mckesson corporation 2016 investor day - investors

McKesson Corporation 2016 Investor Day

June 29, 2016

2016 Investor Day Agenda

2

Craig Mercer – Senior Vice President, Investor Relations John Hammergren – Chairman and Chief Executive Officer Pat Blake – Executive Vice President, Group President Technology Solutions James Beer – Executive Vice President, Chief Financial Officer

Q&A: New Company

Break

Paul Julian – Executive Vice President, Group President Distribution Solutions Mark Walchirk – President, U.S. Pharmaceutical Nick Loporcaro – President, McKesson Specialty Health Stanton McComb – President, McKesson Medical-Surgical Marc Owen – Chairman, Celesio Management Board

Q&A: McKesson Distribution Solutions

Break

James Beer – Executive Vice President, Chief Financial Officer

Q&A: Wrap-Up

Closing Remarks

3

Forward-Looking Statements

Some of the information in this presentation is not historical in nature and may constitute forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied by such statements. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, those described in the Company’s annual, quarterly and current reports (i.e., Form 10-K, Form 10-Q and Form 8-K) as filed or furnished with the Securities and Exchange Commission (SEC). You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date such statements were first made. To the degree financial information is included in this presentation, it is in summary form only and must be considered in the context of the full details provided in the Company’s most recent annual, quarterly or current report as filed or furnished with the SEC. The Company’s SEC reports are available at www.mckesson.com under the “Investors” tab. Except to the extent required by law, the Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

GAAP / Non-GAAP Reconciliation

In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials in this presentation include non-GAAP information. McKesson also presents its financial results on a constant currency basis. The Company conducts business worldwide in local currencies, including Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. The Company believes the presentation of non-GAAP measures provides useful supplemental information to investors with regard to its core operating performance as well as comparability of financial results period-over-period. A reconciliation of the non-GAAP information to GAAP, and other related information is available in the tables accompanying each period’s earnings press release, materials furnished to the SEC, and posted to www.mckesson.com under the “Investors” tab.

Welcome

John Hammergren

Chairman and Chief Executive Officer

4

5

Combination Creates Substantial Shareholder Value

Strong partner in Blackstone with a shared focus on value creation, including agreed path to an IPO and tax-efficient exit of McKesson’s investment

Enhances MTS’ market opportunity, capabilities and scale

McKesson to receive ~$1.25 billion in cash at close of transaction while retaining an ~70% equity stake in the jointly-governed company

Targeting in excess of $150 million of annual synergies with potential to capture further opportunities

New focused company with peers in the healthcare technology industry, as opposed to healthcare distribution services

McKesson’s Executive Committee Diverse and Experienced Leadership

6

Pat Blake President

EVP & Group President 20 years

James Beer Chief Financial Officer

3 years

John H. Hammergren Chief Executive Officer, President & Chairman

20 years

Paul Julian EVP & Group President

20 years

Lori Schechter EVP, General Counsel &

Chief Compliance Officer 4 years

Kathy McElligott Chief Information Officer/ Chief Technology Officer

1 year

Bansi Nagji EVP, Corporate Strategy & Business Development

1 year

Jorge Figueredo EVP, Corporate Human Resources

& Administration 8 years

McKesson At A Glance Delivering Better Health for More Than 180 Years

7 Financial data reported for Fiscal Year ended March 31, 2016; Operational and employee data reflected as of March 31, 2016

68,ooo

year history of serving customers

183

Delivering

of all prescription medicine in

North America

1/3

$190B in revenues

employees worldwide

Order accuracy

$3.7B in operating cash flow

More than

13,000 owned and banner pharmacies

>99%

Evolving Healthcare Environment

8

Generics Consolidation Specialty

Healthcare Industry – A Great Investment

9

Unsustainable healthcare spend requires innovative approaches,

new demands, improved outcomes

Value-based care

Changing demographics

Track Record Of Success

10

Operational excellence commitment is

embraced by all

Leading positions in key markets

Customer-first

attitude infuses entire company

Poised For Continued Growth

11

Right Markets Right Assets Right Culture

Strong Financials •  Nimble, cost-effective organization •  Robust cash flow generation •  Strategic deployment of capital;

balanced investment strategy

Specialty

Retail Pharmacy

Global Reach

Scale

Supply Chain

Global Procurement & Sourcing

McKesson Technology Solutions and Announced New Company with Change Healthcare

Pat Blake

Executive Vice President, Group President, Technology Solutions

12

13

Recent MTS Accomplishments

Generated 11% of Total McKesson Adjusted Operating Profit2

New 5-year, $139M DoD Contract •  Secure messaging •  Patient engagement solutions

Delivered 12% Adjusted Operating Profit Growth in FY161

Expanded Adjusted Operating Profit Margin1 by 612 bps from FY13 to FY16

1 FY16 MTS Adjusted Operating Margin excludes gain on sale of our nurse triage business and is expressed in constant currency, versus FY13 Adjusted Earnings (Non-GAAP) value. 2 FY16 MTS Adjusted Operating Profit excludes gain on sale of our nurse triage business and is expressed in constant currency; growth figures compared to FY15 Adjusted Earnings (Non-GAAP) value.

Innovative Partnership with Blue Cross Blue Shield of Arizona

Evolving Through A Dynamic Market

14

Driving Innovation

•  Expanded adjusted operating margin from 12.6% to 18.7% over last three years1

•  Operating margin expected to exceed 20% in FY17

•  Serving over 300 MCOs including 24 of top 25 health plans; 4K hospitals; 630K providers; and 50K pharmacies

•  Continuing to scale as the nationwide service provider for the CommonWell Health Alliance

•  Investing and partnering to bring leading value-based care technology to market

Operational Excellence

•  Bookings growth in mid-teens year-over-year

•  Extending and integrating our solutions across the portfolio

•  Advancing connectivity, value-based reimbursement and pharmacy solutions

Expanding Scale and Customer Solutions

Investing for Growth

1 FY16 MTS Adjusted Operating Margin excludes gain on sale of our nurse triage business and is expressed in constant currency, versus FY13 Adjusted Earnings (Non-GAAP) value.

•  Creates a new company positioned to address industry’s emerging and most pressing challenges

•  Experienced management team comprised of leaders from both McKesson and Change Healthcare

•  Significant value for customers by bringing together full suite of end-to-end payment and claims solutions, as well as robust portfolio of financial, clinical and operational IT products and services

•  Creates growth opportunities from cross-selling and combined expertise

•  Expected to generate in excess of $150 million of synergies by the second year following the close of the transaction

•  Unlocks value through singular focus on healthcare technology and technology-enabled services

15

Compelling Strategic Rationale

16

Healthcare Industry Trends Support Strategic Rationale For Combination

• Reimbursement and administration requirements growing in scope and complexity

• 12% of every healthcare dollar consumed by claims submission and reimbursement

• Health plans and providers need more effective solutions to address value-based care

Outsource and automate for scale and specialization

• $360 billion spent on administrative services

• Up to $270 billion in costs potentially attributable to waste and abuse

• Financial pressure on providers and managed care organizations as they balance increasing patient volumes and complexity with lower margins

Focus on Efficiency Increasing Complexity

Avoid waste and streamline administration

• By 2018, 50% of fee-for-service Medicare payments to be tied to quality or value through models such as accountable care organizations or bundled payments

• Shift to managed care for most medically complex and costly patients (Medicare, Medicaid)

• Consumers taking increased responsibility for financial implications of care decisions

Leverage content, connectivity and analytics to support transition

Shift to Value-Based Care

17

Combined Company Will Be Favorably Positioned To Address Critical And Complex Industry Challenges

Improve Experience & Outcomes

Reduce Cost & Complexity

Enable Value-Based

Care

NewCo

•  Comprehensive solutions to support revenue performance, claims management and payment accuracy

