e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J0b9719UqcAdXaJJqIM1Z6kNhQGB9rn6XUYIFBq3BZVnuD4rpKsIBGlltN33esdd L1MyALsgFS8td9D8rPPDbg== 0000950134-06-001550.txt : 20060201 0000950134-06-001550.hdr.sgml : 20060201 20060131192219 ACCESSION NUMBER: 0000950134-06-001550 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060201 DATE AS OF CHANGE: 20060131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCKESSON CORP CENTRAL INDEX KEY: 0000927653 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 943207296 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13252 FILM NUMBER: 06567531 BUSINESS ADDRESS: STREET 1: ONE POST ST STREET 2: MCKESSON PLAZA CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159838300 MAIL ADDRESS: STREET 1: ONE POST ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 FORMER COMPANY: FORMER CONFORMED NAME: MCKESSON HBOC INC DATE OF NAME CHANGE: 19990115 FORMER COMPANY: FORMER CONFORMED NAME: MCKESSON CORP DATE OF NAME CHANGE: 19950209 FORMER COMPANY: FORMER CONFORMED NAME: SP VENTURES INC DATE OF NAME CHANGE: 19940728 10-Q 1 f16322e10vq.htm FORM 10-Q e10vq

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarter ended December 31, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13252

McKESSON CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		94-3207296 (IRS Employer Identification No.)

One Post Street, San Francisco, California (Address of principal executive offices)		94104 (Zip Code)

(415) 983-8300
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at December 31, 2005

Common stock, $0.01 par value		306,127,013 shares

McKESSON CORPORATION

TABLE OF CONTENTS


Item		Page
	PART I. FINANCIAL INFORMATION

1.	Financial Statements

	Condensed Consolidated Balance Sheets December 31, 2005 and March 31, 2005	3

	Condensed Consolidated Statements of Operations Quarters and Nine Months ended December 31, 2005 and 2004	4

	Condensed Consolidated Statements of Cash Flows Nine Months ended December 31, 2005 and 2004	5

	Financial Notes	6

2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition Financial Review	17

3.	Quantitative and Qualitative Disclosures about Market Risk	28

4.	Controls and Procedures	28

	PART II. OTHER INFORMATION

1.	Legal Proceedings	28

2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Equity Securities	28

6.	Exhibits	28

	Signatures	29
EXHIBIT 3.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

McKESSON CORPORATION

PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


	December 31,			March 31,
	2005			2005
ASSETS
Current Assets
Cash and cash equivalents	$	2,183		$	1,800
Receivables, net		6,380			5,721
Inventories		8,208			7,495
Prepaid expenses and other		160			346

Total		16,931			15,362

Property, Plant and Equipment, net		667			616
Capitalized Software Held for Sale		133			130
Notes Receivable		112			163
Goodwill and Other Intangibles		1,820			1,529
Other Assets		1,097			975

Total Assets	$	20,760		$	18,775


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Drafts and accounts payable	$	10,179		$	8,733
Deferred revenue		770			593
Current portion of long-term debt		6			9
Securities Litigation		1,026			1,200
Other		1,304			1,257

Total		13,285			11,792

Postretirement Obligations and Other Noncurrent Liabilities		582			506
Long-Term Debt		985			1,202

Other Commitments and Contingent Liabilities (Note 12)

Stockholders’ Equity:
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.01 par value Shares authorized: 800; shares issued: December 31, 2005 — 325 and March 31, 2005 — 306		3			3
Additional paid-in capital		3,060			2,320
Other capital		(69	)		(42	)
Retained earnings		3,670			3,194
Accumulated other comprehensive income		50			32
ESOP notes and guarantees		(25	)		(36	)
Treasury shares, at cost, December 31, 2005 — 19 and March 31, 2005 — 7		(781	)		(196	)

Total Stockholders’ Equity		5,908			5,275

Total Liabilities and Stockholders’ Equity	$	20,760		$	18,775

See Financial Notes

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


	Quarter Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Revenues	$	22,602		$	20,769		$	65,265		$	59,866
Cost of Sales		21,619			19,933			62,463			57,450

Gross Profit		983			836			2,802			2,416

Operating Expenses		690			603			1,967			1,795
Securities Litigation Charge		1			1,200			53			1,200

Total Operating Expenses		691			1,803			2,020			2,995

Operating Income (Loss)		292			(967	)		782			(579	)

Interest Expense		(23	)		(30	)		(70	)		(90	)
Other Income, Net		34			16			97			46

Income (Loss) from Continuing Operations Before Income Taxes		303			(981	)		809			(623	)
Income Tax Benefit (Provision)		(110	)		314			(292	)		205


Income (Loss) After Income Taxes
Continuing operations		193			(667	)		517			(418	)
Discontinued operation		—			1			1			2
Discontinued operation — gain on sale, net		—			—			13			—

Net Income (Loss)	$	193		$	(666	)	$	531		$	(416	)


Earnings (Loss) Per Common Share
Diluted
Continuing operations	$	0.61		$	(2.26	)	$	1.65		$	(1.43	)
Discontinued operation		—			—			—			0.01
Discontinued operation — gain on sale, net		—			—			0.04			—

Total	$	0.61		$	(2.26	)	$	1.69		$	(1.42	)


Basic
Continuing operations	$	0.63		$	(2.26	)	$	1.70		$	(1.43	)
Discontinued operation		—			—			—			0.01
Discontinued operation — gain on sale, net		—			—			0.04			—

Total	$	0.63		$	(2.26	)	$	1.74		$	(1.42	)


Dividends Declared Per Common Share	$	0.06		$	0.06		$	0.18		$	0.18

Weighted Average Shares
Diluted		316			294			315			293
Basic		307			294			306			293

See Financial Notes

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine Months Ended
	December 31,
	2005			2004
Operating Activities
Net income (loss)	$	531		$	(416	)
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation and amortization		198			184
Securities Litigation charge, net of tax		35			810
Provision for bad debts		19			18
Deferred taxes		243			32
Other non-cash items		2			(10	)

Total		1,028			618

Effects of changes in:
Receivables		(440	)		(217	)
Inventories		(366	)		(1,535	)
Drafts and accounts payable		1,232			1,396
Deferred revenue		307			107
Taxes		2			57
Securities Litigation settlement payments		(227	)		—
Proceeds from sale of notes receivable		28			59
Other		(87	)		12

Total		449			(121	)

Net cash provided by operating activities		1,477			497


Investing Activities
Property acquisitions		(138	)		(89	)
Capitalized software expenditures		(128	)		(92	)
Acquisitions of businesses, less cash and cash equivalents acquired		(574	)		(85	)
Proceeds from sale of business		63			12
Other		(5	)		11

Net cash used in investing activities		(782	)		(243	)


Financing Activities
Repayment of debt		(23	)		(17	)
Capital stock transactions
Issuances		435			117
Share repurchases		(579	)		—
ESOP notes and guarantees		12			16
Dividends paid		(55	)		(53	)
Other		(102	)		8

Net cash provided by (used in) financing activities		(312	)		71
Net increase in cash and cash equivalents		383			325
Cash and cash equivalents at beginning of period		1,800			708

Cash and cash equivalents at end of period	$	2,183		$	1,033

See Financial Notes

McKESSON CORPORATION

FINANCIAL NOTES

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all majority-owned or controlled companies. Significant intercompany transactions and balances have been eliminated. In our opinion, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial position as of December 31, 2005, and the results of operations for the quarters and nine months ended December 31, 2005 and 2004 and cash flows for the nine months ended December 31, 2005 and 2004.

The results of operations for the quarters and nine months ended December 31, 2005 and 2004 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes included in our 2005 consolidated financial statements previously filed with the Securities and Exchange Commission.

The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year. Certain prior period amounts have been reclassified to conform to the current period presentation.

Employee Stock-Based Compensation. We account for our employee stock-based compensation plans using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” We apply the disclosure provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Had compensation cost for our employee stock-based compensation been recognized based on the fair value method, consistent with the provisions of SFAS No. 123, net income (loss) and earnings (loss) per share would have been as follows:


	Quarter Ended						Nine Months Ended
	December 31,						December 31,
(In millions, except per share amounts)	2005			2004			2005			2004

Net income (loss), as reported	$	193		$	(666	)	$	531		$	(416	)
Compensation expense, net of tax:
APB Opinion No. 25 expense included in net income (loss)		3			2			7			5
SFAS No. 123 expense		(24	)		(16	)		(43	)		(39	)

Pro forma net income (loss)	$	172		$	(680	)	$	495		$	(450	)


Earnings (loss) per share:
Diluted — as reported	$	0.61		$	(2.26	)	$	1.69		$	(1.42	)
Diluted — pro forma		0.54			(2.31	)		1.57			(1.54	)
Basic — as reported		0.63			(2.26	)		1.74			(1.42	)
Basic — pro forma		0.56			(2.31	)		1.62			(1.54	)

In 2004, we accelerated vesting of substantially all unvested stock options outstanding whose exercise price was equal to or greater than $28.20, which was substantially all of the total unvested stock options then outstanding. During the second quarter of 2005, we granted 6 million stock options, substantially all of which vested on or before March 31, 2005. Similarly, during the second quarter of 2006, we granted 5 million stock options, substantially all of which will vest on or before March 31, 2006. Prior to 2004, stock options typically vested over a four year period. These actions were approved by the Compensation Committee of the Company’s Board of Directors for employee retention purposes and in anticipation of the requirements of SFAS No. 123(R), “Share-Based Payment.”

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

In 2007, we will adopt SFAS No. 123(R) which will require us to recognize the fair value of the equity awards granted to employees as an expense. In addition, this standard requires that the fair value of the unvested equity awards outstanding as of April 1, 2006 be recognized at the grant-date fair value as the remaining requisite service is rendered. Accordingly, SFAS No. 123 expense for the stock option grants that received accelerated vesting in 2004, as well as the compensation expense associated with the 2005 and 2006 stock options, which either fully vested by March 31, 2005 or will fully vest by March 31, 2006, will not be recognized in our earnings after SFAS 123(R) is adopted.

We are currently assessing the impact of SFAS No. 123(R) on our condensed consolidated financial statements. As part of this assessment, we are evaluating modifications to our long-term compensation program for key employees across the Company, which may limit stock option grants in favor of restricted share grants and long-term, performance-based cash compensation. Nevertheless, we do believe that this standard could have a material impact on our condensed consolidated financial statements.

2. Acquisitions

In the second quarter of 2006, we acquired substantially all of the issued and outstanding stock of D&K Healthcare Resources, Inc. (“D&K”) of St. Louis, Missouri, for an aggregate cash purchase price of $479 million, including the assumption of D&K’s debt. D&K is primarily a wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty products to independent and regional pharmacies, primarily in the Midwest. The results of D&K’s operations have been included in the condensed consolidated financial statements within our Pharmaceutical Solutions segment since the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


(In millions)

Assets:
Accounts receivable	$	153
Inventory		329
Goodwill and intangibles		206
Other assets		76
Liabilities:
Accounts payable		(193	)
Other liabilities		(92	)

Net assets acquired, less cash and cash equivalents	$	479

Approximately $163 million of the purchase price has been assigned to goodwill, none of which is expected to be deductible for tax purposes. Included in goodwill and intangibles are acquired identifiable intangibles of $43 million primarily representing customer lists and not-to-compete covenants which have an estimated weighted-average useful life of nine years.

