, the Company discloses the nature of the loss contingency and an estimate
of the possible loss or range of loss or a statement that such an estimate cannot be made within the notes to the
financial statements. As of March 31, 2020, the Company has determined that a liability associated with these
claims, whether through settlement or litigation, is not probable and a loss or range of loss is not reasonably
estimable.

We identified litigation and claims involving the distribution of controlled substances as a critical audit
matter because of the challenges auditing management’s judgments applied in determining the likelihood of loss
related to the resolution of such claims. Specifically, auditing management’s determination of whether any

61

McKESSON CORPORATION

contingent loss arising from the related litigation and claims is probable, reasonably possible, or remote, and the
related disclosures, is subjective and requires significant judgment due to the large number of parties involved,
together with the novelty and complexity of the issues.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to litigation and claims involving distribution of controlled substances included

the following, among others:

• We tested the effectiveness of internal controls related to management’s review of litigation and claims
involving the distribution of controlled substances, and approval of the accounting treatment and
related disclosures based on the most recent facts and circumstances.

• We inquired of the Company’s internal and external legal counsel to understand the basis for the
Company’s conclusion that any potential loss from the litigation and claims involving the distribution
of controlled substances, including through broad resolution via settlement, is neither probable nor
reasonably estimable as of March 31, 2020. In addition, we requested and received a written response
from internal and external legal counsel as it relates to litigation and claims involving the distribution
of controlled substances.

• We evaluated management’s analysis of litigation and claims involving the distribution of controlled
substances, read Board of Directors meeting minutes, including relevant sub-committee meeting
minutes, and compared to responses from internal and external counsel. As part of our procedures, we
also performed public domain searches for evidence contrary to management’s analysis.

• We compared the Company’s assessment of

legal
contingencies that have been settled or otherwise resolved to evaluate the consistency of the
Company’s assessment of litigation and claims involving the distribution of controlled substances at
March 31, 2020.

to relevant history of similar

this matter

• We consulted with our auditing and accounting experts to assist in our evaluation of the case facts and
the Company’s related accounting treatment for the litigation and claims involving the distribution of
controlled substances.

• We evaluated any events subsequent to March 31, 2020 that might impact our evaluation of litigation
including any related accrual or

and claims involving the distribution of controlled substances,
disclosure.

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

• We read the Company’s related disclosures and evaluated them for consistency with our testing.

Goodwill — Refer to Note 14 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves comparing the carrying amount of each
reporting unit to its fair value on the first day of the third fiscal quarter or whenever the Company believes a
potential indicator of impairment requiring a more frequent assessment has occurred. The Company uses a
combination of the income and market approaches to estimate reporting unit fair value. Under the market
approach, fair value is estimated by comparing the business to similar businesses, or guideline companies whose
securities are actively traded in public markets. Under the income approach, the Company uses a discounted cash
flow (“DCF”) model where cash flows anticipated over future periods, plus a terminal value at the end of that
time horizon, are discounted to their present value using an appropriate rate that is commensurate with the risk

62

McKESSON CORPORATION

inherent within the reporting unit. The rate used to discount to present value includes an unsystematic risk
premium, which is intended to address uncertainty related to the reporting unit’s future cash flow projections.
The goodwill balance was $9.4 billion as of March 31, 2020, of which $1.4 billion was allocated to the
McKesson Canada reporting unit. The fair value of all reporting units exceeded their respective carrying amounts
as of the measurement date and, therefore, no impairment was recognized.

We identified the estimation of the fair value of the McKesson Canada reporting unit used to evaluate the
recoverability of goodwill as a critical audit matter because of the challenges auditing significant judgments used
in the selection of a discount rate, including the unsystematic risk premium. In particular, the fair value estimate
is sensitive to the unsystematic risk premium assumption, which is affected by expected risk of changes in the
Canadian business and regulatory environments. Auditing management’s selected discount rate required a high
degree of auditor judgment and an increased extent of effort, including the need to involve more senior members
of the team and our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s selection of a discount rate, including consideration of the

unsystematic risk premium, for the McKesson Canada reporting unit included the following, among others:

• We tested the effectiveness of internal controls related to management’s goodwill

impairment
including those related to the selection of a discount rate and consideration of an

evaluation,
unsystematic risk premium.

• We evaluated management’s ability to accurately forecast operating results for the McKesson Canada
reporting unit by comparing actual results to management’s historical forecasts, in order to consider the
reasonableness and adequacy of management’s selected unsystematic risk premium.

• As part of our assessment of the unsystematic risk premium, we evaluated the reasonableness of
strategic plans expected to be implemented during the forecast period by comparing the forecasts to:

• Actual results of historical strategic plans

•

Internal communications to management and the Board of Directors

• With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate,
including the unsystematic risk premium, by developing a range of independent estimates, testing the
mathematical accuracy of the calculation and comparing to the discount rate selected by management.

Investment in Change Healthcare Joint Venture — Tax-free Separation of Change Healthcare JV — Refer
to Note 2 to the financial statements

Critical Audit Matter Description

On March 10, 2020, the Company completed the previously announced separation of its interest in the
Change Healthcare Joint Venture (“Joint Venture”). The separation was effected through the split-off of a wholly
owned subsidiary of the Company (“SpinCo”) that held all of the Company’s interest in the Joint Venture, to
certain of the Company’s stockholders through an exchange offer (“Split-off”), followed by the merger of
SpinCo with and into Change Healthcare Inc. (“Change”), with Change surviving the merger (“Merger”).

In connection with the Split-off, on March 9, 2020, the Company distributed all outstanding shares of
common stock of SpinCo to participating stockholders in exchange for shares of the Company common stock.
Following consummation of the Split-off, on March 10, 2020 the Merger was consummated. The Split-off and
Merger are intended to be generally tax-free transactions for U.S. Federal income tax purposes. Following the
Split-off, the Company does not beneficially own any of Change’s outstanding securities.

63

McKESSON CORPORATION

We identified the classification of the Split-off and Merger as a tax-free transaction for US Federal income
tax purposes to be a critical audit matter because of the complexity of the interpretation and application of the
Internal Revenue Code (“Code”), the materiality of the potential tax consequences, and the need to involve our
income tax specialists when performing audit procedures to evaluate the U.S. Federal taxability of the Split-Off
and Merger.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the evaluation of the U.S Federal taxability of the Split-Off and Merger

included the following, among others:

• We tested the effectiveness of controls over management’s evaluation of the Split-Off and Merger as

tax free for U.S. Federal income tax.

• We inspected the opinion from the Company’s outside legal counsel and external tax advisor that
management utilized in forming their conclusions on U.S. Federal taxability of the Split-off and
Merger, including certain interpretations of the Code and related statutes.

• We inspected meeting minutes of the Board of Directors and its committees, income tax filings,
support from external advisors, historical financial results of the Company and the Joint Venture, and
contracts associated with the Split-off and Merger for corroborating or contradictory evidence.

• We obtained written representations from management concerning management’s intent associated
with future transactions that could affect U.S. Federal taxability and we obtained representations made
the
by Change management
Company’s U.S. Federal taxability.

that it does not intend to cause any transactions that could affect

• We assessed the key facts in the opinion from the Company’s outside legal counsel and tax advisor

detailing the requirements under the Code and specifying how such requirements were met.

• With the assistance of our income tax specialists, we evaluated management’s conclusion that the
requirements were met to qualify the Split-Off and Merger as tax free for U.S. Federal income tax
purposes.

/s/ Deloitte & Touche LLP
Dallas, Texas
May 22nd, 2020

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

64

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, impairment and related charges
Gain from sale of business
Gain on healthcare technology net asset exchange, net

Total Operating Expenses

Operating Income
Other Income, Net
Equity Earnings and Charges from Investment in Change Healthcare Joint

Venture

Loss on Debt Extinguishment
Interest Expense

Income from Continuing Operations Before Income Taxes

Income Tax (Expense) Benefit

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

65

Years Ended March 31,

2020

2019

2018

$ 231,051
(219,028)
12,023

$ 214,319
(202,565)
11,754

$ 208,357
(197,173)
11,184

(9,168)
(96)
(2)
(268)
—
—
(9,534)
2,489
12

(1,108)
—
(249)
1,144
(18)
1,126
(6)
1,120
(220)
900

4.99
(0.04)
4.95

5.01
(0.03)
4.98

182
181

$

$

$

$

$

(8,403)
(71)
(1,797)
(597)
—
—
(10,868)
886
182

(8,138)
(125)
(1,738)
(567)
109
37
(10,422)
762
130

(194)
—
(264)
610
(356)
254
1
255
(221)
34

0.17
—
0.17

0.17
—
0.17

197
196

$

$

$

$

$

(248)
(122)
(283)
239
53
292
5
297
(230)
67

0.30
0.02
0.32

0.30
0.02
0.32

209
208

$

$

$

$

$

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

Net Income

Other Comprehensive Income (Loss), Net of Tax

Foreign currency translation adjustments

Unrealized gains (losses) on cash flow hedges

Changes in retirement-related benefit plans

Other Comprehensive Income (Loss), Net of Tax

Comprehensive Income

Years Ended March 31,

2020

2019

2018

$1,120

$ 255

$ 297

(66)

(190)

86

129

149

1,269

24

(32)

(198)

57

624

(30)

15

609

906

Comprehensive Income Attributable to Noncontrolling Interests

(223)

(155)

(415)

Comprehensive Income (Loss) Attributable to McKesson Corporation

$1,046

$ (98)

$ 491

See Financial Notes

66

McKESSON CORPORATION

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

ASSETS
Current Assets

Cash and cash equivalents
Receivables, net
Inventories, net
Assets held for sale
Prepaid expenses and other

Total Current Assets

Property, Plant and Equipment, Net
Operating Lease Right-of-Use Assets
Goodwill
Intangible Assets, Net
Investment in Change Healthcare Joint Venture
Other Noncurrent Assets

Total Assets

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities

Drafts and accounts payable
Current portion of long-term debt
Current portion of operating lease liabilities
Liabilities held for sale
Other accrued liabilities

Total Current Liabilities

Long-Term Debt
Long-Term Deferred Tax Liabilities
Long-Term Operating Lease Liabilities
Other Noncurrent Liabilities
Commitments and Contingent Liabilities (Note 21)
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, 2020 and 2019, 272

and 271 shares issued at March 31, 2020 and 2019

Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Other
Treasury Stock, at Cost, 110 and 81 shares at March 31, 2020 and 2019
Total McKesson Corporation Stockholders’ Equity

Noncontrolling Interests

Total Equity
Total Liabilities, Redeemable Noncontrolling Interests and Equity

See Financial Notes

67

March 31,

2020

2019

$ 4,015
19,950
16,734
906
617
42,222
2,365
1,886
9,360
3,156
—
2,258
$ 61,247

$ 37,195
1,052
354
683
3,340
42,624
6,335
2,255
1,660
1,662

$ 2,981
18,246
16,709
—
529
38,465
2,548
—
9,358
3,689
3,513
2,099
$59,672

$33,853
330
—
—
3,443
37,626
7,265
2,998
—
2,103

1,402

1,393

—

—

2
6,663
13,022
(1,703)
—
(12,892)
5,092
217
5,309
$ 61,247

3
6,435
12,409
(1,849)
(2)
(8,902)
8,094
193
8,287
$59,672

McKESSON CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended March 31, 2020, 2019 and 2018
(In millions, except per share amounts)

McKesson Corporation Stockholders’ Equity

Common
Stock

Shares Amount

Additional
Paid-in
Capital

Other
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury

Common
Shares

Amount

Noncontrolling
Interests

Total
Equity

273

$

3

$6,028

$ (2)

$13,189

$(2,141)

(62)

$ (5,982)

$ 178

$11,273

Balances, March 31, 2017
Issuance of shares under employee

plans

2
—
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
Opening Retained Earnings

Adjustments: Adoption of New
Accounting Standards
Balances, April 1, 2018
Issuance of shares under employee

—

—
—
275

—
275

plans

1
Share-based compensation
—
Payments to noncontrolling interests —
—
Other comprehensive loss
—
Net income
Repurchase of common stock
—
Retirement of common stock
Cash dividends declared, $1.51 per

(5)

common share

Other
Balances, March 31, 2019
Opening Retained Earnings

Adjustments: Adoption of New
Accounting Standards
Balances, April 1, 2019
Issuance of shares under employee

—
—
271

—
271

plans

1
—
Share-based compensation
Payments to noncontrolling interests —
—
Other comprehensive income
—
Net income
—
Repurchase of common stock
—
Change Healthcare share exchange
Cash dividends declared, $1.62 per

common share

Other
Balances, March 31, 2020

—
—
272

—
—
—
—
—
—

—

—
—

3

3

—

—
—
—
—
—
—
—

—
—

3

3

—

—
—
—
—
—
—
—

—

(1)
2

$

126
67
—
—
—
(36)

3

—
—
6,188

—
6,188

75
92
—
—
—
150
(70)

—
—
6,435

—
6,435

113
115
—
—
—
—
—

—
—
—
—
—
—

—

—
—
—
—
67
—

—

—
1
(1)

(270)
—
12,986

—

(1)

154
13,140

—
—
—
—
—
—
—

—

(1)
(2)

—
—
—
—
34
—
(472)

(298)
5
12,409

—

(2)

11
12,420

—
—
—
—
—
—
—

—
—
—
—
900
—
—

—
—
—
424
—
—

—

—
—
(1,717)

—
(1,717)

—
—
—
(132)
—
—
—

—
—
(1,849)

—
(1,849)

—
—
—
146
—
—
—

—
—
—
—
—
(11)

—

—
—
(73)

—
(73)

—
—
—
—
—
(13)
5

—
—
(81)

—
(81)

—
—
—
—
—
(14)
(15)

(59)
—
—
—
—
(1,614)

—

—
—
(7,655)

—
(7,655)

(12)
—
—
—
—
(1,777)
542

—
—
(8,902)

—
(8,902)

(20)
—
—
—
—
(1,934)
(2,036)

—
—
(98)
—
187
—

—

—
(14)
253

—
253

—
—
(184)
—
176
—
—

—
(52)
193

—
193

—
—
(154)
—
178
—
—

67
67
(98)
424
254
(1,650)

3

(270)
(13)
10,057

154
10,211

63
92
(184)
(132)
210
(1,627)
—

(298)
(48)
8,287

11
8,298

93
115
(154)
146
1,078
(1,934)
(2,036)

—
—
$6,663

—
2
$—

(294)
(4)
$13,022

—
—
$(1,703)

—
—
(110)

—
—

$(12,892)

—
—
$ 217

(294)
(3)
$ 5,309

See Financial Notes

68

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
Equity earnings and charges from investment in Change Healthcare Joint

Venture
Deferred taxes
Credits associated with last-in, first-out inventory method
Non-cash operating lease expense
Loss (gain) from sales of businesses and investments
Other non-cash items

Changes in assets and liabilities, net of acquisitions:

Receivables
Inventories
Drafts and accounts payable
Operating lease liabilities
Taxes
Other

Net cash provided by operating activities

Investing Activities
Payments for property, plant and equipment
Capitalized software expenditures
Acquisitions, net of cash, cash equivalents and restricted cash acquired
Proceeds from sale of businesses and investments, net
Payments received on Healthcare Technology Net Asset Exchange, net
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, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Supplemental Cash Flow Information
Cash paid for:

Interest, net
Income taxes, net of refunds

See Financial Notes

69

Years Ended March 31,

2020

2019

2018

$ 1,120

$

255

$

297

321
601
—
139

1,084
(342)
(252)
366
33
615

(2,494)
(376)
3,952
(377)
(8)
(8)
4,374

(362)
(144)
(133)
37
—

23
(579)

317
632
—
2,079

194
189
(210)
—
(86)
52

(967)
(368)
1,976
—
(95)
68
4,036

(426)
(131)
(905)
101
—
(20)
(1,381)

303
648
(37)
2,217

248
(868)
(99)
—
(169)
67

1,175
(458)
271
—
671
79
4,345

(405)
(175)
(2,893)
374
126
(20)
(2,993)

21,437
(21,437)
—
(298)
—

113
(1,954)
(294)
(301)
(2,734)
(19)
1,042
2,981
$ 4,023

37,265
(37,268)
1,099
(1,112)
—

75
(1,639)
(292)
(355)
(2,227)
(119)
309
2,672
$ 2,981

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

132
(1,709)
(262)
(185)
(3,084)
150
(1,582)
4,254
$ 2,672

$
$

235
368

$
$

383
262

$
$

298
144

McKESSON CORPORATION

FINANCIAL NOTES

1. Significant Accounting Policies

Nature of Operations: McKesson Corporation (“McKesson,” or the “Company,”) is a global leader in
healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and
healthcare information technology. McKesson partners with life sciences companies, manufacturers, providers,
pharmacies, governments and other healthcare organizations to help provide the right medicines, medical
products and healthcare services to the right patients at the right time, safely and cost-effectively. The Company
reports its financial results in 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 require separate reportable segment disclosure are included in Other.
Refer to Financial Note 24, “Segments of Business,” for more information.

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 the Company’s ownership is less than 100%, the portion of
the net income or loss allocable to the noncontrolling interests is reported as “Net Income Attributable to
Noncontrolling Interests” in the consolidated statements of operations. All significant intercompany balances and
transactions have been eliminated in consolidation, including the intercompany portion of transactions with
equity method investees.

The Company considers itself to control an entity if it is the majority owner of or has voting control over
such entity. The Company also assesses control through means other than voting rights (“variable interest
entities” or “VIEs”) and determines which business entity is the primary beneficiary of the VIE. The Company
consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business
entities in which the Company does not have control but has the ability to exercise significant influence over
operating and financial policies, are accounted for using the equity method. Refer to Financial Note 2,
“Investment in Change Healthcare Joint Venture,” for further information on the Company’s investment in
Change Healthcare LLC (“Change Healthcare JV”).

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 the
Company 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. The severity,
magnitude and duration, as well as the economic consequences of the COVID-19 pandemic, are uncertain,
rapidly changing and difficult to predict. Therefore, our accounting estimates and assumptions may change over
time in response to COVID-19 and may change materially in future periods.

Cash and Cash Equivalents: All highly liquid debt and money market instruments purchased with an
original maturity of three months or less at the date of acquisition are included in cash and cash equivalents. Cash
equivalents are carried at fair value. Cash equivalents are primarily invested in AAA-rated U.S. government
money market funds and overnight deposits with financial institutions. Deposits with financial institutions are
primarily denominated in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro,
British pound sterling and Canadian dollars. Deposits may exceed the amounts insured by the Federal Deposit

70

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Insurance Corporation in the U.S. and similar deposit insurance programs in other jurisdictions. The Company
mitigates the risk of its short-term investment portfolio by depositing funds with reputable financial institutions
and monitoring risk profiles and investment strategies of money market funds.

Restricted Cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is
classified as restricted cash and is included in “Prepaid expenses and other” and “Other Noncurrent Assets” in the
consolidated balance sheets. Cash, cash equivalents and restricted cash in the Company’s consolidated statements
of cash flows at March 31, 2020, includes restricted cash and restricted cash equivalents of $8 million for 2020
and nil for 2019 and 2018.

Marketable

securities, which

Securities Available-for-Sale: The Company’s marketable

are
available-for-sale, are carried at fair value and are included in “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 in stockholders’ equity. At March 31, 2020 and 2019, marketable
securities were not material. In determining whether an other-than-temporary decline in market value has
occurred, the Company considers 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 its
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 the Company
intends 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 (expense), net, in the period in which the loss occurs.

Equity Method Investments: Investments in business entities in which the Company does not have control,
but has the ability to exercise significant influence over operating and financial policies, are accounted for using
the equity method. The Company evaluates its 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, “Investment in Change Healthcare Joint Venture,” for further information
relating to the Company’s equity method investment in Change Healthcare which was split-off from McKesson
in the fourth quarter of 2020.

Concentrations of Credit Risk and Receivables: The Company’s trade accounts receivable are subject to
concentrations of credit risk with customers primarily in its U.S. Pharmaceutical and Specialty Solutions
segment. During 2020, sales to the Company’s ten largest customers, including group purchasing organizations
(“GPOs”), accounted for approximately 51% of its total consolidated revenues and approximately 37% of total
trade accounts receivable at March 31, 2020. Sales to the Company’s largest customer, CVS Health Corporation
(“CVS”), accounted for approximately 20% of its total consolidated revenues in 2020 and comprised
approximately 20% of total trade accounts receivable at March 31, 2020. As a result, the Company’s sales and
credit concentration is significant. The Company has agreements with GPOs, each of which functions as a
purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers, as well as with
government entities and agencies. The accounts 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 customer
groups could have a material adverse impact on the Company’s financial condition, results of operations and
liquidity. In addition, trade receivables are subject to concentrations of credit risk with customers in the
institutional, retail and healthcare provider sectors, which can be affected by a downturn in the economy and
changes in reimbursement policies. This credit risk is mitigated by the size and diversity of the Company’s
customer base as well as its geographic dispersion. The Company estimates the receivables for which it does not

71

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

expect full collection based on historical collection rates and ongoing evaluations of the creditworthiness of its
customers. An allowance is recorded in the Company’s consolidated financial statements for these estimated
amounts.

Financing Receivables: The Company assesses and monitors credit risk associated with financing
receivables, primarily notes receivable, through regular review of its collections experience in determining its
allowance for loan losses. On an ongoing basis, the Company also evaluates credit quality of its financing
receivables utilizing historical collection rates 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 transferred and all related risks and rewards incidental to ownership have passed to the buyer. As of
March 31, 2020 and 2019, financing receivables were not material to our consolidated financial statements.
Financing receivables and the related allowances are included in Receivables, net and Other Noncurrent Assets in
the consolidated balance sheets.

Inventories: Inventories consist of merchandise held for resale. The Company reports inventories at the
lower of cost or net realizable value, except for inventories determined using the last-in, first-out (“LIFO”)
method which are valued at the lower of LIFO cost or market. The LIFO method presumes that the most recent
inventory purchases are the first items sold and the inventory cost under LIFO approximates market. The
majority of the cost of domestic inventories is determined using the LIFO method. The majority of the cost of
inventories held in foreign and certain domestic locations is based on the first-in, first-out (“FIFO”) method and
weighted average purchase prices. Rebates, cash discounts, and other incentives received from vendors are
recognized in cost of sales upon the sale of the related inventory.

The LIFO method was used to value approximately 60% and 62% of the Company’s inventories at
March 31, 2020 and 2019. If the Company had used the moving average method of inventory valuation,
inventories would have been approximately $444 million and $696 million higher than the amounts reported at
March 31, 2020 and 2019. These amounts are equivalent to the Company’s LIFO reserves. The Company’s LIFO
valuation amount includes both pharmaceutical and non-pharmaceutical products. The Company recognized
LIFO credits of $252 million, $210 million and $99 million in 2020, 2019 and 2018 in cost of sales in its
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.

The Company believes that the moving average inventory costing method provides a reasonable estimation
of the current cost of replacing inventory (i.e., “market”). As such, its LIFO inventory is valued at the lower of
LIFO cost or market. As of March 31, 2020 and 2019, inventories at LIFO did not exceed market.