•  Empowers payers and providers to simplify administration and support financial health

Integrated Reimbursement Management

•  Integrated quality/risk analytics, clinical decision support and value-based payment capabilities that leverage extensive connectivity

•  Enables payers and providers to scale value-based reimbursement, and accelerate adoption of models such as bundled payments

Network-Enabled Value

•  Transparency, member engagement, patient access, care coordination and payment solutions are leveraged together to improve the consumer experience and enhance outcomes

Consumer/Patient Engagement

18

Combination Creates A New Healthcare Technology Company With Leading Capabilities

OVERVIEW Focused on improving patient safety, reducing cost and variability of care, and better managing revenue streams

Leading provider of software and analytics, network solutions and technology-enabled services

COMPANY

Contributes four businesses: •  McKesson Health Solutions (MHS) •  Connected Care and Analytics (CCA), excluding

RelayHealth Pharmacy (RHP) •  Imaging and Workflow Solutions (IWS) •  Business Performance Services (BPS)

•  Contributes substantially all of its businesses, except for pharmacy switch and prescription routing business

EMPLOYEES MHS, CCA, IWS and BPS: ~10,000 people ~7,000 people, of which ~2,000 are seasonal

LOCATIONS Multiple locations including: Alpharetta, GA; Newton, MA; Vancouver, Canada

Multiple locations including: Nashville, TN; Atlanta, GA; San Francisco, CA

McKesson Technology Solutions

NewCo

19

Breadth Of Complementary Capabilities Creates Opportunity To Deliver Significant Value To Customers

•  Medicare and Medicaid Engagement

•  Payment Integrity Solutions

•  Clinical Claims Management

•  Claims, Eligibility and Electronic Remittance Advice Network

•  Provider Network Management

•  Communication and Payment Services

•  Value-Based Care Analytics

•  Patient Access Suite and Services

•  Clinical Information Exchange

•  Cost and Quality Analytics

•  Imaging Workflow and Intelligence

•  InterQual Clinical Decision Support

•  Claims, Denials and Payments Management

•  Revenue Cycle Outsourcing

Providers

Capabilities to verify patient eligibility, deliver clinically appropriate care,

submit claims and manage payments across the revenue cycle

Payers

Comprehensive solutions to address member engagement, payment

accuracy, network management and the transition to value-based payments

Consumers

Digital tools to access personal health information, engage with providers,

and make smart choices about quality, cost and convenience

•  Cost and Quality Transparency

•  Consumer Education and Health & Wellness Alerts

•  Patient Portal

•  Financial Responsibility Estimation

•  Online/Mobile Payment

McKesson Technology Solutions

NewCo

New Company Summary

James Beer

Executive Vice President, Chief Financial Officer

20

21

Transaction Summary

Transaction Structure

•  McKesson contributes all MTS businesses, except for RHP and EIS businesses. Businesses contributed: MHS, CCA (excluding RHP), BPS, IWS

•  Change Healthcare contributes all businesses, except for its pharmacy switch and prescription routing business

Financials

•  Pro forma combined revenue of approximately $3.4 billion (FYE 3/31/16) •  Expect synergies in excess of $150 million by the second year following

the close of the transaction •  Received commitments for $6.1 billion of funded debt, with proceeds to be

used to repay ~$2.7 billion of existing Change Healthcare debt, ~$1.25 billion in cash payments to McKesson, ~$1.75 billion in cash payments to Change Healthcare, and the remainder to be used for transaction-related expenses

Ownership •  McKesson: ~70% •  Change Healthcare: ~30%

22

Transaction Summary (continued)

Management and Governance

•  Governance will be shared jointly between McKesson and Change Healthcare

•  CEO: Neil de Crescenzo, Change Healthcare’s current CEO •  Chairman of the Board: John H. Hammergren, Chairman and CEO of

McKesson •  Board of directors (10): CEO; appointees from McKesson (3); appointees

from Change Healthcare (3); independent directors (3; one McKesson nominated, one Change Healthcare nominated, one joint McKesson/Change Healthcare nominated)

•  Experienced management team comprised of leaders from both McKesson and Change Healthcare

Timing

•  Transaction expected to close in first half of calendar 2017 •  McKesson and Change Healthcare to take steps to launch an initial

public offering in the months following the close of the transaction, subject to market conditions

•  McKesson plans to subsequently exit its investment in a tax-efficient manner

Closing •  Subject to closing conditions, including antitrust clearance and

completion of audited financial statements of the MTS businesses being contributed to the new company

23

New Company Q&A

McKesson Distribution Solutions

Paul Julian

Executive Vice President Group President Distribution Solutions

25

Medical surgical supplies distribution

and services in the U.S.

Distribution Solutions: Core Operations

26

$188B in revenues and $4.5B in adjusted operating profit1 in FY16

North America Pharmaceutical Distribution and

Services

Medical-Surgical Distribution and

Services

International Pharmaceutical Distribution and

Services

Global Procurement and Sourcing

1 Reflects non-GAAP information calculated on an Adjusted Earnings basis, excluding Cost Alignment Plan charges recognized in Q4 FY16 and the gain on the sale of ZEE Medical in Q2 FY16, and is expressed in constant currency.

Pharmaceutical distribution,

technology and services in the U.S.

and Canada

Celesio pharmaceutical

distribution and retail operations

Enterprise-wide sourcing

organization

Distribution Solutions Leadership Team

27

Nick Loporcaro President

McKesson Specialty Health 13 years

Jack Fragie President

Global Procurement and Sourcing

34 years

Emilie Ray President

McKesson Pharmacy Technology & Services

16 years

Paul C. Julian EVP, Group President Distribution Solutions

20 years

Marc Owen Chairman

Celesio Management Board 14 years

Stanton McComb President

McKesson Medical-Surgical 13 years

Alain Champagne President

McKesson Canada 6 years

Mark Walchirk President

McKesson U.S. Pharmaceutical 15 years

FY16 Milestones Strong Execution Across Distribution Solutions

28 1 Sempora Coop Study 2016

Announced >$4 billion in Strategic Acquisitions

3,865

4,610 stores

~200 Canadian Banner Pharmacies

Executing on Global Procurement Synergies

Significant Growth in

North America Specialty

Businesses

PSS Integration Completed Exceeded Business Case

Added

Expanded Health Mart from

Deepened Customer

Relationships Albertsons

and AHOLD Gesundleben Banner from German

Subsidiary GEHE Wins:

Best Banner Format in 20161

to

FY16 Achievements Across Distribution Solutions

29

North America International

•  Continued to expand our base in independent retail and health systems in the U.S.

•  21% year-over-year growth in OneStop

•  #2 generics purchaser in Canada

•  Leading position in community oncology

•  Medical-Surgical year-over-year growth driven by surgery centers, lab, physician office and home care

•  Divested non-core ZEE Medical business

•  Began process of combining pharmacy technology businesses under new business unit (Pharmacy Technology & Services)

•  Pharmacy Technology & Services achieved a 5% Customer Net Promoter score improvement year-over-year

•  Announced >$3.5B in acquisitions led by Rexall, Biologics and Vantage Oncology (closed Biologics and Vantage Oncology effective 4/1/16)

•  Exceeded Year 1 synergy expectations

•  Launched innovative platform to build global data analytics capabilities

•  Continued private label leadership with expertise spanning more than 10 years

Global Procurement & Sourcing

•  Business exceeded expectations in FY16 on a constant currency basis

•  Industry position maintained or strengthened in major countries

•  Announced ~$1.0B in acquisitions across Europe in retail and wholesale

Driving Operational Excellence Across Distribution Solutions

30

~50K Orders Processed Daily

>2.3M Lines Per Day

99.98% Order Accuracy Across North America Distribution and Services

$220M+ in Six Sigma-Related Savings Across North America

International Distribution and Services

>1% Increase in Automation Rate

99.92% Inventory Accuracy

~7% Increase in Lines for Medical and Surgical Supplies Shipped

Across North America Distribution and Services

~9% Increase in Lines Processed Across U.S. Pharmaceutical

Europe •  Pharmaceutical spend expected to grow

approximately 5% CAGR 2015-2020 •  Specialty will grow to represent nearly 50%

of total spend by 2020

Driving Business Growth In Global Markets Market Overview1

31

1 IMS Institute for Healthcare Informatics Global Use of Medicines Report 2015-2020 (April 2016). IMS Institute for Healthcare Informatics Use of Medicines Report US 2015-2020 (April 2016). IMS Health Market Prognosis Summary Q1 2016 - North America. Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.

