Segments of Business

9 Months Ended

Dec. 31, 2023

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 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 in the U.S. This segment 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.

The RxTS segment helps solve medication access, affordability, and adherence challenges for patients by working across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies. RxTS serves our biopharma and life sciences partners, delivering 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 national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers in the U.S.

The International segment includes the Company’s operations in Canada and Europe, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s Canadian operations deliver medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. The Company completed the divestitures of the U.K. disposal group in April 2022 and the E.U. disposal group in October 2022, as discussed in Financial Note 2, “Business Acquisitions and Divestitures.” The Company’s remaining operations in Europe provide distribution and services to wholesale and retail customers in Norway where it owns, partners, or franchises with retail pharmacies.

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)	2023		2022		2023		2022
Segment revenues (1)
U.S. Pharmaceutical	$	73,023	$	61,934	$	209,949	$	178,940
Prescription Technology Solutions	1,205		1,121		3,589		3,205
Medical-Surgical Solutions	3,031		2,986		8,476		8,421
International	3,639		4,449		10,582		17,235
Total revenues	$	80,898	$	70,490	$	232,596	$	207,801
Segment operating profit (2)
U.S. Pharmaceutical (3)	$	307	$	850	$	1,727	$	2,442
Prescription Technology Solutions (4)	178		136		647		400
Medical-Surgical Solutions	268		328		739		883
International (5)	126		136		249		93
Subtotal	879		1,450		3,362		3,818
Corporate expenses, net (6)	(203)		67		(571)		49
Interest expense	(64)		(69)		(172)		(169)
Income from continuing operations before income taxes	$	612	$	1,448	$	2,619	$	3,698

(1)Revenues from services on a disaggregated basis represent approximately 1% of the U.S. Pharmaceutical segment’s total revenues, less than 38% of the RxTS segment’s total revenues, less than 2% of the Medical-Surgical Solutions segment’s total revenues, and less than 1% 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 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:

•a provision for bad debts of $515 million and $725 million for the three and nine months ended December 31, 2023, respectively, related to the bankruptcy of the Company’s customer, Rite Aid Corporation (including certain of its subsidiaries, “Rite Aid”). In October 2023, Rite Aid filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. As a result, the Company recognized a provision for bad debts of $515 million in the third quarter of fiscal 2024 for uncollected trade accounts receivable from sales to Rite Aid in October 2023 prior to its bankruptcy petition filing. The Company also recognized a provision for bad debts of $210 million during the second quarter of fiscal 2024, which represented the uncollected trade accounts receivable balance as of September 30, 2023 due from Rite Aid. These charges were recorded within “Selling, distribution, general, and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations;

•cash receipts for the Company’s share of antitrust legal settlements of $23 million and $129 million for the three months ended December 31, 2023 and 2022, respectively, and $220 million and $129 million for the nine months ended December 31, 2023 and 2022, respectively. These gains were recorded within “Cost of sales” in the Company’s Condensed Consolidated Statements of Operations;

•charges of $2 million and $5 million related to the last-in, first-out (“LIFO”) method of accounting for inventories for the three months ended December 31, 2023 and 2022, respectively, and a charge of $89 million and a credit of $31 million for the nine months ended December 31, 2023 and 2022, respectively. These charges and credits were recorded within “Cost of sales” in the Company’s Condensed Consolidated Statements of Operations; 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 was recorded within “Other income, net” in the Company’s Condensed Consolidated Statements of Operations.

(4)The Company’s RxTS segment’s operating profit for the three and nine months ended December 31, 2023 includes fair value adjustment gains of $2 million and $78 million, respectively, which reduced the Company’s contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(5)The Company’s International segment’s operating profit for the three and nine months ended December 31, 2022 includes charges of $3 million and $240 million, respectively, to remeasure the assets and liabilities of the E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(6)Corporate expenses, net includes the following:

•restructuring charges of $50 million and $38 million for the nine months ended December 31, 2023 and 2022, respectively, for restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net;”

•gains of $34 million and $306 million for the three and nine months ended December 31, 2022, respectively, primarily related to the effect of accumulated other comprehensive loss components from 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 exercised by Change Healthcare Inc. and was recorded within “Other income, net” in the Condensed Consolidated Statements of Operations; and

•a gain of $97 million for the three and nine months ended December 31, 2022 from the termination of fixed interest rate swaps accounted for as cash flow hedges, as discussed in more detail in Financial Note 8, “Hedging Activities.”