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2008-06-30 0000927653
2008-03-31 0000927653
2009-03-31 0000927653
2008-04-01 2008-06-30
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2008-09-30 0000927653
2009-06-30 0000927653
2009-04-01 2009-06-30
iso4217:USD xbrli:shares
xbrli:shares
iso4217:USD
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Tagged Note 1 - us-gaap:SignificantAccountingPoliciesTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <!-- xbrl,ns -->
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div> <div align="left"> </div> <div align="center"
style="font-size: 10pt; margin-top: 0pt"><b> </b> </div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1.
Significant Accounting Policies</b> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     <i>Basis
of Presentation</i>: The condensed consolidated financial statements
of McKesson Corporation (“McKesson,” the “Company,”
or “we” and other similar pronouns) include the financial
statements of all wholly-owned subsidiaries, majority-owned or controlled
companies and certain immaterial variable interest entities (“VIEs”)
of which we are the primary beneficiary. Intercompany transactions and balances
have been eliminated. The condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial
reporting and the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). Accordingly, certain information and
footnote disclosures normally included in the annual consolidated financial
statements prepared in accordance with GAAP have been condensed. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In
accordance with the Financial Accounting Standards Board (“FASB”)
Interpretation (“FIN”) No. 46 (revised December 2003),
“Consolidation of Variable Interest Entities,” we evaluate
our ownership, contractual and other interests in entities to determine if
they are VIEs, if we have a variable interest in those entities and the nature
and extent of those interests. These evaluations are highly complex and involve
judgment and the use of estimates and assumptions based on available historical
information and management’s estimates, among other factors. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     To
prepare the financial statements in conformity with GAAP, management must
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of these financial statements and income and
expenses during the reporting period. Actual amounts may differ from these
estimated amounts. In our opinion, these unaudited condensed consolidated
financial statements include all adjustments necessary for a fair presentation
of the Company’s financial position as of June 30, 2009
and the results of operations and cash flows for the quarters ended June 30,
2009 and 2008. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The results of operations
for the quarter ended June 30, 2009 are not necessarily indicative
of the results that may be expected for the entire year. These interim financial
statements should be read in conjunction with the annual audited financial
statements, accounting policies and financial notes included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2009 (“2009
Annual Report”) previously filed with the SEC on May 5,
2009. Certain prior period amounts have been reclassified to conform to the
current period presentation. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
Company’s fiscal year begins on April 1 and ends on March 31.
Unless otherwise noted, all references to a particular year shall mean the
Company’s fiscal year. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
evaluated all subsequent events that occurred after the balance sheet date
through the date and time our financial statements were issued on July 28,
2009. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     <i>Recently
Adopted Accounting Pronouncements: </i>In September 2006, the
FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 157, “Fair Value Measurements,” which provides
a consistent definition of fair value that focuses on exit price and prioritizes
the use of market-based inputs over entity-specific inputs for measuring fair
value. SFAS No. 157 requires expanded disclosures about fair value
measurements and establishes a three-level hierarchy for fair value measurements.
In February 2008, the FASB issued FASB Staff Position (“FSP”)
Financial Accounting Standard (“FAS”) No. 157-1,
“Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements
for Purposes of Lease Classification or Measurement under Statement 13,”
which removes leasing from the scope of SFAS No. 157. In February 2008,
the FASB also issued FSP FAS No. 157-2, “Effective Date
of FASB Statement No. 157,” which permits companies to
partially defer the effective date of SFAS No. 157 for one year for
nonfinancial assets and nonfinancial liabilities that are recognized or disclosed
at fair value in the consolidated financial statements on a nonrecurring basis.
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
April 1, 2008, we adopted SFAS No. 157 for financial assets
and financial liabilities and for nonfinancial assets and nonfinancial liabilities
that are remeasured at least annually. At that time, we elected to defer adoption
of SFAS No. 157 for one year for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. On April 1, 2009, we adopted
the provisions of SFAS No. 157 regarding nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in
the financial statements on a nonrecurring basis. The provisions of SFAS No. 157
are applied prospectively. The adoption of the various provisions of SFAS
No. 157 on April 1, 2008 and 2009 did not have a material
impact on our consolidated financial statements. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     On
April 1, 2009, we adopted SFAS No. 141 (revised 2007), “Business
Combinations.” SFAS No. 141(R) amends SFAS No. 141, “Business
Combinations,” and provides revised guidance for recognizing and
measuring identifiable assets and goodwill acquired, liabilities assumed and
any noncontrolling interest in the acquiree. Additionally, this SFAS provides
disclosure requirements to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS No. 141(R)
amends SFAS No. 109, “Accounting for Income Taxes,”
such that adjustments made to valuation allowances on deferred taxes and acquired
tax contingencies related to acquisitions made prior to April 1,
2009 are also required to apply the provisions of this standard. The adoption
of this SFAS did not have a material impact on our consolidated financial
statements; however, the SFAS may have an impact on the accounting for any
future acquisitions or divestitures. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
April 1, 2009, we adopted FSP No. FAS 141(R)-1, “Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That
Arise from Contingencies.” FSP No. FAS 141(R)-1 amends
and clarifies SFAS No. 141(R) to address application issues raised
on the initial recognition and measurement, subsequent measurement and accounting
and disclosure of assets and liabilities arising from contingencies in a business
combination. This FSP generally applies to assets acquired and liabilities
assumed in a business combination that arise from contingencies that would
be within the scope of SFAS No. 5, “Accounting for Contingencies,”
if not acquired or assumed in a business combination. The adoption of this
FSP did not have a material impact on our consolidated financial statements;
however, the FSP may have an impact on the accounting for any future acquisitions
or divestitures. </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     On April 1,
2009, we adopted SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements — an amendment of ARB No. 51.”
This statement requires reporting entities to present noncontrolling interests
as equity (as opposed to a liability or mezzanine equity) and provides guidance
on the accounting for transactions between an entity and noncontrolling interests.
The adoption of this SFAS did not have a material impact on our consolidated
financial statements; however, the SFAS may have an impact on any future investments
or divestitures of our investments. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
April 1, 2009, we adopted FSP No. FAS 142-3, “Determination
of the Useful Life of Intangible Assets.” FSP No. FAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, “Goodwill and Other Intangible Assets.”
The adoption of this FSP did not have a material impact on our consolidated
financial statements. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
April 1, 2009, we adopted FSP No. Emerging Issues Task Force
(“EITF”) 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.”
FSP No. EITF 03-6-1 concluded that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the
computation of basic earnings per share pursuant to the two-class method.
The adoption of this FSP did not have a material impact on our consolidated
financial statements. </div> <!-- Folio --> <!-- /Folio -->
</div> <!-- PAGEBREAK --> <div style="font-family: 'Times New
Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="center" style="font-size:
10pt; margin-top: 0pt"> <b> </b> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     On
April 1, 2009, we adopted EITF 08-6, “Equity Method Investment
Accounting Considerations.” This EITF provides guidance on how an
investor should initially measure an equity method investment, test the investment
for other-than-temporary impairment and account for any subsequent equity
activities by the investee. Upon adoption, this EITF did not have a material
impact on our consolidated financial statements. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     On
April 1, 2009, we adopted EITF 08-7, “Accounting for Defensive
Intangible Assets.” This EITF provides guidance to situations in
which an entity does not intend to actively use an acquired intangible asset
but will hold (lock up) the asset to prevent others from obtaining access
to the asset (a defensive intangible asset), except for intangible assets
that are used in research and development activities. Upon adoption, this
EITF did not have a material impact on our consolidated financial statements.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     On
April 1, 2009, we adopted FSP No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments.”