Global

•  Global pharmaceutical market will grow approximately 6% CAGR 2015-2020

•  Growing population of elderly and chronically ill

•  Innovative therapies to fight disease states

-2

0

2

4

6

8

10

12

14

0

100

200

300

400

500

600

700

Sales (USD Billion) % Change

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

Overall North American Market

North America

•  Pharmaceutical spend expected to grow approximately 7% CAGR 2015-2020

•  More than one-third of growth will be in specialty in the U.S. from 2015-2020

•  First biosimilar launched in the U.S. and four launched in Canada

Global Distribution Footprint

32

North America •  Best-in-class distribution network for

pharmaceuticals and medical-surgical supplies •  Ongoing investments in established distribution

network

Europe •  Supply pharmacies and hospitals across

Western Europe •  Continued investment in distribution centers

and automation

Showcasing Innovation And Expansion In Retail

33 Market data as of March 31, 2016

A Global Footprint

13,000+ owned and banner pharmacies globally

•  United States: More than 4,600 Health Mart stores

•  Canada: More than 2,100 banner stores

•  Europe: More than 6,500 owned, managed and banner pharmacies

Expanding Services

•  Payer access and programs for independent pharmacies

•  Patient adherence and claims management

•  Automated pharmacy solution stats

•  Reimbursement optimization

•  European Pharmacy Network (EPN)

Spotlight: Rexall Health To Expand Pharmacy Solutions In Canada

34

•  New channel, new view of innovative pharmacy care

•  Strong talent pool and expanding knowledge to strengthen capabilities and service across segments

•  Independent customers remain confident in McKesson’s commitment and value proposition

•  Broader reach through expanded footprint in growing geographies

•  Enhanced generic sourcing opportunities to benefit diverse customers

•  Innovative pharmacy programs benefit full range of pharmacy models and patients

Note: Rexall Health acquisition has not yet closed and is subject to regulatory approval.

Expand Independent Banners Presence Unique Integrated Service Offering Helps Drive Above-market Banner Growth

35

+ +Expanding

Professional Services

Enhancing Shared

Services

Increasing Private Label Sales

Grew Store Count

4% increase in SKUs

Our Distinctive Competitive Advantage: Better Business Health for Independent Pharmacies

~200

Servicing

Independent Pharmacies

>2,100

Increased National Footprint

Leveraging Global

Collaboration

+

Global Procurement And Sourcing

36

McKesson Global Procurement & Sourcing

•  Enterprise-wide sourcing and procurement responsibility overseen by experienced leaders

•  Excellent progress with manufacturer discussions in FY16

•  Several key agreements closed and worldwide partnerships established

•  Expect synergies of $275-$325 million by end of FY17, more than one year ahead of original business case

Spotlight: McKesson And Walmart Sourcing Agreement

37

McKesson and Walmart to jointly source generic pharmaceuticals, driving efficiencies and

adding scale and value for both companies

Place Text Here

Expanded distribution agreement

Natural next step for two companies with more than 20-year history of working together

Co-sourcing partnership will be made operational in late FY17

Potential to expand relationship in the future

Global Private Label Offerings Strategic Value And Expertise Provides Opportunities Across the Portfolio

38

Advance opportunities in global medical-surgical supplies based on U.S. scale

Manage opportunities in U.S. and Canada and consider longer-term opportunities in Europe

Increase private label OTC penetration in new and existing geographies and categories

OTC

Medical Supplies

Generics

Driving Innovation And Partnering With Manufacturers

39

High Efficiency Best-in-class network; organized for quality, efficiency and speed

Delivering Value

High Efficiency Best-in-class network; organized for quality, efficiency and speed

Customer Locations Spanning Market Channels

Data and Analytics

•  Product commercialization •  Consulting and data analytics •  Clinical research capabilities •  Patient access and support •  Risk evaluation mitigation •  Optimized pharmacy replenishment •  Supply chain economics and safety •  Forecasting and data visibility

>100K

Proprietary Generics and Private Label Programs

Supporting Pharmaceutical Development Life Cycle

Services

Leading The Transformation To Value-Based Reimbursement (VBR)

40

Market leading tools and capabilities that position us as best-in-class

Proven results and thought leadership

15 new VBR agreements in FY16

Demographics and Increase in Chronic Diseases

U.S. Specialty Market Grew 15% In 2015

Continued Growth Expected Through 20201

41

1 IMS Institute for Healthcare Informatics Global Use of Medicines Report 2015-2020 (April 2016). IMS Institute for Healthcare Informatics Use of Medicines Report US 2015-2020 (April 2016). Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.

Innovative Products coming to market, with largest share coming from oncology

U.S. and Europe Pharmaceutical Markets

Specialty

2015 2020

Spending on Specialty Medicines Doubled in the past five years and is expected to continue growing

Focus on data and analytics

Market Dynamics And Investments Driving McKesson’s North American Specialty Growth

42

Comprehensive Portfolio of Offerings Leader in Community Oncology Services throughout the Oncology Continuum of Care Well Positioned for Continued Growth

Manufacturer Services Services span a drug’s life cycle

Biologics

Differentiated Physician Offerings US Oncology Network

Vantage Oncology

Distribution Multiple distribution channels: open market; limited; exclusive

Strategic Focus in Specialty

Delivering Better Health

43

•  Executing on cost alignment plan and business process initiatives

•  Partnering with manufacturers to deliver value and to drive procurement synergies

•  Integrating acquisitions

•  Expanding retail pharmacy footprint and services

•  Leading drug delivery channels and manufacturer programs

•  Optimizing supply chain through the use of automation

•  Innovating in oncology research

•  Deploying capital globally

•  Enhancing capabilities to support specialty commercialization and growth

•  Broadening private label solutions

•  Growing retail pharmacy footprint and solutions

•  Implementing and optimizing efficiency projects globally


Driving Innovation



U.S. Pharmaceutical

Mark Walchirk

President U.S. Pharmaceutical

U.S. Pharmaceutical Committed to Delivering Better Health

45




Driving Innovation

Industry Landscape Healthcare Continues to be a Dynamic and Growing Industry

46

1 Congressional Budget Office, March 2015 2 IMS Health Medicines Use and Spending in the U.S.: A Review of 2015 and Outlook to 2020, April 2016 3 IMS Health National Sales Perspectives. December 2015; sales in year prior to expiry for 2010-2015; MAT Sept 2015 sales shown for 2016-2020 4 IMS Health Market Prognosis USA for the period of 2016-2020, March 2016 Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.

