Baird 2005Baird 2005Growth Stock ConferenceGrowth Stock Conference

Jeff CampbellJeff CampbellExecutive Vice PresidentExecutive Vice President

Chief Financial Officer Chief Financial Officer

May 11, 2005May 11, 2005

5/11/2005 1

Some of the information in this presentation may constitute forward-looking statements that are subject to various uncertainties. These uncertainties could cause actual results to differ materially from those projected or implied. The risk factors associated with those uncertainties are described in the Company’s reports and exhibits filed with the Securities and Exchange Commission. Financial information is presented here in summary form. Full details are provided in the Company’s most recent 10-Q report. All of this information is available at www.mckesson.com.

Safe Harbor ClauseSafe Harbor Clause

5/11/2005 2

Overview Overview

Who We Are

Business Update

Summary

5/11/2005 3

Who We Are

5/11/2005 4

McKessonMcKesson’’s Solutions s Solutions …… BuildingBuildingOn Distribution Strength Since 1833On Distribution Strength Since 1833

Pharmaceutical & medical-surgical distribution to all sites

Solutions for medication safety

Drug cards for seniors

Specialty pharmaceuticals

Inpatient automation

Clinical, financial & resource management for hospitals & IDNs

Pharmaceutical repackaging

Retail pharmacy automation

Disease management

5/11/2005 5

McKesson McKesson PharmaceuticalPharmaceutical

#1 in U.S., Canada, and Mexico

Large Rx repackaging

Leading generics provider

#1 in retail pharmacy automation

Specialty distribution & patient services for

manufacturers

#1 in medical management software and services for

payors

#1 in disease management for Medicaid agencies

McKesson McKesson MedicalMedical--SurgicalSurgical

#1 in primary care

#1 in extended care

Total supply solution in acute

care

Private label product offerings

Rapid growth in physician office pharmaceuticals and equipment

Our Business TodayOur Business Today

McKesson McKesson Provider TechnologiesProvider Technologies63% of health systems

51% of hospitals with 200+ beds

Leader in clinical, revenue cycle, and resource

management solutions

More “Best in KLAS”products than any

other vendor

#1 in robotic hospital pharmacy dispensing

#1 in bedside scanning

5/11/2005 6

Strong, LongStrong, Long--term Customer term Customer Relationships with Market LeadersRelationships with Market Leaders

Vanderbilt University Medical CenterVanderbilt University Medical Center

5/11/2005 7

McKessonMcKesson’’s Strategys StrategyTo bring together clinical knowledge, process To bring together clinical knowledge, process

expertise, technology, and the resources of expertise, technology, and the resources of a a Fortune 15 Fortune 15 company to fundamentally company to fundamentally

change the cost and quality of healthcare.change the cost and quality of healthcare.

Create long-termrelationships based on custom solutions

that deliverROI & quality

Sell McKesson’s comprehensive

offering

Introduce innovations that address emerging

healthcarechallenges

5/11/2005 8

Strong Financial Track RecordStrong Financial Track Record

($0.15)

$0.65

$1.44$1.90

$2.19

FY00 FY01 FY02 FY03 FY04

Diluted EPS, continuing operations

35% CAGR

5/11/2005 9

FY05 Consolidated Financial FY05 Consolidated Financial HighlightsHighlights

($ and shares in millions, except EPS)

FY04 FY05 FY04 FY05

Revenues 17,940$ 20,612$ 14% 69,506$ 80,515$ 16%

Net Income (Loss) 214 259 21% 647 (157) -

Diluted Earnings (Loss) Per Share 0.73$ 0.85$ 16% 2.19$ (0.53)$ -

Weighted Avg Shares - Diluted 297 305 3% 299 294 -2%

Q4 Full-year

5/11/2005 10

Securities Litigation SettlementSecurities Litigation Settlement

Agreement reached January 12 to settle Agreement reached January 12 to settle consolidated securities class action, subject to consolidated securities class action, subject to court approvalcourt approval$1.2 billion pre$1.2 billion pre--tax charge in Q3tax charge in Q3--05, $810 million 05, $810 million after tax:after tax:

Class action settlement for $960 million plus $240 million reserve for remaining related cases

Anticipate financing securities litigation settlement Anticipate financing securities litigation settlement liability mid fiscal yearliability mid fiscal year

Increased financial flexibility to continue to execute our strategy

Increased financial flexibility to continue to Increased financial flexibility to continue to execute our strategy execute our strategy