Shipping and Handling Costs: The Company includes costs to pack and deliver inventory to its customers in
selling, distribution and administrative expenses. Shipping and handling costs of $1.0 billion, $951 million, and
$914 million were recognized in 2020, 2019 and 2018.

Held for Sale: Assets and liabilities to be disposed of by sale (“disposal groups”) are reclassified into “held
for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than
through continuing use. The reclassification occurs when the disposal group is available for immediate sale and
the sale is highly probable. These criteria are generally met when an agreement to sell exists, or management has
committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying

72

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

amount or fair value less costs to sell and are not depreciated or amortized. When the net realizable value of a
disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value
of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale.
The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as
held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an
adjustment to the carrying value of the disposal group. Refer to Financial Note 3, “Held for Sale,” for more
information.

Property, Plant and Equipment: The Company states its property, plant and equipment (“PPE”) at cost and
depreciates them under the straight-line method at rates designed to distribute the cost of PPE over estimated
service lives, not to exceed 30 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 third 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 one level below an operating segment (also known as a
component), for which discrete financial information is available and segment management regularly reviews the
operating results.

The Company applies the goodwill impairment test by comparing the estimated fair value of a reporting unit
to its carrying value and recording an impairment charge equal to the amount of excess carrying value above
estimated fair value, if any, but not to exceed the amount of goodwill allocated to the reporting unit.

To estimate the fair value of its reporting units, the Company generally uses a combination of the market
approach and the income approach. Under the market approach, it estimates fair value by comparing the business
to similar businesses, or guideline companies whose securities are actively traded in public markets. Under the
income approach, it uses a discounted cash flow (“DCF”) model in which cash flows anticipated over future
periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an
appropriate rate that is commensurate with the risk inherent within the reporting unit. Other estimates inherent in
both the market and income approaches include long-term growth rates, projected revenues and earnings and
cash flow forecasts for the reporting units. In addition, the Company compares the aggregate of the reporting
units’ fair values to the Company’s market capitalization as 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 the Company’s intangible assets are subject to amortization and are
amortized based on the pattern of their economic consumption or on a straight-line basis over their estimated
useful lives, ranging from one to 38 years. The Company reviews intangible assets for impairment at an asset
group level whenever events or changes in circumstances indicate that the carrying value of the assets may not be
recoverable. Determination of recoverability is based on the lowest level of identifiable estimated future
undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any
impairment loss is based on the excess of the carrying value of the asset group over its estimated fair market
value.

Capitalized Software Held for Internal Use: The Company capitalizes costs of software held for internal use
during the application development stage of a project and amortizes those costs over their estimated useful lives,
not to exceed 10 years. As of March 31, 2020 and 2019, capitalized software held for internal use was

73

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

$400 million and $394 million, net of accumulated amortization of $1.3 billion and $1.2 billion, and is included
in other noncurrent assets in the consolidated balance sheets. Costs incurred during the preliminary project and
post-implementation stages are expensed as incurred.

Insurance Programs: Under its insurance programs,

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

Revenue Recognition: Revenue is recognized when an entity satisfies a performance obligation by
transferring control of a promised good or service to a customer in an amount that reflects the consideration to
which the entity expects to be entitled for that good or service.

Revenues generated from the distribution of pharmaceutical and medical products represent the majority of
the Company’s revenues. The Company orders product from the manufacturer, receives and carries the product at
its central distribution facilities and delivers the product directly to its customers’ warehouses, hospitals or retail
pharmacies. The distribution business primarily generates revenue from a contract related to a confirmed
purchase order with a customer in a distribution arrangement. Revenue is recognized when control of goods is
transferred to the customer which occurs upon the Company’s delivery to the customer or upon customer
pick-up. The Company also earns revenues from a variety of other sources including its retail, services and
technology businesses. Retail revenues are recognized at
including
technology service revenues, are recognized when services are rendered. Revenues derived from distribution and
retail business at the point of sale, and revenues derived from services represent approximately 98% and 2% of
total revenues for each of the years ended March 31, 2020 and March 31, 2019.

the point of sale. Service revenues,

Revenues are recorded gross when the Company is the principal in the transaction, has the ability to direct
the use of the goods or services prior to transfer to a customer, is responsible for fulfilling the promise to its
customer, has latitude in establishing prices, and controls the relationship with the customer. The Company
records its revenues net of sales taxes. Revenues are measured based on the amount of consideration that the
Company expects to receive, reduced by estimates for return allowances, discounts and rebates using historical
data. Sales returns from customers were approximately $3.1 billion in 2020, $2.9 billion in 2019 and $3.1 billion
in 2018. Assets for the right to recover products from customers and the associated refund liabilities for return
allowances were not material as of March 31, 2020. Shipping and handling costs associated with outbound
freight after control over a product has transferred to a customer are accounted for as fulfillment costs. The
Company records deferred revenues when payments are received or due in advance of its performance. Deferred
revenues are primarily from the Company’s services arrangements and are recognized as revenues over the
periods when services are performed.

The Company had no material contract assets, contract liabilities or deferred contract costs recorded on its
consolidated balance sheets as of March 31, 2020 and 2019. The Company generally expenses costs to obtain a
contract as incurred when the amortization period is less than one year.

Supplier Incentives: Fees for services and other incentives received from suppliers, relating to the purchase
or distribution of inventory, are considered product discounts and are generally reported as a reduction to cost of
sales.

Supplier Reserves: The Company establishes reserves against amounts due from suppliers relating to
various fees for services and price and rebate incentives, including deductions taken against payments otherwise

74

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

due to it. These reserve estimates are established based on judgment after considering the status of current
outstanding claims, historical experience with the suppliers, the specific incentive programs and any other
pertinent information available. The Company evaluates the amounts due from suppliers on a continual basis and
adjusts the reserve estimates when appropriate based on changes in facts and circumstances. Adjustments to
supplier reserves are generally included in cost of sales unless consideration from the vendor is in exchange for
distinct goods or services or for pass-through rebate purchases. The ultimate outcome of any outstanding claims
may be different than the Company’s estimate. The supplier reserves primarily pertain to the Company’s U.S.
Pharmaceutical and Specialty Solutions segment.

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

Interest Expense: Interest expense primarily includes interest for the Company’s long-term debt obligations,
commercial paper, net interest settlements of interest rate swaps, and the amortization of deferred issuance costs
and original issue discounts on debt.

Foreign Currency Translation: The reporting currency of the Company and its subsidiaries is the U.S.
dollar. Its foreign subsidiaries generally consider their local currency to be their functional currency. Foreign
currency-denominated assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at
period-end exchange rates, while revenues and expenses are translated at average exchange rates during the
corresponding period and stockholders’ 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
operating expenses in the consolidated statements of operations and were not material to the Company’s
consolidated results of operations in 2020, 2019 or 2018. The Company releases cumulative translation
adjustments from stockholders’ equity into earnings as a gain or loss only upon a complete or substantially
complete liquidation of a controlling interest in a subsidiary or a group of assets within a foreign entity. It also
releases all or a pro rata portion of the cumulative translation adjustments into earnings upon the sale of an equity
method investment that is a foreign entity or has a foreign component.

Derivative Financial Instruments: Derivative financial instruments are used principally in the management
of foreign currency exchange and interest rate exposures and are recorded in the consolidated balance sheets at
fair value. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized in earnings. The Company uses foreign currency-
denominated notes and cross-currency swaps to hedge a portion of its net investment in its foreign subsidiaries. It
uses cash flow hedges primarily to reduce the effects of foreign currency exchange rate risk related to
intercompany loans denominated in non-functional currencies. If the financial instrument is designated as a cash
flow hedge or net investment hedge, the effective portions of changes in the fair value of the derivative are
included in other comprehensive income 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

75

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

cumulative changes in fair value are reclassified to the same line as the hedged item in the consolidated
statements of operations when the hedged item affects earnings. The Company evaluates hedge effectiveness at
inception and on an ongoing basis, and ineffective portions of changes in the fair value of cash flow hedges and
net investment hedges are recognized in earnings following the date when ineffectiveness was identified.
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
GAAP are recorded as an element of stockholders’ equity but are excluded from earnings. The Company’s other
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. Net
income attributable to noncontrolling interests includes 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. Net
income attributable to
noncontrolling interests also includes third-party equity interests in the Company’s consolidated entities
and ClarusONE Sourcing Services LLP
including Vantage Oncology Holdings, LLC (“Vantage”)
(“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 in the Company’s consolidated balance sheets. Refer to Financial Note 9, “Redeemable Noncontrolling
Interests and Noncontrolling Interests,” for more information.

Share-Based Compensation: The Company accounts for all share-based compensation transactions at fair
value. The share-based compensation expense, for the portion of the awards that is ultimately expected to vest, is
recognized on a straight-line basis over the requisite service period. The share-based compensation expense
recognized is classified in the consolidated statements of operations in the same manner as cash compensation
paid to the Company’s employees.

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

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company reviews 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.

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

Business Combinations: The Company accounts for business combinations using the acquisition method of
accounting whereby the identifiable assets and liabilities of the acquired business, as well as any noncontrolling
interest in the acquired business, are recorded at their estimated fair values as of the date that the Company
obtains control of the acquired business. Any purchase consideration in excess of the estimated fair values of the
net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are
expensed as incurred.

Several valuation methods may be used to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, the Company typically uses a method that is a form or variation of the income
approach, whereby a forecast of future cash flows attributable to the asset are discounted to present value using a
risk-adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income
approach include the amount and timing of projected future cash flows, the discount rate selected to measure the
risks inherent in the future cash flows and the assessment of the asset’s expected useful life.

Recently Adopted Accounting Pronouncements

Leases: In the first quarter of 2020, the Company adopted amended guidance for leases using the modified
retrospective method and recorded a cumulative-effect adjustment to opening retained earnings on the date of
adoption. Under the amended guidance, entities are required to recognize operating lease liabilities and operating
lease right-of-use (“ROU”) assets on the balance sheet for all leases with terms longer than 12 months and to
provide enhanced disclosures on key information of leasing arrangements.

The Company elected the transition package of practical expedients provided within the amended guidance,
which eliminates the requirements to reassess lease identification, lease classification and initial direct costs for
leases which commenced before April 1, 2019. The Company also elected not to separate lease from non-lease
components for all leases and to exclude short-term leases with an initial term of 12 months or less from its
consolidated balance sheets.

Upon adoption of this amended guidance, the Company recorded $2.2 billion of operating lease liabilities,
$2.1 billion of operating lease ROU assets and a cumulative-effect adjustment of $69 million to opening retained
earnings. The adjustment to opening retained earnings included impairment charges of $89 million, net of tax to
the ROU assets primarily related to previously impaired long-lived assets at the retail pharmacies in the
Company’s United Kingdom (“U.K.”) and Canadian businesses, partially offset by derecognition of existing
deferred gain on the Company’s sale-leaseback transaction related to its former corporate headquarters building.
The adoption of this amended guidance did not have a material
impact on the Company’s consolidated
statements of operations and cash flows.

Refer to Financial Note 13, “Leases,” for more information.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Derivatives and Hedging: In the first quarter of 2020, the Company prospectively adopted amended
guidance that allows it to include the Secured Overnight Financing Rate Overnight Index Swap Rate as a
benchmark interest rate for hedge accounting purposes. The adoption of this amended guidance did not have a
material effect on the Company’s consolidated financial statements.

Accumulated Other Comprehensive Income: In the first quarter of 2020, the Company adopted amended
guidance that allows for a reclassification of only those amounts related to the 2017 Tax Cuts and Jobs Act (the
“2017 Tax Act”) to retained earnings thereby eliminating the stranded tax effects. Previous guidance required
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. The Company elected not to
reclassify the stranded tax effects within accumulated other comprehensive loss to retained earnings. The
adoption of this amended guidance did not affect the Company’s consolidated financial statements.

Premium Amortization of Purchased Callable Debt Securities: In the first quarter of 2020, the Company
adopted amended guidance on a modified retrospective basis that shortens the amortization period for certain
callable debt securities held at a premium. The amended 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 adoption of this amended guidance did not affect the
Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Income Taxes: In December 2019, amended guidance was issued with the intent to simplify various aspects
related to accounting for income taxes. The guidance eliminates certain exceptions related to the approach for
intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition
of deferred tax liabilities for outside basis differences. The guidance also simplifies and clarifies certain other
aspects of accounting for income taxes. The guidance is effective for the Company in the first quarter of 2022
and early adoption is permitted. The Company is currently evaluating the impact of this amended guidance on its
consolidated financial statements.

that

Intangibles — Goodwill and Other — Internal-Use Software: In August 2018, amended guidance was
issued for a customer’s accounting for implementation and other upfront costs incurred in a cloud computing
arrangement
is a service contract. The amended guidance aligns the requirements for capitalizing
implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements
for capitalizing implementation costs in a cloud computing arrangement that has a software license. Upon
adoption, the Company will begin capitalizing eligible implementation costs for cloud computing arrangement
service contracts and recognizing the expense over the service period. The amended guidance is effective for the
Company either on a retrospective or prospective basis in the first quarter of 2021. The Company will adopt this
guidance prospectively in the first quarter of 2021 and adoption of this guidance will not have a material impact
on its financial statements or disclosures.

Compensation — Retirement Benefits — Defined Benefit Plans: In August 2018, amended guidance was
issued for defined benefit pension or other postretirement plans. The amended guidance requires the Company to
disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised
interest crediting rates, and an explanation of reasons for significant gains and losses related to changes in the
benefit obligation for the period. The amended guidance also requires the Company to remove disclosures on the
amounts in accumulated other comprehensive income expected to be recognized as components of net periodic
benefit costs over the next fiscal year. The amended guidance is effective for the Company on a retrospective

78

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

basis in the first quarter of 2021. The adoption of this amended guidance will not have a material effect in the
consolidated statements of operations, comprehensive income, balance sheets or cash flows of the Company.
This amended guidance will result in changes in disclosures.

Fair Value Measurement: In August 2018, amended guidance was issued to remove, modify and add
disclosure requirements on fair value measurements. The amended guidance removes disclosure requirements for
transfers between Level 1 and Level 2 measurements and valuation processes for Level 3 measurements but adds
new disclosure requirements including changes in unrealized gains or losses in other comprehensive income
related to recurring Level 3 measurements. The amended guidance is effective for the Company in the first
quarter of 2021. Certain requirements will be applied prospectively while other changes will be applied
retrospectively upon the effective date. The adoption of this amended guidance will not have a material effect in
the consolidated statements of operations, comprehensive income, balance sheets or cash flows of the Company.
This amended guidance will result in changes in disclosures.

Financial Instruments — Credit Losses: In June 2016, amended guidance was issued which will change the
impairment model for most financial assets from one based on current losses to a forward-looking model based
on expected losses. This model will replace the existing incurred credit loss model, that generally requires a loss
to be incurred before it is recognized. The forward-looking model will require the Company to consider historical
experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the
reported amount in estimating credit losses and is expected to result in earlier recognition of allowances for credit
losses. 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 guidance will also require enhanced disclosures. The amended
guidance is effective for the Company in the first quarter of 2021 and any impact will be applied through a
cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The adoption of
this guidance will not have a material impact on the Company’s financial statements or disclosures.

2. Investment in Change Healthcare Joint Venture

Healthcare Technology Net Asset Exchange

In the fourth quarter of 2017, the Company contributed the majority of its McKesson Technology Solutions
businesses to form a joint venture, Change Healthcare JV, under a contribution agreement between McKesson
and Change Healthcare Inc. (“Change”) and others, including shareholders of Change. In exchange for the
contribution, the Company initially owned approximately 70% of the joint venture, with the remaining equity
ownership of approximately 30% held by Change Healthcare Inc. The Change Healthcare JV was jointly
governed by McKesson and shareholders of Change. The initial investment in the Change Healthcare JV
represented the fair value of McKesson’s 70% equity interest in the joint venture upon closing of the transaction.
In 2018, the Company 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 2018,
it received
$126 million in cash from Change representing the final settlement of the net working capital and other
adjustments.

Initial Public Offering by Change Healthcare Inc.

On June 27, 2019, common stock and certain other securities of Change began trading on the NASDAQ
(“IPO”). Change was a holding company and did not own any material assets or have any operations other than
its interest in the Change Healthcare JV.

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FINANCIAL NOTES (Continued)

On July 1, 2019, upon the completion of its IPO, Change received net cash proceeds of approximately
$888 million. Change contributed the proceeds from its offering of common stock of $609 million to the Change
Healthcare JV in exchange for additional membership interests of the Change Healthcare JV (“LLC Units”) at
the equivalent of its offering price of $13 per share. The proceeds from the concurrent offering of other securities
of $279 million were used by Change to acquire certain securities of the Change Healthcare JV that substantially
mirror the terms of other securities included in the offering by Change. The Change Healthcare JV, in return,
used the majority of the IPO proceeds to repay a portion of the joint venture’s outstanding debt. As a result,
McKesson’s equity interest in the Change Healthcare JV was diluted from approximately 70% to approximately
58.5% while Change owned approximately 41.5% of the outstanding LLC Units. Accordingly, in the second
quarter of 2020, the Company recognized a pre-tax dilution loss of $246 million ($184 million after-tax)
primarily representing the difference between its proportionate share of the IPO proceeds and the dilution effect
on the investment’s carrying value. The Company’s proportionate share of income or loss from this investment
was subsequently reduced as immaterial settlements of stock option exercises occurred after the IPO. These
amounts were included in “Equity Earnings and Charges from Investment in Change Healthcare Joint Venture”
in the Company’s consolidated statements of operations for the year ended March 31, 2020.

In the second quarter of 2020, the Company recorded a pre-tax other-than-temporary impairment (“OTTI”)
charge of $1.2 billion ($864 million after-tax) to its investment in the Change Healthcare JV, representing the
difference between the carrying value of the Company’s investment and the fair value derived from the
corresponding closing price of Change’s common stock at September 30, 2019. This charge was included in
“Equity Earnings and Charges from Investment
in Change Healthcare Joint Venture” in the Company’s
consolidated statement of operations for the year ended March 31, 2020.

Equity Method Investment in the Change Healthcare Joint Venture

The Company’s investment in the joint venture has been accounted for using the equity method of
accounting on a one-month reporting lag. The Company’s accounting policy has been to disclose any intervening
events of the joint venture in the lag period that could materially affect its condensed consolidated financial
statements. Effective April 1, 2019, the Change Healthcare JV adopted the amended revenue recognition
guidance. In the first quarter of 2020, the Company recorded its proportionate share of the joint venture’s
adoption impact of the amended revenue recognition guidance of approximately $80 million, net of tax, in the
Company’s opening retained earnings.

The Company recorded its proportionate share of loss from its investment in the Change Healthcare JV of
$119 million, $194 million and $248 million in 2020, 2019 and 2018. The Company’s proportionate share of
income or loss from this investment includes transaction and integration expenses incurred by the Change
Healthcare JV and basis differences between the joint venture and McKesson including amortization of fair value
adjustments primarily representing incremental intangible amortization and removal of profit associated with the
recognition of deferred revenue. The proportionate share of loss from the joint venture recorded in 2018 was
partially offset by a provisional tax benefit of $76 million recognized by the Change Healthcare JV primarily due
to a reduction in the future applicable tax rate related to the December 2017 enactment of the 2017 Tax Cuts and
Jobs Act. These amounts were recorded under the caption “Equity Earnings and Charges from Investment in
Change Healthcare Joint Venture” in the Company’s consolidated statements of operations.

Separation of the Change Healthcare JV

On March 10, 2020, the Company completed the previously announced separation of its interest in the
Change Healthcare JV. The separation was affected through the split-off of PF2 SpinCo, Inc. (“SpinCo”), a

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

wholly owned subsidiary of the Company that held all of the Company’s interest in the Change Healthcare JV, to
certain of the Company’s stockholders through an exchange offer (“Split-off”), followed by the merger of
SpinCo with and into Change, with Change surviving the merger (“Merger”).

In connection with the Split-off, on March 9, 2020, the Company distributed all 176.0 million outstanding
shares of common stock of SpinCo to participating holders of the Company’s common stock in exchange for
15.4 million shares of McKesson common stock which now are held as treasury stock on the Company’s
consolidated balance sheet as of March 31, 2020. Refer to Financial Note 22, “Stockholders’ Equity,” for more
information. Following consummation of the exchange offer, on March 10, 2020, SpinCo was merged with and
into Change Healthcare, and each share of SpinCo common stock converted into one share of Change common
stock, par value $0.001 per share, with cash being paid in lieu of fractional shares of Change common stock. The
Split-off and the Merger are intended to be generally tax-free transactions for U.S. federal income tax purposes.
Following the Split-off, the Company does not beneficially own any of Change’s outstanding securities. In the
fourth quarter of 2020, the Company recognized an estimated gain of $414 million related to the transaction
which is included under the caption “Equity Earnings and Charges from Investment in Change Healthcare Joint
Venture” in the Company’s consolidated statements of operations. The estimated gain was calculated as follows:

(In millions, except per share data)

Fair value of McKesson common stock accepted (15.4 million shares at $131.97 per share on

March 9, 2020)

Investment in the Change Healthcare JV at exchange date

Reversal of deferred tax liability

Release of accumulated other comprehensive attributable to the joint venture

Less: Transaction costs incurred

Estimated net gain on split-off of the Change Healthcare JV

$ 2,036

(2,096)

521

(24)

(23)

$

414

At March 31, 2019, the Company’s carrying value of this investment was $3.5 billion. The carrying value
included equity method intangible assets and goodwill which caused the Company’s investment basis to exceed
its proportionate share of the Change Healthcare JV’s book value of net assets by approximately $4.2 billion at
March 31, 2019.

Related Party Transactions

In connection with the formation of the Change Healthcare JV, McKesson, the Change Healthcare JV 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 agreements. Fees incurred or earned from the Advisory Agreement were
not material for 2020, 2019 and 2018. Fees incurred or earned from the TSA were $22 million in 2020,
$60 million in 2019 and $91 million in 2018. The Advisory Agreement was terminated in 2020.

In 2019, the Company renegotiated the terms of the TRA which resulted in the extinguishment and
derecognition of the $90 million noncurrent liability payable to the shareholders of Change. In exchange for the
shareholders of Change agreeing to extinguish the liability, the Company agreed to an allocation of certain tax
amortization that had the effect of reducing the amount of a distribution from the Change Healthcare JV that
would otherwise have been required to be made to the shareholders of Change. As a result of the renegotiation,
McKesson was relieved from any potential future obligations associated with the noncurrent liability and

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FINANCIAL NOTES (Continued)

recognized a pre-tax credit of $90 million ($66 million after-tax) in operating expenses in its consolidated
statement of operations in 2019. At March 31, 2020 and 2019, the Company had no outstanding payable balance
to the shareholders of Change under the TRA.

Revenues recognized and expenses incurred under commercial agreements with the Change Healthcare JV
were not material during the years ended March 31, 2020, 2019 and 2018. At March 31, 2020 and 2019,
receivables due from the Change Healthcare JV were not material.

