MCKESSON CORP [MCK] Filings

10-Q 1 mck-20230930.htm 10-Q mck-20230930

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			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						94-3207296
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6555 State Hwy 161,

Irving, TX 75039

(Address of principal executive offices, including zip code)

(972) 446-4800

(Registrant’s telephone number, including area code)

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


(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)
Common stock, $0.01 par value	MCK	New York Stock Exchange
1.500% Notes due 2025	MCK25	New York Stock Exchange
1.625% Notes due 2026	MCK26	New York Stock Exchange
3.125% Notes due 2029	MCK29	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 133,062,485 shares of the issuer’s common stock were outstanding as of September 30, 2023.

Table of Contents

McKESSON CORPORATION

TABLE OF CONTENTS


Item		Page

	PART I—FINANCIAL INFORMATION

1	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2023 and 2022	3

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 30, 2023 and 2022	4

	Condensed Consolidated Balance Sheets as of September 30, 2023 and March 31, 2023	5

	Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended September 30, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022	8

	Financial Notes	9

	Note 1 - Significant Accounting Policies	9

	Note 2 - Business Acquisitions and Divestitures	10

	Note 3 - Restructuring, Impairment, and Related Charges, Net	13

	Note 4 - Income Taxes	15

	Note 5 - Earnings (Loss) Per Common Share	16

	Note 6 - Goodwill and Intangible Assets, Net	17

	Note 7 - Debt and Financing Activities	18

	Note 8 - Hedging Activities	20

	Note 9 - Fair Value Measurements	23

	Note 10 - Commitments and Contingent Liabilities	25

	Note 11 - Stockholders’ Deficit	28

	Note 12 - Segments of Business	31

	Note 13 - Subsequent Events	33

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

3	Quantitative and Qualitative Disclosures About Market Risk	50

4	Controls and Procedures	51

	PART II—OTHER INFORMATION

1	Legal Proceedings	51

1A	Risk Factors	51

2	Unregistered Sales of Equity Securities and Use of Proceeds	51

3	Defaults Upon Senior Securities	52

4	Mine Safety Disclosures	52

5	Other Information	52

6	Exhibits	53

	Signatures	54

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Revenues	$	77,215	$	70,157	$	151,698	$	137,311
Cost of sales	(74,146)		(67,062)		(145,607)		(131,193)
Gross profit	3,069		3,095		6,091		6,118
Selling, distribution, general, and administrative expenses	(2,092)		(1,950)		(3,962)		(3,909)
Claims and litigation charges, net	2		9		2		4

Restructuring, impairment, and related charges, net	(28)		(30)		(80)		(53)
Total operating expenses	(2,118)		(1,971)		(4,040)		(3,958)
Operating income	951		1,124		2,051		2,160
Other income, net	26		175		64		190


Interest expense	(61)		(55)		(108)		(100)
Income from continuing operations before income taxes	916		1,244		2,007		2,250
Income tax expense	(213)		(271)		(307)		(470)
Income from continuing operations	703		973		1,700		1,780
Loss from discontinued operations, net of tax	—		(6)		—		(4)
Net income	703		967		1,700		1,776
Net income attributable to noncontrolling interests	(39)		(41)		(78)		(82)
Net income attributable to McKesson Corporation	$	664	$	926	$	1,622	$	1,694

Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations	$	4.92	$	6.46	$	11.95	$	11.71
Discontinued operations	—		(0.04)		—		(0.03)
Total	$	4.92	$	6.42	$	11.95	$	11.68
Basic
Continuing operations	$	4.95	$	6.51	$	12.03	$	11.81
Discontinued operations	—		(0.04)		—		(0.02)
Total	$	4.95	$	6.47	$	12.03	$	11.79

Weighted-average common shares outstanding
Diluted	134.8		144.1		135.7		145.0
Basic	134.1		143.1		134.8		143.7

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net income	$	703	$	967	$	1,700	$	1,776