In connection with the D&K acquisition, we recorded $11 million of liabilities relating to employee severance costs and $29 million for facility exit and contract termination costs. As of December 31, 2005, $4 million and $2 million of these liabilities have been paid. The remaining severance liability of $7 million is anticipated to be paid by the end of 2007, while the remaining facility exit and contract termination liability of $27 million is anticipated to be paid at various dates through 2015. Additional restructuring costs are anticipated to be incurred as the business integration plans are finalized.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

Also in the second quarter of 2006, we acquired all of the issued and outstanding shares of Medcon, Ltd. (“Medcon”), an Israeli company, for an aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information management services to healthcare providers. Approximately $66 million of the purchase price was assigned to goodwill, none of which is deductible for tax purposes and $20 million was assigned to intangibles which represent technology assets and customer lists which have an estimated weighted-average useful life of four years. The results of Medcon’s operations have been included in the condensed consolidated financial statements within our Provider Technologies segment since the acquisition date.

In November 2004, we invested $38 million in return for a 79.7% interest in Pahema, S.A. de C.V. (“Pahema”), a Mexican holding company. Two additional investors, owners of approximately 30% of the outstanding shares of Nadro S.A. de C.V. (“Nadro”) (collectively, “investors”), contributed $10 million for the remaining interest in Pahema. In December 2004, Pahema completed a 6.50 Mexican Pesos per share, or approximately $164 million, tender offer for approximately 284 million shares (or approximately 46%) of the outstanding publicly held shares of the common stock of Nadro. Pahema financed the tender offer utilizing the cash contributed by the investors and us, and borrowings totaling 1.375 billion Mexican Pesos, in the form of two notes with Mexican financial institutions. Prior to the tender offer, the Company owned approximately 22% of the outstanding common shares of Nadro. During the first half of 2006, we merged Pahema into Nadro and the common stock of Pahema was exchanged for the common stock of Nadro. After the completion of the merger, we own approximately 48% of Nadro.

In the first quarter of 2005, we acquired all of the issued and outstanding shares of Moore Medical Corp. (“MMC”), of New Britain, Connecticut, for an aggregate cash purchase price of $37 million. MMC is an Internet-enabled, multi-channel marketer and distributor of medical-surgical and pharmaceutical products to non-hospital provider settings. Approximately $19 million of the purchase price was assigned to goodwill, none of which was deductible for tax purposes. The results of MMC’s operations have been included in the condensed consolidated financial statements within our Medical-Surgical Solutions segment since the acquisition date.

During the last two years we also completed a number of smaller acquisitions. Purchase prices for our acquisitions have been allocated based on estimated fair values at the date of acquisition and may be subject to change. Pro forma results of operations for our business acquisitions have not been presented because the effects were not material to the condensed consolidated financial statements on either an individual or aggregate basis.

3. Discontinued Operation

During the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation (“BioServices”), for net proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million or $0.04 per diluted share. The results of BioServices’ operations have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. Financial results for this business were previously included in our Pharmaceutical Solutions segment and were not material to our condensed consolidated financial statements.

4. Contract

In 2005, our Medical-Surgical Solutions segment entered into an agreement with a third party vendor to sell the vendor’s proprietary software and services. The terms of the contract required us to prepay certain royalties. During the third quarter of 2006, we ended marketing and sale of the software under the contract. As a result of this decision, we recorded a $15 million charge to cost of sales within our Medical-Surgical Solutions segment in the third quarter of 2006 to write-off the remaining balance of the prepaid royalties.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

5. Pension and Other Postretirement Benefit Plans

Pension expense was $2 million and $7 million for the quarter and nine months ended December 31, 2005, and $3 million and $26 million for the comparable prior year periods. Postretirement expense was $8 million and $25 million for the quarter and nine months ended December 31, 2005, and $9 million and $26 million for the comparable prior year periods.

During the nine months ended December 31, 2004, we made several lump sum payments totaling $42 million from an unfunded U.S. pension plan. In accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” $12 million in settlement charges associated with these payments were expensed in the first quarter of 2005. Substantially all of this expense was recorded in the Corporate segment.

6. Income Taxes

In the third quarter of 2005, we recorded an income tax benefit of $390 million for the Securities Litigation which is described in more detail in Financial Note 12. We believe the settlement of the consolidated securities class action and the ultimate resolution of the lawsuits brought independently by other shareholders will be tax deductible. However, the tax attributes of the litigation are complex and we expect challenges from the appropriate taxing authorities, and accordingly such deductions will not be finalized until all the lawsuits are concluded and an examination of the Company’s tax returns is completed. As a result, we have provided a reserve of $85 million for future resolution of these uncertain tax matters. While we believe the tax reserve is adequate, the ultimate resolution of these tax matters may exceed or be below the reserve. During the third quarter of 2005, we also recorded a $5 million income tax expense arising primarily from settlements and adjustments with various taxing authorities.

Income tax expense for the nine months ended December 31, 2005 includes a $7 million charge which primarily relates to tax settlements and adjustments with various taxing authorities. In addition to the third quarter 2005 expense noted above, income tax expense for the nine months ended December 31, 2004 included a $6 million income tax benefit which was primarily due to a reduction of a portion of a valuation allowance related to state income tax net operating loss carryforwards. In addition, we sold a business for net cash proceeds of $12 million. The disposition resulted in a pre-tax loss of $1 million and an after-tax loss of $5 million. The after-tax loss on the disposition was the result of a lower tax adjusted cost basis for the business. Financial results for this business were included in our Pharmaceutical Solutions segment and were not material to our condensed consolidated financial statements. Partially offsetting the tax impact of this disposition, a net income tax benefit of $2 million relating to favorable tax settlements and adjustments was recorded.

7. Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similarly except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. For 2005, because of the reported net loss, potentially dilutive securities were excluded from the per share computations due to their antidilutive effect.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

The computations for basic and diluted earnings per share are as follows:


	Quarter Ended					Nine Months Ended
	December 31,					December 31,
(In millions, except per share amounts)	2005		2004			2005		2004

Income from continuing operations	$	193	$	(667	)	$	517	$	(418	)
Interest expense on convertible junior subordinated debentures, net of tax		—		—			1		—

Income from continuing operations — diluted		193		(667	)		518		(418	)
Discontinued operation		—		1			1		2
Discontinued operation — gain on sale, net		—		—			13		—

Net income (loss) — diluted	$	193	$	(666	)	$	532	$	(416	)


Weighted average common shares outstanding:
Basic		307		294			306		293
Effect of dilutive securities:
Options to purchase common stock		8		—			8		—
Convertible junior subordinated debentures		—		—			1		—
Restricted stock		1		—			—		—

Diluted		316		294			315		293


Earnings per common share:⁽¹⁾
Basic
Continuing operations	$	0.63	$	(2.26	)	$	1.70	$	(1.43	)
Discontinued operation		—		—			—		0.01
Discontinued operation — gain on sale, net		—		—			0.04		—

Total	$	0.63	$	(2.26	)	$	1.74	$	1.42

Diluted
Continuing operations	$	0.61	$	(2.26	)	$	1.65	$	(1.43	)
Discontinued operation		—		—			—		0.01
Discontinued operation — gain on sale, net		—		—			0.04		—

Total	$	0.61	$	(2.26	)	$	1.69	$	1.42


(1)		Certain computations may reflect rounding adjustments.

For the quarter and nine months ended December 31, 2005, approximately 12 million and 17 million stock options were excluded from the above computations of diluted net earnings per share as their exercise price was higher than the Company’s average stock price.

8. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended December 31, 2005 are as follows:


	Pharmaceutical		Medical-Surgical		Provider
(In millions)	Solutions		Solutions		Technologies		Total

Balance, March 31, 2005	$	300	$	744	$	395	$	1,439
Goodwill acquired		164		5		71		240
Translation adjustments		—		—		5		5

Balance, December 31, 2005	$	464	$	749	$	471	$	1,684

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

Information regarding other intangibles is as follows:


	December 31,			March 31,
(In millions)	2005			2005
Customer lists	$	150		$	103
Technology		83			71
Trademarks and other		41			33

Total other intangibles, gross		274			207
Accumulated amortization		(138	)		(117	)

Total other intangibles, net	$	136		$	90

Amortization expense of other intangibles was $8 million and $20 million for the quarter and nine months ended December 31, 2005 and $5 million and $17 million for the comparable prior year periods. The weighted average remaining amortization periods for customer lists, technology and trademarks and other intangible assets at December 31, 2005 were: 9 years, 3 years and 3 years. Estimated annual amortization expense of these assets is as follows: $28 million, $31 million, $23 million, $11 million and $6 million for 2006 through 2010, and $37 million thereafter. At December 31, 2005, there were $20 million of other intangibles not subject to amortization.

9. Financing Activities

In June 2005, we renewed our $1.4 billion committed accounts receivable sales facility under substantially similar terms to those previously in place. The renewed facility expires in June 2006.

At December 31, 2005 and March 31, 2005, no amounts were outstanding or utilized under our revolving credit and accounts receivable sales facilities. In addition, in 2006 and 2005, we sold customer lease receivables for cash proceeds of $28 million and $59 million. The sales of these receivables resulted in nominal pre-tax gains.

10. Convertible Junior Subordinated Debentures

In February 1997, we issued 5% Convertible Junior Subordinated Debentures (the “Debentures”) in an aggregate principal amount of $206 million. The Debentures were purchased by McKesson Financing Trust (the “Trust”) with proceeds from its issuance of four million shares of preferred securities to the public and 123,720 common securities to us. The Debentures represented the sole assets of the Trust and bore interest at an annual rate of 5%, payable quarterly. These preferred securities of the Trust were convertible into our common stock at the holder’s option.

Holders of the preferred securities were entitled to cumulative cash distributions at an annual rate of 5% of the liquidation amount of $50 per security. Each preferred security was convertible at the rate of 1.3418 shares of our common stock, subject to adjustment in certain circumstances. The preferred securities were to be redeemed upon repayment of the Debentures and were callable by us on or after March 4, 2000, in whole or in part, initially at 103.5% of the liquidation preference per share, and thereafter at prices declining at 0.5% per annum to 100% of the liquidation preference on and after March 4, 2007 plus, in each case, accumulated, accrued and unpaid distributions, if any, to the redemption date.

During the first quarter of 2006, we called for the redemption of the Debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

11. Financial Guarantees and Warranties

Financial Guarantees

We have agreements with certain of our customers’ financial institutions under which we have guaranteed the repurchase of inventory (primarily for our Canadian businesses), at a discount, in the event these customers are unable to meet certain obligations to those financial institutions. Among other limitations, these inventories must be in resalable condition. We have also guaranteed loans and the payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. Customer guarantees range from one to ten years and were primarily provided to facilitate financing for certain strategic customers. At December 31, 2005, the maximum amounts of inventory repurchase guarantees and other customer guarantees were approximately $193 million and $8 million, of which no amounts have been accrued.

At December 31, 2005, we had commitments of $4 million, primarily consisting of the purchase of services from our equity-held investments, for which no amounts had been accrued.

