John Hammergren - Chairman, Chief Executive Officer and President Ana Schrank - Jeff Campbell - Chief Financial Officer and Executive Vice President

Ricky Goldwasser - Morgan Stanley Thomas Gallucci - Lazard Capital Markets LLC Helene Wolk - Sanford C. Bernstein & Co., Inc. Lisa Gill - JP Morgan Chase & Co Robert Jones - UBS Garen Sarafian - Citigroup Inc Lawrence Marsh - Barclays Capital Steven Valiquette - UBS Investment Bank Richard Close - Jefferies & Company, Inc. Eric Coldwell - Robert W. Baird & Co. Incorporated Glen Santangelo - Crédit Suisse First Boston, Inc.

Good afternoon, and welcome to McKesson Corporation Fiscal 2010 Fourth Quarter Conference Call. [Operator Instructions] I would now like to introduce Ms. Ana Schrank, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Lisa. Good afternoon, and welcome to the McKesson fiscal 2010 fourth quarter earnings call. With me today are John Hammergren, McKesson's Chariman and CEO; and Jeff Campbell, our CFO. John will first provide a business update and we'll then introduce Jeff who will review the financial results for the quarter. After Jeff's comments, we will open the call for your questions. We plan to end the call promptly after one hour at 6:00 p.m. Eastern Time. Before we begin, I remind listeners that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of McKesson. In addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release for a discussion of the risks associated with such forward-looking statements. Thanks, and here is John Hammergren.