Other comprehensive income (loss), net of tax
Foreign currency translation adjustments	(64)		(192)		(12)		390
Unrealized gains on cash flow and other hedges	25		18		32		36
Changes in retirement-related benefit plans	—		2		(2)		38
Other comprehensive income (loss), net of tax	(39)		(172)		18		464

Comprehensive income	664		795		1,718		2,240
Comprehensive income attributable to noncontrolling interests	(39)		(35)		(78)		(126)
Comprehensive income attributable to McKesson Corporation	$	625	$	760	$	1,640	$	2,114

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


	September 30, 2023		March 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	2,524	$	4,678
Receivables, net	22,494		19,410
Inventories, net	21,945		19,691

Prepaid expenses and other	568		513
Total current assets	47,531		44,292
Property, plant, and equipment, net	2,171		2,177
Operating lease right-of-use assets	1,680		1,635
Goodwill	9,934		9,947
Intangible assets, net	2,142		2,277
Other non-current assets	2,633		1,992
Total assets	$	66,091	$	62,320

LIABILITIES AND DEFICIT
Current liabilities
Drafts and accounts payable	$	46,795	$	42,490

Current portion of long-term debt	49		968
Current portion of operating lease liabilities	296		299

Other accrued liabilities	4,007		4,200
Total current liabilities	51,147		47,957
Long-term debt	5,535		4,626
Long-term deferred tax liabilities	1,112		1,387
Long-term operating lease liabilities	1,436		1,402
Long-term litigation liabilities	6,128		6,625
Other non-current liabilities	2,197		1,813

McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized, 278 and 277 shares issued at September 30, 2023 and March 31, 2023, respectively	3		3
Additional paid-in capital	7,899		7,747
Retained earnings	13,761		12,295
Accumulated other comprehensive loss	(887)		(905)

Treasury shares, at cost, 145 and 141 shares at September 30, 2023 and March 31, 2023, respectively	(22,604)		(20,997)
Total McKesson Corporation stockholders’ deficit	(1,828)		(1,857)
Noncontrolling interests	364		367
Total deficit	(1,464)		(1,490)
Total liabilities and deficit	$	66,091	$	62,320

See Financial Notes

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McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended September 30, 2023
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, June 30, 2023	278	$	3	$	7,824		$	13,182	$	(848)	(143)	$	(21,763)	$	362	$	(1,240)
Issuance of shares under employee plans, net of forfeitures	—	—		27			—		—		—	(1)		—		26
Share-based compensation	—	—		48			—		—		—	—		—		48
Repurchase of common stock	—	—		—			—		—		(2)	(840)		—		(840)
Net income	—	—		—			664		—		—	—		39		703
Other comprehensive loss	—	—		—			—		(39)		—	—		—		(39)
Cash dividends declared, $0.62 per common share	—	—		—			(84)		—		—	—		—		(84)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(38)		(38)



Other	—	—		—			(1)		—		—	—		1		—
Balance, September 30, 2023	278	$	3	$	7,899		$	13,761	$	(887)	(145)	$	(22,604)	$	364	$	(1,464)


	Three Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, June 30, 2022	277	$	3	$	7,350		$	9,732	$	(948)	(133)	$	(18,141)	$	532	$	(1,472)
Issuance of shares under employee plans, net of forfeitures	—	—		36			—		—		—	(2)		—		34
Share-based compensation	—	—		46			—		—		—	—		—		46
Repurchase of common stock	—	—		177			—		—		(2)	(701)		—		(524)
Net income	—	—		—			926		—		—	—		41		967
Other comprehensive loss	—	—		—			—		(166)		—	—		(6)		(172)
Cash dividends declared, $0.54 per common share	—	—		—			(78)		—		—	—		—		(78)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(41)		(41)
Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(2)		(2)
Other	—	—		—			(1)		—		—	—		(6)		(7)
Balance, September 30, 2022	277	$	3	$	7,609		$	10,579	$	(1,114)	(135)	$	(18,844)	$	518	$	(1,249)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In millions, except per share amounts)