Under the agreement executed in 2019 between the Change Healthcare JV, McKesson, Change, and certain
subsidiaries of the Change Healthcare JV, McKesson has the ability to adjust the manner in which certain
depreciation or amortization deductions are allocated among Change Healthcare Inc. and McKesson. McKesson
exercised its right under the agreement and allocated certain depreciation and amortization deductions to Change
for the tax year ended March 31, 2019 and estimated certain depreciation and amortization deductions for the tax
year ended March 31, 2020. These allocated depreciation and amortization deductions may change as certain
events occur, including the filing of the Change Healthcare JV tax return for the tax year ended March 31, 2020.

in the Change Healthcare JV,

After McKesson’s separation of its interest

the aforementioned TRA
agreement requires the Change Healthcare JV to pay McKesson 85% of the net cash tax savings realized, or
deemed to be realized, by Change resulting from the depreciation or amortization allocated to Change by
McKesson. The receipt of any payments from the Change Healthcare JV under the TRA is dependent upon
Change benefiting from this depreciation or amortization in future tax return filings. This creates uncertainty over
the amount, timing and probability of the gain recognized. As such, the Company accounts for the TRA as a gain
contingency, with no receivable recognized as of March 31, 2020.

Concurrent with the IPO in July 2019, Change Healthcare Inc. appointed two of the Company’s executive
officers as well as McKesson’s former chief executive officer to its Board of Directors. These appointments had
no impact on the equity method of accounting the Company applied to its investment in the Change Healthcare
JV. Effective as of the time of the Merger, these individuals resigned from the Board of Directors of Change.
Aside from the divestiture transaction discussed above, there were no material
transactions with Change
Healthcare Inc.

3. Held for Sale

Assets and liabilities that have met the classification as held for sale were $906 million and $683 million as
of March 31, 2020. These amounts primarily consist of the majority of the Company’s German pharmaceutical
wholesale business described below.

German Wholesale Joint Venture

On December 12, 2019, the Company announced that it had entered into an agreement (the “Contribution
Agreement”) with a third-party intending to contribute the majority of its German wholesale business to create a
joint venture in which McKesson will have a non-controlling interest. This business is within the Company’s
European Pharmaceutical Solutions segment. The agreement is subject to regulatory approvals and is expected to
close within the second half of 2021. The transaction does not meet the criteria to be reported as a discontinued
operation as it does not constitute a significant strategic business shift. As of March 31, 2020, $842 million of
assets, and $656 million of liabilities were classified as “Assets held for sale” and “Liabilities held for sale” in
the consolidated balance sheet.

As part of the transaction, during 2020 the Company recorded charges totaling $275 million (pre-tax and
after-tax) to remeasure the disposal group to the lower of carrying value or fair value less costs to sell. This

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

amount is included in operating expenses in the consolidated statements of operations for the year ended
March 31, 2020. The Company’s measurement of the fair value of the disposal group was based on the total
consideration received by the Company as outlined in the Contribution Agreement. Certain components of the
total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

The total assets and liabilities of the German wholesale joint venture that are classified as held for sale on

the Company’s consolidated balance sheet as of March 31, 2020, are as follows:

(In millions)

Assets

Current Assets

Receivables, net

Inventories, net

Long-term assets

Remeasurement of assets of business held for sale to fair value less cost to sell (1)

Total Assets held for sale

Liabilities

Current Liabilities

Drafts and accounts payable

Other accrued liabilities

Long-term liabilities

Total Liabilities held for sale

March 31, 2020

$ 548

478

88

(272)

$ 842

$ 450

40

166

$ 656

(1)

Includes the effect of approximately $3 million of cumulative foreign currency translation adjustment.

4. Restructuring, Impairment and Related Charges

The Company recorded pre-tax restructuring, impairment and related charges of $268 million, $597 million
and $567 million in 2020, 2019 and 2018. These charges are included under the caption “Restructuring,
impairment and related charges” within operating expenses in the consolidated statements of operations. There
were no material restructuring initiatives announced during 2020.

Fiscal 2019 Initiatives

On April 25, 2018, the Company announced a strategic growth initiative intended to drive long-term
incremental profit growth and to increase operational efficiency. The initiative consists of multiple growth
priorities and plans to optimize the Company’s operating models and cost structures primarily through
centralization, cost management and outsourcing of certain administrative functions.

As part of the growth initiative, the Company committed to implement certain actions including a reduction
in workforce, facility consolidation and store closures. This set of initiatives was substantially complete by the
end of 2020. The Company recorded pre-tax charges of $15 million ($12 million after-tax) and $135 million
($122 million after-tax) in 2020 and 2019. Any remaining charges primarily consist of exit-related costs.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

As previously announced on November 30, 2018, the Company relocated its corporate headquarters,
effective April 1, 2019, from San Francisco, California to Irving, Texas to improve efficiency, collaboration and
cost competitiveness. The Company anticipates that the relocation will be complete by January 2021. As a result,
the Company recorded pre-tax charges of $44 million ($32 million after-tax) and $33 million ($24 million
impairments and
after-tax) in 2020 and 2019, primarily representing employee retention expenses, asset
accelerated depreciation. The Company expects to record total pre-tax charges of approximately $80 million to
$130 million, of which $77 million of pre-tax charges were recorded to date. The estimated remaining charges
primarily consist of lease and other exit-related costs and employee-related expenses including retention.

During the fourth quarter of 2019, the Company committed to additional programs to continue its operating
model and cost optimization efforts. The Company continues to implement centralization of certain functions and
outsourcing through an expanded arrangement with a third-party vendor to achieve operational efficiency. The
programs also include reorganization and consolidation of business operations, related headcount reductions, the
further closures of retail pharmacy stores in Europe and closures of other facilities. The Company expects to
incur total charges of approximately $300 million to $350 million for these programs, of which pre-tax charges
of $72 million ($55 million after-tax) and $163 million ($127 million after-tax) were recorded in 2020 and 2019,
primarily representing employee severance, accelerated depreciation expense and project consulting fees. We
anticipate these additional programs will be substantially completed by the end of 2021. The estimated remaining
charges primarily consist of facility and other exit costs and employee-related costs.

Restructuring, impairment and related charges for the Company’s fiscal 2019 initiatives for the year ended

March 31, 2020 consisted of the following:

(In millions)

Severance and employee-related costs, net

Exit and other-related costs (1)

Asset impairments and accelerated depreciation

Total

Year Ended March 31, 2020

U.S.
Pharmaceutical
and Specialty
Solutions

European
Pharmaceutical
Solutions

Medical-
Surgical
Solutions Other Corporate Total

$

3

—

—

$

3

$ 1

11

5

$17

$ 2

$

19

1

1

1

—

$33

$ 40

44

10

75

16

$22

$

2

$87

$131

(1) Exit and other-related costs primarily include project consulting fees.

Restructuring, impairment and related charges for the Company’s fiscal 2019 initiatives for the year ended

March 31, 2019 consisted of the following:

(In millions)

Severance and employee-related costs, net

Exit and other-related costs (1)

Asset impairments and accelerated depreciation

Total

Year Ended March 31, 2019

U.S.
Pharmaceutical
and Specialty
Solutions

European
Pharmaceutical
Solutions

Medical-
Surgical
Solutions Other Corporate Total

$50

7

6

$63

$33

3

5

$41

$19

$16

$36

$154

20

3

57

18

57

1

144

33

$42

$91

$94

$331

(1) Exit and other-related costs primarily include lease and other contract exit costs associated with closures of

facilities and retail pharmacy stores as well as project consulting fees.

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FINANCIAL NOTES (Continued)

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

2019 initiatives for the year ended March 31, 2020:

(In millions)

U.S.
Pharmaceutical
and Specialty
Solutions

European
Pharmaceutical
Solutions

Medical-
Surgical
Solutions

Other

Corporate

Total

Balance, March 31, 2019 (1)

$ 31

$ 38

$ 15

$ 29

$ 37

$ 150

Restructuring charges recognized

Non-cash charges

Cash payments

Other

Balance, March 31, 2020 (2)

3

—

(13)

1

$ 22

17

(5)

(26)

—

$ 24

22

(1)

(16)

(2)

2

—

(20)

(4)

87

(10)

(61)

(14)

131

(16)

(136)

(19)

$ 18

$

7

$ 39

$ 110

(1) As of March 31, 2019, the total reserve balance was $150 million of which $117 million was recorded in

other accrued liabilities and $33 million was recorded in other noncurrent liabilities.

(2) As of March 31, 2020, the total reserve balance was $110 million of which $99 million was recorded in

other accrued liabilities and $11 million was recorded in other noncurrent liabilities.

Fiscal 2018 McKesson Europe Plan

In the second quarter of 2018, the Company committed to a restructuring plan, which primarily consisted of
the closures of underperforming retail pharmacy stores in the U.K. and a reduction in workforce. Under this plan,
the Company expected to record total pre-tax charges of approximately $90 million to $130 million for its
European Pharmaceutical Solutions segment, of which $92 million of pre-tax charges were recorded through the
end of 2019. The plan was substantially completed in 2020 and additional charges and payments in 2020 were
not material. In 2019 and 2018, the Company recorded pre-tax charges of $18 million ($16 million after-tax) and
$74 million ($67 million after-tax) in operating expenses primarily representing employee severance and lease
exit costs. It made cash payments of $32 million and $10 million during 2019 and 2018, primarily related to
severance. The reserve balances as of March 31, 2020 and 2019 were $4 million and $19 million, recorded in
other accrued liabilities in the Company’s consolidated balance sheets.

Other Plans

There were no material restructuring, impairment and related charges for other plans recorded during 2020,
2019 and 2018. The restructuring liabilities for other plans as of March 31, 2020 and 2019 were $43 million and
$68 million.

Long-Lived Asset Impairments

McKesson Europe

In 2020, the Company recorded pre-tax charges of $82 million ($66 million after-tax) to impair certain long-
lived and intangible assets within the Company’s European Pharmaceutical Solutions segment. These charges
related primarily to intangible assets associated with pharmacy licenses within the U.K retail business due to a
decline in estimated future cash flows driven by additional U.K. government reimbursement reductions
communicated in the third quarter of 2020. The Company used a combination of an income approach (a DCF
method) and a market approach to estimate the fair value of the long-lived and intangible assets. The fair value of

85

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable
inputs developed using company specific information.

In 2019, the Company recorded pre-tax charges of $210 million ($172 million after-tax) to impair certain
long-lived assets (primarily pharmacy licenses) for its U.K. retail business primarily driven by government
reimbursement reductions and competitive pressures in the U.K. In 2018, the Company recorded pre-tax charges
of $446 million ($410 million after-tax) to impair the carrying value of certain intangible assets (primarily
customer relationships and pharmacy licenses), store assets and capitalized software assets due to continuing
declines in estimated future cash flows in its European businesses including consideration of significant
government reimbursement reductions in its U.K. retail business. In 2019 and 2018, the Company used an
income approach (a DCF method) or a combination of an income approach and a market approach to estimate the
fair value of the 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.

Rexall Health

In 2020, the Company performed an interim impairment test of long-lived and intangible assets for its
Rexall Health retail business due to the decline in the estimated future cash flows primarily driven by lower than
expected growth in both prescription volume and sales of non-prescription goods. As a result, the Company
recognized a charge of $30 million (pre-tax and after-tax) to impair certain long-lived and intangible assets,
primarily customer relationships. The Company utilized an income approach (a DCF method) for estimating the
fair value of the long-lived and intangible assets. The fair value of these assets is considered a Level 3 fair value
measurement due to the significance of unobservable inputs developed using company specific information.

In 2019 and 2018, the Company recorded charges of $35 million and $33 million (pre-tax and after-tax) to
impair certain intangible assets (primarily customer relationships) for its Rexall Health retail business. The
impairments were primarily the result of the decline in estimated future cash flows for this business. The
estimated cash flow projections were negatively affected by lower projected overall growth rate from the
ongoing impact of government regulations in 2019 and significant generics reimbursement reductions across
Canada and minimum wage increases in multiple provinces in 2018. The Company utilized an income approach
(a 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.

Refer to Financial Note 19, “Fair Value Measurements,” for more information on nonrecurring fair value

measurements.

5. Business Acquisitions and Divestitures

During 2020, the Company did not complete any material acquisitions. During 2020 and 2019, the
Company did not complete any material divestitures aside from the separation of the Change Healthcare JV, as
described in more detail in Financial Note 2, “Investment in Change Healthcare Joint Venture.”

Acquisitions

2019 Acquisition

Medical Specialties Distributors LLC (“MSD”)

On June 1, 2018, the Company completed its acquisition of MSD for the net purchase consideration of
$784 million, which was funded from cash on hand. MSD is a leading national distributor of infusion and

86

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

medical-surgical supplies as well as a provider of biomedical services to alternate site and home health providers.
The financial results of MSD have been included in the Company’s consolidated statements of operations within
its Medical-Surgical Solutions segment since the acquisition date.

The fair value of assets acquired and liabilities assumed as of the acquisition date were finalized upon
completion of the measurement period in the first quarter of 2020. The final purchase price allocation included
acquired identifiable intangibles of $326 million primarily representing customer relationships with a weighted
average life of 18 years.

The following table summarizes the final recording of the fair value of the assets acquired and liabilities
assumed for this acquisition 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

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

FY20
Measurement
Period
Adjustments

Amounts
Recognized as
of the
Acquisition
Date (2)

$113

$ (1)

$112

72

381

326

55

(72)

(91)

(1)

7

—

1

—

(6)

71

388

326

56

(72)

(97)

Net assets acquired, net of cash and cash equivalents

$784

$—

$784

(1) Provisional amounts as of March 31, 2019.
(2) Final amounts as of May 31, 2019.

2018 Acquisitions

RxCrossroads

On January 2, 2018,

the Company completed its acquisition of RxCrossroads for the net purchase
consideration of $720 million, which was funded from cash on hand. The financial results of RxCrossroads have
been included in the consolidated statements of operations within the Company’s U.S. Pharmaceutical and
Specialty Solutions segment since the acquisition date.

The fair value of assets acquired and liabilities assumed as of the acquisition date were finalized upon
completion of the measurement period. As of December 31, 2018, the final amounts of fair value recognized for
assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were
$129 million and $57 million. Approximately $386 million of the final purchase price allocation was assigned to
goodwill, which reflects the expected future benefits from certain synergies and intangible assets that do not
qualify for separate recognition. The final purchase price allocation included acquired identifiable intangibles of
$262 million primarily representing customer relationships and trade names with a weighted average life of 14
years.

87

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

CoverMyMeds LLC (“CMM”)

On April 3, 2017, the Company completed its acquisition of CMM for the net purchase consideration of
$1.3 billion, which was funded from cash on hand. The fair value of assets acquired and liabilities assumed as of
the acquisition date were finalized upon completion of the measurement period in the first quarter of 2019. The
financial results of CMM have been included in the Company’s consolidated statements of operations within
Other 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, the Company recorded a liability for this
remaining contingent consideration at its estimated fair value of $113 million as of the acquisition date in its
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 was re-measured at fair value at each reporting date until the liability was
extinguished and changes in fair value were recorded in the Company’s consolidated statements of
operations. The initial fair value of this contingent consideration was a non-cash investing activity. Pursuant to
the agreement, the Company paid additional contingent consideration of $69 million and $68 million in May
2019 and May 2018. As of March 31, 2020 and 2019, the related liability was nil and $69 million.

Other

During 2018, the Company also completed 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. The fair value of assets acquired and liabilities assumed of intraFUSION, BDI and
Uniprix as of the acquisition dates were finalized upon completion of the measurement period. As of
September 30, 2018, the final amounts of fair value recognized for the assets acquired and liabilities assumed for
these acquisitions as of the acquisition dates, excluding goodwill and intangibles, were $292 million and
$160 million. Approximately $246 million of the final purchase price allocation was 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 $118 million
primarily representing customer relationships. The financial results of intraFUSION and BDI have been included
within the Company’s U.S. Pharmaceutical and Specialty Solutions segment since the acquisition dates. The
financial results of Uniprix have been included within Other since the acquisition date.

Other Acquisitions

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

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

However, if the assets of another company are acquired, the goodwill may be deductible for tax purposes.

88

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FINANCIAL NOTES (Continued)

Divestiture

Fiscal 2018

Enterprise Information Solutions

On August 1, 2017, the Company entered into an agreement with a third party to sell its Enterprise
Information Solutions (“EIS”) business included in Other 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. McKesson received net cash proceeds
of $169 million after $16 million of assumed net debt by the third party. The Company recognized a pre-tax gain
of $109 million ($30 million after-tax) upon the disposition of this business in the third quarter of 2018 in
operating expenses.

6. Share-Based Compensation

The Company provides share-based compensation to its employees, officers and non-employee directors,
including restricted stock units (“RSUs”), performance-based stock units (“PSUs”, formerly referred to as total
shareholder return units or “TSRUs”), performance-based restricted stock units (“PeRSUs”), stock options and an
employee stock purchase plan (“ESPP”) (collectively, “share-based awards”). Most of the share-based awards are
granted in the first quarter of each fiscal year.

Compensation expense for the share-based awards is recognized for the portion of awards ultimately
expected to vest. The Company estimates the number of share-based awards that will ultimately vest primarily
based on historical experience. The estimated forfeiture rate established upon grant is re-assessed throughout the
requisite service period and is adjusted when actual forfeitures occur. The actual forfeitures in future reporting
periods could be higher or lower than current estimates.

Compensation expense is classified in the consolidated statements of operations or capitalized in the
consolidated balance sheets in the same manner as cash compensation paid to the Company’s employees. No
share-based compensation expenses were capitalized as part of the cost of an asset in 2020 and 2019. No material
amounts were capitalized in 2018.

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

Tax benefit for share-based compensation expense (2)

Share-based compensation expense, net of tax

(1)

Includes compensation expense recognized for RSUs, PSUs and PeRSUs.

89

Years Ended March 31,
2018
2019
2020

$104

$ 75

$ 46

7

8

119

(18)

12

8

95

14

9

69

(12)

(28)

$101

$ 83

$ 41

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(2)

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 2020 and 2019 included
discrete income tax expense of $2 million and $4 million. 2018 included a discrete income tax benefit of
$8 million related to the adoption of the amended accounting guidance on share-based compensation.

Stock Plans

In July 2013, the Company’s stockholders approved the 2013 Stock Plan to replace the 2005 Stock Plan.
Under these stock plans, the Company may issue restricted stock, RSUs, PSUs, PeRSUs, stock options and other
share-based awards to selected employees, officers and non-employee directors. The 2013 Stock Plan reserves
30 million shares plus unused reserved shares under the 2005 Stock Plan. As of March 31, 2020, 20 million
shares remain available for future grant under the 2013 Stock Plan.

Restricted Stock Unit Awards

RSUs entitle the holder to receive a specified number of shares of the Company’s common stock which vest
over a period of generally three to four years as determined by the Compensation Committee at the time of grant.
The fair value of the award is determined based on the market price of the Company’s common stock on the
grant date and the related compensation expense is recognized over the vesting period on a straight-line basis.

Non-employee directors receive an annual grant of RSUs, which vest immediately and are expensed upon
grant. The director may elect to receive the underlying shares immediately or defer receipt of the shares if they
meet director stock ownership guidelines. The shares will be automatically deferred for those directors who do
not meet the director stock ownership guidelines. At March 31, 2020, approximately 72,000 RSUs for the
Company’s directors are vested.

PSUs are conditional upon the attainment of market and performance objectives over a specified period. The
number of vested PSUs is assessed at the end of a three-year performance period upon attainment of meeting
certain earnings per share targets, average return on invested capital and for certain participants, total shareholder
return relative to a peer group of companies and for special PSUs granted in 2019 meeting certain cumulative
operating profit metrics. The Company uses the Monte Carlo simulation model to measure the fair value of the
total shareholder return portion of the PSUs. The earnings per share portion of the PSUs is measured at the grant
date market price. PSUs have a requisite service period of generally three years. Expense is attributed to the
requisite service period on a straight-line basis based on the fair value of the PSUs, adjusted for the performance
modifier at the end of each reporting period. For PSUs that are designated as equity awards, the fair value is
measured at the grant date. For PSUs that are eligible for cash settlement and designated as liability awards, the
Company re-measures the fair value at the end of each reporting period and adjusts a corresponding liability in its
consolidated balance sheets for changes in fair value.

PeRSUs are awards for which the number of RSUs awarded is conditional upon the attainment of one or
more performance objectives over a specified period. The Company did not grant any PeRSUs during the year
ended March 31, 2020. The Compensation Committee approves the target number of PeRSUs representing the
base number of RSUs that could be awarded 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, 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,

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

if the goals are attained, the awards are granted and classified as RSUs and accounted for on that basis. The
Company recognizes compensation expense for these awards on a straight-line basis over the requisite aggregate
service period of generally four years.

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

Expected stock price volatility

Expected dividend yield

Risk-free interest rate

Expected life (in years)

Years Ended March 31,

2020

2019

2018

30% 31% 29%

1.3% 0.9% 0.8%

2.2% 2.6% 1.5%

3

3

3

The following table summarizes activity for restricted stock unit awards (RSUs, PSUs and PeRSUs) during

2020:

(In millions, except per share data)

Nonvested, March 31, 2019

Granted

Cancelled

Vested

Nonvested, March 31, 2020

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

Stock Options

Weighted-
Average
Grant Date Fair
Value Per Share

$142.77

129.90

134.28

158.08

$135.57

Shares

2

1

3

—

—

Years Ended March 31,

2020

2019

2018

$ 67

$ 59

$156

$155

$119

$ 97

3

2

2

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.

Compensation expense for stock options is recognized on a straight-line basis over the requisite service
period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest.
The Company uses the Black-Scholes options-pricing model to estimate the fair value of its stock options. Once

91

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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.

Weighted-average assumptions used to estimate the fair value of employee stock options were as follow: (1)

Expected stock price volatility (2)

Expected dividend yield (3)

Risk-free interest rate (4)

Expected life (in years) (5)

Years Ended March 31,

2019

26%

0.9%

2.8%

4.6

2018

25%

0.8%

1.7%

4.5

(1) The Company did not grant any stock options during the year ended March 31, 2020.
(2) The computation of expected volatility was based on a combination of the historical volatility of the
Company’s common stock and implied market volatility. The Company believes this market-based input
provides a reasonable estimate of its future stock price movements and is consistent with employee stock
option valuation considerations.

(3) Expected dividend yield is based on historical experience and investors’ current expectations.
(4) 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 grant date.

(5) The expected life of the options is based primarily on historical employee stock option exercises and other
behavioral data and reflects the impact of changes in the contractual life of current option grants compared
to the Company’s historical grants.