In addition, our banks and insurance companies have issued $102 million of standby letters of credit and surety bonds on our behalf in order to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, and our workers’ compensation and automotive liability programs.

Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification agreements and have not accrued any liabilities related to such obligations.

In conjunction with certain transactions, primarily divestitures, we may provide routine indemnification agreements (such as retention of previously existing environmental, tax and employee liabilities) whose terms vary in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have historically not made significant payments as a result of these indemnification provisions.

Warranties

In the normal course of business, we provide certain warranties and indemnification protection for our products and services. For example, we provide warranties that the pharmaceutical and medical-surgical products we distribute are in compliance with the Food, Drug and Cosmetic Act and other applicable laws and regulations. We have received the same warranties from our suppliers, who customarily are the manufacturers of the products. In addition, we have indemnity obligations to our customers for these products, which have also been provided to us from our suppliers, either through express agreement or by operation of law.

We also provide warranties regarding the performance of software and automation products we sell. Our liability under these warranties is to bring the product into compliance with previously agreed upon specifications. For software products, this may result in additional project costs which are reflected in our estimates used for the percentage-of-completion method of accounting for software installation services within these contracts. In addition, most of our customers who purchase our software and automation products also purchase annual maintenance agreements. Revenue from these maintenance agreements is recognized on a straight-line basis over the contract period and the cost of servicing product warranties is charged to expense when claims become estimable. Accrued warranty costs were not material to the condensed consolidated balance sheets.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

12. Other Commitments and Contingent Liabilities

In our annual report on Form 10-K for the year ended March 31, 2005, and in our quarterly reports on Form 10-Q for the quarters ended June 30, 2005, and September 30, 2005, we reported on numerous legal proceedings including, but not limited to, those arising out of our announcement on April 28, 1999, regarding accounting improprieties at HBO & Company (“HBOC”), now known as McKesson Information Solutions LLC (the “Securities Litigation”).

During the third quarter of 2005, we recorded a $1,200 million pre-tax ($810 million after-tax) charge with respect to the Company’s Securities Litigation. The charge consisted of $960 million for the Consolidated Action and $240 million for other Securities Litigation proceedings, as discussed in the following paragraph.

On January 12, 2005, we announced that we had reached an agreement to settle the action captioned In re McKesson HBOC, Inc. Securities Litigation (N.D. Cal. Case No. C-99-20743-RMW) (the “Consolidated Action”). In general, under the agreement to settle the Consolidated Action, we agreed to pay the settlement class a total of $960 million in cash. Plaintiffs’ attorneys’ fees would be deducted from the settlement amount prior to payments to class members. At that time, the parties agreed on the terms of a stipulation of settlement and were finalizing the exhibits to the stipulation before submitting it to the Court. The settlement agreement was subject to various conditions, including, but not limited to, preliminary approval by the Court, notice to the Class, and final approval by the Court after a hearing. Also during the third quarter of 2005, we established a reserve of $240 million for our remaining potential exposure with respect to other previously reported Securities Litigation.

Based on settlements reached and the Company’s assessment of the remaining cases, the estimated reserves were increased by $52 million net pre-tax during the first quarter of 2006 and by an additional $1 million pre-tax during the third quarter of 2006. Also during 2006, $227 million of cash settlements were paid. As of December 31, 2005, the Securities Litigation accrual was $1,026 million. The Company currently believes this accrual is adequate to address its remaining potential exposure with respect to all of the Securities Litigation. However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the revised reserve. The range of possible resolutions of these proceedings could include judgments against the Company or settlements that could require payments by the Company in addition to the reserve, which could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.

Additional significant developments since the date of our quarterly report on Form 10-Q for the quarter ended September 30, 2005 were as follows:

I. Securities Litigation

In the Company's report as noted above, we described an agreement we reached to settle the previously reported Consolidated Action. As of December 23, 2005, the deadline the Court imposed for objecting to final confirmation of the settlement, three individual class members directed letters to the Court purporting to object to the settlement. One of McKesson’s co-defendants, Bear, Stearns & Co. Inc., also objected to the settlement. The Company and Lead Plaintiff responded to these objections on January 13, 2006. The hearing on the motion of the Company and Lead Plaintiff seeking final approval of the class action settlement, originally scheduled for January 27, 2006, has been continued by the Court to February 24, 2006.

During December 2005 and January 2006, the Company agreed to settle the following previously reported individual actions arising out of the July 1999 restatement and pending in the United States District Court for Federal Court in the Northern District of California: Jacobs v. McKesson HBOC, Inc. et al., (No. C-99-21192 RMW), Jacobs v. HBO & Company, (No. C-00-20974 RMW), Bea v. McKesson HBOC, Inc. et al., (No. C-0020072 RMW), Baker v. McKesson HBOC, Inc. et al., (No. CV 00-0188), Pacha, at al. v. McKesson HBOC, Inc., et al., (No. C01-20713 PVT), and Hess v. McKesson HBOC, Inc. et al., (No. C-01-20301).

On December 16, 2005, the Company and certain of its present and former directors and officers filed a stipulation in the Delaware Court of Chancery that provides for settlement of the previously reported derivative action captioned Saito, et al. v. McCall, et al. (Del. Ch. C.A. No. 17132-NC). Under the proposed settlement, which

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

has been approved by the Company’s Board of Directors, but which remains subject to court approval, the Company’s insurance companies will pay $30 million, less attorneys fees and costs up to a maximum amount of $6 million, to the Company in exchange for a release of the Company’s potential claims against eighteen present or former directors or officers of the Company or HBO & Company, among other terms. The settlement will also resolve claims asserted in two other derivative actions, one pending in federal court in California, captioned Cohen v. McCall et al. (N.D. Cal. Case No. 99-20916-RMW) and one pending in state court in California, captioned Mitchell v. McCall, et al. (Cal. Super. Ct., S.F. County Case No. 304415). The Delaware court has set a hearing for February 21, 2006 to consider approval of the settlement.

Two previously-reported actions pending in Georgia state courts: Holcombe T. Green and HTG Corp. v. McKesson, Inc. et al. (Georgia Superior Court, Fulton County, Case No. 2002-CV-48407) and Hall Family Investments, L.P. v. McKesson, Inc. et al. (Georgia Superior Court, Fulton County, Case No. 2002-CV-48612), have been consolidated for purposes of discovery and may be consolidated for purposes of trial. On January 3, 2006, the trial court granted the Company’s motion to exclude the damages opinions of plaintiffs’ expert, and partially granted the Company’s motion for summary judgment, dismissing plaintiffs’ claims under the Georgia Racketeer Influenced and Corrupt Organizations Act. The previously scheduled January 16, 2006 trial has been vacated, and no new trial date has been set.

II. Other Litigation and Claims

In the previously reported litigation brought in 2000 against the Company, along with more than 100 other companies, by the Lemelson Medical, Educational & Research Foundation (the “Foundation”), the Federal Circuit Court of Appeals upheld the earlier decision of the trial court that the patents at issue were unenforceable because of prosecutorial laches. The Foundation thereupon requested that all pending cases involving the invalidated patents, including the case against the Company, be dismissed with prejudice. The granting of this unopposed request will end this litigation against the Company.

The Company, along with two other national pharmaceutical distributors and multiple pharmaceutical manufacturers, has been named as a defendant in an amended complaint filed in the United States District Court for the Northern District of California in a previously pending class action brought by The County of Santa Clara, California, on behalf of itself and others similarly situated, The County of Santa Clara vs. AmerisourceBergen Corporation et al. (C-05-03740-WHA). The plaintiff alleges that it was overcharged for certain drugs under a federal program providing discounted costs for prescription drugs to eligible parties under the Public Health Service Act of 1992, Section 340B. The action seeks an accounting and purports to state claims under the California Business and Professions Code, Section 17200 et seq., the California False Claims Act and for unjust enrichment. The Company intends to defend this action vigorously.

The health care industry is highly regulated, and government agencies continue to increase their scrutiny over certain practices affecting government programs. From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require considerable time and effort, and can result in considerable costs being incurred by the Company. Two such subpoenas are the following: (1) the Company has received a subpoena from the U.S. Attorney’s Office in Massachusetts seeking documents relating to the Company’s business relationship with a long-term care pharmacy organization. We are cooperating with this request and are in the process of responding to the subpoena; (2) the Company has received a Civil Investigative Demand (“CID”) from the Attorney General’s Office of the State of Tennessee. The CID indicates that the Tennessee Attorney General’s Office is investigating possible violations of the Tennessee Medicaid False Claims Act in connection with repackaged pharmaceuticals. The Company is in the process of responding to the subpoena. Because these investigations appear to be in their early stages, the Company cannot predict their outcome or impact, if any, on the Company’s business.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

13. Stockholders’ Equity

Comprehensive income (loss) is as follows:


	Quarter Ended						Nine Months Ended
	December 31,						December 31,
(In millions)	2005			2004			2005		2004
Net income (loss)	$	193		$	(666	)	$	531	$	(416	)
Unrealized loss on marketable securities and investments, net of tax		2			—			2		—
Additional minimum pension liability, net of tax		—			(1	)		—		(5	)
Foreign currency translation adjustments		(3	)		33			16		58

comprehensive income (loss)	$	192		$	(634	)	$	549	$	(363	)

The Company’s Board of Directors (the “Board”) approved share repurchase plans in 2004, August 2005 and December 2005. The plans permit the Company to repurchase up to a total of $750 million ($250 million per plan) of the Company’s common stock. Under these plans, we repurchased 12 million shares for $579 million during the first nine months of 2006. As a result of these repurchases, the 2004 and August 2005 plans have been completed and $129 million remains authorized for repurchase under the December 2005 plan. No repurchases were made during the nine months ended December 31, 2004. Repurchased shares will be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may be made in open market or private transactions.

In January 2006, the Board approved an additional stock repurchase plan of up to $250 million of the Company’s common stock. As a result of this new plan, a total of $379 million remains authorized for repurchases.

As previously discussed, during the first quarter of 2006, we called for the redemption of the Debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

14. Segment Information

Our operating segments consist of Pharmaceutical Solutions, Medical-Surgical Solutions and Provider Technologies. We evaluate the performance of our operating segments based on operating profit before interest expense, income taxes and results from discontinued operations. Our Corporate segment includes expenses associated with Corporate functions and projects, certain employee benefits, and the results of certain joint venture investments. Corporate expenses are allocated to the operating segments to the extent that these items can be directly attributable to the segment.

The Pharmaceutical Solutions segment distributes ethical and proprietary drugs, and health and beauty care products throughout North America. This segment also manufactures and sells automated pharmaceutical dispensing systems for retail pharmacies, and provides medical management and specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, patient and other services for payors, software and consulting and outsourcing services to pharmacies. Operating results for this segment also reflect the acquisition of D&K.

The Medical-Surgical Solutions segment distributes medical-surgical supplies, first-aid products and equipment, and provides logistics and other services within the United States and Canada.

The Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, automated pharmaceutical dispensing systems for hospitals, as well as outsourcing and other services to healthcare organizations throughout North America, the United Kingdom and other European countries. Operating results for this segment also reflect the acquisition of Medcon.

