First-Quarter

($ in millions, except per share amounts)

FY21

FY20

Change

Revenues

$

55,679

$

55,728

—

%

Income from Continuing Operations1

445

429

4

Adjusted Earnings1,2

453

625

(28)

Earnings per Diluted Share1

2.72

2.27

20

Adjusted Earnings per Diluted Share1,2

2.77

3.31

(16)

1Reflects continuing operations attributable to McKesson, net of tax

2Represents a non-GAAP financial measure; refer to the reconciliations of non-GAAP financial measures included in accompanying schedules

Schedule 1

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP

(unaudited)

(in millions, except per share amounts)

Three Months Ended
June 30,

2020

2019

Change

Revenues

$

55,679

$

55,728

—

%

Cost of sales

(52,979

)

(52,941

)

—

Gross profit

2,700

2,787

(3

)

Operating expenses

(1,966

)

(2,130

)

(8

)

Restructuring, impairment and related charges

(56

)

(23

)

143

Total operating expenses

(2,022

)

(2,153

)

(6

)

Operating income

678

634

7

Other income, net

27

37

(27

)

Equity earnings and charges from investment in Change Healthcare Joint Venture

—

4

(100

)

Interest expense

(60

)

(56

)

7

Income from continuing operations before income taxes

645

619

4

Income tax expense

(150

)

(136

)

10

Income from continuing operations

495

483

2

Loss from discontinued operations, net of tax

(1

)

(6

)

(83

)

Net income

494

477

4

Net income attributable to noncontrolling interests

(50

)

(54

)

(7

)

Net income attributable to McKesson Corporation

$

444

$

423

5

%

Earnings (loss) per common share attributable to McKesson Corporation (a)

Diluted

Continuing operations

$

2.72

$

2.27

20

%

Discontinued operations

—

(0.03

)

(100

)

Total

$

2.72

$

2.24

21

%

Basic

Continuing operations

$

2.74

$

2.28

20

%

Discontinued operations

—

(0.03

)

(100

)

Total

$

2.74

$

2.25

22

%

Dividends declared per common share

$

0.41

$

0.39

Weighted-average common shares outstanding

Diluted

163

189

(14

)%

Basic

162

188

(14

)

(a)

Certain computations may reflect rounding adjustments.

Schedule 2

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

Three Months Ended June 30, 2020

Change vs. Prior Quarter

As reported
(GAAP)

Amortization
of acquisition-
related
intangibles

Transaction-
related
expenses and
adjustments

LIFO
inventory-
related
adjustments

Gains from
antitrust
legal
settlements

Restructuring,
impairment
and related
charges, net

Other
adjustments,
net

As adjusted
(Non-GAAP)

As reported
(GAAP)

As adjusted
(Non-GAAP)

Gross profit

$

2,700

—

—

$

(52

)

$

—

$

1

$

—

$

2,649

(3

)%

(4

)%

Total operating expenses (1) (2)

$

(2,022

)

106

16

$

—

$

—

$

56

$

(125

)

$

(1,969

)

(6

)%

(2

)%

Other income, net

$

27

—

—

$

—

$

—

$

—

$

—

$

27

(27

)%

(51

)%

Equity earnings and charges from investment in Change Healthcare Joint Venture

$

—

—

—

$

—

$

—

$

—

$

—

$

—

(100

)%

(100

)%

Income from continuing operations before income taxes

$

645

106

16

$

(52

)

$

—

$

57

$

(125

)

$

647

4

%

(26

)%

Income tax expense

$

(150

)

(23

)

(4

)

$

14

$

—

$

(12

)

$

31

$

(144

)

10

%

(27

)%

Income from continuing operations, net of tax, attributable to McKesson Corporation (a)

$

445

83

12

$

(38

)

$

—

$

45

$

(94

)

$

453

4

%

(28

)%

Earnings per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (b)

$

2.72

0.51

0.08

$

(0.24

)

$

—

$

0.27

$

(0.57

)

$

2.77

(c)

20

%

(16

)%

Diluted weighted average common shares

163

163

163

163

163

163

163

163

(14

)%

(14

)%

Three Months Ended June 30, 2019

As reported
(GAAP)

Amortization
of acquisition-
related
intangibles

Transaction-
related
expenses and
adjustments

LIFO
inventory-
related
adjustments

Gains from
antitrust legal
settlements

Restructuring,
impairment
and related
charges, net

Other
adjustments,
net

As adjusted
(Non-GAAP)

Gross profit

$

2,787

$

—

$

—

$

(15

)

$

—

$

(3

)

