Segments of Business

9 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

Segments of Business

Segments of Business

The Company reports its financial results in four reportable segments: U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and International. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. The Company evaluates the performance of its operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income taxes. Assets by operating segment are not reviewed by management for the purpose of assessing performance or allocating resources.

The U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products. 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 site) and provides consulting, outsourcing, technological, and other services.

The RxTS segment serves McKesson’s biopharma and life sciences partners and helps solve medication access, affordability, and adherence challenges for patients. RxTS works across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma to deliver innovative solutions that help people get the medicine they need to live healthier lives. RxTS also offers prescription price transparency, benefit insight, dispensing support services, third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

The Medical-Surgical Solutions segment 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 more than 285,000 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.

The International segment includes the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s remaining operations in Europe provide distribution and services to wholesale, institutional, and retail customers in Norway where it owns, partners, or franchises with retail pharmacies. The Company’s Canadian operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. International segment assets at December 31, 2022 were $6.2 billion, a decrease from the end of fiscal 2022 primarily due to the completed divestitures of the E.U. disposal group in October 2022 and the U.K. disposal group in April 2022, along with unfavorable effects of foreign currency exchange fluctuations. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for more information.

Financial information relating to the Company’s reportable operating segments and reconciliations to the condensed consolidated totals was as follows:

	Three Months Ended December 31,				Nine Months Ended December 31,
(In millions)	2022		2021		2022		2021
Segment revenues (1)
U.S. Pharmaceutical	$	61,934	$	55,041	$	178,940	$	158,471
Prescription Technology Solutions	1,121		1,031		3,205		2,844
Medical-Surgical Solutions	2,986		3,082		8,421		8,734
International	4,449		9,460		17,235		27,815
Total revenues	$	70,490	$	68,614	$	207,801	$	197,864
Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)	$	850	$	744	$	2,442	$	2,186
Prescription Technology Solutions	136		129		400		361
Medical-Surgical Solutions (4)	328		308		883		679
International (5)	136		(668)		93		(761)
Subtotal	1,450		513		3,818		2,465
Corporate expenses, net (6)	67		(195)		49		(858)
Loss on debt extinguishment (7)	—		—		—		(191)
Interest expense	(69)		(41)		(169)		(135)
Income from continuing operations before income taxes	$	1,448	$	277	$	3,698	$	1,281

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, less than 36% of the RxTS segment’s total revenues, less than 3% of the Medical-Surgical Solutions segment’s total revenues, and less than 8% of the International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining three reportable segments are derived in the U.S.

(2)Segment operating profit (loss) includes gross profit, net of total operating expenses, as well as other income, net, for the Company’s reportable segments.

(3)The Company’s U.S. Pharmaceutical segment’s operating profit includes the following:

•cash receipts for the Company’s share of antitrust legal settlements of $129 million for the three and nine months ended December 31, 2022 and $46 million for the nine months ended December 31, 2021;

•a charge of $5 million and a credit of $33 million related to the last-in, first-out (“LIFO”) method of accounting for inventories for the three months ended December 31, 2022 and 2021, respectively, and credits of $31 million and $79 million for the nine months ended December 31, 2022 and 2021, respectively; and

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

(4)The Company’s Medical-Surgical Solutions segment’s operating profit for the nine months ended December 31, 2021 includes $164 million of inventory charges on certain personal protective equipment and other related products.

(5)The Company’s International segment’s operating profit (loss) includes the following:

•charges of $3 million and $240 million for the three and nine months ended December 31, 2022, respectively, and charges of $58 million and $400 million for the three and nine months ended December 31, 2021, respectively, to remeasure the assets and liabilities of the E.U. disposal group to fair value less costs to sell and, in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures;”

•charges of $787 million for the three and nine months ended December 31, 2021 to remeasure the assets and liabilities of the U.K. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures;” and

•a gain of $59 million for the nine months ended December 31, 2021 related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business.

(6)Corporate expenses, net includes the following:

•credits of $34 million and $306 million for the three and nine months ended December 31, 2022, respectively, and credits of $32 million and charges of $117 million for the three and nine months ended December 31, 2021, respectively, primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures;”

•a gain of $126 million for the three and nine months ended December 31, 2022 related to a cash payment received for the early termination of a tax receivable agreement (“TRA”) exercised by Change Healthcare Inc. (“Change”) in October 2022 and was recorded within “Other income, net” in the Condensed Consolidated Statements of Operations. The Company was a party to a TRA entered into as part of the formation of the joint venture with Change, from which McKesson has since exited. The TRA generally required Change to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the amortization allocated to Change by the joint venture. In October 2022, Change exercised its right pursuant to the TRA to terminate the agreement;

•a gain of $97 million for the three and nine months ended December 31, 2022 from the termination of fixed interest rate swaps accounted for as cash flow hedges, as discussed in more detail in Financial Note 10, “Hedging Activities;”

•charges of $193 million for the nine months ended December 31, 2021, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities;”

•charges of $9 million and $33 million for the three months ended December 31, 2022 and 2021, respectively, and charges of $37 million and $104 million for the nine months ended December 31, 2022 and 2021, respectively, of opioid-related costs, primarily litigation expenses;

•restructuring charges of $90 million for the nine months ended December 31, 2021 primarily due to the transition to a partial remote work model for certain employees; and

•net losses of $24 million and net gains of $104 million for the nine months ended December 31, 2022 and 2021, respectively, associated with certain of the Company’s equity investments.

(7)Loss on debt extinguishment for the nine months ended December 31, 2021 consists of a charge of $191 million related to the Company’s July 2021 tender offer to redeem a portion of its existing debt, as discussed in more detail in Financial Note 8, “Debt and Financing Activities.”