Redeemable Noncontrolling Interests

On May 22, 2014, Celesio and McKesson, through its wholly-owned subsidiary, Celesio Holdings Deutschland GmbH & Co. KGaA (“Celesio Deutschland,” formerly known as “McKesson Deutschland GmbH & Co. KGaA”), entered into the domination and profit and loss transfer agreement (the “Domination Agreement”). The Domination Agreement was approved at the general shareholders’ meeting of Celesio on July 15, 2014, approved by the Stuttgart Higher Regional Court for registration on December 2, 2014, and was registered in the commercial register of Celesio at the local court of Stuttgart on December 2, 2014.

Under the Domination Agreement, McKesson is obligated to pay an annual recurring compensation amount of €0.83 per Celesio share (“Compensation Amount”). The Compensation Amount is recognized ratably during the applicable annual period and is included in our condensed consolidated statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the corresponding liability balance is included within “Other accrued liabilities” on our condensed consolidated balance sheet.

In addition, under the Domination Agreement, the noncontrolling interests in Celesio are redeemable at the option of the holder as a result of a right to put their Celesio shares at €22.99 per share (“Put Right”). Accordingly, the noncontrolling interests in Celesio are presented as “Redeemable Noncontrolling Interests” on our condensed consolidated balance sheet. The Put Right amount is increased annually for interest in the amount of five percentage points above a base rate published by the German Bundesbank semiannually, less the guaranteed dividend payment for calendar year 2014 (“Guaranteed Dividend”) and any Compensation Amount already paid in respect of the relevant time period (“Put Amount”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. There were no material exercises during the first quarter of 2016. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted for exchange rate fluctuations each period. At June 30, 2015 and March 31, 2015, the carrying value of redeemable noncontrolling interests of $1.43 billion and $1.39 billion exceeded the maximum redemption value of $1.26 billion and $1.21 billion. At June 30, 2015 and March 31, 2015, we owned approximately 76.0% of Celesio’s outstanding common shares.

Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of Celesio initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Higher Regional Court to challenge the Compensation Amount, Guaranteed Dividend and/or Put Amount. As long as any Appraisal Proceedings are pending, the Compensation Amount, Guaranteed Dividend and/or Put Amount will be paid as specified currently in the Domination Agreement. If any such Appraisal Proceedings result in an adjustment to the Compensation Amount, Guaranteed Dividend and/or Put Amount, Celesio Deutschland would be required to make certain additional payments for any shortfall to all Celesio noncontrolling shareholders who previously received the Guaranteed Dividend, Compensation Amount and/or Put Amount. The Put Right specified in the Domination Agreement may be exercised until two months after the announcement regarding the end of the Appraisal Proceedings. In addition, if the Domination Agreement is terminated, the Put Right may be exercised for a two-month period after the date of termination.

Changes in redeemable noncontrolling interests were as follows:



(In millions)	Redeemable Noncontrolling Interests
Balance, March 31, 2015	$	1,386
Net income attributable to noncontrolling interests	11
Other comprehensive income	44
Reclassification of recurring compensation to other accrued liabilities	(11		)
Balance, June 30, 2015	$	1,430

During the first quarter of 2015, the effect of changes in our ownership interest in Celesio on our equity of $3 million was recorded as an increase to McKesson’s stockholders’ paid-in capital. Net income attributable to McKesson and transfers from noncontrolling interests to McKesson equity amounted to $406 million for the first quarter of 2015. There were no material changes in our ownership interest in Celesio during the first quarter of 2016.

On August 14, 2014, Magnetar Capital filed a lawsuit against Celesio with the Stuttgart Regional Court claiming that the shareholders’ approval of the Domination Agreement was void under the German Stock Corporation Act. On June 16, 2015, the Stuttgart Regional Court ruled in favor of Celesio.