Thanks, Ana, and thanks everyone for joining us on our call. We finished fiscal 2010 with fourth quarter revenues of $26.6 billion and net income of $348 million or $1.26 per diluted share. For the full year, excluding adjustments to litigation reserves in both years, net income grew 10% to $1.3 billion and earnings per share was up 13% to $4.58. Solid performance across the entire company contributed to our fiscal 2010 results. In Distribution Solutions, we successfully executed against the opportunities like the H1N1 flu vaccine initiative. We performed well for our branded pharmaceutical partners. And we continue to grow gross profit from our proprietary generics program. And we realized many benefits from our global sourcing activities. In Technology Solutions, we started the year in an economic downturn, which led to longer buying cycles and delayed implementations, but we're able to grow revenues in this segment. I'm pleased that in our fourth quarter, we had one of the highest levels of bookings ever. And we also had the highest full year operating margin in recent history. Last year's performance provides a good foundation for fiscal 2011 success. Moving on to some of the specifics for the quarter and the year. Distribution Solutions performed very well with solid contributions from all of our businesses. In U.S. Pharmaceutical, the team delivered terrific results despite the challenges we faced early in the year for some lost business and some margin pressure. Our commitment to our pharmaceutical distribution customers has never been stronger. This is reflected by the success we have demonstrated in each of our customers segments. For example, in our Retail National Accounts segment, we retained all of our accounts that were up for renewal in fiscal 2010. In the Independent segment, we were able to achieve profit growth with compliance programs that drove adoption of our value-added products, including our Health Mart franchise, which we increased by 500 stores this year. In our Hospital business, we saw continued success from new initiatives, such as our recently launched Plasma and BioLogics business. And we benefited from further penetrating our base of customers with our proprietary generics program. Across all of our customer segments, we focused on better generics compliance within our existing base and realized significant growth in generics gross profit. We also had a strong contribution from branded pharmaceutical manufacturers. Included in our U.S. Pharmaceutical Distribution and Services results are the results of Specialty Care Solutions. This business had a tremendous year, successfully delivering on the Centers for Disease Control and Prevention H1N1 flu vaccine program and benefiting from the launch of a generic, earlier in the year. Since October, we've shipped more than 126 million doses of the H1N1 vaccine and the related medical supply kits to thousands of providers across the country. Thanks to the team's leadership and hard work, we've earned high praise from our clients at the CDC. We are working with the CDC on a modest program to continue delivering the H1N1 flu vaccine through July 31. And we have significantly wind down our operations to match these reduced volumes. The H1N1 flu vaccine distribution initiative was not only the largest public health initiative in CDC history, it was also a significant event for McKesson. Never before have so many McKesson employees from across the company come together for a customer. I'm very proud of our team which work closely with the CDC to execute on this opportunity in one McKesson way. Turning to our other businesses in the Distribution Solutions segment. Our Medical Surgical business had a solid contribution to the overall success of Distribution Solutions. Medical Surgical's revenues grew significantly reflecting increased demand related to the flu and aided by acquisitions made in fiscal 2009. This business too was able to respond quickly to an anticipated demand related to the flu vaccine season. And the team organized immediately to respond to the unique market opportunity. That and aside the contribution from flu, our Medical Surgical business has demonstrated tremendous execution not just this year, but over the past three years as we focused on the alternate site markets. I'm pleased with our progress in this business, particularly the continued focus on expense control measures and global sourcing that McKesson branded products, which have led to improved operating results. Finally, our Canadian Distribution business had strong revenue growth and gains in market share. McKesson Canada continues to get operating leverage through investment in our distribution center network and increased participation in the corporation's global sourcing programs. I'm extremely pleased with our full year performance in Distribution Solutions. We've achieved strong results despite the challenges we faced coming into the year and we expect our momentum to continue. Next fiscal year at Distribution Solutions, we expect that our revenues will grow at market adjusted for our mix of business. Generics should continue to be a significant driver of margin expansion. We are headed into the year with a robust launch calendar. And we are well-positioned with our proprietary generics program, OneStop, which cuts across all of our customer segments in U.S. Pharmaceutical and Specialty Care Solutions. On the branded drug side, we deliver a broad range of value-added services to the manufacturers, resulting in steady compensation. In fiscal 2011, we expect branded price inflation will be at similar levels to fiscal 2010. Overall, we have tremendous confidence in the continued success of Distribution Solutions and we remain steadfastly focused on delivering superior value to our customers. Turning now to Technology Solutions. We started our fiscal year during an economic downturn that lengthened as customer's buying cycles and implementation times stretched out. More recently, our customers access to capital has improved and they have better visibility into the stimulus requirements. These dynamics helped us with a strong finish to fiscal 2010, with software revenues up 5% in the fourth quarter. Our full year operating profit margin expanded to the highest level in recent history and it now approaches our goal of low to the mid-teens. While our Technology businesses is best known for market share leading products and solutions to support hospital and physician office customers, we do have a more diverse and robust offering. So let me take a moment to remind you of the major businesses that comprise Technology Solutions because each of them contributed significantly to our progress this year. Our largest technology business deliver solutions for hospitals. These providers have been focused on the stimulus this year and we have the market leading clinical systems and analytics they need to qualify for stimulus money. We also have solutions for hospitals that improve their performance by automating financial and administrative operations. And we recently introduced our next-generation revenue cycle system, Horizon Enterprise Revenue Management, where we are a leader in medical imaging solutions, as well as providing innovative capabilities in hospital pharmacy automation. Earlier in the year, we told you that stimulus has generated an increase customer interest in our solutions, but the interest had not yet been reflected in increase buying. As the year progressed, stimulus-related purchases accelerated and we a saw strong growth in new business in the fourth quarter, achieving the solid finish to the year. We are adding more Horizon Enterprise Revenue Management customers as our legacy hospitals are realizing that this solution will enable them to streamline their systems and improve their financial performance. In the physician market, we have a large footprint with more than 100,000 physicians using our solutions to improve both their office and clinical efficiency. We have a very complete offering for payors through our Health Solutions business, where our expert technology and evidence-based clinical information enables payors to manage their administrative and medical costs. And we are a leader, a longtime leader with an unmatched footprint. Our solutions today are used by the top 20 health plans in the United States, which cover 73% of the commercial lines. Health Solutions had its best performance ever, driven by a rapid adoption in several new products that we introduced into the marketplace earlier in the year, namely, Total Payment Solutions, Clear Coverage and Molecular Diagnostics. These products drove strong bookings within our installed base of customers. Through our Health Solutions business, we also run programs that focus on improving the health and wellness of Medicaid beneficiaries. For example, our program with the State of Illinoi has achieved net savings by the state of more than $300 million over a three-year period. By helping patients better manage chronic and acute illnesses, we assure that there are fewer unnecessary emergency room visits and hospital admissions. Finally, our RelayHealth Connectivity business differentiates our offering because we automate the operations in each care setting and support the flow of financial and clinical transactions between health systems, labs, physicians, pharmacies, payors, consumers and others. A significant portion of the meaningful use guidelines under the HITECH portion of the American Recovery and Reinvestment Act, relate to the ability to exchange patient health information and approximately $564 million in stimulus funding is earmarked for health care information exchanges. This year, Relay closed its biggest clinical connectivity contract ever with Henry Ford Health System. The agreement is a good example of one McKesson, because it also included our Electronic Health Record Solutions for physician offices called Practice Partner. Q4 marked one of our highest levels of bookings in recent history for our Technology Solutions segment. Across the business, we have sharpened our focus on execution, innovation and collaboration to drive customer success. In the back half of fiscal 2010, we invested more heavily to ensure that we have the resources necessary to successfully move our customers through the deployment process to qualify for stimulus money. We expect to make continued investment in the first half of fiscal 2011. But we are confident that we will see solid margin expansion in this segment for the full year. In summary, fiscal 2010 was a remarkable year defined by political and economic change. We pushed through the challenges and exercised financial discipline and successfully executed on opportunities to increase our business. Throughout the year, McKesson has been engaged in every step of the healthcare debate. We are very committed to our presence in Washington, where we attempt to share our expertise with the policy community. The passage of the healthcare reform bill marks the most sweeping proposal for change through our industry in decades. It marks an important step toward expanding access to health insurance, yet the real work of transforming the nation's health care system is just beginning. To ensure ongoing access to affordable, high-quality health care, we must continue to address the underlying factors that keep our system from reaching the optimum levels of quality and cost effectiveness. As the largest healthcare services and technology company, McKesson is committed to working with all the participants in health care to develop innovations that address these issues, leading to our health care system that are simultaneously high-performing, accessible and economically sustainable. Over time, our Distribution business should benefit from expanding health insurance coverage. Our Technology businesses should benefit from increased reporting requirements for case management and care coordination, along with initiatives to prevent hospital re-admissions and the complexity of ever-changing insurance reimbursement. And our Connectivity business should benefit from the adoption of standards from financial and administrative transactions to promote administrative simplification. We expect healthcare reform will help sustain our momentum. Now to wrap up. Our fiscal 2010 results provide us with a good foundation for continuous success in fiscal 2011. Both Distribution Solutions and Technology Solutions are producing sound, operating results and very positive cash flow. Over time, we've used our portfolio approach for acquisitions, share repurchases, dividends and internal investment, creating significant value for our shareholders. Our increased share repurchase authorization announced today maximizes our flexibility to begin deploying our significant cash balances and we will continue to pursue acquisition opportunities that will advance our mission to improve the quality and safety of the health care system. Based on the operating trends in our business, we expect earnings per diluted share of $4.72 to $4.92 for fiscal 2011. With that, I'll turn the call over to Jeff and we'll return to address your questions when he finishes. Jeff?