10,000 New Medicare Beneficiaries Enrolled Every Day1

Generic CAGR 2016 to 20204

$87 Billion of brand sales at risk from 2016 to 20203

Generic Launches

9.3%

Brand CAGR 2016 to 20204 6.7%

4.4 Billion Prescriptions Dispensed in 20152

Leading Portfolio Of Services And Products Strong Core Business with a Broad Value Proposition

47

Independent & Small Chain Pharmacy •  Health Mart •  Proprietary generics and

private label programs •  Managed care

contracting •  Pharmacy technology •  Clinical services •  Inventory management

solutions

National Retail Pharmacy •  Efficient and flexible

distribution network •  Proprietary generics and

private label programs •  Inventory management

solutions •  Clinical services •  Pharmacy technology •  Central fill / High volume

solutions

Health Systems

•  Proprietary generics and private label programs

•  Inventory management solutions

•  340B program management

•  Clinical / Operational consulting

•  Pharmacy technology •  Packaging

Driving Value For National Retail Pharmacies Recent Partnerships Continue to Prove the Value of Our Model

48

Quality and Service that Exceed Customer Expectations

Customized Solutions to Meet Customer Needs

Differentiated Value-added Services

Expanding Customer Relationships

Renew and Retain Key Customers

Selectively Target New Growth

Broad Offerings For Health Systems Delivering Customizable, Scalable Solutions to Our Customers

49

•  Data and technology solutions

•  Supply chain and inventory management expertise

•  Pharmacy consulting services

•  Cost containment and revenue enhancement services

•  Specialty consulting

•  340B support / Macro Helix

Solutions-Led Approach Federal Department of Veterans Affairs Department of Defense

Health Systems Strategic partnerships with the nation’s leading health systems and alliances

Alternate site Tailored capabilities for long-term care and specialty pharmacies

Leveling The Playing Field For Independents Health Mart is the Largest Network of Independent Pharmacies in the U.S.

50

Health Mart Store Count

3,096 3,281 3,865

4,610

FY13 FY14 FY15 FY16

Focused Strategy

Access to preferred networks

Drive patients into store

Expand store revenue

Strategic Partner To Manufacturers Enabling High-Quality, Reliable Business Operations

51

Serve a large and growing customer

base of pharmacies, hospitals and clinics

Deliver industry-leading supply chain

excellence and business insights

Drive increased penetration through generic programs

and launch capabilities

Provide solutions and capabilities that

meet customers’ evolving needs

Growth Service Broad

Channel Access

Value-Added

Services

Our Generics Programs Continue To Drive Value

52

Strong Compliance and Growth

OneStop Proprietary Generics Program

Competitive Pricing, Choice and Industry-Leading Service Levels

OneStop Growth in FY16

100+ Manufacturers

>10 Years of Leadership in NorthStar Private Label

+21%

Expert Product Sourcing and Deep Relationships with

Continue To Make Investments In Our Established Distribution Network

53

NRDC Model National Re-Distribution

Center operational since FY13

Technology Increases automation and productivity

Ongoing Investment Maintaining state-of-the-art

distribution network

Investments Drive Operational Excellence

Our People United Around Our Commitment to Better Health

54

Positioned For Continued Success

55

Driving Innovation

•  Industry-leading service levels

•  Efficient, high-accuracy financial transaction processing

•  Our people, infrastructure and investments drive operational excellence

•  Expanded Health Mart franchise, services and solutions

•  Industry-recognized and award-winning workflow, inventory and 340B customer technology solutions

•  Innovative, internally-developed, fit-for-purpose business technology

•  Provide unique services, technology and capabilities to customers


•  Productivity gains through technology and automation investments

•  Solutions-led approach combining distribution with unique service capabilities

•  State-of-the art distribution network with ongoing capital investment



•  Enhanced offerings to drive value for customers and manufacturer partners

•  Consistent investment in our business for continued growth

McKesson Specialty Health

Nick Loporcaro

President McKesson Specialty Health

McKesson Specialty Health Uniquely Servicing Stakeholder Needs

57




Driving Innovation

U.S. Specialty Health Market Poised for Continued Growth

58

Specialty Driving More Than 1/3 of All New Growth Through 20201

•  Rapid growth across specialties, including oncology

•  Channel growth in both specialty pharmacy and specialty distribution

•  Increasing drug development in similar therapeutic classes

•  Increased emphasis on quality, cost containment and value-based care

Evolving Needs of Providers, Payers and Manufacturers

U.S. Specialty Pharmaceutical Market Spend 20151

26%

23%

12%

Oncology

Infectious Disease

20%

19%

Multiple Sclerosis

Other Specialty

Late Stage R&D Pipeline Compounds* by Top Therapy Areas1

Vaccines

51%

4%

Oncology

15% 5%

Dermatology

Neurology

25%

All Others

Auto-Immune

* New Active Substances (Filed, Phase 3, Phase 2)

1 IMS Health National Sales Perspectives Jan 2016 and Medicines Use and Spending in the U.S. (April 2016) Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.

McKesson Specialty Health Thriving in an Increasingly Complex Market

59

More Than 750K Prescriptions

Dispensed Nationwide

Mid-teen Year-over-Year Revenue Growth in FY16

•  >3,400 Oncologists

•  >5,000 Other Specialists

Expanding Footprint Across Specialties

>650 Payer Relationships

iKnowMedSM

Ranked #1 Oncology EHR >1,600 Users

Nearly 1,500 Phase 1 to Phase 4 Clinical Trials to Date

Clinical Research

+

McKesson Specialty Health data as of March 31,2016

Award-Winning Operational Excellence Delivering Exceptional Service Every Day

60

•  >22,000 lines processed per day

•  >6,400 shipments processed per day

•  99.96% order accuracy

•  99.99% inventory accuracy

•  >80M vaccine doses delivered to >40K providers annually in support of the CDC’s Vaccines for Children program

•  Certified by Benchmark Portal as a Center of Excellence

•  Ranked Top 10 Call Center of 35,000 in North America

•  Processes >25M claims annually with a 99.99% accuracy rate1

Distribution Operations1 Reimbursement, Access, and Co-Pay Programs

1 McKesson Specialty Health data as of March 31, 2016

Manufacturer Solutions Supporting Manufacturers Across Product Life Cycle

61

Manufacturer

Patient

Provider Payer

Clinical Development

Pre-Launch / Launch

Growth Maturity

1

2 3

1 •  Clinical Trial Research / Site Management •  Clinical Trial Logistics

2

•  Prescriber and Pharmacy Outreach and Education

•  Reimbursement, Access and Patient Assistance Programs (PAP)

•  Patient Co-Pay Programs

•  Patient Adherence and Clinical Management Services

•  Drug Safety - REMS Program Design and Operations

•  Health Economics and Outcomes Research

3 •  Specialty Distribution •  Outsourced Logistics / 3PL

•  Specialty Pharmacy •  Market Analytics and Insights

Connecting Manufacturers to Stakeholders

Immuno-Oncology Advancing the Fourth Pillar in Cancer Therapy

62

•  >30 immuno-oncology trials to-date

•  Nearly 500 patients enrolled to-date

Clinical Development

•  >50 initiatives reaching >1,600 practice personnel

•  >40 live speaker programs and regional symposia

Clinical Education

•  Provided tailored clinical management services

•  >8,700 patients on immuno-oncology therapy

Clinical Management

•  Program to-date has supported >7,000 cases

Market Access and Patient Assistance Services •  Multi-channel presence

•  Group purchasing organization (GPO) contracting

•  Cold-chain shipping

Supply Chain

•  Real-time market analytics to assess and support product uptake

Market Analytics

McKesson Specialty Health data estimated as of March 31, 2016

Biosimilars Strong Position and Early Experience Driving Success

63

Early Success

Significant adoption in Onmark and Unity GPO-affiliated practices as compared to industry

>$35B

Largest Physician Networks

Strong Manufacturer Partnerships

End-to-end Patient Support Services

•  Pivotal Clinical Trials

•  Key Opinion Leaders

•  Robust Provider Education Campaign

•  Patient Assistance Program (PAP) Administration

Established Payer

Relationships

Market uptake will depend on regulatory, legal and commercial factors

1 IMS Health Delivering on the Potential of Biosimilar Medicines (March 2016) Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.

