MCKESSON CORP

Overview of Segment Results:

Segment Revenues:

U.S. Pharmaceutical

U.S. Pharmaceutical revenues for the three months ended December 31, 2023 increased $11.1 billion or 18% compared to the same prior year period. Within the segment, sales to pharmacies and healthcare providers increased $9.8 billion and sales to specialty practices and other increased $1.3 billion. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals and higher volumes from retail national account customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions.

U.S. Pharmaceutical revenues for the nine months ended December 31, 2023 increased $31.0 billion or 17% compared to the same prior year period. Within the segment, sales to pharmacies and healthcare providers increased $28.2 billion and sales to specialty practices and other increased $2.8 billion. Overall, these increases were primarily due to market growth, including higher volumes from retail national account customers and growth in specialty pharmaceuticals, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions and unfavorability from one less sales day compared to the same prior year period.

Prescription Technology Solutions

RxTS revenues for the three months ended December 31, 2023 increased $84 million or 7% compared to the same prior year period due to higher technology service revenues and increased volumes primarily in our third-party logistics and wholesale distribution services.

RxTS revenues for the nine months ended December 31, 2023 increased $384 million or 12% compared to the same prior year period due to higher technology service revenues and increased volumes primarily in our third-party logistics and wholesale distribution services.

Medical-Surgical Solutions

Medical-Surgical Solutions revenues for the three months ended December 31, 2023 increased $45 million or 2% compared to the same prior year period. Within the segment, sales to primary care customers increased $77 million and sales to our extended care customers increased by $31 million, driven by underlying business growth. These increases were partially offset by our Other segment sales which declined by $63 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines.

Medical-Surgical Solutions revenues for the nine months ended December 31, 2023 increased $55 million or 1% compared to the same prior year period. Within the segment, sales to our extended care customers increased $159 million and sales to our primary care customers increased $57 million driven by underlying business growth. Other sales declined $161 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines.

International

International revenues for the three months ended December 31, 2023 decreased $810 million or 18%, including unfavorable effects of foreign currency exchange fluctuations of $25 million, compared to the same prior year period. Within the segment, sales in Europe declined by $913 million largely due to the completed divestiture of our E.U. disposal group in the third quarter of fiscal 2023, partially offset by increased sales in Canada of $128 million which was primarily driven by higher pharmaceutical distribution volumes.

International revenues for the nine months ended December 31, 2023 decreased $6.7 billion or 39%, including unfavorable effects of foreign currency exchange fluctuations of $324 million, compared to the same prior year period. Within the segment, sales in Europe declined by $6.9 billion largely due to the completed divestiture of our E.U. disposal group in the third quarter of fiscal 2023, partially offset by increased sales in Canada of $520 million which was primarily driven by higher pharmaceutical distribution volumes.

Segment Operating Profit and Corporate Expenses, Net:

(1)Segment operating profit includes gross profit, net of total operating expenses, as well as other income, net, for our reportable segments.

(2)Operating profit for our U.S. Pharmaceutical segment includes the following:

•a provision for bad debts of $515 million and $725 million for the three and nine months ended December 31, 2023, respectively, related to the bankruptcy of Rite Aid in October 2023, as discussed in more detail in the “Trends and Uncertainties” section;

•cash receipts for our share of antitrust legal settlements of $23 million and $129 million for the three months ended December 31, 2023 and 2022, respectively, and $220 million and $129 million for the nine months ended December 31, 2023 and 2022, respectively;

•charges of $2 million and $5 million related to the LIFO method of accounting for inventories for the three months ended December 31, 2023 and 2022, respectively, and a charge of $89 million and a credit of $31 million for the nine months ended December 31, 2023 and 2022, respectively; and

•a gain of $142 million for the nine months ended December 31, 2022 related to the exit of one of our investments in equity securities in July 2022 for proceeds of $179 million, which was recorded within “Other income, net” in the Company’s Condensed Consolidated Statements of Operations.

