MCKESSON CORP, 10-K filed on 5/15/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Mar. 31, 2019
Apr. 30, 2019
Sep. 30, 2018
Document And Entity Information [Abstract]      
Entity Registrant Name McKESSON CORPORATION    
Entity Central Index Key 0000927653    
Entity Tax Identification Number 943207296    
Document Type 10-K    
Current Fiscal Year End Date --03-31    
Document Period End Date Mar. 31, 2019    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2019    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Amendment Flag false    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Shell Company false    
Entity Emerging Growth Company false    
Entity Public Float     $ 26
Entity Common Stock, Shares Outstanding   189,961,556  
v3.19.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Mar. 31, 2017
Revenues $ 214,319 $ 208,357 $ 198,533
Cost of Sales (202,565) (197,173) (187,262)
Gross Profit 11,754 11,184 11,271
Operating Expenses      
Selling, distribution and administrative expenses (8,403) (8,138) (7,447)
Research and development (71) (125) (341)
Goodwill impairment charges (1,797) (1,738) (290)
Restructuring and asset impairment charges (597) (567) (18)
Gains from sales of business and on healthcare technology net asset exchange, net 0 109 0
Total Operating Expenses (10,868) (10,422) (4,149)
Operating Income 886 762 7,122
Other Income, Net 182 130 77
Loss on Debt Extinguishment 0 (122) 0
Interest Expense (264) (283) (308)
Income from Continuing Operations Before Income Taxes 610 239 6,891
Income Tax (Expense) Benefit (356) 53 (1,614)
Income from Continuing Operations 254 292 5,277
Income (Loss) from Discontinued Operations, Net of Tax 1 5 (124)
Net Income 255 297 5,153
Net Income Attributable to Noncontrolling Interests (221) (230) (83)
Net Income Attributable to McKesson Corporation $ 34 $ 67 $ 5,070
Diluted      
Continuing operations (in dollars per share) $ 0.17 $ 0.30 $ 23.28
Discontinued operations (in dollars per share) 0.00 0.02 (0.55)
Total (in dollars per share) 0.17 0.32 22.73
Basic      
Continuing operations (in dollars per share) 0.17 0.30 23.50
Discontinued operations (in dollars per share) 0.00 0.02 (0.55)
Total (in dollars per share) $ 0.17 $ 0.32 $ 22.95
Weighted Average Common Shares      
Diluted (in shares) 197 209 223
Basic (in shares) 196 208 221
Healthcare Technology Net Asset Exchange      
Operating Expenses      
Gains from sales of business and on healthcare technology net asset exchange, net $ 0 $ 37 $ 3,947
Change Healthcare      
Operating Expenses      
Loss from Equity Method Investment in Change Healthcare $ (194) $ (248) $ 0
v3.19.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net Income $ 255 $ 297 $ 5,153
Other Comprehensive Income (Loss), Net of Tax      
Foreign currency translation adjustments (190) 624 (632)
Unrealized gains (losses) on cash flow hedges 24 (30) (19)
Changes in retirement-related benefit plans (32) 15 (8)
Other Comprehensive Income (Loss), Net of Tax (198) 609 (659)
Comprehensive Income 57 906 4,494
Comprehensive (Income) Attributable to Noncontrolling Interests (155) (415) (4)
Comprehensive Income (Loss) Attributable to McKesson Corporation $ (98) $ 491 $ 4,490
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2019
Mar. 31, 2018
Current Assets    
Cash and cash equivalents $ 2,981 $ 2,672
Receivables, net 18,246 17,711
Inventories, net 16,709 16,310
Prepaid expenses and other 529 443
Total Current Assets 38,465 37,136
Property, Plant and Equipment, Net 2,548 2,464
Goodwill 9,358 10,924
Intangible Assets, Net 3,689 4,102
Equity Method Investment in Change Healthcare 3,513 3,728
Other Noncurrent Assets 2,099 2,027
Total Assets 59,672 60,381
Current Liabilities    
Drafts and accounts payable 33,853 32,177
Current portion of long-term debt 330 1,129
Other accrued liabilities 3,443 3,379
Total Current Liabilities 37,626 36,685
Long-Term Debt 7,265 6,751
Long-Term Deferred Tax Liabilities 2,998 2,804
Other Noncurrent Liabilities 2,103 2,625
Commitments and Contingent Liabilities
Redeemable Noncontrolling Interests 1,393 1,459
McKesson Corporation Stockholders’ Equity    
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding 0 0
Common stock, $0.01 par value, 800 shares authorized at March 31, 2019 and 2018, 271 and 275 shares issued at March 31, 2019 and 2018 3 3
Additional Paid-in Capital 6,435 6,188
Retained Earnings 12,409 12,986
Accumulated Other Comprehensive Loss (1,849) (1,717)
Other (2) (1)
Treasury Stock, at Cost, 81 and 73 shares at March 31, 2019 and 2018 (8,902) (7,655)
Total McKesson Corporation Stockholders’ Equity 8,094 9,804
Noncontrolling Interests 193 253
Total Equity 8,287 10,057
Total Liabilities, Redeemable Noncontrolling Interests and Equity $ 59,672 $ 60,381
v3.19.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 2019
Mar. 31, 2018
McKesson Corporation Stockholders’ Equity    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock authorized (shares) 100,000,000 100,000,000
Preferred stock issued (shares) 0 0
Preferred stock outstanding (shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock authorized (shares) 800,000,000 800,000,000
Common stock issued (shares) 271,000,000 275,000,000
Treasury stock (shares) 81,000,000 73,000,000
v3.19.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Additional Paid-in Capital
Other Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury
Noncontrolling Interests
Beginning balance, common stock (in shares) at Mar. 31, 2016   271            
Beginning balance at Mar. 31, 2016 $ 9,008 $ 3 $ 5,845 $ (2) $ 8,360 $ (1,561) $ (3,721) $ 84
Beginning balance, treasury common stock (shares) at Mar. 31, 2016             (46)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of shares under employee plans (in shares)   3            
Issuance of shares under employee plans 64   125       $ (61)  
Share-based compensation 110   110          
Tax benefit related to issuance of shares under employee plans 7       7      
Acquisition of Vantage 89             89
Other comprehensive income (loss) (580)         (580)    
Net income 5,109       5,070     39
Repurchase of common stock (in shares)             (16)  
Repurchase of common stock (2,250)   (50)       $ (2,200)  
Cash dividends declared (249)       (249)      
Other (in shares)   (1)            
Other (35)   (2) 0 1     (34)
Ending balance common stock (in shares) at Mar. 31, 2017   273            
Ending balance at Mar. 31, 2017 11,273 $ 3 6,028 (2) 13,189 (2,141) $ (5,982) 178
Ending balance, treasury common stock (shares) at Mar. 31, 2017             (62)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of shares under employee plans (in shares)   2            
Issuance of shares under employee plans 67   126       $ (59)  
Share-based compensation 67   67          
Payments to noncontrolling interests (98)             (98)
Other comprehensive income (loss) 424         424    
Net income 254       67     187
Repurchase of common stock (in shares)             (11)  
Repurchase of common stock (1,650)   (36)       $ (1,614)  
Exercise of put right by noncontrolling shareholders of McKesson Europe 3   3          
Cash dividends declared (270)       (270)      
Other (in shares)              
Other (13)   1     (14)
Ending balance common stock (in shares) at Mar. 31, 2018   275            
Ending balance at Mar. 31, 2018 $ 10,057 $ 3 6,188 (1) 12,986 (1,717) $ (7,655) 253
Ending balance, treasury common stock (shares) at Mar. 31, 2018 (73)           (73)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Issuance of shares under employee plans (in shares)   1            
Issuance of shares under employee plans $ 63   75       $ (12)  
Share-based compensation 92   92          
Payments to noncontrolling interests (184)             (184)
Other comprehensive income (loss) (132)         (132)    
Net income 210       34     176
Repurchase of common stock (in shares)             (13)  
Repurchase of common stock (1,627)   150       $ (1,777)  
Retirement and retirement of common stock (in shares)   5         5  
Retirement of common stock 0   (70)   (472)   $ 542  
Cash dividends declared (298)       (298)      
Other (in shares)              
Other (48)   (1) 5     (52)
Ending balance common stock (in shares) at Mar. 31, 2019   271            
Ending balance at Mar. 31, 2019 $ 8,287 $ 3 $ 6,435 $ (2) $ 12,409 $ (1,849) $ (8,902) $ 193
Ending balance, treasury common stock (shares) at Mar. 31, 2019 (81)           (81)  
v3.19.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Parentheticals) - $ / shares
12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Mar. 31, 2017
Statement of Stockholders' Equity [Abstract]      
Cash dividends declared per common share (in dollars per share) $ 1.51 $ 1.30 $ 1.12
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Mar. 31, 2017
Operating Activities      
Net income $ 255 $ 297 $ 5,153
Adjustments to reconcile to net cash provided by operating activities:      
Depreciation 317 303 324
Amortization 632 648 586
Gain on Healthcare Technology Net Asset Exchange, net 0 (109) 0
Goodwill and other asset impairment charges 2,079 2,217 290
Deferred taxes 189 (868) 882
Credits associated with last-in, first-out inventory method (210) (99) (7)
Loss (gain) from sales of businesses and investments (86) (169) 94
Other non-cash items 52 67 203
Changes in assets and liabilities, net of acquisitions:      
Receivables (967) 1,175 (762)
Inventories (368) (458) 320
Drafts and accounts payable 1,976 271 2,070
Taxes (95) 671 146
Other 68 79 (458)
Settlement payment 0 0 (150)
Net cash provided by operating activities 4,036 4,345 4,744
Investing Activities      
Payments for property, plant and equipment (426) (405) (404)
Capitalized software expenditures (131) (175) (158)
Acquisitions, net of cash, cash equivalents and restricted cash acquired (905) (2,893) (4,212)
Proceeds from sale of businesses and investments, net and Payments received on Healthcare Technology Net Asset Exchange, net 101 374 206
Other (20) (20) 73
Net cash used in investing activities (1,381) (2,993) (3,269)
Financing Activities      
Proceeds from short-term borrowings 37,265 20,542 8,294
Repayments of short-term borrowings (37,268) (20,725) (8,124)
Proceeds from issuances of long-term debt 1,099 1,522 1,824
Repayments of long-term debt (1,112) (2,287) (1,601)
Payments for debt extinguishments 0 (112) 0
Common stock transactions:      
Issuances 75 132 120
Share repurchases, including shares surrendered for tax withholding (1,639) (1,709) (2,311)
Dividends paid (292) (262) (253)
Other (355) (185) (18)
Net cash used in financing activities (2,227) (3,084) (2,069)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (119) 150 (144)
Net increase (decrease) in cash, cash equivalents and restricted cash 309 (1,582) (738)
Cash, cash equivalents and restricted cash at beginning of year 2,672 4,254 4,992
Cash, cash equivalents and restricted cash at end of year 2,981 2,672 4,254
Cash paid for:      
Interest 383 298 315
Income taxes, net of refunds 262 144 587
Healthcare Technology Net Asset Exchange      
Adjustments to reconcile to net cash provided by operating activities:      
Gain on Healthcare Technology Net Asset Exchange, net 0 (37) (3,947)
Investing Activities      
Proceeds from sale of businesses and investments, net and Payments received on Healthcare Technology Net Asset Exchange, net 0 126 1,226
Change Healthcare      
Adjustments to reconcile to net cash provided by operating activities:      
Loss from equity method investment in Change Healthcare $ 194 $ 248 $ 0
v3.19.1
Significant Accounting Policies
12 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies
Nature of Operations: McKesson Corporation (“McKesson,” the “Company,” the “Registrant” or “we” and other similar pronouns) delivers a comprehensive offering of pharmaceuticals and medical supplies and provides services to help our customers improve the efficiency and effectiveness of their healthcare operations. Commencing in the first quarter of 2019, our new segment reporting structure was implemented and we have reported our financial results in three reportable segments on a retrospective basis: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions and Medical-Surgical Solutions. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in Other. Refer to Financial Note 28, “Segments of Business” for more information.
Basis of Presentation: The consolidated financial statements and accompanying notes are prepared in accordance with U. S. generally accepted accounting principles (“GAAP”). The consolidated financial statements of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled companies. For those consolidated subsidiaries where our ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net Income Attributable to Noncontrolling Interests” on the consolidated statements of operations. All significant intercompany balances and transactions have been eliminated in consolidation including the intercompany portion of transactions with equity method investees.