The following is a summary of stock options outstanding at March 31, 2020:

Range of Exercise
Prices

$118.41 – $178.13

178.14 – 237.86

Options Outstanding

Options Exercisable

Number of Options
Outstanding
at Year End
(In millions)

Weighted- Average
Remaining
Contractual
Life (Years)

1

1

2

4

2

Weighted-
Average
Exercise Price

$148.36

198.25

Number of Options
Exercisable at
Year End
(In millions)

—

1

1

Weighted-
Average
Exercise Price

$148.62

199.88

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table summarizes stock option activity during 2020:

(In millions, except per share data)

Outstanding, March 31, 2019

Granted

Cancelled

Exercised

Outstanding, March 31, 2020

Vested and expected to vest (1)

Vested and exercisable, March 31, 2020

Weighted-
Average
Exercise
Price

$166.72

—

171.39

113.34

$180.48

$180.52

189.28

Shares

3

—

—

(1)

2

2

2

Weighted-Average
Remaining
Contractual
Term (Years)

3

3

3

2

Aggregate
Intrinsic
Value (2)

$4

$1

$1

1

(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,

2020

2019

2018

$— $34.98

$34.24

$

$

$

$

$

$ 17

$ 66

$

4

$ 16

$

6

2

$

$

$

$

$

16

29

4

16

15

2

60

77

22

20

15

2

Employee Stock Purchase Plan

The Company has an ESPP under which 21 million shares have been authorized for issuance. The ESPP
allows eligible employees to purchase shares of the Company’s common stock through payroll deductions. The
deductions occur over three-month purchase periods and the shares are then purchased at 85% of the market price
at the end of each purchase period. Employees are allowed to terminate their participation in the ESPP at any
time during the purchase period prior to the purchase of the shares. The 15% discount provided to employees on
these shares is included in compensation expense. The shares related to funds outstanding at the end of a quarter
are included in the calculation of diluted weighted average shares outstanding. These amounts have not been
significant for all the years presented. The Company recognizes costs for employer matching contributions as
ESPP expense over the relevant purchase period. Shares issued under the ESPP were not material in 2020, 2019,
and 2018. At March 31, 2020, 3 million shares remain available for issuance.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

7. Other Income, Net

(In millions)

Interest income

Equity in earnings, net (1)

Gain from sale of equity investment (2)

Actuarial losses from pension plans (3)

Other, net

Total

Years Ended March 31,

2020

2019

2018

$ 49

$ 39

$ 48

36

—

43

56

32

43

(127) —

—

54

44

7

$ 12

$182

$130

(1) Primarily recorded within the Company’s European Pharmaceutical Solutions segment.
(2) Amount represented a pre-tax gain from the sale of an equity investment to a third party included in Other

(3)

during 2019 and in our U.S. Pharmaceutical and Specialty Solutions segment during 2018.
Includes $116 million from the termination of the U.S. defined benefit pension plan and $11 million related
to a settlement from the executive benefit retirement plan for a recently retired executive. Refer to Financial
Note 17, “Pension Benefits.”

8. Income Taxes

(In millions)

Income from continuing operations before income taxes

U.S.

Foreign

Years Ended March 31,

2020

2019

2018

$ 216

$1,512

$1,175

928

(902)

(936)

Total income from continuing operations before income taxes

$1,144

$ 610

$ 239

Income tax expense (benefit) related to continuing operations consists of the following:

(In millions)

Current

Federal

State

Foreign

Total current

Deferred

Federal

State

Foreign

Total deferred

Income tax expense (benefit)

94

Years Ended March 31,

2020

2019

2018

$ 170

$ (20)

$ 577

48

142

360

(204)

(105)

(33)

(342)

35

152

167

223

44

(78)

189

33

205

815

(767)

17

(118)

(868)

$ 18

$356

$ (53)

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company recorded income tax expense of $18 million and $356 million in 2020 and 2019, and income

tax benefit of $53 million related to continuing operations in 2018.

The Company’s reported income tax expense rates were 1.6% and 58.4% in 2020 and 2019 and an income
tax benefit rate of 22.2% in 2018. Fluctuations in the Company’s reported income tax rates are primarily due to
the impact of the Change Healthcare joint venture divestiture in 2020, the 2017 Tax Act in 2018, 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 21% for 2020 and 2019 and 31.6% for 2018 to 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

Tax-free gain on investment exit (1)

Impact of change in U.S. tax rate on temporary differences

Transition tax on foreign earnings

Capital loss carryback

Other, net (2)

Income tax expense (benefit)

Years Ended March 31,

2020

$240

2019

$128

$

(41)

(81)

(7)

7

2

—

70

(86)

20

357

4

(42)

(87) —

—

—

(81)

(5)

(19) —

4

(9)

$ 18

$356

$

2018

75

50

(146)

454

585

(8)

(178)

—

(1,324)

457

—

(18)

(53)

(1) Refer to Financial Note 2, “Investment in Change Healthcare Joint Venture,” for additional information

regarding the separation of the Change Healthcare JV.

(2) The Company’s effective tax rates were impacted by other favorable U.S. federal permanent differences
including research and development credits of $7 million, $7 million and $11 million in 2020, 2019 and
2018.

On March 10, 2020, the Company completed the previously announced separation of its interest in the
Change Healthcare JV as described in Financial Note 2, “Investment in Change Healthcare Joint Venture.” The
Company’s reported income tax expense rate for 2020 was favorably impacted by this transaction given that it
was intended to generally be a tax-free split-off for U.S. federal income tax purposes. In the fourth quarter of
2020, the Company recognized an estimated gain for financial reporting purposes of $414 million (pre-tax and
after-tax) related to the separation transaction.

The Company’s reported income tax expense rate for 2020 was unfavorably impacted by non-cash pre-tax
charges of $275 million (pre-tax and after-tax) to remeasure the carrying value of assets and liabilities held for
sale related to the expected formation of a new German wholesale joint venture within the Company’s European
Pharmaceutical Solutions segment. Refer to Financial Note 3, “Held for Sale,” for more information.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company’s reported income tax expense rate for 2019 was unfavorably impacted by non-cash pre-tax
charges of $1.8 billion (pre-tax and after-tax) to impair the carrying value of goodwill for its European
Pharmaceutical Solutions segment, given that these charges are generally not deductible for tax purposes. Its
reported income tax benefit rate for 2018 was unfavorably impacted by non-cash charges of $1.7 billion (pre-tax
and after-tax) to impair the carrying value of goodwill, given that generally no tax benefit was recognized for
these charges. Refer to Financial Note 14, “Goodwill and Intangible Assets, Net,” for more information.

During 2019, the Company sold software 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 acquirer of the software and is entitled to amortize the purchase price of the assets for tax
purposes. In accordance with the adopted amended accounting guidance on income taxes, a discrete tax benefit
of $42 million was recognized in the second quarter of 2019 with a corresponding increase to a deferred tax asset
for the future tax amortization.

On December 19, 2016, the Company sold various software relating to its technology businesses 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 recognized over the tax lives of the assets. As a result, the
Company recognized a net tax benefit of $178 million in 2018. The Company no longer recognized the tax
benefit associated with this amortization in continuing operations upon adoption of the amended guidance related
to intra-entity transfer of an asset other than inventory in 2020 or 2019.

96

McKESSON CORPORATION

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

Lease 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

Lease right-of-use assets

Other

Total liabilities

Net deferred tax liability

Long-term deferred tax asset

Long-term deferred tax liability

Net deferred tax liability

March 31,

2020

2019

$

72

331

828

482

109

$

70

377

885

—

216

1,822

1,548

(833)

989

(870)

678

(1,947)

(2,016)

(202)

(531)

—

(449)

(56)

(170)

(513)

(885)

—

(34)

(3,185)

(3,618)

$(2,196)

$(2,940)

$

59

$

58

(2,255)

(2,998)

$(2,196)

$(2,940)

The Company assesses the available positive and negative evidence to determine whether deferred tax assets
are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded
on certain deferred tax assets in various tax jurisdictions. The valuation allowances were approximately
$833 million and $870 million in 2020 and 2019 and primarily relate to net operating and capital losses incurred
in certain tax jurisdictions for which no tax benefit was recognized. The decrease in the valuation allowance of
$37 million included $30 million of expense related to foreign losses incurred in 2020, for which no benefit was
recognized, offset by the remeasurement of foreign loss carryforwards and their related valuation allowance of
$67 million.

The Company has federal, state and foreign net operating loss carryforwards of $75 million, $3.3 billion and
$1.9 billion at March 31, 2020. Federal and state net operating losses will expire at various dates from 2021
through 2041. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has
foreign capital loss carryforwards of $739 million with indefinite lives.

97

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table summarizes the activity related to the Company’s 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

Years Ended March 31,

2020

2019

2018

$1,052

$1,183

$ 486

20

78

(168)

(234)

82

(8)

(13)

(7)

68

(13)

(25)

(5)

47

(124)

778

(7)

—

3

Unrecognized tax benefits at end of period

$ 958

$1,052

$1,183

As of March 31, 2020, the Company had $958 million of unrecognized tax benefits, of which $763 million
would reduce income tax expense and the effective tax rate, if recognized. The decrease in unrecognized tax
benefits in 2020 compared to 2019 is primarily attributable to the favorable resolution of an outstanding
California tax refund claim which decreased unrecognized tax benefits by $91 million. The decrease in
unrecognized tax benefits in 2019 compared to 2018 is primarily attributable to a $171 million decrease, with a
corresponding increase in taxes payable, due to the issuance of new tax regulations. During the next twelve
months, the Company does not expect any material reduction in its unrecognized tax benefits. However, this may
change as it continues to have ongoing negotiations with various taxing authorities throughout the year.

The Company reports interest and penalties on income taxes as income tax expense. It recognized income
tax expense of $23 million and $33 million in 2020 and 2019 and an income tax benefit of $1 million in 2018,
representing interest and penalties, in its consolidated statements of operations. As of March 31, 2020 and 2019,
it accrued $91 million and $68 million cumulatively in interest and penalties on unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and
various foreign jurisdictions. During the three months ended March 31, 2020, the Company signed the Revenue
Agent’s Report from the U.S. Internal Revenue Service (“IRS”) relating to their audit of the fiscal years 2013
through 2015. During the third quarter of 2018, the Company signed the Revenue Agent’s Report from the U.S.
IRS relating to their audit of the fiscal years 2010 through 2012. The Company is generally subject to audit by
taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2013 through the current
fiscal year.

Undistributed earnings of the Company’s foreign operations of approximately $5 billion were considered
indefinitely reinvested. Following enactment of the 2017 Tax Act, the repatriation of cash to the United States is
generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the
United States could be subject to applicable foreign withholding taxes and state income taxes. The Company may
remit foreign earnings to the United States to the extent it is tax efficient to do so. It does not expect the tax
impact from remitting these earnings to be material.

98

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

9. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s redeemable noncontrolling interests primarily relate to its consolidated subsidiary,
McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the
“Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an
annual recurring compensation amount of €0.83 per share. As a result, during 2020, 2019 and 2018, the
Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of
$42 million, $45 million and $43 million. All amounts were recorded in net income attributable to noncontrolling
interests in the Company’s consolidated statements of operations and the corresponding liability balance was
recorded in other accrued liabilities in the Company’s consolidated balance sheets.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe have a right to put
(“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of five
percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation
amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put
Amount”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. During
2020 and 2019, there were no material exercises of the Put Right. During 2018, the Company 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, 2020 and 2019, the carrying value of redeemable noncontrolling interests
of $1.40 billion and $1.39 billion exceeded the maximum redemption value of $1.22 billion and $1.23 billion. At
March 31, 2020 and 2019, the Company owned approximately 77% of McKesson Europe’s outstanding common
shares. In April 2020, the Company paid $46 million to purchase 1.8 million shares of McKesson Europe through
the exercises of the Put Right by the noncontrolling shareholders, which increased the Company’s ownership of
McKesson Europe’s outstanding common shares to 78%.

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 (the “Court”)
to challenge the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed
dividend. During the pendency of the Appraisal Proceedings, such amount will be paid as specified currently in
the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by
€0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the
guaranteed dividend remain unadjusted. Noncontrolling shareholders of McKesson Europe appealed this
decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. If upon final resolution of
the appeal an upwards adjustment is ordered, the Company would be required to make certain additional
payments for any shortfall
to all McKesson Europe noncontrolling shareholders who previously received
amounts under the Domination Agreement.

Noncontrolling Interests

Noncontrolling interests represent

third-party equity interests in the Company’s consolidated entities
primarily related to ClarusONE and Vantage, which were $217 million and $193 million at March 31, 2020 and
2019 in the Company’s consolidated balance sheets. During 2020, 2019 and 2018, the Company allocated a total
of $178 million, $176 million and $187 million of net income to noncontrolling interests.

99

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FINANCIAL NOTES (Continued)

Changes in redeemable noncontrolling interests and noncontrolling interests for

the years ended

March 31, 2020 and 2019 were as follows:

(In millions)

Balance, March 31, 2018

Net income attributable to noncontrolling interests

Other comprehensive loss

Reclassification of recurring compensation to other accrued liabilities

Payments to noncontrolling interests

Other

Balance, March 31, 2019

Net income attributable to noncontrolling interests

Other comprehensive income

Reclassification of recurring compensation to other accrued liabilities

Payments to noncontrolling interests

Other

Balance, March 31, 2020

Noncontrolling
Interests

Redeemable
Noncontrolling
Interests

$ 253

$1,459

176

—

—

(184)

(52)

193

178

—

—

(154)

—

$ 217

45

(66)

(45)

—

—

1,393

42

3

(42)

—

6

$1,402

There were no material changes in the Company’s ownership interests related to redeemable noncontrolling
interests during 2020 and 2019. The effect of changes in its ownership interests related to redeemable
noncontrolling interests on its 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. Net income attributable to McKesson was
$900 million, $34 million and $70 million in 2020, 2019 and 2018.

10. 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 the former reflects the potential dilution that could occur
if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

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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:

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,

2020

2019

2018

$1,126

$ 254

$ 292

(220)

(221)

(230)

906

(6)

33

1

62

5

$ 900

$ 34

$ 67

181

196

208

1

182

1

197

1

209

$ 4.99

$0.17

$0.30

(0.04) —

0.02

$ 4.95

$0.17

$0.32

$ 5.01

$0.17

$0.30

(0.03) —

0.02

$ 4.98

$0.17

$0.32

(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, 3 million and 2 million potentially dilutive
securities for 2020, 2019 and 2018 were excluded from the computations of diluted net earnings per common
share, as they were anti-dilutive.

11. Receivables, Net

(In millions)

Customer accounts

Other

Total

Allowances

Net

March 31,

2020

2019

$17,201

$14,941

3,014

3,584

20,215

18,525

(265)

(279)

$19,950

$18,246

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FINANCIAL NOTES (Continued)

Other receivables primarily include amounts due from suppliers. The allowances are primarily for estimated

uncollectible accounts.

12. 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

13. Leases

Lessee

March 31,

2020

2019

$

151

$

172

4,043

4,194

4,154

4,326

(1,829)

(1,778)

$ 2,365

$ 2,548

The Company leases facilities and equipment primarily under operating leases. The Company recognizes
lease expense on a straight-line basis over the term of the lease, taking into account, when applicable, lessor
incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments
over the term of the lease. Remaining terms for facility leases generally range from one to fifteen years, while
remaining terms for equipment leases generally range from one to five years. Most real property leases contain
renewal options (typically for five-year increments). Generally, the renewal option periods are not included
within the lease term as the Company is not reasonably certain to exercise that right at lease commencement. The
Company’s lease agreements do not contain any material residual value guarantees or material restrictive
covenants.

ROU assets and operating lease liabilities are recognized at the lease commencement date. ROU assets
represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities
represent its obligation to make lease payments arising from the lease. Operating lease liabilities are recognized
based on the present value of the future lease payments over the lease term, discounted at the Company’s
incremental borrowing rate as the implicit rate in the lease is not readily determinable for most of the Company’s
leases. The Company estimates the discount rate as its incremental borrowing rate based on qualitative factors
including Company specific credit rating, lease term, general economics and the interest rate environment. For
existing leases that commenced prior to the adoption of the amended leasing guidance, the Company determined
the discount rate on April 1, 2019 using the full lease term. Operating lease liabilities are recorded under the
captions “Current portion of operating lease liabilities” and “Long-Term Operating Lease Liabilities,” and the
corresponding lease assets are recorded under the caption “Operating Lease Right-of-Use Assets” in the
Company’s consolidated balance sheet. Finance lease assets are included in property, plant and equipment, net
and finance lease liabilities are included in the Current portion of long-term debt and Long-Term Debt in the
Company’s consolidated balance sheet.

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FINANCIAL NOTES (Continued)

Supplemental balance sheet information related to leases was as follows:

(In millions, except lease term and discount rate)

Operating leases

Operating Lease Right-of-Use Assets

Current portion of operating lease liabilities

Long-Term Operating Lease Liabilities

Total operating lease liabilities

Finance Leases

Property, Plant and Equipment, net

Current portion of long-term debt

Long-Term Debt

Total finance lease liabilities

Weighted Average Remaining Lease Term (Years)

Operating leases

Finance leases

Weighted Average Discount Rate

Operating leases

Finance leases

The components of lease cost were as follows:

(In millions)

Short-term lease cost

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Total finance lease cost

Variable lease cost (1)

Sublease income

Total lease cost (2)

March 31, 2020

$1,886

$ 354

1,660

$2,014

$ 180

$

15

151

$ 166

7.7

12.1

3.03%

2.86%

Year Ended
March 31, 2020

$ 29

459

14

5

19

125

(33)

$599

(1) These amounts include payments for maintenance, taxes, payments affected by the consumer price index

and other similar metrics and payments contingent on usage.

(2) These amounts were primarily recorded in operating expenses in the consolidated statement of operations.

Rent expense under operating leases was $576 million and $568 million in 2019 and 2018.

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FINANCIAL NOTES (Continued)

Supplemental cash flow information related to leases was as follows:

(In millions)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases (1)

Finance leases

Year Ended
March 31, 2020

$ (377)

(3)

(18)

$2,378

166

(1) These amounts include the transition adjustment for the adoption of the amended leasing guidance discussed

in Financial Note 1, “Significant Accounting Policies.”

Maturities of lease liabilities as of March 31, 2020 were as follows:

(In millions)

2021

2022

2023

2024

2025

Thereafter

Total lease payments (1)

Less imputed interest

Present value of lease liabilities

Operating
Leases

Finance
Leases

Total

$ 398

$ 19

$ 417

371

310

252

213

730

2,274

19

18

17

16

110

199

390

328

269

229

840

2,473

(260)

(33)

(293)

$2,014

$166

$2,180

(1) Total lease payments have not been reduced by minimum sublease income of $178 million due under future

noncancelable subleases.

As of March 31, 2020, the Company entered into additional leases primarily for facilities that have not yet
commenced with future lease payments of $149 million that are not reflected in the table above. These operating
leases will commence between 2021 and 2024 with noncancelable lease terms of 2 to 15 years.

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FINANCIAL NOTES (Continued)

As previously disclosed in the Company’s 2019 Annual Report and under the previous lease accounting, the

minimum lease payments required under operating leases were as follows as of March 31, 2019:

(In millions)

2020

2021

2022

2023

2024

Thereafter

Total minimum lease payments (1) (2)

Noncancelable
Operating
Leases

$ 454

397

343

290

236

936

$2,656

(1) Amount includes future minimum lease payments for the sale-leaseback transaction of $49 million.
(2) Total minimum lease payments have not been reduced by minimum sublease income of $133 million due

under future noncancelable subleases.

Lessor

The Company primarily leases certain owned equipment, that are classified as direct financing or sales-type
leases, to physician practices. As of March 31, 2020, the total lease receivable was $272 million with a weighted
average remaining lease term of approximately seven years. Interest income from these leases was not material
for the year ended March 31, 2020.

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FINANCIAL NOTES (Continued)

14. Goodwill and Intangible Assets, Net

Goodwill

Changes in the carrying amount of goodwill were as follows:

(In millions)

Balance, March 31, 2018

Goodwill acquired

Acquisition accounting, transfers and other

adjustments

Impairment charges

Foreign currency translation adjustments, net

Balance, March 31, 2019

Goodwill acquired

Acquisition accounting, transfers and other

adjustments

Other changes/disposals

Impairment charges

Foreign currency translation adjustments, net

U.S.
Pharmaceutical
and Specialty
Solutions

European
Pharmaceutical
Solutions

Medical-
Surgical
Solutions

Other

Total

$4,110

$ 1,850

$2,070

$2,894

$10,924

17

13

—

(62)

4,078

—

1

(1)

—

(11)

52

(5)

(1,776)

(121)

—

62

4

—

—

(3)

63

360

21

—

—

13

6

(21)

(63)

2,451

2,829

—

14

7

(5)

—

—

—

—

(2)

(64)

442

35

(1,797)

(246)

9,358

76

12

(6)

(2)

(78)

$2,453

$2,777

$ 9,360

Balance, March 31, 2020

$4,067

$

Goodwill Impairment Charges

The Company evaluates goodwill for impairment on an annual basis each year and at an interim date, if
indicators of potential impairment exist. On October 1, 2019, the Company voluntarily changed its annual
goodwill impairment testing date from January 1 to October 1 to better align with the timing of the Company’s
annual long-term planning process. Accordingly, management determined that the change in accounting principle
is preferable under the circumstance. This change has been applied prospectively from October 1, 2019 as
retrospective application is deemed impracticable due to the inability to objectively determine the assumptions
and significant estimates used in earlier periods without the benefit of hindsight. This change was not material to
the Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill
impairment charge.

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.

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 appropriate valuation multiples observed for the reporting unit’s
guideline public companies. Fair value estimates result from a complex series of judgments about future events
and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

management as of the measurement date. Any material changes in key assumptions, including failure to improve
operations of certain retail pharmacy stores, additional government reimbursement reductions, deterioration in
the financial markets, an increase in interest rates or an increase in the cost of equity financing by market
participants within the industry, or other unanticipated events and circumstances, may affect such estimates. The
discount rates are the weighted average cost of capital measuring the reporting unit’s cost of debt and equity
financing weighted by the percentage of debt and percentage of equity in a company’s target capital. The
unsystematic risk premium is an input factor used in calculating discount rate that specifically addresses
uncertainty related to the reporting unit’s future cash flow projections. Fair value assessments of the reporting
unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using
company specific information.

Goodwill charges listed below were recorded under the caption, “Goodwill

impairment charges” in
operating expenses in the consolidated statements of operations. Most of the goodwill impairment for these
reporting units were generally not deductible for income tax purposes.

Fiscal 2020

The impairment testing performed in 2020 did not indicate any material impairment of goodwill.

Fiscal 2019

(In millions, except rates)

Quarter Ended Reporting Unit

Segment

Discount
Rate

Terminal
Growth
Rate

Goodwill
Impairment (1)

June 2018

June 2018

June 2018

March 2019

March 2019

PD

RP

PD

RP

PD

European Pharmaceutical Solutions

8.0% 1.25%

$ 238 (2)

European Pharmaceutical Solutions

European Pharmaceutical Solutions

European Pharmaceutical Solutions

European Pharmaceutical Solutions

Total

8.5% 1.25%

8.0% 1.25%

10.0% 1.25%

9.0% 1.25%

251 (3)

81 (3)

465 (4)

741 (4)

$1,776

(1) Represents pre-tax and after-tax amounts, except for an aggregate $20 million of tax charges related to the
March 2019 Retail Pharmacy impairment. Total goodwill impairment for 2019 also includes $21 million
related to the Company’s Rexall Health business within Other recorded in the third quarter of 2019.

