Business Wire | Nov 3, 2020 07:00AM EST

McKesson Reports Fiscal 2021 Second-Quarter Results

Nov. 03, 2020

IRVING, Texas--(BUSINESS WIRE)--Nov. 03, 2020--McKesson Corporation (NYSE:MCK) today reported results for the second quarter ended September 30, 2020.

Fiscal 2021 Second-Quarter Result Summary

Second-Quarter Year-to-Date

($ inmillions,except per FY21 FY20 Change FY21 FY20 Changeshareamounts)

Revenues $ 60,808 $ 57,616 6 % $ 116,487 $ 113,344 3 %

Income fromContinuing 577 (729 ) 179 1,022 (300 ) 441 Operations^1

AdjustedEarnings^ 784 661 19 1,237 1,286 (4 ) 1,2

Earningsper Diluted 3.54 (3.99 ) 189 6.26 (1.62 ) 486 Share^1

AdjustedEarnings 4.80 3.60 33 7.58 6.91 10 per DilutedShare^1,2

^1Reflects continuing operations attributable to McKesson, net of tax

^2Represents a non-GAAP financial measure; refer to the reconciliations ofnon-GAAP financial measures included in accompanying schedules

"The dedication and execution of our teams continue to deliver outstanding results, responding to the evolving needs of our customers," said Brian Tyler, chief executive officer. "Our strong second-quarter earnings results reflect the breadth of McKesson's differentiated portfolio and further improvement in volumes across the business. At the same time, we continue to invest into the business to support our long-term growth strategies. Based on our year-to-date performance, we are raising our guidance range for fiscal 2021 and now expect Adjusted Earnings per diluted share of $16.00 to $16.50. With our steadfast commitment to our communities and those in need, we will continue to play a critical role in the fight against the global COVID-19 pandemic."

Second-quarter revenues were $60.8 billion, up 6% from a year ago, driven by growth in the U.S. Pharmaceutical segment, largely due to market growth and higher volumes from retail national account customers, partially offset by branded to generic conversions.

Second-quarter Earnings per diluted share of $3.54 included a GAAP-only pre- and post-tax goodwill impairment charge of $69 million recorded in connection with the segment realignment and a GAAP-only after-tax charge of $37 million for an estimated liability related to the New York State Opioid Stewardship Act. Second-quarter Adjusted Earnings per diluted share does not include these charges.

Second-quarter Adjusted Earnings per diluted share was $4.80 compared to $3.60 a year ago, an increase of 33%, driven by a lower share count, a lower tax rate and growth in the Medical-Surgical Solutions segment, partially offset by the lapping of the prior year contribution from the company's now separated investment in Change Healthcare LLC ("Change Healthcare"). Second-quarter Adjusted Earnings per diluted share also includes pre-tax net gains of approximately $49 million, or $0.22 per diluted share, associated with McKesson Ventures' equity investments.

For the first six months of the fiscal year, McKesson returned $388 million of cash to shareholders via $248 million of common stock repurchases and $140 million of dividend payments. During the first six months of the fiscal year, McKesson used cash from operations of $41 million, and invested $265 million internally, resulting in negative Free Cash Flow of $306 million.

U.S. Pharmaceutical Segment

* Second-quarter revenues were $48.1 billion, up 5%, driven by market growth and higher volumes from retail national account customers, partially offset by branded to generic conversions. * Second-quarter Segment Operating Profit was $623 million and operating margin was 1.30%, and included a GAAP-only pre-tax charge of $50 million for an estimated liability related to the New York State Opioid Stewardship Act. Adjusted Segment Operating Profit was $658 million, up 3% from a year ago, driven by growth in specialty, partially offset by higher operating expenses in support of the company's strategic growth initiatives. Adjusted operating margin was 1.37%, down 3 basis points.

International Segment

* Second-quarter revenues were $9.5 billion, up 2% on a reported basis and down 1% on an FX-Adjusted basis, primarily driven by lower volumes in the Canadian pharmaceutical distribution business due to the exit of an unprofitable customer at the onset of fiscal 2021, partially offset by higher volumes in the European business. * Second-quarter Segment Operating Loss was ($45) million and operating margin was (0.47%), driven by a GAAP-only goodwill impairment charge of $69 million recorded in connection with the segment realignment that commenced in the second quarter of fiscal 2021. Adjusted Segment Operating Profit was $116 million, up 20%. On an FX-Adjusted basis, Adjusted Segment Operating Profit was $115 million, up 19%, driven by lower operating expenses in the European business. Adjusted operating margin was 1.22%, up 18 basis points. On an FX-Adjusted basis, adjusted operating margin was 1.24%, up 20 basis points.

Medical-Surgical Solutions Segment

* Second-quarter revenues were $2.5 billion, up 23%, driven by demand for COVID-19 tests and personal protective equipment in the Primary Care and Extended Care businesses. * Second-quarter Segment Operating Profit was $187 million and operating margin was 7.38%. Adjusted Segment Operating Profit was $210 million, up 27%, driven by demand for COVID-19 tests and organic growth in the segment. Adjusted operating margin was 8.29%, up 22 basis points.

Prescription Technology Solutions Segment

* Second-quarter revenues were $668 million, up 7%, driven by new brand support programs, partially offset by the impact of lower prescription volume trends. * Second-quarter Segment Operating Profit was $88 million and operating margin was 13.17%. Adjusted Segment Operating Profit was $104 million, down 10%, driven by higher operating expenses in support of the company's strategic growth initiatives. Adjusted operating margin was 15.57%, down from 18.37% in the prior year.

Other remaining businesses

* As a result of the segment realignment effective in the second quarter of fiscal 2021, Other reflects equity earnings and charges for retrospective periods for the company's previous investment in Change Healthcare, which was separated from the company during the fourth quarter of 2020. Operating loss for the second quarter of fiscal 2020 included GAAP-only pre-tax charges of approximately $1.4 billion, primarily related to an impairment in connection with this planned exit.

Company Updates

* On August 14, 2020, McKesson announced the expansion of its existing partnership with the Centers for Disease Control to support the U.S. government's Operation Warp Speed team as a centralized distributor of future COVID-19 vaccines and ancillary supplies needed to administer vaccinations. McKesson will leverage the strength of its experience, expertise, and commitment to health care delivery and access to make a difference in the fight against the COVID-19 pandemic. * Linda Mantia joined McKesson's Board of Directors as a new independent director effective October 19, 2020. * On November 1, 2020, McKesson completed the contribution of its German wholesale business to a joint venture with Walgreens Boots Alliance (WBA). WBA holds a 70% controlling equity interest in the joint venture and McKesson holds the remaining 30%. * McKesson was named to the Diversity Best Practices (DBP) fourth annual Inclusion Index. McKesson was among the 98 organizations that earned a top score.

Fiscal 2021 Outlook

McKesson raised fiscal 2021 Adjusted Earnings per diluted share guidance to $16.00 to $16.50 from the previous range of $14.70 to $15.50 to reflect strong execution and earlier improvement in volumes relative to expectations through the first half of fiscal 2021. Fiscal 2021 guidance assumes approximately $0.15 to $0.20 of Adjusted Earnings per diluted share related to the kitting and storage of ancillary supplies for future COVID-19 vaccines.

Fiscal 2021 guidance assumes that a full recovery of pharmaceutical prescription volumes and patient visits is not likely to occur this fiscal year.

Conference Call Details

The company has scheduled a conference call for today, Tuesday, November 3rd at 8:00 AM ET to discuss the company's financial results. A live audio webcast of the conference call will be available on McKesson's Investor Relations website at http://investor.mckesson.com. An archive of the conference call will also be available on the company's Investor Relations website at http://investor.mckesson.com.

Upcoming Investor Events

McKesson management will be participating in the following investor conferences:

* 2nd Annual Wolfe Research Virtual Healthcare Conference, November 18, 2020 * 39th Annual J.P. Morgan Healthcare Conference, January 11-14, 2021

Webcasts will be available live and archived on the company's Investor Relations website at http://investor.mckesson.com. A complete listing of upcoming events for the investment community, including details and updates, will be available on the company's Investor Relations website.

Non-GAAP Financial Measures

GAAP refers to the U.S. generally accepted accounting principles. This press release includes GAAP financial measures as well as Non-GAAP financial measures, including Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Other Income, Adjusted Equity Income from Change Healthcare, Adjusted Income Tax Expense, Adjusted Earnings, Adjusted Earnings per Diluted Share, Adjusted Segment Operating Profit, Adjusted Segment Operating Profit Margin, Adjusted Corporate Expenses, Adjusted Operating Profit, FX-Adjusted results and Free Cash Flow which are financial measures not calculated in accordance with GAAP. Refer to the "Supplemental Non-GAAP Financial Information" section of the accompanying financial statement tables for the definitions and usefulness of the Company's Non-GAAP financial measures and the attached schedules for reconciliations of the differences between the Non-GAAP financial measures and their most directly comparable GAAP financial measures.

