MCK 10-K & 10-Q changes, risk factors and insider trading

The discussion below identifies certain representative risks that might cause our actual business results to materially differ from our estimates.forward looking statements. It is not practical to identify or describe all risks and uncertainties that might materially impact our business operations, reputation, financial position, or results of operations. Our business could be materially affected by risks that we have not yet identified or that we currently consider to be immaterial. This is not a complete discussion of all potential risks and uncertainties. The characterization of a risk as potential does not mean the risk has not occurred, is not currently occurring, or is unlikely to occur.

We are routinely named as a defendant in litigation or regulatory proceedings and other legal disputes, which may include asserted class action litigation, such as those described in Financial Note 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in this Annual Report. Regulatory proceedings involve allegations such as false claims, healthcare fraud and abuse, and antitrustviolations violations.of competition laws. Civil litigation proceedings involve commercial, employment, environmental, intellectual property, tort, and other claims. Despite valid defenses that we assert, legal disputes are often costly, time-consuming, distracting to management, and disruptive to normal business operations. The uncertainty and expense associated with unresolved legal disputes might harm our business and reputation even if the matter ultimately is favorably resolved. The outcome of legal disputes is difficult to predict, and outcomes may occur that we believe are not justified by the evidence or existing law. Outcomes include monetary damages, penalties and fines, and injunctive or other relief that requires us to change our business operationsoperations, practices, or arrangements and incur significant expense. Accordingly, legal disputes might have a materially adverse impact on our reputation, our business operations, and our financial position or results of operations.

We are subject to extensive, complex, challenging, and challengingfrequently changing healthcare, environmental, and other laws.laws, and may experience increased costs to distribute controlled substances such as opioids.

We are subject to extensive, complex, challenging, and frequently changing healthcare, environmental, and other laws. As described in “Government Regulation” in Item 1 of Part I above, our industry is highly regulated,regulated and furthersubject to a regulatory framework that is continually evolving. Legislative, regulatory, or industry measures related to the distribution of pharmaceuticals and controlled substances could affect our business in ways that we may not be able to predict. Further regulation of our distribution businesses,operations, technologytechnology, products, andor servicesservices, or other aspects of our business, could impose increased costs, negatively impact our profit margins and the profit margins of our customers, delay the introduction or implementation of our new products, place restrictions on or otherwiserequire negativelymodifications impactto our businesspractices andor arrangements, limit our strategic options, or expose the Companyus to litigation and regulatory investigations.investigations, reviews, or other proceedings. We incur cleanup costs under environmental laws and may incur additional costs under environmental laws. Additionally, we are subject to various routine and ad hoc inspections and requests for information by governmental agencies to determine compliance with various statutes and regulations. We also incur remediation costs, and may incur additional costs, under environmental laws. Any noncompliance by us with applicable laws, or theany failure to maintain, renew, or obtain necessary permits and licenses, could result in enforcement actions, fines, penalties, or other sanctions. In addition, certain states have enacted, and others continue to consider, legislation that would impose taxes, assessments, or similar charges on the distribution of controlled substances, including prescription opioids. Any such taxes, assessments, or other related compliance obligations could increase our costs, require changes to our distribution practices, or lead to enforcementadverse actionspublicity. orThe litigationscope, application, and financial impact of these measures vary by jurisdiction and may be difficult to predict. Any of the foregoing risks might have a materially adverse impact on our reputation, our business operations and our financial position or results of operations.

As described in “Government Regulation” in Item 1 of Part I above, federal, state, and local governmental entities in the U.S. and elsewhere continue to strengthen their position on, and scrutiny of, practices that may indicate fraud, waste, and abuse affecting government healthcare programs such as Medicare and Medicaid. Those laws may be interpreted or applied in a manner that could require us to make changes in our operations at added expense. Alleged failures to comply with those laws, including the federal Anti-Kickback Statute, expose us to federal or state government investigations or qui tam actions, and to liability for damages and civil and criminal penalties. Such failures might result in the loss of licenses or our ability to participate in Medicare, Medicaid, or other federal and state healthcare programs, or pursue government contracts. These sanctions might have a materially adverse impact on our reputation, our business operations and our financial position or results of operations.

Privacy, cybersecurity, data protection, and AI laws and guidance increase our compliance burden.burden and expose us to risks.

As described in “Government Regulation” in Item 1 of Part I above, we are subject to a variety of privacy, cybersecurity, and data protection, and AIprotection laws that change frequently and have requirements that vary from jurisdiction to jurisdiction.jurisdiction, Failureas well as to complyrapidly withdeveloping theseand potentially divergent AI laws subjects us to potential regulatory enforcement activity, fines, private litigation including class actions, reputational impacts, and otherguidance. costs.Some Weof also haveour contractual obligations that might be breached if we fail to comply with privacy and data security laws. The use of AI solutions by our employees or third parties on which we rely could also lead to the misuse of data or public disclosure of confidential information (including personal data or proprietary information) in contravention of our internal policies,policies and safeguards, applicable laws, contractual requirements, or third-party intellectual property rights. Our efforts to comply with privacy, data security, and AI laws and guidance complicate our operations and add to our costs. AAny significant cybersecurity and/or privacy breachfailure or perceived failure by us or any third-party providers to comply with privacythese laws and dataguidance securitycould laws, bysubject us orto byregulatory externalenforcement serviceactivity, providers,fines, vendors,investigations, orlegal otherproceedings third(including partiesprivate withlitigation whichsuch weas doclass business,actions), liability, reputational impacts, and costs. Any of the foregoing risks might have a materially adverse impact on our reputation, our business operations, and our financial position or results of operations.

Anti-bribery and anti-corruption laws increase our compliance burden.burden and expose us to risks.

