lehman brothers global healthcare conference presentation

Lehman Lehman Brothers Brothers

Healthcare Healthcare ConferenceConference

March 10, 2006March 10, 2006

22006 Lehman Brothers Healthcare Conference

Paul JulianPaul Julian

Executive Vice PresidentExecutive Vice Presidentandand

Group PresidentGroup President


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. The Company assumes no obligation to update or revise any such statements, whether as a result of new information or otherwise.

Safe Harbor Clause


McKesson Facts

$80.5 billion in revenues in FY05FY05 EPS $2.19 (excluding Securities Litigation charge**, loss of $0.53, as reported)Over 25,000 employees306 million shares outstanding* $16.5 billion market capFounded 1833, headquartered in San Francisco

160% Return to Shareholders since April 1, 2000

PharmaSolutions$76.3 B

Medical-Surgical$2.9 B

Provider Technologies$1.3 B

FY05 REVENUES

FY05 OPERATING PROFIT

PharmaSolutions$1 B

Medical-Surgical$102 M

Provider Technologies$107 M

* As of quarter ended 12/31/05**See Schedule 1 from 5/5/05 press release for reconciliation


Healthcare TrendsHealthcare Trends


Healthcare Trends Drive McKesson Strategy and Growth

Demographics drive drug

consumption

McKesson handles over 30% of the nation’s drug needs

Increased involvement by consumers in their own healthcare

Focus on managing

chronic diseases

McKesson provides health management solutions across spectrum

Technology improves healthcare

quality

McKesson solutions deliver best practice information at point of care

Demand by payors and employers for improved outcomes

Focus on patient safety

McKesson solutions provide supply chain integrity and reduce medication errors –bar-code mandate for hospitals

Pressure to control

healthcare costs

McKesson delivers solutions to manage the complex handoffs in a fragmented industry


Medicare Modernization Act Provides Opportunities Across McKesson

VolumePatient safety

VolumeGenericsNetw ork administration

Disease managementMedication management

Pharmaceutical Distribution

Health Solutions

Electronic PrescribingQuality incentives for hospitals

ProviderTechnologies

AutomationMedicare

ModernizationAct

MedicareModernization

Act


McKesson OverviewMcKesson Overview


Delivering Value from the Center of Healthcare

Pharmaceutical & medical-surgical distribution to all sites

Solutions for medication safety

Pharmacy outsourcing and consulting

Specialty pharmaceuticals

Inpatient automation

Information solutions for hospitals, payors,

home care, and physicians

Pharmaceutical repackaging

Retail pharmacy automation

Disease management


Leader in Growing Areas

U.S. Pharmaceutical$234 B 5-7% projected growth (1)

Canadian Pharmaceutical $12 B US5-7% projected growth (1)

HIT – Hospital and Alternate Site $20 B8-11% projected growth (3)

Well positioned in all growing healthcare areas

(1) IMS(2) Medical Devices & Supplies M arket Update(3) Dornfest, Gartner Aug 2003, Forrester(4) Includes medical management software/content, disease management, coding, compliance ser vices

U.S. Medical-Surgical $80 B6-8% projected growth (2)

Payor – Outsourced and Software$8 B20-25% projected growth (4)


McKesson’s Strategy

To bring together clinical knowledge, process expertise, technology, and the resources of

a Fortune 15 company to fundamentally 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


Long-term Relationships with Market Leaders

Vanderbilt University Medical CenterVanderbilt University Medical Center


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

Market Leading Positions in Healthcare Services

McKesson McKesson Provider TechnologiesProvider Technologies

63% 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


1998

Only SixSigma

Distributor

1993

AwardWinningAcumax®in all DCs

1990s

First use of Bar

Codes in DCs

2002

Flawless execution:

Best-in-class

service

1999

First mobile computing:

Closed Loop

DistributionSM

tool

Leader inRFID

technology

2006

McKesson U.S. Pharmaceutical Supply Chain Safety Leadership

Benefits for Supply Chain:

Product integrity

Product visibility

Availability

Accuracy

Verified pedigree

Rapid delivery


McKesson Value-Added U.S. Pharmaceutical Distribution

Industry-leading service levelsNext day deliveries with 99% fill rates99.74% invoice pricing integrity vs. 99.3% industry average

Aggregation of deliveryRDC reduces shipping and delivery costs for 500+ manufacturers

Centralized ServiceFirst Call Center7 million calls annually, #1 in industry by Purdue Benchmark Research

Broadest value-adding offeringAutomation for retail, hospital and mail orderCentral FillGenerics

