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,"
"McKesson," "we," "our," or "us" and other similar pronouns). This discussion
and analysis should be read in conjunction with the condensed consolidated
financial statements and accompanying financial notes in Item 1 of Part I of
this Quarterly Report on Form 10-Q and in Item 8 of Part II of our Annual Report
on Form 10-K for the fiscal year ended March 31, 2021 previously filed with the
Securities and Exchange Commission on May 12, 2021 ("2021 Annual Report").
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
"Cautionary Notice About Forward-Looking Statements" included in this Quarterly
Report on Form 10-Q.
Overview of Our Business:
We are a global leader in healthcare supply chain management solutions, retail
pharmacy, community oncology and specialty care, and healthcare information
solutions. We partner with pharmaceutical manufacturers, providers, pharmacies,
governments, and other organizations in healthcare to help provide the right
medicines, medical products, and healthcare services to the right patients at
the right time, safely, and cost-effectively.
We implemented a new segment reporting structure commencing with the second
quarter of 2021, which resulted in four reportable segments: U.S.
Pharmaceutical, Prescription Technology Solutions ("RxTS"), Medical-Surgical
Solutions, and International. All prior segment information has been recast to
reflect our new segment structure and current period presentation. 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 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.
The following summarizes our four reportable segments and the changes made to
our reporting structure commencing in the second quarter of 2021. Refer to
Financial Note 14, "Segments of Business," to the accompanying condensed
consolidated financial statements included in this Quarterly Report on Form 10-Q
for further information regarding our reportable segments.
•U.S. Pharmaceutical, previously the U.S. Pharmaceutical and Specialty Solutions
reportable segment, continues to distribute branded, generic, specialty,
biosimilar, and over-the-counter pharmaceutical drugs and other
healthcare-related products. This segment also provides practice management,
technology, clinical support, and business solutions to community-based oncology
and other specialty practices. In addition, the segment sells financial,
operational, and clinical solutions to pharmacies (retail, hospital, alternate
site) and provides consulting, outsourcing, technological, and other services.
•RxTS is a reportable segment that unifies the solutions and services of
CoverMyMeds, RelayHealth, RxCrossroads, and McKesson Prescription Automation to
serve our biopharma and life sciences partners and patients. By combining
automation and expert navigation of the healthcare ecosystem, RxTS connects
pharmacies, providers, payers, and biopharma to address patients' medication
access, adherence, and affordability challenges to help people get the medicine
they need to live healthier lives. RxCrossroads was previously included in the
former U.S. Pharmaceutical and Specialty Solutions reportable segment and
CoverMyMeds, RelayHealth, and McKesson Prescription Automation were previously
included in Other.
•Medical-Surgical Solutions provides medical-surgical supply distribution,
logistics, and other services to healthcare providers in the United States
("U.S.") and was unaffected by the segment realignment.

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McKESSON CORPORATION
                          FINANCIAL REVIEW (CONTINUED)
                                  (UNAUDITED)
•International is a reportable segment that includes our operations in Europe
and Canada, bringing together non-U.S.-based drug distribution services,
specialty pharmacy, retail, and infusion care services. McKesson Europe was
previously reflected as the European Pharmaceutical Solutions reportable segment
and McKesson Canada was previously included in Other.
Executive Summary:
The following summary provides highlights and key factors that impacted our
business, operating results, financial condition, and liquidity for the three
months ended June 30, 2021.
•Coronavirus disease 2019 ("COVID-19") continues to impact our year over year
results. As previously disclosed in our 2021 Annual Report, pharmaceutical
distribution volumes decreased across the enterprise during the first quarter of
2021 as a result of the weakened and uncertain global economic environment and
COVID-19 restrictions following the onset of the pandemic. We remain in a
dynamic environment and volume trends continue to be non-linear. However, the
recovery from the pandemic is favorably reflected in our results when comparing
2022 versus 2021. We also had favorable contributions from our COVID-19 vaccine
and related ancillary supply kit distribution programs during the first quarter
of 2022 and a year over year increase in sales of COVID-19 tests;
•In response to the global pandemic, McKesson plans to donate certain personal
protective equipment ("PPE") to charitable organizations to assist with COVID-19
recovery efforts. During the first quarter of 2022, we recorded inventory
charges totaling $164 million on certain PPE and other related products in our
Medical-Surgical Solutions segment. The majority of these charges are driven by
the intent of management not to sell certain excess PPE inventory and instead
direct it to charitable organizations. Refer to the "Trends and Uncertainties"
section included below for further information on COVID-19 and related impacts;
•Revenues of $62.7 billion for the three months ended June 30, 2021 increased
13% from the prior year primarily driven by market growth in our U.S.