We consider ourselves to control an entity if we are the majority owner of or have voting control over such entity. We also assess control through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business entity is the primary beneficiary of the VIE. We consolidate VIEs when it is determined that we are the primary beneficiary of the VIE. Investments in business entities in which we do not have control but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Refer to Financial Note 5, “Healthcare Technology Net Asset Exchange” for further information on our equity method investment in Change Healthcare, LLC (“Change Healthcare”).
Fiscal Period: The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.
Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.
Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimated amounts.
Cash and Cash Equivalents: All highly liquid debt and money market instruments purchased with original maturity of three months or less at the date of acquisition are included in cash and cash equivalents. Cash equivalents are carried at fair value. Cash equivalents are primarily invested in AAA rated prime and U.S. government money market funds denominated in U.S. dollars, overnight repurchase agreements collateralized by U.S. government securities, Canadian government securities and/or securities that are guaranteed or sponsored by the U.S. government and an AAA rated prime money market fund denominated in British pound sterling. The remaining cash and cash equivalents are deposited with several financial institutions. Deposits may 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.
Restricted Cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is classified as restricted cash and is included within “Prepaid expenses and other” and “Other Noncurrent Assets” in the consolidated balance sheets. At March 31, 2019 and 2018, our restricted cash balance was not material.
Marketable Securities Available-for-Sale: Our marketable securities, which are available-for-sale, are carried at fair value and are included within “Prepaid expenses and other” in the consolidated balance sheets. The unrealized gains and losses, net of the related tax effect, computed in marking these securities to market have been reported within stockholders’ equity. At March 31, 2019 and 2018, marketable securities were not material. In determining whether an other-than-temporary decline in market value has occurred, we consider the duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and future prospects of the issuer or underlying collateral of a security, and our intent and ability to retain the security in order to allow for an anticipated recovery in fair value. Other-than-temporary declines in fair value from amortized cost for available-for-sale equity securities that we intend to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis are charged to other income, net, in the period in which the loss occurs.
Equity Method Investments: Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. We evaluate our equity method investments for impairment whenever an event or change in circumstances occurs that may have a significant adverse impact on the carrying value of the investment. If a loss in value has occurred that is deemed to be other-than-temporary, an impairment loss is recorded. Refer to Financial Note 5, “Healthcare Technology Net Asset Exchange” for further information relating to our equity method investment in Change Healthcare, LLC (“Change Healthcare”).
Concentrations of Credit Risk and Receivables: Our trade accounts receivable are subject to concentrations of credit risk with customers primarily in our U.S. Pharmaceutical and Specialty Solutions segment. During 2019, sales to our ten largest customers, including group purchasing organizations (“GPOs”) accounted for approximately 49.9% of our total consolidated revenues. Sales to our largest customer, CVS Health (“CVS”), accounted for approximately 19.4% of our total consolidated revenues. At March 31, 2019, trade accounts receivable from our ten largest customers were approximately 31.9% of total trade accounts receivable. Accounts receivable from CVS were approximately 18.4% of total trade accounts receivable. 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 receivables 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 these or any other large customers, or the loss of a large customer or customer groups could have a material adverse impact on our financial condition, results of operations and liquidity. In addition, trade receivables are subject to concentrations of credit risk with customers in the institutional, retail and healthcare provider sectors, which can be affected by a downturn in the economy and changes in reimbursement policies. This credit risk is mitigated by the size and diversity of the customer base as well as its geographic dispersion. We estimate the receivables for which we do not expect full collection based on historical collection rates and ongoing evaluations of the creditworthiness of our customers. An allowance is recorded in our consolidated financial statements for these estimated amounts.
Financing Receivables: We assess and monitor credit risk associated with financing receivables, primarily notes receivables, through regular review of our collection experience in determining our allowance for loan losses. On an ongoing basis, we also evaluate credit quality of our financing receivables utilizing aging of receivables and write-offs, as well as considering existing economic conditions, to determine if an allowance is required. Financing receivables are derecognized if legal title to them has been transferred and all related risks and rewards incidental to ownership have passed to the buyer.  As of March 31, 2019 and 2018, financing receivables and the related allowance were not material to our consolidated financial statements.
Inventories: Inventories consist of merchandise held for resale. Prior to 2018, we reported inventories at the lower of cost or market (“LCM”). Effective in the first quarter of 2018, we report inventories at the lower of cost or net realizable value, except for inventories determined using the last-in, first-out (“LIFO”) method. The majority of the cost of domestic inventories is determined using the LIFO method. The majority of the cost of inventories held in foreign locations is based on first-in, first-out method and weighted average purchase prices. Rebates, cash discounts, and other incentives received from vendors are recognized within cost of sales upon the sale of the related inventory.
The LIFO method was used to value approximately 62% and 63% of our inventories at March 31, 2019 and 2018. If we had used the moving average method of inventory valuation, inventories would have been approximately $696 million and $906 million higher than the amounts reported at March 31, 2019 and 2018. These amounts are equivalent to our LIFO reserves. Our LIFO valuation amount includes both pharmaceutical and non-pharmaceutical products. We recognized LIFO credits of $210 million, $99 million and $7 million in 2019, 2018 and 2017 in cost of sales within our consolidated statements of operations. 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 believe that 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, 2019 and 2018, inventories at LIFO did not exceed market.
Shipping and Handling Costs: We include costs to pack and deliver inventory to our customers in selling, distribution and administrative expenses. Shipping and handling costs of $951 million, $914 million, and $814 million were recognized in 2019, 2018 and 2017.
Property, Plant and Equipment: We state our property, plant and equipment (“PPE”) at cost and depreciate them under the straight-line method at rates designed to distribute the cost of PPE over estimated service lives ranging from one to thirty years. When certain events or changes in operating conditions occur, an impairment assessment may be performed on the recoverability of the carrying amounts.
Goodwill: Goodwill is tested for impairment on an annual basis in the fourth quarter or more frequently if indicators of potential impairment exist. Impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit.
The goodwill testing requires us to compare the estimated fair value of a reporting unit to its carrying value.  If the carrying value of the reporting unit is lower than its estimated fair value, no further evaluation is required.  If the carrying value of the reporting unit exceeds its estimated fair value, an impairment charge is recorded for that excess, limited to the total amount of goodwill allocated to that 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 (“DCF”) model in which cash flows anticipated over future periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an estimated expected rate of return. Other estimates inherent in both the market and income approaches include long-term growth rates, projected revenues, earnings and cash flow forecasts for the reporting units. In addition, we compare the aggregate of the reporting units’ fair values to the Company’s market capitalization as a further corroboration of the fair values. Goodwill testing requires a complex series of assumptions and judgments by management in projecting future operating results, selecting guideline companies for comparisons and assessing risks. The use of alternative assumptions and estimates could affect the fair values and change the impairment determinations.
Intangible Assets: Currently all of our intangible assets are subject to amortization and are amortized based on the pattern of their economic consumption or on a straight-line basis over their estimated useful lives, ranging from one to 38 years. We review intangible 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 is based on the lowest level of identifiable estimated future undiscounted cash flows resulting from 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 estimated fair market value.
Capitalized Software Held for Internal Use: We capitalize costs of software held for internal use during the application development stage of a project and amortize those costs over their estimated useful lives ranging from one to ten years. As of March 31, 2019 and 2018, capitalized software held for internal use was $394 million and $425 million, net of accumulated amortization of $1,246 million and $1,182 million, and was included in other noncurrent assets in the consolidated balance sheets.
Insurance Programs: Under our insurance programs, we seek to obtain coverage for catastrophic exposures as well as those risks required to be insured by law or contract. It is our policy to retain a significant portion of certain losses primarily related to workers’ compensation and comprehensive general, product and vehicle liability. Provisions for losses expected under these programs are recorded based on our estimate of the aggregate liability for claims incurred as well as for claims incurred but not yet reported. Such estimates utilize certain actuarial assumptions followed in the insurance industry.
Revenue Recognition: Revenue is recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration to which the entity expects to be entitled for that good or service.
Revenues generated from the distribution of pharmaceutical and medical products represent the majority of our revenues. We order product from the manufacturer, receive and carry the product at our central distribution facilities and deliver the product directly to our customers’ warehouses, hospitals or retail pharmacies. The distribution business primarily generates revenue from a contract related to a confirmed purchase order with a customer in a distribution arrangement. Revenue is recognized when control of goods is transferred to the customer which occurs upon our delivery to the customer or upon customer pick-up. We also earn revenues from a variety of other sources including our retail, services and technology businesses. Retail revenues are recognized at the point of sale. Service revenues, including technology service revenues, are recognized when services are rendered. Revenues derived from distribution and retail business at the point of sale, and revenues derived from services represent approximately 98% and 2% of total revenues for the year ended on March 31, 2019.  