The Company does not provide forward-looking guidance on a GAAP basis as McKesson is unable to provide a quantitative reconciliation of this forward-looking Non-GAAP measure to the most directly comparable forward-looking GAAP measure, without unreasonable effort, because McKesson cannot reliably forecast LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments, which are difficult to predict and estimate. These items are inherently uncertain and depend on various factors, many of which are beyond the company's control, and as such, any associated estimate and its impact on GAAP performance could vary materially.

Cautionary Statements

Except for historical information contained in this press release, 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 those statements. It is not possible to identify all such risks and uncertainties. The reader should not place undue reliance on forward-looking statements, such as financial performance forecasts, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly update forward-looking statements. 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. The discussion of financial trends, strategy, plans, assumptions or intentions may also include forward-looking statements. We encourage investors to read the important risk factors described in the company's Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission.

These risk factors include, but are not limited to: we experience costly and disruptive legal disputes, including regarding our role in distributing controlled substances such as opioids; we might experience losses not covered by insurance; we might record significant charges from impairment to goodwill, intangibles and other assets or investments; we may be unsuccessful in retail pharmacy profitability; we might be harmed by large customer purchase reductions, payment defaults or contract non-renewal; our contracts with government entities involve future funding and compliance risks; we might be harmed by changes in our relationships or contracts with suppliers; we might be adversely impacted by healthcare reform such as changes in pricing and reimbursement models; we might be adversely impacted by changes or disruptions in product supply and we have experienced and may experience difficulties in sourcing products due to the effects of the COVID-19 pandemic on supply chains; we might be adversely impacted as a result of our distribution of generic pharmaceuticals; we might be adversely impacted by an economic slowdown (including the effects we have experienced from the COVID-19 pandemic) or recession and by disruption in capital and credit markets that might impede our access credit, increase our borrowing costs and impair the financial soundness of our customers and suppliers; we might be adversely impacted by fluctuations in foreign currency exchange rates; we might be adversely impacted by events outside of our control, such as widespread public health issues (including the effects we have experienced from the COVID-19 pandemic), natural disasters, political events and other catastrophic events; and we face uncertainties and risks related to vaccination distribution programs.

About McKesson Corporation

McKesson Corporation is a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. McKesson partners with pharmaceutical manufacturers, providers, pharmacies, governments and other organizations in healthcare to help provide the right medicines, medical products and healthcare services to the right patients at the right time, safely and cost-effectively. United by our ICARE shared principles, our employees work every day to innovate and deliver opportunities that make our customers and partners more successful - all for the better health of patients. McKesson has been named a "Most Admired Company" in the healthcare wholesaler category by FORTUNE, a "Best Place to Work" by the Human Rights Campaign Foundation, and a top military-friendly company by Military Friendly. For more information, visit www.mckesson.com.

Schedule 1

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP

(unaudited)

(in millions, except per share amounts)

Three Months Ended Six Months Ended September 30, September 30,

2020 2019 Change 2020 2019 Change

Revenues $ 60,808 $ 57,616 6 % $ 116,487 $ 113,344 3 %

Cost of sales (57,808 ) (54,749 ) 6 (110,787 ) (107,690 ) 3

Gross profit 3,000 2,867 5 5,700 5,654 1

Operating (2,237 ) (2,196 ) 2 (4,203 ) (4,326 ) (3 )expenses

Goodwillimpairment (69 ) - NM (69 ) - NM charges

Restructuring,impairment, and (60 ) (45 ) 33 (116 ) (68 ) 71 related charges

Total operating (2,366 ) (2,241 ) 6 (4,388 ) (4,394 ) - expenses

Operating income 634 626 1 1,312 1,260 4

Other income 71 (78 ) 191 98 (41 ) 339 (expense), net

Equity earningsand charges frominvestment in - (1,454 ) (100 ) - (1,450 ) (100 )ChangeHealthcare JointVenture

Interest expense (50 ) (64 ) (22 ) (110 ) (120 ) (8 )

Income (loss)from continuingoperations 655 (970 ) 168 1,300 (351 ) 470 before incometaxes

Income taxbenefit (28 ) 294 (110 ) (178 ) 158 (213 )(expense)

Income (loss)from continuing 627 (676 ) 193 1,122 (193 ) 681 operations

Loss fromdiscontinued - (1 ) (100 ) (1 ) (7 ) (86 )operations, netof tax

Net income 627 (677 ) 193 1,121 (200 ) 661 (loss)

Net incomeattributable to (50 ) (53 ) (6 ) (100 ) (107 ) (7 )noncontrollinginterests

Net income(loss)attributable to $ 577 $ (730 ) 179 % $ 1,021 $ (307 ) 433 %McKessonCorporation



Earnings (loss)per common shareattributable to McKessonCorporation ^(a)

Diluted ^(b)

Continuing $ 3.54 $ (3.99 ) 189 % $ 6.26 $ (1.62 ) 486 %operations

Discontinued - - NM - (0.03 ) (100 )operations

Total $ 3.54 $ (3.99 ) 189 % $ 6.26 $ (1.65 ) 479 %



Basic

Continuing $ 3.56 $ (3.99 ) 189 % $ 6.31 $ (1.62 ) 490 %operations

Discontinued - - NM (0.01 ) (0.03 ) (67 )operations

Total $ 3.56 $ (3.99 ) 189 % $ 6.30 $ (1.65 ) 482 %



Dividendsdeclared per $ 0.42 $ 0.41 $ 0.83 $ 0.80 common share



Weighted-averagecommon shares outstanding

Diluted 163 183 (11 ) 163 185 (12 ) % %

Basic 162 183 (11 ) 162 185 (12 )

(a)

Certain computations may reflect rounding adjustments.

(b)

Net loss per diluted share for the three and six months ended September 30, 2019 is calculated by excluding dilutive securities from the denominator due to their antidilutive effects.

NM Computation not meaningful

Refer to our applicable filings with the SEC for additional disclosures including our Quarterly Reports on Form 10-Q for fiscal 2021 and 2020 as well as our Annual Report on Form 10-K for fiscal 2020.

(a) Certain computations may reflect rounding adjustments.

Net loss per diluted share for the three and six months ended September 30,(b) 2019 is calculated by excluding dilutive securities from the denominator due to their antidilutive effects.

NM Computation not meaningful

Refer to our applicable filings with the SEC for additional disclosuresincluding our Quarterly Reports on Form 10-Q for fiscal 2021 and 2020 as wellas our Annual Report on Form 10-K for fiscal 2020.

Schedule 2

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

Three Months Ended September 30,

Six Months Ended September 30,

2020

2019

Change

2020

2019

Change

Income (loss) from continuing operations (GAAP)

$

627

$

(676

)

193

%

$

1,122

$

(193

)

681

%

Net income attributable to noncontrolling interests (GAAP)

(50

)

(53

)

(6

)

(100

)

(107

)

(7

)

Income (loss) from continuing operations attributable to McKesson Corporation (GAAP)

577

(729

)

179

1,022

(300

)

441

Pre-tax adjustments:

Amortization of acquisition-related intangibles (1)

106

181

(41

)

212

370

(43

)

Transaction-related expenses and adjustments (2)

13

282

(95

)

29

326

(91

)

LIFO inventory-related adjustments

(52

)

(33

)

58

(104

)

(48

)

117

Gains from antitrust legal settlements

-

-

NM

-

-

NM

Restructuring, impairment, and related charges, net (3)

62

43

44

119

63

89

Other adjustments, net (4) (5) (6) (7) (8) (9)

119

1,356

(91

)

(6

)

1,376

(100

)

Income tax effect on pre-tax adjustments

(37

)

(439

)

(92

)

(31

)

(501

)

(94

)

Net income attributable to noncontrolling interests effect on other adjustments, net (8)

(4

)

-

NM

(4

)

-

NM

Adjusted Earnings (Non-GAAP)

$

784

$

661

19

%

$

1,237

$

1,286

(4

)%

Diluted weighted-average common shares outstanding

163

184

(11

)%

163

186

(12

)%

Earnings (loss) per diluted common share from continuing operations attributable to McKesson Corporation (GAAP) (a) (b)

$

3.54

$

(3.99

)

189

%

$

6.26

$

(1.62

)

486

%

After-tax adjustments:

Amortization of acquisition-related intangibles

0.50

0.76

(34

)

