McKesson Reports Fiscal 2014 Second-Quarter Results

  McKesson Reports Fiscal 2014 Second-Quarter Results

  *Revenues of $33 billion for the second quarter, up 11%.
  *Second-quarter GAAP earnings per diluted share of $1.74, up 4%, which
    included a 5 cent loss from discontinued operations.
  *Second-quarter Adjusted Earnings per diluted share from continuing
    operations of $2.27, up 19%.
  *Fiscal 2014 Outlook: Adjusted Earnings per diluted share from continuing
    operations of $8.40 to $8.70.

Business Wire

SAN FRANCISCO -- October 24, 2013

McKesson Corporation (NYSE:MCK) today reported that revenues for the second
quarter ended September 30, 2013 were $33 billion, up 11% compared to $29.8
billion a year ago. On the basis of U.S. generally accepted accounting
principles (“GAAP”), second-quarter earnings per diluted share was $1.74
compared to $1.67 a year ago.

Second-quarter Adjusted Earnings per diluted share from continuing operations
was $2.27, up 19% compared to $1.91 a year ago.

For the first half of the fiscal year, McKesson generated cash from operations
of $813 million, and ended the quarter with cash and cash equivalents of $3
billion. During the first half of the fiscal year, McKesson paid $99 million
in dividends, had internal capital spending of $197 million, and spent $116
million on acquisitions.

“McKesson delivered another quarter of strong operating performance,” said
John H. Hammergren, chairman and chief executive officer. “I am pleased with
the excellent performance across all of our businesses for the first half of
our fiscal year. Based on our performance to date and our expectations for the
fiscal year, we are updating our previous outlook and now expect Adjusted
Earnings per diluted share of $8.40 to $8.70 for the fiscal year ending March
31, 2014.”

Segment Results

Distribution Solutions revenues were up 11% in the second quarter, driven
mainly by strong growth in U.S. pharmaceutical direct distribution and
services revenues due to market growth, our mix of business and one additional
sales day.

Canadian revenues, on a constant currency basis, increased 14% for the second
quarter primarily due to market growth and new customer wins. Including an
unfavorable currency impact of 5%, Canadian revenues increased 9% for the
second quarter.

Medical-Surgical distribution and services revenues were up 68% for the second
quarter driven primarily by the acquisition of PSS World Medical and market
growth.

In the second quarter, Distribution Solutions GAAP operating profit was $685
million and GAAP operating margin was 2.13%. Second-quarter adjusted operating
profit was $827 million and the adjusted operating margin was 2.57%.

Technology Solutions revenues were up 8% in the second quarter compared to the
prior year driven primarily by acquisitions completed in the prior year. GAAP
operating profit was $113 million for the second quarter and GAAP operating
margin was 14.39%. Adjusted operating profit was $132 million for the second
quarter and adjusted operating margin was 16.82%.

Fiscal Year 2014 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing
operations between $8.40 and $8.70 for the fiscal year ending March 31, 2014,
which excludes the following GAAP items:

  *Amortization of acquisition-related intangible assets of 76 cents per
    diluted share.
  *Acquisition expenses and related adjustments of 23 cents per diluted
    share.
  *Litigation reserve adjustments of approximately 18 cents per diluted
    share.
  *LIFO inventory-related charges of 37 to 43 cents per diluted share.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted
Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP
income from continuing operations, excluding amortization of
acquisition-related intangible assets, acquisition expenses and related
adjustments, certain litigation reserve adjustments, and Last-In-First-Out
(“LIFO”) inventory-related adjustments. A reconciliation of McKesson’s
financial results determined in accordance with GAAP to Adjusted Earnings is
provided in Schedules 2, 3 and 4 of the financial statement tables included
with this release.

