McKesson Reports Fiscal 2014 Fourth-Quarter and Full-Year Results

  McKesson Reports Fiscal 2014 Fourth-Quarter and Full-Year Results

  *Revenues of $38.1 billion for the fourth quarter and $137.6 billion for
    the full year.
  *Fourth-quarter GAAP earnings per diluted share from continuing operations
    of $1.56 and full-year GAAP earnings per diluted share from continuing
    operations of $5.83.
  *Fourth-quarter Adjusted Earnings per diluted share of $2.55 and full-year
    Adjusted Earnings per diluted share of $8.35.
  *Fiscal 2014 cash flow from operations of $3.1 billion.
  *Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.40 to
    $10.80.

Business Wire

SAN FRANCISCO -- May 12, 2014

McKesson Corporation (NYSE:MCK) today reported that revenues for the fourth
quarter ended March 31, 2014 were $38.1 billion, up 25% compared to $30.5
billion a year ago. On the basis of U.S. generally accepted accounting
principles (“GAAP”), fourth-quarter earnings per diluted share from continuing
operations was $1.56 compared to $1.11 a year ago.

For the fiscal year, McKesson had revenues of $137.6 billion compared to
$122.1 billion a year ago. Full-year GAAP earnings per diluted share from
continuing operations was $5.83 compared to $5.62 a year ago.

Fourth-quarter Adjusted Earnings per diluted share was $2.55, up 72% compared
to $1.48 a year ago. Full-year Adjusted Earnings per diluted share was $8.35,
up 31% compared to $6.38 for the prior year. The results of Celesio did not
have a material impact on fourth-quarter or full-year adjusted earnings per
share. McKesson’s share of Celesio’s net income for the two months ended March
31, ^ 2014 was offset by a charge to cost of sales associated with the
reversal of a step-up to fair value of Celesio’s inventory at the date of
acquisition.

“I am pleased with our fourth-quarter results led by solid execution across
the Distribution Solutions and Technology Solutions segments,” said John H.
Hammergren, chairman and chief executive officer. “For the full year, we had
strong growth in adjusted earnings, up 31% from the prior year, and a record
year for operating cash flow generated by the business. These results were
driven primarily by outstanding performance in the Distribution Solutions
segment and disciplined working capital management across the company.
Additionally, during the fourth-quarter, we secured the acquisition of Celesio
which marks an important step for McKesson as we expand to serve our customers
and manufacturing partners with global scale.”

For the year, McKesson generated cash from operations of $3.1 billion, and
ended the year with cash and cash equivalents of $4.2 billion. During the
year, McKesson spent $4.6 billion on acquisitions, paid $214 million in
dividends, and had internal capital spending of $415 million.

“The strength of our balance sheet and our ability to deliver excellent cash
flow results reflect the health of our businesses, and during the fourth
quarter we successfully funded the Celesio acquisition while maintaining our
investment-grade rating,” Hammergren commented. “We have a strong track record
of creating long-term value for shareholders through our portfolio approach to
capital deployment and plan to continue that approach through a mix of
acquisitions, share repurchases, dividends and internal investments.”

Segment Results

Distribution Solutions revenues were up 26% for the fourth quarter and up 13%
for the full year compared to the prior year. North America pharmaceutical
distribution and services revenues, which include results from U.S.
Pharmaceutical, McKesson Canada and McKesson Specialty Health, were up 9% for
the fourth quarter, primarily reflecting market growth and growth from
existing customers. For the full year, North America pharmaceutical
distribution and services revenues were up 7% compared to the prior year.

International pharmaceutical distribution and services revenues, which
represent the results of Celesio for the two months ended March 31, 2014, were
$4.8 billion for the fourth quarter and full year.

Medical-Surgical distribution and services revenues were up 28% for the fourth
quarter and 57% for the full year driven by the acquisition of PSS World
Medical (“PSS”) and market growth.

In the fourth quarter, Distribution Solutions GAAP operating profit was $605
million and GAAP operating margin was 1.62%. Fourth-quarter adjusted operating
profit was $905 million and the adjusted operating margin was 2.42%. For the
full year, GAAP operating profit was $2.5 billion and GAAP operating margin
was 1.83%. For the full year, adjusted operating profit was $3.2 billion, up
30% from the prior year, and the adjusted operating margin was 2.39%, up 31
basis points year-over-year.

“Distribution Solutions had another outstanding year with strong performance
across the segment. We continue to deliver tremendous value for our customers
through the combination of our industry-leading service, our depth of
experience in the healthcare supply chain and our global sourcing expertise,”
said Hammergren. “Distribution Solutions also has a strong track record of
delivering value through acquisitions. During the fourth quarter, we passed
the one-year anniversary of the PSS acquisition and we continue to perform
well against our original expectations. We are also excited about the
opportunities we see for McKesson’s future as a global healthcare leader
through our acquisition of Celesio.”