Well, thanks, John, and good afternoon, everyone. As you've just heard, this is another solid operational quarter capping off a great year. In my remarks today, I'll cover both the fourth quarter and the full year results. As you've heard me say before, we provide our EPS guidance on an annual basis due to both seasonality and the quarter-to-quarter fluctuations that are inherent to our business. In this context, an annual look at our financial results can provide more meaningful insight into some of the key trends. So I'll focus more on the annual numbers than the quarterly once today. And I'll also comment on what these trends might mean for fiscal 2011. My comments today will exclude the current year impact of the litigation reserve release and the prior year's AWP litigation charge. As usual, I'll begin with a review of our consolidated results followed by a more detailed discussion of each segment. Consolidated revenues for both the full year and quarter were up 2%. And we ended the full year with revenues of $108.7 billion. Both segments contributed to this revenue growth, each demonstrating resilience, given the tough economic environment. Gross profit was up 6% to $5.7 billion for the year and up 8% to $1.6 billion for the quarter, giving us nice leverage on the 2% revenue growth. For the year, both segments contributed to this increase in our gross profit margin. Moving now to operating expenses. As we entered fiscal 2010, we enacted strong cost containment measures across the company in response to the tough economic environment, which resulted in lower year-over-year operating expense in the first two quarters of fiscal 2010. As we begin to outperform our original expectations, we chose to make certain investments in both segments to support the business and build a better foundation for the future. This resulted in modest operating expense increases in the latter half of fiscal 2010. In line with this trend, our full year operating expense was flat year-over-year at $3.7 billion, while our fourth quarter operating expense was up 4%. Also as a reminder, in fiscal 2010, our operating expense benefited from a legal settlement impacting the company's 401(k) plan, which resulted in us having little expense related to our 401(k) plan in fiscal 2010. In fiscal 2011, we expect our expense associated with the voluntary contributions to our company's 401(k) plan to return to approximately $58 million. Overall, considering all these impacts, our fiscal 2011 outlook reflects a modest increase in operating expense going forward. Next, our operating income was up 18% to $2 billion for the full year and up 15% to $573 million for the quarter. This performance is really driven by both the growth in the gross margin, I described earlier, combined with the leverage we achieved at the operating expense line. Increasingly, we have moved our focus to measuring our operating expense leverage relative to our gross profit. For our Distribution segment, in particular, as generic conversions have grown over the years, this metric has become more relevant than viewing our operating expense leverage relative to revenue. So looking at our operating expense on the more relevant metric as a percentage of gross profit, operating expense for the company was just 65% for fiscal 2010 compared to 69% in the prior year. Moving down the P&L for the full year. Other income was impacted by several factors. In both the current and prior year, we had a gain on sale of the business. And then last year's fourth quarter, we had $63 million of impairment charges. Excluding these one-time items, other income was down significantly compared to the prior year, driven by lower short-term interest rates. Interest expense increased for the full year and quarter due to the debt we issued in February of fiscal 2009. Moving to taxes. We ended the year with an effective tax rate of 32.2%, which is slightly higher than our original fiscal 2010 guidance of 32%. Let me remind you that our fiscal 2009 tax provision was favorably impacted by $111 million of net income tax benefits for discrete items. Looking at just the fourth quarter tax rate, however, we did have a number of catch-up adjustments that drove our quarterly tax rate up to 35%. This was about $0.05 to $0.06 above of what we had expected when we last gave you guidance in January, $0.01 of this reflects our expense associated with the recently enacted health care reform law related to the elimination of a tax benefit for retiree prescription drug coverage. The weighted average diluted shares outstanding declined in both the full year and the quarter. The cumulative impact of shares repurchase lowered our full year diluted weighted shares average outstanding by 2% year-over-year to 273 million shares. You do see, however, that our fourth quarter number of $275 million was above the full year, as we did not repurchase any shares later in fiscal 2010. Our guidance for fiscal 2011 builds in an assumption that our share repurchase activity resumes, which is reflected in our weighted average diluted shares assumption for 2011 of 267 million. To wrap up our consolidated results, our full year diluted EPS from continuing operations was $4.58 versus $4.07 in the prior year, an increase of 13%. Diluted EPS from continuing operations was $1.26 for the quarter compared to $1.01 in the prior year, which was unfavorably impacted by $0.22 of impairment charges. So all in all, we're pleased with the growth that we achieved in fiscal 2010 given the headwinds we faced at the beginning of the year. So let's move on now to the segments. In Distribution Solutions, overall revenues were up 2% for the full year and quarter. Looking at the components of this revenue, our total U.S. Pharmaceutical Distribution and Services revenues grew 1% for the full year and were flat for the quarter. The full year was impacted by the losses in late fiscal 2009 of several customers that we have previously discussed. The fourth quarter was also impacted by lower purchases from two of our large retail national chain customers. Given the size of these customers and the volumes associated with them, their purchasing patterns and business wins and losses can obviously have an effect on our revenue growth. Turning to the split between direct and warehouse sales. Over the past year, we have repeatedly commented on a shift from warehouse purchases to direct store delivery by a large customer. This mix shift is the primary driver of the increase in Direct Distribution revenues and similar decline in warehouse revenues for the full year. Canadian revenues on a constant currency basis were 7% for the full year and 3% for the quarter, primarily driven by market growth. Medical-Surgical Distribution revenues were up 8% for the full year and 5% for the quarter, primarily driven by the positive impact of the flu, as well as several small acquisitions we made. Gross profit in this segment increased 7% for the full year and 11% for the quarter, resulting in a nice improvement in our gross profit margin. Several factors contributed to the increase in gross profit, and these drivers have consistently impacted our results throughout the fiscal year. Our Distribution Solutions operating expenses declined 1% for the year but increased 3% for the quarter, in line with the