1.01

1.52

(34

)

Transaction-related expenses and adjustments

0.07

1.14

(94

)

0.15

1.31

(89

)

LIFO inventory-related adjustments

(0.23

)

(0.14

)

64

(0.47

)

(0.19

)

147

Gains from antitrust legal settlements

-

-

NM

-

-

NM

Restructuring, impairment, and related charges, net

0.29

0.18

61

0.57

0.26

119

Other adjustments, net

0.63

5.62

(89

)

0.06

5.63

(99

)

Adjusted Earnings per Diluted Share (Non-GAAP) (b) (c)

$

4.80

$

3.60

33

%

$

7.58

$

6.91

10

%

Schedule 2

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

Three Months Ended Six Months Ended September 30, September 30,

2020 2019 Change 2020 2019 Change

Income (loss) fromcontinuing $ 627 $ (676 ) 193 % $ 1,122 $ (193 ) 681 %operations (GAAP)

Net incomeattributable to (50 ) (53 ) (6 ) (100 ) (107 ) (7 )noncontrollinginterests (GAAP)

Income (loss) fromcontinuingoperations 577 (729 ) 179 1,022 (300 ) 441 attributable toMcKessonCorporation (GAAP)

Pre-tax adjustments:

Amortization ofacquisition-related 106 181 (41 ) 212 370 (43 )intangibles ^(1)

Transaction-relatedexpenses and 13 282 (95 ) 29 326 (91 )adjustments ^(2)

LIFOinventory-related (52 ) (33 ) 58 (104 ) (48 ) 117 adjustments

Gains fromantitrust legal - - NM - - NM settlements

Restructuring,impairment, and 62 43 44 119 63 89 related charges,net ^(3)

Other adjustments,net ^(4) (5) (6) 119 1,356 (91 ) (6 ) 1,376 (100 )(7) (8) (9)

Income tax effecton pre-tax (37 ) (439 ) (92 ) (31 ) (501 ) (94 )adjustments

Net incomeattributable tononcontrolling (4 ) - NM (4 ) - NM interests effect onother adjustments,net ^(8)

Adjusted Earnings $ 784 $ 661 19 % $ 1,237 $ 1,286 (4 )(Non-GAAP) %



Dilutedweighted-average 163 184 (11 )% 163 186 (12 )common shares %outstanding



Earnings (loss) perdiluted commonshare fromcontinuingoperations $ 3.54 $ (3.99 ) 189 % $ 6.26 $ (1.62 ) 486 %attributable toMcKessonCorporation (GAAP)^(a) (b)

After-tax adjustments:

Amortization ofacquisition-related 0.50 0.76 (34 ) 1.01 1.52 (34 )intangibles

Transaction-relatedexpenses and 0.07 1.14 (94 ) 0.15 1.31 (89 )adjustments

LIFOinventory-related (0.23 ) (0.14 ) 64 (0.47 ) (0.19 ) 147 adjustments

Gains fromantitrust legal - - NM - - NM settlements

Restructuring,impairment, and 0.29 0.18 61 0.57 0.26 119 related charges,net

Other adjustments, 0.63 5.62 (89 ) 0.06 5.63 (99 )net

Adjusted Earningsper Diluted Share $ 4.80 $ 3.60 33 % $ 7.58 $ 6.91 10 %(Non-GAAP)^ (b) (c)

(a)

Certain computations may reflect rounding adjustments.

(b)

We calculate loss per diluted common share from continuing operations attributable to McKesson Corporation (GAAP) for the three and six months ended September 30, 2019 using a weighted average of 183 million and 185 million common shares, respectively, which excludes dilutive securities from the denominator due to their antidilutive effect when calculating a net loss per diluted share. We calculate adjusted earnings per diluted share (Non-GAAP) for the three and six months ended September 30, 2019 on a fully diluted basis, using a weighted average of 184 million and 186 million common shares, respectively. Because we show the GAAP to Non-GAAP per share reconciling items on a fully diluted basis, any cross-footing differences in those items are due to different weighted average share counts.

(c)

Adjusted earnings per diluted share on an FX-adjusted basis for the three and six months ended September 30, 2020 was $4.80 and $7.58, respectively, which does not result in a foreign currency exchange effect in either period.

NM Computation not meaningful

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Earnings (Non-GAAP) and Adjusted Earnings per Diluted Share (Non-GAAP) definitions, refer to the section entitled "Supplemental Non-GAAP Financial Information" of this release.

(a) Certain computations may reflect rounding adjustments.

We calculate loss per diluted common share from continuing operations attributable to McKesson Corporation (GAAP) for the three and six months ended September 30, 2019 using a weighted average of 183 million and 185 million common shares, respectively, which excludes dilutive securities from the denominator due to their antidilutive effect when calculating a(b) net loss per diluted share. We calculate adjusted earnings per diluted share (Non-GAAP) for the three and six months ended September 30, 2019 on a fully diluted basis, using a weighted average of 184 million and 186 million common shares, respectively. Because we show the GAAP to Non-GAAP per share reconciling items on a fully diluted basis, any cross-footing differences in those items are due to different weighted average share counts.

Adjusted earnings per diluted share on an FX-adjusted basis for the three(c) and six months ended September 30, 2020 was $4.80 and $7.58, respectively, which does not result in a foreign currency exchange effect in either period.

NM Computation not meaningful

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Earnings (Non-GAAP) and AdjustedEarnings per Diluted Share (Non-GAAP) definitions, refer to the sectionentitled "Supplemental Non-GAAP Financial Information" of this release.

Schedule 2 (continued)

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended September 30,

Six Months Ended September 30,

2020

2019

Change

2020

2019

Change

Gross profit (GAAP)

$

3,000

$

2,867

5

%

$

5,700

$

5,654

1

%

Pre-tax adjustments:

LIFO inventory-related adjustments

(52

)

(33

)

58

(104

)

(48

)

117

Restructuring, impairment, and related charges, net

2

(2

)

200

3

(5

)

160

Other adjustments, net

1

-

NM

1

-

NM

Adjusted Gross Profit (Non-GAAP)

$

2,951

$

2,832

4

%

$

5,600

$

5,601

-

%

Total operating expenses (GAAP)

$

(2,366

)

$

(2,241

)

6

%

$

(4,388

)

$

(4,394

)

-

%

Pre-tax adjustments:

Amortization of acquisition-related intangibles

106

118

(10

)

212

230

(8

)

Transaction-related expenses and adjustments

13

16

(19

)

29

33

(12

)

Restructuring, impairment, and related charges, net (3)

60

45

33

116

68

71

Other adjustments, net (4) (5) (8) (9)

118

84

40

(7

)

86

(108

)

Adjusted Operating Expenses (Non-GAAP)

$

(2,069

)

$

(1,978

)

5

%

$

(4,038

)

$

(3,977

)

2

%

Other income (expense), net (GAAP)

$

71

$

(78

)

191

%

$

98

$

(41

)

339

%

Pre-tax adjustments:

Transaction-related expenses and adjustments

-

3

(100

)

-

3

(100

)

Other adjustments, net (6)

-

105

(100

)

-

123

(100

)

Adjusted Other Income (Non-GAAP)

$

71

$

30

137

%

$

98

$

85

15

%

Equity earnings and charges from investment in Change Healthcare Joint Venture (GAAP)

$

-

$

(1,454

)

(100

)%

$

-

$

(1,450

)

(100

)%

Pre-tax adjustments:

Amortization of acquisition-related intangibles (1)

-

63

(100

)

-

140

(100

)

Transaction-related expenses and adjustments (2)

-

263

(100

)

-

290

(100

)

Other adjustments, net (7)

-

1,167

(100

)

-

1,167

(100

)

Adjusted Equity Income from Change Healthcare (Non-GAAP)

$

-

$

39

(100

)%

$

-

$

147

(100

)%

NM Computation not meaningful

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Gross Profit (Non-GAAP), Adjusted Operating Expenses (Non-GAAP), Adjusted Other Income (Non-GAAP), and Adjusted Equity Income from Change Healthcare (Non-GAAP) definitions, refer to the section entitled "Supplemental Non-GAAP Financial Information" of this release.