Technology Solutions products and services revenues were down 1% for the
fourth quarter and up 5% for the full year. GAAP operating profit was $118
million for the fourth quarter and GAAP operating margin was 14.59%. Adjusted
operating profit was $131 million for the fourth quarter and adjusted
operating margin was 16.19%. For the full year, GAAP operating profit was $387
million and GAAP operating margin was 12.16%. For the full year, adjusted
operating profit was $467 million, up 25% from the prior year, and the
adjusted operating margin was 14.67%.

“Fourth-quarter Technology Solutions revenues were impacted by an anticipated
year-over-year decline in our Horizon hospital software business. This revenue
decline was partially offset by the solid growth we experienced in our
connectivity and payer-focused businesses. Our Technology businesses remain
focused on innovating for important customer priorities including solutions
for value-based reimbursement, business intelligence and analytics, and
healthcare data interoperability,” Hammergren said.

Fiscal Year 2014 Reconciliation of GAAP Results to Adjusted Earnings

Adjusted Earnings per diluted share of $8.35 for the fiscal year ended March
31, 2014 excludes the following GAAP items:

  *Amortization of acquisition-related intangible assets of 85 cents per
    diluted share.
  *Acquisition expenses and related adjustments of 63 cents per diluted
    share.
  *Litigation reserve adjustments of 23 cents per diluted share.
  *LIFO inventory-related adjustments of 81 cents per diluted share.

Fiscal Year 2015 Outlook

“Our Fiscal 2015 guidance reflects solid growth across our broad portfolio of
businesses and McKesson’s share of the results of Celesio. McKesson expects
Adjusted Earnings per diluted share between $10.40 and $10.80 for the fiscal
year ending March 31, 2015,” Hammergren concluded.

Key Assumptions for Fiscal Year 2015 Outlook

The Fiscal 2015 outlook is based on the following key assumptions and is also
subject to the Risk Factors outlined below:

  *Distribution Solutions revenue growth will increase significantly driven
    by the acquisition of Celesio.
  *North America pharmaceutical distribution and services and
    Medical-Surgical distribution and services will deliver mid-single digit
    revenue growth in Fiscal 2015 compared to Fiscal 2014.
  *Branded drug price trends in Fiscal 2015 are expected to be similar to
    those we experienced in Fiscal 2014.
  *We expect the contribution to profit from the launch of new oral generic
    pharmaceuticals will increase year-over-year.
  *Price trends on generic drugs outside an exclusivity period are expected
    to be in the high single digits in Fiscal 2015, a decline from the price
    trends experienced in Fiscal 2014.
  *Technology Solutions revenue will decline modestly year-over-year driven
    by the elimination of a low-margin product line and an expected revenue
    decline in our Horizon hospital software business.
  *The guidance range assumes a full-year adjusted tax rate of approximately
    31.5%, which may vary from quarter to quarter.
  *Property acquisitions and capitalized software expenditures should be
    between $575 million and $625 million.
  *We assume that our ownership position in Celesio will be approximately 76%
    for Fiscal 2015.
  *The guidance range assumes an exchange rate of$1.36per Euro.
  *Weighted average diluted shares used in the calculation of earnings are
    expected to be approximately 236 million for the year.
  *Cash flow from operations is expected to be approximately $3 billion.
  *Based on acquisitions closed as of March 31, 2014:

       *We expect amortization of acquisition-related intangible assets of
         approximately $1.31 per diluted share.
       *We expect acquisition expenses and related adjustments of 54 cents
         per diluted share.
       *We expect LIFO inventory-related charges of 86 cents per diluted
         share.

  *The Fiscal 2015 guidance range does not include any potential litigation
    reserve adjustments, or the impact of any potential new acquisitions,
    divestitures, impairments or material restructurings.

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: changes in the U.S. healthcare industry and regulatory
environment; changes in the Canadian healthcare industry and regulatory
environment; changes in the European regulatory environment with respect to
privacy and data protection regulations; managing foreign expansion, including
the related operating, economic, political and regulatory risks; the company’s
ability to successfully identify, consummate, finance and integrate
acquisitions; material adverse resolution of pending legal proceedings;
exposure to European economic conditions, including recent austerity measures
taken by certain European governments; 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; new or revised tax legislation or challenges to
our tax positions; 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; changes in accounting principles
generally accepted in the United States of America; and withdrawal from
participation in multiemployer pension plans or if such plans are reported to
have underfunded liabilities. 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 5:00 PM 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 and the pass code
is 3302075. A webcast of the conference call will also be available live and
archived on the company’s Investor Relations website at
http://investor.mckesson.com.