overall trends I discussed earlier. For the full year, operating profit grew 20% to $2 billion. As we've discussed the last several quarters, increased demand from the flu season was a significant driver of this increase. We told you 90 days ago on our last call that we expected the total incremental flu impact across all of our Distribution Solutions businesses to be in the range of $0.35 to $0.40 for fiscal 2010. We, in fact, ended the year right in the middle of this range. Excluding this incremental impact of flu and the favorable settlement related to our company's 401(k) plan that I discussed earlier, our full year operating margin in Distribution Solutions was 172 basis points. This is a 13 basis point improvement from the prior year and represents a real demonstration of the strength of the longer-term trends in these businesses. In summary and before I move on to Technology Solutions, we're very pleased with the strong performance delivered by our Distribution Solution businesses this year, as they effectively mitigated the challenges we faced at the beginning of the fiscal year. Turning now to Technology Solutions. Overall revenues were up 2% for the full year to $3.1 billion and also up 2% for the fourth quarter to $820 million. Services revenues grew 4% to $2.4 billion for the year, and 2% to $627 million for the quarter, reflecting the more stable nature of these revenues. Software and Software Systems revenues were flat for the year, but up 5% for the quarter. As John mentioned, we had historically high bookings in the March quarter but we also had a higher software deferral rate, due to the more complex nature of the products that were sold. To be specific, our software revenue deferral rate was up nine points to 80% for the full year, and up 11 points to 83% for the quarter. These strong bookings and high deferral rates provide a clear focus for us in the coming year to efficiently implement our customer solutions and convert these deferred revenues in the bottom line results. Technology Solutions gross profit increased 2% to $1.5 billion for the full year, roughly in line with our revenue growth. Gross profit for the quarter is flat compared to the prior year. Technology Solutions operating expenses declined 2% for the year and increased 7% to $299 million for the quarter. In this segment, you most dramatically saw the impact of our cost containment efforts in the first half of the year. In the second half, we stepped up our investments to ensure we have the right resources to successfully implement our customers' clinical solutions. Technology Solutions had total gross R&D spending for the year of $414 million compared to $410 million in the prior year. Of these amounts, we capitalized 16% compared to 17% a year ago. So even in a tough year when we were cutting costs early on, we still felt it was important to invest in the business and sustain our levels of R&D spending. For the year, Technology Solutions' operating profit increased 15% to $385 million, and our operating margin rate was 12.32% compared to 10.9% in the prior year. This is the fourth consecutive year we're making progress towards our long-term operating margin goal of being in the low- to mid-teens and we are pleased with this progress. Moving now to the balance sheet and working capital metrics. Our receivables were $8.1 billion, which is up from the March 31, 2009 balance of $7.8 billion. Our days sales outstanding increased by one day versus the prior year to 25 days. Our inventories were $9.4 billion on March 31, an increase of 11% over the prior year. And similarly, our payables increased 13% to $13.3 billion from a year ago. Both of these increases stem partly from the timing of some year end purchases, and you see this in our days sales and inventory of 34, which was up three days in the prior year on our days sales and payables of 48, which was up from 43 days last year. But beyond the year end timing impacts, we also did a great job this year of focusing the entire management team on cash generation in light of the difficult economic environment we confronted as we enter the year. This focus drove our cash flow from operations up to $2.3 billion, well above our original guidance. This is a great result. Going forward, we have assumed that many of the gains we made in fiscal 2010 were one-time in nature. So you see that we expect our cash flow from operations to be back to a more typical amount of approximately $1.5 billion for fiscal 2011. This strong cash generation allowed us to end the year with a cash balance of $3.7 billion. The strength of our balance sheet and our consistent track record of cash flow generation led two rating agencies in the past year to raise our long-term debt rating to A- levels. All of this positions us well for the continued use of our portfolio referred to capital deployment. Our total capital spending was $378 million for the year, in line with our original guidance of $350 million to $400 million. As we look forward to fiscal 2011, our annual guidance range for capital expenditures is slightly higher than $400 million to $450 million, driven by increased investment in our Distribution network. Let me now close by providing some additional context around our fiscal 2011 earnings guidance of $4.72 to $4.92 per diluted share. In our press release today, you will find a list of the key assumptions underlying this guidance, so I won't go over these again here. I do want to take a minute, however, to provide some additional context for these assumptions. I mentioned earlier that our normalized fiscal 2010 operating margin in Distribution Solutions was 172 basis points. We expect improvement to this normalized operating margin in the high-single-digit basis points. I would point out that our guidance for fiscal 2011 assumes that our flu-related profits will return to the levels we typically experienced in the normal year. In Technology Solutions, we would expect our operating margin rate to show some modest improvement. This improvement, however, will be heavily weighted towards the back half of the fiscal year. In terms of quarters, we do not provide quarterly EPS guidance, due to the variability and the timing of certain items in our businesses. However, at this moment, we can directionally estimate that the fourth quarter of fiscal 2011 will be our strongest. In addition, I would also remind you that in the first quarter of fiscal 2010, as I said at the time, many things went right. Our cost control measures had better-than-expected results, compensation from branded manufacturers was trending well and we had excellent growth in generics despite the customer losses we had experienced entering fiscal 2010. This year, in the first quarter of fiscal 2011, we do expect a sizable antitrust settlement that will generate a positive gain of approximately $51 million. Even with this antitrust settlement, however, we would expect to be flat to down modestly year-over-year for the first quarter. In summary, our fourth quarter results were a solid end to what we believe was a great year in fiscal 2010, considering the challenges we faced entering the year. These 2010 results have built a solid foundation for us as we head into fiscal 2011. Thank you. And with that, I'll turn the call over to the operator for your questions.