(Unaudited)


	Six Months Ended September 30, 2023
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Treasury				Noncontrolling Interests		Total Deficit
	Shares	Amount								Common Shares		Amount
Balance, March 31, 2023	277	$	3	$	7,747	$	12,295	$	(905)		(141)		$	(20,997)	$	367	$	(1,490)
Issuance of shares under employee plans, net of forfeitures	1	—		54		—		—			—		(94)		—		(40)
Share-based compensation	—	—		91		—		—			—		—		—		91
Repurchase of common stock	—	—		—		—		—			(4)		(1,513)		—		(1,513)
Net income	—	—		—		1,622		—			—		—		78		1,700
Other comprehensive income	—	—		—		—		18			—		—		—		18
Cash dividends declared, $1.16 per common share	—	—		—		(157)		—			—		—		—		(157)
Payments to noncontrolling interests	—	—		—		—		—			—		—		(77)		(77)




Other	—	—		7		1		—			—		—		(4)		4
Balance, September 30, 2023	278	$	3	$	7,899	$	13,761	$	(887)		(145)		$	(22,604)	$	364	$	(1,464)


	Six Months Ended September 30, 2022
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, March 31, 2022	275	$	2	$	7,275		$	9,030	$	(1,534)	(130)	$	(17,045)	$	480	$	(1,792)
Issuance of shares under employee plans, net of forfeitures	2	1		127			—		—		—	(154)		—		(26)
Share-based compensation	—	—		86			—		—		—	—		—		86
Repurchase of common stock	—	—		121			—		—		(5)	(1,645)		—		(1,524)
Net income	—	—		—			1,694		—		—	—		82		1,776
Other comprehensive income	—	—		—			—		420		—	—		44		464
Cash dividends declared, $1.01 per common share	—	—		—			(145)		—		—	—		—		(145)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(77)		(77)


Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(4)		(4)
Other	—	—		—			—		—		—	—		(7)		(7)
Balance, September 30, 2022	277	$	3	$	7,609		$	10,579	$	(1,114)	(135)	$	(18,844)	$	518	$	(1,249)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Six Months Ended September 30,
	2023		2022
OPERATING ACTIVITIES
Net income	$	1,700	$	1,776
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation	129		124
Amortization	187		175
Long-lived asset impairment charges	28		11
Deferred taxes	(271)		170
Charges (credits) associated with last-in, first-out inventory method	87		(36)
Non-cash operating lease expense	122		126
Gain from sales of businesses and investments	(16)		(148)
European businesses held for sale	—		(35)
Other non-cash items	314		157
Changes in assets and liabilities, net of acquisitions:
Receivables	(3,207)		(1,883)
Inventories	(2,349)		(1,453)
Drafts and accounts payable	4,307		2,292
Operating lease liabilities	(166)		(174)
Taxes	(76)		82
Litigation liabilities	(529)		(915)
Other	(347)		(103)
Net cash provided by (used in) operating activities	(87)		166

INVESTING ACTIVITIES
Payments for property, plant, and equipment	(153)		(157)
Capitalized software expenditures	(111)		(65)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	—		(23)
Proceeds from sales of businesses and investments, net	50		496
Other	(101)		(135)
Net cash provided by (used in) investing activities	(315)		116

FINANCING ACTIVITIES
Proceeds from short-term borrowings	2,000		100
Repayments of short-term borrowings	(2,000)		(100)
Proceeds from issuances of long-term debt	991		—
Repayments of long-term debt	(271)		(4)
Purchase of U.S. government obligations for the satisfaction and discharge of long-term debt	(647)		—

Common stock transactions:
Issuances	54		127
Share repurchases	(1,505)		(1,484)
Dividends paid	(149)		(139)