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 March 31,                  Year Ended March 31,
                   2014          2013          Change       2014           2013           Change
                                                                                                 
Revenues           $ 38,141      $ 30,516      25     %     $ 137,609      $ 122,069      13     %
Cost of sales       (35,601 )    (28,557 )   25            (129,300 )    (115,221 )   12
^(1)
Gross profit         2,540         1,959       30             8,309          6,848        21
                                                                                                 
Operating            (1,984  )     (1,302  )   52             (5,874   )     (4,532   )   30
expenses
Litigation           -             (12     )   -              (68      )     (72      )   (6  )
charges ^(2)
Gain on
business            -           -          -             -            81          -
combination
^(3)
Total
operating           (1,984  )    (1,314  )   51            (5,942   )    (4,523   )   31
expenses
Operating            556           645         (14  )         2,367          2,325        2
income
Other income,        25            6           317            32             34           (6  )
net
Impairment of
an equity            -             (191    )   -              -              (191     )   -
investment ^
(4)
Interest            (116    )    (70     )   66            (303     )     (240     )   26
expense
Income from
continuing
operations           465          390         19            2,096         1,928        9
before income
taxes
Income tax          (103    )    (127    )   (19  )        (742     )    (581     )   28
expense ^(5)
Income from
continuing           362           263         38             1,354          1,347        1
operations
Income (loss)
from
discontinued        4           (4      )   -             (96      )    (9       )   -
operations,
net of tax
^(6)
Net income           366           259         41             1,258          1,338        (6  )
Net loss
attributable
to                  5           -          -             5            -           -
noncontrolling
interests ^(7)
Net income
attributable       $ 371        $ 259        43           $ 1,263       $ 1,338       (6  )
to McKesson
Corporation
                                                                                                 
                                                                                                 
Earnings
(loss) per
common share
attributable
to McKesson
Corporation
^(8)
Diluted
Continuing         $ 1.56        $ 1.11        41     %     $ 5.83         $ 5.62         4      %
operations
Discontinued        0.02        (0.01   )   -             (0.42    )    (0.03    )   -
operations
Total              $ 1.58       $ 1.10       44           $ 5.41        $ 5.59        (3  )
                                                                                                 
Basic
Continuing         $ 1.59        $ 1.13        41     %     $ 5.93         $ 5.74         3      %
operations
Discontinued        0.02        (0.01   )   -             (0.42    )    (0.03    )   -
operations
Total              $ 1.61       $ 1.12       44           $ 5.51        $ 5.71        (4  )
                                                                                                 
Weighted
average common
shares
Diluted              235           237         (1   ) %       233            239          (3  )  %
Basic                230           231         -              229            235          (3  )
                                                                                                 

       Cost of sales for the fourth quarter and fiscal year 2014 includes
       charges of $125 million and $311 million and, for the fourth quarter
       and fiscal year 2013 includes charges of $8 million and $13 million,
^(1)  which were recorded in our Distribution Solutions segment related to
       our last-in-first-out ("LIFO") method of accounting for inventories.
       Cost of sales for the 2014 fourth quarter also includes a $50 million
       charge associated with the reversal of a step-up to fair value of
       Celesio AG's ("Celesio") inventory at the date of acquisition.
       
^(2)   Represent charges for the Average Wholesale Price ("AWP") litigation.
       
       Fiscal year 2013 operating expenses include an $81 million pre-tax ($51
^(3)   million after-tax) gain on business combination related to the
       acquisition of the remaining 50% ownership interest in our corporate
       headquarters building.
       
       Represents $191 million pre tax ($139 million after tax) impairment
^(4)   charge related to equity investment in Nadro S.A. de C.V. ("Nadro"), a
       pharmaceutical distributor in Mexico.
       
^(5)   Income tax expense for fiscal year 2014 includes a charge of $122
       million relating to our litigation with the Canadian Revenue Agency.
       
       Represents our International Technology and Hospital Automation
       businesses in our Technology Solutions segment and certain small
       businesses in our Distribution Solutions segment. The amounts are fully
^(6)   attributable to McKesson Corporation. For fiscal year 2014, loss from
       discontinued operations, net, includes an $80 million pre-tax and
       after-tax impairment charge related to our International Technology
       business.
       
       Primarily represents the noncontrolling shareholders' portion of net
^(7)   loss from Celesio, our majority owned subsidiary, acquired in the
       fourth quarter of fiscal year 2014.
       
