Corporate Citizenship Report

DELIVERING ON OUR

VALUESMcKesson’s Corporate Citizenship Report 2005

DELIVERING ON OUR

VALUESMcKesson’s Corporate Citizenship Report 2007

COMMITMENT TO OUR EMPLOYEES

COMMITMENT TO OURSHAREHOLDERS

COMMITMENT TO IMPROVINGTHE QUALITY, SAFETY ANDEFFICIENCY OF HEALTHCARE

COMMITMENT TOOUR COMMUNITY

MCKESSON CORPORATE–Citizenship Report 2007

JOHN HAMMERGREN, CHAIRMAN AND CEO

“OUR RESPONSIBILITY TO IMPROVE THE HEALTH OF THE HEALTHCARE SYSTEM, SUPPORT THOSE IN NEED, TAKESTEPS TO PROTECT THE ENVIRONMENT, AND TREAT OUREMPLOYEES FAIRLY CARRIESOVER FROM THE WORKPLACE TO OUR ROLE AS MEMBERS OFTHE COMMUNITY.”

LETTER FROM THE CHAIRMAN

As one of the world’s leading healthcare companies, McKesson

touches millions of people every day. We also understand that

excellence is not an option; it’s an obligation. We are committed

to doing the right thing for healthcare providers and patients,

our employees, shareholders and the communities wherever we

do business.

This is our second annual McKesson Corporate Citizenship

Report. In these pages, you’ll get a snapshot of our company, an

overview of recent business highlights and a progress report on

the many programs that distinguish us as an employer and cor-

porate citizen.

Healthcare has been our business since McKesson was founded

in 1833. We are 32,000 people dedicated to making a differ-

ence. Our responsibility to improve the health of the healthcare

system, support those in need, take steps to protect the environ-

ment, and treat our employees fairly carries over from the

workplace to our role as members of the community.

These are very exciting times at McKesson. More than ever, we

have the resources, the relationships and the know-how to help

lead the much-needed transformation of healthcare. It is a chal-

lenge we welcome, and an opportunity that energizes all of the

men and women of our company.

John Hammergren

Chairman and Chief Executive Officer

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OUR CORE VALUES, CALLED ICARE, DRIVE OUR CORPORATECULTURE. OUTLINED IN THISREPORT IS HOW WE BRING THESEPRINCIPLES TO BEAR ON OURDAILY OPERATIONS THROUGHPRACTICES THAT AFFECT OURCOMPANY,OUR PEOPLE AND OURWORLD.

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COMPANY HISTORY

A commitment to corporate citizenship runs deep through the

company’s history. Almost 175 years ago, McKesson was found-

ed with the goal of helping people get access to vital medicines.

McKesson traces its roots back to 1833 when John McKesson

and Charles Olcott opened a small drug import and wholesale

shop in New York City’s financial district. The Olcott and

McKesson business thrived, providing clients with botanical

drugs - herbs, roots, leaves, bark and vegetable extracts. Early on

they brought Daniel Robbins on board and in 1853, after Olcott

passed away, the company was renamed McKesson and

Robbins.

By 1929, McKesson and Robbins’ profits had reached $4.1 mil-

lion on unprecedented sales of $140 million. Due to progressive

business strategies, the company achieved steady growth despite

the Great Depression.

Leveraging post-war opportunities, McKesson and Robbins creat-

ed McKesson Chemical Company, another major operating unit.

By 1955, McKesson Chemical Company had become a diversi-

fied national distribution leader.

In 1967, Foremost, a nationwide dairy distributor, and McKesson

and Robbins merged to become Foremost-McKesson. Foremost-

McKesson, Inc. was the largest U.S. distributor of

pharmaceuticals, alcoholic beverages and chemicals. It was the

nation’s largest supplier of milk-based products and was the

largest producer of processed water in the western half of the U.S.

Throughout the 1980s, Foremost-McKesson divested most of its

peripheral businesses and began the process of refocusing on its

core healthcare supply management businesses and investing in

new technologies. In 1984, McKesson Corporation became the

new name of the company.

In the second half of the 1990s, McKesson began expanding its

reach into additional healthcare areas. McKesson made a num-

ber of acquisitions during this period, diversifying its presence in

the healthcare industry and building a formidable presence in the

growing healthcare IT market.

For a time the company operated as McKesson HBOC — the

world's largest healthcare services company. In 2000, McKesson

divested its only remaining non-healthcare asset, McKesson

Water Products, and in 2001, the company changed its name

back to McKesson Corporation.

Today, McKesson is ranked 18th on the FORTUNE 500 with more

than $90 billion in annual revenue. The company delivers vital

medicines, medical supplies, and health information technology


solutions that touch patient lives in every healthcare setting. The

depth and breadth of the company’s product and service offer-

ings, coupled with the largest customer base in the healthcare

industry, uniquely position McKesson to meet the needs of its

customers:

– 300,000 physicians

– 26,000 retail pharmacies

– 10,000 long-term care sites

– 5,000 hospitals

– 2,000 medical-surgical manufacturers

– 750 homecare agencies

– 1,800 healthcare payors

– 450 pharmaceutical manufacturers

McKesson’s products and services empower healthcare by ensur-

ing the safe and timely delivery of vital medications, improving

patient safety and reducing medication errors, and making

healthcare systems more efficient for providers and more afford-

able for patients.

OUR COMPANY

Company Overview

McKesson is America's oldest and largest healthcare services

company, with its pharmaceutical wholesaling roots dating back

175 years. In fact, the company created the first national drug

distribution system. Since then, McKesson has grown by provid-

ing pharmaceutical and medical-surgical supply management

across the spectrum of care; healthcare information technology

for hospitals, physicians, homecare and payors; hospital and

retail pharmacy automation; and services for manufacturers and

payors designed to improve outcomes for patients.

By combining its industry-leading technology and scale with

unsurpassed clinical knowledge, McKesson is helping healthcare

providers deliver better, safer care while reducing unnecessary

costs.

Headquartered in San Francisco, Calif., McKesson employs over

32,000 people across the nation and around the world dedicated

to delivering vital medicines, medical supplies and health

information technology solutions that touch the lives of patients

in every healthcare setting.