Schedule 2 (continued)

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended Six Months Ended September 30, September 30,

2020 2019 Change 2020 2019 Change

Gross profit (GAAP) $ 3,000 $ 2,867 5 % $ 5,700 $ 5,654 1 %

Pre-tax adjustments:

LIFOinventory-related (52 ) (33 ) 58 (104 ) (48 ) 117 adjustments

Restructuring,impairment, and 2 (2 ) 200 3 (5 ) 160 related charges,net

Other adjustments, 1 - NM 1 - NM net

Adjusted Gross $ 2,951 $ 2,832 4 % $ 5,600 $ 5,601 - %Profit (Non-GAAP)



Total operating $ (2,366 ) $ (2,241 ) 6 % $ (4,388 ) $ (4,394 ) - %expenses (GAAP)

Pre-tax adjustments:

Amortization ofacquisition-related 106 118 (10 ) 212 230 (8 )intangibles

Transaction-relatedexpenses and 13 16 (19 ) 29 33 (12 )adjustments

Restructuring,impairment, and 60 45 33 116 68 71 related charges,net ^(3)

Other adjustments,net ^(4) (5) (8) 118 84 40 (7 ) 86 (108 )(9)

Adjusted Operating $ (2,069 ) $ (1,978 ) 5 % $ (4,038 ) $ (3,977 ) 2 %Expenses (Non-GAAP)



Other income(expense), net $ 71 $ (78 ) 191 % $ 98 $ (41 ) 339 %(GAAP)

Pre-tax adjustments:

Transaction-relatedexpenses and - 3 (100 ) - 3 (100 )adjustments

Other adjustments, - 105 (100 ) - 123 (100 )net ^(6)

Adjusted Other $ 71 $ 30 137 % $ 98 $ 85 15 %Income (Non-GAAP)



Equity earnings andcharges frominvestment in $ - $ (1,454 ) (100 ) $ - $ (1,450 ) (100 )Change Healthcare % %Joint Venture(GAAP)

Pre-tax adjustments:

Amortization ofacquisition-related - 63 (100 ) - 140 (100 )intangibles ^(1)

Transaction-relatedexpenses and - 263 (100 ) - 290 (100 )adjustments ^(2)

Other adjustments, - 1,167 (100 ) - 1,167 (100 )net ^(7)

Adjusted EquityIncome from Change $ - $ 39 (100 ) $ - $ 147 (100 )Healthcare % %(Non-GAAP)

NM Computation not meaningful

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Gross Profit (Non-GAAP), AdjustedOperating Expenses (Non-GAAP), Adjusted Other Income (Non-GAAP), and AdjustedEquity Income from Change Healthcare (Non-GAAP) definitions, refer to thesection entitled "Supplemental Non-GAAP Financial Information" of this release.

Schedule 3

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended September 30,

2020

2019

As reported

As adjusted

Change

As reported (GAAP)

Adjustments

As adjusted (Non- GAAP)

As reported (GAAP)

Adjustments

As adjusted (Non- GAAP)

Foreign currency effects

FX- Adjusted (Non- GAAP)

Foreign currency effects

FX- Adjusted (Non- GAAP)

As reported (GAAP)

As adjusted (Non- GAAP)

As reported FX-Adjusted (Non-GAAP)

As adjusted FX-Adjusted (Non-GAAP)

REVENUES

U.S. Pharmaceutical

$

48,067

$

-

$

48,067

$

45,613

$

-

$

45,613

$

-

$

48,067

$

-

$

48,067

5

%

5

%

5

%

5

%

International

9,540

-

9,540

9,321

-

9,321

(295

)

9,245

(295

)

9,245

2

2

(1

)

(1

)

Medical-Surgical Solutions

2,533

-

2,533

2,056

-

2,056

-

2,533

-

2,533

23

23

23

23

Prescription Technology Solutions

668

-

668

626

-

626

-

668

-

668

7

7

7

7

Revenues

$

60,808

$

-

$

60,808

$

57,616

$

-

$

57,616

$

(295

)

$

60,513

$

(295

)

$

60,513

6

%

6

%

5

%

5

%

OPERATING PROFIT (LOSS) (3)

U.S. Pharmaceutical (9)

$

623

$

35

$

658

$

641

$

(3

)

$

638

$

-

$

623

$

-

$

658

(3

)%

3

%

(3

)%

3

%

International (8)

(45

)

161

116

30

67

97

5

(40

)

(1

)

115

(250

)

20

(233

)

19

Medical-Surgical Solutions

187

23

210

129

37

166

-

187

-

210

45

27

45

27

Prescription Technology Solutions

88

16

104

98

17

115

-

88

-

104

(10

)

(10

)

(10

)

(10

)

Other (a) (1) (2) (7)

-

-

-

(1,454

)

1,493

39

-

-

-

-

(100

)

(100

)

(100

)

(100

)

Subtotal

853

235

1,088

(556

)

1,611

1,055

5

858

(1

)

1,087

253

3

254

3

Corporate expenses, net (5) (6)

(148

)

13

(135

)

(350

)

218

(132

)

-

(148

)

-

(135

)

(58

)

2

(58

)

2

Income (loss) from continuing operations before interest expense and income taxes

$

705

$

248

$

953

$

(906

)

$

1,829

$

923

$

5

$

710

$

(1

)

$

952

178

%

3

%

178

%

3

%

OPERATING PROFIT (LOSS) AS A % OF REVENUES

U.S. Pharmaceutical

1.30

%

1.37

%

1.41

%

1.40

%

1.30

%

1.37

%

(11

)bp

(3

)bp

(11

)bp

(3

)bp

International

(0.47

)

1.22

0.32

1.04

(0.43

)

1.24

(79

)

18

(75

)

20

Medical-Surgical Solutions

7.38

8.29

6.27

8.07

7.38

8.29

111

22

111

22

Prescription Technology Solutions

13.17

15.57

15.65

18.37

13.17

15.57

(248

)

(280

)

(248

)

(280

)

Schedule 3

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended September 30,

2020 2019 As reported As adjusted Change

As As FX- FX- As As adjusted As adjusted Foreign Adjusted Foreign Adjusted As adjusted As reported reported Adjustments (Non- reported Adjustments (Non- currency (Non- currency (Non- reported (Non- FX-Adjusted As adjusted (GAAP) GAAP) (GAAP) GAAP) effects GAAP) effects GAAP) (GAAP) GAAP) (Non-GAAP) FX-Adjusted (Non-GAAP)

REVENUES



U.S. Pharmaceutical $ 48,067 $ - $ 48,067 $ 45,613 $ - $ 45,613 $ - $ 48,067 $ - $ 48,067 5 % 5 % 5 % 5

%



International 9,540 - 9,540 9,321 - 9,321 (295 ) 9,245 (295 ) 9,245 2 2 (1 ) (1

)



Medical-Surgical Solutions 2,533 - 2,533 2,056 - 2,056 - 2,533 - 2,533 23 23 23 23



Prescription TechnologySolutions 668 - 668 626 - 626 - 668 - 668 7 7 7 7





Revenues $ 60,808 $ - $ 60,808 $ 57,616 $ - $ 57,616 $ (295 ) $ 60,513 $ (295 ) $ 60,513 6 % 6 % 5 % 5

%



OPERATING PROFIT (LOSS) ^(3)



U.S. Pharmaceutical ^(9) $ 623 $ 35 $ 658 $ 641 $ (3 ) $ 638 $ - $ 623 $ - $ 658 (3 )% 3 % (3 )% 3

%



International ^(8) (45 ) 161 116 30 67 97 5 (40 ) (1 ) 115 (250 ) 20 (233 ) 19





Medical-Surgical Solutions 187 23 210 129 37 166 - 187 - 210 45 27 45 27



Prescription TechnologySolutions 88 16 104 98 17 115 - 88 - 104 (10 ) (10 ) (10 ) (10

)



Other ^(a) (1) (2) (7) - - - (1,454 ) 1,493 39 - - - - (100 ) (100 ) (100 ) (100

)



Subtotal 853 235 1,088 (556 ) 1,611 1,055 5 858 (1 ) 1,087 253 3 254 3



Corporate expenses, net ^(5) (6) (148 ) 13 (135 ) (350 ) 218 (132 ) - (148 ) - (135 ) (58 ) 2 (58 ) 2



Income (loss) from continuing operationsbefore interest expense $ 705 $ 248 $ 953 $ (906 ) $ 1,829 $ 923 $ 5 $ 710 $ (1 ) $ 952 178 % 3 % 178 % 3and income taxes %



OPERATING PROFIT (LOSS) AS A % OF REVENUES



U.S. Pharmaceutical 1.30 % 1.37 % 1.41 % 1.40 % 1.30 % 1.37 % (11 )bp (3 )bp (11 )bp (3

)bp



International (0.47 ) 1.22 0.32 1.04 (0.43 ) 1.24 (79 ) 18 (75 ) 20





Medical-Surgical Solutions 7.38 8.29 6.27 8.07 7.38 8.29 111 22 111 22



Prescription TechnologySolutions 13.17 15.57 15.65 18.37 13.17 15.57 (248 ) (280 ) (248 ) (280