This FSP revises guidance for determining how and when to recognize other-than-temporary
impairments of debt securities for which changes in fair value are not regularly
recognized in earnings and the financial statement presentation of such impairments.
This FSP also expands and increases the frequency of disclosures related to
other-than-temporary impairments of both debt and equity securities. Upon
adoption, this FSP did not have a material impact on our consolidated financial
statements. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     On April 1,
2009, we adopted FSP No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” FSP
No. FAS 157-4 provides additional guidance for estimating fair value
in accordance with SFAS No. 157 when an asset or liability experienced
a significant decrease in volume and activity in relation to their normal
market activity. Additionally, this FSP provides guidance on identifying circumstances
that may indicate if a transaction is not orderly. Retrospective application
of this FSP to a prior interim or annual reporting period was not permitted.
The adoption of this FSP did not have a material impact on our consolidated
financial statements. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     On
June 30, 2009, we adopted FSP No. FAS 107-1 and Accounting
Principles Board (“APB”) Opinion No. 28-1, “Interim
Disclosures about Fair Value of Financial Instruments.” FSP No. FAS
107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures
about Fair Value of Financial Instruments,” to require disclosures
about fair value of financial instruments for interim reporting periods as
well as in annual financial statements. This FSP also amends APB Opinion No. 28,
“Interim Financial Reporting,” to require those disclosures
in interim financial statements. FSP No. FAS 107-1 and APB Opinion
No. 28-1 does not require disclosures for earlier periods presented
for comparative purposes at initial adoption. The adoption of this standard
did not have a material impact on our consolidated financial statements. Refer
to Financial Note 10, “Financial Instruments,” for further
discussion. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     On June 30,
2009, we adopted SFAS No. 165, “Subsequent Events.”
This statement establishes general standards of accounting and disclosures
of events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. The adoption of this standard required
us to evaluate all subsequent events that occurred after the balance sheet
date through the date and time our financial statements are issued. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <i>Newly
Issued Accounting Pronouncements: </i>In December 2008, the
FASB issued FSP No. FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets.” FSP No. FAS
132(R)-1 amends SFAS No. 132 (revised 2003), “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” to
provide guidance on an employer’s disclosures about plan assets
of a defined benefit pension or other postretirement plan. This FSP will become
effective for us on March 31, 2010. We do not currently anticipate that this
FSP will have a material impact on our consolidated financial statements upon
adoption. </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     In
June 2009, the FASB issued SFAS No. 166, “Accounting
for Transfers of Financial Assets.” SFAS No. 166 is a revision
to SFAS No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities,” and amends
the guidance on transfers of financial assets, including securitization transactions
where entities have continued exposure to risks related to transferred financial
assets. SFAS No. 166 also expands the disclosure requirements for
such transactions. This statement will become effective for us on April 1,
2010. We are currently evaluating the impact of this standard on our consolidated
financial statements. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     In
June 2009, the FASB issued SFAS No. 167, “Amendments
to FASB Interpretation No. 46(R).” SFAS No. 167
is a revision to FIN No. 46(R), “Consolidation of Variable
Interest Entities,” and amends the consolidation guidance for VIEs
under FIN No. 46(R). This statement will become effective for us
on April 1, 2010. We are currently evaluating the impact of this
standard on our consolidated financial statements. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     In
June 2009, the FASB issued SFAS No. 168, “The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles — A Replacement of FASB Statement No. 162.”
The FASB Accounting Standards Codification (“Codification”)
will become the source of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date, the Codification will supersede
all then-existing non-SEC accounting and reporting standards. This standard
will become effective for us on July 1, 2009. We do not expect that
this standard will have a material impact on our consolidated financial statements
upon adoption. </div> </div> </body> </html>
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Tagged Note 2 - us-gaap:BusinessCombinationDisclosureTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>2. Business Acquisitions</b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     During
the first quarter of 2009, we acquired McQueary Brothers Drug Company (“McQueary
Brothers”) of Springfield, Missouri for approximately $190 million.
McQueary Brothers is a regional distributor of pharmaceutical, health and
beauty products to independent and regional chain pharmacies in the Midwestern
U.S. This acquisition expanded our existing U.S. pharmaceutical distribution
business. The acquisition was funded with cash on hand. Approximately $126 million
of the purchase price allocation was assigned to goodwill, which primarily
reflects the expected future benefits from synergies to be realized upon integrating
the business. During the first quarter of 2010, the acquisition accounting
was completed. Financial results for McQueary Brothers have been included
within our Distribution Solutions segment since the date of acquisition. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     During
the last two years, we also completed a number of other smaller acquisitions
within both of our operating segments. Financial results for our business
acquisitions have been included in our consolidated financial statements since
their respective acquisition dates. Purchase prices for our business acquisitions
have been allocated based on estimated fair values at the date of acquisition.
Goodwill recognized for our business acquisitions is generally not expected
to be deductible for tax purposes. Pro forma results of operations for our
business acquisitions have not been presented because the effects were not
material to the consolidated financial statements on either an individual
or an aggregate basis. </div> </div> </body> </html>
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Tagged Note 3 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>3. Share-Based Payment</b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We
provide share-based compensation for our employees, officers and non-employee
directors, including stock options, an employee stock purchase plan, restricted
stock (“RS”), restricted stock units (“RSUs”)
and performance-based restricted stock units (“PeRSUs”)
(collectively, “share-based awards”). Most of the Company’s
share-based awards are granted in the first quarter of each fiscal year. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Compensation
expense for employee stock options is recognized on a straight-line basis
over the requisite service period and is based on the grant-date fair value
for the portion of the awards that is ultimately expected to vest. We have
elected to expense the fair value of RS and RSUs with only graded vesting
and service conditions on a straight-line basis over the requisite service
period. </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     PeRSUs
are RSUs for which the number of RSUs awarded may be conditional upon the
attainment of one or more performance objectives over a specified period.