We are required under U.S. Generally Accepted Accounting Principles (“GAAP”) to test our goodwill for impairment annuallyannually, or more frequently if indicators for potential impairment exist. Indicators that are considered include significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, or a significant decline in the Company’s stock price and/or market capitalization for a sustained period of time. In addition, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible and other long-lived assets may not be recoverable include slower growth rates, the loss of a significant customer, burdensome new laws or other adverse legal developments, or divestiture of a business or asset for less than its carrying value. There are inherent uncertainties in management’s estimates, judgments, and assumptions used in assessing recoverability of goodwill, intangibles, and other long-lived assets. Any material changes in key assumptions, including failure to meet business plans, negative changes in government reimbursement rates, a deterioration in the U.S. and global financial markets, an increase in interest rates, an increase in inflation, or an increase in the cost of equity financing by market participants within the industry, or other unanticipated events and circumstances, may decrease the projected cash flows or increase the discount rates and could potentially result in an impairment charge. We have in the past recorded, and may be required to record, a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible and other long-lived assets is determined, which might have a materially adverse impact on our business operations and our financial position or results of operations. See Financial Note 10, “Goodwill and Intangible Assets,” for descriptions of impairments of goodwill or intangible or other long-lived assets in recent periods.

We, our external service providers, vendors, and other third parties with which we do business, use technology and systems to perform our business operations, such as the secure electronic transmission, processing, storage, and hosting of sensitive information, including protected health information and other types of personal information, confidential financial information, proprietary information, and other sensitive information relating to our customers, company, and workforce. Despite our physical, technical, and administrative security measures as well as third party risk management processes as discussed in “Cybersecurity” in Item 1C of Part I below, technology systems and operations of the Company and third parties, including our external service providers and vendors, with which we do business, have experienced cybersecurity incidents and are subject to future cyberattacks and cybersecurity incidents. Companies in the healthcare industry are increasingly targeted for cyberattacks. Cybersecurity incidents include unauthorized occurrences on or conducted through our or our third parties’ information systems, such as tampering, malware insertion, ransomware attacks, or other system integrity events. The risk and efficacy of cyberattacks increases from time to time due to a variety of internal and external factors, including, but not limited to, the adoptionuse by threat actors of sophisticated and rapidly evolving techniques, such as adversarial AI,AI (which makes cyberattacks more likely and duringmay make them more difficult to detect, contain, or mitigate), and the existence of political or military unrest. Our own adoption and use of AI also may create new attack surfaces or methods and generally increase cybersecurity and data protection risks and costs. A cybersecurity incident might involve a material data breach or other material impact to the confidentiality, integrity, availability, andor operations of our technology systems or data,data (including the misuse, loss, disclosure, or corruption of proprietary or personal information), which might result in harm to patients, consumers, or employees; litigation or regulatory action; disruption of our business operations; loss of customers or revenue; cash flow impacts; and increased expense. Additionally, it may take considerable time for us to investigate and evaluate the full impact of incidents, particularly for sophisticated attacks. These factors may inhibit our ability to provide prompt, full, and reliable information about the incident to our customers, regulators, and the public. Any cybersecurity incident might have a materially adverse impact on our business, our operations, our reputation, and our financial position or results of operations.

We rely on sophisticated information systems and networks to perform our business operations, such as to obtain, rapidly process, analyze, and manage data that facilitate the purchase and distribution of thousands of inventory items from distribution centers. We provide remote services that involve hosting customer data and operating software on our own or third-party systems. Our customers rely on their ability to access and use these systems, and their data, as needed, and our ability to compete effectively is increasingly dependent on access to, and interpretation of, data. Data quality impacts customer ordering, order fulfillment and higher order processing. If we fail to effectively implement and maintain data governance structures across our businesses, to effectively interpret and utilize such data, or protect the integrity of such data, including systems powered by or incorporating AI and machine learning, our operations could be impacted, and we may be at a competitive disadvantage. Our networks and hosting systems are also vulnerable to interruption or damage from sources beyond our control. When those information systems or networks are disrupted, or if the timely delivery of medical care or other customer business requirements are impaired, we experience injury to patients or consumers, litigation or regulatory action, disruption of our business operations, loss of customers or revenue, cash flow impacts, and increased expense. In addition, hardware, software, and other applications and updates procured from third parties may contain defects that have, or may in the future, unexpectedly restrict access to or interfere with the proper operations of our information systems and hardware. Any such problems might have a materially adverse impact on our business, our reputation, and our financial position or results of operations.

We sell and provide services involving complex software and technology that may contain errors, especially when first introduced to market. Healthcare professionals delivering patient care tend to have heightened sensitivity to system and software errors.errors due, among other reasons, to the critical nature of healthcare decisions. If our software and technology services are alleged to have contributed to faulty clinical decisions, compromised continuity of patient care, or injury to patients, we might be subject to regulatory scrutiny or,or claims by users of our software or services and/or their patients. Errors or failures might damage our reputation and negatively affect future sales. A failure of a system or software to conform to specifications might constitute a breach of warranty that could result in repair costs, contract termination, refunds, or claims for damages. These risks can be heightened upon theThe adoption and use of new technologies, including AI, and may introduce new or expandedenhanced risks, such as data inaccuracy, unreliability, or bias.bias, as well as ethical or privacy concerns. Any of these types of errorserrors, failures, or failuresrisks might have a materially adverse impact on our reputation, our business operations, and our financial position or results of operations.

We distribute pharmaceutical, medical, and other FDA-regulated products manufactured by third parties and by our private label businesses, including medications that may be temperature sensitive or have limited shelf lives. Our systems and procedures are designed to maintain the safety and efficacy of the products throughout the sourcing and distribution process. Issues affecting product safety or efficacy can arise from manufacturing, storing, distributing, dispensingdispensing, or using products, and can result in adverse consequences such as safety alerts, seizures, bans, recalls, withdrawals or other market action, suspensions, and other regulatory actions and sanctions, civil lawsuits, increased costs, disruptions, delays, and reputational damage. Any of these types of issues or results might have a materially adverse impact on our reputation, our business operations, and our financial position or results of operations.

We might be unable to successfully complete or integrate acquisitions or other strategic transactions.transactions, and our investments in businesses may not perform as we expect.