(2) Prior to implementing its new segment reporting structure in the first quarter of 2019, the Company’s
European operations were considered a single reporting unit. Following the change in reportable segments,
its European Pharmaceutical Solutions segment was divided into two distinct reporting units, Retail
Pharmacy (“RP”), formerly Consumer Solutions, and Pharmaceutical Distribution (“PD”), formerly
Pharmacy Solutions, for the purposes of goodwill impairment testing. This change required performance of
a goodwill impairment test for these two new reporting units which resulted in a goodwill impairment
charge as PD’s estimated fair value was lower than its reassigned carrying value.

(3) Both RP and PD projected a decline in the estimated future cash flows primarily triggered by additional
U.K. government actions which were announced on June 29, 2018. An interim goodwill impairment test for
these reporting units identified that their carrying values exceeded their estimated fair value and resulted in
an impairment charge.

(4) As a result of the annual goodwill impairment test, the carrying values of the PD and RP reporting units
exceeded their estimated fair value which required the Company to record impairment charges for the

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

impairments were primarily due to declines in the reporting units’
reporting units. These additional
estimated future cash flows and the selection of higher discount rates. The declines in estimated future cash
flows were primarily attributed to additional government reimbursement reductions and competitive
pressures within the U.K. The risk of successfully achieving certain business initiatives was the primary
factor in the use of a higher discount rate. As of March 31, 2019 the entire remaining goodwill balances of
both reporting units were impaired.

Fiscal 2018

(In millions, except rates)

Quarter Ended

Reporting Unit

Segment (3)

Discount
Rate

Terminal
Growth
Rate

Goodwill
Impairment (1)

September 2017 McKesson Europe (2) European Pharmaceutical Solutions

7.5% 1.25%

$ 350 (4)

March 2018

McKesson Europe

European Pharmaceutical Solutions

8.0% 1.25%

March 2018

Rexall

Other

Total

10.0% 2.00%

933 (5)

455 (6)

$1,738

(1) Represents pre-tax and after-tax amounts.
(2) This reporting unit was divided into two reporting units in the first quarter of 2019 upon a change in

segment reporting structure. See above for more information.

(3) The impairment charges recorded in 2018 were attributable to the former McKesson Distribution Solutions
segment. The segment reporting structure which included McKesson Distribution Solutions was reorganized
in the first quarter of 2019. The segments presented above for 2018 reflect the revised segment reporting
structure.

(4) The reporting unit projected a decline in its estimated future cash flows primarily triggered by government
reimbursement reductions in its retail business in the U.K. Accordingly, the Company performed an interim
one-step goodwill impairment test prior to its annual impairment test. As a result, the Company determined
that the carrying value of this reporting unit exceeded its estimated fair value and recorded a goodwill
impairment charge.

(5) As a result of the Company’s annual impairment test, it was determined that the carrying value of the
reporting unit further exceeded its estimated fair value and recorded a goodwill impairment charge. This
reporting unit had a further decline in its estimated future cash flows driven by weakening script growth
outlook in the Company’s U.K. business and by a more competitive environment in France.

(6) As a result of the Company’s annual impairment test, it was determined that the carrying value of the
reporting unit exceeded its estimated fair value and recorded a goodwill impairment charge. 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 could
only be partially mitigated through the business’ cost saving efforts. As of March 31, 2018, the entire
remaining goodwill balance related to the Company’s acquisition of Rexall Health was impaired.

Refer to Financial Note 19, “Fair Value Measurements,” for more information on these nonrecurring fair
value measurements. As of March 31, 2020, accumulated goodwill impairment losses were $3.1 billion in the
Company’s European Pharmaceutical Solutions segment and $478 million in Other. As of March 31, 2019,
accumulated goodwill impairment losses were $3.1 billion in the Company’s European Pharmaceutical Solutions
segment and $476 million in Other.

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FINANCIAL NOTES (Continued)

Intangible Assets

Information regarding intangible assets is as follows:

Weighted
Average
Remaining
Amortization
Period
(Years)

11

10

26

13

3

5

March 31, 2020

March 31, 2019

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

$3,650

$(1,950)

$1,700

$3,818

$(1,801)

$2,017

994

492

808

175

273

(480)

(232)

(242)

(111)

(221)

514

260

566

64

52

1,017

513

887

141

288

(430)

(209)

(232)

(94)

(209)

587

304

655

47

79

$6,392

$(3,236)

$3,156

$6,664

$(2,975)

$3,689

(Dollars in millions)

Customer relationships

Service agreements

Pharmacy licenses

Trademarks and trade names

Technology

Other

Total

Amortization expense of intangible assets was $462 million, $485 million and $503 million for 2020, 2019
and 2018. Estimated annual amortization expense of intangible assets is as follows: $451 million, $351 million,
$251 million, $236 million and $233 million for 2021 through 2025, and $1.6 billion thereafter. All intangible
assets were subject to amortization as of March 31, 2020 and 2019.

Refer to Financial Note 4, “Restructuring, Impairment and Related Charges,” for more information on

intangible asset impairment charges recorded in 2020, 2019 and 2018.

109

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

15. Debt and Financing Activities

Long-term debt consisted of the following:

(In millions)

U.S. Dollar notes (1) (2)

3.65% Notes due November 30, 2020

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

4.75% Notes due May 30, 2029

6.00% Notes due March 1, 2041

4.88% Notes due March 15, 2044

Foreign currency notes (1) (3)

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,

2020

2019

$ 700

$ 700

323

400

400

323

400

400

1,100

1,100

167

600

400

282

411

—

662

659

552

557

174

167

600

400

282

411

280

673

670

560

586

43

7,387

1,052

7,595

330

$6,335

$7,265

(1) These notes are unsecured and unsubordinated obligations of the Company.
(2)
(3)
(4)

Interest on these notes is payable semi-annually.
Interest on these foreign currency notes is payable annually, except the 2020 Floating Rate Euro Notes.
Interest on these notes is payable quarterly.

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. At
March 31, 2020 and March 31, 2019, $7.4 billion and $7.6 billion of total debt was outstanding, of which
$1.1 billion and $330 million was included under the caption “Current portion of long-term debt” in the
Company’s consolidated balance sheets.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Debt Offerings

On November 30, 2018, the Company completed a public offering of 3.65% Notes due November 30, 2020
(the “2020 Notes”) in a principal amount of $700 million and 4.75% Notes due May 30, 2029 (the “2029 Notes”)
in a principal amount of $400 million. Interest on the 2020 Notes and 2029 Notes is payable semi-annually on
May 30th and November 30th of each year, commencing on May 30, 2019. The Company utilized the net
proceeds from these notes of $1.1 billion, net of discounts and offering expenses, for general corporate purposes.

Tender Offers and Early Repayments

In 2018, the Company paid $1.4 billion to redeem the $1.2 billion principal amount of its 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”), premiums of
$112 million and $22 million of interest. The Company recorded a pre-tax loss on debt extinguishment
of $122 million ($78 million after-tax) in connection with the redemption of the Tender Offer Notes.

Repayments at Maturity
In 2020, the Company repaid at maturity its €250 million Floating Rate Euro Notes due February 12, 2020.
In 2019, the Company repaid at maturity its $1.1 billion 2.28% notes due March 15, 2019. In 2018, the Company
repaid at maturity its €500 million 4.50% Euro-denominated bonds due April 26, 2017 and its $500 million
1.40% notes due March 15, 2018.

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, the Company may redeem those notes at any
time prior to maturity, in whole or in part, for cash at redemption prices. In the event of the occurrence of both
(1) a change of control of the Company and (2) a downgrade of a Series below an investment grade rating by
each of Fitch Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified
period, an offer must be made to purchase that Series from the holders at a price equal to 101% of the then
outstanding principal amount of that Series, plus accrued and unpaid interest to, but not including, the date of
repurchase. The indenture and the related officers’ certificate for each Series, subject to the exceptions and in
compliance with the conditions as applicable, specify that the Company may not consolidate, merge or sell all or
substantially all of its assets, incur liens, or enter into sale-leaseback transactions exceeding specific terms,
without the lenders’ consent. The indentures also contain customary events of default provisions.

Other Information

Scheduled principal payments of long-term debt are $1.1 billion in 2021, $704 million in 2022, $813 million

in 2023, $1.1 billion in 2024, $16 million in 2025 and $3.7 billion thereafter.

Revolving Credit Facilities

In the second quarter of 2020, the Company entered into a syndicated $4 billion five-year senior unsecured
credit facility (the “2020 Credit Facility”), which has a $3.6 billion aggregate sublimit of availability in Canadian
dollars, British pound sterling and Euro. The 2020 Credit Facility matures in September 2024 and had
no borrowings during 2020 and no amounts outstanding as of March 31, 2020. The remaining terms and
conditions of the 2020 Credit Facility are substantially similar to those previously in place under the $3.5 billion

111

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

five-year senior unsecured revolving credit facility (the “Global Facility”), which was scheduled to mature in
October 2020. The Global Facility was terminated in connection with the execution of the 2020 Credit Facility in
September 2019 and had no borrowings during the six months ended September 30, 2019 and the year ended
March 31, 2018, and had no amounts outstanding as of March 31, 2019.

Borrowings under the 2020 Credit Facility bear interest based upon the London Interbank Offered Rate
(“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate,
or alternative overnight rates as applicable, plus agreed margins. The 2020 Credit Facility 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 the Company does not comply with these covenants, its ability to use
the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit
Facility may be required. At March 31, 2020, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in Euros with a committed
amount of $12 million and an uncommitted amount of $166 million as of March 31, 2020. Borrowings and
repayments were not material in 2020 and 2019 and amounts outstanding under these credit lines were not
material as of March 31, 2020 and 2019.

Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for
other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding
commercial paper notes. During 2020 and 2019, it borrowed $21.4 billion and $37.3 billion and repaid
$21.4 billion and $37.3 billion under the program. At March 31, 2020 and 2019, there were no commercial paper
notes outstanding.

16. Variable Interest Entities

The Company evaluates its ownership, contractual and other interests in entities to determine if they are
VIEs, if it has a variable interest in those entities and the nature and extent of those interests. These evaluations
are highly complex and involve management judgment and the use of estimates and assumptions based on
available historical information, among other factors. Based on its evaluations, if the Company determines it is
the primary beneficiary of such VIEs, it consolidates such entities into its financial statements.

Consolidated Variable Interest Entities

The Company consolidates a VIE when it has the power to direct the activities that most significantly
impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the
VIE and, as a result, is considered the primary beneficiary of the VIE. It consolidates certain single-lessee leasing
entities where it, as the lessee, has the majority risk of the leased assets due to its minimum lease payment
obligations to these leasing entities. As a result of absorbing this risk, the leases provide the Company with the
power to direct the operations of the leased properties and the obligation to absorb losses or the right to receive
benefits of the entity. Consolidated VIEs do not have a material impact on the Company’s consolidated
statements of operations and cash flows. Total assets and liabilities included in its consolidated balance sheets for
these VIEs were $695 million and $82 million at March 31, 2020 and $896 million and $64 million at March 31,
2019.

Investments in Unconsolidated Variable Interest Entities

The Company is involved with VIEs which it does not consolidate because it does not have the power to
direct the activities that most significantly impact their economic performance and thus is not considered the

112

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

primary beneficiary of the entities. Its relationships include equity method investments and lending, leasing,
contractual or other relationships with the VIEs. The Company’s most significant relationships are with oncology
and other specialty practices. Under these practice arrangements, it generally owns or leases all of the real estate
and equipment used by the affiliated practices and manages the practices’ administrative functions. It also has
relationships with certain pharmacies in Europe with whom it may provide financing, have equity ownership and/
or a supply agreement whereby it supplies the vast majority of the pharmacies’ purchases. The Company’s
maximum exposure to loss (regardless of probability) as a result of all unconsolidated VIEs was $1.4 billion at
March 31, 2020 and $1.1 billion at March 31, 2019, 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 20, “Financial Guarantees and Warranties.” The Company
believes there is no material loss exposure on these assets or from these relationships.

17. Pension Benefits

The Company maintains 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
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. The Company also has 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.

On May 23, 2018, the Company’s Board of Directors approved the termination of its frozen U.S. defined
benefit pension plan (“Plan”). During the first quarter of 2020, the Company offered the option of receiving a
lump sum payment to certain participants with vested qualified Plan benefits in lieu of receiving monthly annuity
payments. Approximately 1,300 participants elected to receive the settlement, and lump sum payments of
approximately $49 million were made from plan assets to these participants in June 2019. The benefit obligation
settled approximated payments to plan participants and a pre-tax settlement charge of $17 million ($12 million
after-tax) was recorded during the first quarter of 2020. During the second quarter of 2020, the Company
transferred the remainder of the Plan’s pension obligation to a third-party insurance provider by purchasing
annuity contracts for approximately $280 million which was fully funded directly by plan assets. The third-party
insurance provider assumed the obligation to pay future pension benefits and provide administrative services on
November 1, 2019. As a result, the remaining previously recorded unrecognized losses in accumulated other
comprehensive loss for this Plan were recognized as expense and a pre-tax settlement charge of approximately
$105 million ($78 million after-tax) was recorded in other income (expense), net, in the Company’s consolidated
statements of operations during the second quarter of 2020. As of March 31, 2020 and 2019, this defined benefit
pension plan had an accumulated comprehensive loss of approximately nil and $121 million.

During the third quarter of 2020, a cash payment of $114 million was made to settle a participant’s liability
from the executive benefit retirement plan. As a result, a majority of the remaining recorded unrecognized losses
in accumulated other comprehensive loss for this Plan were recognized as expense and a pre-tax settlement
charge of approximately $11 million ($8 million after-tax) was recorded in other income (expense), net, in the
Company’s consolidated statements of operations. As of March 31, 2020 and 2019, this plan had an accumulated
comprehensive loss of approximately $1 million and $12 million.

113

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The Company’s non-U.S. defined benefit pension plans cover eligible employees located predominantly in
Norway, the 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. In the U.K., the
Company has subsidiaries that participate in a joint pension plan. 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 the Company’s pension plans is as follows:

(In millions)

U.S. Plans
Years Ended March 31,

Non-U.S. Plans
Years Ended March 31,

2020

2019

2018

2020

2019

2018

Service cost — benefits earned during the year

$— $— $ 3

$ 16

$ 15

$ 15

Interest cost on projected benefit obligation

Expected return on assets

Amortization of unrecognized actuarial loss and prior service

costs

Curtailment/settlement loss

Net periodic pension expense

6

(4)

2

127

$131

$

14

14

19

21

22

(16)

(19)

(22)

(23)

(26)

5

4

7

6

6

2 —

4

1

5

1

$ 6

$ 19

$ 18

$ 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.

114

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FINANCIAL NOTES (Continued)

Information regarding the changes in benefit obligations and plan assets for the Company’s 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,

2020

2019

2020

2019

Benefit obligation at beginning of period (1)

$ 439

$ 485

$ 990

$1,035

Service cost

Interest cost

Actuarial loss (gain)

Benefits paid

Annuity Premium Transfer

Expenses paid

Acquisitions

Foreign exchange impact and other

—

6

20

(179)

(276)

—

—

—

—

14

4

(64)

—

—

—

—

16

19

(36)

(43)

—

—

2

(52)

15

21

35

(36)

—

(1)

1

(80)

Benefit obligation at end of period (1)

$ 10

$ 439

$ 896

$ 990

Change in plan assets

Fair value of plan assets at beginning of period

$ 322

$ 335

$ 642

$ 687

Actual return on plan assets

Employer and participant contributions

Benefits paid

Annuity Premium Transfer

Expenses paid

Foreign exchange impact and other

27

116

(179)

(276)

—

(10)

12

39

(64)

—

—

—

3

28

(43)

—

(1)

(35)

18

23

(36)

—

(1)

(49)

Fair value of plan assets at end of period

$ —

$ 322

$ 594

$ 642

Funded status at end of period

$ (10)

$(117)

$(302)

$ (348)

Amounts recognized on the balance sheet

Assets

Current liabilities (2)

Long-term liabilities

Total

$ —

$

7

$ 49

$

20

(1)

(9)

(115)

(9)

(162)

(189)

(13)

(355)

$ (10)

$(117)

$(302)

$ (348)

(1) The benefit obligation is the projected benefit obligation.
(2) Current liabilities includes $151 million reclassified from long-term liabilities to assets held for sale in 2020
in conjunction with the Company’s German wholesale business to be contributed to a joint venture as
discussed in Financial Note 3, “Held for Sale”.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)

The following table provides the projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for all the Company’s pension plans, including accumulated benefit obligation in excess of plan
assets:

(In millions)

Projected benefit obligation

Accumulated benefit obligation

Fair value of plan assets

U.S. Plans
March 31,

Non-U.S. Plans
March 31,

2020

2019

2020

2019

$ 10

$439

$896

$990

10

—

439

322

856

594

949

642

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,

2020

2019

2020

$

1

$133

$149

2019

$186

—

—

(3)

(4)

$

1

$133

$146

$182

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,

2020

2019

2018

2020

2019

2018

$

(3)

$

8

$ (15)

$ (24)

$ 42

$ (11)

—

—

—

—

—

(2)

(129)

(9)

(8)

(6)

(5)

(6)

—

—

—

—

—

—

—

—

(6)

(12)

—

19

Total recognized in other comprehensive loss

(income)

$(132)

$ (1)

$ (23)

$ (36)

$ 25

$—

The Company expects to amortize $5 million of actuarial loss for the pension plans from stockholders’
equity to pension expense in 2021. The comparable 2020 amount was $8 million of actuarial loss. In addition, the
Company recognized $127 million in actuarial losses for the pension plans to stockholders’ equity in 2020 as a
result of $116 million from the termination of the U.S. defined benefit pension plan and $11 million from the
settlement from the executive benefit retirement plan for a recently retired executive.

Projected benefit obligations related to the Company’s unfunded U.S. plans were $10 million and
$124 million at March 31, 2020 and 2019. Pension obligations for its unfunded plans are based on the
recommendations of independent actuaries. Projected benefit obligations relating to the Company’s unfunded
non-U.S. plans were $298 million and $293 million at March 31, 2020 and 2019. Funding obligations for its
non-U.S. plans vary based on the laws of each non-U.S. jurisdiction.

116

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Expected benefit payments for the Company’s pension plans are as follows: $36 million, $35 million,
$36 million, $36 million and $38 million for 2021 to 2025 and $208 million for 2026 through 2030. Expected
benefit payments are based on the same assumptions used to measure the benefit obligations and include
estimated future employee service. Expected contributions to be made for the Company’s pension plans are
$33 million for 2021.

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,

2020

2019

2018

2020

2019

2018

3.66% 3.83% 3.55% 2.03% 2.35% 2.34%

N/A (1) N/A (1)

4.00

5.25

4.00

6.25

2.93

3.01

3.13

3.71

2.72

4.03

3.08% 3.65% 3.69% 2.03% 2.13% 2.35%

Rate of increase in compensation

N/A (1) N/A (1) N/A (1) 2.93

3.18

2.59

(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.

The Company’s defined benefit pension plan liabilities are valued using a discount rate based on a yield
curve developed from a portfolio of high quality corporate bonds rated AA or better whose maturities are aligned
with the expected benefit payments of its plans. For March 31, 2020, the Company’s U.S. defined benefit
liabilities are valued using a weighted average discount rate of 3.08%, which represents a decrease of 57 basis
points from its 2019 weighted-average discount rate of 3.65%. The Company’s non-U.S. defined benefit pension
plan liabilities are valued using a weighted-average discount rate of 2.03%, which represents a decrease of 10
basis points from its 2019 weighted average discount rate of 2.13%.

Plan Assets

Investment Strategy: The overall objective for U. S. pension plan assets was 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 were made to provide liquidity for benefit payments
and to rebalance plan assets to their target allocations.

In September 2018, a new investment allocation strategy was put in place to protect the funded status of the
U.S. plan assets subsequent to Board approval of U.S. pension plan termination. As of March 31, 2020, no assets
remained related to the U.S. pension plan. The target allocation for U.S. plan assets at March 31, 2019 was 100%
fixed income investments including cash and cash equivalents. 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 were in a commingled real
estate fund.

For 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

117

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

manner appropriate to the nature and duration of the expected future retirement benefits payable under the plans.
Plan assets are primarily invested in high-quality corporate and government bond funds and equity securities.
Assets are properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings
so as to avoid accumulations of risk in the portfolio as a whole.

The Company develops the expected long-term rate of return assumption based on the projected
performance of the asset classes in which plan assets are invested. The target asset allocation was determined
based on the liability and risk tolerance characteristics of the plans and at times may be adjusted to achieve
overall investment objectives.

Fair Value Measurements: The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value. Level 1 refers to fair values determined based on unadjusted quoted prices in active
markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and
Level 3 includes fair values estimated using significant unobservable inputs. The following tables represent the
Company’s pension plan assets as of March 31, 2020 and 2019, using the fair value hierarchy by asset class:

(In millions)

Cash and cash equivalents

Equity securities:

Common and preferred stock

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

U.S. Plans
March 31, 2020

Non-U.S. Plans
March 31, 2020

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

$— $— $— $— $ 13

$— $— $ 13

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

53

6

14

—

—

—

—

75 —

139 —

17 —

—

—

—

—

107

101 —

3

2

3

19 —

—

—

128

145

31

—

—

208

8

19

$— $— $— $— $215

$334

$

3

$552

—

—

—

—

$—

8

—

—

34

$594

118

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(In millions)

Cash and cash equivalents

Equity securities:

Common and preferred stock

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

U.S. Plans
March 31, 2019

Non-U.S. Plans
March 31, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

$ 11

$— $— $ 11

$

6

$— $— $

6

—

—

—

—

33 —

273 —

—

—

—

33

273

—

—

62

4

8

—

5 —

5 —

—

—

82 —

135 —

18 —

—

—

—

—

—

144

139

26

—

—

—

—

125

110

6

241

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

2

3 —

21 —

$ 11

$311

$— $322

$228

$348

$

—

—

—

—

$322

3

9

5

24

$585

8

—

—

49

$642

(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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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, 2 or 3 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, 2020 and 2019, this includes $29 million and $35 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, 2020 and

2019.

Multiemployer Plans

The Company contributes to a number of multiemployer pension plans under the terms of collective-
bargaining agreements that cover union-represented employees in the U.S. In 2017, it also contributed to the
Pensjonsordningen for Apoteketaten (“POA”), a mandatory multiemployer pension scheme for its pharmacy
employees in Norway, managed by the association of Norwegian Pharmacies.

The risks of participating in these multiemployer plans are different from single-employer pension plans in
the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide
benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the
plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the
Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay
those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Actions
taken by other participating employers may lead to adverse changes in the financial condition of a multiemployer
benefit plan and the Company’s withdrawal liability and contributions may increase.

Contributions and amounts accrued for U.S. Plans were not material for the years ended March 31, 2020,
2019, and 2018. Contributions to the POA for non-U.S. Plans exceeding 5% of total plan contributions
were $17 million, $27 million and $16 million in 2020, 2019 and 2018. Based on actuarial calculations, the

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FINANCIAL NOTES (Continued)

Company estimates the funded status for its non-U.S. Plans to be approximately 76% as of March 31, 2020. No
amounts were accrued for liability associated with the POA as the Company has no intention to withdraw from
the plan.