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

Financial information relating to our segments is as follows:


	Quarter Ended December 31,						Nine Months Ended December 31,
(In millions)	2005			2004			2005			2004
Revenues
Pharmaceutical Solutions	$	21,387		$	19,702		$	61,827		$	56,774
Medical-Surgical Solutions		814			736			2,327			2,157
Provider Technologies		401			331			1,111			935

Total	$	22,602		$	20,769		$	65,265		$	59,866

Operating profit
Pharmaceutical Solutions⁽¹⁾	$	306		$	243		$	860		$	682
Medical-Surgical Solutions		8			24			60			71
Provider Technologies		38			28			95			61

Total		352			295			1,015			814
Corporate Expense, net		(25	)		(46	)		(83	)		(147	)
Securities Litigation charge		(1	)		(1,200	)		(53	)		(1,200	)

Income (loss) from continuing operations before interest expense and income taxes	$	326		$	(951	)	$	879		$	(533	)

(1)

Operating profit for the third quarter and nine months ended December 31, 2005, and the nine months ended December 31, 2004 includes $37 million and $88 million, and $41 million received as our share of settlements of antitrust class action lawsuits involving drug manufacturers. These settlements were recorded as reductions to cost of sales within our Pharmaceutical Solutions segment in our condensed consolidated statements of operations.


	December 31,		March 31,
(In millions)	2005		2005
Segment assets, at period end
Pharmaceutical Solutions	$	14,528	$	13,115
Medical-Surgical Solutions		1,638		1,636
Provider Technologies		1,640		1,459

Total		17,806		16,210
Corporate
Cash and cash equivalents		2,183		1,800
Other		771		765

Total	$	20,760	$	18,775

McKESSON CORPORATION
FINANCIAL REVIEW
(Unaudited)

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

Financial Overview


	Quarter Ended December 31,								Nine Months Ended December 31,
(Dollars in millions,
except per share data)	2005		2004			Change			2005		2004			Change
Revenues	$	22,602	$	20,769			9	%	$	65,265	$	59,866			9	%
Net Income (Loss)	$	193	$	(666	)	NM *			$	531	$	(416	)	NM
Diluted Earnings (Loss) Per Share	$	0.61	$	(2.26	)	NM			$	1.69	$	(1.42	)	NM

* NM — not meaningful

Revenues for the quarter and nine months ended December 31, 2005 grew 9% to $22.6 billion and $65.3 billion, compared to the same periods a year ago. Net income (loss) was $193 million and $(666) million for the third quarters of 2006 and 2005, or $0.61 and $(2.26) per diluted share. Net income (loss) was $531 million and $(416) million for the nine months ended December 31, 2005 and 2004, or $1.69 and $(1.42) per diluted share. Net income (loss) for the nine months ended December 31, 2005, and the quarter and nine months ended December 31, 2004, included $35 million and $810 million of after-tax charges for our Securities Litigation. Excluding the Securities Litigation charges, net income for the nine months ended December 31, 2005 would have been $566 million, or $1.80 per diluted share, and for the quarter and nine months ended December 31, 2004, $144 million and $394 million, or $0.49 and $1.33 per diluted share.

Results of Operations

Revenues:


	Quarter Ended December 31,							Nine Months Ended December 31,
(Dollars in millions)	2005		2004		Change			2005		2004		Change
Pharmaceutical Solutions
U.S. Healthcare direct distribution and services	$	13,286	$	12,117		10	%	$	38,399	$	34,742		11	%
U.S. Healthcare sales to customers’ warehouses		6,571		6,180		6			18,944		18,117		5

Subtotal		19,857		18,297		9			57,343		52,859		8
Canada distribution and services		1,530		1,405		9			4,484		3,915		15

Total Pharmaceutical Solutions		21,387		19,702		9			61,827		56,774		9

Medical-Surgical Solutions		814		736		11			2,327		2,157		8

Provider Technologies
Software and software systems		90		65		38			218		166		31
Services		269		235		14			782		686		14
Hardware		42		31		35			111		83		34

Total Provider Technologies		401		331		21			1,111		935		19

Total Revenues	$	22,602	$	20,769		9		$	65,265	$	59,866		9

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Revenues increased by 9% to $22.6 billion and $65.3 billion during the quarter and nine months ended December 31, 2005, compared to the same periods a year ago. The increase in revenues primarily reflects growth in our Pharmaceutical Solutions segment, which accounted for 95% of consolidated revenues.

U.S. Healthcare pharmaceutical direct distribution and services revenues increased during the quarter due to new pharmaceutical distribution agreements, our acquisition of D&K Healthcare Resources, Inc. (“D&K”), expanded agreements with existing customers and continued, although slowed market growth among our customer base.

U.S. Healthcare sales to customers’ warehouses also increased primarily as a result of greater volume to, and expanded agreements with, existing customers, partially offset by the loss of certain volume from a warehouse customer.

Canadian pharmaceutical distribution revenues increased reflecting market growth rates and favorable exchange rates. On a constant currency basis, revenues from our Canadian operations for the quarter and nine months ended December 31, 2005 increased approximately 5% and 7% compared to the same periods a year ago.

Medical-Surgical Solutions segment distribution revenues increased primarily reflecting market growth rates. Revenues for 2006 also benefited from increased sales of flu vaccines.

Provider Technologies segment revenues increased reflecting higher sales and implementations of clinical, imaging and automation solutions as well as a lower software deferral rate. Growth in this segment’s revenues was not materially impacted by the recently acquired Medcon, Ltd. (“Medcon”) business.

Gross Profit:


	Quarter Ended December 31,									Nine Months Ended December 31,
(Dollars in millions)	2005			2004			Change			2005			2004			Change
Gross Profit
Pharmaceutical Solutions	$	644		$	516			25	%	$	1,804		$	1,501			20	%
Medical-Surgical Solutions		150			162			(7	)		486			483			1
Provider Technologies		189			158			20			512			432			19

Total	$	983		$	836			18		$	2,802		$	2,416			16

Gross Profit Margin
Pharmaceutical Solutions		3.01	%		2.62	%		39	bp		2.92	%		2.64	%		28	bp
Medical-Surgical Solutions		18.43			22.01			(358	)		20.89			22.39			(150	)
Provider Technologies		47.13			47.73			(60	)		46.08			46.20			(12	)
Total		4.35			4.03			32			4.29			4.04			25

Gross profit for the quarter and nine months ended December 31, 2005 increased 18% and 16% to $983 million and $2,802 million compared to the same periods a year ago. As a percentage of revenues, gross profit margin increased 32 basis points to 4.35% and 25 basis points to 4.29% for the quarter and nine months ended December 31, 2005, compared to the same periods a year ago. Increases in our gross profit and gross profit margin primarily reflect an improvement in our Pharmaceutical Solutions segment’s gross profit margins.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

During the quarter and nine months ended December 31, 2005, gross profit margin for our Pharmaceutical Solutions segment increased primarily as a result of:

	•		a greater amount of antitrust settlements. Results for the quarter and nine months ended December 31, 2005 included $37 million and $88 million of cash proceeds representing our share of settlements of antitrust class action lawsuits. Results for the nine months ended December 31, 2004 included $41 million received for another settlement of an antitrust class action lawsuit,

	•		higher buy side margins reflecting our progress in evolving most of our U.S. pharmaceutical manufacturer agreements to generate more predictable compensation with less dependence on price increases,

	•		the benefit of increased sales of generic drugs with higher margins,

	•		higher supplier cash discounts from a change in customer mix and higher sales volume, and

	•		improved selling margins which reflect customer mix. However, on a year-to-date basis selling margins approximated that of the comparable prior year period.

	•		Partially offsetting the above, a decrease in the segment’s last-in, first-out (LIFO) credit inventory benefit. For the quarter and nine months ended December 31, 2005, a LIFO inventory benefit of $10 million and $20 million was recorded, or $10 million less than the comparable periods a year ago.

LIFO benefits reflect the lower number of volume-weighted U.S. pharmaceutical price increases and our expectation of a LIFO benefit for the full fiscal year. Our Pharmaceutical Solutions segment uses the LIFO method of accounting for the majority of its inventories, which results in cost of sales that more closely reflects replacement cost than do other accounting methods, thereby mitigating the effects of inflation and deflation on gross profit. The practice in the Pharmaceutical Solutions distribution business is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which prevents inventory losses. Price declines on many generic pharmaceutical products in this segment over the last few years have moderated the effects of inflation in other product categories, which resulted in minimal overall price changes in those years.

For the nine months ended December 31, 2005, gross profit margin for the segment was also impacted by reductions in other product sourcing opportunities within our U.S. pharmaceutical distribution business.

Gross profit margins decreased during the quarter and first nine months of 2006 in our Medical-Surgical Solutions segment primarily reflecting a $15 million asset impairment charge and pressure on our vendor and customer margins. In 2005, the segment entered into an agreement with a third party vendor to sell the vendor’s proprietary software and services. The terms of the contract required us to prepay certain royalties. During the third quarter of 2006, we ended marketing and sale of the software under the contract. As a result of this decision, we recorded a $15 million charge to cost of sales in the third quarter of 2006 to write-off the remaining balance of the prepaid royalties.

Gross profit margins decreased in our Provider Technologies segment primarily reflecting a change in product mix.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Operating Expenses and Other Income:


	Quarter Ended December 31,									Nine Months Ended December 31,
(Dollars in millions)	2005			2004			Change			2005			2004			Change
Operating Expenses
Pharmaceutical Solutions	$	347		$	279			24	%	$	969		$	836			16	%
Medical-Surgical Solutions		142			138			3			428			414			3
Provider Technologies		153			132			16			426			377			13
Corporate		48			54			(11	)		144			168			(14	)

Subtotal		690			603			14			1,967			1,795			10
Securities Litigation charge		1			1,200			(100	)		53			1,200			(96	)

Total	$	691		$	1,803			(62	)	$	2,020		$	2,995			(33	)


Operating Expenses as a Percentage of Revenue Pharmaceutical Solutions		1.62	%		1.42	%		20	bp		1.57	%		1.47	%		10	bp
Medical-Surgical Solutions		17.44			18.75			(131	)		18.39			19.19			(80	)
Provider Technologies		38.15			39.88			(173	)		38.34			40.32			(198	)
Total		3.06			8.68			(562	)		3.10			5.00			(190	)

Other Income, Net
Pharmaceutical Solutions	$	9		$	6			50	%	$	25		$	17			47	%
Medical-Surgical Solutions		—			—			—			2			2			—
Provider Technologies		2			2			—			9			6			50
Corporate		23			8			188			61			21			190

Total	$	34		$	16			113		$	97		$	46			111

Operating expenses for the quarter and nine months ended December 31, 2005 were $691 million and $2,020 million, compared to $1,803 million and $2,995 million for the comparable prior year periods. Results for 2005 include a $1,200 million pre-tax Securities Litigation charge. Results for the first nine months of 2006 include a $53 million pre-tax Securities Litigation charge. Excluding the Securities Litigation charges, operating expenses as a percentage of revenue increased 15 basis points and 1 basis point to 3.05% and 3.01% for the quarter and nine months ended December 31, 2005. Excluding the Securities Litigation charge, operating expense dollars increased primarily due to additional costs to support our sales volume growth and expenses from the recently acquired D&K business. Additionally, operating expenses for the first nine months of 2005 included approximately $12 million of settlement charges pertaining to a non-qualified pension plan.