^(8)   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 March 31, 2014                                                          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           $ 38,141     $   -          $  -          $  -          $   -          $ 38,141       25       %   25         %
                                                                                                                                 
Gross profit       $ 2,540      $   (4    )    $  -          $  -          $   125        $ 2,661        30           35
^(1)
Operating            (1,984 )       112           89            -              -            (1,783 )     51           50
expenses
Other income,        25             -             1             -              -            26           317          333
net
Interest            (116   )     -          36         -           -         (80    )     66           33
expense
Income from
continuing
operations           465            108           126           -              125          824          19           53
before income
taxes
Income tax          (103   )     (35   )     (36   )     -           (48   )    (222   )     (19   )      18
expense
Income from
continuing           362            73            90            -              77           602          38           72
operations
after tax
Loss (Income)
from
continuing
operations,
net of tax,         5           (7    )     (2    )     -           -         (4     )     -            -
attributable
to
noncontrolling
interests ^(2)
Income from
continuing
operations,
net of tax,        $ 367      $   66       $  88       $  -        $   77       $ 598         40           70
attributable
to McKesson
Corporation
                                                                                                                                 
Diluted
earnings per
common share
from
continuing
operations,        $ 1.56     $   0.28     $  0.38     $  -        $   0.33     $ 2.55        41       %   72         %
net of tax,
attributable
to McKesson
Corporation ^
(3)
Diluted
weighted            235         235        235        -           235       235         (1    )  %   (1     )   %
average common
shares
                                                                                                                                 
                                                                                                                                 
                   Quarter Ended March 31, 2013
                                Amortization   Acquisition
                   As           of             Expenses      Litigation    LIFO-Related   Adjusted
                   Reported    Acquisition-  and          Reserve      Adjustments   Earnings
                   (GAAP)       Related        Related       Adjustments                  (Non-GAAP)
                                Intangibles    Adjustments
                                                                                                                                 
Revenues           $ 30,516    $   -          $  -          $  -          $   -          $ 30,516
                                                                                                                                 
Gross profit       $ 1,959     $   4          $  -         $  -          $   8          $ 1,971
Operating            (1,314 )       58            57            12             -            (1,187 )
expenses
Other income,        6              -             -             -              -            6
net
Impairment of
an equity            (191   )       -             -             -              -            (191   )
investment
^(4)
Interest            (70    )     -          10         -           -         (60    )
expense
Income from
continuing
operations           390            62            67            12             8            539
before income
taxes
Income tax          (127   )     (21   )     (33   )     (4    )      (3    )    (188   )
expense
Income from
continuing           263            41            34            8              5            351
operations
after tax
Income from
continuing
operations,
net of tax,         -           -          -          -           -         -      
attributable
to
noncontrolling
interests
Income from
continuing
operations,
net of tax,        $ 263      $   41       $  34       $  8        $   5        $ 351    
attributable
to McKesson
Corporation
                                                                                                                                 
Diluted
earnings per
common share
from
continuing
operations,        $ 1.11     $   0.17     $  0.14     $  0.04     $   0.02     $ 1.48   
net of tax,
attributable
to McKesson
Corporation
^(3)
Diluted
weighted            237         237        237        237         237       237    
average common
shares
                                                                                                                                 

       For the fourth quarter of fiscal year 2014 gross profit includes a $50
^(1)  million charge associated with the reversal of a step-up to fair value
       of Celesio's inventory at the date of acquisition.
       
       Primarily represents the noncontrolling shareholders' portion of loss
^(2)   from continuing operations from Celesio, our majority owned subsidiary,
       acquired in the fourth quarter of fiscal year 2014.
       
^(3)   Certain computations may reflect rounding adjustments.
       
       Represents $191 million pre tax ($139 million after tax) impairment
^(4)   charge related to equity investment in Nadro, a pharmaceutical
       distributor in Mexico.
       
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial
information.


Schedule 2B
                                                                                                             
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
                                                                                                                                   
                                                                                                           Change
                   Year Ended March 31, 2014                                                               Vs. Prior Period
                                 Amortization   Acquisition
                   As Reported   of             Expenses      Litigation    LIFO-Related   Adjusted        As           Adjusted
                   (GAAP)       Acquisition-  and          Reserve      Adjustments   Earnings        Reported   Earnings   
                                 Related        Related       Adjustments                  (Non-GAAP)      (GAAP)       (Non-GAAP)
                                 Intangibles    Adjustments
                                                                                                                                   
Revenues           $ 137,609     $   -          $  -          $  -          $   -          $ 137,609       13       %   13         %
                                                                                                                                   
Gross profit       $ 8,309       $   11         $  3          $  -          $   311        $ 8,634         21           26
^(1)
Operating            (5,942  )       308           155           68             -            (5,411  )     31           27
expenses
Other income,        32              -             14            -              -            46            (6   )       35
net
Interest            (303    )     -          46         -           -         (257    )     26           12
expense
Income from
continuing
operations           2,096           319           218           68             311          3,012         9            35
before income
taxes
Income tax          (742    )     (114  )     (69    )    (15   )      (121  )    (1,061  )     28           53
expense ^(2)
Income from
continuing           1,354           205           149           53             190          1,951         1            28
operations
after tax
Loss (Income)
from
continuing
operations,
net of tax,         5            (7    )     (2     )    -           -         (4      )     -            -
attributable
to
noncontrolling
interests ^(3)
Income from
continuing
operations,
net of tax,        $ 1,359     $   198      $  147      $  53       $   190      $ 1,947        1            27
attributable
to McKesson
Corporation
                                                                                                                                   