)

(a)

Operating profit (loss) for Other for the three months ended September 30, 2019 includes equity earnings and charges from investment in Change Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

Refer to the section entitled "Financial Statement Notes" of this release.For more information relating to the Adjusted Segment Operating Profit (Non-GAAP), Adjusted Operating Profit (Non-GAAP), Adjusted Corporate Expenses (Non-GAAP), FX-Adjusted (Non-GAAP), and Adjusted Segment Operating Profit Margin (Non-GAAP) definitions, refer to the section entitled "Supplemental Non-GAAP Financial Information" of this release. Operating profit (loss) for Other for the three months ended September 30, 2019 includes equity earnings and charges from investment in Change(a) Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

Refer to the section entitled "Financial Statement Notes" of this release.For more information relating to the Adjusted Segment Operating Profit(Non-GAAP), Adjusted Operating Profit (Non-GAAP), Adjusted Corporate Expenses(Non-GAAP), FX-Adjusted (Non-GAAP), and Adjusted Segment Operating ProfitMargin (Non-GAAP) definitions, refer to the section entitled "SupplementalNon-GAAP Financial Information" of this release.Schedule 3 (continued)

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Six Months Ended September 30,

2020

2019

As reported

As adjusted

Change

As reported (GAAP)

Adjustments

As adjusted (Non- GAAP)

As reported (GAAP)

Adjustments

As adjusted (Non- GAAP)

Foreign currency effects

FX- Adjusted (Non-GAAP)

Foreign currency effects

FX- Adjusted (Non- GAAP)

As reported (GAAP)

As adjusted (Non- GAAP)

As reported FX-Adjusted (Non-GAAP)

As adjusted FX-Adjusted (Non-GAAP)

REVENUES

U.S. Pharmaceutical

$

92,737

$

-

$

92,737

$

89,402

$

-

$

89,402

$

-

$

92,737

$

-

$

92,737

4

%

4

%

4

%

4

%

International

18,092

-

18,092

18,728

-

18,728

(31

)

18,061

(31

)

18,061

(3

)

(3

)

(4

)

(4

)

Medical-Surgical Solutions

4,334

-

4,334

3,959

-

3,959

-

4,334

-

4,334

9

9

9

9

Prescription Technology Solutions

1,324

-

1,324

1,255

-

1,255

-

1,324

-

1,324

5

5

5

5

Revenues

$

116,487

$

-

$

116,487

$

113,344

$

-

$

113,344

$

(31

)

$

116,456

$

(31

)

$

116,456

3

%

3

%

3

%

3

%

OPERATING PROFIT (LOSS) (3)

U.S. Pharmaceutical (9)

$

1,236

$

12

$

1,248

$

1,217

$

11

$

1,228

$

-

$

1,236

$

-

$

1,248

2

%

2

%

2

%

2

%

International (8)

(42

)

231

189

61

118

179

6

(36

)

1

190

(169

)

6

(159

)

6

Medical-Surgical Solutions

276

58

334

254

71

325

-

276

-

334

9

3

9

3

Prescription Technology Solutions

156

34

190

198

35

233

-

156

-

190

(21

)

(18

)

(21

)

(18

)

Other (a) (1) (2) (7)

-

-

-

(1,450

)

1,597

147

-

-

-

-

(100

)

(100

)

(100

)

(100

)

Subtotal

1,626

335

1,961

280

1,832

2,112

6

1,632

1

1,962

481

(7

)

483

(7

)

Corporate expenses, net (4) (5) (6)

(216

)

(85

)

(301

)

(511

)

255

(256

)

(1

)

(217

)

(1

)

(302

)

(58

)

18

(58

)

18

Income (loss) from continuing operations before interest expense and income taxes

$

1,410

$

250

$

1,660

$

(231

)

$

2,087

$

1,856

$

5

$

1,415

$

-

$

1,660

710

%

(11

)%

713

%

(11

)%

OPERATING PROFIT (LOSS) AS A % OF REVENUES

U.S. Pharmaceutical

1.33

%

1.35

%

1.36

%

1.37

%

1.33

%

1.35

%

(3

)bp

(2

)bp

(3

)bp

(2

)bp

International

(0.23

)

1.04

0.33

0.96

(0.20

)

1.05

(56

)

8

(53

)

9

Medical-Surgical Solutions

6.37

7.71

6.42

8.21

6.37

7.71

(5

)

(50

)

(5

)

(50

)

Prescription Technology Solutions

11.78

14.35

15.78

18.57

11.78

14.35

(400

)

(422

)

(400

)

(422

)

Schedule 3 (continued)

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Six Months Ended September 30,

2020 2019 As reported As adjusted Change

As As FX- As As adjusted As adjusted Foreign FX- Foreign Adjusted As adjusted As reported reported Adjustments (Non- reported Adjustments (Non- currency Adjusted currency (Non- reported (Non- FX-Adjusted As adjusted (GAAP) GAAP) (GAAP) GAAP) effects (Non-GAAP) effects GAAP) (GAAP) GAAP) (Non-GAAP) FX-Adjusted (Non-GAAP)

REVENUES

U.S.Pharmaceutical $ 92,737 $ - $ 92,737 $ 89,402 $ - $ 89,402 $ - $ 92,737 $ - $ 92,737 4 % 4 % 4 % 4

%



International 18,092 - 18,092 18,728 - 18,728 (31 ) 18,061 (31 ) 18,061 (3 ) (3 ) (4 ) (4

)

Medical-SurgicalSolutions 4,334 - 4,334 3,959 - 3,959 - 4,334 - 4,334 9 9 9 9



PrescriptionTechnology 1,324 - 1,324 1,255 - 1,255 - 1,324 - 1,324 5 5 5 5Solutions



Revenues $ 116,487 $ - $ 116,487 $ 113,344 $ - $ 113,344 $ (31 ) $ 116,456 $ (31 ) $ 116,456 3 % 3 % 3 % 3

%



OPERATING PROFIT (LOSS) ^(3)

U.S.Pharmaceutical ^ $ 1,236 $ 12 $ 1,248 $ 1,217 $ 11 $ 1,228 $ - $ 1,236 $ - $ 1,248 2 % 2 % 2 % 2(9) %



International ^(8) (42 ) 231 189 61 118 179 6 (36 ) 1 190 (169 ) 6 (159 ) 6



Medical-SurgicalSolutions 276 58 334 254 71 325 - 276 - 334 9 3 9 3



PrescriptionTechnology 156 34 190 198 35 233 - 156 - 190 (21 ) (18 ) (21 ) (18Solutions )

Other ^(a) (1) (2)(7) - - - (1,450 ) 1,597 147 - - - - (100 ) (100 ) (100 ) (100

)



Subtotal 1,626 335 1,961 280 1,832 2,112 6 1,632 1 1,962 481 (7 ) 483 (7

)

Corporateexpenses, net ^(4) (216 ) (85 ) (301 ) (511 ) 255 (256 ) (1 ) (217 ) (1 ) (302 ) (58 ) 18 (58 ) 18(5) (6)

Income (loss) from continuingoperations before $ 1,410 $ 250 $ 1,660 $ (231 ) $ 2,087 $ 1,856 $ 5 $ 1,415 $ - $ 1,660 710 % (11 )% 713 % (11interest expenseand income taxes )%



OPERATING PROFIT (LOSS) AS A % OF REVENUES

U.S.Pharmaceutical 1.33 % 1.35 % 1.36 % 1.37 % 1.33 % 1.35 % (3 )bp (2 )bp (3 )bp (2

)bp



International (0.23 ) 1.04 0.33 0.96 (0.20 ) 1.05 (56 ) 8 (53 ) 9



Medical-SurgicalSolutions 6.37 7.71 6.42 8.21 6.37 7.71 (5 ) (50 ) (5 ) (50

)

PrescriptionTechnology 11.78 14.35 15.78 18.57 11.78 14.35 (400 ) (422 ) (400 ) (422Solutions )

(a)

Operating profit (loss) for Other for the six months ended September 30, 2019 includes equity earnings and charges from investment in Change Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Segment Operating Profit (Non-GAAP), Adjusted Operating Profit (Non-GAAP), Adjusted Corporate Expenses (Non-GAAP), FX-Adjusted (Non-GAAP), and Adjusted Segment Operating Profit Margin (Non-GAAP) definitions, refer to the section entitled "Supplemental Non-GAAP Financial Information" of this release.