Revenues are recorded gross when we are the principal in the transaction, have the ability to direct the use of the goods or services prior to transfer to a customer, are responsible for fulfilling the promise to our customer, have latitude in establishing prices, and control the relationship with the customer. We record our revenues net of sales taxes. Revenues are measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, discounts and rebates using historical data. Sales returns from customers were approximately $2.9 billion in 2019, and $3.1 billion in 2018 and 2017. Assets for the right to recover products from customers and the associated refund liabilities for return allowances were not material as of March 31, 2019. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in selling, distribution and administrative expenses. We record deferred revenues when payments are received or due in advance of our performance. Deferred revenues are primarily from our services arrangements and are recognized as revenues over the periods when services are performed.

We had no material contract assets, contract liabilities or deferred contract costs recorded on the consolidated balance sheets.
We elected the practical expedient and generally expense costs to obtain a contract when incurred because the amortization period would have been one year or less.

Supplier Incentives: Fees for services and other incentives received from suppliers, relating to the purchase or distribution of inventory, are considered product discounts and are generally reported as a reduction to cost of sales.
Supplier Reserves: We establish reserves against amounts due from suppliers relating to various fees for services and price and rebate incentives, including deductions taken against payments otherwise due to them. These reserve estimates are established based on judgment after considering the status of current outstanding claims, historical experience with the suppliers, the specific incentive programs and any other pertinent information available. We evaluate the amounts due from suppliers on a continual basis and adjust the reserve estimates when appropriate based on changes in facts and circumstances. Adjustments to supplier reserves are generally included within cost of sales. The ultimate outcome of any outstanding claims may be different than our estimate. The supplier reserves primarily pertain to our U.S. Pharmaceutical and Specialty Solutions segment.
Income Taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or the tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon effective settlement. Deferred taxes are not provided on undistributed earnings of our foreign operations that are considered to be permanently reinvested.
Foreign Currency Translation: The reporting currency of the Company and its subsidiaries is the U.S. dollar. Our foreign subsidiaries generally consider their local currency to be their functional currency. Foreign currency-denominated assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at period-end exchange rates, while revenues and expenses are translated at average exchange rates during the corresponding period and stockholders’ equity accounts are primarily translated at historical exchange rates. Foreign currency translation adjustments are included in other comprehensive income or loss in the consolidated statements of comprehensive income, and the cumulative effect is included in the stockholders’ equity section of the consolidated balance sheets. Realized gains and losses from currency exchange transactions are recorded in operating expenses in the consolidated statements of operations and were not material to our consolidated results of operations in 2019, 2018 or 2017. We release cumulative translation adjustments from stockholders’ equity into earnings as a gain or loss only upon complete or substantially complete liquidation of a controlling interest in a subsidiary or a group of assets within a foreign entity.  We also release all or a pro rata portion of the cumulative translation adjustments into earnings upon the sale of an equity method investment that is a foreign entity. 
Derivative Financial Instruments: Derivative financial instruments are used principally in the management of foreign currency exchange and interest rate exposures and are recorded on the consolidated balance sheets at fair value. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. We use foreign currency-denominated notes and cross-currency swaps to hedge a portion of our net investment in our foreign subsidiaries.  We use cash flow hedges primarily to reduce the effects of foreign currency exchange rate risk related to intercompany loans denominated in non-functional currencies. If the financial instrument is designated as a cash flow hedge or net investment hedge, the effective portions of changes in the fair value of the derivative are included in other comprehensive income or loss in the consolidated statements of comprehensive income, and the cumulative effect is included in the stockholders’ equity section of the consolidated balance sheets. The cumulative changes in fair value are reclassified to the same line as the hedged item in the consolidated statements of operations when the hedged item affects earnings. We evaluate hedge effectiveness at inception and on an ongoing basis, and ineffective portions of changes in the fair value of cash flow hedges and net investment hedges are recognized in earnings following the date when ineffectiveness was identified. In the fourth quarter of 2018, we adopted amended guidance for derivatives and hedging which eliminates the existing requirement to recognize periodic hedge ineffectiveness in earnings for cash flow hedges and net investment hedges that are highly effective. The adoption had no material impact on our financial statements as there was no ineffectiveness recognized on our cash flow hedges or net investment hedges prior to adoption. Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the change included in earnings.
Comprehensive Income: Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses and gains and losses that under GAAP are recorded as an element of stockholders’ equity but are excluded from earnings. Our other comprehensive income primarily consists of foreign currency translation adjustments from those subsidiaries where the local currency is the functional currency including gains and losses on net investment hedges, unrealized gains and losses on cash flow hedges, as well as unrealized gains and losses on retirement-related benefit plans.
Noncontrolling Interests and Redeemable Noncontrolling Interests: Noncontrolling interests represent the portion of profit or loss, net assets and comprehensive income that is not allocable to McKesson Corporation. Net income attributable to noncontrolling interests included recurring compensation that McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe AG (“McKesson Europe”), formerly known as Celesio AG, under the domination and profit and loss transfer agreement. Net income attributable to noncontrolling interests also included third-party equity interests in our consolidated entities including Vantage Oncology Holdings, LLC (“Vantage”) and ClarusONE Sourcing Services LLP (“ClarusONE”), which was established between McKesson and Walmart, Inc in 2017. Noncontrolling interests with redemption features, such as put rights, that are not solely within the Company’s control are considered redeemable noncontrolling interests.  Redeemable noncontrolling interests are presented outside of stockholders’ equity on our consolidated balance sheets. Refer to Financial Note 11, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” for more information.
Share-Based Compensation: We account for all share-based compensation transactions at fair value. The share-based compensation expense, for the portion of the awards that is ultimately expected to vest, is recognized on a straight-line basis over the requisite service period. The share-based compensation expense recognized has been classified in the consolidated statements of operations in the same manner as cash compensation paid to our employees.
Loss Contingencies: We are subject to various claims, including claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental 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 the loss or 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.
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 loss or a 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 negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties.
Restructuring Charges: Employee severance costs are generally recognized when payments are probable and amounts are reasonably estimable. 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 recognized as incurred.

Business Combinations: We account for acquired businesses using the acquisition method of accounting, which requires that once control of a business is obtained, 100% of the assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses including transaction and integration 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 method that is a form or variation of the income approach. Income approach methods start with a forecast of all of the expected future net cash flows for each asset.  These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.  Some of the more significant estimates and assumptions inherent in income approach methods 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 life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry.  Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.
Recently Adopted Accounting Pronouncements
Revenue Recognition: In the first quarter of 2019, we adopted amended guidance for revenue recognition using the modified retrospective method and applied the amended guidance to those contracts which were not completed as of April 1, 2018. The adoption of this amended guidance did not have a material impact on our consolidated financial statements. Our equity method investee, Change Healthcare, is required to adopt the amended guidance in our first quarter of 2020. The adoption of this amended guidance by Change Healthcare is not expected to have a material effect on our consolidated financial statements.
We elected the practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

Share-Based Payments: In the first quarter of 2019, we prospectively adopted amended guidance for employee share-based payment awards. This amendment provides guidance on which changes to terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the amended guidance, we are required to account for the effects of a modification of the fair value, the vesting conditions or the classification (as an equity instrument or a liability instrument) of the modified award from that of the original award immediately before the modification. The adoption of this amended guidance did not have a material effect on our consolidated financial statements.
Compensation - Retirement Benefits: In the first quarter of 2019, we retrospectively adopted amended guidance which requires us to report the service cost component of defined benefit pension plans and other postretirement plans in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit costs are required to be presented in the statements of operations separately from the service cost component outside of operating income. The adoption of this amended guidance did not have a material effect on our consolidated financial statements. This amended guidance only resulted in a change in presentation of other components of net benefit costs on our consolidated statement of operations (a reclassification from operating income to other income, net).
Derecognition of Nonfinancial Assets: In the first quarter of 2019, we adopted on a modified retrospective basis amended guidance that defines the term “in substance nonfinancial asset” as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the asset that is promised is concentrated in nonfinancial assets. The scope of this amendment includes nonfinancial assets transferred within a legal entity including a parent entity’s transfer of nonfinancial assets by transferring ownership interests in consolidated subsidiaries. The amendment excludes all businesses and nonprofit activities from its scope and therefore all entities, with limited exceptions, are required to account for the derecognition of a business or nonprofit activity in accordance with the consolidation guidance once this amended guidance becomes effective. The adoption of this amended guidance did not have a material effect on our consolidated financial statements.
Business Combinations: In the first quarter of 2019, we prospectively adopted amended guidance that clarifies the definition of a business to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amended guidance provides a practical screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amended guidance requires that to be considered a business, a set must include an input and a substantive process that together significantly contribute to the ability to create output. The adoption of this amended guidance did not have a material effect on our consolidated financial statements.
Restricted Cash: In the first quarter of 2019, we retrospectively adopted amended guidance that requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Transfers between cash and cash equivalents and restricted cash or restricted cash equivalents are not reported as cash flow activities in the statement of cash flows. Our restricted cash balances at March 31, 2019 and 2018 were not material. The adoption of this amended guidance had no effect on our consolidated statements of operations, comprehensive income or our balance sheets. This amended guidance resulted in a change in presentation of restricted cash on our consolidated statement of cash flows.
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory: In the first quarter of 2019, we adopted on a modified retrospective basis amended guidance that requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Upon adoption of this amended guidance, we recorded $152 million of deferred tax assets with a corresponding cumulative-effect increase to the beginning balance of retained earnings in our consolidated financial statements for the tax consequences relating to an intra-entity transfer of certain software in December 2016.
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments: In the first quarter of 2019, we retrospectively adopted amended guidance that provides clarification on cash flow classification related to eight specific issues including contingent consideration payments made after a business combination and distributions received from equity method investees. The adoption of this amended guidance did not have a material effect on our consolidated financial statements.
Financial Instruments: In the first quarter of 2019, we adopted amended guidance that requires investments in equity securities, excluding equity method investments or investees that are consolidated, to be measured at fair value with changes in fair value recognized in net income and enhanced disclosures about those investments. The amended guidance also simplifies the impairment assessments of equity investments without readily determinable fair value. The adoption of this amended guidance did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Collaborative Arrangements: In November 2018, amended guidance was issued which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under revenue recognition guidance when the counterparty is a customer. The amended guidance is effective for us in the first quarter of 2021 on a retrospective basis with a cumulative-effect adjustment to beginning retained earnings. We may elect to apply this amended guidance retrospectively either to all contracts or only to contracts that are not completed at the date of initial adoption. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.