McKesson’s Vision

McKesson’s vision is to bring together clinical knowledge,

process expertise, technology and the resources of a FORTUNE 18

company to fundamentally change the cost and quality of

healthcare.

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McKesson is helping to create a healthcare system where quality

is higher, mistakes are fewer and costs are lower. As the nation's

leading healthcare services company, we provide pharmaceuti-

cals, medical supplies and technologies that make healthcare

safer while reducing costs. McKesson touches virtually every

aspect of healthcare. For instance, McKesson:

– Is the largest pharmaceutical distributor in North America.

Every day we distribute one-third of the medicines used in

North America, supplying more than 25,000 U.S. healthcare

locations from Wal-Mart to the Department of Veterans

Affairs to community pharmacies.

– Is the nation's leading healthcare IT company, with software

and hardware technology installed in more than 70% of the

nation's hospitals with greater than 200 beds.

– Provides decision support software to help physicians deter-

mine the best possible clinical diagnosis and treatment plans

for patients.

– Develops and installs electronic systems that eliminate the

need for paper prescriptions and paper medical records and

provides physicians with easy and secure online access to

patient information.

– Helps prevent more than 330,000 medication errors every

week through bar-code scanning technology that helps to

ensure the right patient gets the right drug at the right time.

TRANSFORMING HEALTHCARE

Today we are making healthcare transformation a reality in six

key ways.

Distribution Infrastructure and Expertise

We use our distribution system, scale and supply chain excel-

lence to ensure the safe and timely delivery of vital medications

and supplies.

Every day...

– Our people, processes and technology ensure that 1.5

million medicines and supplies reach patients every day,

when and where they need them, even in the face of

natural disasters and product recalls.

– Employees in over 30 McKesson pharmaceutical distribution

centers ensure efficient and timely delivery of medications

throughout North America, filling orders with an astounding

99.96% order accuracy.

– Our electronic pharmacy network is one of the nation’s

largest, connecting more than 90% of pharmacies and

processing approximately 70% of all pharmacy transactions

in the U.S. By connecting pharmacists with payors, we help

process more than eight billion healthcare transactions

annually.

– We operate the largest independent pharmacy franchise in

the country, a partnership that includes marketing and

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– purchasing programs to help independent pharmacies thrive

in an increasingly competitive environment.

– Our online ordering system processes more sales than any of

the top four retail Internet sites in the world, including

Amazon.com.

– We distribute more than 150,000 medical-surgical products –

ranging from gloves and bandages to surgical lasers and flu

vaccines – to more than 300,000 physician offices as well as

many other customers.

– Through our knowledge and resources, we provide inventory

management solutions, robotics and software, and high

volume packaging to help our customers serve patients and

run their businesses more effectively and efficiently.

Patient Safety and Error Reduction

We develop processes and technologies that improve patient

safety and reduce medication errors.

Every day...

– We reduce errors by automating healthcare delivery. Our bar-

code scanning, electronic prescription, and medical imaging

solutions help eliminate manual and paper-based processes.

We also automate tasks like medication counting, packaging

and dispensing through pharmacy automation and mobile

workstations for nurses.

– We protect the integrity of pharmaceuticals and medical sup-

plies from the manufacturer to the pharmacy, hospital

bedside, and physician’s office, so patients are safeguarded

against counterfeit or damaged goods.

– To help prevent mistakes, we provide clinicians with clinical

information, decision support and an electronic view of their

patients’ entire medical record. More than 100,000

physicians log on to our physician portal three million times

per month to access electronic medical records.

Personal Health Management for Patients

We help make healthcare more convenient and personal for

patients.

Every day...

– We offer patients more convenient access to routine services,

providing home delivery of medical supplies and specialty

drugs, patient-friendly billing and scheduling solutions, and

numerous patient assistance programs.

– We improve communication among patients, providers, and

payors through secure, easy-to-use online services, Internet-

enabled home monitoring devices and insurer-reimbursed

online connections to the physician’s office.

– We provide personalized care for patients with cancer and

chronic illnesses such as asthma, diabetes, and heart disease

through personal health support and home delivery of medi-

cines and supplies. McKesson’s nursing call centers, specialty

drug distribution, and disease management serve 1.5 million

Medicaid and Medicare patients.


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Smarter Healthcare Spending

We ensure that healthcare dollars are well spent

Every day...

– We provide support and medication to chronically ill patients,

whose illnesses account for 80% of today’s U.S. healthcare

costs. Our disease management solutions, specialty drug dis-

tribution and medication adherence programs provide higher

quality care and reduce cost by helping patients avoid emer-

gency room visits and hospital stays.

– We ensure healthcare dollars are well spent by improving rev-

enue and resource management in hospitals, physician

offices and pharmacies, ensuring more appropriate care that

is better managed and paid for.

– As the leading pharmaceutical distributor in North America,

we use our purchasing power and supply chain to increase

the availability of affordable medicines like generic drugs. For

example, our programs help retail pharmacies simplify pur-

chasing of cost-saving generics.

– We also help our customers effectively manage their limited

resources by automating and streamlining work, removing

paper and film costs, reducing re-work, and improving supply

chains.

Higher Quality Care and More Effective Clinicians

We help clinicians improve the quality of patient care.

Every day...

– Our clinical software improves doctors’ medical decisions by

providing evidence-based guidelines grounded in the latest

clinical research at the point of care.

– We help clinicians focus on what they do best – caring for

patients – by reducing administrative work and other manual

tasks.

– We ensure clinicians are better connected to patients and

payors. For example, we provide:

• software to help home care providers connect to their

patients and the hospital

• claims management solutions to help providers submit

more accurate claims, and health plans to pay them more

accurately

• internet-enabled home monitoring devices and online

connections to the physician’s office

Next Generation of Healthcare

We facilitate the next generation of healthcarents.

Every day...

– We are a leader in digitizing healthcare to connect payors,

pharmacies, hospitals, physician offices, and patients and

ultimately to deliver a better care experience for those who

need it most. Our goal is to enable care that is not just auto-

mated within a single setting, but fully connected across the

healthcare spectrum.

– We are also selectively exploring opportunities to take our

products and services abroad, participating in global trends

including generic drug sourcing, demand for healthcare IT

and preventive care.

– Additionally, we are providing the support required for

groundbreaking next-generation therapies and approaches.