PeRSUs are accounted for as variable awards until the performance goals are
reached and the grant date is established. The fair value of PeRSUs is determined
by the product of the number of shares eligible to be awarded and expected
to vest and the market price of the Company’s common stock, commencing
at the inception of the requisite service period. During the performance period,
the PeRSUs are re-valued using the market price and the performance modifier
at the end of a reporting period. At the end of the performance period, if
the goals are attained, the awards are granted and classified as RSUs and
accounted for on that basis. For PeRSUs granted prior to 2009 with multiple
vest dates, we recognize the fair value of these awards on a graded vesting
basis over the requisite service period of four years. PeRSUs granted during
or after 2009 and the related RSUs (granted during or after 2010) have a single
vest date and accordingly, we recognize expense on a straight-line basis over
the requisite service period of four years. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     Compensation
expense is recognized for the portion of the awards that is ultimately expected
to vest. We develop an estimate of the number of share-based awards which
will ultimately vest primarily based on historical experience. The estimated
forfeiture rate established upon grant is re-assessed throughout the requisite
service period. As required, the forfeiture estimates will be adjusted to
reflect actual forfeitures when an award vests. The actual forfeitures in
future reporting periods could be higher or lower than our current estimates.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     The
compensation expense recognized under SFAS No. 123(R), “Share-Based
Payment,” has been classified in the condensed consolidated statements
of operations or capitalized on the condensed consolidated balance sheets
in the same manner as cash compensation paid to our employees. There was no
material share-based compensation expense capitalized as part of the cost
of an asset for the quarters ended June 30, 2009 and 2008. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The
components of share-based compensation expense and the related tax benefit
for the quarters ended June 30, 2009 and 2008 are shown in the following
table: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000"><b>Quarter Ended June 30,</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions, except per share amounts)</i></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">RSUs and RS<sup style="font-size: 85%; vertical-align:
text-top"> (1)</sup> </div></td> <td> </td>
<td align="right">$</td> <td align="right">15</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">19</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">PeRSUs<sup
style="font-size: 85%; vertical-align: text-top"> (2)</sup> </div></td>
<td> </td> <td> </td> <td align="right">2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">2</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Stock options </div></td>
<td> </td> <td> </td> <td align="right">4</td>
<td> </td> <td> </td> <td> </td>
<td align="right">4</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Employee
stock purchase plan </div></td> <td> </td>
<td> </td> <td align="right">3</td> <td> </td>
<td> </td> <td> </td> <td align="right">3</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> </td> <td> </td> <td colspan="7"
align="left" style="border-top: 1px solid #000000">   </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Share-based compensation
expense </div></td> <td> </td> <td> </td>
<td align="right">24</td> <td> </td> <td> </td>
<td> </td> <td align="right">28</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Tax benefit for share-based compensation expense<sup
style="font-size: 85%; vertical-align: text-top"> (3)</sup> </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(8</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(10</td> <td nowrap="nowrap">)</td>
</tr> <tr style="font-size: 1px"> <td> </td>
<td> </td> <td colspan="7" nowrap="nowrap" align="left"
style="border-top: 1px solid #000000">   </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Share-based compensation
expense, net of tax </div></td> <td> </td>
<td align="right">$</td> <td align="right">16</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">18</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 3px double #000000"> 
 </td> </tr> <tr valign="bottom"> <td> <div
style="margin-left:15px; text-indent:-15px">Impact of share-based compensation:
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Earnings per share
<sup>(4)</sup> </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Diluted </div></td>
<td> </td> <td align="right">$</td> <td
align="right">0.06</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">0.06</td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Basic
</div></td> <td> </td> <td align="right">$</td>
<td align="right">0.06</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">0.07</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left">(1)</td> <td width="1%"> </td>
<td>This expense was primarily the result of PeRSUs awarded in prior
years, which converted to RSUs due to the attainment of goals during the applicable
years’ performance period.</td> </tr> <tr> <td
style="font-size: 6pt"> </td> </tr> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left">(2)</td> <td width="1%"> </td>
<td>Represents estimated compensation expense for PeRSUs that are conditional
upon attaining performance objectives during the current year’s
performance period.</td> </tr> <tr> <td style="font-size:
6pt"> </td> </tr> <tr valign="top" style="font-size:
10pt; color: #000000; background: transparent"> <td width="1%" nowrap="nowrap"
align="left">(3)</td> <td width="1%"> </td>
<td>Income tax expense is computed based on applicable tax jurisdictions.
Additionally, a portion of pre-tax compensation expense is not tax-deductible.</td>
</tr> <tr> <td style="font-size: 6pt"> </td>
</tr> <tr valign="top" style="font-size: 10pt; color: #000000; background:
transparent"> <td width="1%" nowrap="nowrap" align="left">(4)</td>
<td width="1%"> </td> <td>Certain computations
may reflect rounding adjustments.</td> </tr> </table> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Share-based
compensation expense is affected by our stock price, number and types of annual
share-based awards as well as assumptions regarding a number of complex and
subjective variables and the related tax impact. These variables include,
but are not limited to, the volatility of our stock price, employee stock
option exercise behavior and the attainment of performance goals. As a result,
the actual future share-based compensation expense may differ from historical
amounts. </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 4 - us-gaap:IncomeTaxDisclosureTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>4. Income Taxes</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The
Company’s reported income tax rate for the first quarters of 2010
and 2009 was 31.6% and 34.4%. Fluctuations in our reported tax rate are primarily
due to changes within state and foreign tax rates resulting from our business
mix, including varying proportions of income attributable to foreign countries
that have lower income tax rates. In addition, income tax expense includes
net discrete items of a benefit of $1 million and an expense of $5 million
during the first quarters of 2010 and 2009. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     As
of June 30, 2009, we had $581 million of unrecognized tax
benefits, of which $345 million would reduce income tax expense and
the effective tax rate if recognized. During the next twelve months, it is
reasonably possible that audit resolutions and the expiration of statutes
of limitations could potentially reduce our unrecognized tax benefits by up
to $27 million. However, this amount may change because we continue
to have ongoing negotiations with various taxing authorities throughout the
year. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     We continue to report
interest and penalties on tax deficiencies as income tax expense. At June 30,
2009, before any tax benefits, our accrued interest on unrecognized tax benefits
amounted to $106 million. We recognized $5 million of interest
expense, before any tax benefits, in our condensed consolidated statements
of operations during the quarter ended June 30, 2009. We have no
amounts accrued for penalties. </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 5 - us-gaap:EarningsPerShareTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>5. Earnings Per Share</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Basic
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the reporting period. Diluted earnings
per share is computed similar to basic earnings per share except that it reflects
the potential dilution that could occur if dilutive securities or other obligations
to issue common stock were exercised or converted into common stock. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The
computations for basic and diluted earnings per share are as follows: </div>
<div align="center"> <table style="font-size: 10pt; text-align: left"
cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin
Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000"><b>Quarter Ended June 30,</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions, except per share data)</i></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Net income </div></td> <td> </td>
<td align="right">$</td> <td align="right">288</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">235</td> <td> </td> </tr>
<tr valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common
shares outstanding: </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Basic
</div></td> <td> </td> <td> </td>
<td align="right">270</td> <td> </td> <td> </td>
<td> </td> <td align="right">277</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Effect of dilutive securities: </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Options to purchase common
stock </div></td> <td> </td> <td> </td>
<td align="right">1</td> <td> </td> <td> </td>
<td> </td> <td align="right">4</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Restricted stock/Restricted stock units </div></td>
<td> </td> <td> </td> <td align="right">1</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Diluted
</div></td> <td> </td> <td> </td>
<td align="right">272</td> <td> </td> <td> </td>