5/11/2005 11

FY05 Consolidated Financial FY05 Consolidated Financial Results**Results**

($ and shares in millions, except EPS)

FY04 FY05

Revenues 69,506$ 80,515$ 16%

Net Income** 647 653 1%

Diluted EPS** 2.19$ 2.19$ --

Diluted Weighted Avg Shares** 299 301 1%

Operating Cash Flow 595$ 1,538$ 158%

Gross Debt to Capital 22.3% 18.7%

Net Debt to Capital 12.9% -12.8%

Full-year

** Excluding the impact of $1.2B pre-tax securities litigation charge, net of tax $810MSee Schedule 1 from 5/5/05 press release and reconciliation slide for complete reconciliation.

5/11/2005 12

Business UpdateBusiness Update

5/11/2005 13

Pharmaceutical SolutionsPharmaceutical Solutions

5/11/2005 14

FY05 Financial Results FY05 Financial Results ––Pharmaceutical SolutionsPharmaceutical Solutions

($ in millions)

FY04 FY05 FY04 FY05

RevenuesU.S. direct distribution & services 10,225$ 12,228$ 20% 39,412$ 47,007$ 19%

U.S. sales to customer warehouses 5,573 5,983 7% 21,622 24,100 11%

Subtotal 15,798 18,211 15% 61,034 71,107 17%Canada distribution & services 1,145 1,296 13% 4,459 5,211 17%

Total Pharmaceutical Solutions 16,943 19,507 15% 65,493 76,318 17%

Gross Profit 569 691 21% 2,077 2,203 6%

Operating Expenses 285 308 8% 1,119 1,152 3%

Operating Profit 288 391 36% 980 1,077 10%

Operating Profit Margin 1.70% 2.00% 30 bp 1.50% 1.41% (9) bp

Q4 Full-year

5/11/2005 15

Pharmaceutical Solutions Pharmaceutical Solutions Business UpdateBusiness Update

Negotiations with manufacturers to secure more Negotiations with manufacturers to secure more predictable compensation are nearing completion predictable compensation are nearing completion

More than 80% of manufacturer compensation will not be affected by the timing/magnitude of price increases when all agreements have been signed by mid-year

Continued focus on customer contract compliance to Continued focus on customer contract compliance to improve profitability in Fiscal 2006improve profitability in Fiscal 2006All major expiring customer agreements renewedAll major expiring customer agreements renewed

Sell margins show signs of stabilization

Strong generics position creates foundation for Strong generics position creates foundation for continued growthcontinued growth

5/11/2005 16

MedicalMedical--Surgical SolutionsSurgical Solutions

5/11/2005 17

FY05 Financial Results FY05 Financial Results ––MedicalMedical--Surgical SolutionsSurgical Solutions

($ in millions)

FY04 FY05 FY04 FY05

Revenues 670$ 738$ 10% 2,811$ 2,895$ 3%

Gross Profit 153 171 11% 604 654 8%

Operating Expenses 125 141 13% 501 556 11%

Operating Profit 29 31 6% 106 102 -4%Operating Profit Margin 4.39% 4.24% (15) bp 3.79% 3.53% (26) bp

Q4 Full-year

5/11/2005 18

MedicalMedical--Surgical Solutions Surgical Solutions Business UpdateBusiness Update

Strongly positioned in higher growth/higher margin Strongly positioned in higher growth/higher margin alternate site sectorsalternate site sectors

Moore Medical strengthens position in alternate site

Adventist experience validates value proposition of Adventist experience validates value proposition of Optyx system in the acute care sectorOptyx system in the acute care sector

5 additional agreements create market momentum

Continuing to invest in technologies that will Continuing to invest in technologies that will differentiate McKessondifferentiate McKesson

5/11/2005 19

McKesson Provider McKesson Provider TechnologiesTechnologies

5/11/2005 20

FY05 Financial Results FY05 Financial Results ––Provider TechnologiesProvider Technologies

($ in millions)

FY04 FY05 FY04 FY05

RevenuesSoftware & software systems 59$ 79$ 35% 218$ 246$ 13%Services 227 251 10% 869 936 8%Hardware 41 37 -10% 116 120 3%

Total Provider Technologies 327 367 12% 1,203 1,302 8%

Gross Profit 172 175 2% 567 608 7%

Operating Expenses 91 137 50% 451 514 14%

Operating Profit 84 46 -46% 128 107 -17%

Operating Profit Margin -- as reported 25.63% 12.44% (1,319) bp 10.66% 8.20% (246) bp

Operating Profit Margin** excluding reserve reversals 6.67% 12.44% 577 bp 5.51% 8.20% 269 bp

Q4 Full-year

**Excluding the impact of certain reserve reversals in Q4-FY04. See reconciliation slide for a reconciliation to GAAP reported amounts.