Derivatives and Hedging:  In October 2018, amended guidance was issued which allowed for the inclusion of the Secured Overnight Financing Rate Overnight Index Swap Rate as a benchmark interest rate for hedge accounting purposes. The amended guidance is effective for us on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the first quarter of 2020. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material impact on our consolidated financial statements.

Disclosure Update and Simplification: In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule to simplify certain disclosure requirements. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. In August and September 2018, further amendments were issued to provide implementation and transition guidance on adoption of this SEC rule. The amended guidance is effective for us commencing in the first quarter of 2020. We do not expect the adoption of this amended guidance to have a material effect on our consolidated statements of operations, comprehensive income, balance sheets or cash flows. This amended guidance will result in changes in disclosures.
Intangibles - Goodwill and Other - Internal-Use Software: In August 2018, amended guidance was issued for a customer’s accounting for implementation and other upfront costs incurred in a cloud computing arrangement that is a service contract. The amended guidance aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs for a cloud computing arrangement that has a software license. The amended guidance is effective for us either on a retrospective or prospective basis commencing in the first quarter of 2021. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.
Compensation - Retirement Benefits - Defined Benefit Plans: In August 2018, amended guidance was issued for defined benefit pension or other postretirement plans. The amended guidance requires us to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and an explanation of reasons for significant gains and losses related to changes in the benefit obligation for the period. The amended guidance also requires us to remove disclosures on the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs over the next fiscal year. The amended guidance is effective for us on a retrospective basis commencing in the fiscal year ended March 31, 2021. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material effect on our consolidated statements of operations, comprehensive income, balance sheets or cash flows. This amended guidance will result in changes in disclosures.
Fair Value Measurement: In August 2018, amended guidance was issued to remove, modify and add disclosure requirements on the fair value measurements. The amended guidance removes disclosure requirements for transfers between Level 1 and Level 2 measurements and valuation processes for Level 3 measurements but adds new disclosure requirements including changes in unrealized gains or losses in other comprehensive income related to recurring Level 3 measurements. The amended guidance is effective for us commencing in the first quarter of 2021. Certain requirements will be applied prospectively while other changes will be applied retrospectively upon the effective date. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material effect on our consolidated statements of operations, comprehensive income, balance sheets or cash flows. This amended guidance will result in changes in disclosures.
Accumulated Other Comprehensive Income: In February 2018, amended guidance was issued to address a narrow-scope financial reporting issue that arose as a consequence of the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”). Existing guidance requires that deferred tax liabilities and assets be adjusted for a change in tax laws with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income rather than in net income, such as amounts related to benefit plans and hedging activity. As a result, the tax effects of items within accumulated other comprehensive income do not reflect the appropriate tax rate. These differences are referred to as stranded tax effects. The amended guidance allows for a reclassification of only those amounts related to the 2017 Tax Act to retained earnings thereby eliminating the stranded tax effects. The amended guidance also requires certain disclosures about stranded tax effects. The amended guidance is effective for us commencing in the first quarter of 2020 on a prospective or retrospective basis. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material effect on our consolidated financial statements.
Premium Amortization of Purchased Callable Debt Securities: In March 2017, amended guidance was issued to shorten the amortization period for certain callable debt securities held at a premium. The amended guidance requires the premium of callable debt securities to be amortized to the earliest call date but does not require an accounting change for securities held at a discount as they would still be amortized to maturity. The amended guidance is effective for us on a modified retrospective basis commencing in the first quarter of 2020. Early adoption is permitted. We do not expect the adoption of this amended guidance to have a material effect on our consolidated financial statements.
Financial Instruments - Credit Losses: In June 2016, amended guidance was issued, which will change the impairment model for most financial assets and require additional disclosures. The amended guidance requires financial assets that are measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of financial assets. The amended guidance also requires us to consider historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount in estimating credit losses. The amended guidance becomes effective for us commencing in the first quarter of 2021 and will be applied through a cumulative-effect adjustment to the beginning retained earnings in the year of adoption. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.
Leases: In February 2016, amended guidance was issued for lease arrangements. The amended guidance requires lessees to recognize lease liabilities and right-of-use (“ROU”) assets on the balance sheet for all leases and to provide enhanced disclosures on key information of leasing arrangements. The amended guidance is effective for us commencing in the first quarter of 2020. Early adoption is permitted. We will adopt the amended guidance on a modified retrospective basis through a cumulative-effect adjustment to the beginning retained earnings in the period of adoption.

We will elect the transition package of practical expedients provided within the amended guidance, which eliminates the requirements to reassess lease identification, lease classification and initial direct costs for leases commenced before the effective date. The Company will also elect not to separate lease from non-lease components and to exclude short-term leases from its consolidated balance sheets.

The adoption of the amended guidance is expected to have a material impact on our consolidated balance sheet from the recognition of lease assets and liabilities. While we continue to assess all the impacts of adoption, we anticipate recognizing operating lease liabilities in excess of $2.0 billion based on the present value of the remaining minimum lease commitments using our incremental borrowing rate as of the effective date under the full lease term. We also expect to record corresponding ROU assets based upon the operating lease liabilities adjusted for prepaid and deferred rents, unamortized initial direct costs, liabilities associated with lease termination costs and impairments of ROU assets recognized to opening retained earnings at the effective date. Additionally, existing deferred gain on our sale-leaseback transaction will be derecognized from the consolidated balance sheet and recognized to opening retained earnings at the effective date. While we have not completed our evaluation of impairments of ROU assets upon adoption, we anticipate that the historical impairments of certain retail pharmacy stores in the historical periods prior to adoption will result in impairments of retail store ROU assets recognized through retained earnings upon adoption. We are finalizing the impact that the amended lease guidance will have on our consolidated financial statements, systems, processes and internal controls.
v3.19.1
Goodwill Impairment Charges
12 Months Ended
Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill Impairment Charges
Goodwill Impairment Charges
We evaluate goodwill for impairment on an annual basis as of January 1 each year and at an interim date, if indicators of potential impairment exist. Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit.
The fair value of the reporting unit was determined using a combination of an income approach based on a DCF model and a market approach based on appropriate valuation multiples observed for the reporting unit’s guideline public companies. Fair value estimates result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by management as of the measurement date. Any material changes in key assumptions, including failure to improve operations of certain retail pharmacy stores, additional government reimbursement reductions, deterioration in the 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 affect such estimates. The discount rates are the weighted average cost of capital measuring the reporting unit’s cost of debt and equity financing weighted by the percentage of debt and percentage of equity in a company’s target capital. The unsystematic risk premium is an input factor used in calculating discount rate that specifically addresses uncertainty related to the reporting unit’s future cash flow projections. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information.

In 2019, we recorded total non-cash pre-tax goodwill impairment charges of $1,776 million ($1,756 million after-tax) for our two reporting units in our European Pharmaceutical Solutions segment. In 2018, we recorded non-cash goodwill impairment charges of $1,283 million (pre-tax and after-tax) in our European Pharmaceutical Solutions segment and $455 million (pre-tax and after-tax) for our Rexall Health reporting unit included in Other. In 2017, we recorded a non-cash pre-tax goodwill impairment charge of $290 million ($282 million after-tax) for our Enterprise Information Solutions (“EIS”) reporting unit included in Other. These charges were recorded under the caption, “Goodwill Impairment Charges” within operating expenses in the accompanying consolidated statements of operations. Most of the goodwill impairment for these reporting units were generally not deductible for income tax purposes.
McKesson Europe:
Fiscal 2019
In 2019, we recorded total non-cash pre-tax charges of $1,776 million ($1,756 million after-tax) to impair the carrying value of goodwill for our Consumer Solutions (“CS”) and Pharmacy Solutions (“PS”) reporting units in our European Pharmaceutical Solutions segment.
Prior to implementing the new segment reporting structure in the first quarter of 2019, our European operations were considered a single reporting unit. Following the change in reportable segments, our European Pharmaceutical Solutions segment was split into two distinct reporting units, CS and PS, for the purposes of goodwill impairment testing. As a result, we were required to perform a goodwill impairment test for these two new reporting units upon the change in reportable segment. Consequently, we recorded a non-cash goodwill impairment charge of $238 million (pre-tax and after-tax) in the first quarter of 2019 because the estimated fair value of the PS reporting unit was determined to be lower than its reassigned carrying value.
In the first quarter of 2019, both CS and PS reporting units projected a decline in the estimated future cash flows primarily triggered by additional U.K. government actions which were announced on June 29, 2018. Accordingly, we performed an interim goodwill impairment test for these reporting units. As a result, we determined that the carrying values of these reporting units exceeded their estimated fair value and recorded non-cash goodwill impairment charges of $332 million (pre-tax and after-tax) primarily for our CS reporting unit. The discount rate and terminal growth rate used for the CS reporting unit in the first quarter 2019 impairment test were 8.5% and 1.25%. The discount rate and terminal growth rate used for the PS reporting unit in the first quarter 2019 impairment test were 8.0% and 1.25%.
In the fourth quarter of 2019, as a result of our annual goodwill impairment test, we determined that the carrying values of our CS and PS reporting units exceeded their estimated fair value and recorded non-cash charges of $465 million ($445 million after-tax) for the CS reporting unit and $741 million (pre-tax and after-tax) for the PS reporting unit. The additional impairments were primarily due to declines in the reporting units’ estimated future cash flows and the selection of higher discount rates. The declines in estimated future cash flows were primarily attributed to additional government reimbursement reductions and competitive pressures within the U.K. The risk of successfully achieving certain business initiatives was the primary factor in the use of a higher discount rate. The discount rate and terminal growth rate used for the CS reporting unit in our 2019 annual impairment test were 10.0% and 1.25%. The discount rate and terminal growth rate used for the PS reporting unit in our 2019 annual impairment test were 9.0% and 1.25%. At March 31, 2019, both CS and PS reporting units had no remaining goodwill balances.

Fiscal 2018

In 2018, we recorded total non-cash charges of $1,283 million (pre-tax and after-tax) to impair the carrying value of goodwill within our European Pharmaceutical Solutions segment.

During the second quarter of 2018, our former McKesson Europe reporting unit projected a decline in its estimated future cash flows primarily triggered by government reimbursement reductions in their retail business in the U.K. Accordingly, we performed an interim one-step goodwill impairment test in accordance with the amended goodwill guidance for this reporting unit prior to our annual impairment test. As a result of the interim impairment test, we determined that the carrying value of this reporting unit exceeded its estimated fair value and recorded a non-cash charge of $350 million (pre-tax and after-tax) to impair the carrying value of this reporting unit’s goodwill. The discount rate and terminal growth rate used in our 2018 second quarter impairment test were 7.5% and 1.25% compared to 7.0% and 1.5% in our 2017 annual impairment test.