<td> </td> <td align="right">282</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> </td>
<td> </td> <td colspan="7" align="left" style="border-top:
3px double #000000">   </td> </tr> <tr
valign="bottom"><!-- Blank Space --> <td> <div style="margin-left:15px;
text-indent:-15px">  </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Earnings per common
share:<sup style="font-size: 85%; vertical-align: text-top"> (1)</sup>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Diluted </div></td>
<td> </td> <td align="right">$</td> <td
align="right">1.06</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">0.83</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Basic </div></td>
<td> </td> <td align="right">$</td> <td
align="right">1.07</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">0.85</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left">(1)</td> <td width="1%"> </td>
<td>Certain computations may reflect rounding adjustments.</td>
</tr> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Approximately
13 million and 12 million stock options were excluded from
the computations of diluted net earnings per share for the quarters ended
June 30, 2009 and 2008 as their exercise price was higher than the
Company’s average stock price for the quarter. </div> <!--
Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="center"
style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 6 - us-gaap:GoodwillAndIntangibleAssetsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>6. Goodwill and Intangible
Assets, Net</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Changes
in the carrying amount of goodwill for the quarter ended June 30,
2009 are as follows: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="64%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Distribution</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Technology</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Solutions</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Solutions</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>Total</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="13" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Balance, March 31, 2009</b>
</div></td> <td> </td> <td align="right">$</td>
<td align="right">1,869</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1,659</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">3,528</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Acquisition
accounting adjustments </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(3</td>
<td nowrap="nowrap">)</td> <td> </td> <td> </td>
<td align="right">—</td> <td> </td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(3</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Foreign currency translation
adjustments </div></td> <td> </td> <td> </td>
<td align="right">8</td> <td> </td> <td> </td>
<td> </td> <td align="right">16</td> <td> </td>
<td> </td> <td> </td> <td align="right">24</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> </td> <td> </td> <td colspan="11"
align="left" style="border-top: 1px solid #000000">   
 </td> </tr> <tr valign="bottom"> <td> <div
style="margin-left:15px; text-indent:-15px"><b>Balance, June 30,
2009</b> </div></td> <td> </td> <td
align="right">$</td> <td align="right">1,874</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">1,675</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">3,549</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="13" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Information
regarding intangible assets is as follows: </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="76%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>June 30,</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>March
31,</b></td> </tr> <tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left"><i>(In millions)</i></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Customer lists </div></td> <td> </td>
<td align="right">$</td> <td align="right">823</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">824</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Technology
</div></td> <td> </td> <td> </td>
<td align="right">188</td> <td> </td> <td> </td>
<td> </td> <td align="right">187</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Trademarks and other
</div></td> <td> </td> <td> </td>
<td align="right">71</td> <td> </td> <td> </td>
<td> </td> <td align="right">70</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> </td>
<td> </td> <td colspan="7" align="left" style="border-top:
1px solid #000000">   </td> </tr> <tr
valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Gross
intangibles </div></td> <td> </td> <td> </td>
<td align="right">1,082</td> <td> </td> <td> </td>
<td> </td> <td align="right">1,081</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Accumulated amortization
</div></td> <td> </td> <td nowrap="nowrap"
align="right"> </td> <td align="right">(452</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(420</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td> </td> <td> </td> <td
colspan="7" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom"> <td> <div
style="margin-left:30px; text-indent:-15px">Intangible assets, net </div></td>
<td> </td> <td align="right">$</td> <td
align="right">630</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">661</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     Amortization
expense of intangible assets was $30 million for the quarters ended
June 30, 2009 and 2008. The weighted average remaining amortization
periods for customer lists, technology and trademarks and other intangible
assets as of June 30, 2009 were 7 years, 3 years
and 6 years. Estimated annual amortization expense of these assets
is as follows: $118 million, $111 million, $105 million,
$86 million and $74 million for 2010 through 2014, and $166 million
thereafter. All intangible assets were subject to amortization as of June 30,
2009 and March 31, 2009. </div> </div> </body>
</html>
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XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 7 - us-gaap:DebtDisclosureTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>7. Financing Activities</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Accounts
Receivable Sales Facility</i> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     In
May 2009, we renewed our accounts receivable sales facility for an
additional one year period under terms similar to those previously in place.
The renewed facility will expire in May 2010. The May 2009 renewal
increased the committed balance from $1.0 billion to $1.1 billion,
although from time-to-time the available amount may be less than $1.1 billion
based on concentration limits and receivable eligibility requirements. </div>
<!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK
--> <div style="font-family: 'Times New Roman',Times,serif"> <div
align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b>
</div> <div align="center" style="font-size: 10pt; margin-top: 0pt">
<b> </b> </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     Through
this facility, McKesson Corporation sells certain U.S. pharmaceutical trade
accounts receivable on a non-recourse basis to a wholly-owned and consolidated
subsidiary which then sells these receivables to a special purpose entity
(“SPE”), which is a wholly-owned, bankruptcy-remote subsidiary
of McKesson Corporation that is consolidated in our financial statements.
This SPE then sells undivided interests in the receivables to third-party
purchaser groups, each of which includes commercial paper conduits (“Conduits”),
which are special purpose legal entities administered by financial institutions.
Sales of undivided interests in the receivables by the SPE to the Conduits
are accounted for as a sale in accordance with SFAS No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,”
because we have relinquished control of the receivables. Accordingly, accounts
receivable sold under these transactions are excluded from receivables, net
in the accompanying condensed consolidated balance sheets. Receivables sold
and receivables retained by the Company are carried at face value, which due
to the short-term nature of our accounts receivable and terms of the facility,
approximates fair value. McKesson receives cash in the amount of the face
value for the receivables sold. No gain or loss is recorded upon sale as fee
charges from the Conduits are based upon a floating yield rate and the period
the undivided interests remain outstanding. Fee charges from the Conduits
are accrued at the end of each month and are recorded within administrative
expenses in the condensed consolidated statements of operations. Should we
default under the accounts receivable sales facility, the Conduits are entitled
to receive only collections on receivables owned by the SPE. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
continue servicing the receivables sold. No servicing asset is recorded at
the time of sale because we do not receive any servicing fees from third parties
or other income related to servicing the receivables. We do not record any
servicing liability at the time of sale as the receivables collection period
is relatively short and the costs of servicing the receivables sold over the
servicing period are insignificant. Servicing costs are recognized as incurred
over the servicing period. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Information
regarding our outstanding balances related to our interests in accounts receivable
sold or qualifying receivables retained is as follows: </div> <div
align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0"
border="0" cellpadding="0" width="100%"> <!-- Begin Table Head -->
<tr valign="bottom"> <td width="76%"> </td> <td
width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>June
30,</b></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3"><b>March 31,</b></td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>(In
millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3"><b>2009</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Receivables sold outstanding <sup style="font-size:
85%; vertical-align: text-top">(1)</sup> </div></td>
<td> </td> <td align="right">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Receivables retained,
net of allowance for doubtful accounts </div></td> <td> </td>
<td> </td> <td align="right">4,752</td> <td> </td>
<td> </td> <td> </td> <td align="right">4,814</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
