# MCKESSON CORP (MCK) FY 2025 MD&A Verbatim Item 7 Management's Discussion and Analysis from MCKESSON CORP's 10-K for fiscal year 2025. SEC filing source: https://www.sec.gov/Archives/edgar/data/927653/000092765325000036/mck-20250331.htm Accession: 0000927653-25-000036 Filing date: 2025-05-09 Report date: 2025-03-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/MCK/ All MD&A years: /company/MCK/mda/ Previous year: /company/MCK/mda/fy2024/ (FY 2024) Next year: /company/MCK/mda/fy2026/ (FY 2026) Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations. INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS [[GREPCENT_TABLE]] [["Section","Page"],["General","31"],["Overview of Our Business","31"],["Executive Summary","33"],["Trends and Uncertainties","34"],["Overview of Consolidated Results","35"],["Overview of Segment Results","40"],["Foreign Operations","43"],["Business Combinations","43"],["Fiscal 2026 Outlook","43"],["Critical Accounting Estimates","43"],["Financial Condition, Liquidity, and Capital Resources","49"],["Related Party Balances and Transactions","53"],["New Accounting Pronouncements","53"]] [[/GREPCENT_TABLE]] 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 consolidated financial statements and accompanying financial notes in Item 8 of Part II of this Annual Report on Form 10-K (“Annual Report”). Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year refer to our fiscal year. Our Financial Review within this Annual Report generally discusses fiscal 2025 and fiscal 2024 results and year-over-year comparisons between fiscal 2025 and fiscal 2024. For a discussion of our year-over-year comparisons between fiscal 2024 and fiscal 2023, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Part II of our Annual Report on Form 10-K for the year ended March 31, 2024, previously filed with the Securities and Exchange Commission on May 8, 2024. Certain statements in this Annual Report constitute forward-looking statements. See Item 1 - Business - Forward-Looking Statements in Part I of this Annual Report for additional factors relating to these statements and Item 1A - Risk Factors in Part I of this Annual Report for a list of certain risk factors applicable to our business, financial condition and liquidity, and results of operations. Overview of Our Business: We are a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. Our teams partner with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services to help make quality care more accessible and affordable. 31 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) We report our financial results in four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, as well as the results of certain investments and operations. 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 (loss) before interest expense and income taxes. The following summarizes our four reportable segments. Refer to Financial Note 20, “Segments of Business,” to the consolidated financial statements included in this Annual Report for further information regarding our reportable segments. •U.S. Pharmaceutical is a reportable segment that distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products in the United States (“U.S.”). 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 sites) and provides consulting, outsourcing, technological, and other services. •Prescription Technology Solutions is a reportable segment that combines automation and our ability to navigate the healthcare ecosystem to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies to address patients’ medication access, affordability, and adherence challenges. RxTS offers technology services, which includes electronic prior authorization, prescription price transparency, benefit insight, dispensing support services, in addition to third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle. •Medical-Surgical Solutions is a reportable segment that provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers within the U.S. In May 2025, we announced our intention to separate this segment into an independent company. •International is a reportable segment that includes our operations in Canada and Norway, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. Our Canadian operations deliver medicines, supplies, and information technology solutions throughout Canada and included Rexall Health retail pharmacies. During fiscal 2025, we completed the sale of Rexall and Well.ca businesses in Canada (“Canadian retail disposal group”). This divestiture is further described in the “Canadian Divestiture Activities” section below. Our Norwegian operations provide distribution and services to wholesale and retail customers in Norway where we own, partner, or franchise with retail pharmacies. Business Acquisitions and Divestitures Community Oncology Revitalization Enterprise Ventures, LLC On August 26, 2024, we entered into a definitive agreement to acquire a 70% controlling interest in Community Oncology Revitalization Enterprise Ventures, LLC (“Core Ventures”), an internal business and administrative services organization established by Florida Cancer Specialists & Research Institute, LLC, for approximately $2.49 billion cash, subject to certain customary adjustments. Following the completion of the transaction, Core Ventures will be part of the Oncology platform, and financial results will be reported within our U.S. Pharmaceutical segment. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired in late April 2025. We expect the transaction to close during the first quarter of fiscal 2026, subject to satisfaction of customary closing conditions. PRISM Vision Holdings, LLC On April 2, 2025, we announced the completion of our previously announced acquisition of a controlling interest in PRISM Vision Holdings, LLC (“PRISM Vision”), a leading provider of general ophthalmology and retina management services. We purchased an approximate 80% and PRISM Vision physicians retained a 20% interest. The financial results of PRISM Vision will be reported within our U.S. Pharmaceutical segment. 32 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Canadian Divestiture Activities On December 30, 2024, we completed the sale of our Canadian retail disposal group for an adjusted purchase price consisting of a cash payment of $9 million, received upon closing, and a note of $120 million, measured at fair value and accruing interest upon satisfaction of certain conditions, and payable to the Company at the end of six years. We recorded a charge of $667 million for the year ended March 31, 2025 in total operating expenses to remeasure the Canadian retail disposal group to fair value less costs to sell. The remeasurement adjustment includes a $48 million loss related to the accumulated other comprehensive loss balances associated with the disposal group. Refer to Financial Note 2, “Business Acquisitions and Divestitures,”, to the consolidated financial statements included in this Annual Report for more information. Executive Summary: The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the year ended March 31, 2025: •For the year ended March 31, 2025 compared to the prior year, revenues increased by 16%, gross profit increased by 4%, total operating expenses were flat, and other income, net increased by $70 million. Refer to the “Overview of Consolidated Results” section below for an analysis of these changes; •Diluted earnings per common share from continuing operations attributable to McKesson Corporation increased to $25.72 in fiscal 2025 from $22.39 in the prior year; •During the year ended March 31, 2025, we onboarded a new strategic partner within our U.S. Pharmaceutical segment; •During fiscal 2025, we completed the sale of our Canadian retail disposal group and total operating expenses for the year ended March 31, 2025 includes fair value remeasurement charges of $667 million; •For the year ended March 31, 2025, we recorded restructuring charges of $298 million related to an enterprise-wide initiative to drive operational efficiencies as further described in the “Restructuring Initiatives” section of “Overview of Consolidated Results” below; •We received $444 million for the year ended March 31, 2025 related to our share of antitrust legal settlements. This amount was recorded as a gain within “Cost of sales” in the Consolidated Statement of Operations within our U.S. Pharmaceutical segment; •For the year ended March 31, 2025, we recognized a net discrete tax benefit of $258 million related to the sales of certain intellectual property between McKesson wholly-owned legal entities based in foreign tax jurisdictions; •We recorded a charge of $108 million for the year ended March 31, 2025 related to our estimated liability for opioid-related claims as further described in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report; •For the year ended March 31, 2025, we recognized a net gain of $100 million related to a recapitalization event of one of our investments in equity securities which resulted in an increase to the carrying value of this investment as discussed in Financial Note 15, “Fair Value Measurements,” to the consolidated financial statements included in this Annual Report; •On September 10, 2024, we completed a public offering of 4.25% Notes due September 15, 2029 (the “2029 Notes”) in a principal amount of $500 million. Proceeds received from this note issuance, net of discounts and offering expenses were approximately $496 million; •During the year ended March 31, 2025, we utilized the net proceeds from the issuance of the 2029 Notes, along with cash on hand, to redeem our $500 million outstanding principal amount of 5.25% Notes due February 15, 2026 (the “2026 Notes”) prior to maturity; and •We returned $3.5 billion of cash to shareholders during fiscal 2025 through $3.1 billion of common stock repurchases through open market transactions and $345 million of dividend payments. In July 2024, our Board of Directors (the “Board”) approved an increase of $4.0 billion in the authorization for repurchase of the Company’s common stock and raised our quarterly dividend to $0.71 from $0.62 per share of common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock at March 31, 2025 was $7.5 billion. 