Pharmaceutical segment;
•Gross profit increased 12% for the three months ended June 30, 2021 compared to
the prior year primarily in our International segment driven by favorable
effects of foreign currency exchange fluctuations, and in our U.S.
Pharmaceutical segment driven by the contribution from our COVID-19 vaccine
distribution program;
•Total operating expenses for the three months ended June 30, 2021 includes
charges of $74 million related to our estimated liability for opioid-related
claims as further described in the "Trends and Uncertainties" section included
below;
•Diluted earnings per common share from continuing operations attributable to
McKesson Corporation for the three months ended June 30, 2021 of $3.09 reflects
the aforementioned items, net of any respective tax impacts, discrete tax items
recognized in the quarter, and a lower share count compared to the prior year
due to the cumulative effect of share repurchases;
•We paid $1.0 billion to purchase 34.5 million shares of McKesson Europe AG
("McKesson Europe") during the three months ended June 30, 2021 through
exercises of a put right by the noncontrolling shareholders pursuant to the
December 2014 domination and profit and loss transfer agreement (the "Domination
Agreement");
•We returned $1.1 billion of cash to shareholders during the three months ended
June 30, 2021 through $1.0 billion of share repurchases under an accelerated
share repurchase ("ASR") program entered into in May 2021, and $69 million of
dividend payments. On July 23, 2021, we raised our quarterly dividend from $0.42
to $0.47 per common share;
•On July 5, 2021, we entered into an agreement to sell certain of our European
businesses to the PHOENIX Group for a purchase price of €1.2 billion (or,
approximately $1.5 billion), subject to certain adjustments under the agreement.
Beginning in the second quarter of 2022, the disposal group will be reflected in
our condensed consolidated financial statements as held for sale and will be
remeasured to the lower of its carrying amount or fair value less costs to sell,
which we estimate will result in a charge between $500 million and $700 million,
primarily related to the inclusion of the accumulated other comprehensive income
balances into the carrying amount of the disposal group and the impairment of
internal-use software that will not be completed. The transaction is anticipated
to close in 2023, pursuant to customary closing conditions, including receipt of
required regulatory approvals. Refer to Financial Note 2, "Held for Sale," to
the accompanying condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q for more information;

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McKESSON CORPORATION
                          FINANCIAL REVIEW (CONTINUED)
                                  (UNAUDITED)
•On July 17, 2021, we redeemed our 0.63% Euro-denominated notes with a principal
amount of €600 million (or, approximately $709 million) prior to the maturity
date of August 17, 2021. The notes were redeemed using cash on hand; and
•On July 23, 2021, we completed a cash tender offer and paid an aggregate
consideration of $1.1 billion to redeem certain notes with a principal amount of
$922 million. As a result of the redemption, we incurred a loss on debt
extinguishment in the second quarter of 2022, consisting of the premiums paid
and a portion of the write-off of unamortized discounts and debt issuance costs
in an amount proportional to the principal amount of debt retired. Refer to
Financial Note 8, "Debt and Financing Activities," to the accompanying condensed
consolidated financial statements included in this Quarterly Report on Form 10-Q
for more information.
Trends and Uncertainties:
COVID-19
The novel strain of coronavirus, which causes the infectious disease known as
COVID-19, continues to evolve since it was declared a global pandemic on March
11, 2020 by the World Health Organization. We continue to evaluate the nature
and extent of the ongoing impacts COVID-19 has on our business, operations, and
financial results. Refer to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II of our 2021 Annual
Report for a full disclosure of trends and uncertainties due to COVID-19 since
the onset of the pandemic. The disclosures below include significant updates
that occurred during the first quarter of 2022. The full extent to which
COVID-19 will impact us depends on many factors and future developments, which
are described at the end of this COVID-19 section.
Our Response to COVID-19 in the Workplace
During this unprecedented time, we are committed in continuing to supply our
customers and protect the safety of our employees. The various responses we put
in place initially at the onset of the pandemic to mitigate the impact of
COVID-19 on our business operations include telecommuting and work-from-home
policies, restricted travel, employee support programs, and enhanced safety
measures. During the first quarter of 2022, we approved changes to our real
estate strategy to increase efficiencies and support flexibility for our
employees, including a transition to a partial remote work model for certain
employees on a go-forward basis as further discussed in this Financial Review
and in Financial Note 3, "Restructuring, Impairment, and Related Charges," to
the accompanying condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q. In July 2021, we also lifted certain travel
restrictions across the enterprise. We continue to enforce the safety measures
in the workplace as recommended by the Centers for Disease Control and
Prevention ("CDC").