style="margin-top: 6pt"> <table width="100%" border="0" cellpadding="0"
cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top"
style="font-size: 10pt; color: #000000; background: transparent"> <td
width="1%" nowrap="nowrap" align="left">(1)</td> <td width="1%"> </td>
<td>Deducted from receivables, net in the condensed consolidated balance
sheets.</td> </tr> </table> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     The
following table summarizes the activity related to our interests in accounts
receivable sold: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000"><b>Quarter Ended June 30,</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Proceeds from accounts receivable sales </div></td>
<td> </td> <td align="right">$</td> <td
align="right">—</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">1,200</td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:15px; text-indent:-15px">Fees and charges <sup
style="font-size: 85%; vertical-align: text-top">(1)</sup> </div></td>
<td> </td> <td> </td> <td align="right">2</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left">(1)</td>
<td width="1%"> </td> <td>Recorded in operating
expenses in the condensed consolidated statements of operations.</td>
</tr> </table> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
delinquency ratio for the qualifying receivables represented less than 1%
of the total qualifying receivables as of June 30, 2009 and March 31,
2009. </div> <!-- Folio --> <!-- /Folio --> </div>
<!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt"><i>Revolving Credit Facility</i> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
have a syndicated $1.3 billion five-year, senior unsecured revolving
credit facility which expires in June 2012. Borrowings under this
credit facility bear interest based upon either a Prime rate or the London
Interbank Offering Rate. Total borrowings under this facility were nil and
$62 million for the first quarters of 2010 and 2009. As of June 30,
2009 and March 31, 2009, there were no amounts outstanding under
this facility. </div> <div align="left" style="font-size: 10pt; margin-top:
6pt"><i>Commercial Paper</i> </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     We
issued and repaid nil and $496 million in commercial paper for the
first quarters of 2010 and 2009. There were no commercial paper issuances
outstanding at June 30, 2009 and March 31, 2009. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Long-Term
Debt</i> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     On February 12,
2009, we issued 6.50% notes due February 15, 2014 (the “2014
Notes”) in an aggregate principal amount of $350 million
and 7.50% notes due February 15, 2019 (the “2019 Notes”)
in an aggregate principal amount of $350 million. Interest is payable
on February 15 and August 15 of each year beginning on August 15,
2009. The 2014 Notes will mature on February 15, 2014 and the 2019
Notes will mature on February 15, 2019. We utilized net proceeds,
after offering expenses, of $693 million from the issuance of the
2014 Notes and 2019 Notes for general corporate purposes. </div> </div>
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<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>8. Pension and Other
Postretirement Benefit Plans</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Net
periodic expense for the Company’s defined benefit pension and other
postretirement benefit plans was $8 million and $3 million
for the first quarters of 2010 and 2009. Cash contributions to these plans
for the first quarters of 2010 and 2009 were $10 million and $7 million.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As
previously reported in our 2009 Annual Report, the McKesson Corporation Profit
Sharing Investment Plan (“PSIP”) is a member of the settlement
class in the Consolidated Securities Litigation Action. On April 27,
2009, the court issued an order approving the distribution of the settlement
funds. The PSIP is anticipating receiving its share of the settlement of approximately
$90 million during 2010. Approximately $30 million of the
Consolidated Securities Litigation Action proceeds are attributable to the
allocated shares of McKesson common stock owned by the PSIP participants during
the Consolidated Securities Litigation Action class holding period and will
be allocated to the respective participants on that basis. Approximately $60 million
of the proceeds are attributable to the unallocated shares (the “Unallocated
Proceeds”) of McKesson common stock owned by the PSIP in an employee
stock ownership plan (the “ESOP”) suspense account. In
accordance with the plan terms, the PSIP will distribute all of the Unallocated
Proceeds to current PSIP participants as soon as administratively feasible
after the close of the plan year. The receipt of the Unallocated Proceeds
by the PSIP is reimbursement for the loss in value of the Company’s
common stock held by the PSIP in its ESOP suspense account during the Consolidated
Securities Litigation Action class holding period and is not a contribution
made by the Company to the PSIP or ESOP. Accordingly, there are no accounting
consequences to the Company’s financial statements relating to the
receipt of the Unallocated Proceeds by the PSIP. </div> <!-- Folio
--> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="center"
style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     The Company accounts
for shares of its common stock contributed to the ESOP prior to 1993 in accordance
with the American Institute of Certified Public Accountants Statement of Position
(“SOP”) 76-3, “Accounting Practices for Certain
Employee Stock Ownership Plans.” SOP 76-3 requires that compensation
expense be recognized only to the extent that the Company contributes or commits
to contribute to the ESOP. The Company accounts for all contributions of shares
of its common stock made to the ESOP after 1993 under SOP 93-6, “Employers’
Accounting for Stock Ownership Plans.” During the first quarter
of 2010, the Company contributed $1 million to the ESOP in order
to extinguish the remaining ESOP loan and made no commitments to otherwise
contribute to the PSIP or ESOP. Upon repayment, our ESOP became a non-leveraged
ESOP. At June 30, 2009, of the 24 million shares of the
Company’s common stock purchased by the ESOP since its inception,
all but 66,444 shares have been allocated to PSIP participants. As a result
of the payment, pre-tax PSIP expense for the first quarter of 2010 was $1 million.
The Company anticipates that its PSIP expense for the full year will remain
at $1 million, as it currently does not anticipate making or committing to
make additional contributions to the PSIP or ESOP. As a result, our compensation
expense in 2010 will be lower than 2009. During the first quarter and full
year 2009, PSIP expense was $17 million and $53 million.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     PSIP
expense by segment for the quarters ended June 30, 2009 and 2008
was as follows: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000"><b>Quarter Ended June 30,</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Distribution Solutions </div></td> <td> </td>
<td align="right">$</td> <td align="right">—</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">7</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Technology
Solutions </div></td> <td> </td> <td> </td>
<td align="right">1</td> <td> </td> <td> </td>
<td> </td> <td align="right">9</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:15px; text-indent:-15px">Corporate </div></td>
<td> </td> <td> </td> <td align="right">—</td>
<td> </td> <td> </td> <td> </td>
<td align="right">1</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom"> <td> <div
style="margin-left:30px; text-indent:-15px">PSIP expense </div></td>
<td> </td> <td align="right">$</td> <td
align="right">1</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">17</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> </div>
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Tagged Note 9 - mck:FinancialGuaranteesAndWarrantiesTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>9. Financial Guarantees
and Warranties</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt"><i>Financial Guarantees</i> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We
have agreements with certain of our customers’ financial institutions
under which we have guaranteed the repurchase of inventory (primarily for
our Canadian business) at a discount in the event these customers are unable
to meet certain obligations to those financial institutions. Among other requirements,
these inventories must be in resalable condition. The inventory repurchase
agreements mostly range from one to two years. Customer guarantees range from
one to five years and were primarily provided to facilitate financing for
certain customers. The majority of our other customer guarantees are secured
by certain assets of the customer. We also have an agreement with one software
customer that, under limited circumstances, may require us to secure standby
financing. Because the amount of the standby financing is not explicitly stated,
the overall amount of these guarantees cannot reasonably be estimated. As
of June 30, 2009, the maximum amounts of inventory repurchase guarantees
and other customer guarantees were $92 million and $11 million,
none of which had been accrued. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     Our
software license agreements generally include certain provisions for indemnifying
customers against liabilities if our software products infringe a third party’s
intellectual property rights. To date, we have not incurred any material costs
as a result of such indemnification agreements and have not accrued any liabilities
related to such obligations. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     In
conjunction with certain transactions, primarily divestitures, we may provide
routine indemnification agreements (such as retention of previously existing
environmental, tax and employee liabilities) whose terms vary in duration
and often are not explicitly defined. Where appropriate, obligations for such
indemnifications are recorded as liabilities. Because the amounts of these
indemnification obligations often are not explicitly stated, the overall maximum
amount of these commitments cannot be reasonably estimated. Other than obligations
recorded as liabilities at the time of divestiture, we have historically not
made significant payments as a result of these indemnification provisions.