Defined Contribution Plans

The Company has a contributory retirement savings plan (“RSP”) for U.S. eligible employees. Eligible
employees may contribute to the RSP up to 75% of their eligible compensation on a pre-tax or post-tax basis not
to exceed IRS limits. The Company makes matching contributions in an amount equal to 100% of the
employee’s first 3% of pay contributed and 50% for the next 2% of pay contributed. The Company also may
make an additional annual matching contribution for each plan year to enable participants to receive a full match
based on their annual contribution. The Company also contributed to non-U.S. plans that are available in certain
countries. Contribution expenses for the RSP and non-U.S. plans were $102 million, $92 million and $82 million
for the years ended March 31, 2020, 2019, and 2018.

Postretirement Benefits

The Company maintains 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. It also provides postretirement benefits for certain U.S. executives.
Defined benefit plan obligations are measured as of the Company’s fiscal year-end. The net periodic (credit)
expense for the Company’s postretirement welfare benefits was not material for the years ended March 31, 2020,
2019, and 2018. The benefit obligation at March 31, 2020 and 2019 was $65 million and $73 million.

18. Hedging Activities

In the normal course of business, the Company is exposed to interest rate and foreign currency exchange
rate fluctuations. At times, the Company limits these risks through the use of derivatives such as cross-currency
swaps, foreign currency forward contracts and interest rate swaps. In accordance with the Company’s policy,
derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes.

Foreign currency exchange risk

The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign
subsidiaries, including Euro, British pound sterling and Canadian dollars. Changes in foreign currency exchange
rates could have a material adverse impact on the Company’s financial results that are reported in U.S. dollars.
The Company is also exposed to foreign currency exchange rate risk related to its foreign subsidiaries, including
intercompany loans denominated in non-functional currencies. The Company has certain foreign currency
exchange rate risk programs that use foreign currency forward contracts and cross-currency swaps. These
forward contracts and cross-currency swaps are generally used to offset the potential income statement effects
from intercompany loans and other obligations denominated in non-functional currencies. These programs
reduce but do not entirely eliminate foreign currency exchange rate risk.

Non-Derivative Instruments Designated as Hedges

At March 31, 2020 and 2019, the Company had €1.7 billion and €1.95 billion of Euro-denominated notes
investment hedges. These hedges are utilized to hedge portions of the

designated as non-derivative net

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Company’s net investments in non-U.S. subsidiaries against the effect of exchange rate fluctuations on the
translation of foreign currency balances to the U.S. dollar. For all notes that are designated as net investment
hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change
in spot rates are recorded in foreign currency translation adjustments in accumulated other comprehensive loss in
the consolidated statement of stockholders’ equity where they offset foreign currency translation gains and losses
recorded on the Company’s net investments. To the extent foreign currency denominated notes designated as net
investment hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded
in earnings. In December 2019,
investment hedges
€250 million of its Euro-denominated notes which matured in February 2020.

the Company prospectively de-designated from net

At March 31, 2019,

the Company also had £450 million British pound sterling-denominated notes
designated as non-derivative net investment hedges. On September 30, 2019, the Company de-designated its
£450 million British pounding sterling-denominated notes prospectively from net investment hedges as the
hedging relationship ceased to be effective.

Gains or losses from net investment hedges recorded in other comprehensive income were gains of
$39 million and $259 million in 2020 and 2019 and a loss of $268 million in 2018. Ineffectiveness on the
Company’s non-derivative net investment hedges during 2020 resulted in gains of $34 million which were
recorded in earnings in other income (expense), net in the consolidated statements of operations. There was no
ineffectiveness in the Company’s net investment hedges for the years ended March 31, 2019 and 2018.

Derivatives Designated as Hedges

At March 31, 2020 and 2019, the Company had cross-currency swaps designated as net investment hedges
with a total gross notional amount of $1.5 billion Canadian dollars. Under the terms of the cross-currency swap
contracts, the Company agrees with third parties to exchange fixed interest payments in one currency for fixed
interest payments in another currency at specified intervals and to exchange principal in one currency for
principal in another currency, calculated by reference to agreed-upon notional amounts. These swaps are utilized
to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of
exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the
fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between
spot and forward interest rates are recorded in accumulated other comprehensive loss in the consolidated
statement of stockholders’ equity where they offset foreign currency translation gains and losses recorded on the
Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as
hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.
There was no ineffectiveness in the Company’s net investment hedges for the years ended March 31, 2020 and
2019.

At March 31, 2019, the Company also had cross-currency swaps designated as net investment hedges with a
total gross notional amount of £932 million British pound sterling. In 2020, the Company terminated these swaps
due to ineffectiveness in its British pound sterling hedging program that arose due to 2019 impairments of
goodwill and certain long-lived assets in its U.K. businesses. Proceeds from the termination of these swaps
totaled $84 million and resulted in a settlement gain of $34 million in 2020. This gain was recorded in earnings
in other income (expense), net.

Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in
other comprehensive income were gains of $76 million and $53 million in 2020 and 2019 and losses of
$7 million in 2018. There was no ineffectiveness in the Company’s hedges for the years ended March 31, 2020
and 2019. These cross-currency swaps will mature between November 2020 and November 2024.

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On September 30, 2019, the Company entered into a number of cross-currency swaps designated as fair
value hedges with total notional amounts of £450 million British pound sterling. Under the terms of the cross-
currency swap contracts, the Company agreed with third parties to exchange fixed interest payments in British
pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread. These
swaps are utilized to hedge the changes in the fair value of the underlying £450 million British pound sterling
notes resulting from changes in benchmark interest rates and foreign exchange rates. The changes in the fair
value of these derivatives, which are designated as fair value hedges, and the offsetting changes in the fair value
of the hedged notes are recorded in earnings. Gains from these fair value hedges recorded in earnings were
$6 million in 2020, largely offsetting the losses recorded in earnings related to the hedged notes. The swaps will
mature in February 2023.

At March 31, 2019, the Company had a forward contract to hedge the U.S. dollar against cash flows
denominated in Canadian dollars with a total gross notional amount of $81 million, which was designated as a
cash flow hedge. The contract matured in March 2020.

From time to time, the Company also enters 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,
2020 and 2019, the Company had cross-currency swaps with total gross notional amounts of approximately
$2.9 billion, which are designated as cash flow hedges. These swaps will mature between April 2020 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. Gains or losses from cash flow
hedges recorded in other comprehensive income were gains of $98 million and $28 million in 2020 and 2019 and
losses of $30 million in 2018. Gains or losses reclassified from accumulated other comprehensive income and
recorded in operating expenses in the consolidated statements of operations were not material in 2020, 2019 and
2018. There was no ineffectiveness in the Company’s cash flow hedges for the years ended March 31, 2020,
2019 and 2018.

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.

The Company has a number of forward contracts to hedge the Euro against cash flows denominated in
British pound sterling and other European currencies. At March 31, 2020 and 2019, the total gross notional
amounts of these contracts were $29 million and $28 million. These contracts will mature through December
2020 and none of these contracts were designated for hedge accounting. Changes in the fair values for contracts
not designated as hedges are recorded directly into earnings in operating expenses. Changes in the fair values
were not material in 2020, 2019 and 2018. Gains or losses from these contracts are largely offset by changes in
the value of the underlying intercompany obligations.

In 2020, the Company also entered into a number of forward contracts and swaps to offset a portion of the
earnings impacts from the ineffectiveness of net investment hedges discussed above. These contracts matured

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FINANCIAL NOTES (Continued)

through January 2020 and none of these contracts were designated for hedge accounting. In December 2019, the
Company entered into a series of forward contracts with a total notional amount of €250 million to offset the
earnings impact from its Euro-denominated notes. These contracts and the notes against which they are offsetting
matured in February 2020 and were not designated for hedge accounting. Changes in the fair value for contracts
not designated as hedges are recorded directly in earnings. In 2020, losses of $44 million were recorded in
earnings in other income (expense), net, which offsets the ineffectiveness on the Company’s non-derivative net
investment hedges noted above.

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

March 31, 2020

March 31, 2019

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

Prepaid expenses
and other/Other
accrued liabilities

Other Noncurrent
Assets/Liabilities

$— $—

$ —

$ 17

$—

$

81

112

19

1,279

—

182 —

3,313

91

18

33

—

5,283

$294

$ 19

$108

$ 51

(In millions)

Derivatives designated for hedge

accounting

Foreign exchange contracts

(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

Prepaid expenses
and other

Other accrued
liabilities

$

2

$—

$

24

$— $—

$

14

—

$

2

—

$—

5

—

—

14

$— $—

Refer to Financial Note 19, “Fair Value Measurements,” for more information on these recurring fair value

measurements.

19. 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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At March 31, 2020 and 2019, 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 the Company’s commercial paper was determined using quoted prices in active markets

for identical liabilities, which are considered Level 1 inputs.

The Company’s long-term debt is carried at amortized cost. The carrying amounts and estimated fair values
of these liabilities were $7.4 billion and $7.8 billion at March 31, 2020 and $7.6 billion and $7.9 billion at
March 31, 2019. The estimated fair value of its 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 at March 31, 2020 and 2019 included investments in money market funds of
$2.0 billion and $1.2 billion, which are reported at fair value. The fair value of money market funds was
determined using quoted prices for identical investments in active markets, which are considered to be Level 1
inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash
equivalents approximates their fair value due to their relatively short-term nature. Fair values for the Company’s
marketable securities were not material at March 31, 2020 and 2019.

Fair values of the Company’s forward foreign currency contracts were determined using observable inputs
from available market information. Fair values of the Company’s 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 18, “Hedging Activities,” for fair value and other information on the Company’s 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, 2020 and 2019.

Assets Measured at Fair Value on a Nonrecurring Basis

At March 31, 2020, assets measured at fair value on a nonrecurring basis included long-lived assets for the
Company’s European Pharmaceuticals Solutions segment and the Rexall Health business within Other. Refer to
Financial Note 4, “Restructuring, Impairment and Related Charges” for more information.

At March 31, 2019, assets measured at fair value on a nonrecurring basis primarily consisted of goodwill

and long-lived assets for the Company’s European Pharmaceutical 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

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FINANCIAL NOTES (Continued)

developed using company specific information. The Company considered a market approach as well as an
income approach (a DCF model) to determine the fair value of the reporting unit.

Refer to Financial Note 14, “Goodwill and Intangible Assets, Net,” for more information regarding goodwill

impairment charges recorded for certain reporting units during 2019 and 2018.

Long-lived Assets

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

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

Liabilities Measured at Fair Value on a Nonrecurring Basis

There were no liabilities measured at fair value on a nonrecurring basis at March 31, 2020 and 2019.

20. Financial Guarantees and Warranties

Financial Guarantees

The Company has agreements with certain of its customers’ financial institutions, mainly in Canada and
Europe, under which it has guaranteed the repurchase of its customers’ inventory or its customers’ debt in the
event these customers are unable to meet their obligations to those financial institutions. For the Company’s
inventory repurchase agreements, among other requirements, inventories must be in resalable condition and any
repurchase would be at a discount. The inventory repurchase agreements mostly relate to certain Canadian
customers and generally range from one to two years. Customers’ debt guarantees generally range from one to 10
years and are primarily provided to facilitate financing for certain customers. The majority of the Company’s
customers’ debt guarantees are secured by certain assets of the customer. At March 31, 2020, the maximum
amounts of inventory repurchase guarantees and customers’ debt guarantees were $274 million and $129 million,
of which the Company has not accrued any material amounts. The expirations of these financial guarantees are as
follows: $222 million, $17 million, $13 million, $32 million and $10 million from 2021 through 2025 and
$109 million thereafter.

At March 31, 2020, the Company’s banks and insurance companies have issued $170 million of standby
letters of credit and surety bonds, which were issued on the Company’s behalf primarily related to its customer
contracts and in order to meet the security requirements for statutory licenses and permits, court and fiduciary
obligations and its workers’ compensation and automotive liability programs.

The Company’s software license agreements generally include certain provisions for indemnifying
customers against liabilities if its software products infringe a third party’s intellectual property rights. To date,
the Company has not incurred any material costs as a result of such indemnification agreements and has not
accrued any liabilities related to such obligations.

In conjunction with certain transactions, primarily divestitures,

the Company may provide routine
indemnification agreements (such as retention of previously existing environmental, tax and employee liabilities)

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FINANCIAL NOTES (Continued)

whose terms vary in duration and often are not explicitly defined. Where appropriate, obligations for such
indemnifications are recorded as liabilities. Because the amounts of these indemnification obligations often are
not explicitly stated, the overall maximum amount of these commitments cannot be reasonably estimated. Other
than obligations recorded as liabilities at the time of divestiture, the Company has historically not made material
payments as a result of these indemnification provisions.

Warranties

In the normal course of business, the Company provides certain warranties and indemnification protection
for its products and services. For example, the Company provides warranties that the pharmaceutical and
medical-surgical products it distributes are in compliance with the U.S. Food, Drug and Cosmetic Act and other
applicable laws and regulations. It has received the same warranties from its suppliers, which customarily are the
manufacturers of the products. In addition, the Company has indemnity obligations to its customers for these
products, which have also been provided from its suppliers, either through express agreement or by operation of
law. Accrued warranty costs were not material to the consolidated balance sheets.

21. Commitments and Contingent Liabilities

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

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

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates are defendants in many cases asserting claims related to distribution of
controlled substances. They are named as defendants along with other pharmaceutical wholesale distributors,
pharmaceutical manufacturers and retail pharmacy chains. The plaintiffs in these actions include state attorneys
general, county and municipal governments, hospitals, Indian tribes, pension funds, third-party payors and
individuals. These actions have been filed in state and federal courts throughout the United States, and in Puerto
Rico and Canada. They seek monetary damages and other forms of relief based on a variety of causes of action,

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FINANCIAL NOTES (Continued)

including negligence, public nuisance, unjust enrichment, civil conspiracy, as well as alleging violations of the
Racketeer Influenced and Corrupt Organizations Act (“RICO”), state and federal controlled substances laws and
other statutes.

Since December 5, 2017, nearly all such cases pending in federal district courts have been transferred for
consolidated pre-trial proceedings to a multi-district litigation (“MDL”) in the United States District Court for the
Northern District of Ohio captioned In re: National Prescription Opiate Litigation, Case No. 17-md-2804. At
present, there are approximately 2,800 cases under the jurisdiction of the MDL court. In suits filed against the
Company by Cuyahoga County, Ohio, and Summit County, Ohio, the parties finalized a settlement agreement on
December 26, 2019. Under the terms of the agreement, the Company did not admit liability and expressly denied
wrongdoing, and paid the counties a total of $82 million on January 9, 2020. This charge was recorded in
operating expenses for the year ended March 31, 2020.

Three cases involving McKesson that were previously part of the federal MDL were remanded to other
federal courts. On January 14, 2020, the Judicial Panel on Multidistrict Litigation finalized its Conditional
Remand Order, ordering that the cases against the three largest distributors brought by Cabell County, West
Virginia and the City of Huntington, West Virginia be remanded to the U.S. District Court for the Southern
District of West Virginia and a trial date has been scheduled for October 19, 2020. On February 5, 2020, the case
brought by the City and County of San Francisco was remanded to the U.S. District Court for the Northern
District of California and the case brought by the Cherokee Nation was remanded to the U.S. District Court for
the Eastern District of Oklahoma.

The Company is also named in approximately 385 similar state court cases pending in 36 states plus Puerto
Rico. These include actions filed by 27 state attorneys general, and some by or on behalf of individuals, including
wrongful death lawsuits and putative class action lawsuits brought on behalf of children with neonatal abstinence
syndrome due to alleged exposure to opioids in utero. Trial dates have been set in several of these state cases.
Trial was previously set to begin in March 2020 in the Supreme Court of New York, Suffolk County for a case
brought by the New York attorney general and two New York county governments, but the trial was indefinitely
postponed in light of the COVID-19 pandemic.

The Company has been involved in discussions with the objective of achieving broad resolution of opioid-
related claims brought by governmental entities. For example, on October 21, 2019, four state attorneys general
announced certain terms of a proposed framework for the potential settlement of those opioid claims which they
indicated they would find acceptable. The proposed framework would have expected the three largest U.S.
pharmaceutical distributors to pay an aggregate amount of up to $18.0 billion over 18 years, with up to
approximately $6.9 billion over 18 years expected from the Company, with any finally-determined amount being
subject to adjustment based on various contingencies, including sufficient resolution with States, political
subdivisions and other governmental entities nationwide. The proposed framework also would have required the
three distributors, including the Company, to adopt changes to anti-diversion programs and to participate in a
program involving the distribution of certain medication used to treat opioid use disorder. Discussions with
attorneys general and other parties continue. If the negotiating parties are able to agree on potential terms for a
terms would need to be agreed to by numerous other state and local
those potential
broad resolution,
governments before an agreement could be finalized.

Because of the novelty of the claims asserted and the complexity of litigation involving numerous parties
across multiple jurisdictions, and the added uncertainty introduced by the economic and other implications of the
COVID-19 pandemic, the Company has determined that liability is not probable, and is not able to reasonably
estimate a loss or range of loss. To be viable, a broad settlement arrangement would require participation of

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numerous parties and the resolution of many complex issues. The scope and terms of any settlement framework,
including the financial terms, have not been determined. Because of the many uncertainties associated with any
potential settlement arrangements, the significance of unresolved elements of a potential settlement and the
uncertainty of the scope of potential participation by plaintiffs, the Company has not reached a point where
settlement is probable, and as such has not recognized any liability related to any potential settlement framework
as of March 31, 2020. The Company believes that it has valid defenses to the claims pending against it and
intends to vigorously defend against all such claims. An adverse judgment or negotiated resolution in any of
these matters could have a material adverse impact on the Company’s financial position, cash flows or liquidity,
or results of operations.

The Company and certain of its current and former directors and officers were defendants in a consolidated
shareholder derivative action in the Northern District of California captioned In re McKesson Corporation
Derivative Litigation, No. 4:17-cv-1850. The consolidated complaint alleged claims of breach of fiduciary duty,
waste, and insider trading purportedly on behalf of the Company. The Company was named as a nominal
defendant. The consolidated complaint alleged that the defendants violated their fiduciary duties by causing,
allowing, or otherwise failing to prevent the purported conduct underlying the Company’s previously disclosed
agreement with the Drug Enforcement Administration (DEA), Department of Justice (DOJ), and various United
States Attorneys’ offices to settle potential administrative and civil claims relating to investigations about the
Company’s suspicious order reporting practices for controlled substances. The consolidated complaint sought
unspecified damages, restitution, disgorgement, attorneys’ fees, and other equitable relief. The Company and
certain of its current and former directors and officers were also defendants in a similar consolidated shareholder
derivative action in the Delaware Court of Chancery captioned In re McKesson Corporation Stockholder
Derivative Litigation, No. 2017-0736. On May 25, 2018, the court stayed further proceedings in this matter in
favor of the In re McKesson Corporation Derivative Litigation action. The parties reached an agreement to
resolve these shareholder derivative actions. The court in the In re McKesson Corporation Derivative Litigation
action issued a final judgment and order approving the settlement on April 22, 2020. Under that agreement:
(i) insurance carriers will pay the Company $175 million, less $44 million in attorneys’ fees and expenses
awarded by the court to plaintiffs’ counsel; and (ii) the Company will implement certain corporate governance
enhancements that will remain in effect for at least four years. On April 24, 2020, pursuant to the terms of the
settlement agreement, the parties to the In re McKesson Corporation Stockholder Derivative Litigation action
pending in the Delaware Court of Chancery filed a stipulation dismissing that action with prejudice. No cash
payment has yet been received by the Company.

On August 8, 2018, the Company was served with a qui tam complaint pending in the United States District
Court for the District of Massachusetts alleging that the Company violated the federal False Claims Act and
various state false claims acts due to the alleged failure of the Company and other defendants to report providers
who were engaged in diversion of controlled substances. United States ex rel. Manchester v. Purdue Pharma,
L.P., et al., Case No. 1-16-cv-10947. On August 22, 2018, the United States filed a motion to dismiss. The relator
died, and on February 25, 2019 the court entered an order staying the matter until a proper party can be
substituted, and providing that if no party is substituted within 90 days of February 25, 2019, the case would be
dismissed. In April 2019, the widow of the relator filed a motion to substitute their daughter as the relator; the
United States and defendants opposed this substitution request. The motion remains pending and the case
remains stayed.

In December 2019, the Company was served with two qui tam complaints filed by the same two relators
alleging violations of the federal False Claims Act, the California False Claims Act, and the California Unfair
Business Practices statute based on alleged predicate violations of the Controlled Substances Act and its
implementing regulations, United States ex rel. Kelley, 19-cv-2233, and State of California ex rel. Kelley,

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CGC-19-576931. The complaints seek relief including treble damages, civil penalties, attorney fees, and costs in
unspecified amounts.

II. Other Litigation and Claims

On May 17, 2013, the Company was served with a complaint filed in the United States District Court for the
Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited
marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by the
Junk Fax Protection Act of 2005 or JFPA, True Health Chiropractic Inc., et al. v. McKesson Corporation, et
al., No. CV-13-02219 (HG). Plaintiffs seek statutory damages from $500 to $1,500 per violation plus injunctive
relief. True Health Chiropractic later amended its complaint, adding McLaughlin Chiropractic Associates as an
additional named plaintiff and McKesson Technologies Inc. as a defendant. Both plaintiffs alleged that
defendants violated the TCPA by sending faxes that did not contain notices regarding how to opt out of receiving
the faxes. On July 16, 2015, plaintiffs filed a motion for class certification. On August 22, 2016, the court denied
plaintiffs’ motion. On July 17, 2018, the United States Court of Appeals for the Ninth Circuit Court affirmed in
part and reversed in part the district court’s denial of class certification and remanded the case to the district court
for further proceedings. On August 13, 2019, the court granted plaintiffs’ renewed motion for class certification.
After class notice and the opt-out period, 9,490 fax numbers remain in the class, representing 48,769 faxes
received. On March 5, 2020, McKesson moved to decertify the class and moved for summary judgment on
plaintiffs’ claim for treble damages. Plaintiffs’ moved for summary judgment on the same day. The hearing for
these motions is scheduled for May 21, 2020.

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 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. On December 30, 2017, four investment
funds, which had allegedly entered into swap transactions regarding shares in Celesio AG that would have
enabled them to decide whether to accept McKesson Europe Holdings’s takeover offer in its acquisition of
Celesio AG, filed a complaint, Davidson Kempner International (BVI) Ltd. et al. v. McKesson Europe Holdings
GmbH & Co. KGaA, No.16 O 475/17. The complaints allege 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 May 11, 2018, the court in
Polygon dismissed the claims against McKesson Europe. Plaintiffs appealed this ruling and, on December 19,
2018, the Higher Regional Court (Oberlandesgericht) of Stuttgart confirmed the full dismissal of the Polygon
matter. On February 4, 2019, plaintiffs filed a complaint against denial of leave to appeal with the Federal Court
of Justice (Bundesgerichtshof). On March 15, 2019, the lower court in Davidson similarly dismissed the case.
Plaintiffs appealed this ruling and, on October 9, 2019, the Higher Regional Court (Oberlandesgericht) of
Stuttgart confirmed the full dismissal of the Davidson matter. On November 13, 2019, plaintiffs filed a complaint
against denial of leave to appeal with the Federal Court of Justice (Bundesgerichtshof).