Other income, net, increased primarily reflecting higher interest income due to the Company’s favorable cash balances and, to a lesser extent, due to an increase in our equity in earnings of Nadro, S.A. de C.V. (“Nadro”).

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Segment Operating Profit and Corporate Expenses:


	Quarter Ended December 31,									Nine Months Ended December 31,
(Dollars in millions)	2005			2004			Change			2005			2004			Change
Segment Operating Profit⁽¹⁾
Pharmaceutical Solutions	$	306		$	243			26	%	$	860		$	682			26	%
Medical-Surgical Solutions		8			24			(67	)		60			71			(15	)
Provider Technologies		38			28			36			95			61			56

Total		352			295			19			1,015			814			25
Corporate Expenses		(25	)		(46	)		(46	)		(83	)		(147	)		(44	)
Securities Litigation charge		(1	)		(1,200	)		(100	)		(53	)		(1,200	)		(96	)
Interest Expense		(23	)		(30	)		(23	)		(70	)		(90	)		(22	)

Income (Loss) from Continuing Operations Before Income Taxes	$	303		$	(981	)		—		$	809		$	(623	)		—


Segment Operating Profit Margin
Pharmaceutical Solutions		1.43	%		1.23	%		20	bp		1.39	%		1.20	%		19	bp
Medical-Surgical Solutions		0.98			3.26			(228	)		2.58			3.29			(71	)
Provider Technologies		9.48			8.46			102			8.55			6.52			203

(1)

Segment operating profit includes gross profit, net of operating expenses and other income for our three business segments.

Operating profit as a percentage of revenues increased in our Pharmaceutical Solutions segment primarily reflecting an increase in gross profit margins, offset in part by an increase in operating expenses as a percentage of revenues. Operating expenses increased in both dollars and as a percentage of revenues due to additional costs incurred to support our revenue growth as well as due to the addition of D&K’s operating expenses. Additionally, operating profit also benefited from an increase in equity earnings from our investment in Nadro.

Medical-Surgical Solutions segment’s operating profit as a percentage of revenues decreased primarily reflecting lower gross profit margins, including the $15 million asset impairment charge. Additionally, operating expenses for 2006 benefited from a settlement with a vendor, which was almost fully offset by an increase in bad debt expense. Operating profit for 2005 was impacted by the lack of flu vaccine supply and for the first nine months of 2005, by a $7 million litigation reserve.

Provider Technologies segment’s operating profit as a percentage of revenues increased primarily reflecting favorable operating expenses as a percentage of revenues, offset in part by a decrease in gross profit margin. Operating expenses for this segment increased primarily due to investments in development and sales to support the segment’s revenue growth and to a lesser extent, due to the acquisition of Medcon. Partially offsetting these increases, operating profit for the nine months ended December 31, 2005 benefited from a reduction in bad debt expense.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

For the quarter ended December 31, 2005, Corporate expenses, net of other income, decreased primarily reflecting an increase in interest income and a decrease in legal costs associated with our Securities Litigation, partially offset by additional costs associated with Corporate initiatives. For the nine months ended December 31, 2005, Corporate expenses also benefited from a reduction in reserves for notes on stock loans. In addition, Corporate expenses for the first nine months of 2005 included settlement charges of approximately $12 million pertaining to several lump-sum cash payments from an unfunded U.S. pension plan.

Securities Litigation Charge: During the third quarter of 2005, we recorded a $1,200 million pre-tax ($810 million after-tax) charge with respect to the Company’s Securities Litigation. As discussed in Financial Note 12, numerous legal proceedings arose out of our April 28, 1999 announcement regarding accounting improprieties at HBOC, now known as McKesson Information Solutions LLC (the “Securities Litigation”). The charge consisted of $960 million for the Consolidated Action and $240 million for other Securities Litigation proceedings, as discussed in the following paragraph.

Based on settlements reached and the Company’s assessment of the remaining cases, the estimated reserves were increased by $52 million net pre-tax during the first quarter of 2006 and $1 million pre-tax during the third quarter of 2006. Also during 2006, $227 million of cash settlements were paid. As of December 31, 2005, the Securities Litigation accrual was $1,026 million. The Company currently believes this accrual is adequate to address its remaining potential exposure with respect to all of the Securities Litigation. However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the revised reserve. The range of possible resolutions of these proceedings could include judgments against the Company or settlements that could require payments by the Company in addition to the reserve, which could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.

Interest Expense: Interest expense decreased during the quarter and nine months ended December 31, 2005 primarily reflecting the repayment of $250 million of term debt during the fourth quarter of 2005 as well as the redemption of our Convertible Junior Subordinated Debentures during the first quarter of 2006.

Income Taxes: For the quarters ended December 31, 2005 and 2004, the reported income tax rates were 36.3% and 32.0%. The increase in our reported income tax rates was partly due to a lower proportion of income attributed to foreign countries that have lower income tax rates.

In the third quarter of 2005, we recorded an income tax benefit of $390 million for the Securities Litigation. We believe the settlement of the consolidated securities class action and the ultimate resolution of the lawsuits brought independently by other shareholders will be tax deductible. However, the tax attributes of the litigation are complex and we expect challenges from the appropriate taxing authorities, and accordingly such deductions will not be finalized until all the lawsuits are concluded and an examination of the Company’s tax returns is completed. As a result, we have provided a reserve of $85 million for future resolution of these uncertain tax matters. While we believe the tax reserve is adequate, the ultimate resolution of these tax matters may exceed or be below the reserve. During the third quarter of 2005, we also recorded a $5 million income tax expense arising primarily from settlements and adjustments with various taxing authorities.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

For the nine months ended December 31, 2005, and 2004, the reported income tax rates were 36.1% and 32.9%. In addition to the items described above, income tax expense for the nine months ended December 31, 2005 includes a $7 million charge which primarily relates to tax settlements and adjustments with various taxing authorities. Income tax expense for the nine months ended December 31, 2004 included a $6 million income tax benefit which was primarily due to a reduction of a portion of a valuation allowance related to state income tax net operating loss carryforwards. In addition, we sold a business for net cash proceeds of $12 million. The disposition resulted in a pre-tax loss of $1 million and an after-tax loss of $5 million. The after-tax loss on the disposition was the result of a lower tax adjusted cost basis for the business. Partially offsetting the tax impact of this disposition, a net income tax benefit of $2 million relating to favorable tax settlements and adjustments was recorded.

Discontinued Operation: During the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation (“BioServices”), for net proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million or $0.04 per diluted share. The results of BioServices’ operations have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. Financial results for this business were previously included in our Pharmaceutical Solutions segment and were not material to our condensed consolidated financial statements.

Net Income: Net income (loss) was $193 million and $(666) million for the third quarters of 2006 and 2005, or $0.61 and $(2.26) per diluted share. Net income (loss) was $531 million and $(416) million for the nine month periods of 2006 and 2005, or $1.69 and $(1.42) per diluted share. Net income (loss) for the nine months ended December 31, 2005, and the quarter and nine months ended December 31, 2004, included $35 million and $810 million of after-tax charges for our Securities Litigation. Excluding the Securities Litigation charges, net income for the nine months ended December 31, 2005 would have been $566 million, or $1.80 per diluted share, and for the quarter and nine months ended December 31, 2004, $144 million and $394 million, or $0.49 and $1.33 per diluted share.

A reconciliation between our net income (loss) per diluted share reported for U.S. GAAP purposes and our earnings per diluted share, excluding the charges for our Securities Litigation is as follows:


	Quarter Ended						Nine Months Ended
	December 31,						December 31,
(In millions, except per share amounts)	2005			2004			2005			2004
Net income (loss), as reported	$	193		$	(666	)	$	531		$	(416	)
Exclude:
Securities Litigation charge		1			1,200			53			1,200
Estimated income tax benefit		(1	)		(390	)		(18	)		(390	)

		—			810			35			810

Net income, excluding Securities Litigation charge	$	193		$	144		$	566		$	394

Diluted earnings per common share excluding Securities Litigation charge ⁽¹⁾	$	0.61		$	0.49		$	1.80		$	1.33
Shares on which diluted earnings per share were based		316			301			315			300


(1)		For the nine months ended December 31, 2005, interest expense, net of related income taxes, of $1 million has been included in net income, excluding the Securities Litigation charge, for purpose of calculating diluted earnings per share. For the quarter and nine months ended December 31, 2004, $2 million and $5 million were included in net income. This calculation also includes the impact of dilutive securities (stock options, convertible junior subordinated debentures and restricted stock.)

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Weighted Average Diluted Shares Outstanding: Diluted earnings (loss) per share was calculated based on an average number of shares outstanding of 316 million and 294 million for the third quarters of 2006 and 2005 and 315 million and 293 million for the nine months ended December 31, 2005 and 2004. Weighted average diluted shares outstanding for 2006 reflect an increase in the number of common shares outstanding as a result of exercised stock options, net of treasury stock repurchased, as well as an increase in the common stock equivalents from stock options due to the increase in the Company’s stock price. For the quarter and nine months ended December 31, 2004, potentially dilutive securities were excluded from the per share computations due to their antidilutive effect.

Business Acquisitions

In the second quarter of 2006, we acquired substantially all of the issued and outstanding stock of D&K of St. Louis, Missouri, for an aggregate cash purchase price of $479 million, including the assumption of D&K’s debt. D&K is primarily a wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty products to independent and regional pharmacies, primarily in the Midwest. Approximately $163 million of the purchase price has been assigned to goodwill, none of which is deductible for tax purposes. The results of D&K’s operations have been included in the condensed consolidated financial statements within our Pharmaceutical Solutions segment since the acquisition date.

Also in the second quarter of 2006, we acquired all of the issued and outstanding shares of Medcon, an Israeli company, for an aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information management services to healthcare providers. Approximately $66 million of the purchase price has been assigned to goodwill, none of which is deductible for tax purposes. The results of Medcon’s operations have been included in the condensed consolidated financial statements within our Provider Technologies segment since the acquisition date.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Refer to Financial Note 2, “Acquisitions,” to the accompanying condensed consolidated financial statements for further discussions regarding our business acquisitions.

Financial Condition, Liquidity, and Capital Resources

Operating activities provided cash of $1,477 million and $497 million during the nine months ended December 31, 2005 and 2004. Net cash flow from operations increased primarily reflecting improved working capital balances for our U.S. pharmaceutical distribution business as purchases from certain of our suppliers are better aligned with customer demand and as a result, net financial inventory (inventory net of accounts payable) has decreased. Operating activities for 2006 also benefited from better inventory management. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers and payments to vendors. Operating activities for 2006 include a $143 million cash receipt in connection with an amended agreement entered into with a customer and cash settlement payments of $227 million for the Securities Litigation. Operating activities for 2005 include $42 million of lump sum pension settlement payments.

Investing activities utilized cash of $782 million and $243 million during the nine months ended December 31, 2005 and 2004. Investing activities for 2006 include increases in property acquisitions and capitalized software expenditures which primarily reflect our investment in our U.S. pharmaceutical distribution center network and our Provider Technologies segment’s investment in software for a contract with the British government’s National Health Services Information Authority organization. Investing activities for 2006 also include $574 million of expenditures for our business acquisitions, including D&K and Medcon. Partially offsetting these increases were cash proceeds of $63 million pertaining to the sale of BioServices. Investing activities for 2005 include payments of $85 million for business acquisitions, including MMC and our additional investment in Nadro.