Diluted
earnings per
common share
from
continuing
operations,        $ 5.83      $   0.85     $  0.63     $  0.23     $   0.81     $ 8.35         4        %   31         %
net of tax,
attributable
to McKesson
Corporation
^(4)
Diluted
weighted            233          233        233        233         233       233          (3   )   %   (3    )    %
average common
shares
                                                                                                                                   
                                                                                                                                   
                   Year Ended March 31, 2013
                                 Amortization   Acquisition
                   As Reported   of             Expenses      Litigation    LIFO-Related   Adjusted
                   (GAAP)       Acquisition-  and          Reserve      Adjustments   Earnings
                                 Related        Related       Adjustments                  (Non-GAAP)
                                 Intangibles    Adjustments
                                                                                                                                   
Revenues           $ 122,069    $   -          $  -          $  -          $   -          $ 122,069
                                                                                                                                   
Gross profit       $ 6,848      $   13         $  -         $  -          $   13         $ 6,874
Operating            (4,523  )       196           (10    )      72             -            (4,265  )
expenses ^(5)
Other income,        34              -             -             -              -            34
net
Impairment of
an equity            (191    )       -             -             -              -            (191    )
investment
^(6)
Interest            (240    )     -          11         -           -         (229    )
expense
Income from
continuing
operations           1,928           209           1             72             13           2,223
before income
taxes
Income tax          (581    )     (76   )     (6     )    (27   )      (5    )    (695    )
expense
Income from
continuing           1,347           133           (5     )      45             8            1,528
operations
after tax
Income from
continuing
operations,
net of tax,         -            -          -          -           -         -       
attributable
to
noncontrolling
interests
Income from
continuing
operations,
net of tax,        $ 1,347     $   133      $  (5     )  $  45       $   8        $ 1,528   
attributable
to McKesson
Corporation
                                                                                                                                   
Diluted
earnings per
common share
from
continuing
operations,        $ 5.62      $   0.56     $  (0.02  )  $  0.19     $   0.03     $ 6.38    
net of tax,
attributable
to McKesson
Corporation
^(4)
Diluted
weighted            239          239        239        239         239       239     
average common
shares
                                                                                                                                   

       Fiscal year 2014 gross profit includes a $50 million charge associated
^(1)  with the reversal of a step-up to fair value of Celesio's inventory at
       the date of acquisition.
       
^(2)   Income tax expense includes a charge of $122 million for fiscal year
       2014 relating to our litigation with the Canadian Revenue Agency.
       
       Primarily represents the noncontrolling shareholders' portion of loss
^(3)   from continuing operations from Celesio, our majority owned subsidiary,
       acquired in the fourth quarter of fiscal year 2014.
       
^(4)   Certain computations may reflect rounding adjustments.
       
       For fiscal year 2013 operating expenses, as reported under GAAP,
^(5)   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 $191 million pre tax ($139 million after tax) impairment
^(6)   charge related to equity investment in Nadro, a pharmaceutical
       distributor in Mexico.
       
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial
information.


Schedule 3A
                                                                                                                   
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
                                                                                                                                      
                                                                                                                                      
                     Quarter Ended March 31, 2014                Quarter Ended March 31, 2013                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
North America
pharmaceutical       $ 31,122     $   -         $ 31,122         $ 28,638     $    -        $ 28,638         9        %    9          %
distribution &
services
International
pharmaceutical         4,848          -           4,848            -               -          -              -             -
distribution &
services
Medical-Surgical
distribution &        1,362       -        1,362          1,061        -        1,061         28            28
services
Total
Distribution          37,332      -        37,332         29,699       -        29,699        26            26
Solutions
                                                                                                                                      
Technology
Solutions -           809         -        809            817          -        817           (1     )      (1     )
Products and
Services
Revenues             $ 38,141   $   -       $ 38,141        $ 30,516   $    -       $ 30,516        25            25
                                                                                                                                      
GROSS PROFIT
Distribution         $ 2,125      $   125       $ 2,250          $ 1,594      $    8        $ 1,602          33            40
Solutions ^(1)
Technology            415         (4   )    411            365          4        369           14            11
Solutions
Gross profit         $ 2,540    $   121     $ 2,661         $ 1,959    $    12      $ 1,971         30            35
                                                                                                                                      
OPERATING
EXPENSES
Distribution         $ (1,536 )   $   175       $ (1,361  )      $ (856   )   $    92       $ (764    )      79            78
Solutions
Technology             (299   )       17          (282    )        (332   )        17         (315    )      (10    )      (10    )
Solutions
Corporate             (149   )     9        (140    )       (126   )      18       (108    )      18            30
Operating            $ (1,984 )  $   201     $ (1,783  )      $ (1,314 )  $    127     $ (1,187  )      51            50
expenses
                                                                                                                                      