5/11/2005 21

Provider Technologies Provider Technologies Business UpdateBusiness Update

Continued focus on accelerating implementations to Continued focus on accelerating implementations to drive customer satisfaction and revenue recognitiondrive customer satisfaction and revenue recognition

Implementations at Duke and IASIS provide valuable experience to accelerate other installations

Integrated medication safety solution changes view of Integrated medication safety solution changes view of automation productsautomation productsInvestments in innovation paying offInvestments in innovation paying off

Top 20: 2004 “Best in KLAS” year-end report: 12 MCK products in top 3 in category, #1 among all companiesTwo “Best in KLAS” #1 rankingsTwo other Specialty Niche Category #1s

5/11/2005 22

SummarySummary

5/11/2005 23

Fiscal 2006 OutlookFiscal 2006 Outlook(Provided May 5, 2005)(Provided May 5, 2005)

FY06 expectation: $2.25 to $2.40 per shareFY06 expectation: $2.25 to $2.40 per share

Revenue growth, excluding warehouse sales, at market Revenue growth, excluding warehouse sales, at market growth, adjusted for our customer mixgrowth, adjusted for our customer mixWarehouse sales flat Warehouse sales flat Stabilization of customer sell marginsStabilization of customer sell marginsOperating cash flow expected to exceed $1 billionOperating cash flow expected to exceed $1 billionGuidance assumes no share repurchasesGuidance assumes no share repurchasesHistorical seasonality should continueHistorical seasonality should continue

5/11/2005 24

What McKesson RepresentsWhat McKesson Represents

Core pharmaceutical business positioned for Core pharmaceutical business positioned for sustained market growthsustained market growthStrongly positioned in valueStrongly positioned in value--adding businesses adding businesses across spectrum of healthcare servicesacross spectrum of healthcare servicesTrack record of financial performance and strong Track record of financial performance and strong balance sheetbalance sheetSecurities settlement removes uncertainty and Securities settlement removes uncertainty and increases financial flexibility, pending class action increases financial flexibility, pending class action settlementsettlement

Create Value for Suppliers, Customers and Shareholders

Create Value for Suppliers, Customers and Create Value for Suppliers, Customers and ShareholdersShareholders

5/11/2005 25

5/11/2005 26

EPS ReconciliationEPS Reconciliation($ and shares in millions except EPS)

FY04 FY05

$ 647 $ (157) - %

Exclude: Securities Litigation charge - (1,200) -

Estimated income tax benefit - 390 -- (810) -

Net income, excluding Securities Litigation charge $ 647 $ 653 1 %

$ 2.19 $ 2.19 -

299 301 1 %

Full-year

Net income (loss) - as reported

Diluted earnings per common share, excluding Securities Litigation charge *

Shares on which diluted earnings per common share were based *

* For the years ended March 31, 2005 and 2004, interest expense, net of related income taxes, of $6.2 million has been added to net income, excluding the Securities Litigation charge, for purposes of calculating diluted earnings per share. This calculation also includes the impact of dilutive securities (stock options, convertible junior subordinated debentures and restricted stock).

5/11/2005 27

Provider Technologies Provider Technologies ––Operating Profit ReconciliationOperating Profit Reconciliation

($ in millions)FY04 FY05 FY04 FY05

84$ 46$ (46) % 128$ 107$ (17) %

Exclude: Customer settlement reserve reversal (47) - - (47) - -

International contract reserve reversal (15) - - (15) - -(62) - - (62) - -

Operating profit, excludingreserve reversals 22$ 46$ 109 % 66$ 107$ 62 %

25.63% 12.44% (1,319) bp 10.66% 8.20% (246) bp

6.67% 12.44% 577 bp 5.51% 8.20% 269 bp

Full-year

Operating profit - as reported

Operating Profit Margin - as reported

Operating Profit Margin, excluding reserve reversals

Q4

For the year and quarter ended March 31, 2005, reserve reversals have been added back to operating profit and the calculation of operating profit margin to aid in the period-over-period comparison of results.