[Operator Instructions] Our first is Tom Gallucci, Lazard Capital Markets. Thomas Gallucci - Lazard Capital Markets LLC: First, Jeff, just following on some comments there at the end. A $51 million gain, rough math, I guess real quick, that's $0.10 or $0.12 or so, just want to be sure that's included in the guidance. And then the second thing was just on generics. How you sort of thinking about the year-over-year contribution in fiscal '11 versus fiscal '10 on generics in terms of new ones plus increased penetration in existing accounts.?

So Tom, the answer on a $51 million gain is that, that is included in the guidance. And the answer on generics, as John and I both talked about, is we are expecting strong growth in the profit contribution from generics, and this is driven by a combination of the fact that we see a launch calendar that is probably a little bit better than what we saw in fiscal year '10, though not quite as strong as fiscal year '09. And we expect to have continued growth in the penetration of our generic programs.

We'll take our next question today from Lisa Gill, JPMorgan. Lisa Gill - JP Morgan Chase & Co: John, you talked about capital deployment and I know that the strategy has stayed fairly consistent. But now you're sitting on $3.7 billion of cash and I appreciate that you're going to buy back some shares, but can you maybe just give us an idea of some of the things you see out there around acquisitions and the kind of size that you're looking at? I mean, is there a specific range state that you're thinking about as far as companies that would fit within McKesson?

We plan to continue as you note to deploy our capital in a portfolio approach, which will include continued use of dividends. Obviously, the share repurchase that we've expanded today from an authorization perspective gives us over $1.5 billion worth of firepower on that strategy. And we do see a continued acquisition opportunities albeit difficult to forecast and difficult to discuss on a call like this. I don't think we feel like we're particularly constrained from a size perspective. Our constraints are really driven by three factors: first is, sort of the financial model of any potential acquisition. In your term, what does it mean long term, and what is the price of the target? Is it something that makes sense economically for us to pursue? The second and no less important, clearly, is the strategy value that the company might deliver to us over the long haul. And the third, also important is the amount of synergy that exists between our business and the acquired company business. And so I think given McKesson's footprint, we see opportunities really across the healthcare universe that are open for our evaluation. Thus far, obviously, because we've not announced any acquisitions recently, those targets that we've been evaluating amidst on one or of those parameters, or simply can't be executed in a way that makes sense for our shareholders. So I think that we continue to be optimistic that there's a way for us to continue our track record of building value and we plan to continue to keep our options open. Lisa Gill - JP Morgan Chase & Co: Just as a follow-up, I mean, is it primarily price at this point? So are you seeing good acquisition targets in the marketplace and you just can't come to an agreement on price? Or is it more of a longer-term strategy and you're not quite sure that, that fits in with where you see McKesson going? I just want to get an understanding if how we should be thinking about those.

Well price clearly plays a very important role on public companies. You guys can run the math and realize what kind of synergies we have to have to make these acquisitions make sense. Arguably, we might be trading that at a multiple that is somewhat depressed compared to historical rates, but also, you'll see certain segments we compete in that, not the least of which is our Technology segment, where multiples might be at a record high. And so we may see those multiples contract over time, and those opportunities then would become more appropriate for us over time. So I think the best way to think about how we evaluate capital deployment is we're patient and the patience ultimately will pay off in good execution for our shareholders. Our patience has limits and clearly the share repurchase authorization that we have announced today shows that we clearly see share repurchase of McKesson's stock as a very competitive alternative to the other strategies we might be evaluating. Lisa Gill - JP Morgan Chase & Co: Just as a follow-up to the share repurchase, Jeff, are we assuming that you buy throughout the year, or are we assuming that you're going to do something a little bit more aggressive?

Well, as you know, Lisa, we never specifically comment on plans. However, you'll note that one of our key guidance assumptions is that we'll end the year with 267 million shares. So obviously, there's a number of ways you can get there depending on when and how much we buy. But our plan is to get to that number.

Our next question today comes from Glen Santangelo, Crédit Suisse. Glen Santangelo - Crédit Suisse First Boston, Inc.: Just a follow-up on Tom's question regarding the guidance. Jeff, if I hear you correctly, it sounds like of the $2.72 to $2.92 range, if we kind of backed out at $0.10 to $0.12 from this kind of one-time gain, you're kind of looking at in apples-to-apples number of around $4.70. And I think in last quarter's conference call, you kind of told us excluding all the one-time items, the base fiscal '10 number was somewhere around $3.95 to $4.10. So can you give us a sense for kind of where that number ended up? And according to our math, it kind of looks like you're forecasting the midpoint of the range to be up about 13%. Is that all fair?

Well, the short answer is, yes, I think you got everything right. Just for everyone's benefit, to remind you, the two items we talked about last time that were big, positives in FY '10, with a $0.35 to $0.40 of the flu. And I point out here that we told you today, we came in right in the middle of that range, and also said that in FY '11, our guidance assumes to the sense all that goes away and that our flu profits return back to levels they were more historically at an FY '09. And prior the other item we pulled out of FY '10 was the ESOP benefit which was $0.14 or $0.15. So other than that, I agree with all of your math. Glen Santangelo - Crédit Suisse First Boston, Inc.: And Jeff, if I could just ask one follow-up on SG&A, it kind of look like it ticked back up $75 million sequentially from fiscal 3Q. And I know, John, you guys had talked about some certain investments that were maybe made. Could you elaborate on that a little bit, because that kind of looks like a pretty big increase on a quarterly basis.