OUR SHARED PRINCIPLES

McKesson Shared Principles

As part of the McKesson team, we all strive to work in ways that

reflect our Shared Principles and promote the success of our

company, our customers and each of us as individuals. Our

Shared Principles, reflected in the acronym ICARE, brings to life

the outcome that the Shared Principles seek to create, and aligns

our personal behaviors with the goal of our customers, to

improve healthcare and lives.

Integrity: We do what’s right

Customer-first: We succeed when they succeed

Accountability: We do what we say we will do

Respect: We treat people with dignity and consideration

Excellence: We insist upon quality

Manager Resources

We encourage employees to embody the ICARE Shared

Principles through a comprehensive set of manager meeting

materials as well as an ICARE Recognition Program.

Our employee portal (McKNet) provides the tools and resources

employees need to integrate ICARE into their daily management

practices.


By embracing the ICAREShared Principles, we havethe foundation necessaryto deliver on our vision.

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Our Managers are encouraged to use the ICARE Guide to help

them:

– Reflect on ways to incorporate Shared Principles into themany aspects of managing their employees.

– Ensure that they’re not just talking the values, but that theyare living the values.

– Develop management skills through such things as ICAREcase studies and scenario assessment.

– Understand the history of our Shared Principles and the best practices that have made us successful.

COMPLIANCE AND INTEGRITY

As the largest pharmaceutical distributor in North America,

McKesson has an unwavering commitment to protect the integrity

of the distribution network while ensuring the safe, efficient and

cost-effective delivery of medicines to our customers and their

patients.

Compliance with laws and regulations is the foundation for eco-

nomic performance and customer and shareholder value

creation. McKesson focuses on developing, implementing and

continually refining systems and processes that enable compli-

ance with laws and regulations. We are especially aware of our

role in supporting the integrity of the pharmaceutical supply

chain and consumer and patient safety.

CORPORATE GOVERNANCE AND ETHICS

In January 2007, McKesson’s Board of Directors approved the

following significant corporate governance changes that

demonstrate the Board’s commitment to strong, stockholder-

focused, contemporary corporate governance practices which

we believe are consistent with our goal of creating long-term,

sustainable value for McKesson’s shareholders:

– Declassification of the Board so that all directors are elected

on an annual basis beginning with the 2008 Annual

Meeting of Stockholders. This replaced a Board divided into

three classes, elected in three successive years, each for a

term of three years.

– Implementation of a majority vote standard in uncontested

director elections, in place of the plurality vote standard,

with the result that a director nominee will be elected only if

the number of votes cast “for” the nominee exceeds the

number of votes cast against the nominee.


McKesson’s Corporate Governance Guidelines reflect the Board's

commitment to transparency and oversight both at the Board

and management level, and the Guidelines provide the frame-

work for the governance of the Company.

– McKesson currently has four standing committees: Audit,

Compensation, Finance and Governance. Each of the com-

mittees is composed entirely of independent directors,

satisfying applicable legal, regulatory and stock exchange

requirements.

– The Board is also responsible for assuring that McKesson’s

management and employees operate in a legal and ethically

responsible manner. To ensure transparent accounting and

reporting practices, independent board members have

access to the Company's outside advisors and meet in exec-

utive session without company management present on a

regularly scheduled basis.

EthicsLine

Speaking up about misconduct is an important part of McKesson’s

dedication to ethical behavior. To make it easier for employees to

voice their concerns about suspected illegal, unethical or unsafe

conduct, McKesson has established the McKesson EthicsLine,

which is a toll-free number, available 24 hours a day, 7 days a

week.

When an employee calls the EthicsLine, 1-888-475-4358, a trained

third-party communication specialist will ask a series of questions

to better understand the situation. A report is prepared and for-

warded to McKesson’s Law Department for review and

appropriate action.

Callers may remain anonymous if they choose to do so. Any

employee who chooses to reveal his or her identity and makes a

good faith complaint is protected by the company’s Code of

Business Conduct and Ethics from retaliation for making such a

complaint.

PUBLIC AFFAIRSAs the nation’s largest healthcare services company, McKesson

Corporation recognizes its responsibility to participate in the

public policy process on healthcare issues and concerns.

Through our Public Affairs Department, the company builds and

maintains working relationships with elected and appointed offi-

cials at every level of government, from Washington, D.C. to

COMPANY HISTORY

A commitment to corporate citizenship runs deep through

McKesson’s history. More than 170 years ago, the company was

founded with the goal of helping people receive the healthcare

they deserve. We trace our roots back to 1833 when John

McKesson and Charles Olcott opened a small drug import and

wholesale shop in New York City’s financial district. The

McKesson and Olcott business thrived, providing clients botani-

cal drugs, such as herbs, roots, leaves, bark and vegetable

extracts. Early on they brought Daniel Robbins on board and in

1853, after Olcott passed away, the company was renamed

McKesson & Robbins.

By 1929, McKesson & Robbins’s profits had reached $4.1 million

on unprecedented sales of $140 million. Due to progressive busi-

ness strategies, the company achieved steady growth despite the

Great Depression.

Leveraging post-war opportunities, McKesson & Robbins created

McKesson Chemical Company, another major operating unit. By

1955, McKesson Chemical Company had become a diversified

national distribution leader.

In 1967, Foremost, a nationwide dairy distributor, and McKesson

& Robbins merged to become Foremost-McKesson. Foremost-

McKesson, Inc. was the largest United States distributor of

pharmaceuticals, alcoholic beverages and chemicals. It was the

nation’s largest supplier of milk-based products and was the

largest producer of processed water in the western half of the

United States.

During the 1980s, Foremost-McKesson divested most of its

peripheral businesses and began the process of refocusing on its

core healthcare supply management businesses and investing in

new technologies. In 1984, McKesson Corporation became the

new name of the company.

In the 1990s, McKesson further focused its mission: To be the

world leader in healthcare supply management and information

technologies by advancing the success of its partners as they

restructure and improve healthcare. This focus led McKesson to

acquire medical technology company HBOC to bring innovative

software solutions to its broad base of retail, hospital, health sys-

tem, payor, long-term care, physician and home care customers.