Risk Factors

Except for historical information contained in this press release, matters
discussed may constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties that
could cause actual results to differ materially from those projected,
anticipated or implied. These statements may be identified by their use of
forward-looking terminology such as “believes”, “expects”, “anticipates”,
“may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”,
“estimates” or the negative of these words or other comparable terminology.
The discussion of financial trends, strategy, plans or intentions may also
include forward-looking statements. It is not possible to predict or identify
all such risks and uncertainties; however, the most significant of these risks
and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form
8-K reports filed with the Securities and Exchange Commission and include, but
are not limited to: material adverse resolution of pending legal proceedings;
changes in the U.S. healthcare industry and regulatory environment; changes in
the Canadian healthcare industry and regulatory environment; competition;
substantial defaults in payment or a material reduction in purchases by, or
the loss of, a large customer or group purchasing organization; the loss of
government contracts as a result of compliance or funding challenges; public
health issues in the U.S. or abroad; malfunction, failure or breach of
sophisticated internal information systems to perform as designed; the
adequacy of insurance to cover property loss or liability claims; the
company’s failure to attract and retain customers for its software products
and solutions due to integration and implementation challenges, or due to an
inability to keep pace with technological advances; the company’s proprietary
products and services may not be adequately protected, and its products and
solutions may be found to infringe on the rights of others; system errors or
failure of our technology products and solutions to conform to specifications;
disaster or other event causing interruption of customer access to data
residing in our service centers; the delay or extension of our sales or
implementation cycles for external software products; changes in circumstances
that could impair our goodwill or intangible assets; foreign currency
fluctuations or disruptions to our foreign operations; new or revised tax
legislation or challenges to our tax positions; the company’s ability to
successfully identify, consummate, finance and integrate strategic
acquisitions; general economic conditions, including changes in the financial
markets that may affect the availability and cost of credit to the company,
its customers or suppliers; and changes in accounting principles generally
accepted in the United States of America. The reader should not place undue
reliance on forward-looking statements, which speak only as of the date they
are first made. Except to the extent required by law, the company undertakes
no obligation to publicly release the result of any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof, or to reflect the occurrence of unanticipated events.

The company has scheduled a conference call for 8:30 AM ET. The dial-in number
for individuals wishing to participate on the call is 719-234-7317. Erin
Lampert, senior vice president, Investor Relations, is the leader of the call,
and the password to join the call is ‘McKesson’. A replay of this conference
call will be available for five calendar days. The dial-in number for
individuals wishing to listen to the replay is 888-203-1112 (from the U.S. and
Canada) or 719-457-0820 (from all other countries) and the pass code is
6981076. A webcast of the conference call will also be available live and
archived on the company’s Investor Relations website at
www.mckesson.com/investors.

Shareholders are encouraged to review SEC filings and more information about
McKesson, which are located on the company’s website.

About McKesson

McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a
healthcare services and information technology company dedicated to making the
business of healthcare run better. We partner with payers, hospitals,
physician offices, pharmacies, pharmaceutical companies and others across the
spectrum of care to build healthier organizations that deliver better care to
patients in every setting. McKesson helps its customers improve their
financial, operational, and clinical performance with solutions that include
pharmaceutical and medical-surgical supply management, healthcare information
technology, and business and clinical services. For more information, visit
http://www.mckesson.com.

Schedule 1
                                                                                   
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
                                                                                                        
                     Quarter Ended September 30,                  Six Months Ended September
                                                                  30,
                     2013            2012            Change       2013            2012            Change
                                                                                                        
Revenues             $ 32,954        $ 29,755        11     %     $ 65,162        $ 60,454        8     %
Cost of               (30,945 )      (28,072 )     10            (61,233 )      (57,210 )     7
sales ^(1)
Gross profit           2,009           1,683         19             3,929           3,244         21
                                                                                                        
Operating              (1,295  )       (1,033  )     25             (2,553  )       (2,083  )     23
expenses
Litigation             (35     )       (44     )     (20  )         (50     )       (60     )     (17 )
charges ^(2)
Gain on
business              -             -            -             -             81           -
combination
^(3)
Total
operating             (1,330  )      (1,077  )     23            (2,603  )      (2,062  )     26
expenses
Operating              679             606           12             1,326           1,182         12
income
Other                  9               10            (10  )         15              18            (17 )
income, net
Interest              (59     )      (55     )     7             (118    )       (111    )     6
expense
Income from
continuing
operations             629             561           12             1,223           1,089         12
before
income taxes
Income tax            (213    )      (162    )     31            (387    )      (311    )     24
expense
Income from
continuing             416             399           4              836             778           7
operations
Income
(loss) from
discontinued          (12     )      2            -             (8      )      3            -
operations,
net of tax
^(4)
Net income           $ 404          $ 401          1            $ 828          $ 781          6
                                                                                                        