Additionally, as a result of our 2018 annual impairment test, we determined that the carrying value of the former McKesson Europe reporting unit further exceeded its estimated fair value and recorded a non-cash goodwill impairment charge of $933 million (pre-tax and after-tax) in the fourth quarter of 2018. This reporting unit had a further decline in its estimated future cash flows driven by weakening script growth outlook in our U.K. business and by a more competitive environment in France during the fourth quarter of 2018. The discount rate and terminal growth rate used in our 2018 annual impairment test were 8.0% and 1.25%.

Rexall Health:

Fiscal 2018

In 2018, as a result of our 2018 annual impairment test, we determined that the carrying value of our Rexall Health reporting unit within Other exceeded its estimated fair value and recorded a non-cash goodwill impairment charge of $455 million (pre-tax and after-tax). The impairment was the result of a decline in estimated future cash flows primarily driven by significant generics reimbursement reductions across Canada and minimum wage increases in multiple provinces which can only be partially mitigated through the business’ cost saving efforts. The discount rate and terminal growth rate used in our impairment testing for this reporting unit were 10.0% and 2.0%. At March 31, 2019 and 2018, the Rexall Health reporting unit had no remaining goodwill related to our acquisition of Rexall Health.

Enterprise Information Solutions:

Fiscal 2017

In conjunction with the 2017 Healthcare Technology Net Asset Exchange, we evaluated strategic options for our EIS business, which was a reporting unit within Other. In 2017, we recorded a non-cash pre-tax charge of $290 million ($282 million after-tax) to impair the carrying value of this reporting unit’s goodwill. The impairment primarily resulted from a decline in estimated cash flows. The amount of goodwill impairment for the EIS reporting unit was determined under the former accounting guidance on goodwill impairment testing, and computed as the excess of the carrying value of the reporting unit’s goodwill over its implied fair value of its goodwill.

Refer to Financial Note 21, “Fair Value Measurements,” for more information on this nonrecurring fair value measurement.
v3.19.1
Restructuring and Asset Impairment Charges
12 Months Ended
Mar. 31, 2019
Restructuring and Related Activities [Abstract]  
Restructuring and Asset Impairment Charges
Restructuring and Asset Impairment Charges
We recorded pre-tax restructuring and asset impairment charges of $597 million, $567 million and $18 million in 2019, 2018 and 2017. These charges are included under the caption, “Restructuring and Asset Impairment Charges” within operating expenses in the accompanying consolidated statements of operations.
Fiscal 2019 Initiatives
On April 25, 2018, the Company announced a strategic growth initiative intended to drive long-term incremental profit growth and increase operational efficiency. The initiative consists of multiple growth priorities and plans to optimize the Company’s operating models and cost structures primarily through the centralization and outsourcing of certain administrative functions and cost management.

As part of the growth initiative, we committed to implement certain actions including a reduction in workforce, facility consolidation and store closures. We expect to record total pre-tax charges of approximately $140 million to $180 million, of which we recorded pre-tax charges of $135 million ($122 million after-tax) in 2019. This set of the initiatives will be substantially completed by the end of 2020. Estimated remaining charges primarily consist of exit-related costs including contract termination costs.

As previously announced on November 30, 2018, the Company relocated its corporate headquarters from San Francisco, California to Irving, Texas to improve efficiency, collaboration and cost competitiveness, effective April 1, 2019. We anticipate that the relocation will be completed by January 2021. We expect to record total pre-tax charges of approximately $80 million to $130 million and for 2019 recorded pre-tax charges of $33 million ($24 million after-tax) primarily representing employee severance. Estimated remaining charges primarily consist of lease and other exit-related costs, employee retention and relocation expenses.

During the fourth quarter of 2019, the Company committed to additional programs to continue our operating model and cost optimization efforts. We continue to implement centralization of certain functions and outsourcing through the expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also include reorganization and consolidation of our business operations and related headcount reductions as well as the further closures of retail pharmacy stores in Europe and facilities. We expect to incur total pre-tax charges of approximately $300 million to $350 million for these programs, which are expected to be completed by the end of 2021. In 2019, pre-tax charges of $163 million ($127 million after-tax) were recorded, which primarily represent employee severance and accelerated depreciation expense. Estimated remaining charges primarily consist of facility and other exit costs and employee-related costs.

Restructuring charges for the fiscal 2019 initiatives for the year ended March 31, 2019 consisted of the following:
 
Year Ended March 31, 2019
(In millions)
U.S. Pharmaceutical and Specialty Solutions
 
European Pharmaceutical Solutions
 
Medical-Surgical Solutions
 
Other
 
Corporate
 
Total
Severance and employee-related costs, net
$
50

 
$
33

 
$
19

 
$
16

 
$
36

 
$
154

Exit and other-related costs (1)
7

 
3

 
20

 
57

 
57

 
144

Asset impairments and accelerated depreciation
6

 
5

 
3

 
18

 
1

 
33

Total
$
63

 
$
41

 
$
42

 
$
91

 
$
94

 
$
331

(1)    Exit and other-related costs primarily include lease and other contract exit costs associated with closures of facilities and retail pharmacy stores as well as project consulting fees.
The following table summarizes the activity related to the restructuring liabilities associated with the fiscal 2019 initiatives for the year ended March 31, 2019:
(In millions)
U.S. Pharmaceutical and Specialty Solutions
 
European Pharmaceutical Solutions
 
Medical-Surgical Solutions
 
Other
 
Corporate
 
Total
Balance, March 31, 2018
$

 
$

 
$

 
$

 
$

 
$

Restructuring charges recognized
63

 
41

 
42

 
91

 
94

 
331

Non-cash charges
(6
)
 
(5
)
 
(3
)
 
(18
)
 
(1
)
 
(33
)
Cash payments
(8
)
 
(5
)
 
(23
)
 
(52
)
 
(53
)
 
(141
)
Other
(18
)
 
7

 
(1
)
 
8

 
(3
)
 
(7
)
Balance, March 31, 2019 (1)
$
31

 
$
38

 
$
15

 
$
29

 
$
37

 
$
150

(1)
As of March 31, 2019, the total reserve balance was $150 million of which $117 million was recorded in other accrued liabilities and $33 million was recorded in other noncurrent liabilities.

Fiscal 2018 McKesson Europe Plan
In the second quarter of 2018, we committed to a restructuring plan, which primarily consists of the closures of underperforming retail pharmacy stores in the U.K. and a reduction in workforce. Under this plan, we expect to record total pre-tax charges of approximately $90 million to $130 million for our European Pharmaceutical Solutions segment, of which $92 million of pre-tax charges were recorded to date. The plan will be substantially completed by 2020. In 2019 and 2018, we recorded pre-tax charges of $18 million ($16 million after-tax) and $74 million ($67 million after-tax) in operating expenses primarily representing employee severance and lease exit costs. We made cash payments of $32 million and $10 million during 2019 and 2018, primarily related to severance. The reserve balances as of March 31, 2019 and 2018 were $19 million and $42 million, recorded in other accrued liabilities in our consolidated balance sheets. Estimated remaining restructuring charges primarily consist of lease termination and other exit costs.
Fiscal 2016 Cost Alignment Plan
On March 14, 2016, we committed to a restructuring plan to lower our operating costs (the “Cost Alignment Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce, and business process initiatives. We expected to record total pre-tax charges of approximately $250 million to $270 million, of which $256 million of pre-tax charges were recorded to date.
There were no material restructuring charges recorded during 2019, 2018 and 2017. We made cash payments of $18 million and $45 million during 2019 and 2018, primarily related to severance. The reserve balances as of March 31, 2019 and 2018 were $9 million and $39 million, recorded in other accrued liabilities, and $25 million and $30 million recorded in other noncurrent liabilities in our consolidated balance sheets. Estimated remaining restructuring charges primarily consist of exit-related activities for our European Pharmaceutical Solutions segment.

Other plans

There were no material restructuring charges for other plans recorded during 2019, 2018 and 2017.

Long-Lived Asset Impairments
McKesson Europe

In 2019, we recorded non-cash pre-tax charges of $210 million ($172 million after-tax) to impair the carrying value of certain long-lived assets (primarily pharmacy licenses) for our U.K. retail business primarily driven by government reimbursement reductions and competitive pressures in the U.K. In 2018, we recorded non-cash pre-tax charges of $446 million ($410 million after-tax) to impair the carrying value of certain intangible assets (primarily customer relationships and pharmacy licenses), store assets and capitalized software assets due to continuing declines in estimated future cash flows in our European businesses including consideration of significant government reimbursement reductions in our U.K. retail business. In 2019 and 2018, we used an income approach (DCF method) or a combination of an income approach and a market approach to estimate the fair value of the long-lived assets. The fair value of the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information.

Rexall Health

In 2019 and 2018, we recorded non-cash charges of $35 million and $33 million (pre-tax and after-tax) to impair certain intangible assets (primarily customer relationships) for our Rexall Health retail business. The impairments were primarily the results of the decline in estimated future cash flows for this business. The estimated cash flow projections were negatively affected by lower projected overall growth rate resulting from the ongoing impact of government regulations in 2019 and significant generics reimbursement reductions across Canada and minimum wage increases in multiple provinces in 2018. We utilized an income approach (DCF method) for estimating the fair value of long-lived assets. The fair value of the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information.