Our growth strategy includes consummating acquisitionsacquisitions, investments, or other strategic transactions that either expand or complement our business. To fund these strategic transactions, we may require financing that may not be available on acceptable terms. We may not receive governmental approvals needed to complete proposed transactions, or such approvals may be subject to delays or conditions that reduce transaction benefits. Achieving the desired outcomes of these strategic transactions involves significant risks including: diverting management’s attention from other business operations or priorities; challenges with assimilating the acquired businesses, such as integration of operations, systems, and technologies; failure or delay in realizing operating synergies; difficulty retaining key acquired company personnel; unanticipated accounting or financial systems issues with the acquired business, which might affect our internal controls over financial reporting; disputes with the sellers of acquired businesses; unanticipated compliance issues in the acquired business; unknown or unanticipated cybersecurity issuesissues, as well as heightened vulnerabilities during integration; challenges retaining customers of the acquired business; unanticipated expenses or charges to earnings, including depreciation and amortization or potential impairment charges; and risks of known and unknown assumed liabilities in the acquired business.business; Thesefailure risksof an acquired business or investment to perform as projected in the near or long term; and changes in laws or their interpretation or application with respect to an acquired business or investment, such as potential restrictions on certain healthcare ownership structures or arrangements (see “Government Regulation” in Item 1 of Part I above). Certain of these factors at times have adverselynegatively affected, and any of these factors could in the future adverselynegatively affect, our ability to achieve the anticipated benefits of an acquisition, andinvestment, or other strategic transaction. Any of the foregoing risks might have a materially adverse impact on our business operations and our financial position or results of operations.

On March 10, 2020, the Company completed a separation of its interest in Change Healthcare LLC (“Change Healthcare JV”). The divestiture was effected through the split-off of PF2 SpinCo, Inc. (“SpinCo”), a wholly owned subsidiary of the Company that held all of the Company’s interest in the Change Healthcare JV, to certain of the Company’s stockholders through an exchange offer (the “Exchange Offer”), followed by a merger of SpinCo with and into Change Healthcare Inc. (“Change”), with Change surviving the merger (the “Merger” and, together with the Exchange Offer, the “Transactions”). The Company received an opinion from outside legal counsel to the effect that the Transactions qualified as generally tax-free transactions to the Company and its shareholdersstockholders for U.S. federal income tax purposes. An opinion of legal counsel is not binding on the Internal Revenue Service (the “IRS”) or the courts, and the IRS or the courts may not agree with the intended tax-free treatment of the Transactions. In addition, the opinion could not be relied upon if certain assumptions, representations, and undertakings upon which the opinion was based are materially inaccurate or incomplete, or are violated in any material respect. If the intended tax-free treatment of the Transactions is not sustained, the Company and its stockholders who participated in the Transactions may be required to pay substantial U.S. federal income taxes. In connection with the Transactions, the Company, SpinCo, Change, and the Change Healthcare JV entered into the Tax Matters Agreement, which governs their respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, tax contests, and other tax sharing regarding U.S. federal, state, and local, and non-U.S. taxes, other tax matters, and related tax returns. Under the Tax Matters Agreement, Change is required to indemnify the Company if the Transactions become taxable as a result of certain actions by Change or SpinCo, or as a result of certain changes in ownership of the stock of Change after the Merger. If Change does not honor its obligations to indemnify the Company, or if the Transactions fail to qualify for the intended tax-free treatment for reasons not related to a disqualifying action by Change or SpinCo, the resulting tax to the Company could have a significant adverse effect on our financial position or results of operations.

Our business strategy as a diversified healthcare services company includes investinginvesting, organically and inorganically, to further build an integrated oncology and specialtymultispecialty care platform and expand our biopharma services business. Our ability to grow those businesses will dependdepend, among other things, on our: hiring and retaining talented individuals with necessary knowledge and skills; acquiring, developing, and implementing new technologies and capabilities, including AI; establishing new offerings and pivoting or enhancing existing ones; successfully identifying, completing, and realizing the anticipated benefits of strategic transactions; forming and expanding business relationships; anticipating the needs of our customers; and successfully competing against providers of similar services. New technologies, such as AI, may not result in the benefits we anticipate, may not enable us to maintainkeep apace competitivewith advantage,our competitors and the rapidly evolving technological landscape, and may require us to expend significant resources.resources, including to maintain our capabilities. We have increased, and expect to continue to increase, our use of AI technology.technology, Thewhich AIcould technologies we employ may become obsolete earlier than planned or we may be unsuccessful at realizing the benefits ofheighten these investments.risks. Additionally, some of our historical competitors and a growing number of new competitive entrants have more experience than we do in enabling technologies such as data analytics, machine learning, or AI. As described in “Government Regulation” in Item 1 of Part I above, we also face certain regulatory risks in executing our growth strategy, including potential laws that place restrictions on certain healthcare ownership structures or arrangements. We may not achieve our desired return on our investments through our growth strategies.strategy, If we fail to achieveor acceptable sales and profitability in our strategic growth areas,areas. itAny of the foregoing risks might have a materially adverse impact on our business prospects and our financial position or results of operations.

Our contracts with governmental entities are subject to risks such as lack of funding and compliance with unique requirements. For example, government contract purchase obligations are typically subject to the availability of funding, which may be eliminated or reduced. In addition, the future volume of products or services purchased by a government customer is often uncertain. Our government contracts might not be renewed or might be terminated for convenience with little prior notice. They might be modified with less favorable terms. Government contracts typically expose us to higher potential liability than do other types of contracts. In addition, government contracts typically are subject to procurement laws that include socio-economic, employment practices, environmental protection, recordkeeping and accounting, and other requirements. For example, our contracts with the U.S. government generally require us to comply with the Federal Acquisition Regulation, Procurement Integrity Act, Buy American Act, Trade Agreements Act, and other laws and requirements. New or revised laws, requirements, and policies, or changes in the interpretation of existing laws, requirements, and policies, could adversely affect our business and competitiveness and increase our compliance costs. We are subject to government audits, investigations, and oversight proceedings. Governmental agencies routinely review and audit government contractors to determine whether they are complying with contractual and legal requirements. If we fail to comply with these requirements, or we fail an audit, we may be subject to various sanctions such as monetary damages, criminal and civil penalties, terminationcontract ofdelays contracts,or terminations, and suspension or debarment from government contract work. These requirements complicate our business and increase our compliance burden. The occurrence of any of these risks could harm our reputation and might have a materially adverse impact on our business operations and our financial position or results of operations.