33 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Trends and Uncertainties: Opioid-Related Litigation and Claims As described in the discussion of opioid-related matters in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report, we are a defendant in many 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. Other than as to the settlements described in Financial Note 17, “Commitments and Contingent Liabilities,”, we have not concluded a loss is probable in any of the matters; nor is any possible loss or range of loss reasonably estimable. 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. Rite Aid Bankruptcy Proceedings During fiscal 2024, our customer Rite Aid Corporation (including certain of its subsidiaries, “Rite Aid”) filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. As a result, we recorded a provision for bad debts of $725 million for the year ended March 31, 2024, representing the uncollected trade accounts receivable from sales to Rite Aid prior to its bankruptcy petition filing. Rite Aid's restructuring plan was approved by the court and the company successfully emerged from bankruptcy in August 2024. During the year ended March 31, 2025, we reassessed our initial estimates made in conjunction with the previously reserved prepetition balances, including cash received during the period, resulting in a reversal of $206 million recorded within “Selling, distribution, general, and administrative expenses” in our Consolidated Statements of Operations and included within our U.S. Pharmaceutical segment. During the year ended March 31, 2025, we released $237 million of allowance for doubtful accounts against trade accounts receivables, representing the write-off of uncollectible receivables related to the Rite Aid provision in the Consolidated Balance Sheet. On May 5, 2025, Rite Aid filed a second voluntary petition under Chapter 11 of the Bankruptcy Code. We believe the reserves maintained and any adjustments recorded for Rite Aid trade accounts receivable are appropriate and consistent with our accounting policy and assessment of the information currently available. We evaluate our reserves periodically and as circumstances warrant, which may result in changes to our reserves. For additional disclosure of our policy regarding allowances for credit losses, refer to the “Critical Accounting Estimates” section included in this Financial Review. 34 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) RESULTS OF OPERATIONS Overview of Consolidated Results: [[GREPCENT_TABLE]] [["(In millions, except per share data)","Years Ended March 31,"],["2025","","2024","","","","Change"],["Revenues","$","359,051","","","$","308,951","","","","","16","","%"],["Gross profit","13,323","","","12,828","","","","","4"],["Gross profit margin","3.71","","%","4.15","","%","","","(44)","","bp"],["Total operating expenses","$","(8,901)","","","$","(8,919)","","","","","\u2014","","%"],["Total operating expenses as a percentage of revenues","2.48","","%","2.89","","%","","","(41)","","bp"],["Other income, net","$","202","","","$","132","","","","","53","","%"],["Interest expense","(265)","","","(252)","","","","","5"],["Income before income taxes","4,359","","","3,789","","","","","15"],["Income tax expense","(878)","","","(629)","","","","","40"],["Reported income tax rate","20.1","","%","16.6","","%","","","350","","bp"],["Net income","3,481","","","3,160","","","","","10"],["Net income attributable to noncontrolling interests","(186)","","","(158)","","","","","18"],["Net income attributable to McKesson Corporation","$","3,295","","","$","3,002","","","","","10","","%"],["Diluted earnings per common share attributable to McKesson Corporation","$","25.72","","","$","22.39","","","","","15","","%"],["Weighted-average diluted common shares outstanding","128.1","","","134.1","","","","","(4)","","%"]] [[/GREPCENT_TABLE]] Any percentage changes displayed above which are not meaningful are displayed as zero percent. bp - basis point 35 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Revenues Revenues increased for the year ended March 31, 2025 compared to the prior year largely due to market growth in our U.S. Pharmaceutical segment, including higher volumes largely from retail national account customers and growth in specialty pharmaceuticals. Market growth includes growing drug utilization and newly launched products, partially offset by branded to generic drug conversion. This revenue growth was also favorably impacted by higher pharmaceutical distribution volumes in our International segment. Gross Profit Gross profit increased for the year ended March 31, 2025 compared to the prior year primarily in our U.S. Pharmaceutical segment driven by growth of specialty pharmaceuticals, growth from retail national account customers, and our share of antitrust legal settlements received in fiscal 2025, partially offset by last-in, first-out (“LIFO”) inventory charges in fiscal 2025 and higher restructuring charges. Gross profit for the years ended March 31, 2025 and 2024 included gains of $444 million and $244 million, respectively, representing our share of antitrust legal settlements. We recognized these amounts within "Cost of sales" in the Consolidated Statements of Operations within our U.S. Pharmaceutical segment. Gross profit for the years ended March 31, 2025 and 2024 also included a LIFO charge of $82 million and a credit of $157 million, respectively. The LIFO charge in fiscal 2025 compared to a credit in fiscal 2024 was primarily due to higher brand inflation compared to the prior year. Refer to the “Critical Accounting Estimates” section included in this Financial Review for further information regarding the use of the LIFO method of accounting within our U.S. Pharmaceutical business. Gross profit for the year ended March 31, 2025 was impacted by an inventory impairment charge of $58 million related to restructuring initiatives to drive operational efficiencies and increase cost optimization efforts as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements in this Annual Report. We recorded this amount related to impairment of inventories within "Cost of sales" in the Consolidated Statements of Operations within our U.S. Pharmaceutical segment. Total Operating Expenses A summary and description of the components of our total operating expenses for the years ended March 31, 2025 and 2024 is as follows: •Selling, distribution, general, and administrative expenses (“SDG&A”): consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, administrative expenses, provision for bad debts and related recoveries, remeasurement charges to fair value less costs to sell, and other general charges. •Claims and litigation charges, net: These charges include adjustments for estimated probable settlements related to our controlled substance monitoring and reporting, and opioid-related claims, as well as any applicable income items or credit adjustments due to subsequent changes in estimates. Legal fees to defend claims, which are expensed as incurred, are included within SDG&A. •Restructuring, impairment, and related charges, net: Charges recorded under this component include those incurred for programs in which we change our operations, the scope of a business undertaken by our business units, or the manner in which that business is conducted, as well as long-lived asset impairments. 36 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) [[GREPCENT_TABLE]] [["","Years Ended March 31,"],["(Dollars in millions)","2025","","2024","","","","Change"],["Selling, distribution, general, and administrative expenses","$","8,507","","","$","8,657","","","","","(2)","","%"],["Claims and litigation charges, net","108","","","147","","","","","(27)"],["Restructuring, impairment, and related charges, net","286","","","115","","","","","149"],["Total operating expenses","$","8,901","","","$","8,919","","","","","\u2014","","%"],["Percent of revenues","2.48","","%","2.89","","%","","","(41)","","bp"]] [[/GREPCENT_TABLE]] Any percentage changes displayed above which are not meaningful are displayed as zero percent. bp - basis points Total operating expenses and total operating expenses as a percentage of revenues decreased for the year ended March 31, 2025 compared to the prior year. Total operating expenses for the years ended March 31, 2025 and 2024 were affected by the following significant items: Fiscal 2025 •SDG&A includes charges of $667 million to remeasure our Canadian retail disposal group to fair value less costs to sell. The remeasurement adjustment includes a $48 million loss related to the accumulated other comprehensive loss balances associated with this disposal. Of the total charges recorded during the period, $605 million are included within our International segment and $62 million are included within Corporate expenses, net; •SDG&A includes a credit of $206 million related to the bankruptcy of Rite Aid. Refer to the Rite Aid Bankruptcy Proceedings section of “Trends and Uncertainties” for further discussion; •Claims and litigation charges, net primarily consists of a charge of $108 million related to our estimated liability for opioid-related claims as discussed in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report; and •Restructuring, impairment, and related charges, net of $286 million, are discussed below under “Restructuring Initiatives” as well as Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report. Fiscal 2024 •SDG&A includes a provision for bad debts of $725 million related to the bankruptcy of Rite Aid in October 2023. Refer to the Rite Aid Bankruptcy Proceedings section of “Trends and Uncertainties” for more information; •SDG&A includes a fair value adjustment gain of $78 million which reduced our contingent consideration liability related to the Rx Savings Solutions, LLC (“RxSS”) acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures” to the consolidated financial statements included in this Annual Report; •SDG&A was impacted by lower operating expenses from the completed divestiture of our E.U. disposal group in fiscal 2023, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report; •Claims and litigation charges, net primarily consists of a charge of $149 million related to our estimated liability for opioid-related claims as discussed in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report; and •Restructuring, impairment, and related charges, net of $115 million are primarily related to Corporate expenses, net. Refer to the “Restructuring Initiatives” discussion below as well as Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report for more information. 