There were no material impairments of long-lived assets in 2017.
v3.19.1
Business Combinations
12 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Business Combinations
Business Combinations
2019 Acquisitions
Medical Specialties Distributors LLC (“MSD”)
On June 1, 2018, we completed our acquisition of MSD for the net purchase consideration of $784 million, which was funded from cash on hand. MSD is a leading national distributor of infusion and medical-surgical supplies as well as a provider of biomedical services to alternate site and home health providers. The financial results of MSD have been included in our consolidated statements of operations within our Medical-Surgical Solutions segment since the acquisition date.
The adjusted provisional fair value of assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were $240 million and $163 million. Approximately $381 million of the adjusted preliminary purchase price allocation has been assigned to goodwill, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. The adjusted preliminary purchase price allocation includes acquired identifiable intangibles of $326 million primarily representing customer relationships with a weighted average life of 18 years. These amounts are provisional within the measurement period and subject to change as our fair value assessments are finalized.
The following table summarizes the preliminary recording of the fair value of the assets acquired and liabilities assumed for this acquisition as of the acquisition date.
(In millions)
Amounts Recognized as of Acquisition Date (Provisional As Adjusted)
Receivables
$
113

Other current assets, net of cash and cash equivalents acquired
72

Goodwill
381

Intangible assets
326

Other long-term assets
55

Current liabilities
(72
)
Other long-term liabilities
(91
)
Net assets acquired, net of cash and cash equivalents
$
784


2018 Acquisitions

RxCrossroads
On January 2, 2018, we completed our acquisition of RxCrossroads for the net purchase consideration of $720 million, which was funded from cash on hand. The financial results of RxCrossroads have been included in the consolidated statements of operations within our U.S. Pharmaceutical and Specialty Solutions segment since the acquisition date.
The fair value of assets acquired and liabilities assumed as of the acquisition date were finalized upon completion of the measurement period. As of December 31, 2018, the final amounts of fair value recognized for assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were $129 million and $57 million. Approximately $386 million of the final purchase price allocation was assigned to goodwill, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. The final purchase price allocation included acquired identifiable intangibles of $262 million primarily representing customer relationships and trade names with a weighted average life of 14 years.
CoverMyMeds LLC (“CMM”)
On April 3, 2017, we completed our acquisition of CMM for the net purchase consideration of $1.3 billion, which was funded from cash on hand. The fair value of assets acquired and liabilities assumed as of the acquisition date were finalized upon completion of the measurement period in April 2018. The financial results of CMM have been included in our consolidated statements of operations within Other since the acquisition date.
Pursuant to the agreement, McKesson may pay up to an additional $160 million of contingent consideration based on CMM’s financial performance for 2018 and 2019. As a result, we recorded a liability for this remaining contingent consideration at its estimated fair value of $113 million as of the acquisition date on our consolidated balance sheet.  The contingent consideration was estimated using a Monte Carlo simulation, which utilized Level 3 inputs under the fair value measurement and disclosure guidance, including estimated financial forecasts. The contingent liability was re-measured at fair value at each reporting date until the liability is extinguished with changes in fair value being recorded in our consolidated statements of operations. The initial fair value of this contingent consideration was a non-cash investing activity. In May 2018, we made a cash payment of $68 million representing the contingent consideration for 2018. As of March 31, 2019 and 2018, the related liability was $69 million and $124 million.
Other
During 2018, we also completed our acquisitions of intraFUSION, Inc. (“intraFUSION”), BDI Pharma, LLC (“BDI”) and Uniprix Group (“Uniprix”) for net cash consideration of $485 million, which was funded from cash on hand. The fair value of assets acquired and liabilities assumed of intraFUSION, BDI and Uniprix as of the acquisition dates were finalized upon completion of the measurement period. As of September 30, 2018, the final amounts of fair value recognized for the assets acquired and liabilities assumed for these acquisitions as of the acquisition dates, excluding goodwill and intangibles, were $292 million and $160 million. Approximately $246 million of the final purchase price allocation was assigned to goodwill, which reflects the expected future benefits of certain synergies and intangible assets that do not qualify for separate recognition. The final purchase price allocation included acquired identifiable intangibles of $118 million primarily representing customer relationships. The financial results of intraFUSION and BDI have been included within our U.S. Pharmaceutical and Specialty Solutions segment since the acquisition dates. The financial results of Uniprix have been included within Other since the acquisition date.
2017 Acquisitions
Rexall Health
In the third quarter of 2017, we completed our acquisition of Rexall Health which operated approximately 400 retail pharmacies in Canada, particularly in Ontario and Western Canada. The net cash purchase consideration of $2.9 billion Canadian dollars (approximately $2.1 billion) was funded from cash on hand. The measurement period to finalize the accounting for this acquisition ended in the third quarter of 2018. As part of the transaction, McKesson agreed to divest 27 local stores that the Competition Bureau of Canada identified during its review of the transaction. During 2018, we completed the sales of all 27 stores and received net cash proceeds of $116 million Canadian dollars (approximately $94 million) from a third-party buyer. We also received $147 million Canadian dollars (approximately $119 million) in cash from the third-party seller of Rexall Health as the settlement of the post-closing purchase price adjustment related to these store divestitures. No gain or loss was recognized from the sales of these stores. On May 23, 2018, as the result of resolving certain indemnity and other claims related to this acquisition, $125 million Canadian dollars (approximately $97 million) was released to us from an escrow account. The receipt of this cash was recorded as a settlement gain within operating expenses in our consolidated statement of operations in 2019.
Other
During 2017, we also completed our acquisitions of Vantage, Biologics, Inc. (“Biologics”) and UDG Healthcare PLC (“UDG”) for net cash consideration of $1.6 billion.

Other Acquisitions
During the three years presented, we also completed a number of other small acquisitions within all of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition.
Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes.
v3.19.1
Healthcare Technology Net Asset Exchange
12 Months Ended
Mar. 31, 2019
Equity Method Investments and Joint Ventures [Abstract]  
Healthcare Technology Net Asset Exchange
Healthcare Technology Net Asset Exchange
In the fourth quarter of 2017, we contributed the majority of our McKesson Technology Solutions businesses (“Core MTS Business”) to the newly formed joint venture, Change Healthcare, under the terms of a contribution agreement previously entered into between McKesson and Change Healthcare Inc. (“Change”, formerly known as Change Healthcare Holdings, Inc.) and others including shareholders of Change. In exchange for the contribution, we own 70% of the joint venture with the remaining equity ownership held by shareholders of Change. The joint venture is jointly governed by us and shareholders of Change.
Change Healthcare Inc., the entity that owns 30% of the joint venture, filed a registration statement with the Securities and Exchange Commission on March 15, 2019 and amended on April 5, 2019 regarding its intent to pursue an initial public offering.
Gain from Healthcare Technology Net Asset Exchange
We accounted for this transaction as a sale of the Core MTS Business and a subsequent purchase of a 70% interest in the newly formed joint venture. Accordingly, in 2017, we deconsolidated the Core MTS Business and recorded a pre-tax gain of $3.9 billion (after-tax gain of $3.0 billion) in operating expenses. Additionally, in 2018, we recorded a pre-tax gain of $37 million (after-tax gain of $22 million) in operating expenses upon the finalization of net working capital and other adjustments. During 2018, we received $126 million in cash from Change Healthcare representing the final settlement of the net working capital and other adjustments.
Equity Method Investment in Change Healthcare
Our investment in the joint venture is accounted for using the equity method of accounting on a one-month reporting lag. We recorded our proportionate share of loss from Change Healthcare of $194 million and $248 million in 2019 and 2018, which included transaction and integration expenses incurred by the joint venture and basis differences between the joint venture and McKesson including amortization of fair value adjustments primarily representing incremental intangible amortization and removal of profit associated with the recognition of deferred revenue. The proportionate share of loss from Change Healthcare recorded in 2018, was partially offset by a provisional tax benefit of $76 million recognized by Change Healthcare primarily due to a reduction in the future applicable tax rate related to the December 2017 enactment of the 2017 Tax Act. These amounts were recorded under the caption, “Loss from Equity Method Investment in Change Healthcare,” in our consolidated statement of operations.
At March 31, 2019 and 2018, our carrying value of this equity method investment was $3,513 million and $3,728 million, which exceeded our proportionate share of the joint venture’s book value of net assets by approximately $4,158 million and $4,472 million, primarily reflecting equity method intangible assets and goodwill.
Related Party Transactions
In connection with the transaction, McKesson, Change Healthcare and certain shareholders of Change entered into various ancillary agreements, including transition services agreements (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”) and certain other commercial agreements. Fees incurred or earned from Advisory Agreement were not material for 2019 and 2018. Fees incurred or earned from TSA were $60 million in 2019, $91 million in 2018 and not material in 2017. Transition service fees are included within operating expenses in our consolidated statements of operations. Revenues recognized and expenses incurred under commercial arrangements with Change Healthcare were not material during 2019, 2018 and 2017. At March 31, 2019 and 2018, receivables due from the joint venture were not material.
Tax Receivable Agreement

In connection with the net asset exchange transaction, we also entered into a tax receivable agreement (“TRA”) with the shareholders of Change. At March 31, 2018, we had a $90 million noncurrent liability payable to the shareholders of Change. During 2019, we renegotiated the terms of the TRA which resulted in the extinguishment and derecognition of the $90 million noncurrent liability.  In exchange for the shareholders of Change agreeing to extinguish the liability, we agreed to an allocation of certain tax amortization that had the effect of reducing the amount of a distribution from the Change Healthcare joint venture that would otherwise have been required to be made to the shareholders of Change.  As a result of the renegotiation, McKesson was relieved from any potential future obligations associated with the noncurrent liability and recognized a pre-tax credit of $90 million ($66 million after-tax) in operating expenses in the accompanying consolidated statement of operations in 2019.  We had no outstanding payable balance to the shareholders of Change at March 31, 2019.
v3.19.1
Divestitures
12 Months Ended
Mar. 31, 2019
Discontinued Operation, Income (Loss) from Discontinued Operation Disclosures [Abstract]  
Divestitures
Divestitures
Fiscal 2019

Equity Investment

In November 2018, we divested all of our ownership interest in an equity investment included in Other for proceeds of approximately $61 million. As a result, we recorded a pre-tax gain of $56 million ($41 million after-tax) in the third quarter of 2019. The gain is included within other income, net, in our consolidated statement of operations. Under the terms of agreements entered into for this transaction, we elected to receive cash consideration of $23 million and concurrently contribute $38 million of the proceeds to obtain an equity interest in a newly formed entity.

Fiscal 2018

Enterprise Information Solutions

On August 1, 2017, we entered into an agreement with a third party to sell our EIS business included in Other for $185 million, subject to adjustments for net debt and working capital. On October 2, 2017, the transaction closed upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust laws. We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party. We recognized a pre-tax gain of $109 million ($30 million after-tax) upon the disposition of this business in the third quarter of 2018 within operating expenses.

Equity Investment

On July 18, 2017, we completed the sale of an equity investment included in our U.S. Pharmaceutical and Specialty Solutions segment to a third party for total cash proceeds of $42 million and recorded a pre-tax gain of $43 million ($26 million after-tax) within other income, net, in the second quarter of 2018.

Fiscal 2017

There were no material divestitures in 2017.

These divestitures did not meet the criteria to be reported as discontinued operations since they did not constitute a significant strategic business shift.  Accordingly, pre-tax gains from 2019 and 2018 divestitures were recorded within continuing operations of our consolidated statements of operations. Pre- and after-tax income of divested businesses were not material for 2019 and 2018.
Discontinued Operations
On May 31, 2016, we completed the sale of our Brazilian pharmaceutical distribution business and recognized an after-tax loss of $113 million within discontinued operations in 2017 primarily for the settlement of certain indemnification matters as well as the release of the cumulative translation losses. We made a payment of approximately $100 million related to the sale of this business.