On March 5, 2018, the Company’s subsidiary, 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. 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. The United States and the states named in the

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FINANCIAL NOTES (Continued)

complaint have declined to intervene in the suit. On December 17, 2018, the United States filed a motion to
dismiss the complaint in its entirety; this motion was denied on April 15, 2019. On June 7, 2019, the court denied
the United States’ motion for reconsideration. On July 8, 2019, the United States appealed to the United States
Court of Appeals for the Seventh Circuit seeking interlocutory review of the denial of its motion for
reconsideration of the denial of the motion to dismiss the complaint. On September 3, 2019, the United States
District Court for the Southern District of Illinois stayed the district court proceedings pending the appeal. The
court set a trial date of April 5, 2021.

On April 16, 2013, the Company’s subsidiary, U.S. Oncology, Inc. (“USON”), was served with a third
amended qui tam complaint filed in the United States District Court for the Eastern District of New York by two
relators, purportedly on behalf of the United States, 21 states and the District of Columbia, against USON and
five other defendants, alleging that USON solicited and received illegal “kickbacks” from Amgen in violation of
the Anti-Kickback Statute, the False Claims Act, and various state false claims statutes, and seeking damages,
treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel.
Piacentile v. Amgen Inc., et al., CV 04-3983 (SJ). Previously, the United States declined to intervene in the case
as to all allegations and defendants except for Amgen. On September 30, 2013, the court granted the United
States’ motion to dismiss the claims pled against Amgen. On September 17, 2018, the court granted USON’s
motion to dismiss the claims pled against it, with leave to amend. On November 16, 2018, the relators filed a
fourth amended complaint.

On June 17, 2014, U.S. Oncology Specialty, LP (“USOS”) was served with a fifth amended qui tam
complaint filed in the United States District Court for the Eastern District of New York by a relator alleging that
USOS, among others, solicited and received illegal “kickbacks” from Amgen in violation of the Anti-Kickback
Statute, the federal False Claims Act, and various state false claims statutes, and seeking damages, treble
damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel. Hanks
v. Amgen, Inc., et al., CV-08-03096 (SJ). These claims are based on the same grounds as the Piacentile action
referenced above. Previously, the United States declined to intervene in the case as to all allegations and
defendants except for Amgen. On September 17, 2018, the court granted USOS’s motion to dismiss and gave the
relator leave to file another action after the Piacentile action is no longer pending. The relator appealed this order
to the United States Court of Appeals for the Second Circuit; the parties are awaiting the Court’s decision.

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). The United States and the named states have declined to intervene in the case. On
October 15, 2018, the Company filed a motion to dismiss the complaint as to all named defendants. On
February 4, 2019, the court granted the motion to dismiss in part and denied it in part, leaving the Company and
Oncology Therapeutics Network Corporation as the only remaining defendants in the case. On December 9,
2019, the United States District Court for the Eastern District of New York ordered the unsealing of another
complaint filed by the same relator, alleging the same misconduct and seeking the same relief with respect to US
Oncology, Inc., purportedly on behalf of the same government entities, United States ex rel. Omni Healthcare,
Inc. v. US Oncology, Inc., 19-cv-05125. The United States and the named states declined to intervene in the case.

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FINANCIAL NOTES (Continued)

The Company is a defendant in an amended complaint filed on June 15, 2018 in a case pending in the
United States District Court for the Southern District of Illinois alleging that the Company’s subsidiary,
McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of
safety and conventional syringes and safety IV catheters. Marion Diagnostic Center, LLC v. Becton, Dickinson,
et al., No. 18:1059. The action is filed on behalf of a purported class of purchasers, and seeks treble damages and
further relief, all in unspecified amounts. On July 20, 2018, the defendants filed a motion to dismiss. On
November 30, 2018, the district court granted the motion to dismiss, and dismissed the complaint with prejudice.
On December 27, 2018, plaintiffs appealed the order to the United States Court of Appeals for the Seventh
Circuit. On March 5, 2020, the United States Court of Appeals for the Seventh Circuit vacated the district court’s
order, and ruled that dismissal was appropriate on alternative grounds. The case was remanded to the district
court to allow the plaintiffs an opportunity to amend their complaint.

On September 25, 2018, plaintiffs filed a complaint in the United States District Court for the Eastern
District of Pennsylvania alleging that the Company and its subsidiary, McKesson Medical-Surgical Inc., among
others, violated the Sherman Act by restraining trade in the sale of generic drugs. Marion Diagnostic Center,
LLC v. McKesson Corporation, et al., No. 2:18-cv-4137. On June 26, 2019, the court granted the Company’s
motion to dismiss and authorized plaintiffs to seek leave to amend the claims against the Company. On
March 11, 2020, the Company received a complaint alleging that the Company and other distributors violated the
Sherman Act by colluding with manufacturers to restrain trade in the sale of generic drugs. Reliable Pharmacy, et
al. v. Actavis Holdco US, et al., No. 2:19-cv-6044. The complaint seeks relief including treble damages,
disgorgement, attorney fees, and costs in unspecified amounts. On the same date, the plaintiffs moved to amend
the new complaint.

On December 12, 2018, the Company received a class action complaint in the United States District Court
for the Northern District of California, alleging that McKesson and two of its former officers, CEO John
Hammergren and CFO James Beer, violated the Securities Exchange Act of 1934 by reporting profits and
revenues from 2013 until early 2017 that were false and misleading, due to an alleged undisclosed conspiracy to
fix the prices of generic drugs. Evanston Police Pension Fund v. McKesson Corporation, No. 3:18-06525. On
February 8, 2019, the court appointed the Pension Trust Fund for Operating Engineers as the lead plaintiff. On
April 10, 2019, the lead plaintiff filed an amended complaint that added insider trading allegations against
defendant Hammergren.

On May 21, 2019, Jean E. Henry, a purported Company shareholder, filed a shareholder derivative
complaint in the Superior Court of San Francisco, California against certain current and former officers and
directors of the Company, and the Company as a nominal defendant, alleging violations of fiduciary duties and
waste of corporate assets with respect to an alleged conspiracy to fix the prices of generic drugs, Henry v. Tyler,
et al., CGC-19-576119. On May 23, 2019, the Company removed the case to the United States District Court for
the Northern District of California, Case No. 19-cv-02869. On August 26, 2019, the plaintiff filed an amended
complaint, removing all claims except for an alleged breach of fiduciary duty by the named current and former
officers and directors of the Company. On January 21, 2020, the United States District Court for the Northern
District of California granted the defendants’ motion to dismiss the complaint, and on February 20, 2020, the
plaintiff filed an amended complaint.

In July 2015, The Great Atlantic & Pacific Tea Company (“A&P”), a former customer of the Company,
filed for reorganization in bankruptcy under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy
Court for the Southern District of New York. In re The Great Atlantic & Pacific Tea Company, Inc., et al., Case
No. 15-23007. A suit filed against the Company in this bankruptcy case seeks to recover approximately
$68 million in alleged preferential transfers. The Official Committee of Unsecured Creditors on behalf of the

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FINANCIAL NOTES (Continued)

bankruptcy estate of The Great Atlantic & Pacific Tea Company, Inc., et al. v. McKesson Corporation d/b/a
McKesson Drug Co., Adv. Proc. No. 17-08264.

In October 2019, the Company’s subsidiary RelayHealth Corporation (“RelayHealth”) was served with
three purported class action complaints filed in the United States District Court for the Northern District of
Illinois. The complaints allege that RelayHealth violated the Sherman Act by entering into an agreement with
co-defendant Surescripts, LLC not to compete in the electronic prescription routing market, and by conspiring
with Surescripts, LLC to monopolize that market, Powell Prescription Center, et al. v. Surescripts, LLC, et al.,
No. 1:19-cv-06627; Intergrated Pharmaceutical Solutions LLC v. Surescripts, LLC, et al., 1:19-cv-06778;
Falconer Pharmacy, Inc. v. Surescripts LLC, et al., No. 1:19-cv-07035. In November 2019, three similar
complaints were filed in the United States District Court for the Northern District of Illinois. Kennebunk Village
Pharmacy, Inc. v. SureScripts, LLC, et al., 1:19-cv-7445; Whitman v. SureScripts, LLC et al., No. 1:19-cv-7448;
BBK Global Corp. v. SureScripts, LLC et al., 1:19-cv-7640. In December 2019, the six actions were consolidated
in the Northern District of Illinois. The complaints seek relief including treble damages, attorney fees, and costs.

III. Government Subpoenas and Investigations

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

As an example of the type of subpoenas or requests the Company receives from time to time, in August
2015, the Company was served with a Civil Investigative Demand by the U.S. Attorney’s Office for the Southern
District of New York relating to certain business analytics tools offered to its customers. In May 2017 and
August 2018, respectively, the Company was served with two separate Civil Investigative Demands by the U.S.
Attorney’s Office for the Eastern District of New York relating to the certification the Company obtained for two
software products under the U.S. Department of Health and Human Services’ Electronic Health Record Incentive
Program. In 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 also received civil
investigative demands, subpoenas or requests for information from several other state attorneys general on the
same issues. In January 2019, the Company was served with a subpoena by the U.S. Department of Health and
Human Services, Office of Inspector General, related to the Company’s participation in the Medicaid Drug
Rebate Program. In April and June 2019, the United States Attorney’s Office for the Eastern District of New
York served grand jury subpoenas seeking documents related to the Company’s anti-diversion policies and
procedures and its distribution of Schedule II controlled substances. The Company believes the subpoenas are
part of a broader investigation by that office into pharmaceutical manufacturers’ and distributors’ compliance
with the Controlled Substances Act and related statutes. In July 2019, the Drug Enforcement Administration
served an administrative inspection warrant on the Company’s distribution center in West Sacramento, California
seeking information about the Company’s compliance with the Controlled Substances Act and related statutes.
On November 12, 2019, the New York Department of Financial Services sent a Notice of Intent to Commence
Enforcement Action to McKesson Corporation and PSS World Medical, Inc. for alleged violations of the New
York Insurance Law and/or New York Financial Services Law, and seeking civil monetary penalties, in
connection with manufacturing and distributing opioids in New York. In January 2020, the United States

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FINANCIAL NOTES (Continued)

Attorney’s Office for the District of Massachusetts served a Civil Investigative Demand on the Company seeking
documents related to certain discounts and rebates paid to physician practice customers.

IV. 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.

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 $10 million, net of amounts anticipated from third parties. The $10 million is expected
to be paid out between April 2020 and March 2050. The Company has accrued for the estimated probable loss
for these environmental matters.

The Company has been designated as a Potentially Responsible Party (“PRP”) under the Superfund law for
environmental assessment and cleanup costs as the result of its alleged disposal of hazardous substances at 14
sites. With respect to these sites, numerous other PRPs have similarly been designated and while the current state
of the law potentially imposes joint and several liabilities upon PRPs, as a practical matter, costs of these sites are
typically shared with other PRPs. 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. Accordingly, the Company’s
estimated probable loss at those 14 sites is approximately $22.5 million, which has been accrued for in the
consolidated balance sheets. However, it is possible that the ultimate costs of these matters may exceed or be less
than the reserves.

V. Value Added Tax Assessments

The Company operates in various countries outside the United States which 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. The Company has received assessments
for VAT which are in various stages of appeal. The Company disagrees with these assessments and believes that
it has a strong legal argument to defend its tax positions. Certain VAT assessments relate to years covered by an
indemnification agreement. Due to the complex nature of the tax laws, it is not possible to estimate the outcome
of these matters. However, based on currently available information, the Company believes the ultimate outcome
of these matters will not have a material adverse effect on its financial position, cash flows or results of
operations.

VI. 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.

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FINANCIAL NOTES (Continued)

22. 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 2019, the Company’s quarterly dividend was raised from $0.39 to $0.41 per common share for
dividends declared on or after such date by the Board. Dividends were $1.62 per share in 2020, $1.51 per share in
2019 and $1.30 per share in 2018. 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.

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 the Company’s stock price, corporate and regulatory requirements, restrictions under the Company’s
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, 2017

Shares repurchased

Balance, March 31, 2018

Shares repurchase plans authorized

May 2018

Shares repurchased

Balance, March 31, 2019

Shares repurchased

Balance, March 31, 2020

Share Repurchases (1)

Total
Number of
Shares
Purchased (2) (3)

Average Price
Paid Per Share

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

10.5

$151.06

13.5

$130.72

13.9

$138.94

$ 2,746

(1,650)

1,096

4,000

(1,627)

3,469

(1,934)

$ 1,535

(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. It also excludes shares related to the Company’s Split-off of the Change
Healthcare JV as described below.

(2) All of the shares purchased were part of the publicly announced programs.
(3) The number of shares purchased reflects rounding adjustments.

During the last three years, the Company’s share repurchases were transacted through both open market

transactions and ASR programs with third party financial institutions.

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FINANCIAL NOTES (Continued)

In 2018, the Company 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, the
Company 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, it
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, the Company received 2.5 million shares representing
the initial number of shares due in March 2018 and an additional 1.0 million shares in the first quarter of 2019.
The March 2018 ASR program was completed at an average price per share of $143.66 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 increased to $5.1 billion.
During 2019, the Company repurchased 10.4 million of the Company’s shares for $1.4 billion through open
market transactions at an average price per share of $132.14. In December 2018, the Company entered into an
ASR program with a third-party financial institution to repurchase $250 million of the Company’s common
stock. The total number of shares repurchased under this ASR program was 2.1 million shares at an average price
per share of $117.98. The total authorization outstanding for repurchase of the Company’s common stock was
$3.5 billion at March 31, 2019.

In 2019, the Company retired 5.0 million or $542 million of its treasury shares previously repurchased.
Under the applicable state law, these shares resume the status of authorized and unissued shares upon retirement.
In accordance with the Company’s accounting policy, it allocates any excess of share repurchase price over par
value between additional paid-in capital and retained earnings. Accordingly, its retained earnings and additional
paid-in capital were reduced by $472 million and $70 million during 2019.

In 2020, the Company repurchased 9.2 million of the Company’s shares for $1.3 billion through open

market transactions at an average price per share of $144.68.

During 2020, the Company entered into an ASR program with a third-party financial

institution to
repurchase $600 million of the Company’s common stock. The total number of shares repurchased under this
ASR program was 4.7 million shares at an average price per share of $127.68. The total authorization
outstanding for repurchase of the Company’s common stock was $1.5 billion at March 31, 2020.

On March 9, 2020, the Company completed the Split-off of its interest in the Change Healthcare JV. In
connection with the Split-off, the Company distributed all 176.0 million outstanding shares of SpinCo common
stock, which held all of the Company’s interests in the Change Healthcare JV, to participating holders of the
Company’s common stock in exchange for 15.4 million shares of McKesson stock, which are now held as
treasury stock on the Company’s consolidated balance sheet. Following consummation of the exchange offer, on
March 10, 2020, SpinCo merged with and into Change Healthcare, Inc. with each share of SpinCo common stock
converted into one share of Change Healthcare, Inc. common stock, par value $0.001 per share, with cash being
paid in lieu of fractional shares of Change common stock. See Note 2 , “Investment in Change Healthcare Joint
Venture,” for more information.

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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)

Years Ended March 31,

2020

2019

2018

Foreign currency translation adjustments arising during period, net of income tax

expense of nil, nil and nil (2) (3)

$(151) $(431) $ 804

Reclassified to income statement, net of income tax expense of nil, nil and nil

—

—

Unrealized gains (losses) on net investment hedges (4)

Unrealized gains (losses) on net investment hedges arising during period, net of

income tax (expense) benefit of ($30), ($71), and $95

Reclassified to income statement, net of income tax expense of nil, nil and nil

Unrealized gains (losses) on cash flow hedges:

Unrealized gains (losses) on cash flow hedges arising during period, net of income

tax (expense) benefit of ($12), ($4), and $9

Reclassified to income statement, net of income tax expense of nil, nil and nil

(151)

(431)

85

—

85

86

—

86

241

—

241

24

—

24

—

804

(180)

—

(180)

(30)

—

(30)

Changes in retirement-related benefit plans:

Net actuarial gain (loss) and prior service credit (cost) arising during the period,

net of income tax (expense) benefit of ($8), $5, and ($2) (5)

27

(51)

25

Amortization of actuarial loss, prior service cost and transition obligation, net of

income tax (expense) benefit of $1, nil, and ($2) (6)

Foreign currency translation adjustments and other, net of income tax expense of

nil, nil and nil

2

6

9

5

10

(15)

Reclassified to income statement, net of income tax expense of ($33), nil and nil (7)

94 —

129

(32)

—

15

Other Comprehensive Income (Loss), net of tax

$ 149

$(198) $ 609

(1) Foreign currency translation adjustments primarily result from the conversion of non-U.S. dollar financial
statements of the Company’s foreign subsidiary McKesson Europe into the Company’s reporting currency,
U.S. dollars.

(2) The 2020 net foreign currency translation losses of $151 million were primarily due to the weakening of the
Euro and Canadian dollar against the U.S. dollar, partially offset by the strengthening of the British pound
sterling from April 1, 2019 to March 31, 2020. The 2019 net foreign currency translation losses of
$431 million were primarily due to the weakening of the Euro, British pound sterling and Canadian dollar
against the U.S. dollar from April 1, 2018 to March 31, 2019. The 2018 net foreign currency translation

137

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

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.

(3) 2020 and 2018 include net foreign currency translation gains of $1 million and $189 million and 2019
includes net foreign currency translation losses of $61 million attributable to noncontrolling and redeemable
noncontrolling interests.

(4) 2020, 2019 and 2018 include foreign currency gains of $39 million and $259 million and losses of
$268 million on the net investment hedges from the Euro and British pound sterling-denominated notes.
2020, 2019 and 2018 also include foreign currency gains of $76 million and $53 million and losses of
$7 million on the net investment hedges from the cross-currency swaps.

(5) The 2020 net actuarial gain of $2 million and 2019 and 2018 net actuarial losses of $5 million and

$4 million were attributable to noncontrolling and redeemable noncontrolling interests.

(6) 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.

(7) Primarily reflects a reclassification of losses in 2020 upon the termination of the Plan from accumulated
other comprehensive loss to other income (expense), net in the Company’s consolidated statement of
operations.

138

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the Company’s accumulated other comprehensive income (loss) by

component are as follows:

Foreign Currency
Translation Adjustments

Foreign
Currency
Translation
Adjustments,
Net of Tax

Unrealized Gains
(Losses) on Net
Investment Hedges,
Net of Tax

Unrealized Gains
(Losses) on Cash
Flow Hedges,
Net of Tax

Unrealized Net
Gains (Losses)
and Other
Components of
Benefit Plans,
Net of Tax

Total
Accumulated
Other
Comprehensive
Income (Loss)

(In millions)

Balance at March 31, 2018

$(1,258)

$(188)

$ (61)

$ (210)

$(1,717)

Other comprehensive income

(loss) before reclassifications

(431)

Amounts reclassified to earnings

and other

Other comprehensive income

(loss)

Less: amounts attributable to

noncontrolling and
redeemable noncontrolling
interests

Other comprehensive income

(loss) attributable to McKesson

Balance at March 31, 2019

Other comprehensive income

—

(431)

(61)

(370)

(1,628)

(loss) before reclassifications

(151)

Amounts reclassified to earnings

and other

Other comprehensive income

(loss)

—

(151)

241

—

241

—

241

53

85

—

85

24

—

24

—

24

(37)

86

—

86

(41)

(207)

9

9

(32)

(198)

(5)

(66)

(27)

(237)

(132)

(1,849)

33

96

53

96

129

149

Less: amounts attributable to

noncontrolling and
redeemable noncontrolling
interests

1

—

Other comprehensive income

(loss) attributable to McKesson

(152)

Balance at March 31, 2020

$(1,780)

85

$ 138

—

86

$ 49

2

127

3

146

$ (110)

$(1,703)

23. 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, the Company made a pledge to the Foundation and incurred a pre-tax charitable contribution

139

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

expense of $100 million ($64 million after-tax) for 2018, which was recorded under the caption, “Selling,
distribution and administrative expenses,” in the 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 its consolidated balance sheet. The pledge was fully paid in 2019.
Additionally, during the fourth quarter of 2020, the Company contributed $20 million to the McKesson
Foundation, which supports the Company’s employees and their community involvement efforts, with a special
focus on cancer. A portion of this contribution was directed to an emergency employee assistance fund
administered by the Emergency Assistance Foundation, an independent nonprofit organization, to provide
support for employees impacted by the COVID-19 pandemic.

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 $141 million, $137 million, and $154 million are included in
the consolidated statements of operations for the years ended March 31, 2020, 2019 and 2018 and receivables
related to these transactions included in the consolidated balance sheets were not material as of March 31, 2020
and 2019.

In 2020 and 2019, the Company’s pharmaceutical sales to one of its equity method investees in the U.S.
Pharmaceutical and Specialty Solutions segment totaled $60 million and $34 million. Trade receivables related to
these transactions from this investee were not material as of March 31, 2020 and 2019.

Refer to Financial Note 2, “Investment in Change Healthcare Joint Venture,” for information regarding

related party balances and transactions with Change Healthcare Inc. and Change Healthcare JV.

24. Segments of Business

The Company reports its financial results in 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 require separate reportable segment disclosure
are included in Other. The factors for determining the reportable segments include the manner in which
management evaluates the performance of the Company combined with the nature of the individual business
activities. The Company evaluates the performance of its operating segments on a number of measures, including
revenues and operating profit before interest expense and income taxes. Assets by operating segment are not
reviewed by management for the purpose of assessing performance or allocating resources.

The Company’s U.S. Pharmaceutical and Specialty Solutions segment distributes pharmaceutical and other
healthcare-related products and also provides pharmaceutical solutions to life sciences companies in the United
States.

The Company’s European Pharmaceutical Solutions segment provides distribution and services to
wholesale, institutional and retail customers and serves patients and consumers in 13 European countries through
its own pharmacies and participating pharmacies that operate under brand partnership and franchise
arrangements.

The Company’s Medical-Surgical Solutions segment distributes medical-surgical supplies and provides

logistics and other services to healthcare providers in the United States.

Other primarily consists of the following:

• McKesson Canada which distributes pharmaceutical and medical products and operates Rexall Health

retail pharmacies;

140

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

• McKesson Prescription Technology Solutions which provides innovative technologies that support

retail pharmacies; and

•

the Company’s investment in the Change Healthcare JV which was split-off from the Company in the
fourth quarter of 2020.

Corporate includes income and expenses associated with administrative functions and projects, and the
results of certain investments. Corporate expenses, net are allocated to operating segments to the extent that these
items are directly attributable.