OTHER INCOME,
NET
Distribution         $ 16         $   -         $ 16             $ 2          $    -        $ 2              700           700
Solutions
Technology             2              -           2                1               -          1              100           100
Solutions
Corporate             7           1        8              3            -        3             133           167
Other income,        $ 25       $   1       $ 26            $ 6        $    -       $ 6             317           333
net
                                                                                                                                      
IMPAIRMENT OF AN
EQUITY
INVESTMENT
Distribution         $ -        $   -       $ -             $ (191   )  $    -       $ (191    )      -             -
Solutions ^ (2)
Impairment of an
equity               $ -        $   -       $ -             $ (191   )  $    -       $ (191    )      -             -
investment
                                                                                                                                      
OPERATING PROFIT
Distribution         $ 605        $   300       $ 905            $ 549        $    100      $ 649            10            39
Solutions ^(1)
Technology            118         13       131            34           21       55            247           138
Solutions
Operating profit       723            313         1,036            583             121        704            24            47
Corporate              (142   )       10          (132    )        (123   )        18         (105    )      15            26
Interest Expense      (116   )     36       (80     )       (70    )      10       (60     )      66            33
Income from
continuing
operations           $ 465      $   359     $ 824           $ 390      $    149     $ 539           19            53
before income
taxes ^(3)
                                                                                                                                      
STATISTICS
Operating profit
as a % of
revenues
Distribution           1.62     %                 2.42       %     1.85     %                 2.19       %   (23    ) bp   23         bp
Solutions ^(1)
Technology             14.59                      16.19            4.16                       6.73           1,043         946
Solutions
                                                                                                                                      

       For the fourth quarters of fiscal years 2014 and 2013, results, as
       reported under GAAP, include LIFO charges of $125 million and $8
^(1)  million. The results of 2014 fourth quarter also includes a $50 million
       charge associated with the reversal of a step-up to fair value of
       Celesio's inventory at the date of acquisition.
       
       Represents $191 million pre tax ($139 million after tax) impairment
^(2)   charge related to equity investment in Nadro, a pharmaceutical
       distributor in Mexico.
       
       For the fourth quarter of fiscal 2014, the amount is prior to
^(3)   attributing net loss of Celesio to the shareholders of noncontrolling
       interests.
       
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial
information.


Schedule 3B
                                                                                                      
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
                                                                                                                                    
                                                                                                                                    
                     Year Ended March 31, 2014                   Year Ended March 31, 2013                   Change
                     As Reported                 Adjusted        As Reported                 Adjusted        As          Adjusted
                     (GAAP)       Adjustments  Earnings        (GAAP)       Adjustments  Earnings        Reported    Earnings
                                                 (Non-GAAP)                                  (Non-GAAP)      (GAAP)      (Non-GAAP)
REVENUES
Distribution
Solutions
North America
pharmaceutical       $ 123,930     $    -        $ 123,930       $ 115,443     $   -         $ 115,443       7        %  7          %
distribution &
services
International
pharmaceutical         4,848            -          4,848           -               -           -             -           -
distribution &
services
Medical-Surgical
distribution &        5,648         -        5,648         3,603        -        3,603        57          57
services
Total
Distribution           134,426          -          134,426         119,046         -           119,046       13          13
Solutions
                                                                                                                                    
Technology
Solutions -           3,183         -        3,183         3,023        -        3,023        5           5
Products and
Services
Revenues             $ 137,609   $    -       $ 137,609      $ 122,069   $   -       $ 122,069      13          13
                                                                                                                                    
GROSS PROFIT
Distribution         $ 6,767       $    312      $ 7,079         $ 5,435       $   15        $ 5,450         25          30
Solutions ^(1)
Technology            1,542         13       1,555         1,413        11       1,424        9           9
Solutions
Gross profit         $ 8,309     $    325     $ 8,634        $ 6,848     $   26      $ 6,874        21          26
                                                                                                                                    
OPERATING
EXPENSES
Distribution         $ (4,335  )   $    442      $ (3,893  )     $ (3,068  )   $   265       $ (2,803  )     41          39
Solutions ^ (2)
Technology             (1,156  )        67         (1,089  )       (1,109  )       56          (1,053  )     4           3
Solutions
Corporate ^(3)        (451    )      22       (429    )      (346    )     (63  )    (409    )     30          5
Operating            $ (5,942  )  $    531     $ (5,411  )     $ (4,523  )  $   258     $ (4,265  )     31          27
expenses
                                                                                                                                    
OTHER INCOME,
NET
Distribution         $ 29          $    -        $ 29            $ 19          $   -         $ 19            53          53
Solutions
Technology             1                -          1               4               -           4             (75   )     (75    )
Solutions
Corporate             2             14       16            11           -        11           (82   )     45
Other income,        $ 32        $    14      $ 46           $ 34        $   -       $ 34           (6    )     35
net
                                                                                                                                    