Well, we were and we have been and continue to invest heavily in our Technology business, where we believe it's important for us to continue to get in front of what we anticipate to be our customer's expectations from a deployment perspective. I think our view probably early in the third quarters, we started to ramp up those investments has come to pass, and that our customers, through the bookings increase we saw in the fourth quarter are, in fact, making purchasing decisions and would like us to help them deploy these products in time for their meaningful use requirements. So I think, as I mentioned, our investment will continue relatively strong in the first two quarters of next year, and that's in advance, so the revenue really being recognized as it take some time to get these products implemented and signed off on. So I do think that that's certainly one of the year-over-year increases from the spend perspective. I think a lot of the rest is sort of miscellaneous in various areas.

We'll now hear from Larry Marsh, Barclays Capital. Lawrence Marsh - Barclays Capital: So the antitrust settlement sounds to me at $0.13 in the first quarter and I assume there's no particular offset you're anticipating, given you haven't called it out. And then I guess, Jeff, on the share repurchase, I know there's different ways to get there, but obviously have a big impact if you were front-end loading your share repurchase assumption versus smoothing it out pretty evenly throughout the year, so which is in terms of just big picture view?

Well, so I think I got the $0.12 on the antitrust settlement, but I agree with your math there. On the share repurchase, the reality is, not only do we not particularly provide guidance. We really haven't made nor, I think, should we make final decisions about the pace and exactly how much of it is applied today, right? So what I can tell you there is, we think we'll get 267 million for the year. And one of the reasons we don't provide quarterly guidance is I can't tell you today exactly how much of that's going to impact the first quarter. What I did say, though, is the fourth quarter will clearly be relative to last year's unusually strong first quarter. I would expect our EPS to be flat to even down a little bit in this year's June quarter. Lawrence Marsh - Barclays Capital: And just remind us, with the $0.37 contribution from flu fiscal 2010, how should we think of a normalized contribution from flu as we think about this year?

Yes, Larry, it's almost not even worth calling out. If you think about it in the context of how we used to talk about flu, which was not much, now that's where we're headed back to. It plays a nice role in our Medical-Surgical business, but it gets lost in the rest of the corporation. So this really was a highly unusual event for us. And in our guidance, we don't anticipate it to be repeated. Lawrence Marsh - Barclays Capital: So it's really kind of a less than $0.05 contribution or something in that ballpark, it sounds like. And I guess, John, just additional question on the Generic, you sound particularly bullish on the launch schedule this year. You guys have always done a really good job of driving compliance. I'm assuming there's no particular larger customers you have announced internally, recently, that would help drive that. But along with that, certainly, some of the specialty products and generics were important contributors this year. Are you anticipating another strong year in Specialty Generics in fiscal '11 for you?

Well, I think, just to put this into context, the Specialty business is important to us. But on the scale of McKesson and in the scale of our Specialty business, compared to the scale of McKesson, and then the generic products within the Specialty business, once again, it doesn't fall on the top-level attention items that it might be for others who have more concentration in this, on a relative-size basis. Having said all of that, the Generic business in Specialty is important to us, and it didn't perform well this year. We executed, I think, extremely well on the generic that came out. It was an at-risk launch, and we do have product left in our system that we will continue to use this year that will bolster our performance in that business. And there's a chance in our third or fourth quarter that there'll be a couple of additional generic launches in that business that, once again, will be important to that business, but it will be less important to the corporation, overall. So I don't think that the expectations we've given to you guys today are highly sensitive to generic launches within the Specialty business. They are highly sensitive to our view on generics at the corporate level, overall. And therefore, we continue to focus heavily on making sure that all of our businesses are getting generic customers, that we're advancing our compliance to our generic expectations. And now we have this nice pipeline of generics that are coming into both segments that will help us.

And Garen Safarian (sic) [Garen Sarafian] of Citi is up next. Garen Sarafian - Citigroup Inc: My question is on the Pharma side. Given your two largest distribution clients renewed in the last 12 months or so, I believe, will the rest of your Pharma, become more normal renewal year of about 1/3 of the contracts renewing? And if so, will your sales force be able to -- what opportunities will your sales force now have with the less-than-normal renewal year?

Well, I think almost all of our years are sort of in that 1/3, 1/3, 1/3 category. We happen to have some concentration this year with a couple of larger customers. As to the deployment of our sales force, I think our sales force are heavily focused at the retail chain level in building long-term value with these customers, and selling parts of our portfolio that help add value to our customers' experience with us. It could be our transaction-processing activity at RelayHealth. It could be pharmacy automation equipment. As you know, we sold Safeway our software to run their retail pharmacies. So there are various things we can do to improve our customers' performance, reduce our own costs and sell the value of a large partnership that go beyond the every two- or three-year contract renewal phase. And so I'm hopeful that, that's what those folks will do. Clearly, there are opportunities, sometimes, for us to call on customers that aren't doing business with McKesson to talk about our value. But there's not a lot of changes that go on at the large retail level. And so we focus heavily on selling additional services to our existing customers and improving our performance, and taking cost out for both of us. Garen Sarafian - Citigroup Inc: And just as a follow-up, specific to CDC, is there any sort of an opportunity for next year to be any sort of a larger scale H1N1 type of a program? And what timeline would you expect that to occur, if so?