</div> <!-- Folio --> <!-- /Folio --> </div> <!--
PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif">
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="center" style="font-size: 10pt; margin-top:
0pt"> <b> </b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt"><i>Warranties</i> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     In
the normal course of business, we provide certain warranties and indemnification
protection for our products and services. For example, we provide warranties
that the pharmaceutical and medical-surgical products we distribute are in
compliance with the Food, Drug and Cosmetic Act and other applicable laws
and regulations. We have received the same warranties from our suppliers,
which customarily are the manufacturers of the products. In addition, we have
indemnity obligations to our customers for these products, which have also
been provided to us from our suppliers, either through express agreement or
by operation of law. </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     We also
provide warranties regarding the performance of software and automation products
we sell. Our liability under these warranties is to bring the product into
compliance with previously agreed upon specifications. For software products,
this may result in additional project costs, which are reflected in our estimates
used for the percentage-of-completion method of accounting for software installation
services within these contracts. In addition, most of our customers who purchase
our software and automation products also purchase annual maintenance agreements.
Revenues from these maintenance agreements are recognized on a straight-line
basis over the contract period and the cost of servicing product warranties
is charged to expense when claims become estimable. Accrued warranty costs
were not material to the condensed consolidated balance sheets. </div>
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Tagged Note 10 - us-gaap:FairValueDisclosuresTextBlock--> <div style="font-family:
'Times New Roman',Times,serif"> <div align="left" style="font-size:
10pt; margin-top: 12pt"><b>10. Financial Instruments</b> </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     At
June 30, 2009 and March 31, 2009, the carrying amounts of
cash and cash equivalents, restricted cash, marketable securities, receivables,
drafts and accounts payable and other current liabilities approximated their
estimated fair values because of the short maturity of these financial instruments.
All highly liquid debt instruments purchased with a maturity of three months
or less at the date of acquisition are included in cash and cash equivalents.
Included in cash and cash equivalents at June 30, 2009 and March 31,
2009 are money market fund investments of $2.0 billion and $1.7 billion
which are reported at fair value. The fair value of these investments was
determined by using quoted prices for identical investments in active markets
which are considered to be Level 1 inputs under SFAS No. 157, “Fair
Value Measurements.” </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     The
carrying amounts and estimated fair values of our long-term debt were $2,509 million
and $2,657 million at June 30, 2009 and $2,509 million
and $2,545 million at March 31, 2009. The estimated fair
value of our long-term debt was determined using quoted market prices and
other inputs that were derived from available market information and may not
be representative of actual values that could have been or will be realized
in the future. </div> </div> </body> </html>
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Tagged Note 11 - us-gaap:CommitmentsAndContingenciesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>11. Other Commitments
and Contingent Liabilities</b> </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     In
addition to commitments and obligations in the ordinary course of business,
we are subject to various claims, other pending and potential legal actions
for damages, investigations relating to governmental laws and regulations
and other matters arising out of the normal conduct of our business. In accordance
with SFAS No. 5, “Accounting for Contingencies,”
we record a provision for a liability when management believes that it is
both probable that a liability has been incurred and the amount of the loss
can be reasonably estimated. We believe we have adequate provisions for any
such matters. Management reviews these provisions at least quarterly and adjusts
these provisions to reflect the impact of negotiations, settlements, rulings,
advice of legal counsel and other information and events pertaining to a particular
case. Because litigation outcomes are inherently unpredictable, these decisions
often involve a series of complex assessments by management about future events
that can rely heavily on estimates and assumptions and it is possible that
the ultimate cost of these matters could impact our earnings, either negatively
or positively, in the quarter of their resolution. </div> <!-- Folio
--> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="center"
style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     Based on our experience,
we believe that any damage amounts claimed in the specific matters referenced
in our 2009 Annual Report and those matters discussed below are not meaningful
indicators of our potential liability. We believe that we have valid defenses
to these legal proceedings and are defending the matters vigorously. Nevertheless,
the outcome of any litigation is inherently uncertain. We are currently unable
to estimate the remaining possible losses in these unresolved legal proceedings.
Should any one or a combination of more than one of these proceedings against
us be successful, or should we determine to settle any or a combination of
these matters on unfavorable terms, we may be required to pay substantial
sums, become subject to the entry of an injunction, or be forced to change
the manner in which we operate our business, which could have a material adverse
impact on our financial position or results of operations. </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     As
more fully described in our previous public reports filed with the SEC, we
are involved in numerous legal proceedings. For a discussion of these proceedings,
please refer to Financial Note 18, “Other Commitments and Contingent
Liabilities,” included in our 2009 Annual Report. Significant developments
in previously reported proceedings and in other litigation and claims since
the referenced filings are set out below. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     As
previously reported, in January of 2009, the Georgia Court of Appeals accepted
our appeals from trial court rulings denying our summary judgment and expert
disqualification motions in the last two remaining lawsuits arising out of
our January 12, 1999 acquisition of HBO & Company <i>Holcombe
T. Green and HTG Corp. v. McKesson Corporation, et al. </i>(Georgia
State Court, Fulton County, Case No. 06-VS-096767-D) and <i>Hall
Family Investments, L.P. v. McKesson Corporation, et al. </i>(Georgia
State Court, Fulton County, Case No. 06-VS-096763-F). On July 14,
2009, the Georgia Court of Appeals issued its opinion on our appeals, ruling
that the trial court committed error in denying our motion for summary judgment
and reversing the trial court’s ruling. On July 23, 2009, the plaintiffs
petitioned the Georgia Supreme Court to take an appeal from the decision of
the Georgia Court of Appeals. The Company will oppose the plaintiffs petition
to the Georgia Supreme Court. </div> <div align="left" style="font-size:
10pt; margin-top: 6pt">     We
have previously reported on certain private party class action litigation
filed against the Company in the United States District Court for Massachusetts
relating to alleged misstatements and manipulations of the benchmark for drug
reimbursement known as Average Wholesale Price (“AWP”)
and regarding a proposed settlement of that litigation, <i>New England
Carpenters Health Benefits Fund, et al. v. First DataBank, Inc. and McKesson
Corporation, </i>(Civil Action No. 1:05-CV-11148-PBS) (the
“<i>Private Payor RICO Action</i>”) and <i>New
England Carpenters Health Benefits Fund, et al. v. McKesson Corporation, </i>(Civil
Action No. 1:07-CV-12277-PBS) (the “<i>Antitrust
Action</i>”). The final approval hearing on the Company’s
previously disclosed settlement of private party claims was conducted by the
trial court as scheduled on July 23, 2009, and July 24, 2009, the trial court
issued an order approving the settlement. </div> <div align="left"