IMPAIRMENT OF AN
EQUITY
INVESTMENT
Distribution         $ -         $    -       $ -            $ (191    )  $   -       $ (191    )     -           -
Solutions ^ (4)
Impairment of an
equity               $ -         $    -       $ -            $ (191    )  $   -       $ (191    )     -           -
investment
                                                                                                                                    
OPERATING PROFIT
Distribution
Solutions ^(1)       $ 2,461       $    754      $ 3,215         $ 2,195       $   280       $ 2,475         12          30
(2)
Technology            387           80       467           308          67       375          26          25
Solutions
Operating profit       2,848            834        3,682           2,503           347         2,850         14          29
Corporate ^(3)         (449    )        36         (413    )       (335    )       (63  )      (398    )     34          4
Interest Expense      (303    )      46       (257    )      (240    )     11       (229    )     26          12
Income from
continuing
operations           $ 2,096     $    916     $ 3,012        $ 1,928     $   295     $ 2,223        9           35
before income
taxes ^(5)
                                                                                                                                    
STATISTICS
Operating profit
as a % of
revenues
Distribution           1.83      %                 2.39      %     1.84      %                 2.08      %   (1    )  bp 31         bp
Solutions
Technology             12.16                       14.67           10.19                       12.40         197         227
Solutions
                                                                                                                                    

       For fiscal years 2014 and 2013, results, as reported under GAAP,
       include LIFO charges of $311 million and $13 million. The results of
^(1)  2014 fourth quarter also includes a $50 million charge associated with
       the reversal of a step-up to fair value of Celesio's inventory at the
       date of acquisition.
       
       Results for fiscal years 2014 and 2013, as reported under GAAP, include
^(2)   AWP litigation charges of $68 million and $72 million. Results for
       fiscal year 2013 include a $40 million charge for a legal dispute in
       our Canadian business.
       
       Fiscal year 2013 operating expenses, as reported under GAAP, include an
^(3)   $81 million pre-tax gain on business combination related to the
       acquisition of the remaining 50% ownership interest in our corporate
       headquarters building.
       
       Represents $191 million pre tax ($139 million after tax) impairment
^(4)   charge related to equity investment in Nadro, a pharmaceutical
       distributor in Mexico.
       
       For the fourth quarter of fiscal 2014, the amount is prior to
^(5)   attributing net loss of Celesio to the shareholders of noncontrolling
       interests.
       
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial
information.


Schedule 4A
                                                                                                            
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
                                                                                                                       
                                                                                                                       
                        Quarter Ended March 31, 2014                           Quarter Ended March 31, 2013
                                                    Corporate                                              Corporate
                        Distribution  Technology  &          Total          Distribution  Technology  &          Total
                        Solutions      Solutions    Interest                   Solutions      Solutions    Interest
                                                    Expense                                                Expense
As Reported (GAAP):
Revenues                $  37,332      $  809       $  -        $ 38,141       $  29,699      $  817       $  -        $ 30,516
                                                                                                                       
Gross profit ^(1)       $  2,125       $  415       $  -        $ 2,540        $  1,594       $  365       $  -        $ 1,959
Operating expenses         (1,536  )      (299  )      (149 )     (1,984 )        (856    )      (332  )      (126 )     (1,314 )
Other income, net          16             2            7          25              2              1            3          6
Impairment of an
equity investment ^       -           -         -       -             (191    )    -         -       (191   )
(2)
Income from
continuing
operations before          605            118          (142 )     581             549            34           (123 )     460
interest expense
and income taxes
Interest expense          -           -         (116 )   (116   )       -           -         (70  )   (70    )
Income from
continuing              $  605       $  118     $  (258 )  $ 465         $  549       $  34      $  (193 )  $ 390    
operations before
income taxes ^(3)
                                                                                                                       
                                                                                                                       
Pre-Tax
Adjustments:
Gross profit            $  -           $  (4    )   $  -        $ (4     )     $  -           $  4         $  -        $ 4
Operating expenses        94          17        1       112           43          14        1       58     
Amortization of
acquisition-related        94             13           1          108             43             18           1          62
intangibles
                                                                                                                       
Operating expenses         81             -            8          89              37             3            17         57
Other income, net          -              -            1          1               -              -            -          -
Interest expense          (1      )    -         37      36            -           -         10      10     
Acquisition
expenses and               80             -            46         126             37             3            27         67
related adjustments
                                                                                                                       
Operating expenses
- Litigation               -              -            -          -               12             -            -          12
reserve adjustments
                                                                                                                       
Gross profit -
LIFO-related               125            -            -          125             8              -            -          8
adjustments
                                                                                                          