Operating profit (loss) for Other for the six months ended September 30, 2019 includes equity earnings and charges from investment in Change(a) Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Segment Operating Profit(Non-GAAP), Adjusted Operating Profit (Non-GAAP), Adjusted Corporate Expenses(Non-GAAP), FX-Adjusted (Non-GAAP), and Adjusted Segment Operating ProfitMargin (Non-GAAP) definitions, refer to the section entitled "SupplementalNon-GAAP Financial Information" of this release.

Schedule 4

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)

September 30,2020

March 31,2020

ASSETS

Current assets

Cash and cash equivalents

$

3,091

$

4,015

Receivables, net

19,285

19,950

Inventories, net

18,435

16,734

Assets held for sale

833

906

Prepaid expenses and other

701

617

Total current assets

42,345

42,222

Property, plant, and equipment, net

2,471

2,365

Operating lease right-of-use assets

1,895

1,886

Goodwill

9,414

9,360

Intangible assets, net

3,030

3,156

Other non-current assets

2,403

2,258

Total assets

$

61,558

$

61,247

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY

Current liabilities

Drafts and accounts payable

$

36,255

$

37,195

Current portion of long-term debt

1,760

1,052

Current portion of operating lease liabilities

367

354

Liabilities held for sale

537

683

Other accrued liabilities

3,805

3,340

Total current liabilities

42,724

42,624

Long-term debt

5,848

6,335

Long-term deferred tax liabilities

2,293

2,255

Long-term operating lease liabilities

1,669

1,660

Other non-current liabilities

1,669

1,662

Redeemable noncontrolling interests

1,265

1,402

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 and 273 and 272 shares issued at September 30, 2020 and March 31, 2020, respectively

2

2

Additional paid-in capital

6,780

6,663

Retained earnings

13,890

13,022

Accumulated other comprehensive loss

(1,597

)

(1,703

)

Treasury shares, at cost, 112 and 110 shares at September 30, 2020 and March 31, 2020, respectively

(13,185

)

(12,892

)

Total McKesson Corporation stockholders' equity

5,890

5,092

Noncontrolling interests

200

217

Total equity

6,090

5,309

Total liabilities, redeemable noncontrolling interests, and equity

$

61,558

$

61,247

Schedule 4

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)

September March 31, 30, 2020 2020

ASSETS

Current assets

Cash and cash equivalents $ 3,091 $ 4,015

Receivables, net 19,285 19,950

Inventories, net 18,435 16,734

Assets held for sale 833 906

Prepaid expenses and other 701 617

Total current assets 42,345 42,222

Property, plant, and equipment, net 2,471 2,365

Operating lease right-of-use assets 1,895 1,886

Goodwill 9,414 9,360

Intangible assets, net 3,030 3,156

Other non-current assets 2,403 2,258

Total assets $ 61,558 $ 61,247



LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY

Current liabilities

Drafts and accounts payable $ 36,255 $ 37,195

Current portion of long-term debt 1,760 1,052

Current portion of operating lease liabilities 367 354

Liabilities held for sale 537 683

Other accrued liabilities 3,805 3,340

Total current liabilities 42,724 42,624

Long-term debt 5,848 6,335

Long-term deferred tax liabilities 2,293 2,255

Long-term operating lease liabilities 1,669 1,660

Other non-current liabilities 1,669 1,662

Redeemable noncontrolling interests 1,265 1,402

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 authorizedand 273 and 272 shares issued at September 30, 2020 and 2 2 March 31, 2020, respectively

Additional paid-in capital 6,780 6,663

Retained earnings 13,890 13,022

Accumulated other comprehensive loss (1,597 ) (1,703 )

Treasury shares, at cost, 112 and 110 shares at (13,185 ) (12,892 )September 30, 2020 and March 31, 2020, respectively

Total McKesson Corporation stockholders' equity 5,890 5,092

Noncontrolling interests 200 217

Total equity 6,090 5,309

Total liabilities, redeemable noncontrolling interests, $ 61,558 $ 61,247 and equity

Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

Six Months EndedSeptember 30,

2020

2019

OPERATING ACTIVITIES

Net income (loss)

$

1,121

$

(200

)

Adjustments to reconcile to net cash used in operating activities:

Depreciation

154

160

Amortization

285

303

Goodwill and other asset impairment charges

104

12

Equity earnings and charges from investment in Change Healthcare Joint Venture

-

1,450

Deferred taxes

(35

)

(380

)

Credits associated with last-in, first-out inventory method

(104

)

(48

)

Non-cash operating lease expense

172

180

Loss (gain) from sales of businesses and investments

1

(1

)

Other non-cash items

17

145

Changes in assets and liabilities, net of acquisitions:

Receivables

981

(866

)

Inventories

(1,396

)

331

Drafts and accounts payable

(1,305

)

(1,203

)

Operating lease liabilities

(185

)

(189

)

Taxes

(58

)

70

Other

207

77

Net cash used in operating activities

(41

)

(159

)

INVESTING ACTIVITIES

Payments for property, plant, and equipment

(174

)

(126

)

Capitalized software expenditures

(91

)

(58

)

Acquisitions, net of cash, cash equivalents, and restricted cash acquired

(8

)

(95

)

Proceeds from sales of businesses and investments, net

9

3

Other

(14

)

(9

)

Net cash used in investing activities

(278

)

(285

)

FINANCING ACTIVITIES

Proceeds from short-term borrowings

5,303

8,670

Repayments of short-term borrowings

(5,303

)

(8,122

)

Repayments of long-term debt

(5

)

(5

)

Common stock transactions:

Issuances

39

78

Share repurchases, including shares surrendered for tax withholding

(272

)

(1,452

)

Dividends paid

(140

)

(148

)

Other

(23

)

(224

)

Net cash used in financing activities

(401

)

(1,203

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(63

)

22

Net decrease in cash, cash equivalents, and restricted cash

(783

)

(1,625

)

Cash, cash equivalents, and restricted cash at beginning of period

4,023

2,981

Cash, cash equivalents, and restricted cash at end of period

3,240

1,356

Less: Restricted cash at end of period included in Prepaid expenses and other

(149

)

-

Cash and cash equivalents at end of period

$

3,091

$

1,356

Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

Six Months Ended September 30,

2020 2019

OPERATING ACTIVITIES

Net income (loss) $ 1,121 $ (200 )

Adjustments to reconcile to net cash used in operating activities:

Depreciation 154 160

Amortization 285 303

Goodwill and other asset impairment charges 104 12

Equity earnings and charges from investment in Change - 1,450 Healthcare Joint Venture

Deferred taxes (35 ) (380 )

Credits associated with last-in, first-out inventory (104 ) (48 )method

Non-cash operating lease expense 172 180

Loss (gain) from sales of businesses and investments 1 (1 )

Other non-cash items 17 145

Changes in assets and liabilities, net of acquisitions:

Receivables 981 (866 )

Inventories (1,396 ) 331

Drafts and accounts payable (1,305 ) (1,203 )

Operating lease liabilities (185 ) (189 )

Taxes (58 ) 70

Other 207 77

Net cash used in operating activities (41 ) (159 )



INVESTING ACTIVITIES

Payments for property, plant, and equipment (174 ) (126 )

Capitalized software expenditures (91 ) (58 )

Acquisitions, net of cash, cash equivalents, and (8 ) (95 )restricted cash acquired

Proceeds from sales of businesses and investments, net 9 3

Other (14 ) (9 )

Net cash used in investing activities (278 ) (285 )



FINANCING ACTIVITIES

Proceeds from short-term borrowings 5,303 8,670

Repayments of short-term borrowings (5,303 ) (8,122 )

Repayments of long-term debt (5 ) (5 )

Common stock transactions:

Issuances 39 78

Share repurchases, including shares surrendered for tax (272 ) (1,452 )withholding

Dividends paid (140 ) (148 )

Other (23 ) (224 )

Net cash used in financing activities (401 ) (1,203 )

Effect of exchange rate changes on cash, cash equivalents, (63 ) 22 and restricted cash

Net decrease in cash, cash equivalents, and restricted (783 ) (1,625 )cash

Cash, cash equivalents, and restricted cash at beginning 4,023 2,981 of period

Cash, cash equivalents, and restricted cash at end of 3,240 1,356 period

Less: Restricted cash at end of period included in Prepaid (149 ) - expenses and other

Cash and cash equivalents at end of period $ 3,091 $ 1,356

Schedule 6

McKESSON CORPORATION

RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW (NON-GAAP)

(unaudited)

(in millions)

Six Months EndedSeptember 30,

2020

2019

Change

GAAP CASH FLOW CATEGORIES

Net cash used in operating activities

$

(41

)

$

(159

)

(74

)%

Net cash used in investing activities

(278

)

(285

)

(2

)

Net cash used in financing activities

(401

)

(1,203

)

(67

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(63

)

22

(386

)

Net decrease in cash, cash equivalents, and restricted cash

$

(783

)

$

(1,625

)

(52

)%

FREE CASH FLOW (NON-GAAP)

Net cash used in operating activities

$

(41

)

$

(159

)

(74

)%

Payments for property, plant, and equipment

(174

)

(126

)

38

Capitalized software expenditures

(91

)

(58

)

57

Free Cash Flow (Non-GAAP)

$

(306

)

$

(343

)

(11

)%

For more information relating to the Free Cash Flow (Non-GAAP) definition, refer to the section entitled "Supplemental Non-GAAP Financial Information" of this release.