(3)Operating profit for our RxTS segment for the three and nine months ended December 31, 2023 includes fair value adjustment gains of $2 million and $78 million, respectively, which reduced our contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

(4)Operating profit for our International segment for the three and nine months ended December 31, 2022 includes charges of $3 million and $240 million, respectively, to remeasure the assets and liabilities of our E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

(5)Corporate expenses, net includes the following:

•restructuring charges of $50 million and $38 million for the nine months ended December 31, 2023 and 2022, respectively, for restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the accompanying condensed consolidated financial statements included in this Quarterly Report;

•gains of $34 million and $306 million for the three and nine months ended December 31, 2022, respectively, primarily related to the effect of accumulated other comprehensive loss components from our E.U. disposal group, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report;

•a gain of $126 million for the three and nine months ended December 31, 2022 related to the cash payment received for the early termination of our TRA with Change; and

•a gain of $97 million for the three and nine months ended December 31, 2022 from the termination of fixed interest rate swaps accounted for as cash flow hedges.

U.S. Pharmaceutical

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period primarily due to a provision for bad debts of $515 million related to the bankruptcy of Rite Aid in October 2023, a decrease from net cash proceeds received representing our share of antitrust legal settlements, and an increase in operating expenses to support higher volumes, partially offset by growth in specialty pharmaceuticals.

Operating profit for this segment decreased for the nine months ended December 31, 2023 compared to the same prior year period primarily due to a provision for bad debts of $725 million related to the bankruptcy of Rite Aid in October 2023, a gain of $142 million related to the exit of one of our investments in equity securities in fiscal 2023, a LIFO charge in the first nine months of fiscal 2024 compared to a credit in the same prior year period, and an increase in operating expenses to support higher volumes, partially offset by growth in specialty pharmaceuticals, an increase from net cash proceeds received representing our share of antitrust legal settlements, and increased contributions from our generics programs.

Prescription Technology Solutions

Operating profit for this segment increased for the three months ended December 31, 2023 compared to the same prior year period driven by increased volumes from our access solutions, primarily related to prior authorization services.

Operating profit for this segment increased for the nine months ended December 31, 2023 compared to the same prior year period driven by increased volumes, primarily from growth in our access solutions related to prior authorization services, and fair value adjustment gains which reduced our contingent consideration liability related to the RxSS acquisition.

Medical-Surgical Solutions

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period due to a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines, partially offset by growth in our extended care business.

Operating profit for this segment decreased for the nine months ended December 31, 2023 compared to the same prior year period due to a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines and higher expenses to support business growth, partially offset by growth in our extended care business.

International

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period primarily as a result of lower contributions from the European operations divested in fiscal 2023, partially offset by remeasurement charges recorded in the prior year related to the E.U. disposal group.

Operating profit for this segment increased for the nine months ended December 31, 2023 compared to the same prior year period primarily as a result of remeasurement charges recorded in the prior year related to the E.U. disposal group, partially offset by lower contributions from the European operations divested in fiscal 2023.

Corporate Expenses, Net

Corporate expenses, net increased for the three months ended December 31, 2023 compared to the same prior year period primarily as a result of gains in the third quarter of fiscal 2023 of $126 million related to the cash payment received for the early termination of our TRA with Change, $97 million from the termination of fixed interest rate swaps accounted for as cash flow hedges, and remeasurement gains recorded in the prior year related to the E.U. disposal group.

Corporate expenses, net increased for the nine months ended December 31, 2023 compared to the same prior year period primarily due to:

•prior year remeasurement gains related to the E.U. disposal group;

•a gain in the third quarter of 2023 related to the cash payment received for the early termination of our TRA with Change;

•a gain in the third quarter of 2023 related to the termination of fixed interest rate swaps accounted for as cash flow hedges; and

•higher restructuring charges recorded in fiscal 2024.

These were partially offset by a favorable impact to interest income from higher interest rates on certain of our cash balances compared to the prior year period.