37 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Goodwill Impairment We evaluate goodwill for impairment on an annual basis in the first fiscal quarter, and at an interim date if indicators of potential impairment exist. The annual impairment testing performed in fiscal 2025 and fiscal 2024 did not indicate any impairment of goodwill, and no goodwill impairment charges were recorded in fiscal 2025 and fiscal 2024. However, other risks, expenses, and future developments, such as government actions, increased regulatory uncertainty, and material changes in key market assumptions limit our ability to estimate projected cash flows, which could adversely affect the fair value of various reporting units in future periods. Refer to the “Critical Accounting Estimates” included in this Financial Review for further information. Restructuring Initiatives We recorded restructuring, impairment, and related charges of $286 million and $115 million for the years ended March 31, 2025 and 2024, respectively. These charges were included in “Restructuring, impairment, and related charges, net” in the Consolidated Statements of Operations. During the second quarter of fiscal 2025, we approved enterprise-wide initiatives to modernize and accelerate our technology service operating model, which are intended to improve business continuity, compliance, operating efficiency and advance investments to streamline the organization. These initiatives include cost reduction efforts and support other rationalization efforts within Corporate, and the Medical-Surgical Solutions, and U.S. Pharmaceutical segments to help realize long-term sustainable growth. We anticipate total charges related to these initiatives of $650 million to $700 million, consisting primarily of employee severance and other employee-related costs as well as facility, exit and other related costs, including long-lived asset impairments. These programs are anticipated to be substantially complete in fiscal 2028. For the year ended March 31, 2025, we recorded charges of $240 million related to the initiatives, which primarily includes severance and other employee-related costs as well as facility exit and other related costs, including long-lived asset impairments recorded within “Restructuring, impairment, and related charges, net” in the Consolidated Statements of Operations, and $58 million for the year ended March 31, 2025 related to inventory impairments recorded within “Cost of sales” in the Consolidated Statements of Operations. During the fourth quarter of fiscal 2023, we approved a broad set of initiatives to drive operational efficiencies and increase cost optimization efforts, with the intent of simplifying our infrastructure and realizing long-term sustainable growth. These initiatives included headcount reductions and the exit or downsizing of certain facilities. We recorded charges of $45 million for the year ended March 31, 2024 related to this program. This restructuring program was substantially complete in fiscal 2024. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report for more information. Other Income, Net Other income, net increased for the year ended March 31, 2025 compared to fiscal 2024 primarily due to net gains of $101 million related to our investments in equity securities of certain U.S. growth stage companies in the healthcare industry and a favorable impact from interest income, partially offset by charges of $87 million related to the termination of the U.K. pension plan and a loss of $43 million related to one of our equity method investments. Interest Expense Interest expense increased in fiscal 2025 compared to the prior year primarily due to increased average balances of the Company’s loan portfolio in fiscal 2025, and a prior year gain on debt extinguishment of $9 million. These increases were partially offset by increased capitalized interest from higher capital spending, changes in our derivative portfolio in fiscal 2025, and a decline in commercial paper borrowings in fiscal 2025 compared to fiscal 2024. Refer to Financial Note 11, “Debt and Financing Activities,” to the consolidated financial statements included in this Annual Report for more information. Interest expense may fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, amounts and interest rates of commercial paper borrowings, as well as amounts incurred associated with financing fees. Income Tax Expense We recorded income tax expense of $878 million and $629 million for the years ended March 31, 2025 and 2024, respectively. Our reported income tax expense rates were 20.1% and 16.6% in 2025 and 2024, respectively. 38 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Fluctuations in our reported income tax rates are primarily due to changes in our business mix of earnings between various taxing jurisdictions, including the impact of non-cash pre-tax charges related to the remeasurement of our Canadian retail disposal group to fair value less costs to sell as described in Financial Note 2, “Business Acquisitions and Divestitures,” and recognized discrete tax items. For the year ended March 31, 2025, we recognized a net discrete tax benefit of $258 million related to the sales of certain intellectual property between McKesson wholly-owned legal entities based in foreign tax jurisdictions. For the year ended March 31, 2024, we recognized a net discrete tax benefits of $157 million related to the release of a valuation allowance based on management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized and $104 million related to the repatriation and sale of certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. Refer to Financial Note 6, “Income Taxes,” to the consolidated financial statements included in this Annual Report for more information. Significant judgments and estimates are required in determining the consolidated income tax provision and evaluating income tax uncertainties. Although our major taxing jurisdictions include the U.S. and Canada, we are subject to income taxes in numerous foreign jurisdictions. Our income tax expense, deferred tax assets and liabilities, and uncertain tax liabilities reflect management’s best assessment of estimated current and future taxes to be paid. We believe that we have made adequate provision for all income tax uncertainties. Net Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests for the years ended March 31, 2025 and 2024 primarily represents the proportionate results of third-party equity interests in ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and SCRI Oncology, LLC. The increase in net income attributable to noncontrolling interests was primarily driven by higher volumes in our ClarusONE joint venture. Net Income Attributable to McKesson Corporation Net income attributable to McKesson Corporation was $3.3 billion and $3.0 billion for the years ended March 31, 2025 and 2024, respectively. Diluted earnings per common share attributable to McKesson Corporation was $25.72 and $22.39 for the years ended March 31, 2025 and 2024, respectively. Our diluted earnings per share includes the cumulative effects of share repurchases during each period. Weighted-Average Diluted Common Shares Outstanding Diluted earnings per common share was calculated based on a weighted-average number of shares outstanding of 128.1 million and 134.1 million for the years ended March 31, 2025 and 2024, respectively. Weighted-average diluted shares outstanding for fiscal 2025 decreased from the prior year primarily due to the cumulative effect of share repurchases, as discussed in the “Share Repurchases Plans” section of this Financial Review. 39 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Overview of Segment Results: Segment Revenues: [[GREPCENT_TABLE]] [["","Years Ended March 31,"],["(Dollars in millions)","2025","","2024","","","","Change"],["Segment revenues"],["U.S. Pharmaceutical","$","327,717","","","$","278,739","","","","","18","","%"],["Prescription Technology Solutions","5,216","","","4,769","","","","","9"],["Medical-Surgical Solutions","11,386","","","11,313","","","","","1"],["International","14,721","","","14,130","","","","","4"],["Corporate","11","","","\u2014","","","","","\u2014"],["Total revenues","$","359,051","","","$","308,951","","","","","16","","%"]] [[/GREPCENT_TABLE]] Any percentage changes displayed above which are not meaningful are displayed as zero percent. U.S. Pharmaceutical U.S. Pharmaceutical revenues for the year ended March 31, 2025 increased $49.0 billion or 18% compared to the prior year. Within the segment, sales to pharmacies and healthcare providers increased $42.6 billion and sales to specialty practices and other increased $6.4 billion. Overall, these increases were primarily due to higher volumes from retail national account customers and growth in specialty pharmaceuticals, partially offset by branded to generic drug conversions. Prescription Technology Solutions RxTS revenues for the year ended March 31, 2025 increased $447 million or 9% compared to the prior year due to increased volumes from our third-party logistics and higher technology services revenues. Medical-Surgical Solutions Medical-Surgical Solutions revenues for the year ended March 31, 2025 increased $73 million or 1% compared to the prior year. Within the segment, sales to primary care customers increased $85 million, partially offset by other sales which declined $10 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines, and sales to extended care customers which decreased $2 million. International International revenues for the year ended March 31, 2025 increased $591 million or 4% compared to the prior year which included $455 million unfavorable effects of foreign currency exchange fluctuations. Within the segment, sales in Canada increased by $950 million largely driven by higher pharmaceutical distribution volumes and sales in Norway increased by $96 million primarily driven by growth in retail pharmacy. Corporate Corporate reflects revenues from services derived in the U.S. related to certain technology operations. The increase compared to the prior year was immaterial. 