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

Lisa Gill - JP Morgan Chase & Co Ricky Goldwasser - Morgan Stanley Robert Jones - UBS John Ransom - Raymond James & Associates Ross Muken - Deutsche Bank AG Helene Wolk - Bernstein Research Garen Sarafian - Citigroup Inc Lawrence Marsh - Barclays Capital Robert Willoughby Thomas Gallucci - Lazard Capital Markets LLC George Hill - Leerink Swann LLC

Good morning, and welcome to the McKesson Corporation Fiscal 2011 First Quarter Earnings Conference Call. [Operator Instructions] I would like to now introduce Ms. Ana Schrank, Vice President of Investor Relations.

Thank you, Augusta. Good morning, and welcome to the McKesson Fiscal 2011 First Quarter Earnings Call. With me today are John Hammergren, McKesson's Chairman 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 an hour at 9:30 Eastern Time. Before we begin, I remind listeners that during the course of this call, we will make forward-looking statements within the meanings of 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 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. Today we reported a solid start to fiscal 2011. For the first quarter, we achieved total company revenues of $27.5 billion and fully diluted earnings per share of $1.10. Our first quarter performance positions us well for the remainder of the fiscal year, and we continue to expect McKesson should earn between $4.72 and $4.92 per diluted share. Before I turn the call over to Jeff for a detailed review of our financial results, I thought I would highlight the trends in both segments of our business. Distribution Solutions started the year with solid growth and operating margin expansion. Operating profit was up 17%, including the $51 million antitrust settlement we talked about during our fourth quarter call. Excluding this settlement, the operating profit margin in Distribution Solutions expanded by four basis points as we continued to benefit from our generics offering across our Distribution businesses. If you take a moment to think back several years, you will recall that our discussions about our generics offering were mainly focused on progress we were making penetrating the independent segment of our U.S. Pharmaceutical business. Today, when we talk about generics, our discussions encompass the broader array of customer-centric programs available throughout McKesson. In U.S. Pharmaceutical, our proprietary generics program, OneStop, is available to customers regardless of whether they are independent, retail chain, hospital or long-term care. Just importantly, our generics programs are available across different geographies and across multiple business units such as specialty and Medical-Surgical. With a favorable generics environment this year and our comprehensive offering, we anticipate continued profit growth in generics for fiscal 2011, and we have confidence that we are building a multi-year period of strong generics growth. The revenues for our Specialty Distribution business are included in our U.S. Pharmaceutical business. Specialty Distribution is performing extremely well. We are wrapping up the final part of our very successful Centers for Disease Control and Preventions program to deliver the H1N1 flu vaccine. In addition, this quarter, we had another strong contribution from oxaliplatin. This drug is a good example of how we benefit from generics across our business. In our Medical-Surgical business, revenues were flat for the first quarter, but I would remind you that last year in the first quarter, this business benefited from the demand resulting from the H1N1 virus. We expect Medical-Surgical will continue to have slower top-line growth until we see more of an economic recovery, which would translate into better employment rates and more physician visits. We also expect a normal flu season this year. I'm very pleased we've been able to grow in spite of the softness we've seen in the market. Physician office visits are off somewhat. In this business, we are very focused on optimizing our sourcing of McKesson-branded products, and we continue to drive leverage through aggressive cost management. Combined, these initiatives are resulting in margin expansion. Our Canadian Distribution business had solid performance in the first quarter. McKesson Canada has leading positions in every market segment. We offer a comprehensive set of solutions and have close relationships with our customers. This is a terrific business for us. As you know, there are significant differences between the Canadian and U.S. markets. In Canada, drug prices, price increases, patient reimbursement and wholesaler up-charges are regulated by the government. Recently, provincial governments have been seeking to reduce the budget deficits that resulted from stimulus spending during the economic downturn. Drug spending by the government has been targeted as a way to reduce costs. As a result, there have been public policy changes in Canada that have the potential to impact our performance. Over the past several months, the provinces of Ontario, Alberta and British Columbia announced and enacted drug reform that will result in price cuts on most generic drugs by up to 50% over the next three years. Québec has recently announced its intention to implement a similar effort, but final details are not yet available. The government has provided some offsets for this, and we continue to work with all of our stakeholders on mitigation strategies. Going forward, it is our goal to grow our footprint in Canada, expanding our offering in high-growth segments such as Specialty Distribution. For fiscal 2011, we expect the potential impact from Canada regulations to be manageable within our guidance range. Overall, we are well positioned to continue to have a thriving business in Canada. I'm pleased with the first quarter performance in Distribution Solutions, with solid revenue growth and margin expansion, and I have confidence in our full year business