Zarxio ®

Positioned for Future Growth

in annual originator sales exposed to biosimilar competition by 20201

End-To-End Oncology Solutions Integrating Care at the Community Level

64

In-Office Dispensing Network

Expanding the Oncology Ecosystem

OncologyRx Care Advantage

Payer Partnerships And Solutions Leading the Charge to Value-based Care

65

Cost-effective clinical pathways with

network-wide adoption

Value PathwaysTM Powered by NCCN1

Clinical decision support tool enabling

pathways adherence

Clear Value PlusSM

Care management and patient support across different sites of care

Innovent Oncology

Advance care planning program honoring patients’

end-of-life wishes

My Choices, My Wishes®

Value-based Care Solutions Leveraged by Our Practices

Proprietary Suite of Solutions Positioning Practices to Grow Value-based Care Partnerships with Payers

CareLyticsTM

Practice and population management technology

platform

1 NCCN - National Comprehensive Cancer Network

Deep Expertise Across Specialty Portfolio

66

Driving Innovation

•  Leveraging new technologies to further optimize distribution and patient support services

•  Transforming care delivery to achieve optimal outcomes

•  Aligning our organization to key stakeholder needs

•  Leveraging our highly unique physician network model to drive collaboration and evolution in the community setting

•  Pioneering new tools, agreements, and care delivery models in a value-based world


•  Forming strategic partnerships

•  Further expanding on the full suite of solutions that we offer providers, payers and manufacturers



•  Making smart acquisitions to advance our strategy

McKesson Medical-Surgical

Stanton McComb

President McKesson Medical-Surgical

McKesson Medical-Surgical Driving Value for Customers

68




Driving Innovation

Driving Business Growth In A Dynamic Market

69

Large and growing non-acute market1

>$20B

Consumerism2

•  74% of consumers with $3K+ deductible solicit pricing information

•  6 of top 10 attributes for primary care clinics focus on convenience for consumers

By 2018, 50% of Medicare payments tied to risk and 90% of fee- for-service tied to quality4

Retail clinics to grow 23%

through 20193

Shift to lower cost, non-acute care settings

Home Care Products

5.5% market growth5

1 GHX Market Intelligence, 2014; IMS Health Data, 2014 2 Advisory Board 2016 Trends, March 2015 3 2015 HIDA Horizon Report, “Primary Care Evolution: Care Settings Shift To Meet Consumer Demands” 4 Advisory Board “Six most important trends to watch in 2016”, February 2016 5 U.S. Market for Home Care Products 2014-19 Growth Rate, HIDA 2015 Extended Care Market Report

Leader Across Alternate Site Markets

70

Market Leader for the Ambulatory and Post-Acute Care Continuum

Physician Office

Emergency Room

Hospice

Durable Medical Equipment

Lab Testing

Home Health Agencies

Rehabilitation Facilities

Long-Term Care

Ambulatory Surgery Centers

Urgent Care

Excellence In Operations Leading Supply Chain Capabilities Drive Customer Satisfaction

71

McKesson Delivery Model •  52% more private fleet customers •  Optimized over 38 million miles

Quality in Operations Defect rate continues to improve to best-in-class levels

Leadership across the value chain

FY15 FY16

Patient Home Delivery More than 14 million direct-to-consumer shipments

Customer Satisfaction 4 consecutive quarters of rising Net Promoter Scores

16% reduction in DPMO1

1 DPMO = Defects per million orders

Expanding Scale And Customer Solutions Integration has Established Scalable Platform and Offering

72

Integration Complete Exceeded PSS business case

McKesson Brand Broad, cost-effective offering including Generics, OTC and Lab

Leading Sales Channel 1,500+ tenured sales reps

“The depth of knowledge and experience McKesson brings to my system is unmatched in the industry.” – Large Medical Group in Mid-Atlantic

"McKesson is a strategic partner that takes manufacturer and distributor relationships to another level. Their expertise in the non-acute market is unrivaled."

– Top Global Medical-Surgical Manufacturer

Manufacturer Partnerships Strong growth for preferred suppliers

Innovation Through Digital Sales And Marketing Three Keys to Success

73 1 U.S. unique open rate, click-through rate metrics from IBM Silverpop 2015 Marketing Metrics Benchmarks Study 2 DME = Durable Medical Equipment

Merchandising

E-Commerce

Digital Marketing

~250% growth in sales from email campaigns; key metrics exceed industry benchmarks1

Online tools promoting McKesson Brand and our preferred vendors

Tailored e-commerce solutions for online retailers and DME2 providers with next-day patient home delivery

Investing To Drive Growth In Priority Segments

74 1 “The Value of Clinical Laboratory Services” American Clinical Laboratory Association, 2014

•  Developing medical-surgical, Rx and lab formulary

•  Investing in health systems sales force

•  Delivering analytics to understand costs

Health Systems

•  Increasing physician employment •  Coordinating care across continuum

•  Developing supplier portfolio

•  Leveraging sales support model with lab specialists

•  Enhancing lab-specific service model

Laboratory

•  Lab tests guide more than 70% of medical decisions1

•  Shift in testing from central lab to point-of-care

Extending Capabilities In Medical-Surgical

75

Driving Innovation

•  Use automation to further optimize supply chain

•  Reduce cost-to-serve

•  Leverage scalable platform and channel for preferred suppliers

•  Expand digital capabilities for retailer partners

•  Enhance online sales channels


•  Extend lab capabilities into new markets

•  Grow private label offering

•  Enable seamless, transparent supply chain for health systems



Celesio

Marc Owen

Chairman Celesio Management Board

Celesio Core Operations

1 U.S. Census Bureau International Database (2015) Note: Celesio completed the sale of its Brazilian operations on May 31, 2016. 77

•  Extensive network across 13 countries in Europe

•  Leader in pharmaceutical distribution

•  Strong retail presence with more than 6,500 owned, managed and banner pharmacies

•  Relatively fragmented industries

•  Population of nearly 350 million in the markets we serve1

Highlights

Celesio Senior Management

78

Marc Owen Chairman

Celesio Management Board 14 years

Tilo Köster Chief Legal / Compliance Officer

24 years

Brian Tyler Chief Operating Officer

19 years

Alain Vachon Chief Financial Officer

27 years

Celesio Broad Value Proposition across Europe

79




Driving Innovation

European Pharmaceutical Industry Landscape

80

0

50

100

150

200

250

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Overall European Market Sales (USD Billion)

Stable, Growing Market

Increasing Generics Penetration

Demographics, Chronic Disease and New Therapies

Source: IMS Health Market Prognosis Summary Europe 2016-2020, March 2016

Operational Excellence Driving Business Improvement

81


•  Inventory accuracy

99.92% •  >1% increase in

automation rate •  NRDC model

introduced in France •  Targeting >3%

improvement in supply chain cost per unit

•  Six Sigma projects ongoing and new projects initiated

Global Procurement And Sourcing Continue to Coordinate with London Office to Drive Efficiencies

82

Investment In IT Platform Driving Future Operational Success

83

Multi-year investment in ERP implementation will align systems with McKesson and help drive global procurement and distribution efficiencies

Country-Level Data Customers

Market Data

Suppliers

Broad Retail Footprint Across Europe

84

IRELAND

UNITED KINGDOM

FRANCE

GERMANY

NORWAY

SWEDEN

BELGIUM

NETHERLANDS

ITALY

Note: Brocacef is a joint venture where Celesio has an equity interest of 45%.