With annual revenues of more than $80 billion, McKesson now

ranks as the 15th-largest publicly-traded industrial company in

the United States.

state capitals to city halls across America. More importantly, we

encourage these policymakers to visit our facilities and customer

sites to meet with our executives and to witness, firsthand, how

our healthcare businesses and innovative solutions improve the

quality and delivery of care while removing unnecessary costs.

Every day, McKesson actively works with industry colleagues,

government agencies, and elected officials to find solutions to

some of the most challenging problems facing the healthcare

system.

Protecting the Integrity of the Pharmaceutical Supply Chain

For 175 years, McKesson has led the industry in the delivery of

medicines to pharmacies. We purchase medicines from 450

manufacturers and supply more than 75,000 customer sites in all

50 states. McKesson has long been a leader in developing and

implementing cutting-edge technology to enhance the security

of the pharmaceutical supply chain. We were the first wholesaler

to fully automate our warehouses and distribution networks with

radio frequency and scanning technology. Today, we are again

taking the lead as we work with manufacturers and major retail-

ers to test radio frequency identification (RFID) technology that

will track pharmaceutical products from the manufacturer to the

wholesaler to the pharmacy. In addition to more stringent whole-

saler licensure standards and tougher criminal penalties for those

who counterfeit drugs, RFID technology will limit the ability and

opportunity for compromised or adulterated products to enter

the pharmaceutical distribution network.

Patient Safety

As the world’s largest provider of health information technology

(HIT), McKesson offers comprehensive solutions designed to

enhance patient safety at every touch point of the healthcare sys-

tem. Our barcoding technology promotes the safe delivery of

medicines from pharmacy robotic systems to bedside medication

administration. This unique medication management process

saves lives and time, removes rework, and reduces human error

and resulting costs. This is just the first step, however, on the

path to ensure patient safety through greater use of technology.

Digitizing the healthcare system through widespread adoption of

HIT will improve the quality of care for all Americans.

McKesson has developed solutions that enable healthcare pro-

fessionals to capture discrete patient data from disparate

sources, including the pharmacy, physician’s office, laboratory

and hospital, to form a comprehensive, portable and confidential

electronic patient record. Thousands of lives and millions of dol-

lars can be saved in reduced healthcare spending through the

rapid adoption of HIT. We continue to work with our govern-

ment partners to make this dream a reality.

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Net revenues for our segments for the last two fiscal years were as follows:

$ BILLIONS 2007 2006

Distribution Solutions $ 90.7 98% $ 85.1 98% Technology Solutions 2.3 2% 1.9 2%

Total $ 93.0 100% $ 87.0 100%


Disease Management

McKesson provides disease management programs for com-

mercial, Medicaid and Medicare populations in which we

leverage our experience with patient services, pharmacy man-

agement and healthcare quality improvement activities. These

outcomes-focused, evidence-based interventions improve

patients’ abilities to participate in their care and help physicians

by reinforcing their medical recommendations.

As federal and state governments consider new ways to

improve the quality and delivery of healthcare to populations

with chronic illnesses, McKesson believes greater utilization of

disease management programs is vital to enhancing care out-

comes for the elderly and vulnerable populations, while

concurrently reducing the cost of care. In eight states where

we provide disease management services to Medicaid patients,

physician and patient satisfaction has improved along with

health outcomes. We estimate these states are saving approxi-

mately two dollars for every dollar spent with McKesson.

FINANCIALS

McKesson strives to be a leader in the corporate citizenship

efforts of our industry. We believe that through ethical corporate

governance, fair employment policies and sound environmental

practices, we will experience strong financial performance.

Business Segments

McKesson’s strategy is to create strong, value-based relationships

with customers. While we always remain focused on healthcare,

our diverse business segments allow us to offer our customers a

full range of products and services that reduce the cost of provid-

ing patients with quality care.

McKesson conducts business through two segments. Through

our Distribution Solutions segment, we are a leading distributor

of ethical and proprietary drugs, medical surgical supplies, first-

aid products and equipment, health and beauty care products

and provide logistics and other services throughout North

America. This segment also provides medical management and

specialty pharmaceutical solutions for biotech and pharmaceuti-

cal manufacturers, patient and other services for payors,

software and consulting and outsourcing services to pharmacies

and, through its investment in Parata Systems, LLC ("Parata"),

sells automated pharmaceutical dispensing systems for retail

pharmacies.

$93 billion in revenue

increase in revenues

$1.5 billion cash flow from operations

debt-to-capital ratio

$2.0 billion in cash

31,800 employees

Corporate Financial HighlightsFISCAL YEAR MARCH 31, 2007

7%

23.8%

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Our Technology Solutions segment delivers enterprise-wide

patient care, clinical, financial, supply chain, and strategic man-

agement software solutions, pharmacy automation for hospitals,

as well as connectivity, outsourcing and other services, to health-

care organizations throughout North America, the United

Kingdom and other European countries. This segment also pro-

vides claims processing software to physicians and payors and

disease management services primarily to state Medicaid pro-

grams. Its customers include hospitals, physicians, homecare

providers, retail pharmacies, payors and state Medicaid pro-

grams.

OUR PEOPLEMcKesson believes that our most valuable and important asset is

our workforce. It is for this reason that McKesson continually

strives to be an employer of choice, by treating our employees

with respect, fairness and dignity.

McKesson employee compensation and benefits programs

reflect the wide-variety of needs faced by our employees. From

retirement planning to chronic disease management to adoption

assistance, McKesson is committed to offering our employees

the tools they need to manage the demands of both work and

family life.

COMPENSATION

McKesson believes that every employee has the potential to add

value to our business, which is why we follow a “pay-for-per-

formance” compensation philosophy. This compensation

philosophy rewards employees of all levels based on their contri-

bution to the company’s success. Depending on market pay

practice and company approach, and the supply and demand for

specific skills, these rewards generally include salary or draw, and

may include participation in incentive programs, such as bonus

or long term programs.

BENEFITS

McKesson’s benefits programs are another way of adding value

to our employees’ total compensation package and focus on

improving the long-term health and welfare of our employees.