Well, we usually don't talk about our customers and their expectations. I think, given the publicity around this one, clearly, your guess would be as good as mine, as to whether or not another virus comes up or a mutation of the existing virus comes up, and whether the CDC and the administration decide to perform a national approach to this. If that's the case, then I do think we stand in a good position to help in that endeavor. As I mentioned in my comments, the only thing we know for sure is we're going to help them sort of do the final phase through July. It's a real nominal role. And we've kind of decommissioned most of our capabilities here. The positive news is that we can recommission our capabilities very quickly, should the White House call and ask us to perform that responsibility. So we are happy to engage, but at this point, have no view and haven't built nothing in to our financial guidance, relative to a go-forward or second sign of H1N1 kind of a program.

And next up, we'll hear from Steven Valiquette, UBS. Steven Valiquette - UBS Investment Bank: Just I guess, kind of similar question to a few other ones, but I guess, based on the share guidance for fiscal '11, I guess, one could arguably assume that only about maybe 1/3 of the full $1.5 billion authorization is actually being used. So just using some back of the envelope here when there could be an extra $0.30 in incremental EPS if the full authorization were to be used. I guess the question is whether the cash possibly used for additional buybacks near term or for M&A, I just want to make sure that you agree that there's some additional earnings power at McKesson. And it looks like it's up pretty material amount that's really not baked into the initial guidance. Is that kind of the safe way to kind of summarize what's going on, and they way you view it as well?

Well, let me make two comments, Steven. Certainly, we see the strength of our balance sheet and our financial flexibility, as they vary material sources of value for our shareholders in the long term, and plan to continue with our portfolio approach to capital deployment. I do think that to get to the share count that we've given, you need to chew not quite a bit more than a third of the current share repurchase authorization of $1.5 billion. You need to remember that there is some level of option exercises that were always experienced in each year. And of course, we do have equity-based compensation programs, and there are some new contingent shares issued as part of those programs each year. So in fact, as earlier commentators or earlier questionners asked about, depending on the pace at which we do this, we will potentially use a very good chunk of the existing authorization to get to that share count assumption. But I think it's important to note, that still leaves us with an under-levered balance sheet, relative to our targets, and probably still with a cash balance that's a little bit above our target.

Our next question today comes from Ricky Goldwasser, Morgan Stanley Smith Barney. Ricky Goldwasser - Morgan Stanley: A couple of follow-up questions, starting with the buybacks, just approaching it from a different angle. Jeff, can you just provide us, what was the share count at the end of the quarter? And have you bought back any shares quarter-to-date?

Well, so the really relevant number, Ricky, I'd point you to is the number for the March quarter because, of course, our share count is a function, not just of the shares outstanding, but also of what happens with various contingent shares and stock prices, et cetera. Certainly, we have not bought back any shares since the end of the quarter because we've been in our quiet period. And we've been, as you would expect, even if we had wanted to be in the marketplace, we couldn't be buying back any shares. So really, we haven't bought back any shares since the first half of fiscal 2010. When you see our 10-K, which will be filed in the next day or two, of course, it will have a very thorough footnote with every possible number you could think of, related to our share count and other forms of equity-based compensation. Ricky Goldwasser - Morgan Stanley: But given that you haven't bought anything in the second half of fiscal year, it should be pretty similar to what you have.

Correct . Ricky Goldwasser - Morgan Stanley: And then just to reconfirm what I heard you saying that with the $0.12 benefit of the antitrust that'll mean that you're going to be flat to slightly being down year-over-year or sequentially?

Year-over-year versus last year's very strong first quarter. Ricky Goldwasser - Morgan Stanley: So I know that you don't like to talk about quarters, but if you can just help us with what could be -- when I think about sequentially, what would be the sequential kind of like moving parts in it, aside for brand drug price inflation, which I realize has significant contribution in the March quarter?

Well, remember, our March quarter has been, for years, our strongest quarter in both segments was in fiscal '10. And we'd expect the same thing in fiscal '11. So when you sequentially go from the March quarter to the June quarter, you always see a very significant decline in distribution. It's because mostly, if an accident of history, many of our compensation agreement still have the largest slug of compensation tied to what used to be January price increases, even if the price increases are not relevant anymore. And of course, in technology, at the end of the year, our sales force is sprinting for the finish line and always completes a lot of sale in the March quarter. Ricky Goldwasser - Morgan Stanley: So we just should assume normal seasonality, not necessarily offset by this settlement?

Correct. Ricky Goldwasser - Morgan Stanley: And is this settlement -- does it flow through the distribution margin? And is the high single-digit basis point improvement that you talked about earlier includes that?

Yes.

We'll now go to Helene Wolk, Sanford Bernstein. Helene Wolk - Sanford C. Bernstein & Co., Inc.: Well, I have a couple of questions on the Technology Solutions business. If I understood the guidance for fiscal '11, you were guiding to improvement in the operating margin. I'm just curious on the gross margin basis, if you can add any commentary around mixed shift and the mix of software in the business in '11 versus '10.

Well, I think the most material thing here is we would expect to have revenue in the back half of the year that we don't really have in the first half. And some of that revenue is going to come in the form of software, which carries a higher margin. You also will notice, in the quarter that we just reported, that hardware revenues were actually down slightly. And I guess, we will see hardware play a less and less significant role in our business, as we go forward, as it relates to the mix of the business that we sell. So some of that margin mix will come from mix change, some of that will, frankly, just come from the execution of contracts that we have to implement, which is also, I guess, a mix change in the end. Helene Wolk - Sanford C. Bernstein & Co., Inc.: And just any commentary or updates on the meaningful use criteria or certification process that is impactful?