We attempt to structure our distribution agreements with manufacturers to ensure that we are appropriately and predictably compensated for the services we provide. Certain distribution agreements with manufacturers include product price inflation as a component of our consideration, and we cannot control the frequency or magnitude of price changes. Laws limiting or reducing product prices, and changes to manufacturers’ pricing policies or practices as a result of changing laws, impact our distribution agreements.agreements or arrangements. We might be unable to renew or modify distribution agreements with manufacturers in a timely and favorable manner. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

We believe that our products and services do not infringe the proprietary rights of third parties, but third parties have asserted infringement claims against us and may do so in the future. If a court were to hold that we infringed other’s rights, we might be required to pay substantial damages, develop non-infringing products or services, obtain a license, stop selling or using the infringing products or services, or incur other sanctions. We rely on trade secret, patent, copyright, and trademark laws, nondisclosure obligations, and other contractual provisions and technical measures to protect our proprietary rights in our products and solutions. We might initiate costly and time-consuming litigation to protect our trade secrets, to enforce our patent, copyright, and trademark rights, and to determine the scope and validity of the proprietary rights of others. Our intellectual property protection efforts might be inadequate to protect our rights. Our competitors might develop non-infringing products or services equivalent or superior to ours. Our development and use of AI technologies may result in new or enhanced risks, including the misappropriation of proprietary and confidential inputs or infringement of third-party rights as well as uncertainties over the ownership of AI-generated outputs. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

We attempt to structure our processes to satisfy contractual and other operative data usage rights and limitations associated with customers, industry partners, and other third-party data flowing through our businesses. These rights and limitations can apply to confidential commercial data and personal data provided to us. Failure to satisfy these data usage rights and limitations can lead to legal claims such as contractual breaches or data protection and privacy law violations. If a court were to hold that our use of data is not consistent with our rights and limitations, we might be required to pay substantial damages; we might need to stop using, sharing, and/or selling certain products and services; or we might incur other financial, legal, and/or reputational consequences. In addition, we might be unable to negotiate and/or obtain at an acceptable cost the data usage rights needed to advance our data strategy growth and AIAI-related objectives. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

Our ability to attract, engage, develop, and retain qualified and experienced employees, including key executives and other talent, is essential for us to meet our objectives. We compete with many other businesses to attract and retain employees. Competition among potential employers results in increased salaries, benefits, or other employee-related costs, or in our failure to recruit and retain employees. We may experience sudden loss of key personnelpersonnel, dueincluding tounexpectedly. a variety of causes, such as illness; and althoughAlthough we must adequately plan for timely succession of key management roles, our succession plans might not be effective, and employees might not successfully transition into new roles. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

Many of our products and services are designed to function within the structure of current healthcare financing and reimbursement systems. The healthcare industry and related government programs arecontinue changing.to change. Some of these changes increase our risks and create uncertainties for our business.

For example, somecertain changes in reimbursement methodologies (including government rates) for pharmaceuticals, medical treatments, and related services reduce profit margins for us and our customers and impose new legal requirements on healthcare providers. Those changes have included cuts in Medicare and Medicaid reimbursement levels, changes in the bases for payments, shifts from fee-for-service pricing towards value-based payments and risk-sharing models, and increases in the use of managed care.

Although thereThere is substantial uncertainty about the likelihood, timing, and results of these healthhealthcare reform efforts and challenges, and their implementation or outcome might have a materially adverse impact on our business operations and our financial position or results of operations.

We rely on third parties for the supply of pharmaceutical and other products, and our operations are subject to our suppliers’ continued ability to supply the products that we require. From time to time, we experience difficulties and delays in sourcing and selling products due to a variety of causes that result in suppliers’ failure to satisfy production demand. Among these causes are suppliers’ challenges in complying with legal requirements (including product and production quality standards), access to raw materials, inputs, and finished goods, manufacturing shutdowns, and operational and systems difficulties. Supply disruptions also arise from other factors beyond our control, such as product rationalization; government actions or policies (including trade sanctions, tariffs and other trade restrictions, as well as the requisition, diversion, or allocation of inventory); shifts in customer or societal demand for products; labor disputes or shortages; ethical sourcing issues; supplier financial distress; natural disasters and weather-related events; civil unrest; military conflicts; and epidemics or pandemics. In these types of situations, our alternative sourcing efforts are not always fully successful. We might experience extended delays or incur higher sourcing costs or suffer harm to our customer relationships and reputation. Furthermore, changes in the healthcare industry’s or our suppliers’ pricing, selling, inventory, distribution, or supply policies or practices could significantly reduce our revenues and net income. Any of these disruptions or changes might have a materially adverse impact on our business operations and our financial position or results of operations.

Our generic pharmaceuticals distribution business is subject to both product availability and pricing risks. We might experience disruptions in our supply of generic pharmaceuticals. We have been impacted when, due to regulatory and supply chain challenges, our supplier partners are not able to deliver products that we have committed to source from them. Input cost increases, product discontinuations, and market shortages could result in ClarusONE, our joint venture with Walmart Inc.,ClarusONE being unsuccessful in sourcing product to meet the needs of our customers, or could negatively impact our margin. Generic drug manufacturers offer a generic version of branded pharmaceuticals and routinely challenge the validity or enforceability of branded pharmaceutical patents in order to launch the drug pre- or post-loss of exclusivity. Patent holders have asserted infringement claims against us for distributing those generic versions they believed to have infringed a patent, and the generic drug manufacturers may not fully indemnify us against such claims. These risks and outcomes, as well as changes in the nature, frequency, or magnitude of generic pharmaceutical launches, might have a materially adverse impact on our business operations and our financial position or results of operations.