Total pre-tax           $  299       $  13      $  47     $ 359         $  100       $  21      $  28     $ 149    
adjustments
                                                                                                                       
                                                                                                                       
Adjusted Earnings
(Non-GAAP):
Revenues                $  37,332      $  809       $  -        $ 38,141       $  29,699      $  817       $  -        $ 30,516
                                                                                                                       
Gross profit            $  2,250       $  411       $  -        $ 2,661        $  1,602       $  369       $  -        $ 1,971
Operating expenses         (1,361  )      (282  )      (140 )     (1,783 )        (764    )      (315  )      (108 )     (1,187 )
Other income, net          16             2            8          26              2              1            3          6
Impairment of an
equity investment ^       -           -         -       -             (191    )    -         -       (191   )
(2)
Income from
continuing
operations before          905            131          (132 )     904             649            55           (105 )     599
interest expense
and income taxes
Interest expense          (1      )    -         (79  )   (80    )       -           -         (60  )   (60    )
Income from
continuing              $  904       $  131     $  (211 )  $ 824         $  649       $  55      $  (165 )  $ 539    
operations before
income taxes ^(3)
                                                                                                                                

       Fiscal year 2014 gross profit includes a $50 million charge associated
^(1)  with the reversal of a step-up to fair value of Celesio's inventory at
       the date of acquisition.
       
       Represents $191 million pre tax ($139 million after tax) impairment
^(2)   charge related to equity investment in Nadro, a pharmaceutical
       distributor in Mexico.
       
       For the fourth quarter of fiscal 2014, the amount is prior to
^(3)   attributing net loss of Celesio to the shareholders of noncontrolling
       interests.
       
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial
information.


Schedule 4B
                                                                                                             
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
                                                                                                                        
                                                                                                                        
                        Year Ended March 31, 2014                               Year Ended March 31, 2013
                                                    Corporate                                               Corporate
                        Distribution  Technology  &          Total           Distribution  Technology  &          Total
                        Solutions      Solutions    Interest                    Solutions      Solutions    Interest
                                                    Expense                                                 Expense
As Reported (GAAP):
Revenues                $  134,426     $ 3,183      $  -        $ 137,609       $  119,046     $ 3,023      $  -        $ 122,069
                                                                                                                        
Gross profit ^(1)       $  6,767       $ 1,542      $  -        $ 8,309         $  5,435       $ 1,413      $  -        $ 6,848
Operating expenses         (4,335  )     (1,156 )      (451 )     (5,942  )        (3,068  )     (1,109 )      (346 )     (4,523  )
^(2)
Other income, net          29            1             2          32               19            4             11         34
Impairment of an
equity investment ^       -          -          -       -              (191    )   -          -       (191    )
(3)
Income from
continuing
operations before          2,461         387           (449 )     2,399            2,195         308           (335 )     2,168
interest expense
and income taxes
Interest expense          (1      )   -          (302 )   (303    )       -          -          (240 )   (240    )
Income from
continuing              $  2,460     $ 387      $  (751 )  $ 2,096        $  2,195     $ 308      $  (575 )  $ 1,928   
operations before
income taxes ^(4)
                                                                                                                        
                                                                                                                        
Pre-Tax
Adjustments:
Gross profit            $  1           $ 10         $  -        $ 11            $  2           $ 11         $  -        $ 13
Operating expenses        255        52         1       308            146        49         1       196     
Amortization of
acquisition-related        256           62            1          319              148           60            1          209
intangibles
                                                                                                                        
Gross profit               -             3             -          3                -             -             -          -
Operating expenses         119           15            21         155              47            7             (64  )     (10     )
Other income, net          -             -             14         14               -             -             -          -
Interest expense          -          -          46      46             -          -          11      11      
Acquisition
expenses and               119           18            81         218              47            7             (53  )     1
related adjustments
                                                                                                                        
Operating expenses
- Litigation               68            -             -          68               72            -             -          72
reserve adjustments
                                                                                                                        
Gross profit -
LIFO-related               311           -             -          311              13            -             -          13
adjustments
                                                                                                           
Total pre-tax           $  754       $ 80       $  82     $ 916          $  280       $ 67       $  (52  )  $ 295     
adjustments
                                                                                                                        
                                                                                                                        
Adjusted Earnings
(Non-GAAP):
Revenues                $  134,426     $ 3,183      $  -        $ 137,609       $  119,046     $ 3,023      $  -        $ 122,069
                                                                                                                        
Gross profit            $  7,079       $ 1,555      $  -        $ 8,634         $  5,450       $ 1,424      $  -        $ 6,874
Operating expenses         (3,893  )     (1,089 )      (429 )     (5,411  )        (2,803  )     (1,053 )      (409 )     (4,265  )
^(2)
                                                                                                                          *Story
Other income, net          29            1             16         46               19            4             11         too
                                                                                                                          large*

[TRUNCATED]
 
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