40 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Other Segment Expense, Segment Operating Profit (Loss), and Corporate Expenses, Net: [[GREPCENT_TABLE]] [["","Years Ended March 31,"],["(Dollars in millions)","2025","","2024","","","","Change"],["Other segment expense, net (1)"],["U.S. Pharmaceutical (2)","$","323,715","","","$","275,953","","","","","17","","%"],["Prescription Technology Solutions (3)","4,341","","","3,934","","","","","10"],["Medical-Surgical Solutions (4)","10,613","","","10,361","","","","","2"],["International (5)","14,934","","","13,811","","","","","8"],["Total other expense, net","$","353,603","","","$","304,059","","","","","16","","%"],["Segment operating profit (loss)"],["U.S. Pharmaceutical","$","4,002","","","$","2,786","","","","","44","","%"],["Prescription Technology Solutions","875","","","835","","","","","5"],["Medical-Surgical Solutions","773","","","952","","","","","(19)"],["International","(213)","","","319","","","","","(167)"],["Subtotal","5,437","","","4,892","","","","","11"],["Corporate expenses, net (6)","(813)","","","(851)","","","","","(4)"],["Interest expense","(265)","","","(252)","","","","","5"],["Income from continuing operations before income taxes","$","4,359","","","$","3,789","","","","","15","","%"],["Segment operating profit margin"],["U.S. Pharmaceutical","1.22","","%","1.00","","%","","","22","","bp"],["Prescription Technology Solutions","16.78","","","17.51","","","","","(73)"],["Medical-Surgical Solutions","6.79","","","8.42","","","","","(163)"],["International","(1.45)","","","2.26","","","","","(371)"]] [[/GREPCENT_TABLE]] bp - basis point (1)Other segment expense, net includes cost of sales, total operating expenses, as well as other income, net, for our reportable segments. (2)Other segment expense, net for our U.S. Pharmaceutical segment includes the following: •a credit of $206 million and a provision for bad debts of $725 million for the years ended March 31, 2025 and 2024, respectively, related to the bankruptcy of our customer Rite Aid in October 2023, as further discussed in the “Trends and Uncertainties” section above; •cash receipts for our share of antitrust legal settlements of $444 million and $244 million for the years ended March 31, 2025 and 2024, respectively; •a charge of $82 million and a credit of $157 million for the years ended March 31, 2025 and 2024, respectively, related to the LIFO method of accounting for inventories; •restructuring charges of $59 million for the year ended March 31, 2025 for restructuring initiatives, as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report; •charges of $57 million and $74 million for the years ended March 31, 2025 and 2024, respectively, related to our estimated liability for opioid-related claims, as discussed in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report; and •a loss of $43 million for the year ended March 31, 2025 related to one of the Company’s equity method investments. (3)Other segment expense, net for our RxTS segment for the year ended March 31, 2024 includes a gain of $78 million resulting from fair value adjustments of our contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report. (4)Other segment expense, net for our Medical-Surgical Solutions segment for the year ended March 31, 2025 includes restructuring charges of $204 million related to a broad set of initiatives to drive operational efficiencies and increase cost optimization efforts, as 41 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report. (5)Other segment expense, net for our International segment includes a charge of $605 million for the year ended March 31, 2025 to remeasure the assets and liabilities of our Canadian retail disposal group to fair value less costs to sell, as discussed in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report. (6)Corporate expenses, net includes the following: •a charge of $87 million related to the termination of the U.K. pension plan as discussed in Financial Note 13, “Pension Benefits,” to the consolidated financial statements included in this Annual Report; •a charge of $62 million for the year ended March 31, 2025 related to the effect of accumulated other comprehensive loss components from our Canadian retail disposal group, as discussed in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report; •a net gain of $101 million for the year ended March 31, 2025 related to our investments in equity securities of certain U.S. growth stage companies in the healthcare industry, as discussed in Financial Note 15, “Fair Value Measurements,” to the consolidated financial statements included in this Annual Report; •charges of $51 million and $75 million for the years ended March 31, 2025 and 2024, respectively, related to our estimated liability for opioid-related claims as discussed in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report; and •restructuring charges of $68 million and $55 million for the years ended March 31, 2025 and 2024, respectively, for restructuring initiatives as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report. U.S. Pharmaceutical Operating profit increased for the year ended March 31, 2025 compared to the prior year primarily due to a prior year provision for bad debts of $725 million and a fiscal 2025 credit of $206 million related to the reassessment of our initial estimates made in conjunction with the previously reserved prepetition balances owed by Rite Aid, growth in specialty pharmaceuticals and retail national account customers, and an increase in net cash proceeds received representing our share of antitrust legal settlements. These increases were partially offset by a LIFO charge in fiscal 2025 compared to a credit in the prior year period, an increase in operating expenses to support higher volumes, a charge of $57 million related to our estimated liability for opioid-related claims, and a loss related to one of our equity method investments. Prescription Technology Solutions Operating profit increased for the year ended March 31, 2025 compared to the prior year primarily driven by contributions from technology services partially offset by the gain of $78 million recognized in the prior year resulting from a fair value adjustment of our contingent consideration liability related to the RxSS acquisition. Medical-Surgical Solutions Operating profit decreased for the year ended March 31, 2025 compared to the prior year primarily due to higher restructuring charges recorded in fiscal 2025 and a decline in the contribution from our primary care business, partially offset by lower expenses resulting from business rationalization initiatives. International Operating (loss) for this segment for the year ended March 31, 2025 compared to an operating profit for the prior year was largely due to remeasurement charges related to our Canadian retail disposal group, as discussed in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report. Corporate Corporate expenses, net decreased for the year ended March 31, 2025 compared to the prior year primarily due to a net gain of $101 million related to our investments in equity securities of certain U.S. growth stage companies in the healthcare industry, a favorable impact to interest income, and lower charges related to our estimated liability for opioid-related claims. These were partially offset by a fiscal 2025 charge of $87 million related to the termination of the U.K. pension plan, remeasurement charges related to our Canadian retail disposal group, as discussed in Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report, and higher restructuring charges recorded in fiscal 2025 compared to the prior year. 42 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) FOREIGN OPERATIONS Our foreign operations represented approximately 4% and 5% of our consolidated revenues in fiscal 2025 and fiscal 2024, respectively. Foreign operations are subject to certain risks, including currency fluctuations. Refer to Item 1A - Risk Factors in Part I of this Annual Report for a risk factor related to fluctuations in foreign currency exchange rates, and risks from trade and tariffs. We monitor our operations and adopt strategies responsive to changes in the economic and political environment in each of the countries in which we operate. We conduct our business worldwide in local currencies, including the Canadian dollar and Euro. As a result, the comparability of our results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. In discussing our operating results, we may use the term “foreign currency exchange fluctuations,” which refers to the effect of changes in foreign currency exchange rates used to convert the local currency results of our operations in foreign countries where the functional currency is not the U.S. dollar. We present this information to provide a framework for assessing how our business performed excluding the effect of foreign currency exchange rate fluctuations. In computing the foreign currency exchange fluctuations, we translate our current year results of our operations in foreign countries recorded in local currencies into U.S. dollars by applying their respective average foreign currency exchange rates of the corresponding prior year periods, and we subsequently compare those results to the previously reported results of the comparable prior year periods reported in U.S. dollars. In fiscal 2025, we completed the sale of our Canadian retail disposal group. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report for more information. Additional information regarding our foreign operations is also included in Financial Note 20, “Segments of Business,” to the consolidated financial statements included in this Annual Report. BUSINESS COMBINATIONS Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report for additional information. FISCAL 2026 OUTLOOK Information regarding the Company’s fiscal 2026 outlook is contained in the release of our fourth quarter fiscal 2025 financial results included as an exhibit to our Form 8-K furnished to the SEC on May 8, 2025, which is not incorporated by reference into this Annual Report. That Form 8-K should be read in conjunction with the cautionary statements in Item 1 - Business - Forward-Looking Statements and Item 1A - Risk Factors, in Part I of this Annual Report. CRITICAL ACCOUNTING ESTIMATES We consider an accounting estimate to be critical if the estimate requires us to make assumptions about matters based upon past experience and management’s judgment that were uncertain at the time the accounting estimate was made and if different estimates that we reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on our financial condition or results from operations. Below are the estimates that we believe are critical to the understanding of our operating results and financial condition. Other accounting policies are described in Financial Note 1, “Significant Accounting Policies,” to the consolidated financial statements included in this Annual Report. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Allowances for Credit Losses: Our receivables primarily consist of short-term trade accounts receivable from customers that result from the sale of goods and services. We also provide customer financing arrangements to customers who purchase our products and services. Customer financing primarily relates to guarantees provided to our customers, or their creditors, regarding the repurchase of inventories. We also provide financing to certain customers related to the purchase of pharmacies, which serve as collateral for the loans. We estimate the receivables for which we do not expect full collection based on historical collection rates and specific knowledge regarding the current creditworthiness of our customers and record an allowance in our consolidated financial statements for these amounts. 43 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) The Company considers historical credit losses, the current economic environment, customer credit ratings, collections on past due amounts, legal disputes, and bankruptcies, as well as reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance. Sales to the Company’s ten largest customers, including group purchasing organizations (“GPOs”), accounted for approximately 72% of total consolidated revenues in fiscal 2025 and comprised approximately 48% of total trade accounts receivable at March 31, 2025. Sales to our largest customer, CVS Health Corporation (“CVS”), accounted for approximately 24% of our total consolidated revenues in fiscal 2025 and comprised approximately 23% of total trade accounts receivable at March 31, 2025. As a result, our sales and credit concentration is significant. We also have agreements with GPOs, each of which functions as a purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers, as well as with government entities and agencies. The accounts receivable balances are with individual members of the GPOs, and therefore no significant concentration of credit risk exists. A material default in payment, a material reduction in purchases from GPOs or any other large customers, or the loss of a large customer or GPO could have a material adverse impact on our financial position, results of operations, and liquidity. Reserve methodologies are assessed annually based on historical losses and economic, business, and market trends. In addition, reserves are reviewed quarterly and updated if unusual circumstances or trends are present. We believe the reserves maintained and expenses recorded in fiscal 2025 are appropriate and consistent in the context of historical methodologies employed, as well as assessment of trends currently available. At March 31, 2025, trade and notes receivables were $22.6 billion prior to allowances of $472 million. Our provision for bad debts was a credit of $130 million, in fiscal 2025 and a charge of $819 million, and $45 million in fiscal 2024 and fiscal 2023, respectively. At March 31, 2025 and 2024, the allowance as a percentage of trade and notes receivables was 2.1% and 4.5%, respectively. The provision for bad debts for fiscal 2024 included a charge of $725 million within our U.S. Pharmaceutical segment related to the bankruptcy of our customer Rite Aid, as discussed in the “Trends and Uncertainties” section of this financial review and the Financial Note 20, “Segments of Business,” to the consolidated financial statements included in this Annual Report. This amount represented the uncollected trade accounts receivable balance due from Rite Aid prior to its bankruptcy petition filing in October 2023. During the year ended March 31, 2025, we reassessed our initial estimates made in conjunction with the previously reserved prepetition balances, including cash received during the period, resulting in a reversal of $206 million recorded within “Selling, distribution, general, and administrative expenses” in our Consolidated Statements of Operations and included within our U.S. Pharmaceutical segment. During the year ended March 31, 2025, we released $237 million of allowance for doubtful accounts against trade accounts receivables, representing the write-off of uncollectible receivables related to the Rite Aid provision in the Consolidated Balance Sheet. An increase or decrease of a hypothetical 0.1% in the fiscal 2025 allowance as a percentage of trade and notes receivables would result in an increase or decrease in the provision for bad debts of approximately $23 million. The selected 0.1% hypothetical change does not reflect what could be considered the best or worst-case scenarios. Additional information concerning our allowances for credit losses may be found in Schedule II included in this Annual Report. Inventories: Inventories consist of merchandise held for resale. We report inventories at the lower of cost or net realizable value, except for inventories determined using the LIFO method which are valued at the lower of LIFO cost or market. The LIFO method presumes that the most recent inventory purchases are the first items sold and the inventory cost under LIFO approximates market. The majority of the cost of domestic inventories is determined using the LIFO method. The majority of the cost of inventories held in foreign and certain domestic locations is based on the first-in, first-out (“FIFO”) method or weighted-average purchase prices. Rebates, cash discounts, and other incentives received from vendors relating to the purchase or distribution of inventory are considered product discounts and are accounted for as a reduction in the cost of inventory and are recognized when the inventory is sold. In determining whether an inventory valuation allowance is required, we consider various factors including estimated quantities of slow-moving inventory by reviewing on-hand quantities, outstanding purchase obligations, and forecasted sales. Shifts in market trends and conditions, changes in customer preferences due to the introduction of generic drugs or new pharmaceutical products, or the loss of one or more significant customers are factors that could affect the value of our inventories. We write down inventories which are considered excess and obsolete as a result of these reviews. These factors could make our estimates of inventory valuation differ from actual results. 44 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) At March 31, 2025 and 2024, total inventories, net were $23.0 billion and $21.1 billion, respectively, in our Consolidated Balance Sheets. The LIFO method was used to value approximately 63% and 62% of our inventories at March 31, 2025 and 2024, respectively. If we had used the moving average method of inventory valuation, inventories would have been approximately $309 million and $227 million higher than the amounts reported at March 31, 2025 and 2024, respectively. These amounts are equivalent to our LIFO reserves. A LIFO charge is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines, including the effect of branded pharmaceutical products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory. We recognized a LIFO charge of $82 million in fiscal 2025, a LIFO credit of $157 million in fiscal 2024, and a LIFO charge of $1 million in fiscal 2023, all within “Cost of sales” in our Consolidated Statements of Operations. The LIFO charge in fiscal 2025 compared to a LIFO credit in fiscal 2024 was primarily due to higher brand inflation in the current fiscal year. The LIFO credit in fiscal 2024 compared to a LIFO charge in fiscal 2023 was primarily due to lower brand inflation, offset by higher brand inventory levels, lower deflation from off patent launch activity, and lower generics deflation. Our LIFO valuation amount includes both pharmaceutical and non-pharmaceutical products. We believe that the moving average inventory costing method provides a reasonable estimation of the current cost of replacing inventory (i.e., “market”). As such, our LIFO inventory is valued at the lower of LIFO cost or market. As of March 31, 2025 and 2024, inventories at LIFO did not exceed market. Business Combinations: We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as any noncontrolling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred. Several valuation methods may be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use a variation of the income approach, whereby a forecast of future cash flows attributable to the asset is discounted to present value using a risk-adjusted discount rate. Some of the more significant estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the consolidated financial statements included in this Annual Report for additional information regarding our acquisitions. Certain business combinations involve the potential for future payments of consideration that is contingent upon the achievement of performance milestones or other agreed-upon events. The liability for the contingent consideration is measured at its fair value as of the acquisition date using unobservable inputs. These inputs include the estimated amount and timing of projected operational and financial information, the probability of achievement of performance milestones or other agreed-upon events, and the risk-adjusted discount rate used to calculate the present value of the probability-weighted projected financial information. Contingent liabilities are remeasured to fair value at each reporting date until the liability is resolved with changes in fair value being recognized within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. Changes in any of the inputs may result in a significant adjustment to the fair value. Goodwill and Long-Lived Assets: Goodwill As a result of acquiring businesses, we have $10.0 billion and $10.1 billion of goodwill at March 31, 2025 and 2024, respectively, and $1.5 billion and $2.1 billion of intangible assets, net at March 31, 2025 and 2024, respectively. We perform an impairment test on goodwill balances annually in the first fiscal quarter and more frequently if indicators for potential impairment exist. Indicators that are considered include significant declines in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, or a significant decline in the Company’s stock price and/or market capitalization for a sustained period of time. Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or a component, one level below our operating segments, for which discrete financial information is available and where segment management regularly reviews the operating results of that reporting unit. 45 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) We apply the goodwill impairment test by comparing the estimated fair value of a reporting unit to its carrying value and an impairment charge is recorded equal to the amount of excess carrying value above the estimated fair value, if any, but not to exceed the amount of goodwill allocated to the reporting unit. To estimate the fair value of our reporting units, we generally use a combination of the market approach and the income approach. Under the market approach, we estimate fair value by comparing the business to similar businesses, or guideline companies whose securities are actively traded in public markets. Under the income approach, we use a discounted cash flow model in which cash flows anticipated over several periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate rate that is commensurate with the risk inherent within the reporting unit. In addition, we compare the aggregate of the reporting units’ fair values to our market capitalization as further corroboration of the reasonableness of our concluded fair values. Estimates of fair value result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions at a point in time. Judgments made in determining an estimate of fair value may materially impact our results of operations. The valuations are based on information available as of the impairment testing date and are based on expectations and assumptions that have been deemed reasonable by management. Any material changes in key assumptions, including failure to meet business plans, negative changes in government reimbursement rates, deterioration in the U.S. and global financial markets, an increase in interest rates, or an increase in the cost of equity financing by market participants within the industry, or other unanticipated events and circumstances may decrease the projected cash flows or increase the discount rates and could potentially result in an impairment charge. Under the market approach, significant estimates and assumptions also include the selection of appropriate guideline public companies and the determination of appropriate valuation multiples to apply to the reporting unit. Under the income approach, significant estimates and assumptions also include the determination of discount rates. The discount rates represent the weighted-average cost of capital measuring the reporting unit’s cost of debt and equity financing, which are weighted by the percentage of debt and percentage of equity in a company’s target capital structure. Included in the estimate of the weighted-average cost of capital is the assumption of an unsystematic risk premium to address incremental uncertainty related to the reporting units’ future cash flow projections. The annual impairment testing performed for fiscal 2025, fiscal 2024, and fiscal 2023 did not indicate any impairment of goodwill. Refer to Financial Note 10, “Goodwill and Intangible Assets, Net,” to the consolidated financial statements included in this Annual Report for additional information. Long-Lived Assets Currently, all of our identifiable intangible and other long-lived assets are amortized or depreciated based on the pattern of their economic consumption or a straight-line basis over their estimated useful lives, ranging from one to 30 years. We review intangible and other long-lived assets for impairment at an asset group level whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability of intangible and other long-lived assets is based on the lowest level of identifiable estimated future undiscounted cash flows resulting from the use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset group over its fair value. Assumptions and estimates about future values and the remaining useful lives of our purchased intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Our ongoing consideration of all the factors described previously could result in further impairment charges in the future, which could adversely affect our net income. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report for additional information on our long-lived asset impairments. 46 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Long-lived assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated or amortized. Fair value is determined based on the total consideration expected to be received by the Company. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. Restructuring Charges: We have certain restructuring reserves which require significant estimates related to the timing and amount of future employee severance and other exit-related costs to be incurred when the restructuring actions take place. We generally recognize employee severance costs when payments are probable and amounts can be reasonably estimated. Costs related to contracts without future benefit or contract termination are recognized at the earlier of the contract termination or the cease-use dates. Other exit-related costs are expensed as incurred. In connection with these restructuring actions, we also assess the recoverability of long-lived assets used in the business, and as a result, we may recognize accelerated depreciation and amortization reflecting shortened useful lives of the underlying assets. Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements included in this Annual Report for additional information on restructuring matters. Income Taxes: Our income tax expense and deferred tax assets and liabilities reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax provision and in evaluating income tax uncertainties, including those used to conclude on the unrecognized tax position related to opioid-related litigation and claims, and may differ from the actual amounts of tax benefit recognized. We review our tax positions at the end of each quarter and adjust the balances as new information becomes available. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative net operating losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future federal, state, and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Should tax laws change, our tax expense and cash flows could be materially impacted. In addition, the calculation of our tax liabilities includes estimates for uncertainties in the application of complex new tax regulations across multiple global jurisdictions where we conduct our operations. We recognize liabilities for tax and related interest for issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. If our current estimate of tax and interest liabilities is less than the ultimate settlement, an additional charge to income tax expense may result. If our current estimate of tax and interest liabilities is more than the ultimate settlement, a reduction to income tax expense may be recognized. Refer to Financial Note 6, “Income Taxes,” to the consolidated financial statements included in this Annual Report for additional information on income tax matters. 47 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Loss Contingencies: We are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to laws and regulations and other matters arising out of the normal conduct of our business. When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict, and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be reevaluated at least quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a material loss is reasonably possible, or probable but a reasonable estimate cannot be made, disclosure of the proceeding is provided. Legal fees are expensed as incurred when the legal services are provided. We review all contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the potential loss or range of the loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on future negotiations with or decisions by third parties, such as regulatory agencies, the court system, and other interested parties. In conjunction with the preparation of the consolidated financial statements included in this Annual Report, we considered matters related to ongoing controlled substances claims to which we are a party. For the year ended March 31, 2024, the Company recorded a charge of $149 million within “Claims and litigation charges, net” in the Consolidated Statement of Operations to reflect its portion of a proposed settlement with a nationwide class of acute care hospitals, and the corresponding liability was included within “Other accrued liabilities” in the Consolidated Balance Sheet. For the year ended March 31, 2025, we recorded a charge of $114 million within “Claims and litigation charges, net” in the Consolidated Statement of Operations to reflect the Company’s portion of the settlement with representatives of a nationwide group of certain third-party payors, of which $57 million was recorded within Corporate expenses, net, and U.S. Pharmaceutical, respectively. The corresponding liability was included within “Other accrued liabilities” in the Consolidated Balance Sheet. At March 31, 2025, our estimated accrued liability for opioid-related claims was $6.4 billion. Because of the many uncertainties associated with the remaining opioid-related litigation matters, we are not able to reasonably estimate the upper or lower ends of the range of ultimate possible losses for all opioid-related litigation matters. We are not able to predict the outcome in these matters, and an adverse judgment or negotiated resolution in any of these matters could have a material adverse effect on our results of operations, financial position, and cash flows or liquidity. Refer to Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report for additional information. 