141

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Financial information relating to the Company’s reportable operating segments and reconciliations to the

consolidated totals is as follows:

(In millions)

Revenues
U.S. Pharmaceutical and Specialty Solutions (1)
European Pharmaceutical Solutions (1)
Medical-Surgical Solutions (1)
Other

Total Revenues

Operating profit (loss) (2)
U.S. Pharmaceutical and Specialty Solutions (3)
European Pharmaceutical Solutions (4)
Medical-Surgical Solutions
Other (5) (6) (7) (8)
Total

Corporate Expenses, Net (9)
Loss on Debt Extinguishment
Interest Expense
Income from Continuing Operations Before Income Taxes

Depreciation and amortization (10)
U.S. Pharmaceutical and Specialty Solutions
European Pharmaceutical Solutions
Medical-Surgical Solutions
Other
Corporate
Total

Expenditures for long-lived assets (11)
U.S. Pharmaceutical and Specialty Solutions
European Pharmaceutical Solutions
Medical-Surgical Solutions
Other
Corporate
Total

Revenues, net by geographic area
United States
Foreign

Total Revenues

142

Years Ended March 31,

2020

2019

2018

$183,341
27,390
8,305
12,015
$231,051

$167,763
27,242
7,618
11,696
$214,319

$162,587
27,320
6,611
11,839
$208,357

$

2,767
(261)
499
(595)
2,410
(1,017)
—
(249)
$ 1,144

$ 2,697
(1,978)
455
394
1,568
(694)
—
(264)
610

$

$

$

$

$

228
235
136
187
136
922

94
95
36
61
76
362

$

$

$

$

238
257
118
214
122
949

88
85
110
68
75
426

$

$

$

$

$

$

2,535
(1,681)
461
(107)
1,208
(564)
(122)
(283)
239

210
296
97
237
111
951

126
104
34
42
99
405

$192,709
38,342
$231,051

$176,296
38,023
$214,319

$169,943
38,414
$208,357

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(1) Revenues from services represent less than 1% of the Company’s U.S. Pharmaceutical and Specialty
Solutions segment’s total revenues, less than 10% of the Company’s European Pharmaceutical Solutions
segment’s total revenues and less than 2% of the Company’s Medical-Surgical Solutions segment’s total
revenues.

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

(expense), net, for the Company’s operating segments.

(3) The Company’s U.S. Pharmaceutical and Specialty Solutions segment’s operating profit for 2020, 2019 and
2018 includes pre-tax credits of $252 million, $210 million and $99 million ($186 million, $156 million and
$64 million after-tax) related to the LIFO method of accounting for inventories. Operating profit for 2020,
2019 and 2018 also includes $22 million, $202 million and $144 million of cash receipts for the Company’s
share of antitrust legal settlements. In addition, operating profit for 2019 includes a pre-tax charge of
$61 million ($45 million after-tax) related to a customer bankruptcy and 2018 includes a pre-tax gain of
$43 million ($26 million after-tax) from the sale of an equity investment.

(4) European Pharmaceutical Solutions segment’s operating loss for 2020 includes a charge of $275 million
(pre-tax and after-tax) to remeasure to fair value the assets and liabilities of the Company’s German
wholesale business to be contributed to a joint venture, and for 2020, 2019 and 2018 also includes pre-tax
long-lived asset
impairment charges of $82 million, $210 million and $446 million ($66 million,
$172 million and $410 million after-tax). Operating loss for 2019 and 2018 includes pre-tax goodwill
impairment charges of $1.8 billion and $1.3 billion (pre-tax and after-tax).

(5) Operating loss for Other for 2020 includes a pre-tax impairment charge of $1.2 billion ($864 million
after-tax) and a pre-tax dilution loss of $246 million ($184 million after-tax) associated with the Company’s
investment in the Change Healthcare JV, along with an estimated gain of $414 million (pre-tax and
after-tax) related to the split-off of the Change Healthcare JV.

(6) Operating profit (loss) for Other for 2020, 2019 and 2018 includes pre-tax goodwill and long-lived asset
impairment charges of $32 million, $56 million and $488 million (pre-tax and after-tax) recognized for the
Company’s Rexall Health retail business. The 2019 operating profit for Other also includes a pre-tax gain
from an escrow settlement of $97 million (pre-tax and after-tax) representing certain indemnity and other
claims related to the Company’s 2017 acquisition of Rexall Health. In addition, operating profit for 2019
includes pre-tax restructuring and asset impairment charges of $91 million ($86 million after-tax), primarily
associated with lease and other exit-related costs and a pre-tax gain of $56 million ($41 million after-tax)
recognized from the sale of an equity investment.

(7) Operating profit for Other for 2019 includes a pre-tax credit of $90 million ($66 million after-tax) for the
derecognition of the TRA liability payable to the shareholders of Change. Operating profit (loss) for Other
also includes the Company’s proportionate share of loss from the Change Healthcare JV of $119 million,
$194 million and $248 million for 2020, 2019 and 2018.

(8) Operating loss for Other for 2018 includes a pre-tax gain of $109 million ($30 million after-tax) from the
sale of the Company’s EIS business and a pre-tax credit of $46 million ($30 million after-tax) representing a
reduction in its TRA liability.

(9) Corporate expenses, net, for 2020 include pre-tax settlement charges of $122 million ($90 million after-tax)
for the termination of the Company’s defined benefit pension plan and a settlement charge of $82 million
($61 million after-tax) related to opioid claims. Corporate expenses, net, for 2019 include pre-tax
restructuring and asset impairment charges of $94 million ($70 million after-tax) primarily associated with
employee severance and other exit-related costs.

(10) Amounts primarily consist of amortization of acquired intangible assets purchased in connection with

business acquisitions and capitalized software for internal use.

(11) Long-lived assets consist of property, plant and equipment.

143

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

Segment assets and property, plant and equipment, net by geographic areas were as follows:

(In millions)

Segment assets

U.S. Pharmaceutical and Specialty Solutions

European Pharmaceutical Solutions

Medical-Surgical Solutions

Other

Corporate

Total

Property, plant and equipment, net

United States

Foreign

Total

March 31,

2020

2019

$34,927

$32,310

9,499

5,395

7,944

3,482

7,829

5,260

11,006

3,267

$61,247

$59,672

$ 1,642

$ 1,698

723

850

$ 2,365

$ 2,548

144

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

25. 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 2020

Revenues

Gross Profit (1)

Income (Loss) After Income Taxes:

Continuing operations (1) (2) (3) (4) (5) (6)

Discontinued operations

Net Income (Loss)

Net Income (Loss) Attributable to McKesson Corporation

Earnings (loss) Per Common Share Attributable to McKesson

Corporation (7)

Diluted (8)

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

$55,728

$57,616

$59,172

$58,535

2,787

2,867

3,033

3,336

$

$

$

483

$ (676)

(6)

477

423

(1)

$ (677)

$ (730)

$

$

$

247

$ 1,072

(5)

242

186

6

$ 1,078

$ 1,021

$

2.27

$ (3.99)

$

1.06

$

5.82

(0.03)

—

(0.03)

0.03

$

2.24

$ (3.99)

$

1.03

$ 5.85

$

2.28

$ (3.99)

$

1.06

$

5.86

(0.03)

—

(0.02)

0.03

$

2.25

$ (3.99)

$

1.04

$ 5.89

(1) Gross profit for the first, second, third and fourth quarters of 2020 includes pre-tax credits of $15 million,
$33 million, $66 million and $138 million ($11 million, $25 million, $49 million and $101 million after-tax)
related to the LIFO method of accounting for inventories.

(2) Financial results for the fourth quarter of 2020 include an estimated gain of $414 million (pre-tax and
after-tax) related to the split-off of the Change Healthcare JV. Financial results for the second quarter of
2020 include a pre-tax impairment charge of $1.2 billion ($864 million after-tax) and pre-tax dilution loss of
$246 million ($184 million after-tax) associated with the Company’s investment in the Change Healthcare
JV.

(3) Financial results for the third quarter of 2020 includes a charge of $282 million (pre-tax and after-tax) to
remeasure to fair value the assets and liabilities of the Company’s German wholesale business to be
contributed to a joint venture, pre-tax long-lived asset impairment charges of $64 million ($53 million
after-tax) within the Company’s European Pharmaceutical Solutions segment, and goodwill and long-lived
asset impairment charges of $32 million (pre-tax and after-tax) recognized for the Company’s Rexall Health
retail business.

(4) Financial results for the first, second, third and fourth quarters of 2020 include the Company’s proportionate
share of income from the Change Healthcare JV of $4 million and losses of $51 million, $28 million and
$44 million.

145

McKESSON CORPORATION

FINANCIAL NOTES (Continued)

(5) Financial results for the second quarter of 2020 includes a pre-tax settlement charge of $105 million

($78 million after-tax) for the termination of the Company’s defined benefit pension plan.

(6) Financial results for the second quarter of 2020 includes a pre-tax settlement charge of $82 million

($61 million after-tax) related to opioids claims.

(7) Certain computations may reflect rounding adjustments.
(8) As a result of the Company’s reported net loss for the second quarter of 2020, potentially dilutive securities

were excluded from the per share computations for that quarter due to their antidilutive effect.

(In millions, except per share amounts)

Fiscal 2019

Revenues

Gross Profit (1) (2)

Income (Loss) after Income Taxes:

Continuing operations (1) (2) (3) (4) (5) (6) (7)

Discontinued operations

Net Income (Loss)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$52,607

$53,075

$56,208

$52,429

2,779

2,804

2,970

3,201

$

$

(81)

1

(80)

$

$

$

552

1

553

499

$

$

$

527

$ (744)

(1)

526

469

—

$ (744)

$ (796)

Net Income (Loss) Attributable to McKesson Corporation

$ (138)

Earnings (Loss) Per Common Share Attributable to McKesson

Corporation (8)

Diluted (9)

Continuing operations

Discontinued operations

Total

Basic

Continuing operations

Discontinued operations

Total

$ (0.69)

$

2.51

$

2.41

$ (4.17)

0.01

—

(0.01)

—

$ (0.68)

$

2.51

$

2.40

$ (4.17)

$ (0.69)

$

2.52

$

2.42

$ (4.17)

0.01

—

(0.01)

—

$ (0.68)

$

2.52

$

2.41

$ (4.17)

(1) Gross profit for the first, second, third and fourth quarters of 2019 includes pre-tax credits of $21 million,
$22 million, $21 million and $146 million ($15 million, $17 million, $15 million and $109 million after-tax)
related to the LIFO method of accounting for inventories.

(2) Gross profit for the first, third and fourth quarters of 2019 includes $35 million, $104 million, and

$63 million of cash receipts for the Company’s share of antitrust legal settlements.
(3) Financial results for the first and fourth quarters of 2019 include goodwill

impairment charges of
$570 million and $1.2 billion (both pre-tax and after-tax) within the Company’s two reporting units within
the European Pharmaceutical Solutions segment.

(4) Financial results for the first and fourth quarters of 2019 include pre-tax asset impairment charges of
$20 million ($16 million after-tax) and $190 million ($156 million after-tax) primarily for the Company’s
U.K. retail business. Financial results for the third quarter of 2019 include asset impairment charges of
$35 million (pre-tax and after-tax) for the Company’s Rexall Health retail business.

(5) Financial results for the first, second, third and fourth quarters of 2019 include the Company’s proportionate
share of loss from the Change Healthcare JV of $56 million, $56 million, $50 million and $32 million.

146

McKESSON CORPORATION

FINANCIAL NOTES (Concluded)

(6) Financial results for the first quarter of 2019 include a gain from an escrow settlement of $97 million
(pre-tax and after-tax) representing certain indemnity and other claims related to the Company’s 2017
acquisition of Rexall Health.

(7) Financial results for the second quarter of 2019 include a pre-tax credit of $90 million ($66 million

after-tax) for the derecognition of the TRA liability payable to the shareholders of Change.

(8) Certain computations may reflect rounding adjustments.
(9) As a result of the Company’s reported net loss for the first and fourth quarters of 2019, potentially dilutive

securities were excluded from the per share computations for those quarters due to their antidilutive effect.

147

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 was no change 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 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information.

None.

148

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 2020 Annual Meeting of Stockholders (the “Proxy Statement”) under the heading “Election of
Directors.” Information about our Executive Officers is incorporated by reference from the discussion in Part I of
this report under the heading “Information about our Executive Officers.” 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,” 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, 2020 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

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)

holders

4.8(2)

$180.48

23.1(3)

Equity compensation plans not approved by

security holders

—

$ —

—

(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.

149

McKESSON CORPORATION

(3) Represents 2,640,734 shares available for purchase under the 2000 Employee Stock Purchase Plan and

20,423,484 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. Beginning with awards granted in fiscal year 2020, RS and RSUs
generally vest over three years. RSUs granted under the PeRSU program vest three years following the end of the
performance period. The Company’s executive officers and other members of senior management are annually
granted performance awards called performance stock units (“PSUs”), 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. Stock options were granted at no less than fair market value and options granted under the 2005
Stock Plan generally have a contractual term of seven years.

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.

150

McKESSON CORPORATION

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 directors and management is incorporated by reference
from the Proxy Statement under the heading “Related Party Transactions Policy and Transactions with Related
Persons.” Information regarding Director independence is incorporated by reference from the Proxy Statement
under the heading “Director Independence.” Additional information regarding certain related party balances and
transactions is included in the Financial Review section of this report and Financial Note 23, “Related Party
Balances and Transactions” to the consolidated financial statements appearing in this report.

Item 14. Principal Accounting Fees and Services.

Information regarding principal accountant 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 2021” in our Proxy Statement and all such information is incorporated herein by reference.

151

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, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended March 31, 2020, 2019 and 2018

Consolidated Balance Sheets as of March 31, 2020 and 2019

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended March 31, 2020, 2019 and 2018

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

60

65

66

67

68

69

70

153

154

Item 16. Form 10-K Summary

None.

152

McKESSON CORPORATION

SCHEDULE II

SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 2020, 2019 and 2018
(In millions)

Description

Year Ended March 31, 2020

Allowances for doubtful accounts

Other allowances

Year Ended March 31, 2019

Allowances for doubtful accounts

Other allowances

Year Ended March 31, 2018

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)

$273

24

$297

$187

39

$226

$243

42

$285

$ 91

—

$ 91

$132

—

$132

$ 44

—

$ 44

$ (19)

$ (93)

—

6

$ (19)

$ (87)

$ (1)

(15)

$ (16)

$ (45)

—

$ (45)

$ 13

$(113)

(3)

—

$ 10

$(113)

$252

30

$282

$273

24

$297

$187

39

$226

2020

2019

2018

$ (93)

$ (45)

$ (113)

6

—

—

$ (87)

$ (45)

$ (113)

(2) Amounts shown as deductions from current and non-current receivables (current
allowances are $265 million, $279 million and $216 million at March 31, 2020,
2019 and 2018)

$282

$297

$ 226

(3) Primarily represents reclassifications to other balance sheet accounts.

153

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.

Incorporated by Reference

Form

File
Number

Exhibit

Filing Date

8-K

1-13252

2.1

July 5, 2016

8-K

1-13252

2.1

March 7, 2017

8-K

1-13252

2.1

February 10, 2020

Exhibit
Number

2.1

2.2

2.3

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.

Separation and Distribution Agreement by and
between McKesson Corporation, PF2 SpinCo,
Inc., Change Healthcare Inc., Change Healthcare
LLC, Change Intermediate Holdings, LLC and
Change Healthcare Holdings, LLC (including
form of Tax Matters Agreement).

154

McKESSON CORPORATION

Exhibit
Number

Description

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

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 March 11, 2020

Indenture, dated as of March 11, 1997, by and
between the Company, as issuer, and The First
National Bank of Chicago, as trustee.

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.

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 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 2022 Note.

Officers’ Certificate, dated as of March 8, 2013,
and related Form of 2023 Note.

Officers’ Certificate, dated as of March 10, 2014,
and related Form of 2024 Note, and Form of
2044 Note.

Officer’s Certificate, dated as of February 17,
2017, and related Form of 2021 Euro Note, Form
of 2025 Euro Note, and Form of 2029 Sterling
Note.

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

3.1

August 2, 2011

Form

8-K

8-K

1-13252

3.1

March 13, 2020

10-K

1-13252

4.4

June 19, 1997

S-4

333-30899

4.2

July 8, 1997

8-K

1-13252

4.1

March 5, 2007

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

4.10

4.11

Officer’s Certificate, dated as of February 12,
2018, and related Form of 2026 Euro Note.

Officer’s Certificate, dated as of February 16,
2018, and related Form of 2028 Note.

8-K

1-13252

4.1

February 13, 2018

8-K

1-13252

4.1

February 21, 2018

155

McKESSON CORPORATION

Exhibit
Number

4.12

Description

Officer’s Certificate, dated as of November 30,
2018, and related Form of 2020 Note and Form
of 2029 Note.

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

4.1 November 30, 2018

Form

8-K

4.13†

Description of the Company’s Securities.

—

—

—

—

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*†

10.9*

10.10*

10.11*

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 Retirement
Savings Plan, as amended and restated effective
July 30, 2019.

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
effective July 30, 2019.

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.

McKesson Corporation Change in Control Policy
for Selected Executive Employees, as amended
and restated as set forth April 28, 2020 effective
January 28, 2020.

McKesson Corporation Management Incentive
Plan, effective July 29, 2015.

Form of Statement of Terms and Conditions
Applicable to Awards Pursuant to the McKesson
Corporation Management Incentive Plan,
effective May 26, 2015.

McKesson Corporation Long-Term Incentive
Plan, as amended and restated effective May 26,
2015, as amended effective October 23, 2018.

10-K

1-13252

10.4

June 10, 2004

10-K

1-13252

10.6

June 6, 2003

10-Q

1-13252

10.2

October 30, 2019

10-K

1-13252

10.7

May 7, 2008

10-Q

1-13252

10.1

October 30, 2019

8-K

1-13252

10.1

January 25, 2010

10-K

1-13252

10.11

May 7, 2013

—

—

—

—

8-K

1-13252

10.1

July 31, 2015

10-Q

1-13252

10.1

July 29, 2015

10-Q

1-13252

10.1

October 25, 2018

156

McKESSON CORPORATION

Incorporated by Reference

File
Number

Exhibit

Filing Date

1-13252

10.14

May 5, 2016

Form

10-K

10-Q

1-13252

10.4

July 30, 2010

10-Q

1-13252

10.2

July 26, 2012

8-K

1-13252

10.1

August 2, 2013

—

—

—

—

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

Exhibit
Number

10.12*

10.13*

10.14*

10.15*

10.16*†

10.17

10.18

10.19

Description

Forms of Statement of Terms and Conditions
Applicable to Awards Pursuant to the McKesson
Corporation Long-Term Incentive Plan, effective
May 24, 2016.

McKesson Corporation 2005 Stock Plan, as
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.

McKesson Corporation 2013 Stock Plan, as
adopted on May 22, 2013.

Forms of Statement of Terms and Conditions and
Grant Notices Applicable to Awards Pursuant to
the McKesson Corporation 2013 Stock Plan.

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 Tokyo-Mitsubishi UFJ, Ltd. and
Wells Fargo Securities, LLC as Joint Lead
Arrangers and Joint Book Runners.

157

McKESSON CORPORATION

Incorporated by Reference

Form

8-K

File
Number

1-3252

Exhibit

Filing Date

10.1

February 5, 2014

10-Q

1-13252

10.1

October 30, 2019

10-K

1-13252

10.27

May 4, 2010

8-K

1-13252

—

March 23, 2020

8-K

1-13252

10.1

March 13, 2020

—

—

—

—

—

—

—

—

Exhibit
Number

10.20

10.21

10.22*

10.23

10.24

21†

23†

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.

Credit Agreement dated as of September 25,
2019, among the Company and certain
subsidiaries, as borrowers, Bank of America,
N.A., as administrative agent, Barclays Bank
PLC, Citibank, N.A., Wells Fargo Bank, National
Association, Goldman Sachs Bank USA,
JPMorgan Chase Bank, N.A., and HSBC
Securities (USA) Inc., as co-syndication agents,
the lenders party thereto, the letter of credit
issuers party thereto.

Form of Director and Officer Indemnification
Agreement.

Description of Separation Letter between the
Company and Bansi Nagji, Executive Vice
President and Chief Strategy and Business
Development Officer, dated March 17, 2020.

Tax Matters Agreement, by and between
McKesson Corporation, PF2 SpinCo, Inc.,
Change Healthcare Inc. and Change Healthcare
LLC, dated as of March 9, 2020

List of Subsidiaries of the Registrant.

Consent of Independent Registered Public
Accounting Firm, Deloitte & Touche LLP.

158

McKESSON CORPORATION

Incorporated by Reference

File
Number

Exhibit

Filing Date

—

—

—

Form

—

—

—

—

—

—

—

—

—

—

—

—

—

Exhibit
Number

31.1†

31.2†

32††

101†

Description

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.

Certification of Chief Financial 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.

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, 2020, 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.

104†

Cover Page Interactive Data File (formatted as
iXBRL and contained in Exhibit 101).

—

—

—

—

* 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.

159

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 22, 2020

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:

/s/ Brian S. Tyler
Brian S. Tyler
Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Marie L. Knowles
Marie L. Knowles, Director

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

/s/ Bradley E. Lerman
Bradley E. Lerman, Director

/s/ Sundeep G. Reddy
Sundeep G. Reddy
Senior Vice President and Controller
(Principal Accounting Officer)

/s/ Maria Martinez
Maria Martinez, Director

/s/ Dominic J. Caruso
Dominic J. Caruso, Director

/s/ Edward A. Mueller
Edward A. Mueller, Director

/s/ N. Anthony Coles
N. Anthony Coles, M.D., Director

/s/ Susan R. Salka
Susan R. Salka, Director

/s/ M. Christine Jacobs
M. Christine Jacobs, Director

/s/ Donald R. Knauss
Donald R. Knauss, Director

Date: May 22, 2020

/s/ Kenneth E. Washington
Kenneth E. Washington, Director

160

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, Brian S. Tyler, 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 22, 2020

/s/ Brian S. Tyler
Brian S. Tyler
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 22, 2020

/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, 2020 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/ Brian S. Tyler
Brian S. Tyler
Chief Executive Officer
May 22, 2020

/s/ Britt J. Vitalone
Britt J. Vitalone
Executive Vice President and Chief Financial Officer
May 22, 2020

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.

Cautionary Statement: 
Except for historical information contained in this Annual Report, matters discussed may constitute “forward-looking 
statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange 
Act of 1934, that involve risks and uncertainties that could cause actual results to differ materially from those in these 
statements. It is not possible to identify all such risks and uncertainties. We encourage investors to read the important 
risk factors described in the Risk Factors section of the company’s Form 10-K included in the Annual Report. The reader 
should not place undue reliance on forward-looking statements, such as references to specific impacts from the COVID-19 
pandemic, which speak only as of the date they are first made. Forward-looking statements may be identified by their use of 
terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, 
estimates” or the negative of these words or other comparable terminology. Except to the extent required by law, the company 
undertakes no obligation to publicly update forward-looking statements.

McKesson Corporation

6555 State Highway 161
Irving, TX 75039

www.mckesson.com

© 2020 McKesson Corporation. All rights reserved.