$

—

$

2,769

Total operating expenses

$

(2,153

)

$

112

$

17

$

—

$

—

$

23

$

2

$

(1,999

)

Other income, net (3)

$

37

$

—

$

—

$

—

$

—

$

—

$

18

$

55

Equity earnings and charges from investment in Change Healthcare Joint Venture (4)

$

4

$

77

$

27

$

—

$

—

$

—

$

—

$

108

Income from continuing operations before income taxes

$

619

$

189

$

44

$

(15

)

$

—

$

20

$

20

$

877

Income tax expense

$

(136

)

$

(45

)

$

(11

)

$

4

$

—

$

(5

)

$

(5

)

$

(198

)

Income from continuing operations, net of tax, attributable to McKesson Corporation (a)

$

429

$

144

$

33

$

(11

)

$

—

$

15

$

15

$

625

Earnings per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (b)

$

2.27

$

0.76

$

0.18

$

(0.06

)

$

—

$

0.08

$

0.08

$

3.31

Diluted weighted average common shares

189

189

189

189

189

189

189

189

(a)

Calculated as "Net income attributable to McKesson Corporation" less "Loss from discontinued operations, net of tax" as presented in the Condensed Consolidated Statements of Operations - GAAP.

(b)

Certain computations may reflect rounding adjustments.

(c)

Adjusted Earnings per Diluted Share on an FX-Adjusted basis for the three months ended June 30, 2020 was $2.78, which excludes the foreign currency exchange effect of $0.01.

For more information relating to the Adjusted Gross Profit (Non-GAAP), Adjusted Operating Expenses (Non-GAAP), Adjusted Other Income (Non-GAAP), Adjusted Equity Income from Change Healthcare (Non-GAAP), Adjusted Income from Continuing Operations Before Income Taxes (Non-GAAP), Adjusted Income Tax Expense (Non-GAAP), Adjusted Earnings (Non-GAAP), Adjusted Earnings per Diluted Share (Non-GAAP), and FX-Adjusted (Non-GAAP) definitions, refer to the section entitled “Supplemental Non-GAAP Financial Information” of this release.

Schedule 3

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended June 30,

2020

2019

As reported

As adjusted

Change

As reported
(GAAP)

Adjustments

As adjusted
(Non-
GAAP)

As reported
(GAAP)

Adjustments

As adjusted
(Non
GAAP)

Foreign
currency
effects

FX-
Adjusted
(Non-
GAAP)

Foreign
currency
effects

FX-
Adjusted
(Non-
GAAP)

As
reported
(GAAP)

As
adjusted
(Non-
GAAP)

As reported
FX-Adjusted
(Non-GAAP)

As adjusted
FX-Adjusted
(Non-GAAP)

45,062

—

45,062

44,165

—

44,165

—

45,062

—

45,062

2

%

2

%

2

%

2

%

6,246

—

6,246

6,710

—

6,710

184

6,430

184

6,430

(7

)

(7

)

(4

)

(4

)

1,801

—

1,801

1,903

—

1,903

—

1,801

—

1,801

(5

)

(5

)

(5

)

(5

)

2,570

—

2,570

2,950

—

2,950

80

2,650

80

2,650

(13

)

(13

)

(10

)

(10

)

55,679

—

55,679

55,728

—

55,728

264

55,943

264

55,943

—

%

—

%

—

%

—

%

608

(19

)

589

579

21

600

—

608

—

589

5

%

(2

)%

5

%

(2

)%

(10

)

45

35

5

30

35

(1

)

(11

)

1

36

(300

)

—

(320

)

3

89

35

124

125

34

159

—

89

—

124

(29

)

(22

)

(29

)

(22

)

98

39

137

141

135

276

2

100

—

137

(30

)

(50

)

(29

)

(50

)

785

100

885

850

220

1,070

1

786

1

886

(8

)

(17

)

(8

)

(17

)

(80

)

(98

)

(178

)

(175

)

38

(137

)

(1

)

(81

)

—

(178

)

(54

)

30

(54

)

30

705

2

707

675

258

933

—

705

1

708

4

%

(24

)%

4

%

(24

)%

1.35

%

1.31

%

1.31

%

1.36

%

1.35

%

1.31

%

4

bp

(5

)

4

bp

(5

)

bp

(0.16

)

0.56

0.07

0.52

(0.17

)

0.56

(23

)

4

(24

)

4

4.94

6.89

6.57

8.36

4.94

6.89

(163

)

(147

)

(163

)

(147

)

(a)