Inflationary conditions result in increased costs associated with our normal business operations and decreased levels of consumer commercial spending and, to the extent we are not able to offset such cost increases from our suppliers, increase the costs which we incur to purchase inventories and services. Inflationary pressure is increased by factors such as supply chain disruptions, labor market tightness, actual or announced tariffs, government policies, interest rate changes, and foreign exchange rate changes. An economic slowdown or a recession could also reduce the prices our customers are able or willing to pay for our products and services and reduce the volume of their purchases. In addition to rising inflation, rising interest rates, the impact of banking failures or perceived failures and related contagion, consumer sentiment, political circumstances, military conflicts, and civil unrest may contribute to recessionary pressure. Our non-U.S. operations, import and export of products sold in non-U.S.currencies other than U.S. dollar (USDnon-USD) denominations,, non-USD intercompany loans, and our substantial international net assets also expose us to foreign currency exchange rate risk. Changes in the economic environments in which we operate might have a materially adverse impact on our business operations and our financial position or results of operations.

Volatility and disruption in global capital and credit markets, including the bankruptcy or restructuring of certain financial institutions, reduced lending activity by financial institutions, reduced creditworthiness of our customers or suppliers, or decreased liquidity and increased costs in the commercial paper market, might adversely affect the borrowing ability and cost of borrowing for us and our customers and suppliers. Credit rating agencies regularly review our credit and rate our outstanding debt; and any downgrades in our credit ratings might limit our access to public debt markets, decrease the willingness of financial institutions willingness to lend to us, lead to more restrictive debt covenants, increase our borrowing costs, and adversely affect our earnings. We generally sell our products and services under short-term unsecured credit arrangements. An adverse change in general or entity-specific economic conditions or access to capital might cause our customers to reduce their purchases from us, or delay payments, or fail to pay amounts, owed to us. Suppliers might increase their prices, reduce their output, or change their terms of sale due to limited availability of credit. Suppliers might be unable to make payments due to us for fees, returned products, or incentives. Interest rate increases or changes in capital market conditions, including as a result of macroeconomic

us, or delay payments, or fail to pay amounts, owed to us. Suppliers might increase their prices, reduce their output, or change their terms of sale due to limited availability of credit. Suppliers might be unable to make payments due to us for fees, returned products, or incentives. Interest rate increases or changes in capital market conditions, including as a result of macroeconomic events, might impede our or our customers’ or suppliers’ ability or cost to obtain credit. Any of these risks might have a materially adverse impact on our business operations and our financial position or results of operations.

We are subject to the tax laws in the U.S. at the federal, state, and local government levels and to the tax laws of other jurisdictions in which we operate or sell products or services. Tax laws might change in ways that adversely affect our tax positions, effective tax rate, and cash flow. The tax laws are extremely complex and subject to varying interpretations. For example, the European Union and other countries (including countries in which we operate) have committed to enacting changes to numerous long-standing tax principles impacting how large multinational enterprises are taxed. In particular, the Organization for Economic Co-operation and Development’s Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis which many jurisdictions have enacted or committed to enact. TheAdditionally, impactthe OBBBA introduced modifications to various U.S. federal tax provisions. While we evaluated the implications of these newmeasures and potentialconcluded regulationsthat asthey wellare asnot anyexpected other changes in domestic and international tax regulations couldto have a material effectimpact on our effectiveconsolidated taxfinancial rate.position, results of operations, or cash flows, their ultimate impact may differ from our estimates. We are subject to tax examinations in various jurisdictions that might assess additional tax liabilities against us. Our tax reporting positions are sometimes challenged by relevant tax authorities, we might incur significant expense in our efforts to defend those challenges, and we might be unsuccessful in those efforts. Developments in examinations and challenges might materially change our provision for taxes in the affected periods and might differ materially from our historical tax accruals. Any of these risks might have a materially adverse impact on our business operations, our cash flows, and our financial position or results of operations.

From time to time we are adversely affected by conditions and events outside of our control, including: widespread public health issues such as epidemic or pandemic infectious diseases; natural disasters and other catastrophic events such as earthquakes, floods, or severe weather; and geopolitical factors such as terrorism, military conflicts, civil unrest, political circumstances (including changes in international relations), changes or uncertainty in government policies (including with respect to U.S. or international trade), actual or announced tariffs or other trade restrictions, government shutdowns, or changes in laws or their interpretation. These conditions and events can disrupt operations for us, our suppliers, our vendors, and our customers, as well as impair product manufacturing, supply, and transport availability and cost in unpredictable ways that depend on highly uncertain future developments. They might affect consumer confidence levels and spending or the availability of certain goods, commodities, raw materials, and other inputs. In response to these types of conditions and events, we might seek alternate sources for product supply, incur additional sourcing or distribution costs, suspend operations, implement extraordinary procedures, or suffer consequences that are unexpected and difficult to mitigate. For example, recentlythe imposedtrade environment remains highly dynamic and uncertain, and trade policies may be interrelated with other government initiatives. Imposed or announced U.S. tariffs, as well as any retaliatorythreatened tariffs or other trade restrictions imposed by other countries, might require us to incur substantial additional sourcing costs, raise prices on certain products, or seek alternate supply sources. If we are unable to effectively manage or offset the impact of new tariffs or other trade restrictions, or find alternate sources of supply, we might be competitively disadvantaged or experience reduced profit margins or supply disruptions. Further, we might suffer harm to our customer relationships. Any of the foregoing risks might have a materially adverse impact on our business operations and our financial position or results of operations.