Continuous improvementSix Sigma since 1998 for McKesson and our customers


Patent Expirations Driving Increased Generics Sales

CAGR 2003-2008 : 12.8%; Merrill Lynch; IMS; McKesson analysis

Annual Patent Expirations$ Billions

$11

$15

$9

$20

$16$14

2003

2004

2005

2006

2007

2008

Est. U.S. Generics Industry$ Billions

$17$20

$23$26

$28$31

2003

2004

2005

2006

2007

2008


Strong FY06 Momentum in Provider Technologies

CustomerSatisfactionCustomerSatisfaction

Up 9%Up 9%20 Products 20 Products

Of 2005 KLAS Report *Of 2005 KLAS Report *

EmployeeSatisfactionEmployeeSatisfactionWorld

ClassWorld

Class

RevenuesRevenues

Up 19%Up 19%

AccountabilityAccountability

Ranked in Top 3Ranked in Top 3

* Top 20 Year-End Best In KLAS Awards* Top 20 Year-End Best In KLAS Awards

19%

9%


Financial PerformanceFinancial Performance


Five Years of Strong Growth

$28.0 $31.3 $36.8

$56.4$10.7

$42.3 $47.9

$21.6

$8.7

$13.2$14.8

FY00FY

01FY02

FY03

FY04FY

05

Warehouse SalesDirect Revenues

$36.7 $42.0

$50.0$57.1

$69.5 $24.1

$80.5

17% CAGR (total sales)

$Billions


EPS(continuing operations)

($0.15)

$0.65

$1.43$1.89

$2.18

FY00

FY01

FY02

FY03

FY04

FY05Diluted EPS, continuing operations**

$2.18

**See EPS Reconciliation slide at the end of this presentation for a complete reconciliation to reported results.

27% CAGR


FY06 Consolidated Q3 and YTDFinancial Results

($ and shares in millions, except EPS)

FY05 FY06 FY05 FY06

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

Net Income-- As reported (666) 193 NM (416) 531 NM

-- Continuing ops, excludingSecurities Litigation charge** 143 193 35% 392 552 41%

Diluted EPS-- As reported (2.26)$ 0.61$ NM (1.42)$ 1.69$ NM

-- Continuing ops, excludingSecurities Litigation charge** 0.49$ 0.61$ 24% 1.32$ 1.76$ 33%

Q3 Nine Months

**See EPS Reconciliation slide at the end of this presentation for a complete reconciliation to reported results.


Q3 and YTD FY06 Segment Results

Strong results in Pharmaceutical Solutions and Provider Technologies drove improved quarterly and YTD performance

Q3 Nine Months($ in millions) FY05 FY06 Var. FY05 FY 06 Var.

RevenuesPharmaceutical Solutions $19,702 $21,387 9% $56,774 $61,827 9%Medical-Surgical 736 814 11% 2,157 2,327 8%Provider Technologies 331 401 21% 935 1,111 19%

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

Operating ProfitPharmaceutical Solutions $243 $306 26% $682 $860 26%Medical-Surgical 24 8 -67% 71 60 -15%Provider Technologies 28 38 36% 61 95 56%

Total $295 $352 19% $814 $1,015 25%

* Excludes Warehouse Sales


Strong, Flexible Balance Sheet

($ in millions)FY05 FY06

Cash and Cash Equivalents 1,033$ 2,183$

Operating Cash Flow - Nine Months 497$ 1,477$

Debt to Capital 22.9% 14.4%

Net Debt to Net Capital Employed 8.0% -25.3%

December 31,


Financial Flexibility to Create Shareholder Value

STRATEGIC OPTIONS FOR CASHSTRATEGIC OPTIONS FOR CASH

Strong Strong BalanceBalance

SheetSheet

Resolution of Resolution of Shareholder Shareholder

LitigationLitigation

Improving Improving Business Business

Performance Performance and Cash Flowand Cash Flow


What McKesson RepresentsManagement with strong track record of financial performance

Core pharmaceutical business positioned for growth

Stable of higher margin businesses poised to take advantage of the evolution of healthcareStrong cash flow and balance sheet, providing flexibility to increase shareholder value

Commitment to financial transparency and communication

Create Value for Suppliers, Customers and Shareholders

Create Value for Suppliers, Create Value for Suppliers, Customers and ShareholdersCustomers and Shareholders


EPS Reconciliation($ and shares in millions except EPS)

FY04 FY05

$ 643 $ (160)

Exclude: Securities Litigation charge - 1,200

Estimated income tax benefit - (390) - 810

Net income, continuing ops, excluding Securities Litigation charge $ 643 $ 650

$ 2.18 $ 2.18

299 301

Net income (loss), continuing ops - as reported

Diluted earnings per common share, continuing ops, 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).


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

FY05 FY06 FY05 FY06

$ (667) $ 193 - % $ (418) $ 517 - %

Exclude: Securities Litigation charge 1,200 1 - 1,200 53 -

Estimated income tax benefit (390) (1) - (390) (18) -810 0 - 810 35 -

Net income, continuing ops,excluding Securities Litigation charge $ 143 $ 193 35 % $ 392 $ 552 41 %

$ 0.49 $ 0.61 24 % $ 1.32 $ 1.76 33 %

301 316 5 % 300 315 5 %

Nine Months

Net income, (loss) continuing ops - as reported

Diluted earnings per common share, continuing ops, excluding Secuities Litigation charge

Shares on which diluted earnings per common share were based

Q3

For the quarter and nine months ended December 31, 2004, interest expense, net of related income taxes, of $2 million, and $5 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).

lehman brothers global healthcare conference presentation

Economy & Finance

healthcare focus

healthcare costsmckesson

health management solutions

financial information

best practice information

result of new information

medication errors

various uncertainties