Our Role in the Distribution of COVID-19 Vaccines and Ancillary Supply Kits
As a global leader in healthcare supply chain management solutions, retail
pharmacy, community oncology and specialty care, and healthcare information
solutions, we remain well positioned to respond to the COVID-19 pandemic in the
U.S., Canada, and Europe. We have worked and continue to work closely with
national and local governments, agencies, and industry partners to ensure that
available supplies, including PPE, and medicine reach our customers and
patients.
We continue to support the U.S. government as a centralized distributor of
COVID-19 vaccines and ancillary supplies needed to administer vaccines through a
contract with the CDC. We have been distributing COVID-19 vaccines since
December 2020, when the first Emergency Use Authorization was issued by the U.S.
Food and Drug Administration. In the first quarter of 2022, McKesson began
supporting the U.S. government's commitment to donate COVID-19 vaccines
worldwide. For this initiative, we are responsible for picking and packing the
COVID-19 vaccines into temperature-controlled coolers and preparing them for
pickup by an international partner. We will not manage the actual shipments of
the vaccines to other countries. The results of operations related to our
vaccine distribution are reflected in our U.S. Pharmaceutical segment. We also
continue to manage the assembly and distribution of ancillary supply kits needed
to administer COVID-19 vaccines, including sourcing some of those supplies,
through agreements with both the Department of Health and Human Services ("HHS")
and Pfizer, Inc. The results of operations for the kitting and distribution of
ancillary supplies are reflected in our Medical-Surgical Solutions segment. The
future financial impact of the arrangements with the CDC and HHS depend on
numerous uncertainties, which are described at the end of this COVID-19 section.
McKesson Canada and McKesson Europe are also playing a role in helping support
governments and public health entities in not only distributing COVID-19
vaccines, but administering them in pharmacies as well.

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                              McKESSON CORPORATION
                          FINANCIAL REVIEW (CONTINUED)
                                  (UNAUDITED)
Trends in our Business
At the onset of the COVID-19 pandemic late in our fourth quarter of 2020, we
experienced higher pharmaceutical distribution volumes and increased retail
pharmacy foot traffic as our customers increased supplies on hand in March.
Subsequently, during the first quarter of 2021, pharmaceutical distribution
volumes decreased as a result of the weakened and uncertain global economic
environment and COVID-19 restrictions, including government shutdowns and
shelter-in-place orders. We also experienced decreased demand for primary care
medical-surgical supplies due to deferrals in elective procedures in hospitals
and surgery centers as well as decreased traffic and closures of doctors'
offices, which was partially offset by demand for PPE and COVID-19 tests.
Additionally, the decreased traffic in doctors' offices and general
shelter-in-place guidance by governmental authorities negatively impacted retail
pharmacy foot traffic in both Europe and Canada. This drove favorability in our
results when comparing the first quarter of 2022 versus 2021.
We have experienced significant improvements in prescription volumes and primary
care patient visits during our first quarter of 2022 compared to the same prior
year period, however, the recovery of COVID-19 continues to be non-linear and
tracked with patient mobility. During the first quarter of 2022, the COVID-19
vaccine and related ancillary kit distribution in the U.S. favorably impacted
our results. While demand for PPE remained relatively flat year over year, we
saw higher sales for COVID-19 tests primarily due to limited product
availability in the first quarter of 2021.
Impact to our Results of Operations, Financial Condition, and Liquidity
For the three months ended June 30, 2021, COVID-19 tests as well as the kitting
and distribution of ancillary supplies for COVID-19 vaccines in our
Medical-Surgical Solutions segment contributed approximately $323 million, or
13%, in segment revenues, and including total inventory charges which is further
described below, reduced our segment operating profit by approximately $90
million, or 120%. Additionally, the distribution of COVID-19 vaccines in our
U.S. Pharmaceutical segment contributed less than 10% in segment operating
profit for the three months ended June 30, 2021. The financial impact from the
COVID-19 vaccine efforts in our International segment during the three months
ended June 30, 2021 was not material to our consolidated results, but
contributed to year over year favorability in segment operating profit. During
the three months ended June 30, 2020, we had lower pharmaceutical volumes,
specialty drug volumes, and patient care visits that negatively impacted our
consolidated revenues and income from continuing operations before income taxes.
