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 $34 million during the third quarter and first nine months of 2019, and $12 million and $32 million during the third quarter and first nine 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 third quarter and first nine months of 2019, there were no material exercises of the Put Right. During the first nine 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 December 31, 2018 and March 31, 2018, the carrying value of redeemable noncontrolling interests of $1.40 billion and $1.46 billion exceeded the maximum redemption value of $1.26 billion and $1.35 billion. At December 31, 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 amount 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 appealed this decision. McKesson Europe also appealed the 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.

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in our consolidated entities, primarily related to ClarusONE and Vantage, which were $204 million and $253 million at December 31, 2018 and March 31, 2018 on our condensed consolidated balance sheets. We allocated a total of $46 million and $135 million of net income to noncontrolling interests during the third quarter and first nine months of 2019 and $46 million and $137 million during the third quarter and first nine months of 2018.

Changes in redeemable noncontrolling interests and noncontrolling interests for the first nine 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	135			34
Other comprehensive income	—			(55		)
Reclassification of recurring compensation to other accrued liabilities	—			(34		)
Payments to noncontrolling interests	(143		)	—
Other	(41		)	—
Balance, December 31, 2018	$	204		$	1,404

Changes in redeemable noncontrolling interests and noncontrolling interests for the first nine 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	137			32
Other comprehensive loss	—			161
Reclassification of recurring compensation to other accrued liabilities	—			(32		)
Payments of noncontrolling interests	(73		)	—
Exercises of Put Right	—			(53		)
Other	(4		)	—
Balance, December 31, 2017	$	238		$	1,435

There were no material changes in our ownership interests related to redeemable noncontrolling interests during the first nine 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 nine months of 2018. Net income attributable to McKesson and transfers from redeemable noncontrolling interests were $830 million and $1,216 million during the first nine months of 2019 and 2018.