Other	(225)		(253)
Net cash used in financing activities	(1,752)		(1,753)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1)		24
Change in cash, cash equivalents, and restricted cash classified as Assets held for sale	—		470
Net decrease in cash, cash equivalents, and restricted cash	(2,155)		(977)
Cash, cash equivalents, and restricted cash at beginning of period	4,679		3,935
Cash, cash equivalents, and restricted cash at end of period	2,524		2,958
Less: Restricted cash at end of period included in Prepaid expenses and other	—		(42)

Cash and cash equivalents at end of period	$	2,524	$	2,916

See Financial Notes

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES

(UNAUDITED)

1. Significant Accounting Policies

Nature of Operations: McKesson Corporation (“McKesson,” or the “Company,”) is a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. McKesson partners with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services to help make quality care more accessible and affordable. The Company reports its financial results in four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Refer to Financial Note 12, “Segments of Business,” for additional information.

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

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

Net income attributable to noncontrolling interests includes third-party equity interests in the Company’s consolidated entities, including ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and SCRI Oncology, LLC. Net income attributable to noncontrolling interests also included recurring compensation that the Company was obligated to pay to the noncontrolling shareholders of McKesson Europe AG (“McKesson Europe”). The Company’s noncontrolling interest in McKesson Europe was included in the divestiture of certain of the Company’s businesses in the European Union (“E.U.”) in October 2022, which is discussed further in Financial Note 2, “Business Acquisitions and Divestitures.”

The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control, but instead has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method.

Fiscal Period: The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.

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

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts could differ from those estimated amounts. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows of McKesson for the interim periods presented.

The results of operations for the three and six months ended September 30, 2023 are not necessarily indicative of the results that may be anticipated for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies, and financial notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023, previously filed with the SEC on May 9, 2023 (the “2023 Annual Report”).

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”). Among other provisions, the IRA includes a 15% corporate minimum tax, a 1% excise tax on certain repurchases of an entity’s own common stock after December 31, 2022, and various drug pricing reforms. The Company does not anticipate that this legislation will have a material impact on its consolidated financial statements or related disclosures; however the Company continues to evaluate the impact of these legislative changes. Refer to Financial Note 11, “Stockholders' Deficit,” for further details regarding excise taxes incurred on the Company’s share repurchases during the three and six months ended September 30, 2023.

Recently Adopted Accounting Pronouncements

There were no accounting standards adopted by the Company during the six months ended September 30, 2023.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of such equity security, and requires additional disclosure requirements. ASU 2022-03 is effective for the Company on a prospective basis for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements or related disclosures.

2. Business Acquisitions and Divestitures

Acquisitions

Rx Savings Solutions, LLC

On November 1, 2022, the Company completed its acquisition of 100% of the shares of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to further connect biopharma and payer services to patients. RxSS is a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. The purchase consideration included a payment of $600 million in cash made upon closing and a maximum of $275 million of contingent consideration based on RxSS’ operational and financial performance through calendar year 2025. The payment made upon closing was funded from cash on hand. The financial results of RxSS are included in the Company’s RxTS segment as of the acquisition date. The transaction was accounted for as a business combination.

The Company recorded a liability for the contingent consideration at its fair value of $92 million as of the acquisition date. The fair value of the contingent consideration liability was estimated using a Monte Carlo simulation model, utilizing internal cash flow projections which are Level 3 inputs under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. The contingent consideration liability will be remeasured to fair value at each reporting date until the liability is settled with changes in fair value being recognized within “Selling, distribution, general, and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations. During the three and six months ended September 30, 2023, the Company recognized fair value adjustment gains of $48 million and $76 million, respectively, which reduced its contingent consideration liability, based on the estimated amount and timing of projected operational and financial information and the probability of achievement of performance milestones. As of September 30, 2023 and March 31, 2023, the current portion of the contingent consideration liability of $15 million and $83 million, respectively, is included within “Other accrued liabilities” and the long-term portion of $1 million and $9 million, respectively, is included within “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheets. Recognition of the initial fair value of this contingent consideration was a non-cash investing activity.