48 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES We expect our available cash generated from operations and our short-term investment portfolio, together with our existing sources of liquidity from our credit facilities, commercial paper program, and other borrowings will be sufficient to fund our short-term and long-term capital expenditures, working capital, and other cash requirements. We remain adequately capitalized, including access to liquidity from our $4.0 billion revolving credit facility. At March 31, 2025, we were in compliance with all debt covenants, and believe we have the ability to continue to meet our debt covenants in the future. The following table summarizes the net change in cash, cash equivalents, and restricted cash for the periods shown: [[GREPCENT_TABLE]] [["","Years Ended March 31,"],["(Dollars in millions)","2025","","2024","","Change"],["Net cash provided by (used in):"],["Operating activities","$","6,085","","","$","4,314","","","$","1,771"],["Investing activities","(733)","","","(1,072)","","","339"],["Financing activities","(3,965)","","","(3,342)","","","(623)"],["Effect of exchange rate changes on cash, cash equivalents and restricted cash","(16)","","","6","","","(22)"],["Net change in cash, cash equivalents, and restricted cash","$","1,371","","","$","(94)","","","$","1,465"]] [[/GREPCENT_TABLE]] Operating Activities Operating activities provided cash of $6.1 billion and $4.3 billion for the years ended March 31, 2025 and 2024, respectively. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers, inventory receipts, and payments to vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements, and vendor payment terms. For the year ended March 31, 2025, net cash provided by operating activities increased by $1.8 billion compared to the prior year period. This increase was primarily due to the following: •the Company’s net income increased by $321 million and was favorably impacted by higher net non-cash items of $549 million, compared to the prior year period driven by factors discussed in more detail in the “Overview of Consolidated Results” section of this Financial Review, including an increase in cash receipts for our share of antitrust legal settlements of $200 million; •an increase in cash of $3.7 billion related to accounts payable as a result of customary vendor payment scheduling, and higher purchases to support business growth, partially offset by timing related to the day of the week on which the period ends; •a decrease in net cash of $981 million related to accounts receivable primarily due to growth in specialty pharmaceuticals sales and higher volumes from retail national account customers in our U.S. Pharmaceutical segment; •a decrease in net cash of $976 million related to higher inventory purchases to support business growth; and •a decrease in cash driven by higher income tax payments in fiscal 2025 compared to the prior year. Investing Activities Investing activities used cash of $733 million and $1.1 billion for the years ended March 31, 2025 and 2024, respectively. Investing activities for the year ended March 31, 2025 includes $537 million and $322 million, respectively, in capital expenditures for property, plant, and equipment and capitalized software. Investing activities for the year ended March 31, 2025 was also impacted by the receipt of proceeds of $189 million related to investments in equity securities, as discussed in Financial Note 15, “Fair Value Measurements,” to the consolidated financial statements included in this Annual Report. Investing activities for the year ended March 31, 2024 includes $431 million and $256 million, respectively, in capital expenditures for property, plant, and equipment and capitalized software, as well as $272 million of net cash payments for acquisitions. 49 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Financing Activities Financing activities used cash of $4.0 billion and $3.3 billion for the years ended March 31, 2025 and 2024, respectively. Financing activities for the year ended March 31, 2025 includes $3.1 billion of cash paid for share repurchases and $345 million of cash paid for dividends. Financing activities also includes cash receipts and cash payments of $15.1 billion related to short-term borrowings of commercial paper in fiscal 2025. On September 10, 2024, we completed a public offering of 4.25% Notes due September 15, 2029 in a principal amount of $500 million. Proceeds received from this note issuance, net of discounts and offering expenses, were $496 million. We utilized the net proceeds from this note issuance along with cash on hand to redeem our $500 million outstanding principal amount of 5.25% Notes due February 15, 2026 prior to maturity at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest through the settlement date. Financing activities for the year ended March 31, 2024 includes $3.0 billion of cash paid for share repurchases and $314 million of cash paid for dividends. Financing activities also includes cash receipts and cash payments of $20.0 billion related to short-term borrowings of commercial paper in fiscal 2024. On June 15, 2023, we completed a public offering of 4.90% Notes due July 15, 2028 in a principal amount of $400 million and 5.10% Notes due July 15, 2033 in a principal amount of $600 million, for proceeds received, net of discounts and offering expenses, of $397 million and $592 million, respectively. A portion of the net proceeds from these notes was utilized to fund the repurchase of our then outstanding 3.80% Notes due March 15, 2024 (the “2024 Notes”) discussed below, while the remaining net proceeds was available for general corporate purposes. On June 16, 2023, we completed a cash tender offer for any and all of our then outstanding 2024 Notes with a principal amount of $918 million, which was made concurrently with the June 15, 2023 notes offering described above. Using a portion of the proceeds from the June 15, 2023 notes offering, we paid an aggregate consideration of $268 million to repurchase $271 million principal amount of the 2024 Notes. Following the consummation of this tender offer, on June 16, 2023, we irrevocably deposited U.S. government obligations with the trustee under the indenture governing the 2024 Notes sufficient to fund the payment of accrued and unpaid interest of the remaining $647 million principal amount of the 2024 Notes as it became due, and of the principal amount of those 2024 Notes on their March 15, 2024 maturity date. Cash used for other financing activities generally includes shares surrendered for tax withholding and payments to noncontrolling interests. Share Repurchase Plans The Board has authorized the repurchase of common stock. We may repurchase common stock from time-to-time through open market transactions, privately negotiated transactions, accelerated share repurchase programs, or by combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934 (“Exchange Act”). The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price, corporate and regulatory requirements, tax implications, restrictions under our debt obligations, other uses for capital, impacts on the value of remaining shares, cash generated from operations, and market and economic conditions. Effective January 1, 2023, our repurchase of common stock, adjusted for allowable items, are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases of an entity’s own common stock are direct and incremental costs to purchase treasury stock, and accordingly are included in the total cost basis of the common stock acquired and reflected as a reduction of stockholders’ equity within “Treasury shares” in our Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Deficit. Excise taxes do not reduce our remaining authorization for the repurchase of common stock. Excise taxes of $26 million and $25 million were accrued for shares repurchased during the year ended March 31, 2025 and 2024, respectively. On October 30, 2024, we made a payment of $25 million for fiscal 2024 excise taxes previously accrued. As of March 31, 2025 and March 31, 2024, the amount accrued for excise taxes was $26 million, and $25 million, respectively, within “Other accrued liabilities” in our Consolidated Balance Sheets. 