Financing activities utilized cash of $312 million and provided cash of $71 million during the nine months ended December 31, 2005 and 2004. Financing activities for 2006 include $435 million of cash receipts from common stock issuances primarily resulting from an increase in employees’ exercises of stock options, which was fully offset by $579 million of cash paid for stock repurchases and $102 million of cash paid for the repayment of life insurance policy loans.

The Company’s Board of Directors (the “Board”) approved share repurchase plans in 2004, August 2005 and December 2005. The plans permit the Company to repurchase up to a total of $750 million ($250 million per plan) of the Company’s common stock. Under these plans, we repurchased 12 million shares for $579 million during the first nine months of 2006. As a result of these repurchases, the 2004 and August 2005 plans have been completed and $129 million remains authorized for repurchase under the December 2005 plan. No repurchases were made during the nine months ended December 31, 2004. The repurchased shares will be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may be made in open market or private transactions.

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
(Unaudited)

Selected Measures of Liquidity and Capital Resources


	December 31,			March 31,
(Dollars in millions)	2005			2005
Cash and cash equivalents	$	2,183		$	1,800
Working capital		3,646			3,570
Debt net of cash and cash equivalents		(1,192	)		(589	)
Debt to capital ratio ⁽¹⁾		14.4	%		18.7	%
Net debt to net capital employed ⁽²⁾		(25.3	)		(12.6	)
Return on stockholders’ equity ⁽³⁾		14.3			(3.0	)


(1)		Ratio is computed as total debt divided by total debt and stockholders’ equity.

(2)		Ratio is computed as total debt, net of cash and cash equivalents (“net debt”), divided by net debt and stockholders’ equity (“net capital employed”).

(3)		Ratio is computed as the sum of net income (loss) for the last four quarters, divided by the average of stockholders’ equity for the last five quarters.

Working capital primarily includes cash, receivables and inventories, net of drafts and accounts payable, deferred revenue and the Securities Litigation and other accruals. Our Pharmaceutical Solutions segment requires a substantial investment in working capital that is susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity, new customer build-up requirements, a level of investment inventory and the number and timing of new fee-based arrangements with pharmaceutical manufacturers. Consolidated working capital has increased primarily as a result of our higher sales volume.

Our ratio of net debt to net capital employed declined as growth in our operating profit was in excess of the growth in working capital and other investments needed to fund increases in revenue.

As previously discussed, as of December 31, 2005, the Company has a $1,026 million accrual for the resolution of its Securities Litigation. We anticipate funding this liability with existing cash balances as payments become due and as future settlements are reached.

During the first quarter of 2006, we called for the redemption of the Company’s convertible junior subordinated debentures, which resulted in the exchange of the preferred securities for 5 million shares of our newly issued common stock.

Credit Resources

We fund our working capital requirements primarily with cash, short-term borrowings and our receivables sale facility. We have a $1.3 billion five-year, senior unsecured revolving credit facility that expires in September 2009. Borrowings under this credit facility bear interest at a fixed base rate, a floating rate based on the London Interbank Offering Rate (“LIBOR”) rate or a Eurodollar rate. We also have a $1.4 billion accounts receivable sales facility, which was renewed in June 2005, with terms substantially similar to those previously in place. No amounts were utilized or outstanding under any of these facilities at December 31, 2005.

Our various borrowing facilities and long-term debt are subject to certain covenants. Our principal debt covenant is our debt to capital ratio, which cannot exceed 56.5%. If we exceed this ratio, repayment of debt outstanding under the revolving credit facility and $235 million of term debt could be accelerated. At December 31, 2005, this ratio was 14.3% and we were in compliance with our other financial covenants. A reduction in our credit ratings or the lack of compliance with our covenants could negatively impact our ability to finance operations through our credit facilities, or issue additional debt at the interest rates then currently available.

Funds necessary for the resolution of the Securities Litigation, future debt maturities and our other cash requirements are expected to be met by existing cash balances, cash flows from operations, existing credit sources and other capital market transactions.

McKESSON CORPORATION
FINANCIAL REVIEW (Concluded)
(Unaudited)

FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

In addition to historical information, management’s discussion and analysis includes certain forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended and section 21E of the Securities Exchange Act of 1934, as amended. Some of the forward-looking statements can be identified by use of forward-looking words such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximates,” “intends,” “plans,” or “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. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the following factors. The readers should not consider this list to be a complete statement of all potential risks and uncertainties.

•		The resolution or outcome of pending Securities Litigation regarding the 1999 restatement of our historical financial statements;

•		the changing U.S. healthcare environment, including the impact of potential future mandated benefits, changes in private and governmental reimbursement or in the delivery systems for healthcare products and services and governmental efforts to regulate the pharmaceutical supply chain;

•		consolidation of competitors, suppliers and customers and the development of large, sophisticated purchasing groups;

•		the ability to successfully market both new and existing products domestically and internationally;

•		changes in manufacturers’ pricing, selling, inventory, distribution or supply policies or practices;

•		substantial defaults in payment by large customers;

•		material reduction in purchases or the loss of a large customer or supplier relationship;

•		challenges in integrating or implementing our software or software system products, or the slowing or deferral of demand for these products;

•		the malfunction or failure of our segments’ information systems;

•		our ability to successfully identify, consummate and integrate strategic acquisitions;

•		changes in generally accepted accounting principles;

•		tax legislation initiatives;

•		foreign currency fluctuations; and

•		general economic and market conditions.

These and other risks and uncertainties are described herein or in our Forms 10-K, 10-Q, 8-K and other public documents filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after this date or to reflect the occurrence of unanticipated events.

McKESSON CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We believe there has been no material change in our exposure to risks associated with fluctuations in interest and foreign currency exchange rates discussed in our 2005 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Financial Note 12, “Other Commitments and Contingent Liabilities,” of our unaudited condensed consolidated financial statements contained in Part I of this Quarterly Report on Form 10-Q.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Repurchases of Equity Securities

The following table provides information on the Company’s share repurchases during the third quarter of 2006.


	Share Repurchases ⁽²⁾
							Approximate
							Dollar Value of
					Total Number of		Shares that May
					Shares Purchased		Yet Be Purchased
	Total Number of		Average Price Paid		As Part of Publicly		Under the
(In millions, except price per share)	Shares Purchased		Per Share		Announced Program		Programs⁽¹⁾
October 1, 2005 — October 31, 2005		—	$	—		—	$	169.2
November 1, 2005 — November 30, 2005		3.4		48.69		3.4		3.9
December 1, 2005 — December 31, 2005		2.4		52.02		2.4		129.1

Total		5.8	$	50.07		5.8	$	129.1


(1)		On August 29 and December 5, 2005, the Company’s Board of Directors approved plans to repurchase up to $250 million per plan of the Company’s common stock. These plans have no expiration date. The Company completed its August 29, 2005 plan in the third quarter of 2006.

(2)		This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.

Item 6. Exhibits

3.2		Amended and Restated By-Laws of the Company dated as of January 12, 2006.

31.1		Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

McKESSON CORPORATION

31.2		Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	McKesson Corporation

Dated: January 31, 2006	By	/s/ Jeffrey C. Campbell

		Jeffrey C. Campbell Executive Vice President and Chief Financial Officer


	By	/s/ Nigel A. Rees

		Nigel A. Rees Vice President and Controller

EX-3.2 2 f16322exv3w2.htm EXHIBIT 3.2 exv3w2

Exhibit 3.2

AMENDED AND

RESTATED

BY-LAWS

McKESSON CORPORATION

A Delaware Corporation

As amended through January 12, 2006

TABLE OF CONTENTS


			Page
ARTICLE I		Offices		1
	Section 1	Registered Office		1
	Section 2	Other Offices		1

ARTICLE II		Stockholders’ Meetings		1
	Section 1	Place of Meetings		1
	Section 2	Annual Meetings		1
	Section 3	Special Meetings		1
	Section 4	Notice of Meetings		2
	Section 5	Quorum		2
	Section 6	Voting Rights		3
	Section 7	Voting Procedures and Inspectors of Elections		3
	Section 8	List of Stockholders		4
	Section 9	Stockholder Proposals at Annual Meetings		4
	Section 10	Nominations of Persons for Election to the Board of Directors		5

ARTICLE III		Directors		6
	Section 1	General Powers		6
	Section 2	Number and Term of Office; Removal		6
	Section 3	Election of Directors		6
	Section 4	Vacancies		7
	Section 5	Resignations		7
	Section 6	Annual Meetings		7
	Section 7	Regular Meetings		7
	Section 8	Special Meetings; Notice		7
	Section 9	Quorum and Manner of Acting		7
	Section 10	Consent in Writing		8
	Section 11	Committees		8
	Section 12	Telephone Meetings		9
	Section 13	Compensation		9
	Section 14	Interested Directors		9
	Section 15	Directors Elected by Special Class or Series		9

ARTICLE IV		Officers		9
	Section 1	Designation of Officers		9
	Section 2	Term of Office; Resignation; Removal		10
	Section 3	Vacancies		10
	Section 4	Authority of Officers		10
	Section 5	Divisional Titles		10
	Section 6	Salaries		10

ARTICLE V		Execution of Corporate Instruments and Voting of Securities Owned by the Corporation		11
	Section 1	Execution of Instruments		11
	Section 2	Voting of Securities Owned by the Corporation		11


			Page
ARTICLE VI		Shares of Stock and Other Securities		11
	Section 1	Form and Execution of Certificates		11
	Section 2	Lost Certificates		11
	Section 3	Transfers		12
	Section 4	Fixing Record Dates		12
	Section 5	Registered Stockholders		12
	Section 6	Regulations		12
	Section 7	Other Securities of the Corporation		12

ARTICLE VII		Corporate Seal		13

ARTICLE VIII		Indemnification of Officers, Directors, Employees and Agents		13
	Section 1	Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation		13
	Section 2	Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation		13
	Section 3	Authorization of Indemnification		14
	Section 4	Good Faith Defined		14
	Section 5	Indemnification by a Court		14
	Section 6	Expenses Payable in Advance		15
	Section 7	Nonexclusivity of Indemnification and Advancement of Expenses		15
	Section 8	Insurance		15
	Section 9	Certain Definitions		15
	Section 10	Survival of Indemnification and Advancement of Expenses		15
	Section 11	Limitation on Indemnification		16
	Section 12	Indemnification of Employees and Agents		16
	Section 13	Effect of Amendment		16
	Section 14	Authority to Enter into Indemnification Agreements		16

ARTICLE IX		Notices		16

ARTICLE X		Amendments		17

AMENDED AND

RESTATED

BY-LAWS

McKESSON CORPORATION

A Delaware Corporation

ARTICLE I

Offices

Section 1. Registered Office. The address of the registered office of Corporation within the State of Delaware is 2711 Centerville Road, City of Wilmington, 19808, County of New Castle. The name of the registered agent of the Corporation at such address is The Prentice-Hall Corporation System, Inc.