The purchase price allocation included acquired identifiable intangible assets of $229 million, primarily representing customer relationships and technology with a weighted average amortization period of 12 years, and goodwill of $463 million. Goodwill has been allocated to the Company’s RxTS segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition is deductible for tax purposes.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The following table summarizes the preliminary purchase price allocation for this acquisition:


(In millions)	Amounts Recognized as of Acquisition Date (As Adjusted)
Purchase consideration:
Cash	$	600
Contingent consideration	92
Total purchase consideration	$	692

Identifiable assets acquired and liabilities assumed:
Current assets	$	5
Intangible assets	229
Other non-current assets	3
Current liabilities	(8)

Total identifiable net assets	229
Goodwill	463
Net assets acquired	$	692

SCRI Oncology, LLC

On October 31, 2022, the Company completed a transaction with HCA Healthcare, Inc. (“HCA”) to form SCRI Oncology, LLC (“SCRI Oncology”), an oncology research business combining McKesson’s U.S. Oncology Research (“USOR”) and HCA’s Sarah Cannon Research Institute (“SCRI”) based in Nashville, Tennessee, to advance cancer care and increase access to oncology clinical research. Upon consummation of the transaction, McKesson owns a 51% controlling interest in the combined business, and the financial results are consolidated by the Company and reported within its U.S. Pharmaceutical segment as of the acquisition date. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and $166 million of net cash paid to HCA, which was funded from cash on hand. The transaction was accounted for as a business combination.

The purchase price allocation included acquired identifiable intangible assets of $177 million, primarily representing customer relationships as well as trademarks and trade names with a weighted average amortization period of 17 years, and goodwill of $113 million. Goodwill has been allocated to the Company’s U.S. Pharmaceutical segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition of $46 million is deductible for tax purposes. The Company recorded noncontrolling interest of $222 million as a component of equity, which includes HCA’s proportionate interest in the identifiable net assets of SCRI at fair value of $202 million and its proportionate interest in the contributed net assets of USOR at carrying value of $20 million. The difference between the fair value of the Company’s acquired interest in SCRI net assets and the $166 million of net cash paid to HCA was recognized as additional paid in capital, as well as the Company’s reduction in ownership interest in USOR net assets.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The following table summarizes the preliminary purchase price allocation for this acquisition:


(In millions)	Amounts Recognized as of Acquisition Date (As Adjusted)
Purchase consideration:
Cash	$	166
Contribution of USOR	40
Total purchase consideration	$	206

Identifiable assets acquired and liabilities assumed:
Receivables	$	224

Property, plant, and equipment	22
Operating lease right-of-use assets	31
Intangible assets	177

Current liabilities	(42)
Long-term operating lease liabilities	(29)
Other non-current liabilities	(43)
Total identifiable net assets	340
Noncontrolling interest	(222)
Additional paid-in capital	(25)
Goodwill	113
Net assets acquired	$	206

The fair value of the acquired identifiable intangible assets from the acquisitions discussed above were determined by applying the income approach, using a discounted cash flow model in which cash flows anticipated over several periods are discounted to their present value using an appropriate rate that is commensurate with the risk inherent with the transaction. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. The amounts presented above are subject to change as the Company’s fair value assessments are finalized. There have been no material changes to the purchase price allocation of these acquisitions since the acquisition date. Pro forma financial information has not been provided as these acquisitions did not have a material impact, individually, or in the aggregate, to the Company’s consolidated results of operations.