The long-term effects of climate change are difficult to predict and may be widespread. The impacts may include physical risks (such as rising sea levels or frequency and severity of extreme weather conditions), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition risks (such as regulatory or technology changes), costs for critical services (such as transportation costs), and other adverse effects. The effects could impair, for example, the availability and cost of certain products, commodities, transportation, and energy (including utilities), which in turn may impact our ability to procure goods or services, and transport those goods, required for the operation of our business at the quantities and levels we require. We bear losses incurred as a result of, for example, physical damage to or destruction of our facilities (such as distribution or fulfillment centers), loss or spoilage of inventory due to unusual ambient temperatures, and business interruption due to weather events that may be attributable to climate change. These risks might have a materially adverse impact on our business operations and our financial position or results of operation.

We reportimplemented oura financialnew resultssegment reporting structure commencing in the second quarter of fiscal 2026, which resulted in four reportable segments: U.S.North American Pharmaceutical, Oncology & Multispecialty, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International.Medical-Surgical Solutions. Our former Norwegian operations were included in Other. All prior segment information has been recast to reflect our new segment structure and current period presentation. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, as well as the results of certain investments and operations.investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income taxes.

•U.S.North American Pharmaceutical is a reportable segment thatprovides distributesdistribution and logistics services for branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs andalong with other healthcare-related products to customers in the United States (“U.S.”). This segment also provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices.Canada. In addition, the segment sells financial, operational, and clinical solutions to pharmacies (retail, hospital, alternate sites) and provides consulting, outsourcing, technological, and other services. The U.S. distribution operations were previously included in the former U.S. Pharmaceutical reportable segment and the Canadian operations were previously included in the former International reportable segment.

•Prescription Technology Solutions is a reportable segment that combines automation and our ability to navigate the healthcare ecosystem to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies to address patients’ medication access, affordability, and adherence challenges. RxTSPrescription Technology Solutions offers technology services, which includes electronic prior authorization, prescription price transparency, benefit insight, dispensing support services, and patient enrollment, in addition to third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

•Medical-Surgical Solutions is a reportable segment that provides medical-surgicalmedical-surgical, supplylaboratory, and pharmaceutical distribution, logistics, and other services to U.S. healthcare providers,providers includingoperating in the non-acute settings. These include ambulatory care environments, such as physician offices, surgery centers, nursing homes,and hospital reference labs, as well as extended care settings, including nursing homes, hospice and home health care agencies.agencies, government facilities, and online marketplaces and retailers. This segment offers national brand medical-surgical products as well as McKesson’sour own line of more than 4,000 high-quality products through a network of distribution centers within the U.S. InDuring Mayfiscal 2025,2026, we announced our intention to separate this segment into an independent company. As a part of the separation strategy, on April 20, 2026, we announced a definitive agreement under which funds managed by affiliates of Apollo Global Management, Inc. (“Apollo Funds”) will acquire approximately 13% minority ownership interest in our Medical‑Surgical Solutions segment through an investment of approximately $1.25 billion in the segment’s convertible preferred equity. The transaction is subject to regulatory approvals and customary closing conditions.

On AugustJune 26,2, 2024,2025, we enteredcompleted intothe acquisition of a definitive agreement to acquire a 70% controlling interest in Community Oncology Revitalization Enterprise Ventures, LLC (“Core Ventures”), an internala business and administrative services organization established by Florida Cancer Specialists & Research Institute, LLC, (“FCS”). We acquired a 70% controlling interest in Core Ventures for approximately $2.49$2.5 billion cash,in subjectcash toand certainFCS customaryphysicians adjustments.retained Followinga the30% completionownership interest. As of the transaction,acquisition date, Core Ventures willis bea part of the Oncology platform,platform and financial results will beare reported within our U.S.Oncology Pharmaceutical& Multispecialty segment. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired in late April 2025. We expect the transaction to close during the first quarter of fiscal 2026, subject to satisfaction of customary closing conditions.

•For the year ended March 31, 20252026 compared to the prior year, revenues increased by 16%,12%, gross profit increased by 4%,9%, total operating expenses weredecreased flat,by 6%, and other income, net increased by $70 million.17%. Refer to the “Overview of Consolidated Results” section below for an analysis of these changes;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation increased to $25.72$38.38 in fiscal 20252026 from $22.39$25.72 in the prior year;

•WeOn recordedMay 8, 2025, we entered into a chargesyndicated of$1.0 $108billion million364-Day forsenior unsecured credit facility (the “364-Day Credit Facility”) that was scheduled to mature in May 2026 but was terminated on April 24, 2026 and replaced with the year2026 ended5-Year March 31, 2025 related to our estimated liability for opioid-related claims as furtherFacility described in the “Recent Developments” section below. Refer to Financial Note 17,11, “CommitmentsDebt and ContingentFinancing Liabilities,Activities,” to the consolidated financial statements included in this Annual Report for additional information;

•WeDuring fiscal 2026, we returned $3.5$5.1 billion of cash to shareholders during fiscal 2025 through $3.1$4.8 billion of common stock repurchases through open market transactions and $345$381 million of dividend payments. In July 2024, our Board of Directors (the “Board”) approved an increase of $4.0 billion in the authorization for repurchase of the Company’s common stock and raised our quarterly dividend to $0.71 from $0.62 per share of common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock at March 31, 20252026 was $7.5$2.7 billion.billion; and

Revenues increased for the year ended March 31, 20252026 compared to the prior year largely due to market growth in our U.S.North American Pharmaceutical segment, including higher volumes largelyprimarily from retail national account customers and growth in specialty pharmaceuticals.customers. Market growth includes growing drug utilization and newly launched products, partially offset by branded to generic drug conversion.conversion Thisand revenuebranded pharmaceutical price decreases. Revenue growth was also favorably impacted by higher pharmaceutical distribution volumesgrowth in our InternationalOncology segment.& Multispecialty segment primarily due to higher specialty pharmaceutical sales.

Gross profit increased for the year ended March 31, 20252026 compared to the prior year primarily due to growth in our U.S.Oncology Pharmaceutical& segmentMultispecialty segment, driven by the addition of providers in practice management and growth of specialty pharmaceuticals, growthand from retail national account customers, andin our sharePrescription ofTechnology antitrustSolutions legalsegment settlements received in fiscal 2025, partially offsetdriven by last-in, first-out (“LIFO”) inventory charges in fiscal 2025 and higher restructuring charges.volumes.