Our benefits program can add as much as 27% percent or more

in value to an employee’s pay. According to our 2006 Employee

Survey, 75% of employees responded favorably to McKesson's

benefits offering. This score is five points higher than the global

high-performing benchmark. Due to the fact that McKesson has

grown over many years of mergers and acquisitions, our Human

Resources department has recently been focused on aligning the

entire employee benefits offered so that they are fair and equi-

table across the company.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Net Income**

Gross Profit

070605

FISCAL YEAR ENDED MARCH 31

Gross Profit & Net Income$ MILLIONS

** Excludes impact of the shareholder litigation charge

70000

80000

90000

100000

070605


Revenues$ MILLIONS

Revenues

0

5000

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15000

20000

25000

Total Debt

Total Assets

Stockholders' Equity

070605


Total Assets, Equity, Debt$ MILLIONS

0

50

100

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200

Value Line HealthCare Sector Index

McKesson Corporation

S & P 500 Index

070605040302


Five Year CumulativeTotal Return*$ DOLLARS

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, 2002 and that all dividends are reinvested.


Employee benefits include a wide variety of life services, including:

– Help with medical, dental and vision care costs

– Domestic partner benefits

– Retirement savings

– Disability coverage

– Life insurance

– Tuition reimbursement

– Adoption assistance

– Access to a triage nurse call-in center

– Learning opportunities focused on healthy living and

work-life balance

– Enhanced eldercare assessment and referral

Through “My McKesson HR,” the company’s human resources

intranet, employees have access to detailed information on ben-

efit plans, along with contact information and features to help

employees make the most of the available programs.

Health Benefits

McKesson is dedicated to providing employees with access to

quality healthcare through a wide variety of programs and servic-

es. McKesson strives to provide employees with the tools they

need to proactively manage their own health by offering a wide

range of subsidized health options, discounts for use of high per-

formance physicians, incentives for participation in the

HealthMedia health risk assessment and healthy living programs,

and the McKesson CareEnhance Disease Management program

and 24/7 nurse line.

Through a Section 125 cafeteria plan, McKesson offers employee

the opportunity to pay their portion of benefit costs on a pre-tax

basis. In addition, employees can set aside a designated amount

in pre-tax dollars for out of pocket healthcare expenses and/or

dependent childcare needs through Flexible Spending Accounts.

Eligible McKesson employees are offered employer-sponsored

health coverage in the United States and Canada, and state

sponsored health coverage in Europe, which is partly funded

through required contributions. U. S. employees are given the

opportunity to “Build Your Own Point of Service (POS) medical

option.” Employees choose the deductible, copays, coinsurance

and out of pocket maximum that meets their individual needs for

coverage and the right balance of between cost of deductions

versus cost at time of treatment. All medical plans cover office

visits, hospital stays, surgery and other common medical services.

Through HealthMedia, employees can take a free, confidential

health risk assessment. Employees answer a simple health ques-

tionnaire and provide their basic health history to receive

personalized information about their risk factors and guidance

about which HealthMedia healthy living programs they might

find helpful. HealthMedia offers online programs on nutrition,

weight management, stress management, back care, overcom-

ing depression and overcoming sleep problems. Employees are

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encouraged to participate in all HealthMedia activities to earn

discounts on their portion of health plan coverage.

Preventive health management is encouraged. Company spon-

sored benefits include 100% coverage for preventive care

services, 100% reimbursement for in-home and on-site Weight

Watchers programs, and 100% reimbursement for the American

Cancer Society smoking cessation program, which includes tele-

phonic counseling and nicotine replacement. In some locations,

gym memberships are also subsidized.

McKesson Health Solutions offers employees disease manage-

ment programs for control of asthma, diabetes, cardiac

problems, dyslipidemia and hypertension. In addition, employees

enrolled in the POS plan can contact the nurse line for guidance

and information. Employees can also research a medical concern,

read articles online and listen to audio health information on the

Health Solutions web site.

Pharmacy customers make up a large part of our business, and

those relationships allow our Company to offer a generous

employee prescription benefit plan. There are over 55,000 phar-

macies in McKesson’s drug benefit plan network, allowing our

employees maximum choice. Our employees also have the

option to maximize savings by ordering prescriptions by mail for

a three-month supply of any brand name medication. Whether

our employees visit a pharmacy or fill their prescriptions online,

there is an annual cap on out-of-pocket costs.

Basic life, AD&D and short term disability coverage are automati-

cally provided to McKesson employees. Employees may purchase

reduced cost vision, dental, long term disability, supplemental life

and AD&D coverage, as well as dependent life insurance for a

spouse, domestic partner and children.

EAP

The McKesson Employee Assistance Program (EAP) provides toll-

free, 24-hour, 365-day support services at no cost to our

employees. EAP representatives can help with everyday prob-

lems, including referrals for locating child care, getting advice on

legal matters and help with financial planning to more serious

problems related to stress, marital and relationship concerns and

alcohol or other drug problems. An Enhanced Eldercare program

offers assessment of elderly relatives capabilities to live independ-

ently and referrals to appropriate assisted living

accommodations.

Retirement Savings

McKesson’s Profit-Sharing Investment Plan is a 401(k) plan that

affords employees a smart, convenient way to save for a secure

financial future. It offers financial choice and flexibility, and gives

employees the opportunity to become a Company shareholder.

Approximately 70% of our employees are currently taking

advantage of the plan.

McKesson believes strongly in providing our employees with the

tools they need to be financially prepared for retirement.

Beginning April 1, 2005, McKesson’s matching contribution is

100% on the first 3% of pay contributed and 50% on the next

2% of pay. Since the plan’s inception in 1972, McKesson has

matched employee contributions, up to the first six percent of

salary. Company contributions for the past three years were as

follows:

Plan Year Ended Company Match

March 31, 2007 4% of pay

March 31, 2006 4% of pay

March 31, 2005 3.6% of pay

Stock purchase planThe Employee Stock Purchase Plan (ESPP) allows eligible employ-

ees to participate in the plan and purchase shares of the

Company's common stock at a 15% discount through payroll

deductions. Each participating employee receives shares of the

Company's common stock based on their contributions over a

three-month Purchase Period.

Adoption Assistance

Adoption Assistance is available to help our employees with the

cost of adoption. This program reimburses up to $2,000 in

expenses for adoptions.

Educational Assistance

McKesson believes in life-long learning, and the Company offers

an education reimbursement program that pays 100% of eligible

expenses for approved courses. All course required fees (such as

tuition, lab fees, and registration fees) are considered eligible

expenses. The lifetime maximum for undergraduate courses is

$21,000 and the graduate lifetime maximum is $10,500.