Schedule 6

McKESSON CORPORATION

RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW (NON-GAAP)

(unaudited)

(in millions)

Six Months Ended September 30,

2020 2019 Change

GAAP CASH FLOW CATEGORIES

Net cash used in operating activities $ (41 ) $ (159 ) (74 ) %

Net cash used in investing activities (278 ) (285 ) (2 )

Net cash used in financing activities (401 ) (1,203 ) (67 )

Effect of exchange rate changes on cash, cash (63 ) 22 (386 )equivalents, and restricted cash

Net decrease in cash, cash equivalents, and $ (783 ) $ (1,625 ) (52 )restricted cash %



FREE CASH FLOW (NON-GAAP)

Net cash used in operating activities $ (41 ) $ (159 ) (74 ) %

Payments for property, plant, and equipment (174 ) (126 ) 38

Capitalized software expenditures (91 ) (58 ) 57

Free Cash Flow (Non-GAAP) $ (306 ) $ (343 ) (11 ) %

For more information relating to the Free Cash Flow (Non-GAAP) definition,refer to the section entitled "Supplemental Non-GAAP Financial Information" ofthis release.

McKESSON CORPORATION FINANCIAL STATEMENT NOTES

(1)

Amortization of acquisition-related intangibles includes our proportionate share of loss from investment in Change Healthcare Joint Venture within Other. Such amount includes the amortization of equity investment intangibles and other acquired intangibles of $63 million for the three months ended September 30, 2019 and $140 million for the six months ended September 30, 2019. These charges are included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP provided in Schedule 2 of the accompanying financial statement tables.

(2)

Transaction-related expenses and adjustments for the three and six months ended September 30, 2019 primarily includes a pre-tax charge of $246 million ($184 million after-tax) within Other, representing the difference between our proportionate share of the IPO proceeds and the dilution effect on our investment in Change Healthcare Joint Venture carrying value. Upon the completion of the IPO by Change Healthcare Inc. in July 2019, McKesson's equity ownership interest in the joint venture diluted from approximately 70% to 58.5%. This charge is included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(3)

Restructuring, impairment, and related charges, net for the three and six months ended September 30, 2020 includes pre-tax charges of $60 million ($45 million after-tax) and $116 million ($90 million after-tax), respectively, primarily for our Europe business within International and Corporate expenses, net. The three and six months ended September 30, 2019 includes charges of $45 million ($35 million after-tax) and $68 million ($52 million after-tax), respectively, primarily for our Europe business within International as well as Corporate expenses, net. These charges are included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables. Additionally, restructuring, impairment, and related charges, net for the three and six months ended September 30, 2020 and 2019 includes immaterial amounts under "gross profit" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(4)

Other adjustments, net for the six months ended September 30, 2020 primarily includes a pre-tax net gain of $131 million ($97 million after-tax) related to insurance proceeds received, net of attorneys' fees and expenses awarded to plaintiffs' counsel, in connection with the $175 million settlement of the shareholder derivative action related to our controlled substances monitoring program within Corporate expenses, net. This gain is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(5)

Other adjustments, net for the three and six months ended September 30, 2019 primarily includes a charge of $82 million (pre-tax and after-tax) recorded in connection with an agreement to settle all opioids related claims filed by two Ohio counties within Corporate expenses, net. These charges are included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(6)

Other adjustments, net for the three and six months ended September 30, 2019 primarily includes pre-tax charges of $105 million ($78 million after-tax) and $122 million ($90 million after-tax), respectively, representing settlement charges related to our frozen U.S. defined benefit pension plan within Corporate expenses, net. This charge is included under "other income (expense), net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(7)

Other adjustments, net for the three and six months ended September 30, 2019 primarily includes a pre-tax charge of $1,157 million ($864 million after-tax) representing an other-than-temporary impairment of McKesson's investment in Change Healthcare Joint Venture within Other. This charge is included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(8)

Other adjustments, net for the three and six months ended September 30, 2020 includes a non-cash goodwill impairment charge of $69 million (pre-tax and after-tax) within International related to our European retail business, partially offset by the related indirect effect of $4 million benefit in net income attributable to noncontrolling interests. This impairment charge is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(9)

Other adjustments, net for the three and six months ended September 30, 2020 includes a pre-tax charge of $50 million ($37 million after-tax) related to our estimated liability under the New York ("NY") state Opioid Stewardship Act ("OSA") within U.S. Pharmaceutical for calendar years 2017 and 2018. In December 2018, a federal district court struck down the law as unconstitutional and NY replaced the OSA with an excise tax on opioid sales in the state of NY covering calendar year 2019 sales and beyond. In September 2020, an appellate court reversed on procedural grounds the district court's decision. An amendment to the Act made clear that the OSA applies only to NY opioid sales or distributions for calendar years 2017 and 2018. To the extent that further court decisions do not strike down the law, we will face liability under the OSA and we believe the estimated OSA liability is one-time in nature because the liability is retroactively imposed on sales or distributions in 2017 and 2018, and is not indicative of future results. Inclusion of this accrual in our adjusted results would distort current period performance. This charge is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables. McKESSON CORPORATION FINANCIAL STATEMENT NOTES



Amortization of acquisition-related intangibles includes our proportionate share of loss from investment in Change Healthcare Joint Venture within Other. Such amount includes the amortization of equity investment intangibles and other acquired intangibles of $63 million for the three(1) months ended September 30, 2019 and $140 million for the six months ended September 30, 2019. These charges are included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP provided in Schedule 2 of the accompanying financial statement tables.



Transaction-related expenses and adjustments for the three and six months ended September 30, 2019 primarily includes a pre-tax charge of $246 million ($184 million after-tax) within Other, representing the difference between our proportionate share of the IPO proceeds and the dilution effect on our investment in Change Healthcare Joint Venture carrying value. Upon(2) the completion of the IPO by Change Healthcare Inc. in July 2019, McKesson's equity ownership interest in the joint venture diluted from approximately 70% to 58.5%. This charge is included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Restructuring, impairment, and related charges, net for the three and six months ended September 30, 2020 includes pre-tax charges of $60 million ($45 million after-tax) and $116 million ($90 million after-tax), respectively, primarily for our Europe business within International and Corporate expenses, net. The three and six months ended September 30, 2019 includes charges of $45 million ($35 million after-tax) and $68 million ($52 million after-tax), respectively, primarily for our Europe business(3) within International as well as Corporate expenses, net. These charges are included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables. Additionally, restructuring, impairment, and related charges, net for the three and six months ended September 30, 2020 and 2019 includes immaterial amounts under "gross profit" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Other adjustments, net for the six months ended September 30, 2020 primarily includes a pre-tax net gain of $131 million ($97 million after-tax) related to insurance proceeds received, net of attorneys' fees and expenses awarded to plaintiffs' counsel, in connection with the $175(4) million settlement of the shareholder derivative action related to our controlled substances monitoring program within Corporate expenses, net. This gain is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Other adjustments, net for the three and six months ended September 30, 2019 primarily includes a charge of $82 million (pre-tax and after-tax) recorded in connection with an agreement to settle all opioids related(5) claims filed by two Ohio counties within Corporate expenses, net. These charges are included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Other adjustments, net for the three and six months ended September 30, 2019 primarily includes pre-tax charges of $105 million ($78 million after-tax) and $122 million ($90 million after-tax), respectively,(6) representing settlement charges related to our frozen U.S. defined benefit pension plan within Corporate expenses, net. This charge is included under "other income (expense), net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Other adjustments, net for the three and six months ended September 30, 2019 primarily includes a pre-tax charge of $1,157 million ($864 million after-tax) representing an other-than-temporary impairment of McKesson's(7) investment in Change Healthcare Joint Venture within Other. This charge is included under "equity earnings and charges from investment in Change Healthcare Joint Venture" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.