Divestitures

European Divestiture Activities

In July 2021, the Company announced its intention to exit its businesses in Europe. On October 31, 2022, the Company completed its previously announced transaction to sell certain of its businesses in the E.U. located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group. During the three and six months ended September 30, 2022, the Company recorded gains of $23 million and $35 million, respectively, to remeasure the E.U. disposal group to fair value less costs to sell which was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

At September 30, 2023 and March 31, 2023, the Company had no assets or liabilities related to these European divestiture activities that met the criteria for classification as held for sale. Subsequent to the divestiture activities discussed above, the Company’s European operations primarily consist of its retail and distribution businesses in Norway.

Other

For the periods presented, the Company also completed de minimis acquisitions and divestitures within its operating segments. Financial results for the Company’s business acquisitions have been included in its consolidated financial statements as of their respective acquisition dates. Purchase prices for business acquisitions have been allocated based on estimated fair values at the respective acquisition dates.

3. Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $28 million and $30 million for the three months ended September 30, 2023 and 2022, respectively, and $80 million and $53 million for the six months ended September 30, 2023 and 2022, respectively. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.

Restructuring Initiatives

During the fourth quarter of fiscal 2023, the Company approved a broad set of initiatives to drive operational efficiencies and increase cost optimization efforts, with the intent of simplifying its infrastructure and realizing long-term sustainable growth. These initiatives include headcount reductions and the exit or downsizing of certain facilities. The Company anticipates total charges of approximately $125 million across its RxTS and U.S. Pharmaceutical segments as well as Corporate, consisting primarily of employee severance and other employee-related costs, facility and other exit-related costs, as well as long-lived asset impairments. Of this amount, $99 million of cumulative charges were recorded through September 30, 2023. For the three and six months ended September 30, 2023, the Company recorded charges of $3 million and $39 million related to this program, respectively, which primarily includes real estate and other related asset impairments and facility costs within Corporate. This restructuring program is anticipated to be substantially complete by the end of fiscal 2024.

Restructuring, impairment, and related charges, net for the three months ended September 30, 2023 and 2022 consisted of the following:


	Three Months Ended September 30, 2023
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions (1)		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	8	$	—	$	—	$	2	$	—	$	10
Exit and other-related costs (2)	1		3		4		4		6		18
Asset impairments and accelerated depreciation	—		—		—		—		—		—
Total	$	9	$	3	$	4	$	6	$	6	$	28

(1)Includes costs related to operational efficiencies and cost optimization efforts described above to support the Company’s technology solutions.

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


	Three Months Ended September 30, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	—	$	—	$	—	$	2	$	(5)	$	(3)
Exit and other-related costs (1)	—		1		1		6		14		22
Asset impairments and accelerated depreciation	3		6		—		1		1		11
Total	$	3	$	7	$	1	$	9	$	10	$	30

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

Restructuring, impairment, and related charges, net, for the six months ended September 30, 2023 and 2022 consisted of the following:


	Six Months Ended September 30, 2023
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions (1)		Medical-Surgical Solutions		International		Corporate (1)		Total
Severance and employee-related costs, net	$	9	$	—	$	—	$	2	$	1	$	12
Exit and other-related costs (2)	2		5		6		9		18		40
Asset impairments and accelerated depreciation	—		—		—		1		27		28
Total	$	11	$	5	$	6	$	12	$	46	$	80

(1)Includes costs related to operational efficiencies and cost optimization efforts described above to support the Company’s technology solutions.

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


	Six Months Ended September 30, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	3	$	—	$	—	$	2	$	(6)	$	(1)
Exit and other-related costs (1)	1		3		2		8		29		43
Asset impairments and accelerated depreciation	3		11		—		1		(4)		11
Total	$	7	$	14	$	2	$	11	$	19	$	53

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The following table summarizes the activity related to the liabilities associated with the Company’s restructuring initiatives for the six months ended September 30, 2023:


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2023 (1)	$	15	$	26	$	3	$	13	$	35	$	92
Restructuring, impairment, and related charges, net	11		5		6		12		46		80
Non-cash charges	—		—		—		(1)		(27)		(28)
Cash payments	(10)		(26)		(6)		(3)		(23)		(68)
Other (2)	—		—		—		(10)		—		(10)
Balance, September 30, 2023 (3)	$	16	$	5	$	3	$	11	$	31	$	66

(1)As of March 31, 2023, the total reserve balance was $92 million, of which $66 million was recorded in “Other accrued liabilities” and $26 million was recorded in “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

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

(3)As of September 30, 2023, the total reserve balance was $66 million, of which $32 million was recorded in “Other accrued liabilities” and $34 million was recorded in “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

4. Income Taxes

Income tax expense related to continuing operations was as follows:


	Three Months Ended September 30,						Six Months Ended September 30,
(Dollars in millions)	2023			2022			2023			2022
Income tax expense	$	213		$	271		$	307		$	470
Reported income tax rate	23.3		%	21.8		%	15.3		%	20.9		%

Fluctuations in the Company’s reported income tax rates were primarily due to changes in the mix of earnings between various taxing jurisdictions and discrete items recognized in the quarters.

During the three months ended September 30, 2023, the Company recognized a net discrete tax expense of $12 million primarily related to interest expense accrued on unrecognized tax benefits, and recognized a net discrete tax benefit of $16 million primarily related to increased tax credits during the three months ended September 30, 2022. During the six months ended September 30, 2023, the Company repatriated certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. The transferor entity of the intellectual property was not subject to income tax on this transaction. The recipient entity of the intellectual property is entitled to amortize the fair value of the assets for tax purposes. As a result of this repatriation, and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, a net discrete tax benefit of $147 million was recognized during the six months ended September 30, 2023. During the six months ended September 30, 2022, the Company recognized a net discrete tax benefit primarily related to the tax impact of share-based compensation of $53 million.

As of September 30, 2023, the Company had $1.4 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, the Company does not anticipate any material reduction in its unrecognized tax benefits based on the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2016 through the current fiscal year.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

During the fourth quarter of fiscal 2023, the Internal Revenue Service (“IRS”) communicated proposed adjustments to taxable income reported in the Company’s fiscal 2018 and fiscal 2019 U.S. Federal Corporate Income Tax returns. The adjustments would increase the Company’s federal income tax liability in the range of $600 million to $700 million. The Company disagrees with the proposed adjustments and intends to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. During the first quarter of fiscal 2024, the Company filed a formal protest with the IRS. The Company does not anticipate a final resolution of these matters until fiscal 2026 or after. Although the final resolution of these matters is uncertain, the Company believes in the merits of its tax positions and believes that it has adequately reserved for any adjustments to the provision of income taxes that may ultimately result. However, if the IRS prevails in these matters, the assessed tax and interest could have a material adverse effect on the Company’s financial position, results of operations, and cash flows in future periods.

5. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings per common share is similar to that of basic earnings (loss) per common share, except that the former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based restricted stock units. Less than one million of potentially dilutive securities for the three and six months ended September 30, 2023 and 2022 were excluded from the computation of diluted earnings per common share as they were anti-dilutive.

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


	Three Months Ended September 30,				Six Months Ended September 30,
(In millions, except per share amounts)	2023		2022		2023		2022
Income from continuing operations	$	703	$	973	$	1,700	$	1,780
Net income attributable to noncontrolling interests	(39)		(41)		(78)		(82)
Income from continuing operations attributable to McKesson Corporation	664		932		1,622		1,698
Loss from discontinued operations, net of tax	—		(6)		—		(4)
Net income attributable to McKesson Corporation	$	664	$	926	$	1,622	$	1,694

Weighted-average common shares outstanding:
Basic	134.1		143.1		134.8		143.7
Effect of dilutive securities:
Stock options	0.2		0.2		0.2		0.3
Restricted stock units (1)	0.5		0.8		0.7		1.0
Diluted	134.8		144.1		135.7		145.0

Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations	$