Earnings
(loss) per
common share
^(5)
Diluted
Continuing           $ 1.79          $ 1.66          8      %     $ 3.60          $ 3.24          11    %
operations
Discontinued          (0.05   )      0.01         -             (0.04   )      0.01         -
operations
Total                $ 1.74         $ 1.67         4            $ 3.56         $ 3.25         10
                                                                                                        
Basic
Continuing           $ 1.82          $ 1.69          8      %     $ 3.67          $ 3.30          11    %
operations
Discontinued          (0.06   )      0.01         -             (0.04   )      0.01         -
operations
Total                $ 1.76         $ 1.70         4            $ 3.63         $ 3.31         10
                                                                                                        
Weighted
average
common
shares
Diluted                233             240           (3   ) %       232             240           (3  ) %
Basic                  229             236           (3   )         228             236           (3  )

       Cost of sales for the second quarter and first six months of fiscal
       years 2014 and 2013 includes charges in our Distribution Solutions
       segment related to our last-in-first-out (“LIFO”) method of accounting
       for inventories of $44 million and $3 million. Cost of sales for the
^(1)  first six months of fiscal year 2014 includes the receipt of $7 million
       and for the second quarter and first six months of fiscal year 2013 the
       receipt of $19 million in our Distribution Solutions segment
       representing our share of settlements of antitrust class action
       lawsuits brought against drug manufacturers.
       
^(2)   Represent charges for the Average Wholesale Price ("AWP") litigation.
       
       For the first six months of fiscal year 2013, operating expenses
^(3)   include an $81 million pre-tax ($51 million after-tax) gain on business
       combination related to the acquisition of the remaining 50% ownership
       interest in our corporate headquarters building.
       
       Represents our International Technology and Hospital Automation
^(4)   businesses in our Technology Solutions segment and a small business in
       our Distribution Solutions segment.
       
^(5)   Certain computations may reflect rounding adjustments.
       

Schedule 2A
                                                                                                              
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
                                                                                                                                           
                                                                                                                   Change
                   Quarter Ended September 30, 2013                                                                Vs. Prior Quarter
                                  Amortization     Acquisition
                   As             of               Expenses        Litigation      LIFO-Related     Adjusted       As           Adjusted
                   Reported     Acquisition-   and           Reserve       Adjustments    Earnings       Reported   Earnings   
                   (GAAP)         Related          Related         Adjustments                      (Non-GAAP)     (GAAP)       (Non-GAAP)
                                  Intangibles      Adjustments
                                                                                                                                           
Revenues           $ 32,954       $   -            $  -            $  -            $   -            $ 32,954       11       %   11         %
                                                                                                                                           
Gross              $ 2,009        $   5            $  -            $  -            $   44           $ 2,058        19           22
profit
Operating            (1,330 )         65              13              35               -              (1,217 )     23           23
expenses
Other
income,              9                -               -               -                -              9            (10   )      (10    )
net
Interest            (59    )      -           -           -            -          (59    )     7            7
expense
Income
from
continuing
operations           629              70              13              35               44             791          12           20
before
income
taxes
Income tax          (213   )      (25   )      (5    )      (2    )       (17   )     (262   )     31           32
expense
Income
from               $ 416       $   45        $  8         $  33        $   27        $ 529         4            15
continuing
operations
                                                                                                                                           
Diluted
earnings
per common
share from         $ 1.79      $   0.19      $  0.03      $  0.14      $   0.12      $ 2.27        8        %   19         %
continuing
operations
^(2)
Diluted
weighted
average             233          233         233         233          233        233         (3    )  %   (3     )   %
common
shares
                                                                                                                                           
                                                                                                                                           
                   Quarter Ended September 30, 2012
                                  Amortization     Acquisition
                   As             of               Expenses        Litigation      LIFO-Related     Adjusted
                   Reported     Acquisition-   and           Reserve       Adjustments    Earnings
                   (GAAP)         Related          Related         Adjustments                      (Non-GAAP)
                                  Intangibles      Adjustments
                                                                                                                                           
Revenues           $ 29,755      $   -            $  -            $  -            $   -            $ 29,755
                                                                                                                                           