Section 2. Other Offices. The Corporation shall also have and maintain an office or principal place of business at One Post Street, San Francisco, California and may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

Stockholders’ Meetings

Section 1. Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof.

Section 2. Annual Meetings. The annual meetings of stockholders of the Corporation for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors, or, if not so designated, then at 10:00 a.m. on the last Wednesday in July in each year if not a legal holiday, and, if a legal holiday, at the same hour and place on the next succeeding day not a holiday.

Section 3. Special Meetings. Special Meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by the Chairman of the Board or the President or the Board of Directors at any time. Stockholders may not call Special Meetings of the stockholders of the Corporation.

Section 4. Notice of Meetings.

(a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour and purpose or purposes of the meeting, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than 20 nor more than 60 days prior to such meeting.

(b) If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section.

(c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

(d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

(e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given.

Section 5. Quorum. At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these By-Laws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting.

In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation.

In the event that at any meeting at which the holders of more than one class or series of the Corporation’s capital stock are entitled to vote as a class, a quorum of any such class or series is lacking, the holders of any class or series represented by a quorum may proceed with the transaction of the business to be transacted by that class or series, and if such business is the election of directors, the director whose successors shall not have been elected shall continue in office until their successors shall have been duly elected and shall have qualified.

Section 6. Voting Rights.

(a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.

(b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period.

(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this Section, the following shall constitute a valid means by which a stockholder may grant such authority:

(1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.

(2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.

(d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

Section 7. Voting Procedures and Inspectors of Elections.

(a) The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.

(b) The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

(d) In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this Section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

(e) The provisions of this Section 7 shall not apply to any annual meeting of stockholders held prior to the annual meeting of stockholders to be held in 1995.

Section 8. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 9. Stockholder Proposals at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 9 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 9. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be

timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the stockholder, (iv) a description of all arrangements or understandings between the stockholder and any other person or persons (including their names) in connection with the proposal of such business by the stockholder and any material interest of the stockholder in such business, and (v) a representation that the stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 9, provided, however, that nothing in this Section 9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.

The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

Section 10. Nominations of Persons for Election to the Board of Directors. In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 10 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the stockholder, (iii) a description of all arrangements or understandings between the stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by the stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in such notice and (v) any other information relating to the stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such

notice must be accompanied by a written consent of each proposed nominee being named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock.

The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

ARTICLE III

Directors

Section 1. General Powers. The property, affairs and business of the Corporation shall be managed under the direction of its Board of Directors, which may exercise all of the powers of the Corporation, except such as are by law or by the Certificate of Incorporation or by these By-Laws expressly conferred upon or reserved to the stockholders.

Section 2. Number and Term of Office; Removal. The number of directors of the Corporation shall be fixed from time to time by these By-Laws but in no event shall be less than three (3). Until these By-Laws are further amended, the number of directors shall be nine (9). The directors shall be divided into three classes. Each such class shall consist, as nearly as may be possible, of one-third of the total number of directors, and any remaining directors shall be included within such group or groups as the Board of Directors shall designate. At the initial annual meeting of stockholders in 1994, a class of directors shall be elected for a one-year term, a class of directors for a two-year term and a class of directors for a three-year term. At each succeeding annual meeting of stockholders, beginning in 1995, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no case shall a decrease in the number of directors shorten the term of any incumbent director. A director may be removed from office for cause only and, subject to such removal, death, resignation, retirement or disqualification, shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualify. No alteration, amendment or repeal of these By-Laws shall be effective to shorten the term of any director holding office at the time of such alteration, amendment or repeal, to permit any such director to be removed without cause, or to increase the number of directors in any class or in the aggregate from that existing at the time of such alteration, amendment or repeal until the expiration of the terms of office of all directors then holding office, unless such alteration, amendment or repeal has been approved by either the holders of all shares of stock entitled to vote thereon or by a vote of a majority of the entire Board of Directors. The provisions of this Section 2 shall not apply to directors governed by Section 15 of this ARTICLE III.

Section 3. Election of Directors. At each meeting of the stockholders for the election of directors, the directors to be elected at such meeting shall be elected by a plurality of votes given at such election.

Section 4. Vacancies. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by the stockholders. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors or by the stockholders. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the expiration of the term for which he was elected and until his successor shall have been elected and shall have qualified. A director elected by the stockholders to fill a vacancy shall be elected to hold office until the expiration of the term for which he was elected and until his successor shall have been elected and shall have qualified. The provisions of this Section 4 shall not apply to directors governed by Section 15 of this ARTICLE III.

Section 5. Resignations. A director may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 6. Annual Meetings. The Board of Directors, as constituted following the vote of stockholders at any meeting of the stockholders for the election of directors, may hold its first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after such meeting and at the same place, and notice of such meeting need not be given. Such first meeting may be held at any other time and place specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors.

Section 7. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such places and times as may be fixed from time to time by resolution of the Board.

Section 8. Special Meetings; Notice. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or the President and shall be called by the Secretary upon the written request of any three directors and each special meeting shall be held at such place and time as shall be specified in the notice thereof. At least twenty-four (24) hours’ notice of each such special meeting shall be given to each director personally or sent to him addressed to his residence or usual place of business by telephone, telegram or facsimile transmission, or at least 120 hours’ notice of each such special meeting shall be given to each director by letter sent to him addressed as aforesaid or on such shorter notice and by such means as the person or persons calling such meeting may deem reasonably necessary or appropriate in light of the circumstances. Any notice by letter or telegram shall be deemed to be given when deposited in the United States mail so addressed or when duly deposited at an appropriate office for transmission by telegram, as the case may be. Such notice need not state the business to be transacted at or the purpose or purposes of such special meeting. No notice of any such special meeting of the Board of Directors need be given to any director who attends in person or who, in writing executed and filed with the records of the meeting, either before or after the holding thereof, waives such notice. No notice need be given of an adjourned meeting of the Board of Directors.

Section 9. Quorum and Manner of Acting. A majority of the total number of directors, but in no event less than two directors, shall constitute a quorum for the transaction of business at any annual, regular or special meeting of the Board of Directors. Except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws, the act of a majority of the directors present at any meeting, at which a quorum is present, shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be had.

Section 10. Consent in Writing. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee.

Section 11. Committees.

(a) Executive Committee. The Board of Directors may, by resolution passed by a majority of a quorum of the Board, appoint an Executive Committee of not less than three members, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the Corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such Committee shall not have the power or authority (i) to approve, adopt, or recommend to stockholders any action or matter required by the Delaware General Corporation Law to be submitted for stockholder approval; or (ii) to adopt, amend, or repeal any By-Law of the Corporation.

(b) Other Committees. The Board of Directors may, by resolution passed by a majority of a quorum of the Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these By-Laws.

(c) Term. The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 11, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 11 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

Section 12. Telephone Meetings. The Board of Directors or any committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all members of the Board or of such committee, as the case may be, participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 13. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 14. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

Section 15. Directors Elected by Special Class or Series. To the extent that any holders of any class or series of stock other than Common Stock issued by the Corporation shall have the separate right, voting as a class or series, to elect directors, the directors elected by such class or series shall be deemed to constitute an additional class of directors and shall have a term of office for one year or such other period as may be designated by the provisions of such class or series providing such separate voting right to the holders of such class or series of stock, and any such class of directors shall be in addition to the classes referred to in Section 2 of this ARTICLE III. Any directors so elected shall be subject to removal in such manner as may be provided by law or by the Certificate of Incorporation of this Corporation. The provisions of Sections 2 and 4 of this ARTICLE III do not apply to directors governed by this Section 15.

ARTICLE IV

Officers

Section 1. Designation of Officers. The officers of the Corporation, who shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders, shall be a Chairman of the Board, a President, one or more Vice Presidents, a Treasurer, a Secretary and a Controller. The Board of Directors from time to time may choose such other officers as it shall deem appropriate. Any

one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The Chairman of the Board and the President shall be chosen from among the directors; the other officers need not be directors.

Section 2. Term of Office; Resignation; Removal. The term of office of each officer shall be until the first meeting of the Board of Directors following the next annual meeting of stockholders and until his successor is elected and shall have qualified, or until his death, resignation or removal, whichever is sooner. Any officer may resign at any time by giving written notice to the Board of Directors or to the Secretary. Such resignation shall take effect at the time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any officer may be removed at any time either with or without cause by the Board of Directors.

Section 3. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause, may be filled for the unexpired portion of the term by the Board of Directors.

Section 4. Authority of Officers. Subject to the power of the Board of Directors in its discretion to change and redefine the duties of the officers of the Corporation by resolution in such manner as it may from time to time determine, the duties of the officers of the Corporation shall be as follows:

(a) Chairman of the Board. The Chairman of the Board shall preside at meetings of the stockholders and the Board of Directors. Subject to the direction of the Board of Directors, he shall generally manage the affairs of the Board and perform such other duties as are assigned by the Board.

(b) President. The President shall be the Chief Executive Officer of the Corporation, and shall execute all the powers and perform all the duties usual to such office. Subject to the direction of the Board of Directors, he shall have the responsibility for the general management of the affairs of the Corporation. The President shall perform such other duties as may be prescribed or assigned to him from time to time by the Board of Directors.

(c) Other Officers. The other officers of the Corporation shall have such powers and shall perform such duties as generally pertain to their respective offices, as well as such powers and duties as the Board of Directors, the Executive Committee or the Chief Executive Officer may prescribe.

Section 5. Divisional Titles. Any one of the Chief Executive Officer, President, or Vice President Human Resources and Administration (each one an “Appointing Person”), may from time to time confer upon any employee of a division of the Corporation the title of President, Vice President, Treasurer or Secretary of such division or any other divisional title or titles deemed appropriate. Any such titles so conferred may be discontinued and withdrawn at any time by any one Appointing Person. Any employee of a division designated by such a divisional title shall have the powers and duties with respect to such division as shall be prescribed by the Appointing Person. The conferring, withdrawal or discontinuance of divisional titles shall be in writing and shall be filed with the Secretary of the Corporation.

Section 6. Salaries. The salaries and other compensation of the principal officers of the Corporation shall be fixed from time to time by the Board of Directors.

ARTICLE V

Execution of Corporate Instruments
and Voting of Securities Owned by the Corporation

Section 1. Execution of Instruments. The Board of Directors may in its discretion determine the method and designate the signatory officer or officers or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the Corporation. All checks and drafts drawn on banks or other depositories on funds to the credit of the Corporation or in special accounts of the Corporation, shall be signed by such person or persons as the Treasurer or such other person designated by the Board of Directors for that purpose shall authorize so to do.

Section 2. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations and business entities owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized to do so by resolution of the Board of Directors.

ARTICLE VI

Shares of Stock and Other Securities

Section 1. Form and Execution of Certificates. Certificates for the shares of stock of the Corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Section 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of

Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the Corporation in such manner as it shall require and/or to give the Corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

Section 3. Transfers. Transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.

Section 4. Fixing Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

Section 6. Regulations. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the stock and other securities of the Corporation, and may appoint transfer agents and registrars of any class of stock or other securities of the Corporation.

Section 7. Other Securities of the Corporation. All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the

Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security or whose facsimile signature shall appear thereon shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation.