Other primarily includes the results of our McKesson Canada and McKesson Prescription Technology Solutions businesses. Operating profit (loss) for Other for the three months ended June 30, 2019 also includes equity earnings and charges from investment in Change Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

Schedule 4

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)

June 30,
2020

March 31,
2020

ASSETS

Current assets

Cash and cash equivalents

$

2,613

$

4,015

Receivables, net

17,768

19,950

Inventories, net

16,607

16,734

Assets held for sale

844

906

Prepaid expenses and other

850

617

Total current assets

38,682

42,222

Property, plant and equipment, net

2,392

2,365

Operating lease right-of-use assets

1,857

1,886

Goodwill

9,419

9,360

Intangible assets, net

3,090

3,156

Other non-current assets

2,226

2,258

Total assets

$

57,666

$

61,247

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

Current liabilities

Drafts and accounts payable

$

33,209

$

37,195

Current portion of long-term debt

1,053

1,052

Current portion of operating lease liabilities

358

354

Liabilities held for sale

509

683

Other accrued liabilities

3,471

3,340

Total current liabilities

38,600

42,624

Long-term debt

6,395

6,335

Long-term deferred tax liabilities

2,274

2,255

Long-term operating lease liabilities

1,627

1,660

Other non-current liabilities

1,703

1,662

Redeemable noncontrolling interests

1,414

1,402

McKesson Corporation stockholders’ equity

Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding

—

—

Common stock, $0.01 par value, 800 shares authorized at June 30, 2020 and March 31, 2020, and 272 shares issued at June 30, 2020 and March 31, 2020

2

2

Additional paid-in capital

6,711

6,663

Retained earnings

13,384

13,022

Accumulated other comprehensive loss

(1,735)

(1,703)

Treasury shares, at cost, and 110 shares at June 30, 2020 and March 31, 2020

(12,916)

(12,892)

Total McKesson Corporation stockholders’ equity

5,446

5,092

Noncontrolling interests

207

217

Total equity

5,653

5,309

Total liabilities, redeemable noncontrolling interests and equity

$

57,666

$

61,247

Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

Three Months Ended
June 30,

2020

2019

OPERATING ACTIVITIES

Net income

$

494

$

477

Adjustments to reconcile to net cash used in operating activities:

Depreciation

75

82

Amortization

142

147

Goodwill and other asset impairment charges

5

5

Equity earnings and charges from investment in Change Healthcare Joint Venture

—

(4

)

Deferred taxes

28

16

Credits associated with last-in, first-out inventory method

(52

)

(15

)

Non-cash operating lease expense

83

98

Loss from sales of businesses and investments

2

—

Other non-cash items

9

23

Changes in assets and liabilities, net of acquisitions:

Receivables

2,291

(1,061

)

Inventories

238

145

Drafts and accounts payable

(4,214

)

127

Operating lease liabilities

(89

)

(99

)

Taxes

76

82

Other

(150

)

(74

)

Net cash used in operating activities

(1,062

)

(51

)

INVESTING ACTIVITIES

Payments for property, plant and equipment

(72

)

(87

)

Capitalized software expenditures

(45

)

(24

)

Acquisitions, net of cash, cash equivalents and restricted cash acquired

(4

)

(46

)

Proceeds from sales of businesses and investments, net

7

1

Other

(16

)

27

Net cash used in investing activities

(130

)

(129

)

FINANCING ACTIVITIES

Proceeds from short-term borrowings

5,303

2,610

Repayments of short-term borrowings

(5,303

)

(2,610

)

Repayments of long-term debt

(2

)

(2

)

Common stock transactions:

Issuances

21

22

Share repurchases, including shares surrendered for tax withholding

(24

)

(701

)

Dividends paid

(74

)

(75

)

Other

140

(116

)

Net cash provided by (used in) financing activities

61

(872

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(28

)

18

Net decrease in cash, cash equivalents and restricted cash

(1,159

)

(1,034

)

Cash, cash equivalents and restricted cash at beginning of period

4,023

2,981

Cash, cash equivalents and restricted cash at end of period

2,864

1,947

Less: Restricted cash at end of period included in Prepaid expenses and other

(251

)

—

Cash and cash equivalents at end of period

$

2,613

$

1,947

Schedule 6

McKESSON CORPORATION

RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended
June 30,

2020

2019

Change

GAAP CASH FLOW CATEGORIES

Net cash used in operating activities

$

(1,062

)

$

(51

)

NM

Net cash used in investing activities

(130

)

(129

)

1

%

Net cash provided by (used in) financing activities

61

(872

)

107

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(28

)

18

(256

)

Net decrease in cash, cash equivalents and restricted cash

$

(1,159

)

$

(1,034

)

12

FREE CASH FLOW (NON-GAAP)

Net cash used in operating activities

$

(1,062

)

$

(51

)

NM

Payments for property, plant and equipment

(72

)

(87

)

(17

)%

Capitalized software expenditures

(45

)

(24

)

88

Free Cash Flow (Non-GAAP)

$

(1,179

)

$

(162

)

628

NM Computation not meaningful

For more information relating to the Free Cash Flow (Non-GAAP) definition, refer to the section entitled “Supplemental Non-GAAP Financial Information” of this release.