Gross
profit             $ 1,683       $   3            $  -            $  -            $   3            $ 1,689
^(1)
Operating            (1,077 )         44              2               44               -              (987   )
expenses
Other
income,              10               -               -               -                -              10
net
Interest            (55    )      -           -           -            -          (55    )
expense
Income
from
continuing
operations           561              47              2               44               3              657
before
income
taxes
Income tax          (162   )      (18   )      -           (17   )       (1    )     (198   )
expense
Income
from               $ 399       $   29        $  2         $  27        $   2         $ 459    
continuing
operations
                                                                                                                                           
Diluted
earnings
per common
share from         $ 1.66      $   0.12      $  0.01      $  0.11      $   0.01      $ 1.91   
continuing
operations
^(2)
Diluted
weighted
average             240          240         240         240          240        240    
common
shares

       For the second quarter of fiscal year 2013, gross profit includes the
^(1)  receipt of $19 million in our Distribution Solutions segment
       representing our share of settlements of antitrust class action
       lawsuits brought against drug manufacturers.
       
^(2)   Certain computations may reflect rounding adjustments.

Adjusted Earnings (Non-GAAP) Financial Information

Adjusted Earnings represents income from continuing operations, excluding the
effects of the following items from the Company’s GAAP financial results,
including the related income tax effects:

Amortization of acquisition-related intangibles - Amortization expense of
acquired intangible assets purchased in connection with acquisitions by the
Company.

Acquisition expenses and related adjustments - Transaction and integration
expenses that are directly related to acquisitions by the Company. Examples
include transaction closing costs, professional service fees, restructuring or
severance charges, retention payments, employee relocation expenses, facility
or other exit-related expenses, recoveries of acquisition-related expenses or
post-closing expenses, bridge loan fees, and gains or losses on business
combinations.

Litigation reserve adjustments - Adjustments to the Company’s reserves,
including accrued interest, for estimated probable losses for its Average
Wholesale Price and Securities Litigation matters, as such terms were defined
in the Company’s Annual Reports on Form 10-K for the fiscal years ended March
31, 2013 and 2009.

LIFO-related adjustments - Last-In-First-Out ("LIFO") inventory-related
adjustments.

Income taxes on Adjusted Earnings are calculated in accordance with Accounting
Standards Codification 740, “Income Taxes,” which is the same accounting
principle used by the Company when presenting its GAAP financial results.

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

The Company internally uses non-GAAP financial measures such as Adjusted
Earnings in connection with its own financial planning and reporting
processes. Specifically, Adjusted Earnings serves as one of the measures
management utilizes when allocating resources, deploying capital and assessing
business performance and employee incentive compensation. Nonetheless,
non-GAAP financial results and related measures disclosed by the Company
should not be considered a substitute for, nor superior to, financial results
and measures as determined or calculated in accordance with GAAP.


Schedule 2B
                                                                                                              
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
                                                                                                                                           
                                                                                                                   Change
                   Six Months Ended September 30, 2013                                                             Vs. Prior Period
                                  Amortization     Acquisition
                   As             of               Expenses        Litigation      LIFO-Related     Adjusted       As           Adjusted
                   Reported     Acquisition-   and           Reserve       Adjustments    Earnings       Reported   Earnings   
                   (GAAP)         Related          Related         Adjustments                      (Non-GAAP)     (GAAP)       (Non-GAAP)
                                  Intangibles      Adjustments
                                                                                                                                           
Revenues           $ 65,162       $   -            $  -            $  -            $   -            $ 65,162       8        %   8          %
                                                                                                                                           
Gross
profit             $ 3,929        $   11           $  -            $  -            $   44           $ 3,984        21           22
^(1)
Operating            (2,603 )         130             26              50               -              (2,397 )     26           20
expenses
Other
income,              15               -               -               -                -              15           (17   )      (17    )
net
Interest            (118   )      -           -           -            -          (118   )     6            6
expense
Income
from
continuing
operations           1,223            141             26              50               44             1,484        12           27
before
income
taxes
Income tax          (387   )      (52   )      (10    )     (8    )       (17   )     (474   )     24           39
expense
Income
from               $ 836       $   89        $  16        $  42        $   27        $ 1,010       7            22
continuing
operations
                                                                                                                                           