The recovery of prescription volume trends and patient care visits, which are
also described in more detail above in the Trends in our Business section,
resulted in favorability year over year across our businesses when comparing
2022 versus 2021.
Additionally, certain PPE items held for resale were valued in our inventory at
costs that were inflated by earlier COVID-19 pandemic demand levels. That
inventory valuation, if not supported by market resale prices, may be written
down to net realizable value. We may also write-off inventory due to decreased
customer demand and excess inventory. During the three months ended June 30,
2021, we recorded inventory charges totaling $164 million on certain PPE and
other related products in our Medical-Surgical Solutions segment. Of this
amount, we recorded $147 million in cost of sales driven by the intent of
management not to sell certain excess PPE inventory, which required an inventory
write-down to zero, and instead direct it to charitable organizations. We
recorded $8 million in total operating expenses for excess inventory which has
already been committed for donation during our first quarter of 2022. In
addition, $9 million of inventory charges were recorded in cost of sales for PPE
and other related products that management intends to sell. Although market
price volatility and changes to anticipated customer demand may require
additional write-downs in future periods of other PPE and related product
categories, we are taking measures to mitigate such risk.
Overall, these COVID-19 related items had a net favorable impact on consolidated
income from continuing operations before income taxes for the three months ended
June 30, 2021 compared to the same prior year period. Impacts to future periods
due to COVID-19 may differ based on future developments, which is described at
the end of this COVID-19 section.
During the three months ended June 30, 2021, we maintained appropriate labor and
overall vendor supply levels and experienced no material impacts to our
liquidity or net working capital due to the COVID-19 pandemic. We continue to
monitor the COVID-19 situation closely and engage with manufacturers, industry
partners, and government agencies to anticipate shortages and respond to demand
for certain medications and therapies. We are monitoring our customers closely
for changes to their timing of payments or ability to pay amounts owed to us as
a result of COVID-19 pandemic impacts to their businesses. 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 and accessible to us
during the COVID-19 pandemic. At June 30, 2021, we were in compliance with all
debt covenants, and believe we have the ability to continue to meet our debt
covenants in the future.

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McKESSON CORPORATION
                          FINANCIAL REVIEW (CONTINUED)
                                  (UNAUDITED)
Risks and Forward-Looking Information
The COVID-19 pandemic has disrupted the global economy and exacerbated
uncertainties inherent in estimates, judgments, and assumptions used in our
forecasts. We still face numerous uncertainties in estimating the direct and
indirect effects of COVID-19 on our future business operations, financial
condition, results of operations, and liquidity. The full extent to which
COVID-19 will impact us depends on many factors and future developments,
including: the duration and spread of the virus; governmental actions to limit
the spread of the virus; potential seasonality of viral outbreaks; potential new
variants of the original virus; the amount of COVID-19 vaccines authorized,
manufactured, distributed, and administered; the amount of ancillary supply kits
assembled and distributed; the effectiveness of COVID-19 vaccines and
governmental measures in controlling the spread of the virus; and the
effectiveness of treatments of infected individuals. Due to several rapidly
changing variables related to the COVID-19 pandemic, estimations of future
economic trends and the timing of when stability will return remains
challenging. Additionally, we periodically review our intangible and other
long-lived assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Key assumptions and
estimates about future values in our impairment assessments can be affected by a
variety of factors, including the impacts of the global pandemic on industry and
economic trends as well as on our business strategy and internal forecasts.
Material changes to key assumptions and estimates can decrease the projected
cash flows or increase the discount rates and have resulted in impairment
charges of certain long-lived assets and could potentially result in future
impairment charges. Refer to Item 1A - Risk Factors in Part I of our 2021 Annual
Report for a disclosure of risk factors related to COVID-19.
Opioid-Related Litigation and Claims
We are a defendant in approximately 3,200 legal proceedings asserting claims
related to the distribution of controlled substances (opioids) in federal and
state courts throughout the U.S., and in Puerto Rico and Canada. Those
proceedings include approximately 2,900 federal cases and approximately 300
state court cases throughout the U.S., and cases in Puerto Rico and Canada.
On July 21, 2021, we and the two other national pharmaceutical distributors
announced that we had negotiated a comprehensive proposed settlement agreement
which, if all conditions are satisfied, would result in the settlement of a
substantial majority of opioid lawsuits filed by state and local governmental
entities. Under the proposed agreement, the three distributors would pay up to
approximately $21 billion over a period of 18 years, with up to approximately
$7.9 billion to be paid by us for our 38.1% portion if all eligible entities
participate. In addition, the proposed agreement would require the three
distributors, including the Company, to establish a clearinghouse for controlled
substances distribution data and adopt changes to anti-diversion programs.