The results of discontinued operations for the years ended March 31, 2019, 2018 and 2017 were not material except for the loss recognized upon the disposition of our Brazilian business in 2017. As of March 31, 2019 and 2018, the carrying amounts of total assets and liabilities of discontinued operations were not material.
v3.19.1
Discontinued Operations
12 Months Ended
Mar. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Divestitures
Fiscal 2019

Equity Investment

In November 2018, we divested all of our ownership interest in an equity investment included in Other for proceeds of approximately $61 million. As a result, we recorded a pre-tax gain of $56 million ($41 million after-tax) in the third quarter of 2019. The gain is included within other income, net, in our consolidated statement of operations. Under the terms of agreements entered into for this transaction, we elected to receive cash consideration of $23 million and concurrently contribute $38 million of the proceeds to obtain an equity interest in a newly formed entity.

Fiscal 2018

Enterprise Information Solutions

On August 1, 2017, we entered into an agreement with a third party to sell our EIS business included in Other for $185 million, subject to adjustments for net debt and working capital. On October 2, 2017, the transaction closed upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust laws. We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party. We recognized a pre-tax gain of $109 million ($30 million after-tax) upon the disposition of this business in the third quarter of 2018 within operating expenses.

Equity Investment

On July 18, 2017, we completed the sale of an equity investment included in our U.S. Pharmaceutical and Specialty Solutions segment to a third party for total cash proceeds of $42 million and recorded a pre-tax gain of $43 million ($26 million after-tax) within other income, net, in the second quarter of 2018.

Fiscal 2017

There were no material divestitures in 2017.

These divestitures did not meet the criteria to be reported as discontinued operations since they did not constitute a significant strategic business shift.  Accordingly, pre-tax gains from 2019 and 2018 divestitures were recorded within continuing operations of our consolidated statements of operations. Pre- and after-tax income of divested businesses were not material for 2019 and 2018.
Discontinued Operations
On May 31, 2016, we completed the sale of our Brazilian pharmaceutical distribution business and recognized an after-tax loss of $113 million within discontinued operations in 2017 primarily for the settlement of certain indemnification matters as well as the release of the cumulative translation losses. We made a payment of approximately $100 million related to the sale of this business.

The results of discontinued operations for the years ended March 31, 2019, 2018 and 2017 were not material except for the loss recognized upon the disposition of our Brazilian business in 2017. As of March 31, 2019 and 2018, the carrying amounts of total assets and liabilities of discontinued operations were not material.
v3.19.1
Share-Based Compensation
12 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
Share-Based Compensation
We provide share-based compensation to our employees, officers and non-employee directors, including stock options, an employee stock purchase plan (“ESPP”), restricted stock units (“RSUs”), performance-based restricted stock units (“PeRSUs”) and performance-based stock units ("PSUs", formerly referred to as total shareholder return units or “TSRUs”) (collectively, “share-based awards”). Most of our share-based awards are granted in the first quarter of each fiscal year.
Compensation expense for the share-based awards is recognized for the portion of awards ultimately expected to vest. We estimate the number of share-based awards that will ultimately vest primarily based on historical experience. The estimated forfeiture rate established upon grant is re-assessed throughout the requisite service period and is adjusted when actual forfeitures occur. The actual forfeitures in future reporting periods could be higher or lower than current estimates.
The compensation expense recognized has been classified in the consolidated statements of operations or capitalized in the consolidated balance sheets in the same manner as cash compensation paid to our employees. No share-based compensation expenses were capitalized as part of the cost of an asset in 2019, and no material amounts were capitalized in 2018 and 2017.

Impact on Net Income
The components of share-based compensation expense and related tax benefits are as follows:
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Restricted stock unit awards (1)
$
75

 
$
46

 
$
79

Stock options
12

 
14

 
24

Employee stock purchase plan
8

 
9

 
12

Share-based compensation expense
95

 
69

 
115

Tax benefit for share-based compensation expense (2)
(12
)
 
(28
)
 
(92
)
Share-based compensation expense, net of tax
$
83

 
$
41

 
$
23


(1)
Includes compensation expense recognized for RSUs, PeRSUs and PSUs.
(2)
Income tax benefit is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of pre-tax compensation expense is not tax-deductible. Income tax expense for 2019 included discrete income tax expense of $4 million, 2018 and 2017 included discrete income tax benefits of $8 million and $54 million related to the adoption of the amended accounting guidance on share-based compensation.
Stock Plans
In July 2013, our stockholders approved the 2013 Stock Plan to replace the 2005 Stock Plan. These stock plans provide our employees, officers and non-employee directors the opportunity to receive equity-based, long-term incentives in the form of stock options, restricted stock, RSUs, PeRSUs, PSUs and other share-based awards. The 2013 Stock Plan reserves 30 million shares plus the remaining number of shares reserved but unused under the 2005 Stock Plan. As of March 31, 2019, 25 million shares remain available for future grant under the 2013 Stock Plan.
Stock Options
Stock options are granted with an exercise price at no less than the fair market value and those options granted under the stock plans generally have a contractual term of seven years and follow a four year vesting schedule.
Compensation expense for stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. We use the Black-Scholes options-pricing model to estimate the fair value of our stock options. Once the fair value of an employee stock option is determined, current accounting practices do not permit it to be changed, even if the estimates used are different from actual. The options-pricing model requires the use of various estimates and assumptions as follows:
Expected stock price volatility is based on a combination of historical volatility of our common stock and implied market volatility. We believe that this market-based input provides a reasonable estimate of our future stock price movements and is consistent with employee stock option valuation considerations.
Expected dividend yield is based on historical experience and investors’ current expectations.
The risk-free interest rate for periods within the expected life of the option is based on the constant maturity U.S. Treasury rate in effect at the time of grant.
Expected life of the options is based primarily on historical employee stock option exercises and other behavior data and reflects the impact of changes in contractual life of current option grants compared to our historical grants.
Weighted-average assumptions used to estimate the fair value of employee stock options were as follows:
 
Years Ended March 31,
 
2019
 
2018
 
2017
Expected stock price volatility
26%
 
25%
 
21%
Expected dividend yield
0.9%
 
0.8%
 
0.7%
Risk-free interest rate
2.8%
 
1.7%
 
1.1%
Expected life (in years)
4.6
 
4.5
 
4

The following is a summary of stock options outstanding at March 31, 2019:
 
 
Options Outstanding
 
Options Exercisable
Range of Exercise
Prices
 
Number of
Options
Outstanding
at Year End
(In millions)
 
Weighted-
Average
Remaining
Contractual
Life (Years)
 
Weighted-
Average
Exercise Price
 
Number of
Options
Exercisable at
Year End
(In millions)
 
Weighted-
Average
Exercise Price
$
87.24

$
162.55

 
1
 
4
 
$
133.54

 
1
 
$
119.65

162.56

239.93

 
2
 
3
 
197.98

 
1
 
199.08

 
 
 
 
3
 
 
 
 
 
2
 
 


The following table summarizes stock option activity during 2019:
(In millions, except per share data)
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value (2)
Outstanding, March 31, 2018
3
 
$
161.27

 
4
 
$
36

Granted
1
 
141.93

 
 
 
 
Cancelled
 
167.37

 
 
 
 
Exercised
(1)
 
86.65

 
 
 
 
Outstanding, March 31, 2019
3
 
$
166.72

 
3
 
$
4

Vested and expected to vest (1)
3
 
$
166.88

 
3
 
$
3

Vested and exercisable, March 31, 2019
2
 
167.27

 
2
 
4


(1)
The number of options expected to vest takes into account an estimate of expected forfeitures.
(2)
The intrinsic value is calculated as the difference between the period-end market price of the Company’s common stock and the exercise price of “in-the-money” options.
The following table provides data related to stock option activity:
 
Years Ended March 31,
(In millions, except per share data)
2019
 
2018
 
2017
Weighted-average grant date fair value per stock option
$
34.98

 
$
34.24

 
$
32.19

Aggregate intrinsic value on exercise
$
16

 
$
60

 
$
97

Cash received upon exercise
$
29

 
$
77

 
$
54

Tax benefits realized related to exercise
$
4

 
$
22

 
$
38

Total fair value of stock options vested
$
16

 
$
20

 
$
18

Total compensation cost, net of estimated forfeitures, related to unvested stock options not yet recognized, pre-tax
$
15

 
$
15

 
$
21

Weighted-average period in years over which stock option compensation cost is expected to be recognized
2

 
2

 
2


Restricted Stock Unit Awards
RSUs, which entitle the holder to receive at the end of a vesting term a specified number of shares of the Company’s common stock, are accounted for at fair value at the date of grant. Total compensation expense for RSUs under our stock plans is determined by the product of the number of shares that are expected to vest and the grant date market price of the Company’s common stock. The Compensation Committee determines the vesting terms at the time of grant. These awards generally vest in three to four years. We recognize compensation expense for RSUs on a straight-line basis over the requisite service period.
Non-employee directors receive an annual grant of RSUs, which vest immediately and are expensed upon grant. The director may elect to receive the underlying shares immediately or defer receipt of the shares if they meet director stock ownership guidelines. The shares will be automatically deferred for those directors who do not meet the director stock ownership guidelines. At March 31, 2019, approximately 63,000 RSUs for our directors are vested.
PeRSUs are awards for which the number of RSUs awarded is conditional upon the attainment of one or more performance objectives over a specified period. Each year, the Compensation Committee approves the target number of PeRSUs representing the base number of RSUs that could be awarded if performance goals are attained. PeRSUs are accounted for as variable awards until the performance goals are reached at which time the grant date is established. Total compensation expense for PeRSUs is determined by the product of the number of shares eligible to be awarded and expected to vest, and the market price of the Company’s common stock, commencing at the inception of the requisite service period. During the performance period, the compensation expense for PeRSUs is re-computed using the market price and the performance modifier at the end of a reporting period. At the end of the performance period, if the goals are attained, the awards are granted and classified as RSUs and accounted for on that basis. We recognize compensation expense for these awards on a straight-line basis over the requisite aggregate service period of generally four years.
PSUs, formerly referred to as TSRUs, are conditional upon the attainment of market and performance objectives over a specified period. The number of vested PSUs is assessed at the end of a three-year performance period upon attainment of a total shareholder return metric relative to a peer group of companies and meeting certain earnings per share targets, and for special PSUs granted in 2019 meeting certain cumulative operating profit metric. We use the Monte Carlo simulation model to measure the fair value of the total shareholder return portion of the PSUs. The earnings per share portion of the PSUs is measured at the grant date market price. PSUs have a requisite service period of approximately three years. Expense is attributed to the requisite service period on a straight-line basis based on the fair value of the PSUs, adjusted for the performance modifier at the end of each reporting period. For PSUs that are designated as equity awards, the fair value is measured at the grant date. For PSUs that are eligible for cash settlement and designated as liability awards, we re-measure the fair value at the end of each reporting period and adjust a corresponding liability on our balance sheet for changes in fair value.