Diluted
earnings
per common
share from         $ 3.60      $   0.38      $  0.07      $  0.18      $   0.12      $ 4.35        11       %   26         %
continuing
operations
^(3)
Diluted
weighted
average             232          232         232         232          232        232         (3    )  %   (3     )   %
common
shares
                                                                                                                                           
                                                                                                                                           
                   Six Months Ended September 30, 2012
                                  Amortization     Acquisition
                   As             of               Expenses        Litigation      LIFO-Related     Adjusted
                   Reported     Acquisition-   and           Reserve       Adjustments    Earnings
                   (GAAP)         Related          Related         Adjustments                      (Non-GAAP)
                                  Intangibles      Adjustments
                                                                                                                                           
Revenues           $ 60,454      $   -            $  -            $  -            $   -            $ 60,454
                                                                                                                                           
Gross
profit             $ 3,244       $   6            $  -            $  -            $   3            $ 3,253
^(1)
Operating
expenses             (2,062 )         89              (77    )        60               -              (1,990 )
^(2)
Other
income,              18               -               -               -                -              18
net
Interest            (111   )      -           -           -            -          (111   )
expense
Income
from
continuing
operations           1,089            95              (77    )        60               3              1,170
before
income
taxes
Income tax          (311   )      (35   )      29          (23   )       (1    )     (341   )
expense
Income
from               $ 778       $   60        $  (48    )   $  37        $   2         $ 829    
continuing
operations
                                                                                                                                           
Diluted
earnings
per common
share from         $ 3.24      $   0.25      $  (0.20  )   $  0.15      $   0.01      $ 3.45   
continuing
operations
^(3)
Diluted
weighted
average             240          240         240         240          240        240    
common
shares

       For the first six months of fiscal years 2014 and 2013, gross profit
^(1)  includes the receipt of $7 million and $19 million in our Distribution
       Solutions segment representing our share of settlements of antitrust
       class action lawsuits brought against drug manufacturers.
       
       For the first six months of fiscal year 2013, operating expenses, as
       reported under GAAP, include an $81 million pre-tax ($51 million
^(2)   after-tax) gain on business combination related to the acquisition of
       the remaining 50% ownership interest in our corporate headquarters
       building.
       
^(3)   Certain computations may reflect rounding adjustments.
       

Schedule 3A
                                                                                                                    
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
                                                                                                                                            
                                                                                                                                            
                       Quarter Ended September 30, 2013              Quarter Ended September 30, 2012              Change
                       As                             Adjusted       As                             Adjusted       As            Adjusted
                       Reported     Adjustments   Earnings       Reported     Adjustments   Earnings       Reported      Earnings
                       (GAAP)                         (Non-GAAP)     (GAAP)                         (Non-GAAP)     (GAAP)        (Non-GAAP)
REVENUES
Distribution
Solutions
Direct
distribution &         $ 23,729       $    -          $ 23,729       $ 20,938       $     -         $ 20,938       13       %    13         %
services
Sales to
customers'              4,340         -         4,340        4,806          -        4,806       (10   )       (10    )
warehouses
Total U.S.
pharmaceutical           28,069            -            28,069         25,744             -           25,744       9             9
distribution &
services
Canada
pharmaceutical           2,633             -            2,633          2,409              -           2,409        9             9
distribution &
services
Medical-Surgical
distribution &          1,467         -         1,467        873            -        873         68            68
services
Total
Distribution            32,169        -         32,169       29,026         -        29,026      11            11
Solutions
                                                                                                                                            
Technology
Solutions
Services                 656               -            656            585                -           585          12            12
Software                 108               -            108            119                -           119          (9    )       (9     )
Hardware                21            -         21           25             -        25          (16   )       (16    )
Total Technology        785           -         785          729            -        729         8             8
Solutions
Revenues               $ 32,954    $    -        $ 32,954      $ 29,755    $     -       $ 29,755      11            11
                                                                                                                                            
GROSS PROFIT
Distribution           $ 1,623        $    45         $ 1,668        $ 1,339        $     4         $ 1,343        21            24
Solutions ^(1)
Technology              386           4         390          344            2        346         12            13
Solutions
Gross profit           $ 2,009     $    49       $ 2,058       $ 1,683     $     6       $ 1,689       19            22
                                                                                                                                            