Other adjustments, net for the three and six months ended September 30, 2020 includes a non-cash goodwill impairment charge of $69 million (pre-tax and after-tax) within International related to our European retail business, partially offset by the related indirect effect of $4 million(8) benefit in net income attributable to noncontrolling interests. This impairment charge is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

Other adjustments, net for the three and six months ended September 30, 2020 includes a pre-tax charge of $50 million ($37 million after-tax) related to our estimated liability under the New York ("NY") state Opioid Stewardship Act ("OSA") within U.S. Pharmaceutical for calendar years 2017 and 2018. In December 2018, a federal district court struck down the law as unconstitutional and NY replaced the OSA with an excise tax on opioid sales in the state of NY covering calendar year 2019 sales and beyond. In September 2020, an appellate court reversed on procedural grounds the(9) district court's decision. An amendment to the Act made clear that the OSA applies only to NY opioid sales or distributions for calendar years 2017 and 2018. To the extent that further court decisions do not strike down the law, we will face liability under the OSA and we believe the estimated OSA liability is one-time in nature because the liability is retroactively imposed on sales or distributions in 2017 and 2018, and is not indicative of future results. Inclusion of this accrual in our adjusted results would distort current period performance. This charge is included under "total operating expenses" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables. McKESSON CORPORATION

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

In an effort to provide investors with additional information regarding the Company's financial results as determined by generally accepted accounting principles ("GAAP"), McKesson Corporation (the "Company" or "we") also presents the following Non-GAAP measures in this press release.

* Adjusted Gross Profit (Non-GAAP): We define Adjusted Gross Profit as GAAP gross profit, excluding transaction-related expenses and adjustments, last-in, first-out ("LIFO") inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, and other adjustments. * Adjusted Operating Expenses (Non-GAAP): We define Adjusted Operating Expenses as GAAP total operating expenses, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, restructuring, impairment, and related charges, and other adjustments. * Adjusted Other Income (Non-GAAP): We define Adjusted Other Income as GAAP other income (expense), net, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments. * Adjusted Equity Income from Change Healthcare (Non-GAAP): We define Adjusted Equity Income from Change Healthcare as GAAP equity earnings and charges from investment in Change Healthcare Joint Venture, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020. * Adjusted Income Tax Expense (Non-GAAP): We define Adjusted Income Tax Expense as GAAP income tax benefit (expense), excluding the income tax effects of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, and other adjustments. Income tax effects are calculated in accordance with Accounting Standards Codification ("ASC") 740, "Income Taxes," which is the same accounting principle used by the Company when presenting its GAAP financial results. * Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as GAAP income (loss) from continuing operations attributable to McKesson, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable. * Adjusted Earnings per Diluted Share (Non-GAAP): We define Adjusted Earnings per Diluted Share as GAAP earnings (loss) per diluted common share from continuing operations attributable to McKesson, excluding per share impacts of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable, divided by diluted weighted-average shares outstanding. Adjusted Earnings per Diluted Share was not previously adjusted for the effect of potentially dilutive securities issued by the Change Healthcare Joint Venture. * Adjusted Segment Operating Profit (Non-GAAP) and Adjusted Segment Operating Profit Margin (Non-GAAP): We define Adjusted Segment Operating Profit as GAAP segment operating profit (loss), excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, and other adjustments. We define Adjusted Segment Operating Profit Margin as Adjusted Segment Operating Profit (Non-GAAP) divided by GAAP segment revenues. * Adjusted Corporate Expenses (Non-GAAP): We define Adjusted Corporate Expenses as GAAP corporate expenses, net, excluding transaction-related expenses and adjustments, restructuring, impairment, and related charges, and other adjustments. * Adjusted Operating Profit (Non-GAAP): We define Adjusted Operating Profit as GAAP income (loss) from continuing operations before interest expense and income taxes, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment, and related charges, and other adjustments. The following provides further details regarding the adjustments made to our GAAP financial results to arrive at our Non-GAAP measures as defined above: Amortization of acquisition-related intangibles - Amortization expenses of intangible assets directly related to business combinations and the formation of joint ventures. Transaction-related expenses and adjustments - Transaction, integration, and other expenses that are directly related to business combinations, the formation of joint ventures, divestitures, and other transaction-related costs including initial public offering costs. Examples include transaction closing costs, professional service fees, legal fees, severance charges, retention payments and employee relocation expenses, facility or other exit-related expenses, certain fair value adjustments including deferred revenues, contingent consideration and inventory, recoveries of acquisition-related expenses or post-closing expenses, bridge loan fees and gains or losses on business combinations, and divestitures of businesses that do not qualify as discontinued operations. LIFO inventory-related adjustments - LIFO inventory-related non-cash expense or credit adjustments. Gains from antitrust legal settlements - Net cash proceeds representing the Company's share of antitrust lawsuit settlements. Restructuring, impairment, and related charges - Restructuring charges that are incurred for programs in which we change our operations, the scope of a business undertaken by our business units, or the manner in which that business is conducted as well as long-lived asset impairments. Such charges may include employee severance, retention bonuses, facility closure or consolidation costs, lease or contract termination costs, asset impairments, accelerated depreciation and amortization, and other related expenses. The restructuring programs may be implemented due to the sale or discontinuation of a product line, reorganization or management structure changes, headcount rationalization, realignment of operations or products, integration of acquired businesses, and/or company-wide cost saving initiatives. The amount and/or frequency of these restructuring charges are not part of our underlying business, which include normal levels of reinvestment in the business. Any credit adjustments due to subsequent changes in estimates are also excluded from adjusted results. Other adjustments - The Company evaluates the nature and significance of transactions qualitatively and quantitatively on an individual basis and may include them in the determination of our adjusted results from time to time. While not all-inclusive, other adjustments may include: adjustments to claim and litigation reserves for estimated probable losses and settlements; other asset impairments; gains or losses from debt extinguishment; and other similar substantive and/or infrequent items as deemed appropriate. The Company evaluates the aforementioned Non-GAAP measures on a periodic basis and updates the definitions from time to time. The evaluation considers both the quantitative and qualitative aspects of the Company's presentation of Non-GAAP adjusted results. A reconciliation of McKesson's GAAP financial results to Non-GAAP financial results is provided in Schedules 2 and 3 of the financial statement tables included with this release. Additionally, the Company's investment in Change Healthcare Joint Venture's financial results are adjusted for the above noted items, except for the effect of potentially dilutive securities issued by the joint venture on our adjusted results per diluted share.

* FX-Adjusted (Non-GAAP): McKesson also presents its GAAP financial results and adjusted results (Non-GAAP) on an FX-Adjusted basis. To present our financial results on an FX-Adjusted basis, we convert current year period results of our operations in foreign countries, which are recorded in local currencies, into U.S. dollars by applying the average foreign currency exchange rates of the comparable prior year period. To present Adjusted Earnings per Diluted Share on an FX-Adjusted basis, we estimate the impact of foreign currency rate fluctuations on the Company's noncontrolling interests and adjusted income tax expense, which may vary from quarter to quarter. The supplemental FX-Adjusted information of the Company's GAAP financial results and adjusted results (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release. * Free Cash Flow (Non-GAAP): We define free cash flow as net cash provided by (used in) operating activities less payments for property, plant and equipment and capitalized software expenditures, as disclosed in our condensed consolidated statements of cash flows. A reconciliation of McKesson's GAAP financial results to Free Cash Flow (Non-GAAP) is provided in Schedule 6 of the financial statement tables included with this release.

The Company believes the presentation of Non-GAAP measures provides useful supplemental information to investors with regard to its operating performance, as well as assists with the comparison of its past financial performance to the Company's future financial results. Moreover, the Company believes that the presentation of Non-GAAP measures assists investors' ability to compare its financial results to those of other companies in the same industry. However, the Company's Non-GAAP measures used in the press tables may be defined and calculated differently by other companies in the same industry.

The Company internally uses both GAAP and Non-GAAP financial measures in connection with its own financial planning and reporting processes. Management utilizes Non-GAAP financial measures when allocating resources, deploying capital, as well as assessing business performance, and determining employee incentive compensation. The Company conducts its businesses internationally in local currencies, including Euro, British pound sterling, and Canadian dollars. As a result, the comparability of our results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. We present FX-Adjusted information to provide a framework for assessing how our business performed excluding the estimated effect of foreign currency exchange rate fluctuations. We believe free cash flow is important to management and useful to investors as a supplemental measure as it indicates the cash flow available for working capital needs, re-investment opportunities, strategic acquisitions, dividend payments, or other strategic uses of cash. Nonetheless, Non-GAAP adjusted results and related Non-GAAP measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.

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CONTACT: Holly Weiss, 972-969-9174 (Investors) Holly.Weiss@McKesson.com David Matthews, 214-952-0833 (Media) David.Matthews@McKesson.com