style="font-size: 10pt; margin-top: 6pt">     As
previously reported regarding the consolidated public payor actions, collectively
known as <i>In re McKesson Governmental Entities Average Wholesale Price
Litigation, </i>pending in United States District Court for the District
of Massachusetts, which actions are based on allegations nearly identical
to those made in the AWP <i>Private Payor RICO Action </i>and
the <i>Antitrust Action </i>referenced above (<i>Board of
County Commissioners of Douglas County, Kansas v. McKesson Corporation, et
al.</i>, (Civil Action No. 1:08-CV-11349-PBS) (“<i>Douglas
County, Kansas Action</i>”), <i>San Francisco Health
Plan, et al. v. McKesson Corporation</i>, (Civil Action No. 1:08-CV-10843-PBS)
(“<i>San Francisco Action</i>”), <i>State
of Connecticut v. McKesson Corporation</i>, (Civil Action No. 1:08-CV-10900-PBS)
(“<i>Connecticut Action</i>”)), the trial
court set a discovery cut-off of October 30, 2009, a class certification
hearing in the <i>Douglas County, Kansas </i>and <i>San
Francisco Actions </i>of February 10, 2010 and trial in the
<i>Connecticut Action </i>for July 19, 2010. No trial
date has yet been set or proposed in the <i>San Francisco </i>and
<i>Douglas County, Kansas Actions</i>. On July 10, 2009,
plaintiffs in the <i>San Francisco, Connecticut </i>and <i>Douglas
County, Kansas Actions </i>filed an unopposed motion to modify the court’s
scheduling order by moving the discovery cut-off in all of the consolidated
actions to January 14, 2010, the class certification hearing in the
<i>Douglas County, Kansas </i>and <i>San Francisco Actions
</i>to April 2010 and trial in the <i>Connecticut Action
</i>to October 2010. The court has not yet ruled on plaintiffs’
motion to modify the previously described schedule. The parties to the <i>In
re McKesson Governmental Entities Average Wholesale Price Litigation </i>are
currently engaged in class and merits discovery. </div> <!-- Folio
--> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="center"
style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div>
<div align="center" style="font-size: 10pt; margin-top: 0pt"> <b>
</b> </div> <div align="left" style="font-size: 10pt; margin-top:
6pt">     Also in connection
with the previously disclosed public payor AWP matters, on May 20,
2009, an action was filed in the United States District Court for the District
of Massachusetts by Oakland County, Michigan and the City of Sterling Heights,
Michigan against the Company as the sole defendant, alleging violations of
the Racketeer Influenced and Corrupt Organizations Act (“RICO”),
the Michigan Antitrust Reform Act, the Michigan Consumer Protection Act, the
California Cartwright Act and common law fraud and seeking damages, treble
damages, interest and attorneys’ fees, all in unspecified amounts,
<i>Oakland County, Michigan et al. v. McKesson Corporation</i>,
(Civil Action No. 1:09-CV-10843-PBS) (“<i>Michigan
Action</i>”). On July 15, 2009, the Company filed
a motion to stay the <i>Michigan Action </i>pending the court’s
class certification determination in the <i>Douglas County, Kansas Action</i>.
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     As
previously reported on November 21, 2008 the Company announced that
it had reached an agreement with plaintiffs to pay $350 million in
settlement of all claims alleged in the <i>Private Payor RICO Action
</i>along with the claims brought in the <i>Antitrust Action</i>.
The Company also announced on November 21 that it recorded a reserve
of $143 million for pending and expected claims by public entities.
The settlement provides that the Company will pay $350 million into
a settlement escrow in installments following preliminary and final approval
by the U.S. District Court. To date, approximately $55 million has been paid
by the Company into the settlement escrow, and the balance of the $350 million
is expected to be paid into the settlement escrow during the second quarter
of 2010. Accordingly, $350 million is recorded in current liabilities
on our condensed consolidated balance sheets at June 30, 2009. </div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On
July 7, 2009, in the previously reported <i>qui tam </i>false
claims lawsuit brought by Relator Thomas F. Jamison, and the United States
by way of its complaint in intervention, against the Company, McKesson Medical-Surgical
MediMart Inc. and others, all defendants filed motions to dismiss the Relator
as a plaintiff based on the court’s lack of subject matter jurisdiction,
<i>United States v. McKesson Corporation, et al.</i>, (Civil Action
No. 2:08-CV-00214-SA,) pending in the United States District Court
for the Northern District of Mississippi. Defendants’ motions to
dismiss are based on their contention that the Relator was not the original
source of the claims which he attempts to pursue in his <i>qui tam </i>action.
The Relator has not yet filed his opposition to these motions and no date
has been set for a hearing on them. Also, the trial court has not yet scheduled
a hearing date for defendants’ previously described motions to dismiss
the United States’ complaint in intervention on grounds that the
complaint fails to make allegations with required particularity and that it
fails to state a legal claim. </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 12 - us-gaap:StockholdersEquityNoteDisclosureTextBlock--> <div
style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>12. Stockholders’
Equity</b> </div> <div align="left" style="font-size: 10pt;
margin-top: 6pt">     Comprehensive
income is as follows: </div> <div align="center"> <table style="font-size:
10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --> <tr valign="bottom"> <td width="76%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
<td width="5%"> </td> <td width="1%"> </td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td> </td>
<td> </td> <td nowrap="nowrap" align="center" colspan="7"
style="border-bottom: 1px solid #000000"><b>Quarter Ended June 30,</b></td>
</tr> <tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap"
align="left"><i>(In millions)</i></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>2009</b></td>
<td> </td> <td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Net income </div></td> <td> </td>
<td align="right">$</td> <td align="right">288</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">235</td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Foreign
currency translation adjustments and other </div></td> <td> </td>
<td> </td> <td align="right">95</td> <td> </td>
<td> </td> <td> </td> <td align="right">10</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> </td> <td> </td> <td colspan="7"
align="left" style="border-top: 1px solid #000000">   </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Comprehensive income
</div></td> <td> </td> <td align="right">$</td>
<td align="right">383</td> <td> </td> <td> </td>
<td align="right">$</td> <td align="right">245</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td colspan="9" align="left" style="border-top: 3px double #000000"> </td>
</tr> <!-- End Table Body --> </table> </div> <div
align="left" style="font-size: 10pt; margin-top: 6pt">     In
April 2008, the Company’s Board of Directors approved a
plan to repurchase $1.0 billion of the Company’s common
stock, of which $830 million remained available at March 31,
2009. During the first quarter of 2010, we repurchased 7 million
shares for $275 million, leaving $555 million available
for future repurchases as of June 30, 2009. Stock repurchases may
be made from time-to-time in open market or private transactions. </div>
<!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK
--> <div style="font-family: 'Times New Roman',Times,serif"> <div
align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b>
</div> <div align="center" style="font-size: 10pt; margin-top: 0pt">
<b> </b> </div> </div> </body> </html>
<!--DOCTYPE html PUBLIC "-//W3C//DTD
XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd"
--> <html> <head></head> <body> <!-- Begin Block
Tagged Note 13 - us-gaap:ScheduleOfSegmentReportingInformationBySegmentTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif"> <div align="left"
style="font-size: 10pt; margin-top: 12pt"><b>13. Segment Information</b>
</div> <div align="left" style="font-size: 10pt; margin-top: 6pt">     We
report our operations in two operating segments: McKesson Distribution Solutions
and McKesson Technology Solutions. The factors for determining the reportable
segments included the manner in which management evaluates the performance
of the Company combined with the nature of the individual business activities.