The weighted-average assumptions used in the Monte Carlo valuations are as follows:
 
Years Ended March 31,
 
2019
 
2018
 
2017
Expected stock price volatility
31%
 
29%
 
23%
Expected dividend yield
0.9%
 
0.8%
 
0.7%
Risk-free interest rate
2.6%
 
1.5%
 
1.1%
Expected life (in years)
3
 
3
 
3


The following table summarizes activity for restricted stock unit awards (RSUs, PeRSUs, and PSUs) during 2019:
(In millions, except per share data)
Shares
 
Weighted-
Average
Grant Date Fair
Value Per Share
Nonvested, March 31, 2018
2
 
$
176.74

Granted
1
 
143.94

Cancelled
 
147.88

Vested
(1)
 
210.30

Nonvested, March 31, 2019
2
 
$
142.77


The following table provides data related to restricted stock unit award activity:
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Total fair value of shares vested
$
59

 
$
156

 
$
109

Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock unit awards not yet recognized, pre-tax
$
119

 
$
97

 
$
99

Weighted-average period in years over which restricted stock unit award cost is expected to be recognized
2

 
2

 
2


ESPP
The Company has an ESPP under which 21 million shares have been authorized for issuance. The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions occur over three-month purchase periods and the shares are then purchased at 85% of the market price at the end of each purchase period. Employees are allowed to terminate their participation in the ESPP at any time during the purchase period prior to the purchase of the shares. The 15% discount provided to employees on these shares is included in compensation expense. The shares related to funds outstanding at the end of a quarter are included in the calculation of diluted weighted average shares outstanding. These amounts have not been significant for all the years presented. We recognize costs for employer matching contributions as ESPP expense over the relevant purchase period. Shares issued under the ESPP were not material in 2019, 2018, and 2017. At March 31, 2019, 3 million shares remain available for issuance.
v3.19.1
Other Income, Net
12 Months Ended
Mar. 31, 2019
Other Nonoperating Income (Expense) [Abstract]  
Other Income, Net
Other Income, Net
 
Years Ended March 31,
(In millions)
2019
2018
2017
Interest income
$
39

 
$
48

 
$
29

Equity in earnings, net (1)
43

 
32

 
30

Gain from sale of equity investment (2)
56

 
43

 

Other, net
44

 
7

 
18

Total
$
182

 
$
130

 
$
77

(1)
Primarily recorded within our European Pharmaceutical Solutions segment.
(2)
Amount represented a pre-tax gain from the sale of an equity investment to a third party included in Other during 2019 and in our U.S. Pharmaceutical and Specialty Solutions segment during 2018.
v3.19.1
Income Taxes
12 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Income from continuing operations before income taxes
 
 
 
 
 
U.S.
$
1,512

 
$
1,175

 
$
5,772

Foreign
(902
)
 
(936
)
 
1,119

Total income from continuing operations before income taxes
$
610

 
$
239

 
$
6,891


Income tax expense (benefit) related to continuing operations consists of the following:
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Current
 
 
 
 
 
Federal
$
(20
)
 
$
577

 
$
524

State
35

 
33

 
86

Foreign
152

 
205

 
122

Total current
167

 
815

 
732

 
 
 
 
 
 
Deferred
 
 
 
 
 
Federal
223

 
(767
)
 
767

State
44

 
17

 
164

Foreign
(78
)
 
(118
)
 
(49
)
Total deferred
189

 
(868
)
 
882

Income tax expense (benefit)
$
356

 
$
(53
)
 
$
1,614


We recorded income tax expense of $356 million, benefit of $53 million and expense of $1,614 million related to continuing operations in 2019, 2018 and 2017.
Our reported income tax expense rate for 2019 was 58.4% compared to income tax benefit rate of 22.2% for 2018 and an income tax expense rate of 23.4% in 2017. Fluctuations in our reported income tax rates are primarily due to the impact of the 2017 Tax Act, the impact of nondeductible impairment charges, and varying proportions of income attributable to foreign countries that have income tax rates different from the U.S. rate.
The reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% for 2019, 31.6% for 2018 and 35% for 2017 to the income before income taxes is as follows:
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Income tax expense at federal statutory rate
$
128

 
$
75

 
$
2,411

State income taxes net of federal tax benefit
70

 
50

 
153

Tax effect of foreign operations
(86
)
 
(146
)
 
(326
)
Unrecognized tax benefits and settlements
20

 
454

 
57

Non-deductible goodwill
357

 
585

 
106

Share-based compensation
4

 
(8
)
 
(54
)
Net tax benefit on intellectual property transfer
(42
)
 
(178
)
 
(137
)
Rate differential on gain from Change Healthcare Net Asset Exchange

 

 
(587
)
Impact of change in U.S. tax rate on temporary differences
(81
)
 
(1,324
)
 

Transition tax on foreign earnings
(5
)
 
457

 

Other, net (1)
(9
)
 
(18
)
 
(9
)
Income tax expense (benefit)
$
356

 
$
(53
)
 
$
1,614


(1)
Our effective tax rates were impacted by other favorable U.S. federal permanent differences including research and development credits of $7 million, $11 million and $14 million in 2019, 2018 and 2017.

Our reported income tax expense rate for 2019 was unfavorably impacted by non-cash pre-tax charges of $1,776 million ($1,756 million after-tax) to impair the carrying value of goodwill for our European Pharmaceutical Solutions segment, given that these charges are generally not deductible for tax purposes. Our reported income tax benefit rate for 2018 was unfavorably impacted by non-cash charges of $1,738 million (pre-tax and after-tax) to impair the carrying value of goodwill, given that generally no tax benefit was recognized for these charges. Our reported income tax expense rate for 2017 was unfavorably impacted by the non-cash pre-tax charge of $290 million ($282 million after-tax) to impair the carrying value of goodwill, given that generally the majority of this charge was not deductible for income tax purposes. Refer to Financial Note 2, “Goodwill Impairment Charges,” for more information.
During 2019, we sold software between wholly-owned legal entities within the McKesson group that are based in different tax jurisdictions. The transferor entity recognized a gain on the sale of assets that was not subject to income tax in its local jurisdiction; such gain was eliminated upon consolidation. An entity based in the U.S. was the acquirer of the software and is entitled to amortize the purchase price of the assets for tax purposes. In accordance with the recently adopted amended accounting guidance on income taxes, a discrete tax benefit of $42 million was recognized in the second quarter of 2019 with a corresponding increase to a deferred tax asset for the future tax amortization.
On December 19, 2016, we sold various software relating to our technology businesses between wholly owned legal entities within the McKesson group that are based in different tax jurisdictions. The transferor entity recognized a gain on the sale of assets that was not subject to income tax in its local jurisdiction; such gain was eliminated upon consolidation. A McKesson entity based in the U.S. was the recipient of the software and is entitled to amortize the fair value of the assets for book and tax purposes. The tax benefit associated with the amortization of these assets is recognized over the tax lives of the assets. As a result, we recognized a net tax benefit of $178 million and $137 million in 2018 and 2017. We no longer recognize the tax benefit associated with this amortization in continuing operations upon adoption of the amended guidance related to intra-entity transfer of an asset other than inventory in 2019. Refer to Financial Note 1, “Significant Accounting Policies,” for more information.
On March 1, 2017, we contributed assets to Change Healthcare as described in Financial Note 5, “Healthcare Technology Net Asset Exchange”. While this transaction was predominantly structured as a tax free asset contribution for U.S. federal income tax purposes under Section 721(a) of the Internal Revenue Code, we recorded tax expense of $929 million on the gain. The tax expense was primarily driven by the recognition of a deferred tax liability on the excess book over tax basis in our equity investment in Change Healthcare.
In March 2016, amended guidance was issued for employee share-based payment awards. Under the amended guidance, all windfalls and shortfalls related to employee share-based compensation arrangements are recognized within income tax expense. We elected to early adopt this amended guidance in the first quarter of 2017. The primary impact of the adoption was the recognition of excess tax benefits in the income statement on a prospective basis, rather than additional paid-in capital. As a result, we recognized net tax expense of $4 million in 2019 and net tax benefits of $8 million and $54 million in 2018 and 2017.
Deferred tax balances consisted of the following:
 
March 31,
(In millions)
2019
 
2018
Assets
 
 
 
Receivable allowances
$
70

 
$
58

Compensation and benefit related accruals
377

 
345

Net operating loss and credit carryforwards
885

 
811

Long-term contractual obligations

 
59

Other
216

 
279

Subtotal
1,548

 
1,552

Less: valuation allowance
(870
)
 
(751
)
Total assets
678

 
801

Liabilities
 
 
 
Inventory valuation and other assets
(2,016
)
 
(1,869
)
Fixed assets and systems development costs
(170
)
 
(158
)
Intangibles
(513
)
 
(644
)
Change Healthcare Equity Investment
(885
)
 
(814
)
Other
(34
)
 
(71
)
Total liabilities
(3,618
)
 
(3,556
)
Net deferred tax liability
$
(2,940
)
 
$
(2,755
)
 
 
 
 
Long-term deferred tax asset
$
58

 
$
49

Long-term deferred tax liability
(2,998
)
 
(2,804
)
Net deferred tax liability
$
(2,940
)
 
$
(2,755
)

We assess the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized.  As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets in various tax jurisdictions.  The valuation allowance was approximately $870 million and $751 million in 2019 and 2018. The increase of $119 million in valuation allowances in the current year relates primarily to net operating and capital losses incurred in certain tax jurisdictions for which no tax benefit was recognized.
We have federal, state and foreign net operating loss carryforwards of $92 million, $3,551 million and $2,143 million. Federal and state net operating losses will expire at various dates from 2019 through 2040. Substantially all our foreign net operating losses have indefinite lives. In addition, we have foreign capital loss carryforwards of $742 million with indefinite lives.
The following table summarizes the activity related to our gross unrecognized tax benefits for the last three years:
 
Years Ended March 31,
(In millions)
2019
 
2018
 
2017
Unrecognized tax benefits at beginning of period
$
1,183

 
$
486

 
$
555

Additions based on tax positions related to prior years
78

 
47

 
7

Reductions based on tax positions related to prior years
(234
)
 
(124
)