OPERATING
EXPENSES
Distribution           $ (944   )     $    97         $ (847   )     $ (724   )     $     77        $ (647   )     30            31
Solutions ^(2)
Technology               (273   )          15           (258   )       (254   )           13          (241   )     7             7
Solutions
Corporate               (113   )       1         (112   )      (99    )        -        (99    )     14            13
Operating              $ (1,330 )   $    113      $ (1,217 )     $ (1,077 )   $     90      $ (987   )     23            23
expenses
                                                                                                                                            
OTHER INCOME,
NET
Distribution           $ 6            $    -          $ 6            $ 6            $     -         $ 6            -             -
Solutions
Technology               -                 -            -              2                  -           2            -             -
Solutions
Corporate               3             -         3            2              -        2           50            50
Other income,          $ 9         $    -        $ 9           $ 10        $     -       $ 10          (10   )       (10    )
net
                                                                                                                                            
OPERATING PROFIT
Distribution
Solutions ^ (1)        $ 685          $    142        $ 827          $ 621          $     81        $ 702          10            18
(2)
Technology              113           19        132          92             15       107         23            23
Solutions
Operating profit         798               161          959            713                96          809          12            19
Corporate               (110   )       1         (109   )      (97    )        -        (97    )     13            12
Income from
continuing
operations             $ 688       $    162      $ 850         $ 616       $     96      $ 712         12            19
before interest
expense and
income taxes
                                                                                                                                            
STATISTICS
Operating profit
as a % of
revenues
Distribution
Solutions ^(1)           2.13     %                     2.57     %     2.14     %                     2.42     %   (1    )  bp   15         bp
(2)
Technology               14.39                          16.82          12.62                          14.68        177           214
Solutions

       For the second quarters of fiscal years 2014 and 2013, results, as
       reported under GAAP, include LIFO charges of $44 million and $3
^(1)  million. For the second quarter of fiscal year 2013, results include
       the receipt of $19 million in our Distribution Solutions segment
       representing our share of settlements of antitrust class action
       lawsuits brought against drug manufacturers.
       
       For the second quarters of fiscal years 2014 and 2013, results, as
^(2)   reported under GAAP, include AWP litigation charges of $35 million and
       $44 million.
       

Schedule 3B
                                                                                                                    
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
                                                                                                                                            
                                                                                                                                            
                       Six Months Ended September 30, 2013           Six Months Ended September 30, 2012           Change
                       As                             Adjusted       As                             Adjusted       As            Adjusted
                       Reported     Adjustments   Earnings       Reported     Adjustments   Earnings       Reported      Earnings
                       (GAAP)                         (Non-GAAP)     (GAAP)                         (Non-GAAP)     (GAAP)        (Non-GAAP)
REVENUES
Distribution
Solutions
Direct
distribution &         $ 46,761       $    -          $ 46,761       $ 42,239       $   -           $ 42,239       11       %    11         %
services
Sales to
customers'              8,788         -         8,788        10,153       -         10,153      (13   )       (13    )
warehouses
Total U.S.
pharmaceutical           55,549            -            55,549         52,392           -             52,392       6             6
distribution &
services
Canada
pharmaceutical           5,199             -            5,199          4,926            -             4,926        6             6
distribution &
services
Medical-Surgical
distribution &          2,824         -         2,824        1,668        -         1,668       69            69
services
Total
Distribution            63,572        -         63,572       58,986       -         58,986      8             8
Solutions
                                                                                                                                            
Technology
Solutions
Services                 1,317             -            1,317          1,179            -             1,179        12            12
Software                 231               -            231            237              -             237          (3    )       (3     )
Hardware                42            -         42           52           -         52          (19   )       (19    )
Total Technology        1,590         -         1,590        1,468        -         1,468       8             8
Solutions
Revenues               $ 65,162    $    -        $ 65,162      $ 60,454    $   -        $ 60,454      8             8
                                                                                                                                            
GROSS PROFIT
Distribution           $ 3,143        $    45         $ 3,188        $ 2,554        $   5           $ 2,559        23            25
Solutions ^(1)
Technology              786           10        796          690          4         694         14            15
Solutions
Gross profit           $ 3,929     $    55       $ 3,984       $ 3,244     $   9        $ 3,253       21            22
                                                                                                                                            