50 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Information regarding the share repurchase activity over the last two fiscal years was as follows: [[GREPCENT_TABLE]] [["","Share Repurchases (1)"],["(In millions, except price per share)","","Total Number ofShares Purchased (2)","","Average Price Paid Per Share","","Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (3) (4)"],["Balance, March 31, 2023","","","","","","$","3,613"],["Share repurchase authorization increase in fiscal 2024","","","","","","6,000"],["Shares repurchased - Open market","","6.9","","","$","436.46","","","(2,998)"],["Balance, March 31, 2024","","","","","","6,615"],["Share repurchase authorization increase in fiscal 2025","","","","","","4,000"],["Shares repurchased - Open market","","5.8","","","$","543.05","","","(3,146)"],["Balance, March 31, 2025","","","","","","$","7,469"]] [[/GREPCENT_TABLE]] (1)This table does not include the value of equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards. (2)The number of shares purchased reflects rounding adjustments. (3)The remaining authorization outstanding for repurchases of common stock excludes $26 million and $25 million of excise taxes incurred on share repurchases for the years ended March 31, 2025 and 2024, respectively. (4)In July 2023 and July 2024, the Board authorized the Company to repurchase up to an additional $6.0 billion and $4.0 billion shares of common stock, respectively, both of which have no expiration date. Selected Measures of Liquidity and Capital Resources [[GREPCENT_TABLE]] [["","March 31,"],["(Dollars in millions)","2025","","2024"],["Cash, cash equivalents, and restricted cash","$","5,956","","","","$","4,585"],["Working capital","(6,206)","","","","(4,387)"],["Days sales outstanding for: (1)"],["Customer receivables","22","","","","22"],["Inventories","24","","","","26"],["Drafts and accounts payable","57","","","","58"],["Debt to capital ratio (2)","125.3","","%","","124.0","","%"]] [[/GREPCENT_TABLE]] (1)Based on year-end balances and sales or cost of sales for the last 90 days of the year. (2)This ratio describes the relationship and changes within our capital resources, and is computed as the sum of total debt divided by the sum of total debt and McKesson stockholders’ deficit, which excludes noncontrolling interests and accumulated other comprehensive loss. Cash equivalents, which are readily convertible to known amounts of cash, are carried at fair value. Cash equivalents are primarily invested in AAA-rated U.S. government money market funds, short-term deposits with financial institutions, and short-term commercial papers issued by non-financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of our foreign subsidiaries, including Canadian dollars. Deposits could exceed the amounts insured by the Federal Deposit Insurance Corporation in the U.S. and similar deposit insurance programs in other jurisdictions. We mitigate the risk of our short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds. 51 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Continued) Our cash and cash equivalents balance as of March 31, 2025 and 2024 included approximately $2.9 billion and $1.6 billion, respectively, of cash held by our subsidiaries outside of the U.S. Our primary intent is to utilize this cash for foreign operations for an indefinite period of time. Although the majority of cash held outside the U.S. is available for repatriation, doing so could subject us to foreign withholding taxes and state income taxes. We may remit foreign earnings to the U.S. to the extent it is tax efficient to do so. We do not anticipate the tax impact from remitting these earnings to be material. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes. Working capital primarily includes cash and cash equivalents, receivables, inventories, and prepaid expenses, net of drafts and accounts payable, short-term borrowings, current portion of long-term debt, current portion of operating lease liabilities, and other accrued liabilities. Our businesses require substantial investments in working capital that are susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity and other requirements. Consolidated working capital decreased at March 31, 2025 compared to the prior year primarily due to an increase in drafts and accounts payable from increased purchasing driven by increased sales and timing, and an increase in the current portion of long-term debt. These were partially offset by an increase in receivables, net and inventories, net, driven by higher sales and timing, an increase in cash and cash equivalents, and a decrease in other accrued liabilities. Our debt to capital ratio increased for the year ended March 31, 2025 compared to the prior year primarily due to share repurchases and dividend payments as well as repayments of long-term debt, partially offset by net income attributable to McKesson for the year and issuance of new long-term debt. In July 2024, we raised our quarterly dividend from $0.62 to $0.71 per share of common stock for dividends declared on or after such date by the Board. Dividends were $2.75 per share in fiscal 2025 and $2.40 per share in fiscal 2024, and we paid total cash dividends of $345 million and $314 million in fiscal 2025 and fiscal 2024, respectively. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon our future earnings, financial condition, capital requirements, legal requirements, and other factors. Material Cash Requirements: The table and information below presents our significant financial obligations and commitments as of March 31, 2025: [[GREPCENT_TABLE]] [["","","","Years"],["(In millions)","Total","","Within 1","","Over 1 to 3","","Over 3 to 5","","After 5"],["On balance sheet"],["Total debt (1)","$","5,654","","","$","1,184","","","$","1,612","","","$","1,736","","","$","1,122"],["Operating lease obligations (2)","2,078","","","313","","","565","","","423","","","777"],["Other (3)","72","","","18","","","10","","","22","","","22"],["Off balance sheet"],["Interest on borrowings (4)","1,240","","","179","","","330","","","245","","","486"],["Purchase obligations (5)","8,823","","","8,804","","","11","","","7","","","1"],["Other (6)","395","","","111","","","240","","","9","","","35"],["Total","$","18,262","","","$","10,609","","","$","2,768","","","$","2,442","","","$","2,443"]] [[/GREPCENT_TABLE]] (1)Represents maturities of the Company’s long-term obligations, including finance lease obligations. Refer to Financial Note 11, “Debt and Financing Activities,” to the consolidated financial statements included in this Annual Report for more information. (2)Represents undiscounted minimum operating lease obligations under non-cancelable operating leases having an initial remaining term over one year and is not adjusted for imputed interest. Refer to Financial Note 9, “Leases,” to the consolidated financial statements included in this Annual Report for more information. (3)Includes estimated benefit payments for our unfunded benefit plans and minimum funding requirements for our pension plans as well as the contingent consideration liability related to our acquisition of RxSS in November 2022. (4)Represents interest that will become due on our fixed rate long-term debt obligations. 52 [[GREPCENT_TABLE]] [["Table of Contents","MD&A Index"]] [[/GREPCENT_TABLE]] McKESSON CORPORATION FINANCIAL REVIEW (Concluded) (5)Primarily relates to the expected purchase of goods and services, including inventory and capital commitments, from vendors in the normal course of business. (6)Includes agreements under which we have guaranteed the repurchase of our customers’ inventory and our customers’ debt in the event these customers are unable to meet their obligations to those financial institutions. Refer to Financial Note 16, “Financial Guarantees and Warranties,” to the consolidated financial statements included in this Annual Report for more information. The material cash requirements table above excludes the following obligations: At March 31, 2025, the Company had accrued liabilities of $6.4 billion related to the settlement of opioid-related litigation claims with U.S. governmental entities, including Native American tribes, and certain non-governmental plaintiffs as described in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report. The majority of this amount relates to governmental entities opioid settlement payable in annual installments through 2038 pursuant to the schedule set forth in the agreement. As of March 31, 2025, $776 million is estimated to be paid within the next twelve months. At March 31, 2025, the liability recorded for uncertain tax positions, excluding associated interest and penalties, was approximately $1.1 billion. The ultimate amount and timing of any related future cash settlements cannot be predicted with reasonable certainty. Refer to Financial Note 6, “Income Taxes,” to the consolidated financial statements included in this Annual Report for additional information on income tax matters. At March 31, 2025, our banks and insurance companies have issued $206 million of standby letters of credit and surety bonds. These were issued on our behalf and are mostly related to our customer contracts and to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, pension obligations in Europe, and our workers’ compensation and automotive liability programs. Capital Resources We fund our working capital requirements primarily with cash and cash equivalents, proceeds from short-term borrowings from our commercial paper issuances, and longer-term credit agreements and debt offerings. Funds necessary for future debt maturities and our other cash requirements, including any future payments that may be made related to our total estimated litigation liability of $6.4 billion as of March 31, 2025 payable under the terms of various settlement agreements for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and future borrowings. Long-term debt markets and commercial paper markets, our primary sources of capital after cash flow from operations, are open and accessible to us should we decide to access those markets. Detailed information regarding our debt and financing activities is included in Financial Note 11, “Debt and Financing Activities,” to the consolidated financial statements included in this Annual Report. We believe that our future operating cash flow, financial assets, and access to capital and credit markets, including our credit facilities, give us the ability to meet our financing needs for the foreseeable future. However, there can be no assurance that an increase in volatility or disruption in the global capital and credit markets will not impair our liquidity or increase our costs of borrowing. RELATED PARTY BALANCES AND TRANSACTIONS Information regarding our related party balances and transactions is included in Financial Note 19, “Related Party Balances and Transactions,” to the consolidated financial statements included in this Annual Report. NEW ACCOUNTING PRONOUNCEMENTS New accounting pronouncements that we have recently adopted, as well as those that have been recently issued but not yet adopted by us, are included in Financial Note 1, “Significant Accounting Policies,” to the consolidated financial statements included in this Annual Report. 53 Table of Contents McKESSON CORPORATION