Gross profit for the years ended March 31, 20252026 and 20242025 included gains of $444$23 million and $244$444 million, respectively, representing our share of antitrust legal settlements. We recognized these amounts within "Cost of sales" in the Consolidated Statements of Operations within our U.S.North American Pharmaceutical segment.

Gross profit for the years ended March 31, 20252026 and 20242025 also included a last-in, first-out (“LIFO”) credit of $210 million and charge of $82 million and a credit of $157 million, respectively. The LIFO charge in fiscal 2025 compared to a credit in fiscal 20242026 was primarily due to higher brand inflationdeflation compared to the prior year.year charge which was primarily due to brand inflation. Refer to the “Critical Accounting Estimates” section included in this Financial Review for further information regarding the use of the LIFO method of accounting within our U.S.North American Pharmaceutical business.

Gross profit for the year ended March 31, 2025 was impacted by an inventory impairment charge of $58 million related to restructuring initiatives to drive operational efficiencies and increase cost optimization efforts as discussed in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the consolidated financial statements in this Annual Report. We recorded this amount related to impairment of inventories within "Cost of sales" in the Consolidated Statements of Operations within our U.S.North American Pharmaceutical segment.

•Selling, distribution, general, and administrative expenses (“SDG&A”): consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, administrative expenses, provision for bad debts and related recoveries, gains and losses on the sale of certain businesses, remeasurement charges to fair value less costs to sell, and other general charges.

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We implemented a new segment reporting structure commencing in the second quarter of fiscal 2026, which resulted in four reportable segments: North American Pharmaceutical, Oncology & Multispecialty, Prescription Technology Solutions (“RxTS”),Solutions, and Medical-Surgical Solutions. Our former Norwegian operations arewere included in Other. All prior segment information has been recast to reflect our new segment structure and current period presentation. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, as well as the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operatingreportable segments on a number of measures, including revenues and operating profit before interest expense and income taxes.

•North American Pharmaceutical is a reportable segment that provides distribution and logistics services for branded, generic, specialty, biosimilarbiosimilar, and over-the-counter pharmaceutical drugs along with other healthcare-related products to wholesale and institutional customers in the United States (“U.S.”) and Canada. In addition, the segment sells financial, operational, and clinical solutions to pharmacies (retail, hospital, alternate sites) and provides consulting, outsourcing, technological, and other services. The U.S. distribution operations was previously included in the former U.S. Pharmaceutical reportable segment and the Canadian operations was previously included in the former International reportable segment.

•Oncology & Multispecialty is a reportable segment that includes provider solutions that encompass specialty drug distribution, group purchasing organizations, infusion services, direct to patient pharmacy capabilities, cell and gene therapy services with InspiroGene, technology solutions, practice consulting services, and vaccine distribution. In addition, the segment supports The U.S. Oncology Network, one of the largest networks of physician-led, integrated, community-based oncology practices dedicated to advancing high-quality, evidence-based cancer care in the U.S.U.S., The segment alsoand includes PRISM Vision Holdings, LLC (“PRISM Vision”), which drives patient outcomes in a retina and ophthalmology setting. Combined with Sarah Cannon Research Institute and our technology business, Ontada, this segment provides research, insights, technologies, and services that address and improve cancer and specialty care. This segment was previously reflected in the former U.S. Pharmaceutical reportable segment.

•Prescription Technology Solutions is a reportable segment that combines automation and our ability to navigate the healthcare ecosystem to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies to address patients’ medication access, affordability, and adherence challenges. RxTSPrescription Technology Solutions offers technology services, which includes electronic prior authorization, prescription price transparency, benefit insight, dispensing support services, and patient enrollment, in addition to third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

•Medical-Surgical Solutions is a reportable segment that provides medical-surgicalmedical-surgical, supplylaboratory, and pharmaceutical distribution, logistics, and other services to U.S. healthcare providers,providers operating in the non-acute settings. These include ambulatory care environments, such as physician offices, surgery centers, and hospital reference labs, as well as extended care settings, including nursing homeshomes, hospice and home health care agencies.agencies, government facilities, and online marketplaces and retailers. This segment offers national brand medical-surgical products as well as McKesson’sour own line of more than 4,000 high-quality products through a network of distribution centers within the U.S. OnDuring Mayfiscal 8th, 2025,2026, we announced our intention to separate this segment into an independent company. As a part of the separation strategy, on June 1, 2026, we completed a transaction under which funds managed by affiliates of Apollo Global Management, Inc. (“Apollo Funds”) acquired an approximately 13% minority ownership interest in our Medical‑Surgical Solutions segment through an investment of approximately $1.25 billion in the segment’s convertible preferred equity. We recognized a redeemable noncontrolling interest associated with the divested portion of the Medical‑Surgical Solutions segment. We retain operating control and majority ownership of Medical-Surgical Solutions and continue to consolidate this segment into our consolidated financial statements.

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three and nine months ended DecemberJune 31,30, 20252026, as well as other material developments:

•For the ninethree months ended DecemberJune 31,30, 20252026 compared to the prior year, revenues increased by 15%,8%, gross profit increased by 8%,12%, total operating expenses decreasedincreased by 6%,5%, and other income, net decreasedincreased by 14%.3%. Refer to the “Overview of Consolidated Results” section below for an analysis of these changes;

•Diluted earnings per common share attributable to McKesson Corporation increaseddecreased to $9.59$5.15 from $6.95$6.25 for the three months ended DecemberJune 31,30, 2025 and increased to $24.73 from $15.80 for the nine months ended December 31, 20252026 compared to the respective prior year periodsperiod;