OPERATING
EXPENSES
Distribution           $ (1,849 )     $    178        $ (1,671 )     $ (1,443 )     $   129         $ (1,314 )     28            27
Solutions ^ (2)
Technology               (554   )          27           (527   )       (511   )         24            (487   )     8             8
Solutions
Corporate ^(3)          (200   )       1         (199   )      (108   )      (81  )     (189   )     85            5
Operating              $ (2,603 )   $    206      $ (2,397 )     $ (2,062 )   $   72       $ (1,990 )     26            20
expenses
                                                                                                                                            
OTHER INCOME,
NET
Distribution           $ 10           $    -          $ 10           $ 10           $   -           $ 10           -             -
Solutions
Technology               -                 -            -              3                -             3            -             -
Solutions
Corporate               5             -         5            5            -         5           -             -
Other income,          $ 15        $    -        $ 15          $ 18        $   -        $ 18          (17   )       (17    )
net
                                                                                                                                            
OPERATING PROFIT
Distribution
Solutions ^(1)         $ 1,304        $    223        $ 1,527        $ 1,121        $   134         $ 1,255        16            22
(2)
Technology              232           37        269          182          28        210         27            28
Solutions
Operating profit         1,536             260          1,796          1,303            162           1,465        18            23
Corporate               (195   )       1         (194   )      (103   )      (81  )     (184   )     89            5
Income from
continuing
operations             $ 1,341     $    261      $ 1,602       $ 1,200     $   81       $ 1,281       12            25
before interest
expense and
income taxes
                                                                                                                                            
STATISTICS
Operating profit
as a % of
revenues
Distribution
Solutions ^(1)           2.05     %                     2.40     %     1.90     %                     2.13     %   15       bp   27         bp
(2)
Technology               14.59                          16.92          12.40                          14.31        219           261
Solutions

       For the first six months of fiscal years 2014 and 2013, results, as
       reported under GAAP, include LIFO charges of $44 million and $3
^(1)  million. For the first six months of fiscal years 2014 and 2013,
       results include the receipt of $7 million and $19 million representing
       our share of settlements of antitrust class action lawsuits brought
       against drug manufacturers.
       
       For the first six months of fiscal years 2014 and 2013, results, as
^(2)   reported under GAAP, include AWP litigation charges of $50 million and
       $60 million.
       
       For the first six months of fiscal year 2013, operating expenses, as
^(3)   reported under GAAP, include an $81 million pre-tax gain on business
       combination related to the acquisition of the remaining 50% ownership
       interest in our corporate headquarters building.
       

Schedule 4A
                                                                                                                    
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
                                                                                                                                       
                                                                                                                                       
                            Quarter Ended September 30, 2013                             Quarter Ended September 30, 2012
                                                            Corporate                                                    Corporate
                            Distribution   Technology   &           Total          Distribution   Technology   &           Total
                            Solutions        Solutions      Interest                     Solutions        Solutions      Interest
                                                            Expense                                                      Expense
As Reported (GAAP):
Revenues                    $  32,169        $  785         $  -          $ 32,954       $  29,026        $  729         $  -          $ 29,755
                                                                                                                                       
Gross profit ^(1)           $  1,623         $  386         $  -          $ 2,009        $  1,339         $  344         $  -          $ 1,683
Operating expenses             (944    )        (273  )        (113 )       (1,330 )        (724    )        (254  )        (99  )       (1,077 )
Other income, net             6            -          3        9             6            2          2        10     
Income from
continuing
operations before              685              113            (110 )       688             621              92             (97  )       616
interest expense
and income taxes
Interest expense              -            -          (59  )    (59    )       -            -          (55  )    (55    )
Income from
continuing                  $  685        $  113      $  (169 )   $ 629         $  621        $  92       $  (152 )   $ (561   )
operations before
income taxes
                                                                                                                                       
                                                                                                                                       
Pre-Tax
Adjustments:
Gross profit                $  1             $  4           $  -          $ 5            $  1             $  2           $  -          $ 3
Operating expenses            52           13         -        65            31           13         -        44     
Amortization of
acquisition-related            53               17             -            70              32               15             -            47
intangibles
                                                                                                                                       
Operating expenses
- Acquisition                  10               2              1            13              2                -              -            2
expenses and
related adjustments
                                                                                                                                       