ARTICLE VII

Corporate Seal

The corporate seal shall consist of a die bearing the name of the Corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

Indemnification of Officers, Directors, Employees and Agents

Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 3 of this ARTICLE VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The right to indemnification conferred in this ARTICLE VIII shall be a contract right.

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this ARTICLE VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the

Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any indemnification under this ARTICLE VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this ARTICLE VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case.

Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this ARTICLE VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this ARTICLE VIII, as the case may be.

Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this ARTICLE VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this ARTICLE VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this ARTICLE VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this ARTICLE VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this ARTICLE VIII.

Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this ARTICLE VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this ARTICLE VIII shall be made to the fullest extent permitted by law. The provisions of this ARTICLE VIII shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this ARTICLE VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this ARTICLE VIII.

Section 9. Certain Definitions. For purposes of this ARTICLE VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this ARTICLE VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this ARTICLE VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this ARTICLE VIII.

Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 11. Limitation on Indemnification. Notwithstanding anything contained in this ARTICLE VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this ARTICLE VIII to directors and officers of the Corporation.

Section 13. Effect of Amendment. Any amendment, repeal or modification of this ARTICLE VIII shall not (a) adversely affect any right or protection of any director or officer existing at the time of such amendment, repeal or modification, or (b) apply to the indemnification of any such person for liability, expense, or loss stemming from actions or omissions occurring prior to such amendment, repeal, or modification.

Section 14. Authority to Enter into Indemnification Agreements. The Corporation may enter into indemnification agreements with the directors and officers of the Corporation, including, without limitation, any indemnification agreement in substantially the form set forth in Exhibit 1 attached to these By-Laws.

ARTICLE IX

Notices

Whenever, under any provisions of these By-Laws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent. Any notice required to be given to any director may be given by any of the methods stated in Section 8 of ARTICLE III hereof, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have disclosed in writing to the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the Corporation required to be maintained pursuant to Section 2 of ARTICLE I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such

notice. Whenever any notice is required to be given under the provisions of this statute or of the Certificate of Incorporation, or of these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or By-Laws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

ARTICLE X

Amendments

The Board of Directors is expressly authorized to adopt, alter and repeal the By-Laws of the Corporation in whole or in part at any regular or special meeting of the Board of Directors, by vote of a majority of the entire Board of Directors. Except where ARTICLE V of the Certificate of Incorporation of the Corporation requires a higher vote, the By-Laws may also be adopted, altered or repealed in whole or in part at any annual or special meeting of the stockholders by the affirmative vote of three fourths of the shares of the Corporation outstanding and entitled to vote thereon.

CERTIFICATE OF SECRETARY

The undersigned, Senior Vice President, General Counsel and Secretary of McKesson Corporation a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the By-Laws of said Corporation, with all amendments to date of this Certificate.

WITNESS the signature of the undersigned and the seal of the Corporation this 28^th day of January, 2004.



	/s/ Ivan D. Meyerson
	Ivan D. Meyerson
	Senior Vice President, General Counsel and Secretary

EXHIBIT 1

INDEMNIFICATION AGREEMENT

As Amended and Restated Effective May 28, 2003

AGREEMENT, effective as of May 28, 2003 between McKesson Corporation, a Delaware corporation (the “Company”), and ___(the “Indemnitee”).

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available.

WHEREAS, Indemnitee is a director/officer of the Company.

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of public companies in today’s environment;

WHEREAS, the Certificate of Incorporation and the By-laws of the Company require the Company to indemnify and advance expenses to its directors to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director or officer of the Company in part in reliance on such Certificate of Incorporation and By-laws;

WHEREAS, in recognition of Indemnitee’s needs for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner and Indemnitee’s reliance on the aforesaid Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation and By-laws or any change in the composition of the Board of Directors or acquisition transaction relating to the Company), and in order to induce Indemnitee to continue to provide services to the Company as a director or officer thereof, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, with another Enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:

1. Certain Definitions.

(a) Change in Control: shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an

employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(b) Expense: includes attorneys’ fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Proceeding relating to any Indemnifiable Event.

(c) Indemnifiable Event: any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or an officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another Enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.

(d) Potential Change in Control: shall be deemed to have occurred if (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof; or (iv)

the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(e) Proceeding: any threatened, pending or completed action, suit, arbitration, mediation or proceeding, or any inquiry, hearing or investigation, whether instituted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other.

(f) Enterprise: the Company and any corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise of which the Indemnitee is or was serving at the request of the Company as director, officer, employee, trustee, agent or fiduciary.

(g) Reviewing Party: any appropriate person or body consisting of a member or members of the Company’s Board of Directors or any other person or body appointed by the Board (including the special, independent counsel referred to in Section 3) who is not a party to the particular Proceeding with respect to which Indemnitee is seeking indemnification.

(h) Voting Securities: any securities of the Company which vote generally in the election of directors.

2. Agreement to Indemnify.

(a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of ) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law, as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Proceeding and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement (including the creation of the Trust). Notwithstanding anything in this Agreement to the contrary and except as provided in Section 5, prior to a Change in Control Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or the Board of Directors has consented to the initiation of such Proceeding. If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an “Expense Advance”).

(b) The Company’s obligations under Section 2(a) are subject to the following:

(i) Expense Advances. With respect to Expense Advances made pursuant to Section 2(a) and prior to any final judicial determination that the Indemnitee does not have a right to indemnification.

(I) the obligations of the Company under Section 2(a) shall not be subject to the absence of a determination by the Reviewing Party (in a written opinion, in any case in which the independent counsel referred to in Section 3 hereof is involved) that Indemnitee would not he permitted to be indemnified under applicable law, and

(II) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee shall continue to be entitled to receive Expense Advances pursuant to Section 2(b)(i)(I) above until a final judicial determination that the Indemnitee would not be permitted to be indemnified under applicable law. Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the independent counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of California or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefore, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.

(III) Notwithstanding the foregoing, if a court of competent jurisdiction makes a final determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that the Indemnitee is not entitled to an Expense Advance prior to the Company making such Expense Advance, then the Company shall not be obligated to make any Expense Advance to the Indemnitee.

(ii) Payments Other Than Expense Advances. With respect to the obligations of the Company to indemnify the Indemnitee pursuant to Section 2(a) for costs and expenses other than Expense Advances, the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the independent counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law.

(iii) In the event that a determination shall have been made by the Reviewing Party that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 2(b) shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding commenced pursuant to this Section 2(b), the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or Expense Advances, as the case may be.

3. Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company’s Certificate of Incorporation or By-Laws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from special, independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with such matters) within the last five years. Such independent counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special, independent counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or the engagement of special, independent counsel pursuant hereto.

4. Establishment of Trust. In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a Trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any Proceeding relating to an Indemnifiable Event, and any and all judgments, fines, penalties and settlement amounts of any and all Proceedings relating to an Indemnifiable Event from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The amount or amounts to be deposited in the Trust pursuant to the

foregoing funding obligation shall be determined by the Reviewing Party, in any case in which the special, independent counsel referred to above is involved. The terms of the Trust shall provide that upon a Change in Control (i) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee, (ii) the Trustee shall advance, within ten business days of a request by the Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the circumstances under which the Indemnitee would be required to reimburse the Company under Section 2(b) of this Agreement), (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligation set forth above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert to the Company upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that the Indemnitee has been fully indemnified under the terms of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its obligations under this Agreement. All income earned on the assets held in the Trust shall be reported as income by the Company for federal, state, local and foreign tax purposes.

5. Indemnification for Expenses Incurred in Enforcing this Agreement. The Company shall indemnify Indemnitee against any and all expenses (including attorneys’ fees), and, if requested by Indemnitee, shall (within ten business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement (including any legal proceedings initiated by Indemnitee under Section 2(b)) or any other agreement or under applicable law or the Company’s Certificate of Incorporation or By-laws now or hereafter in effect relating to indemnification for Indemnifiable Events and/or (ii) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be.

6. Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Proceeding but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful on the merits or otherwise in defense of any or all Proceedings relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

7. Defense to Indemnification, Burden of Proof and Presumptions.

(a) It shall be a defense to any action brought by the Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for

expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that the Indemnitee has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Company to indemnify the Indemnitee for the amount claimed. In connection with any determination by the Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder, it shall be presumed that the Indemnitee is entitled to indemnification, and the Company and anyone else seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence. Neither the failure of the Company (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by the Indemnitee that indemnification is proper under the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

(b) Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 7 are satisfied, it shall in any event by presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. The Company and anyone else seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence.

(c) Indemnitee shall cooperate with the Reviewing Party making a determination with respect to the Indemnitee’s entitlement to indemnification hereunder, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to the Indemnitee and reasonably necessary to such determination. The Reviewing Party shall act reasonably and in good faith in making a determination under this Agreement of Indemnitee’s entitlement to indemnification. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such

determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold the Indemnitee harmless therefrom.

(d) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. The Company and anyone else seeking to overcome this presumption shall have the burden of proof and the burden or persuasion, by clear and convincing evidence.

(e) The Company shall be precluded from asserting in any judicial proceeding to enforce this Agreement that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such proceeding that the Company is bound by all the provisions of this Agreement.

8. Non-exclusivity. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company’s Certificate of Incorporation or By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s Certificate of Incorporation and By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.

9. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director of officer.

10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company or any affiliate of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, or such longer period as may be required by state law under the circumstances, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

11. Amendment of this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a

waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

12. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

13. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, By-law or otherwise) of the amounts otherwise indemnifiable hereunder.

14. Settlement of Claims. The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without the Company’s written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Company nor the Indemnitee will unreasonably withhold their consent to any proposed settlement. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.

15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer of the Company or of any other enterprise at the Company’s request.

16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, with limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

17. Prior Agreements. This Agreement supersedes any and all prior agreements, arrangements and understandings between the parties relating to the matters provided herein. This Agreement shall be effective as of the date set forth on the first page hereof and shall apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or agent of the Company or of another Enterprise.

18. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the 28th day of May, 2003.


		McKESSON CORPORATION

		By:

				Ivan D. Meyerson
				Senior Vice President, General
				Counsel and Secretary




				Indemnitee

EX-31.1 3 f16322exv31w1.htm EXHIBIT 31.1 exv31w1

Exhibit 31.1

CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John H. Hammergren, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.



Date: January 31, 2006	/s/ John H. Hammergren
	John H. Hammergren
	Chairman, President and Chief Executive Officer

EX-31.2 4 f16322exv31w2.htm EXHIBIT 31.2 exv31w2

Exhibit 31.2

CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey C. Campbell, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of McKesson Corporation;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.



Date: January 31, 2006	/s/ Jeffrey C. Campbell
	Jeffrey C. Campbell
	Executive Vice President and Chief Financial Officer

EX-32 5 f16322exv32.htm EXHIBIT 32 exv32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of McKesson Corporation (the “Company”) on Form 10-Q for the quarter ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the dates indicated below, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John H. Hammergren

John H. Hammergren
Chairman, President and Chief Executive Officer
January 31, 2006

/s/ Jeffrey C. Campbell

Jeffrey C. Campbell
Executive Vice President and Chief Financial Officer
January 31, 2006

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to McKesson Corporation and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

-----END PRIVACY-ENHANCED MESSAGE-----

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