23

McKesson also offers two scholarship programs for employees’

children.

National Merit™ Scholarships

Up to 20 four-year college scholarships, ranging from $1,000 to

$2,500 per year are awarded to employees’ children each year.

This is a competitive academic scholarship and winners are deter-

mined by an independent scholarship administrator.

Scholarship America

Up to 20 four-year awards ranging from $1,000 to $2,500 are

made each year to employees’ children enrolled full-time in

accredited colleges or vocational schools. This scholarship is

awarded based upon the student’s overall potential to succeed,

rather than strictly focusing on academic achievement. Winners

are determined by an independent scholarship administrator.

Total Rewards

McKesson provides employees with a Total Rewards web site

which explains the value of both pay and benefits. The personal-

ized web site includes compensation, retirement and health care

coverage, as well as life and disability insurance. Total Rewards

even embodies life, career and community opportunities, as well

as other compelling rewards. Every day on the job, each employee

makes a significant contribution to McKesson's success.

Compensation represents the pay and incentives, as well as other

financial payments we make in return for this contribution. Other

rewards include company-sponsored programs that can make an

employee’s life easier and more enjoyable.

Award and Recognition Programs

McKesson also recognizes outstanding achievement through a

wide variety of awards programs, such as the company-wide

ICARE and President’s Awards. The ICARE Award is for employees

who continually display behaviors exemplifying the Shared

Principles. The President’s Award recognizes consistently excellent

records of sustained contributions having significant impact on

McKesson’s pharmaceutical division.

Additionally, the Community Relations department offers two

award programs for employees showing leadership involvement

in the community. The President’s Award is a quarterly award

given by each business unit president to employees that have

demonstrated outstanding community service, and the Neil

Harlan Award, an annual national employee volunteer recognition

program, provides five award winners with cash grants ranging

from $1,000 to $5,000 to the non-profits of their choice.


WORKPLACE SAFETY

McKesson takes employee safety very seriously, and is constantly

striving to improve the safety of our workplaces.

In addition to complying with all Occupational Safety and Health

Administration (OSHA) regulations, McKesson also provides each

of our facility managers with emergency preparedness courses,

fire drills, automatic defibrillators, first aid kits, and emergency

preparedness posters for all break rooms. The Corporate Safety

Department has also developed and tailored an OSHA 10-Hour

Course for General Industry for McKesson’s operations. The

training provides McKesson managers, supervisors and mainte-

nance personal information on workplace safety, accident

prevention and investigation, and OSHA standards.

In 2007, McKesson received six OSHA violations and $2,700 in

OSHA fines.

DIVERSITY

When you hear the word “diversity” at McKesson, we are not

only speaking of gender, age and race. We believe that diversity

can be found everywhere - a diverse upbringing or life experi-

ence can cause diversity of thought and enable employees to

bring a new perspective to the workplace. McKesson believes

that valuing diversity gives us a competitive advantage and is a

cornerstone of our reputation as a great company. To that end,

we promote a business model of diversity excellence.

McKesson was voted number one in workplace diversity by

Computer World Magazine in 2003, was voted one of the best

places for minorities in Atlanta by The Atlanta Business Times,

and was voted number 14 of the top 25 companies for women

in the Bay Area by the San Francisco Chronicle. As a company,

McKesson is acknowledged internationally as one of the top ten

companies related to women on the Board of Directors by the

National Association of Women Business Leaders. McKesson was

in the top 10 in a recent study published by the University of

California at Davis Graduate School of Management that looked

at the presence of director and officer roles held by women in

the 200 largest publicly held companies headquartered in

California.

25

McKesson employees, under the guidance of the EVP of HR,

have formed Diversity Councils in four of the company’s offices

around the country. In January 2006, The Dubuque office accept-

ed the CommUNITY Award for Diversity Initiatives. The award,

sponsored by the Faces & Voices Awards Committee in conjunc-

tion with the Dubuque Human Rights Department, is given to a

local business that is a recognized leader in promoting and sup-

porting events and programs that embrace diversity.

The purpose of these Councils is to:

– Create awareness by conveying the company’s diversity

message.

– Help create the environment for living diversity daily.

– Recommend diversity management implementation

strategies to senior management.

– Share information across business units and local councils.

– Lead development of and alignment with local council

tactical objectives.

– Create change-agents in our individual business units in

support of the diversity vision.

– Empower McKesson’s workforce to meet business

objectives through a diversity focus.

McKesson is in the process of rolling out a virtual mentoring pro-

gram throughout the company in an effort to ensure consistent

development opportunities to all employees. This program is

mentee-driven with the mentee identifying his or her individual

development needs and utilizing the system to help find a men-

tor to fit that development need. The program allows traditional

advocacy based relationships, as well as peer-to-peer relation-

ships for skills building or information sharing.

In addition to our focus on existing employees, McKesson is

involved in diversity outreach efforts, specifically networking and

recruitment for diverse talent. We have enterprise-wide efforts to

find talent throughout the country and have specific localized ini-

tiatives in place as well. In the San Francisco Bay Area, for

example, we participate in the “Bay Area Diversity Summit” –

sponsoring monthly receptions for various primary demographics

of diversity such as race, gender, and sexual orientation. These

receptions allow networking with other bay area companies for

best practice sharing and with associations representing specific

demographic groups.

Supplier Diversity

Our belief in diversity extends to our suppliers as well. McKesson

recognizes and promotes the outstanding contributions made by

diverse businesses to the economic health and diversity of com-

munities throughout the US. Our business partners include small,


disadvantaged, historically underutilized, minority-owned,

women-owned, veteran-owned, service-disabled and Historically

Underutilized Business Zones (HUB) businesses, as well as Javits-

Wagner-O’Day Act (JWOD) non-profit agencies.

Through our company-wide subcontracting and purchasing pro-

grams, McKesson encourages and facilitates small and diverse

business sales opportunities for qualified businesses. In addition

to subcontracting opportunities, McKesson’s supplier diversity

program supports the viability and growth of diverse businesses

through contractual mentoring relationships that advance mean-

ingful growth opportunities. Since 1994, McKesson has

maintained a mentoring program that provides extraordinary

support and guidance to its business protégés.