European Pharmacy Network Strong Network of Owned, Franchise and Co-Op Pharmacies

85

Customer-Centric Approach Across All Offerings

Owned Pharmacies Franchise Partner Cooperations and Independents

•  Consistent European brand •  A differentiated pharmacy

concept

•  Common store appearance •  New technology and

product focus helps drive store traffic

•  Lloyds’ concept elements customized for pharmacies

•  Focusing on specialty services and product categories

EPN: Expertise And Services Drive Success Performance of Converted Pharmacies Validates Concept

86

Expert Knowledge

Category Management

Marketing Services

Management Services

Global Sourcing and Procurement

Investing In Innovation

87

Innovation driving connected care for patients in Sweden

and the UK

Online Doctor

Unique value proposition to hospitals and

manufacturers to further penetrate hospital

market

Hospital Solutions

Automated assembly system (integrated to a wholesale branch) to assemble individual

patient prescriptions in mass in the UK

Prescription Assembly

Patient Support Services

M&A investment in UK to complement existing homecare solutions with more advanced services

Homecare Solutions

Tailored patient support programs in Norwegian Vitusapotek pharmacies

Announced Acquisitions

M&A Activity Is A Future Growth Driver

88

•  Further Consolidation

•  Channel Expansion

•  Geographic Expansion

Potential Opportunities

Note: Belmedis, Bupa Home Healthcare and Sainsbury’s acquisitions have not yet closed and are subject to regulatory approvals.

g r o u p

Strong Platform For Growth

89

Driving Innovation




•  Focus on distribution network optimization, including increasing automation and introducing new models

•  Expanding retail pharmacy footprint and services across Europe with EPN initiative

•  Expanding dispensing services in the United Kingdom

•  Continue to create manufacturer programs in order to expand offerings across supply chain

•  Driving online doctor programs to allow connectivity in patient care

•  Further consolidation opportunities in key Western European markets


•  Growing private label solutions

•  Investing in new channels to increase value proposition (Specialty, Homecare, Long Term Care)

•  Driving forward existing projects and initiating Six Sigma pilots

90

McKesson Distribution Solutions Q&A

Financial Update

James Beer

Executive Vice President, Chief Financial Officer

Agenda

93

Drivers Of Value Creation Segment Financial Reviews –  Distribution Solutions

–  Technology Solutions

Operating Cash Flow Capital Deployment Priorities FY17 Outlook

McKesson Drives Sustained Value Creation

94

Portfolio Approach to Capital

Deployment

Experienced and Tenured Management Team

Public policy agenda supports greater access and improved efficiency

Favorable demographics in North America and Europe

Market-leading positions

Global footprint and sourcing scale

Retail pharmacy networks

Specialty distribution and services

Attractive Healthcare Market

Well-positioned Businesses

Internal investments

Strategic M&A

Share repurchases

Dividends

Long track record of delivering results

Operational excellence

Financial discipline

95

Distribution Solutions

Scaled and Diversified Portfolio with Multiple Profit Levers

Distribution Solutions: FY16 Performance

96

•  Expanded Retail Pharmacy Footprint to >13K Stores

•  Deepened Customer Relationships

•  Significantly Grew North America Specialty Businesses

9% Year-over-Year Constant Currency Revenue Growth

Contributed Significantly to Operating Cash Flow Expansion

Announced in Strategic Acquisitions

$4B+

Ahead of Schedule on Procurement-Related Synergies from Celesio Acquisition

21% Growth in OneStop in FY16

Note: Rexall Health and Sainsbury’s acquisitions have not yet closed and are subject to regulatory approval.

Distribution Solutions: FY17 Revenue Outlook

97


North America Pharmaceutical Distribution and

Services

Medical-Surgical Distribution and

Services

International Pharmaceutical Distribution and

Services

Revenue growth expected to increase by high-single digits

driven by market growth and

acquisitions

Expect to deliver high-single digit revenue growth

Expected to deliver mid-single digit revenue growth

Revenues are anticipated to grow low-double digits

on a constant currency basis

Distribution Solutions: FY17 Financial Drivers

98

Scaled Leadership Positions

Across Diversified Portfolio of Businesses

Global Sourcing Expertise and Innovative Sourcing Programs

Operational Excellence and Innovation

Focus on Higher-Growth Businesses

Acquisition Accretion and Synergies Demonstrated Track Record of Success

A focus on long-term operating profit expansion

Steady Margins Expected Despite Generic Pricing and Customer Consolidation Headwinds

99

Technology Solutions

Diversified Portfolio with Improved Margin and Recurring Profit Streams

Technology Solutions: FY16 Performance

100

in Adjusted Operating Margin1 Despite EHR Challenges

288 Basis Point Expansion

Steady Revenue Growth Across Non-EHR Businesses2

Support Shift to Value-based Care

~80% of FY16 Operating Profit

from Well-positioned Payer, Connectivity and Imaging Businesses

Healthy Operating Cash Flow Expansion

1 FY16 TS Adjusted Operating Margin, excluding the Cost Alignment Plan and the gain on sale of nurse triage and expressed in constant currency versus FY15 Adjusted Earnings (Non-GAAP) value. 2 Excludes Enterprise Information Solutions and adjusted to excluded divested businesses.

Sources of Operating Profit

Primarily Transaction and Subscription-based

Operating Profit

Technology Solutions: FY17 Financial Drivers

101

Scaled Leadership Positions to Meet Market Needs

Executing Against Newly Optimized Portfolio

Focus on Higher-growth Areas and Driving Long-term Margin Expansion

FY17 Adjusted Operating Margin Goal of “Low 20% Range”

FY17 Revenue Down Slightly Due to EHR Platform

Payer, Relay Pharmacy, Imaging and Revenue Cycle Management Solutions are Positioned to Drive Steady Long-term Growth

Annual Operating Cash Flows And Net Income Expanded Over Time

102

($ Billions) Operating Cash Flow

1 Reflects Adjusted Net Income information calculated on an Adjusted Earnings (Non-GAAP) basis as reported (and recast) for the fiscal years 2010 to 2015. FY 2016 Adjusted Net Income excludes the Cost Alignment Plan and gains on sale of the two businesses and is expressed in constant currency. 2 Projected growth excludes cash payments related to the Cost Alignment Plan and a settlement agreement with the U.S. Drug Enforcement Administration and the U.S. Department of Justice as previously disclosed in April 2015, and as outlined in the Q4 FY16 earnings conference call on May 4, 2016.

FY15 – FY16

18%

FY16 – FY172

15% $1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0 Operating Cash Flow

Net Income

Adjusted Net Income 1

Investing Today To Drive Long-Term Growth A Portfolio Approach to Capital Deployment

103

$677M in Internal

Investments

$4+B in Acquisitions

Announced

$1.5B in Cash

Returned to Shareholders via Share Buybacks

17% Increase in Quarterly Dividend

$1.6B in Long-term

Debt Repayments

1 As reported in Q1-Q4 FY16 earnings press releases. 2 As reported in our FY10 to FY16 Annual Reports as filed on Form 10-K.

>$25 Billion2 Deployed During FY10 – FY16

FY16 Milestones1

FY17 Capital Deployment Priorities

104

Continuing Our Portfolio Approach to Capital Deployment

•  Commit $700 to $800 million to internal investment

•  Execute on FY16 announced acquisitions

•  Evaluate additional M&A opportunities

•  Assume WASO at 228M

•  Pay dividend •  Maintain investment-grade rating; manage

debt capacity accordingly

Drivers Of FY17 Earnings Outlook

105

•  Furthering our global scale and sourcing capabilities

•  Continuing to grow our generics business and expand customer relationships

•  Executing on acquisition synergies and capturing acquisition accretion

•  Driving organic growth across our diversified businesses in the U.S., Canada and Europe

•  Delivering growth and margin expansion from our payer, Relay Pharmacy, imaging and revenue cycle management solutions

•  Providing additional value-added products and services across both segments

•  Executing on the Cost Alignment Plan

•  Deploying capital consistent with our portfolio approach

Opportunities Considerations

Delivering Financial Performance Updated FY17 Earnings Outlook of $13.43 to $13.931

106

•  Branded and generic pricing trends •  Revenue mix •  Nature of generic launches •  Regulatory environment •  Reimbursement pressure •  Acquisition close timing •  WBA proposed acquisition of RAD •  Evolving market for hospital software

•  Favorable industry demographics •  Procurement scale •  Expanding customer relationships •  Growth in specialty •  Acquisition accretion and synergies •  Execution on Cost Alignment Plan •  Capital deployment •  Operational excellence

1 FY17 Outlook excludes anticipated charges of approximately $40 to $50 million, or 12 to15 cents per diluted share, related to the Cost Alignment Plan.