performance. Turning now to Technology Solutions. While the results are in line with our expectations for the first quarter, they are not indicative of our performance we expect from the business over the long term. As we said during our fiscal year-end call and again at our Investor Day, we did expect our first quarter results to be down quite significantly, and while we continue to expect modest improvements to our full year operating profit margin, that improvement will be heavily weighted to the back half of our fiscal year. Within our Technology Solutions segment, we have three large businesses. Two of them, our payor-facing Health Solutions business and our RelayHealth Connectivity business, showed steady results year-over-year in the June quarter. The drop in segment operating profit in the first quarter stems from our hospital-facing Provider Technology business, where we are investing heavily in our enterprise revenue management and clinical solutions. I'm pleased to report that we continue to experience high levels of bookings for stimulus-related clinical products, and we are committed to the rapid deployment of these software solutions so we can support our customers in their efforts to achieve meaningful use. Taking a step back from the quarter results, we are very pleased with the recent progress that we've made with the Department of Health and Human Services released the final rules for meaningful use and certification standards for electronic health record systems. The rules were generally consistent with the recommendations we had submitted during the comment period. By creating two categories of requirements, core and menu, providers now have the flexibility to achieve meaningful use by taking different paths when implementing an EHR system based on their individual needs and priorities, which we believe is critical to broad-based adoption. We believe this positions more providers to participate in the program in a timely manner. We remain focused on working with our customers to make sure that they have the right resources in place to qualify for stimulus money. For more than a year, McKesson has been actively moving our EHR systems towards having the capabilities our customers need to achieve the proposed objectives. The official certification process has not been fully delineated. However, we are on track to submit our EHR systems for initial certification as soon as we have a clear indication of the process, and we believe we are well positioned to achieve certification of our EHR systems. Our strategy in Technology Solutions remains the same: to help providers reduce cost while improving quality, safety and efficiency through automation and connectivity. McKesson has a comprehensive set of products and services to achieve this goal. In summary, we're off to a good start to fiscal 2011. In addition to solid operating performance, our strong balance sheet and tremendous cash flow provides us with opportunities to deploy capital to advance our long-term strategic objectives. In the first quarter, we executed a $1 billion accelerated share repurchase program, and we also announced a 50% increase to our dividend. Both the share repurchase and the dividend increase demonstrate our confidence in our business and our future cash flow generation. We plan to continue our portfolio approach to capital deployment, and you should expect a mixture of share repurchases and acquisitions that will advance our mission: to improve the quality and safety of the health care system. I believe we are well positioned for continued success. 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 morning, everyone. As you just heard, McKesson is off to another solid start to the fiscal year, led by the performance of our Distribution Solutions segment and the continued strength of our balance sheet. As usual, I'll begin with a review of our consolidated results, and then I'll provide additional color as I discuss each segment. Consolidated revenues were $27.5 billion for the quarter, up 3% from the prior year, with both segments contributing to this growth. On this 3% revenue growth, gross profit for the quarter increased 7% to $1.4 billion. As we discussed during our May earnings call, when we first gave guidance for fiscal 2011, the first quarter in our current fiscal year benefited from a $51 million antitrust settlement. Excluding this antitrust settlement, which flowed through our gross profit line, our gross profit margin was flat. The steady gross profit leverage we saw in Distribution Solutions driven by generics was offset by a decline in the Technology Solutions gross margin, which I'll come back to later. Moving below the gross profit line. First quarter operating expense increased 9% to $918 million due to higher employee compensation and benefit costs, increased investment in our Technology Solutions segment and foreign exchange rate movements. As you recall, last year, our operating expenses grew sequentially as we progressed through the year and gained more confidence in the strength of our businesses. We entered fiscal 2011 at the run rate at which we finished fiscal 2010. As a result, our year-over-year comparisons will show the kind of growth you saw this quarter until we get into the back half of this year, when they should moderate significantly. For the full year, I would expect our operating expense growth to be fairly modest, as we expected when we first provided guidance for fiscal 2011 last quarter. As one other reminder about operating expense, as you recall, last year's operating expense benefited from the favorable legal settlement related to the company's 401(k) plan. This resulted in us having little expense related to our 401(k) plan in fiscal 2010. For the current fiscal year, we now expect full year 401(k)-related expenses will be close to $60 million. Other income was fairly flat for the quarter at $9 million. Interest expense declined $5 million versus the prior year to $43 