McKESSON CORPORATION

FINANCIAL STATEMENT NOTES

(1)

Total operating expenses for the three months ended June 30, 2020 includes a pre-tax net gain of $131 million ($97 million after-tax) related to insurance proceeds received, net of attorneys' fees and expenses awarded to plaintiffs' counsel, in connection with the $175 million settlement of the shareholder derivative action related to our controlled substances monitoring program, within Corporate Expenses, Net. This gain is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(2)

Total operating expenses for the three months ended June 30, 2020 includes pre-tax restructuring, impairment and related charges of $56 million ($44 million after-tax), primarily for Corporate Expenses, Net as well as our Europe and Canada businesses. The three months ended March 31, 2019 includes pre-tax restructuring, impairment and related charges of $23 million ($17 million after-tax), primarily for our Canada and the United Kingdom retail businesses as well as Corporate Expenses, Net. These charges are included in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(3)

Other income, net for the three months ended June 30, 2019 primarily includes pre-tax charges of $17 million ($12 million after-tax) representing settlement charges related to our frozen U.S. defined benefit pension plan, within Corporate Expenses, Net. This charge is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

(4)

Equity earnings and charges from investment in Change Healthcare Joint Venture includes our proportionate share of loss from investment in Change Healthcare Joint Venture within Other. Such amount includes the amortization of equity investment intangibles and other acquired intangibles of $77 million for the three months ended June 30, 2019. This charge is included under "Amortization of Acquisition-Related Intangibles" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

McKESSON CORPORATION

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

In an effort to provide investors with additional information regarding the Company's financial results as determined by generally accepted accounting principles ("GAAP"), McKesson Corporation (the "Company" or "we") also presents the following Non-GAAP measures in this press release.

• Adjusted Gross Profit (Non-GAAP): We define Adjusted Gross Profit as GAAP gross profit, excluding transaction-related expenses and adjustments, last-in, first-out (“LIFO”) inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.

• Adjusted Operating Expenses (Non-GAAP): We define Adjusted Operating Expenses as GAAP total operating expenses, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, restructuring, impairment and related charges, and other adjustments.

• Adjusted Other Income (Non-GAAP): We define Adjusted Other Income as GAAP other income, net, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments.

• Adjusted Equity Income from Change Healthcare (Non-GAAP): We define Adjusted Equity Income from Change Healthcare as GAAP equity earnings and charges from investment in Change Healthcare Joint Venture, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

• Adjusted Income from Continuing Operations Before Income Taxes (Non-GAAP): We define Adjusted Income from Continuing Operations Before Income Taxes as GAAP income from continuing operations before income taxes, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.

• Adjusted Income Tax Expense (Non-GAAP): We define Adjusted Income Tax Expense as GAAP income tax expense, excluding the income tax effects of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments. Income tax effects are calculated in accordance with Accounting Standards Codification ("ASC") 740, “Income Taxes,” which is the same accounting principle used by the Company when presenting its GAAP financial results.

• Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as GAAP income from continuing operations attributable to McKesson, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable.

• Adjusted Earnings per Diluted Share (Non-GAAP): We define Adjusted Earnings per Diluted Share as GAAP earnings per diluted common share from continuing operations attributable to McKesson, excluding per share impacts of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable, divided by diluted weighted-average shares outstanding. Adjusted Earnings per Diluted Share was not previously adjusted for the effect of potentially dilutive securities issued by the Change Healthcare Joint Venture.

• Adjusted Segment Operating Profit (Non-GAAP): We define Adjusted Segment Operating Profit as GAAP segment operating profit, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.

• Adjusted Corporate Expenses (Non-GAAP): We define Adjusted Corporate Expenses as GAAP corporate expenses, net, excluding transaction-related expenses and adjustments, restructuring, impairment and related charges, and other adjustments.

• Adjusted Operating Profit (Non-GAAP): We define Adjusted Operating Profit as GAAP income from continuing operations before interest expense and income taxes, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.
  