Operating expenses
- Litigation                   35               -              -            35              44               -              -            44
reserve adjustments
                                                                                                                                       
Gross profit -
LIFO-related                   44               -              -            44              3                -              -            3
adjustments
                                                                                                                    
Total pre-tax               $  142        $  19       $  1       $ 162         $  81         $  15       $  -       $ 96     
adjustments
                                                                                                                                       
                                                                                                                                       
Adjusted Earnings
(Non-GAAP):
Revenues                    $  32,169        $  785         $  -          $ 32,954       $  29,026        $  729         $  -          $ 29,755
                                                                                                                                       
Gross profit ^(1)           $  1,668         $  390         $  -          $ 2,058        $  1,343         $  346         $  -          $ 1,689
Operating expenses             (847    )        (258  )        (112 )       (1,217 )        (647    )        (241  )        (99  )       (987   )
Other income, net             6            -          3        9             6            2          2        10     
Income from
continuing
operations before              827              132            (109 )       850             702              107            (97  )       712
interest expense
and income taxes
Interest expense              -            -          (59  )    (59    )       -            -          (55  )    (55    )
Income from
continuing                  $  827        $  132      $  (168 )   $ 791         $  702        $  107      $  (152 )   $ 657    
operations before
income taxes

       For the second quarter of fiscal year 2013, gross profit includes the
^(1)  receipt of $19 million in our Distribution Solutions segment
       representing our share of settlements of antitrust class action
       lawsuits brought against drug manufacturers.
       

Schedule 4B
                                                                                                                            
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
                                                                                                                                               
                                                                                                                                               
                            Six Months Ended September 30, 2013                          Six Months Ended September 30, 2012
                                                            Corporate                                                    Corporate
                            Distribution   Technology   &           Total          Distribution   Technology   & Interest          Total
                            Solutions        Solutions      Interest                     Solutions        Solutions      Expense
                                                            Expense
As Reported (GAAP):
Revenues                    $  63,572        $  1,590       $  -          $ 65,162       $  58,986        $  1,468       $          -          $ 60,454
                                                                                                                                               
Gross profit ^(1)           $  3,143         $  786         $  -          $ 3,929        $  2,554         $  690         $          -          $ 3,244
Operating expenses             (1,849  )        (554  )        (200 )       (2,603 )        (1,443  )        (511  )                (108 )       (2,062 )
^(2)
Other income, net             10           -          5        15            10           3                  5        18     
Income from
continuing
operations before              1,304            232            (195 )       1,341           1,121            182                    (103 )       1,200
interest expense
and income taxes
Interest expense              -            -          (118 )    (118   )       -            -                  (111 )    (111   )
Income from
continuing                  $  1,304      $  232      $  (313 )   $ 1,223       $  1,121      $  182      $          (214 )   $ 1,089  
operations before
income taxes
                                                                                                                                               
                                                                                                                                               
Pre-Tax
Adjustments:
Gross profit                $  1             $  10          $  -          $ 11           $  2             $  4           $          -          $ 6
Operating expenses            106          24         -        130           66           23                 -        89     
Amortization of
acquisition-related            107              34             -            141             68               27                     -            95
intangibles
                                                                                                                                               
Operating expenses
- Acquisition                  22               3              1            26              3                1                      (81  )       (77    )
expenses and
related adjustments
                                                                                                                                               
Operating expenses
- Litigation                   50               -              -            50              60               -                      -            60
reserve adjustments
                                                                                                                                               
Gross profit -
LIFO-related                   44               -              -            44              3                -                      -            3
adjustments
                                                                                                                            
Total pre-tax               $  223        $  37       $  1       $ 261         $  134        $  28       $          (81  )   $ 81     
adjustments
                                                                                                                                               
                                                                                                                                               
Adjusted Earnings
(Non-GAAP):
Revenues                    $  63,572        $  1,590       $  -          $ 65,162       $  58,986        $  1,468       $          -          $ 60,454
                                                                                                                                               
Gross profit ^(1)           $  3,188         $  796         $  -          $ 3,984        $  2,559         $  694         $          -          $ 3,253
Operating expenses             (1,671  )        (527  )        (199 )       (2,397 )        (1,314  )        (487  )     </td*Story
                                                                                                                         too large*

[TRUNCATED]