OUR WORLD

The Environment

Today’s most pressing environmental issues are issues that are

important to all of us, both as individuals and as business leaders.

McKesson’s dedication to reducing our energy, water and fuel

consumption drives us to continue the complex task of measur-

ing these resources.

Electricity and CO2 Emissions

In this third year of data gathering and consolidation, we have

monitored nearly 4.8 million square feet of real estate for pur-

chased electricity usage and resultant carbon dioxide emissions.

To calculate carbon dioxide emissions from our purchased elec-

tricity and from our fleet fuel usage, we used the highly

esteemed GHG Protocol, a corporate accounting and reporting

standard for greenhouse gas (GHG) emissions.

Fleet Fuel Usage and CO2 Emissions

McKesson’s CO2 emissions are mainly derived from the impact of

our delivery vehicles and those of our outsourced carriers. We

have begun to measure our fleet fuel usage statistics in order to

monitor, manage and reduce our CO2 emissions. The average

CO2 emissions per vehicle in FY07 was 18.4 metric tons, up from

16.7 in FY06 and 17.4 in FY05.

Electricity and Water Consumption

Fiscal Year 05 Fiscal Year 06 Fiscal Year 07

Facilities monitored for kWh 21 20 20

sq ft monitored for kWh 4,580,233 4,724,099 4,722,893

Total MWh (kWh/1000) 65,421 66,565 70,570

kWh/sq ft 14.28 14.09 14.94

lbs. CO2/sq ft (resulting from consumption of electricity) 20.72 19.53 19.98

lbs. SO2/sq ft (resulting from consumption of electricity) 0.10 0.10 0.07

lbs. NOx /sq ft (resulting from consumption of electricity) 0.04 0.04 0.03

% of RE monitored for kWh/sq ft and CO2/sq ft 29% 31% 28%

Facilities monitored for gallons of water 23 23 22

sq ft monitored for gallons of water 5,091,510 5,265,880 5,134,429

Gallons /sq ft 6.66 9.01 8.71

% of RE monitored for gallons /sq ft 32% 35% 30%

Total Fleet Fuel Usage in Thousands of Gallons 3,408 3,513 3,480

Total Fleet CO2 Emissions in Metric Tons 31,673 32,022 31,635

Average CO2 emissions per Vehicle in Metric Tons 17.35 17.63 18.35

27

ECO-EFFICIENCY INITIATIVES

In addition to beginning to measure and reduce our water, fuel

and electricity consumption, we are also committed to a variety of

eco-efficiency initiatives aimed at conserving natural resources,

which in turn, saves money and adds shareholder value.

McKesson’s Commitment to Recycling

McKesson has established recycling programs in a majority of our

locations. Additionally, McKesson’s Procurement Department

strives to source recycled products whenever possible. In FY06,

we began to track the percentage of post-consumer recycled

materials that we purchase compared to total spending on office

products. According to Corporate Express, the largest supplier of

office products to American corporations, McKesson’s recycled

office products spending is 12.5%. In addition, our enterprise

wide online supply purchasing system highlights items with recy-

cled content for easy ordering.

McKesson’s Environmental Council

In 2006, a group of employees formed McKesson’s first

Environmental Council. This group presented to and received

support from the Executive Committee to further pursue envi-

ronmental initiatives within McKesson. The group meets monthly

to discuss best practices and encourage sustainability within the

company.

McKesson’s Environmental Council Mission Statement

McKesson's Environmental Council advocates for an environ-

mental strategy that supports the company’s business objectives,

increases employee engagement and strengthens our position as

a good corporate citizen. The Council researches, develops and

implements initiatives that preserve natural resources and reduce

environmental risks while furthering our competitive advantage.

LEED Certification

The Leadership in Energy and Environmental Design (LEED)

Green Building Rating System™ is the nationally accepted

benchmark for the design, construction, and operation of high

performance green buildings. McKesson is currently working to

secure LEED certification for its headquarter facility and is build-

ing its newest distribution center to LEED certification standards.

Green Facilities

McKesson has a wide variety of environmental initiatives in place

in facilities around the country. Here is a small example of what

we are doing:

– We use energy-efficient lighting and many facilities have

lighting on motion sensors

– We use non-toxic cleaning products

– We purchase and install recycled carpeting and certified

environmentally friendly office products

– We are working to replace all ozone depleting cooling, air

conditioning and fire suppression systems

– We have drinking water filtration systems


Headquarters Sustainability

McKesson's headquarters building's ENERGY STAR Rating is an

84 which means it is in the top 25% of the nation in terms of

energy efficiency. Buildings that qualify for the ENERGY STAR

typically use 35% less energy than average buildings. In 2006,

the building was awarded 2nd place in the Commercial Recycler

of the Year Awards (the CoRY) in the medium building category.

In 2007, the building was awarded 1st place in the medium

building category for the 2007 BOMA SF Earth Award (formerly

the CoRY award).

The Earth Award acknowledges the efforts by local commercial

properties to reduce water and energy usage, reduce or elimi-

nate use of toxics that affect indoor air quality, educate

commercial tenants in sustainable operating practices, promote

the use of public transportation and bicycling in daily commut-

ing, and recycle everything from paper, bottles, cans, cardboard

and food waste to construction debris.

In addition, building management offers used battery drop-off

locations, desk side recycling bins and uses fresh air in the build-

ing until the temperature reaches 74 degrees.

COMMUNITY INVOLVEMENT

The McKesson Foundation was established in 1943 and the com-

pany’s commitment to giving back has grown deeper ever since.

Investing in the communities where we live and work truly brings

our ICARE Shared Principles to life.

In addition to cash grants from the McKesson Foundation,

McKesson employees donate their time to the causes most

important to them. Our employees volunteered an incredible

28,039 hours in FY07, which, according to The Independent

Sector, has a cash value of $526,292.

The McKesson Foundation and the Community Relations

Department are committed to building healthier communities by

investing our company’s resources in non-profit agencies and

supporting employees in their volunteer activities.

Employee Volunteer Support:

McKesson’s AngelPoints Program

McKesson’s AngelPoints Program promotes employee participa-

tion at non-profit organizations by providing grants linked to

individual volunteer involvement with no personal monetary

donation required. Employees earn one AngelPoint for every

hour of completed volunteer work. McKesson’s volunteer web

portal allows employees to search for volunteer opportunities,

29

read stories and view photos from volunteer events, log their vol-

unteer hours and download grant application forms. This web

portal can be accessed from employees’ home or work comput-

ers, giving them the flexibility they need to find the perfect

volunteer event.