•OnIn Maythe 30,first 2025,quarter weof completed2027, certain of our subsidiaries within the Medical-Surgical Solutions segment entered into, and then amended, a publicsyndicated debtcredit offeringagreement offor: 4.65%a Notes$750 million principal senior secured term loan due Mayin 30,2031, 2030a $250 million principal senior secured term loan due in 2028; a principal$2.25 amountbillion ofsenior $650secured million,term 4.95% Notesloan due May 30, 2032 in a principal amount of $650 million, and 5.25% Notes due May 30, 2035 in a principal amount of $700 million,2032, for total proceeds received, net of discounts and debt offering expenses, of $2.0$3.2 billion.billion; Theand neta proceeds$1.0 frombillion thesesenior notessecured revolving credit facility scheduled to mature in additionApril to cash on hand were utilized to fund the purchase of the interest in Core Ventures.2031. Refer to Financial Note 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements in this Quarterly Report for additional information;

•On JulyApril 29, 2025,2026, our Board of Directors (the “Board”) raisedapproved ourthe quarterly dividendCompany to $0.82repurchase fromup $0.71to peran shareadditional $5.0 billion shares of common stock.stock;

Revenues increased for the three and nine months ended DecemberJune 31,30, 20252026 compared to the same prior year periods,period, primarily due to market growth in our North American Pharmaceutical segment, including higher volumes largelyfrom frominstitutional healthcare providers and retail national account customers. Market growth includes growing drug utilization and newly launched products, partially offset by branded pharmaceutical price decreases and branded to generic drug conversion. RevenuesRevenue for the three and nine months ended December 31, 2025growth was also favorably impacted by growth in our Oncology & Multispecialty segment primarily due to higher specialty pharmaceutical sales.

Gross profit increased for the three and nine months ended DecemberJune 31,30, 20252026 compared to the same prior year periodsperiod primarily due to growth in our North American Pharmaceutical segment, including higher volumes from retail national account customers and institutional healthcare providers, and growth in our Oncology & Multispecialty segment, driven by growth of specialty pharmaceuticals and the addition of providers in practice management and growth of specialty pharmaceuticals, and in our Prescription Technology Solutions segment, driven by higher volumes.management.

A summary of the components of our total operating expenses for the three and nine months ended DecemberJune 31,30, 20252026 and 20242025 is as follows:

For the three months ended DecemberJune 31,30, 2025,2026, total operating expenses increased and total operating expenses as a percentage of revenues decreased compared to the same prior year period. For the nine months ended December 31, 2025, total operating expenses and total operating expenses as a percentage of revenues decreased compared to the same prior year period. Total operating expenses were impacted by the following significant items:

•Claims and litigation charges, net primarily consists of a chargecredit of $108$34 million for the ninethree months ended DecemberJune 31,30, 20242026 related to our estimated liability for opioid-related claims as discussed in more detail in Financial Note 11, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report; and

•Restructuring, impairment, and related charges, net were $36$136 million and $32$47 million for the three months ended DecemberJune 31,30, 20252026 and 2024, respectively, and $146 million and $213 million for the nine months ended December 31, 2025 and 2024,2025, respectively, as discussed below under “Restructuring Initiatives.Initiatives”;

We evaluate goodwill for impairment on an annual basis in the first fiscal quarter, and at an interim date if indicators of potential impairment exist. The annual impairment testing performed in fiscal 20262027 and fiscal 20252026 did not indicate any impairment of goodwill, and no goodwill impairment charges were recorded during the three and nine months ended DecemberJune 31,30, 20252026 and 2024.2025. However, other risks, expenses, and future developments, such as government actions, increased regulatory uncertainty, and material changes in key market assumptionsassumptions, limit our ability to estimate projected cash flows, which could adversely affect the fair value of various reporting units in future periods.

We recorded restructuring, impairment, and related charges of $36$136 million and $32$47 million for the three months ended DecemberJune 31,30, 20252026 and 2024, respectively, and $146 million and $213 million for the nine months ended December 31, 2025 and 2024,2025, respectively. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.

During the second quarter of fiscal 2025, we approved enterprise-wide initiatives to modernize and accelerate our technology service operating model, which were intended to improve business continuity, compliance, operating efficiency and advance investments to streamline the organization. These initiatives include cost reduction efforts and support other rationalization efforts within Corporate, and the Medical-Surgical Solutions and North American Pharmaceutical segments to help realize long-term sustainable growth. We anticipate total charges related to these initiatives of $650 million to $700 million, consisting primarily of employee severance and other employee-related costs as well as facility, exit, and other related costs, including long-lived asset impairments. These programs are anticipated to be substantially complete in fiscal 2028. We recorded charges of $26$45 million and $116$38 million for the three and nine months ended DecemberJune 31,30, 2025, respectively,2026 and $18 million and $245 million for the three and nine months ended December 31, 2024,2025, respectively, related to these initiatives, which primarily includes severance and other employee-related costs as well as facility exit and other related costs,costs includingas long-livedwell assetas impairmentsseverance and aother $63employee-related million for the nine months ended December 31, 2024 related to inventory impairments recorded within “Cost of sales” in the Condensed Consolidated Statements of Operations.costs.

Interest expense decreasedincreased for the three and nine months ended DecemberJune 31,30, 20252026 compared to the same prior year periods primarilyperiod due to changes in our derivative portfolio in fiscal 2026 and increased capitalized interest from higher capital spending, partially offset by interest from increased average balances of the Company’s loan portfolio in fiscal 2026.2027, primarily driven by the MMS Credit Agreement. Interest expense may fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, as well as amounts incurred associated with financing fees. Refer to Financial Note 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

For the three months ended June 30, 2026 and 2025, we recorded income tax expense of $276 million and $220 million, respectively. Our income tax rates were 21.1% and 20.9% for the three months ended June 30, 2026 and 2025, respectively. Fluctuations in our reported income tax rates are primarily due to changes in our business mix of earnings among various taxing jurisdictions and discrete tax items recognized in the quarters. Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

Net income attributable to noncontrolling interests for the three and nine months ended DecemberJune 31,30, 20252026 and 20242025 primarily represents the proportionate results of third-party equity interests in ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and SCRI Oncology, LLC.