Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

Our redeemable noncontrolling interests relate to our consolidated subsidiary, McKesson Europe AG (“McKesson Europe”). Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share and a one-time guaranteed dividend for calendar year 2014 of €0.83 per share reduced accordingly for any dividend paid by McKesson Europe in relation to that year. As a result, we recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $11 million and $23 million during the second quarter and first six months of 2019, and $11 million and $20 million during the second quarter and first six months of 2018. All amounts were recorded in our condensed consolidated statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the corresponding liability balance was recorded within other accrued liabilities on our condensed consolidated balance sheets.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe have a right to put (“Put Right”) their noncontrolling shares at €22.99 per share increased annually for interest in the amount of 5 percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. During the second quarter and first six months of 2019, there were no material exercises of the Put Right. During the first six months of 2018, we paid $50 million to purchase 1.9 million shares of McKesson Europe through the exercises of the Put Right by the noncontrolling shareholders, which decreased the carrying value of redeemable noncontrolling interests by $53 million. The balance of redeemable noncontrolling interests is reported as the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted each period for exchange rate fluctuations. At September 30, 2018 and March 31, 2018, the carrying value of redeemable noncontrolling interests of $1.42 billion and $1.46 billion exceeded the maximum redemption value of $1.27 billion and $1.35 billion. At September 30, 2018 and March 31, 2018, we owned approximately 77% of McKesson Europe’s outstanding common shares.

Appraisal Proceedings

Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of McKesson Europe initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court (the “Court”) to challenge the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed dividend. During the pendency of the Appraisal Proceedings, such amounts will be paid as specified currently in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remain unadjusted. Noncontrolling shareholders of McKesson Europe have appealed this decision. If upon final resolution of the appeal an upwards adjustment is ordered, we would be required to make certain additional payments for any shortfall to all McKesson Europe noncontrolling shareholders who previously received amounts under the Domination Agreement. We are currently evaluating the decision and the appeal filings.

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in our consolidated entities, primarily related to ClarusONE and Vantage, which were $208 million and $253 million at September 30, 2018 and March 31, 2018 on our condensed consolidated balance sheets. We allocated a total of $43 million and $89 million of net income to noncontrolling interests during the second quarter and first six months of 2019 and $44 million and $91 million during the second quarter and first six months of 2018.

Changes in redeemable noncontrolling interests and noncontrolling interests for the first six months of 2019 were as follows:



(In millions)	Noncontrolling Interests			Redeemable Noncontrolling Interests
Balance, March 31, 2018	$	253		$	1,459
Net income attributable to noncontrolling interests	89			23
Other comprehensive income	—			(44		)
Reclassification of recurring compensation to other accrued liabilities	—			(23		)
Payments to noncontrolling interests	(106		)	—
Exercises of Put Right	—			—
Other	(28		)	—
Balance, September 30, 2018	$	208		$	1,415

Changes in redeemable noncontrolling interests and noncontrolling interests for the first six months of 2018 were as follows:



(In millions)	Noncontrolling Interests			Redeemable Noncontrolling Interests
Balance, March 31, 2017	$	178		$	1,327
Net income attributable to noncontrolling interests	91			20
Other comprehensive loss	—			149
Reclassification of recurring compensation to other accrued liabilities	—			(20		)
Payments of noncontrolling interests	(47		)	—
Exercises of Put Right	—			(53		)
Other	(3		)	—
Balance, September 30, 2017	$	219		$	1,423

There were no material changes in our ownership interests related to redeemable noncontrolling interests during the first six months of 2019. The effect of changes in our ownership interests related to redeemable noncontrolling interests on our equity of $3 million resulting from exercises of the Put Right was recorded as a net increase to McKesson’s stockholders’ paid-in capital during the first six months of 2018. Net income attributable to McKesson and transfers from redeemable noncontrolling interests were $313 million during the first six months of 2018.