Delivering Better Financial Health

107

•  Continued investments in supply-chain automation

•  Global scale and best practices

•  On-boarding expanded customer relationships

•  Expanding retail pharmacy footprint and services

•  Leading drug delivery channels and manufacturer programs

•  Driving transformation to value-based care

•  Solutions for retail pharmacies

•  Portfolio approach to capital deployment


•  Private label solutions

•  Acquisition integration

•  Consistent internal reinvestment


Driving Innovation



108

Wrap-Up Q&A and Summary

We Expect $13.43 To $13.931 Per Diluted Share In FY17, Which Excludes Approximately 12 To 15 Cents In Expected Charges From Adjusted Earnings Related To The Cost Alignment Plan

110

The Fiscal 2017 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:

•  Distribution Solutions revenue growth is expected to increase by high single digits driven by market growth and acquisitions.

•  We expect North America pharmaceutical distribution and services will deliver high single digit revenue growth in Fiscal 2017.

•  International pharmaceutical distribution and services revenues are anticipated to grow low-double digits on a constant currency basis in Fiscal 2017.

•  Medical-Surgical distribution and services is expected to deliver mid-single digit revenue growth in Fiscal 2017.

•  Fiscal 2017 branded drug price trends in the U.S. market are expected to be modestly below those experienced in Fiscal 2016.

•  We expect a nominal contribution to our Fiscal 2017 results from generic pharmaceuticals that increase in price.

•  We expect the profit contribution from the launch of new oral generic pharmaceuticals in the U.S. market will decrease year-over-year.

•  Technology Solutions revenues are expected to be down slightly year-over-year driven by anticipated revenue decline in our hospital software business.

•  Proceeds from anticipated antitrust litigation settlements are estimated at $140 million, pre-tax, for Fiscal 2017, compared to $76 million, pre-tax, in Fiscal 2016.

•  Fiscal 2017 pre-tax charges associated with our Cost Alignment Plan are expected to be between $40 million and $50 million and are excluded from our Fiscal 2017 outlook of $13.43 to $13.93 per diluted share.

•  The guidance range assumes a full-year adjusted tax rate of approximately 31.0%, which may vary from quarter to quarter.

1 Current guidance range reflects adjustments related to the early adoption of a new accounting standard for share-based compensation and incremental foreign currency exchange effects.

We Expect $13.43 To $13.931 Per Diluted Share In FY17, Which Excludes Approximately 12 To 15 Cents In Expected Charges From Adjusted Earnings Related To The Cost Alignment Plan (continued)

111

The Fiscal 2017 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:

•  Property acquisitions and capitalized software expenditures are expected to be between $700 million and $800 million.

•  We assume that our ownership position in Celesio will be approximately 76% for Fiscal 2017.

•  We expect the impact of foreign currency exchange rate movements will have a net unfavorable impact of approximately 3 cents per diluted share1 year-over-year as modest improvements in the Euro / USD average rate will be more than offset by the GBP / Euro average rate when compared to the prior year.

•  Weighted average diluted shares used in the calculation of earnings per share are expected to be approximately 228 million for the year.

•  Cash flow from operations is expected to increase approximately 15% year-over-year, excluding approximately $270 million in cash payments expected in Fiscal 2017 related to the Cost Alignment Plan and a settlement agreement with the U.S. Drug Enforcement Administration and the U.S. Department of Justice as disclosed in April 2015.

•  Based on acquisitions announced as of March 31, 2016:

–  We expect amortization of acquisition-related intangible assets of approximately $1.36 per diluted share.

–  We expect acquisition expenses and related adjustments of 30 cents per diluted share.

–  We expect LIFO inventory-related charges of 48 cents per diluted share.

•  The Fiscal 2017 guidance range does not include the impact of any potential new acquisitions or divestitures, impairment or incremental material restructuring charges, or any potential claim or litigation reserve adjustments beyond those disclosed in the Form 8-K as filed on March 18, 2016.

1 Current guidance range reflects adjustments related to the early adoption of a new accounting standard for share-based compensation and incremental foreign currency exchange effects.

113

McKESSON CORPORATIONRECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)

FOR FISCAL 2016 - 2010(unaudited)

(in millions, except per share amounts)

(a)  Certain computations may reflect rounding adjustments (b)  Adjusted Earnings per share on a Constant Currency basis for FY16 was $12.21 per diluted share, which excludes the foreign currency exchange effect of $0.13 per diluted

share.

As Reported (GAAP)

Amortizationof Acquisition-

Related Intangibles

AcquisitionExpenses and

RelatedAdjustments

Claim and Litigation Reserve

AdjustmentsLIFO-Related Adjustments

AdjustedEarnings

(Non-GAAP)

Gross profit 11,416$ 7$ -$ -$ 244$ 11,667$ Operating expenses (7,668) 423 110 - - (7,135) Restructuring charges (203) - - - - (203) Other income, net 58 1 4 - - 63 Interest expense (353) - - - - (353)

3,250 431 114 - 244 4,039 Income tax expense (908) (136) (36) - (95) (1,175)

2,342 295 78 - 149 2,864

(52) - - - - (52)

2,290$ 295$ 78$ -$ 149$ 2,812$

9.84$ 1.27$ 0.34$ -$ 0.63$ 12.08$ (b)

Diluted weighted average common shares 233 233 233 - 233 233

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)

Year Ended March 31, 2016

Income from continuing operations before income taxes

Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests

Income from continuing operations, net of tax, attributable to McKesson Corporation

As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 11,411$ 9$ 1$ -$ 337$ 11,758$ Operating expenses (8,443) 483 223 150 - (7,587) Other income, net 63 2 - - - 65 Interest expense (374) - - - - (374)

2,657 494 224 150 337 3,862 Income tax expense (815) (157) (78) - (131) (1,181)

1,842 337 146 150 206 2,681

(67) - - - - (67)

1,775$ 337$ 146$ 150$ 206$ 2,614$

7.54$ 1.43$ 0.63$ 0.64$ 0.87$ 11.11$ Diluted weighted average common shares 235 235 235 235 235 235






114




(a)  Certain computations may reflect rounding adjustments.

As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 8,352$ 11$ 3$ -$ 311$ 8,677$ Operating expenses (5,913) 308 155 68 - (5,382) Other income, net 32 - 14 - - 46 Interest expense (300) - 46 - - (254)

2,171 319 218 68 311 3,087 Income tax expense (757) (115) (69) (15) (121) (1,077)

1,414 204 149 53 190 2,010

5 (7) (2) - - (4)

1,419$ 197$ 147$ 53$ 190$ 2,006$







As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 6,881$ 13$ -$ -$ 13$ 6,907$ Operating expenses (4,534) 196 (10) 72 - (4,276) Other income, net 34 - - - - 34 Impairment of equity investment (191) - - - - (191) Interest expense (240) - 11 - - (229)

1,950 209 1 72 13 2,245 Income tax expense (587) (76) (6) (27) (5) (701)

1,363 133 (5) 45 8 1,544

- - - - - -

1,363$ 133$ (5)$ 45$ 8$ 1,544$

5.69$ 0.56$ (0.02)$ 0.19$ 0.03$ 6.45$ Diluted weighted average common shares 239 239 239 239 239 239






115




(a) Certain computations may reflect rounding adjustments.