AngelPoints Volunteer Grants

For every 25 hours (25 AngelPoints) of volunteer work completed

per calendar year, a $250 grant will be made to the employee’s

charity of choice. In order to encourage employees to volunteer

with any cause that they are connected to, employees do not

need to volunteer with the same agency each month.

AngelPoints Board of Director’s Grants

McKesson values the leadership role played by the Board of

Directors of non-profit organizations. In order to recognize these

leaders, employees that serve on the Board of Directors of a qual-

ifying non-profit organization are eligible for a $500 grant.

AngelPoints Team Volunteer Grants

In order to encourage teamwork among McKesson employees

and to support volunteer projects that require a long-term com-

mitment, we offer employees AngelPoints Team Volunteer Grants.

These grants require a minimum of four employees participating,

and each must volunteer a minimum of 25 hours (earn 25

AngelPoints) with the same organization before receiving a grant.

Volunteer Recognition

Neil Harlan Award

The Neil Harlan Award, named after a former Chairman and

champion of community involvement, is presented each year to

five outstanding employee volunteers. The first prize is a $5000

grant to the employee’s non-profit choice, and the four other

winners receive grants ranging from $1000-$2500. Over the

years, employees have won this award for their outstanding

achievements with a variety of non-profits, from Habitat for

Humanity to the Humane Society to grassroots non-profits that

train immigrants for professional work in the U.S.

Volunteer Leaders

Regional Volunteer Coordinators

In 74 McKesson offices around the country, 105 outstanding

employee volunteers serve as Regional Volunteer Coordinators

(RVCs). These RVCs have volunteered to serve in a leadership

capacity in their area to motivate employee volunteers and organ-

ize group volunteer activities. Our Regional Volunteer

Coordinators allow us to foster a sense of “One McKesson” by

bringing company-wide initiatives into our regional offices.

30

Community Day

In spring of 2006, San Francisco headquarter employees celebrated

the 9th annual Community Day, and the program was expanded to

forty-seven regional offices. Employees volunteered at community

health clinics and hospitals painting murals to spruce up the patient

areas, furthering the impact of our giving beyond cash and

strengthening our commitment to these important healthcare

agencies. In addition, 2006 marked the launch of our in-house vol-

unteer projects, allowing employees with mission-critical jobs to

participate throughout the day. Employees gathered in break

rooms around the country and painted canvas mural panels which

were then donated to local community clinics and children’s hospi-

tals. Around the country, nearly 2,050 McKesson employees

participated in Community Day and painted more than 200 murals.

In 2007, our employee participation increased by 107% and 71 dif-

ferent sites created nearly 800 fleece blankets which were donated

to foster youth agencies in the communities where we live and

work.

Heart Walk

As a healthcare company, McKesson understands the importance

of taking preventative measures to preserve good health. That is

why our company encourages all employees to participate in the

American Heart Association’s Heart Walks. In FY07, 1,528

McKesson employees in offices around the country focused on

their own heart health by participating in their local Heart Walk

and helped fight heart disease and stroke by raising money for

the cause.

Educational Support

The McKesson Foundation supports education through a variety

of educational grants, scholarships for employees’ children and

our educational matching gift program. Each year, the McKesson

Foundation awards 160 scholarships to employees’ children and

gives over $250,000 in cash grants to employees’ favorite schools

through our matching gifts program.

Educational Matching Gifts

The Foundation matches gifts made by employees dollar for dollar to

accredited educational institutions (elementary through graduate) for

educational purposes up to a total of $2,500 per employee per year.

In FY07, 552 McKesson employees took advantage of this company

match to their favorite schools.

Pharmacy Scholarships

In order to help address the need for more pharmacists, fifty

$1,000 McKesson Pharmacy Scholarships are awarded annually to

pharmacy students who are nominated by one of our company's

pharmacy customers. Once awarded, scholarships can be

renewed for an additional three years.


31

Nursing Scholarships

In order to help address the need for more nurses, twenty-five

$1,000 McKesson Nursing Scholarships are awarded annually to

low-income nursing students. Once awarded, scholarships can be

renewed for an additional year.

Philanthropic Programs

McKesson Foundation

We believe that healthy communities are tied to the health of our

company. If people are well educated, provided with job training,

have access to the childcare and healthcare they need, then

McKesson will have access to a qualified, healthy and diverse tal-

ent pool that is focused on work. To that end, the McKesson

Foundation contributes more than $5 million every year to non-

profit organizations working to improve the health of our

communities. Grants are focused on organizations and programs

providing access to healthcare services for low-income children

and are made in cities where we have the greatest concentration

of employees.

Quest for Quality Award

This cash award is a joint effort by the American Hospital

Association (AHA), McKesson Corporation and the McKesson

Foundation to recognize hospitals or health systems for leadership

and innovation in quality, safety and commitment to patient care.

Winning hospitals gain recognition as a leader in patient safety

and receive a $75,000 cash grant to continue their work.

Regional Grant Committees

The McKesson Foundation’s philosophy is one of decentralized

grantmaking—the Foundation staff in the San Francisco head-

quarters is not as intimately aware of the needs of the grassroots

organizations in cities across the country as the employees who

live and work in those regions. To support this philosophy, we

have created 20 Regional Grant Committees around the country

to determine where grants will be given on a local level. The com-

mittee members are volunteers and come from various business

units throughout the organization, allowing for an opportunity to

build relationships across different parts of the organization.

Areas with Regional Grant Committees:

Alpharetta, GA

Broomfield/Louisville, CO

Canada

Carrollton, TX

Charlotte, NC

Chicago, IL

Delran, NJ/Philadelphia, PA

Dubuque, IA

Hadley, MA

Hartford, CT

Livonia, MI

Los Angeles, CA

Memphis, TN

Newton, MA

Pittsburgh, PA

Richmond, VA

San Francisco, CA

Scottsdale/Phoenix, AZ

Springfield, MO

Twin Cities, MN

For further information, or to provide us with your feedback on

this report, please contact [email protected]

or call (415) 983-9478.


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