We evaluate the performance of our operating segments based on operating profit
before interest expense, income taxes and results from discontinued operations.
Financial information relating to our reportable operating segments and reconciliations
to the condensed consolidated totals is as follows: </div> <div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0"
cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom">
<td width="76%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> <td width="5%"> </td>
<td width="1%"> </td> </tr> <tr style="font-size:
8pt" valign="bottom"> <td> </td> <td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px
solid #000000"><b>Quarter Ended June 30,</b></td> </tr>
<tr style="font-size: 8pt" valign="bottom"> <td nowrap="nowrap" align="left"><i>(In
millions)</i></td> <td> </td> <td nowrap="nowrap"
align="center" colspan="3"><b>2009</b></td> <td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>2008</b></td>
</tr> <!-- End Table Head --> <!-- Begin Table Body -->
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
1px solid #000000"> </td> </tr> <tr valign="bottom"
style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px"><b>Revenues</b> </div></td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> </tr>
<tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Distribution
Solutions <sup style="font-size: 85%; vertical-align: text-top">(1)</sup>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Direct distribution
& services </div></td> <td> </td>
<td align="right">$</td> <td align="right">17,038</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">16,428</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Sales to customers’ warehouses </div></td>
<td> </td> <td> </td> <td align="right">6,051</td>
<td> </td> <td> </td> <td> </td>
<td align="right">6,664</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:45px; text-indent:-15px">Total
U.S. pharmaceutical distribution & services </div></td>
<td> </td> <td> </td> <td align="right">23,089</td>
<td> </td> <td> </td> <td> </td>
<td align="right">23,092</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Canada pharmaceutical distribution & services
</div></td> <td> </td> <td> </td>
<td align="right">2,140</td> <td> </td> <td> </td>
<td> </td> <td align="right">2,241</td> <td> </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:30px; text-indent:-15px">Medical-Surgical distribution
& services </div></td> <td> </td>
<td> </td> <td align="right">685</td> <td> </td>
<td> </td> <td> </td> <td align="right">627</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> </td> <td> </td> <td colspan="7"
align="left" style="border-top: 1px solid #000000">   </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:45px;
text-indent:-15px">Total Distribution Solutions </div></td>
<td> </td> <td> </td> <td align="right">25,914</td>
<td> </td> <td> </td> <td> </td>
<td align="right">25,960</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> </td>
<td> </td> <td colspan="7" align="left" style="border-top:
1px solid #000000">   </td> </tr> <tr
valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px;
text-indent:-15px">Technology Solutions </div></td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> </tr> <tr valign="bottom"> <td>
<div style="margin-left:30px; text-indent:-15px">Services </div></td>
<td> </td> <td> </td> <td align="right">589</td>
<td> </td> <td> </td> <td> </td>
<td align="right">564</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:30px; text-indent:-15px">Software and software systems
</div></td> <td> </td> <td> </td>
<td align="right">130</td> <td> </td> <td> </td>
<td> </td> <td align="right">138</td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:30px;
text-indent:-15px">Hardware </div></td> <td> </td>
<td> </td> <td align="right">24</td> <td> </td>
<td> </td> <td> </td> <td align="right">42</td>
<td> </td> </tr> <tr style="font-size: 1px">
<td> </td> <td> </td> <td colspan="7"
align="left" style="border-top: 1px solid #000000">   </td>
</tr> <tr valign="bottom" style="background: #cceeff"> <td>
<div style="margin-left:45px; text-indent:-15px">Total Technology Solutions
</div></td> <td> </td> <td> </td>
<td align="right">743</td> <td> </td> <td> </td>
<td> </td> <td align="right">744</td> <td> </td>
</tr> <tr style="font-size: 1px"> <td> </td>
<td> </td> <td colspan="7" align="left" style="border-top:
1px solid #000000">   </td> </tr> <tr
valign="bottom"> <td> <div style="margin-left:45px; text-indent:-15px">Total
</div></td> <td> </td> <td align="right">$</td>
<td align="right">26,657</td> <td> </td>
<td> </td> <td align="right">$</td> <td
align="right">26,704</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 3px double #000000"> 
 </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px"><b>Operating
profit </b><sup style="font-size: 85%; vertical-align: text-top"><b>(2)</b></sup>
</div></td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
<td> </td> <td> </td> <td> </td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Distribution Solutions </div></td> <td> </td>
<td align="right">$</td> <td align="right">430</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">384</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Technology Solutions </div></td>
<td> </td> <td> </td> <td align="right">103</td>
<td> </td> <td> </td> <td> </td>
<td align="right">66</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td> </td> <td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom"> <td> <div
style="margin-left:45px; text-indent:-15px">Total </div></td>
<td> </td> <td> </td> <td align="right">533</td>
<td> </td> <td> </td> <td> </td>
<td align="right">450</td> <td> </td> </tr>
<tr valign="bottom" style="background: #cceeff"> <td> <div
style="margin-left:15px; text-indent:-15px">Corporate </div></td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(64</td> <td nowrap="nowrap">)</td>
<td> </td> <td nowrap="nowrap" align="right"> </td>
<td align="right">(58</td> <td nowrap="nowrap">)</td>
</tr> <tr valign="bottom"> <td> <div style="margin-left:15px;
text-indent:-15px">Interest Expense </div></td> <td> </td>
<td nowrap="nowrap" align="right"> </td> <td align="right">(48</td>
<td nowrap="nowrap">)</td> <td> </td> <td
nowrap="nowrap" align="right"> </td> <td align="right">(34</td>
<td nowrap="nowrap">)</td> </tr> <tr style="font-size:
1px"> <td> </td> <td> </td> <td
colspan="7" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> 
 </td> </tr> <tr valign="bottom" style="background:
#cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Income
Before Income Taxes </div></td> <td> </td>
<td align="right">$</td> <td align="right">421</td>
<td> </td> <td> </td> <td align="right">$</td>
<td align="right">358</td> <td> </td> </tr>
<tr style="font-size: 1px"> <td colspan="9" align="left" style="border-top:
3px double #000000"> </td> </tr> <!-- End Table
Body --> </table> </div> <div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size:
10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color:
#000000; background: transparent"> <td width="1%" nowrap="nowrap" align="left">(1)</td>
<td width="1%"> </td> <td>Revenues derived from
services represent less than 1% of this segment’s total revenues
for the first quarters of 2010 and 2009.</td> </tr> <tr>
<td style="font-size: 6pt"> </td> </tr> <tr
valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left">(2)</td> <td width="1%"> </td>
<td>Operating profit includes $5 million and $8 million
of net earnings from equity investments for the first quarters of 2010 and
2009, primarily recorded within our Distribution Solutions segment.</td>
</tr> </table> </div> </div> </body> </html>
N/A
false
--03-31
2009-06-30
10-Q
0000927653
266140008
Yes
Large Accelerated
Filer 14553849341
McKESSON
CORPORATION No Yes
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