As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 6,435$ 17$ -$ -$ 11$ 6,463$ Operating expenses (4,289) 167 26 149 - (3,947) Other income, net 20 - - - - 20 Interest expense (251) - - - - (251)


1,394 113 16 60 7 1,590

- - - - - -

1,394$ 113$ 16$ 60$ 7$ 1,590$




Income from continuing operations after tax



Income from continuing operations, net of tax, attributable to noncontrolling interests

As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 5,828$ 16$ -$ -$ 3$ 5,847$ Operating expenses (4,041) 115 43 213 - (3,670) Other income, net 35 - (16) - - 19 Interest expense (222) - 25 - - (197)


1,097 80 36 149 2 1,364

- - - - - -

1,097$ 80$ 36$ 149$ 2$ 1,364$







116




(a) Certain computations may reflect rounding adjustments.

As Reported (GAAP)


Related Intangibles


RelatedAdjustments



AdjustedEarnings

(Non-GAAP)

Gross profit 5,527$ 21$ -$ -$ 8$ 5,556$ Operating expenses (3,558) 97 - (20) - (3,481) Other income, net 43 - - - - 43 Interest expense (187) - - - - (187)

1,825 118 - (20) 8 1,931 Income tax expense (605) (46) - 8 (3) (646)

1,220 72 - (12) 5 1,285

- - - - - -

1,220$ 72$ -$ (12)$ 5$ 1,285$

4.46$ 0.26$ -$ (0.04)$ 0.02$ 4.70$ Diluted weighted average common shares 273 273 - 273 273 273






117

(unaudited)

McKESSON CORPORATIONRECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE

FOR FISCAL 2016 - 20010

(in millions)


Technology Solutions Corporate Total







As Reported (GAAP):Revenues 187,999$ 2,885$ -$ 190,884$ 175,976$ 3,069$ -$ 179,045$ 134,062$ 3,330$ -$ 137,392$ 119,046$ 3,150$ -$ 122,196$

Income from continuing operations before interest expense and income taxes 3,553 519 (469) 3,603 3,047 438 (454) 3,031 2,472 448 (449) 2,471 2,195 330 (335) 2,190

Pre-Tax Adjustments:Amortization of acquisition-related intangibles 391$ 40$ -$ 431$ 445$ 48$ 1$ 494$ 256$ 62$ 1$ 319$ 148$ 60$ 1$ 209$ Acquisition expenses and related adjustments 112 - 2 114 212 - 12 224 120 18 34 172 47 7 (64) (10) Claim and litigation reserve adjustments - - - - 150 - - 150 68 - - 68 72 - - 72 LIFO-related adjustments 244 - - 244 337 - - 337 311 - - 311 13 - - 13 Total pre-tax adjustments 747$ 40$ 2$ 789$ 1,144$ 48$ 13$ 1,205$ 755$ 80$ 35$ 870$ 280$ 67$ (63)$ 284$

Adjusted Earnings (Non-GAAP): Revenues 187,999$ 2,885$ -$ 190,884$ 175,976$ 3,069$ -$ 179,045$ 134,062$ 3,330$ -$ 137,392$ 119,046$ 3,150$ -$ 122,196$

Income from continuing operations before interest expense and income taxes 4,300$ 559$ (467)$ 4,392$ 4,191$ 486$ (441)$ 4,236$ 3,227$ 528$ (414)$ 3,341$ 2,475$ 397$ (398)$ 2,474$







As Reported (GAAP):Revenues 119,424$ 3,029$ -$ 122,453$ 108,889$ 2,915$ -$ 111,804$ 105,578$ 2,847$ -$ 108,425$

Income from continuing operations before interest expense and income taxes 2,219$ 360$ (413)$ 2,166$ 1,897$ 266$ (341)$ 1,822$ 1,988$ 346$ (322)$ 2,012$

Pre-Tax Adjustments:Amortization of acquisition-related intangibles 121$ 63$ -$ 184$ 70$ 61$ -$ 131$ 51$ 67$ -$ 118$ Acquisition expenses and related adjustments 24 1 1 26 41 - (14) 27 - - - - Claim and litigation reserve adjustments 149 - - 149 213 - - 213 - - (20) (20) LIFO-related adjustments 11 - - 11 3 - - 3 8 - - 8 Total pre-tax adjustments 305$ 64$ 1$ 370$ 327$ 61$ (14)$ 374$ 59$ 67$ (20)$ 106$

Adjusted Earnings (Non-GAAP): Revenues 119,424$ 3,029$ -$ 122,453$ 108,889$ 2,915$ -$ 111,804$ 105,578$ 2,847$ -$ 108,425$

Income from continuing operations before interest expense and income taxes 2,524$ 424$ (412)$ 2,536$ 2,224$ 327$ (355)$ 2,196$ 2,047$ 413$ (342)$ 2,118$


Year Ended March 31, 2015 Year Ended March 31, 2014 Year Ended March 31, 2013




118

McKESSON CORPORATION

FOR FISCAL 2016 (unaudited)


SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION REVENUES, OPERATING PROFIT AND OPERATING PROFIT MARGIN BY SEGMENT

(a)  During the fourth quarter of FY16, the Company approved a restructuring plan to reduce its operating expenses ("Cost Alignment Plan") and recorded pre-tax charges of $161 million and $51 million within our Distribution Solutions segment and Technology Solutions segment in the GAAP operating results.

(b)  Baseline (Non-GAAP) for FY16 excludes from Adjusted Earnings (Non-GAAP) charges relates to the Cost Alignment Plan and gains on the sale of two businesses recorded in FY16.

As Reported (GAAP)

AdjustedEarnings

(Non-GAAP)Cost Alignment Plan Charges (a)

Sale of Businesses

Baseline(Non-GAAP) (b)

REVENUESDistribution Solutions 187,999$ 187,999$ -$ -$ 187,999$ Technology Solutions 2,885 2,885 - - 2,885

Revenues 190,884$ 190,884$ -$ -$ 190,884$

FOREIGN CURRENCY EFFECTSDistribution Solutions 4,402$ 4,402$ -$ -$ 4,402$ Technology Solutions 11 11 - - 11

Foreign currency effects 4,413$ 4,413$ -$ -$ 4,413$

REVENUES IN CONSTANT CURRENCYDistribution Solutions 192,401$ 192,401$ -$ -$ 192,401$ Technology Solutions 2,896 2,896 - - 2,896

Revenues in constant currency 195,297$ 195,297$ -$ -$ 195,297$

OPERATING PROFITDistribution Solutions 3,553$ 4,300$ 161$ (52)$ 4,409$ Technology Solutions 519 559 51 (51) 559

Operating profit 4,072$ 4,859$ 212$ (103)$ 4,968$

FOREIGN CURRENCY EFFECTSDistribution Solutions 56$ 85$ 2$ -$ 87$ Technology Solutions (17) (17) - - (17)

Foreign currency effects 39$ 68$ 2$ -$ 70$

OPERATING PROFIT IN CONSTANT CURRENCYDistribution Solutions 3,609$ 4,385$ 163$ (52)$ 4,496$ Technology Solutions 502 542 51 (51) 542

Operating profit in constant currency 4,111$ 4,927$ 214$ (103)$ 5,038$

STATISTICS Operating profit as a % of revenues

Distribution Solutions 1.89% 2.29% 2.35%Technology Solutions 17.99% 19.38% 19.38%

Operating profit as a % of revenues (Constant Currency)Distribution Solutions 1.88% 2.28% 2.34%Technology Solutions 17.33% 18.72% 18.72%


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