On July 20, 2021, we announced that we and the two other national pharmaceutical
distributors had agreed to pay up to $1.2 billion, of which our portion would be
38.1%, in a settlement with the State of New York and its participating
subdivisions, including Nassau and Suffolk Counties, to resolve opioid-related
claims. This settlement was negotiated in connection with the broad proposed
settlement described above, but provides assurance that New York and its
participating subdivisions will receive a settlement amount consistent with
their allocations under the broad settlement framework, as well as certain
attorneys' fees and costs. If the broad settlement is finalized, New York and
its participating subdivisions will become part of that broader agreement. We
previously recorded a charge of $8.1 billion for the year ended March 31, 2021
within "Claims and litigation charges, net" in our Consolidated Statement of
Operations, related to our share of the settlement framework described above, as
well as other opioid-related claims. We have increased that by $74 million this
quarter, including a charge of $27 million related to the settlement with New
York and its participating subdivisions and a charge of $47 million related to
the proposed settlement agreement with state and local governmental entities. We
also reclassified $545 million to "Other accrued liabilities" for the estimated
payment due within one year, and the remaining liability is recorded in
"Long-term litigation liabilities" in our Condensed Consolidated Balance Sheet
as of June 30, 2021. Because of the many uncertainties associated with any
potential settlement arrangement or other resolution of opioid-related
litigation, including the uncertainty of the scope of participation by
plaintiffs in any potential settlement, we are not able to reasonably estimate
the upper or lower ends of the range of ultimate possible loss for all
opioid-related litigation matters. In light of the uncertainty, the amount of
any ultimate loss may differ materially from the amount accrued.

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McKESSON CORPORATION
                          FINANCIAL REVIEW (CONTINUED)
                                  (UNAUDITED)
Notwithstanding the progress toward a broad settlement, we also continue to
prepare for trial in these pending matters. We believe that we have valid
defenses to the claims pending against us and, absent an acceptable settlement,
intend 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 our financial position, cash flows or liquidity, or results of
operations. Refer to Financial Note 12, "Commitments and Contingent
Liabilities," to the accompanying condensed consolidated financial statements
included in this Quarterly Report on Form 10­Q for more information.
State Opioid Statutes
Legislative, regulatory, or industry measures to address the misuse of
prescription opioid medications could affect our business in ways that we may
not be able to predict. In April 2018, the State of New York adopted the Opioid
Stewardship Act ("OSA") which required the imposition of an annual surcharge on
all manufacturers and distributors licensed to sell or distribute opioids in New
York. On December 19, 2018, the U.S. District Court for the Southern District of
New York found the law unconstitutional and issued an injunction preventing the
State of New York from enforcing the law. The State of New York appealed to the
U.S. Court of Appeals for the Second Circuit. The State of New York has
subsequently adopted an excise tax on sales of opioids in the State, which
became effective July 1, 2019. The law adopting the excise tax made clear that
the OSA would apply only to opioid sales on or before December 31, 2018. The
excise tax applies only to the first sale occurring in New York, and thus may
not apply to sales from our distribution centers in New York to New York
customers.
On September 14, 2020, a panel of the U.S. Court of Appeals for the Second
Circuit reversed the district court's decision striking down the OSA on
procedural grounds. The Healthcare Distribution Alliance filed a petition for
panel rehearing, or, in the alternative, for rehearing en banc with the U.S.
Court of Appeals for the Second Circuit; that petition was denied on December
18, 2020. On February 12, 2021, the U.S. Court of Appeals for the Second Circuit
granted a motion by the Healthcare Distribution Alliance to stay its mandate
pending the filing and disposition of a petition for writ of certiorari before
the U.S. Supreme Court. A petition for certiorari was filed with the Supreme
Court on May 17, 2021. Unless the appellate court's decision is overturned, the
OSA will be reinstated for calendar years 2017 and 2018 (but not beyond those
years), and, subject to any further legal challenge, we will have to pay our
ratable share of the annual surcharge for those two years. During the second
quarter of 2021, we reflected an estimated liability of $50 million for the OSA
surcharge in our consolidated financial statements on the assumption that the
appellate court's decision will stand. Refer to Note 12, "Commitments and
Contingent Liabilities," to the accompanying condensed consolidated financial
statements included in this Quarterly Report on Form 10­Q for more information.

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