Well, our customers are clearly very focused on this. And one of the challenges to realizing success for our business in Technology is helping our customers be successful using our technology, which requires both of us to be in the game, getting it done. And so I think that one of our dependencies here is making sure that we've invested for these implementations, that our customers are ready and they've also invested. And clearly, the pressure from Washington to get to these milestone dates is important, albeit there are some parts of our customer base that are trying to lobby Congress to stretch those time frames out. That gives us the benefit of having more time to make the implementations go live, but obviously, the detriment side of that is it reduces the rush to get it done as well. So it's kind of a mixed blessing. But there is a debate, obviously, if you follow technology going on in Washington, about whether these objectives are too difficult for our customers to reach. Helene Wolk - Sanford C. Bernstein & Co., Inc.: Has there been any temporary certification process completed?

Well, not to my knowledge. I know that, as you might recall, there were certification of some of the physician office products in the past that have gone through these activities. But the certification process in Washington, as far as I know, is not even yet been fully armed, or staffed or ready to go. So I think they are still in the process of getting that up to speed.

Eric Coldwell of Robert W. Baird is up next. Eric Coldwell - Robert W. Baird & Co. Incorporated: First off, antitrust settlements. I don't recall any of those back in fiscal '10, but could you tell us if there were any?

You're correct. There were none. It's been a couple of years since we've had any, Eric. Eric Coldwell - Robert W. Baird & Co. Incorporated: So not an unusual event, just didn't have any last year. And second question is, from your prepared remarks, it sounded like you comment that a couple of your larger clients reduced purchases in the March quarter. I wasn't sure that I was clear on the reasoning behind that, and then what would make you comfortable that perhaps fiscal '11 will grow at market rates? Why are those slower customers coming back, if you will?

Well, the reality is, as I mentioned, we've not lost any customers and nor, really, have we lost any percentage of our large customers' business. What's happened that we experienced over the last 12 months is two of our larger customers launched a share on their own. And when they grow less than the market, it's difficult for us to grow at market or above market when a large portion of our base businesses with the existing customers that are losing share at the retail or the mail level. So obviously, that momentum ebbs and flows, and to the extent that our customers when we win -- and to the extent our customers don't win, we don't win. And so I think that, that's what we were referring to there. That it was not a share loss or a customer moving away from us.

And Eric, just to correct something I said. Actually, I guess, I didn't even realize, but a colleague here have told me, we did have about $0.01 worth of a positive antitrust settlement in FY '10.

Next, we'll go to Richard Close, Jefferies & Company. Richard Close - Jefferies & Company, Inc.: With respect to the, I think, the operating margin, you talk about mid- to high single digits in fiscal '11. Just to be clear, that's not including the benefit of the flu from fiscal '10, correct?

Correct, Richard. So I pointed out in my remarks that if you take two things out of the FY '10 Distribution Solutions margin, the $0.35 to $0.40 to the flu, and then the Distribution Solutions portion of the ESOP or 401(k) plan benefits, the FY '10 margin was 172 basis points. Of that 172 is what I was referring to. Richard Close - Jefferies & Company, Inc.: And then with respect to -- John, I think you mentioned Health Mart adding about 500 stores in the fiscal '10 year. Were those conversions from maybe other companies? Or were those just sole independents coming over to Health Mart? Just trying to see what you think about market share there. And then any expectations, I guess, for that number in the upcoming fiscal year?

Well, because we probably have some sales execs listening to this phone call, our expectations are always to grow our store counts. So I'll send them a clear message. Health Mart continues to be a very important priority for us, and we do expect it to continue to grow. The mix of the 500 stores that came on were probably across the board. Some were customers that were existing McKesson customers that converted to the Health Mart franchise, some were new customers to McKesson who chose to become Health Mart right out of the gate and some were existing Health Mart customers that opened a new store or a new branch. So it's really across the board, and we'd hope to continue to grow the program.

And our final question today comes from Robert Jones, Goldman Sachs. Robert Jones - UBS: Just one quick follow-up on Eric's question about the two large customers that have lower purchasing in 4Q. What's the assumption for those customers in fiscal 2011?

Well, I think it's difficult to talk about specific customers. We believe that we will be able to grow at market rates, but we always talk about our mix of customers. And the ebbs and flows of market share for very large customers, particularly with people like mail customers, you should assume are our lowest profit margin customers as well. So although the revenue was impacted this year, as a result of some of that reduced buying, we actually saw the strength in our gross profits. So there's two reasons we'd point to the gross profits strength: one, is that, that's really how we have to run the company; but secondly, it's also an indicator of the strength of our generics programs and our ability to build margin that isn't affected by the downward pressure on revenues that occurs, as a result of the generic conversions that go on in our industry. So although we see revenue growth rates in the industry continuing in that low single-digit range, we hope the gross profit will grow faster. And that will be a sign of the health of the distribution community, it's if we can grow our gross profits faster than our revenues. I want to thank you, operator, and thank all of you on the call today for your time. We had excellent results in fiscal 2010. We remain very excited about our unique offering across healthcare and our ability to turn that into value for our customers and our shareholders. I'll now hand the call back to Ana for her review of upcoming events for the financial community. Ana?

Thank you, John. I have a preview of upcoming events. We will participate in the Deutsche Bank Healthcare Conference in Boston tomorrow, the Bank of America Merrill Lynch Healthcare Conference in New York on May 11, the UBS Healthcare Supply Chain Conference in New York on May 20 and the City Healthcare Conference in New York on May 27. We will release first quarter earnings results in late July. We look forward to seeing you at one of these upcoming events. Thank you and goodbye.

And ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.