  The following provides further details regarding the adjustments made to our GAAP financial results to arrive at our Non-GAAP measures as defined above:
  
  Amortization of acquisition-related intangibles - Amortization expenses of intangible assets directly related to business combinations and the formation of joint ventures.
  
  Transaction-related expenses and adjustments - Transaction, integration and other expenses that are directly related to business combinations, the formation of joint ventures, divestitures and other transaction-related costs including initial public offering costs. Examples include transaction closing costs, professional service fees, legal fees, severance charges, retention payments and employee relocation expenses, facility or other exit-related expenses, certain fair value adjustments including deferred revenues, contingent consideration and inventory, recoveries of acquisition-related expenses or post-closing expenses, bridge loan fees, and gains or losses on business combinations and divestitures of businesses that do not qualify as discontinued operations.
  
  LIFO inventory-related adjustments - LIFO inventory-related non-cash expense or credit adjustments
  
  Gains from antitrust legal settlements - Net cash proceeds representing the Company’s share of antitrust lawsuit settlements.
  
  Restructuring, impairment and related charges - Restructuring charges that are incurred for programs in which we change our operations, the scope of a business undertaken by our business units, or the manner in which that business is conducted as well as long-lived asset impairments. Such charges may include employee severance, retention bonuses, facility closure or consolidation costs, lease or contract termination costs, asset impairments, accelerated depreciation and amortization, and other related expenses. The restructuring programs may be implemented due to the sale or discontinuation of a product line, reorganization or management structure changes, headcount rationalization, realignment of operations or products, integration of acquired businesses, and/or company-wide cost saving initiatives. The amount and/or frequency of these restructuring charges are not part of our underlying business, which include normal levels of reinvestment in the business. Any credit adjustments due to subsequent changes in estimates are also excluded from adjusted results.
  
  Other adjustments - The Company evaluates the nature and significance of transactions qualitatively and quantitatively on an individual basis and may include them in the determination of our adjusted results from time to time. While not all-inclusive, other adjustments may include: adjustments to claim and litigation reserves for estimated probable losses and settlements; other asset impairments; gains or losses from debt extinguishment; and other similar substantive and/or infrequent items as deemed appropriate.
  
  The Company evaluates the aforementioned Non-GAAP measures on a periodic basis and updates the definitions from time to time. The evaluation considers both the quantitative and qualitative aspects of the Company’s presentation of Non-GAAP adjusted results. A reconciliation of McKesson’s GAAP financial results to Non-GAAP financial results is provided in Schedules 2 and 3 of the financial statement tables included with this release.
  
  Additionally, the Company's investment in Change Healthcare Joint Venture's financial results are adjusted for the above noted items, except for the effect of potentially dilutive securities issued by the joint venture on our adjusted results per diluted share.

• FX-Adjusted (Non-GAAP): McKesson also presents its GAAP financial results and adjusted results (Non-GAAP) on an FX-Adjusted basis. To present our financial results on an FX-Adjusted basis, we convert current year period results of our operations in foreign countries, which are recorded in local currencies, into U.S. dollars by applying the average foreign currency exchange rates of the comparable prior year period. To present Adjusted Earnings per Diluted Share on an FX-Adjusted basis, we estimate the impact of foreign currency rate fluctuations on the Company’s noncontrolling interests and adjusted income tax expense, which may vary from quarter to quarter. The supplemental FX-Adjusted information of the Company’s GAAP financial results and adjusted results (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.

• Free Cash Flow (Non-GAAP): We define free cash flow as net cash provided by (used in) operating activities less payments for property, plant and equipment and capitalized software expenditures, as disclosed in our condensed consolidated statements of cash flows. A reconciliation of McKesson’s GAAP financial results to Free Cash Flow (Non-GAAP) is provided in Schedule 6 of the financial statement tables included with this release.

The Company believes the presentation of Non-GAAP measures provides useful supplemental information to investors with regard to its operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Non-GAAP measures assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company's Non-GAAP measures used in the press tables may be defined and calculated differently by other companies in the same industry.

The Company internally uses both GAAP and Non-GAAP financial measures in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. The Company conducts its businesses internationally in local currencies, including Euro, British pound sterling and Canadian dollars. As a result, the comparability of our results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. We present FX-Adjusted information to provide a framework for assessing how our business performed excluding the estimated effect of foreign currency exchange rate fluctuations. We believe free cash flow is important to management and useful to investors as a supplemental measure as it indicates the cash flow available for working capital needs, re-investment opportunities, strategic acquisitions, dividend payments or other strategic uses of cash. Nonetheless, Non-GAAP adjusted results and related Non-GAAP measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.