million, driven primarily by the repayment of $215 million in long-term debt in March of fiscal 2010. Moving to taxes. Our effective tax rate, 32.3%, is generally in line with the 32% we expect for the full year and is slightly higher than the 31.6% effective tax rate in the first quarter a year ago. Net income in the quarter was $298 million, up 3% from the prior year. Our diluted EPS from continuing operations was $1.10 for the quarter, an increase of 4% compared to the prior year. To wrap up our consolidated results, this quarter's diluted weighted average shares was flat year-over-year at 272 million shares. Let me take just a minute to explain how the accelerated share repurchase program impacted our share count this quarter. As we've previously disclosed, on May 17, we entered into an accelerated share buyback agreement to repurchase $1 billion of the company's common stock. While this had some impact on our share count this quarter, the full impact won't be felt until later this year since the agreement was only implemented midway through the June quarter. As an aside, the ASR program officially concluded this week, which was somewhat earlier than we had originally thought. Overall, on our share count, as we discussed at our Investor Day in June, we continue to expect our full year diluted weighted average shares outstanding to come in at our original guidance of 267 million. Let's now move on to our segment results. In Distribution Solutions, overall revenue growth was 3% compared to the same quarter last year. Looking at the components, total U.S. Pharmaceuticals Distribution and Services revenue grew 2% for the quarter. As we've discussed, over the past several quarters, we do continue to see a shift from warehouse to direct revenues. Canada revenues on a constant-currency basis grew 5% for the quarter, primarily due to market growth rates and one additional sales day. Including the favorable currency impact of 15%, Canada revenues grew 20% for the quarter. Medical-Surgical distribution revenues were flat for the quarter at $686 million. As you recall, though, the prior year benefited from increased demand related to the H1N1 flu virus, and the current quarter benefited from two small acquisitions we made in mid-fiscal 2010. Adjusting for these two items, Medical-Surgical distribution revenues grew at about 2% this quarter. Gross profit in the segment was up 12% to $1.1 billion for the quarter, a strong performance, with $51 million of the increase coming from the pretax antitrust settlement that we discussed earlier. Excluding the antitrust settlement, gross profit would still be up a solid 6%, resulting in a 13-basis-point improvement in gross margin. The primary driver of this profit growth in the quarter was strong growth in our generic profits. Our Distribution Solutions operating expense was up 7% to $568 million for the quarter. This year-over-year increase is driven by the same sequential timing issues I talked about earlier for the company overall. For the full year, I would expect the increase to be more modest. Operating margin rates for the quarter were 189 basis points versus 166 basis points in the prior-year quarter. Excluding the antitrust settlement, we are showing a four-basis-point margin improvement year-over-year in this segment. All in all, we saw a very solid start to the year in Distribution Solutions. Turning now to Technology Solutions. Total revenues grew 2% for the quarter to $759 million. Services revenue increased 1% for the quarter, a little bit slower growth than what you've seen in the past. A modest amount of Services revenue is tied to software implementations, and the pace of these implementations has slowed due to the higher mix of the more complex enterprise revenue management and clinical software solutions. Software and software systems revenues of $135 million in the quarter grew 4% from a year ago. Hardware revenues were up 21% for the quarter, as this line has a fair amount of quarterly volatility. Technology Solutions gross profit declined by 7% to $325 million, which is in line with our original expectations for the quarter. As we told you back on May 3, we stepped up our investments in the latter half of fiscal 2010 in this segment in order to ensure we had the right resources to successfully implement our customers' clinical and next generation of enterprise revenue management solutions. A large majority of these investments are reflected in our gross profit results. I'd also remind you that our Horizon Enterprise Revenue Management solution became generally available late in the second quarter of fiscal 2010, triggering an incremental $8 million of amortization expense for the quarter. You will continue to see this impact our year-over-year gross profit growth until it is fully lapped in the third quarter of the current fiscal year. Technology Solutions operating expenses increased 6% in the quarter to $262 million. Higher expenses in this segment were driven by continued investment in research and development activities as well as the general ramp-up of investment spending we have discussed. To be specific, Technology Solutions had total gross R&D spending of $105 million compared to $98 million in the prior year. Of these amounts, we capitalized 14% this year compared to 18% a year ago. Our operating profit in our Technology Solutions segment this quarter was $64 million, down 38% from $103 million a year ago. Operating margins were 8.43% for the quarter compared to 13.8% in the prior year, primarily due to the decline in gross profit discussed earlier and increased investment in research and development activities. Leaving our segment performance and turning briefly to the balance sheet and our working capital metrics. Our receivables increased 4% to $7.8 billion versus $7.5 billion a year ago, and our days sales outstanding were flat at 23 days. Compared to a year ago, inventories were up 9% to $9.4 billion, and payables were also up 9% to $13.3 billion. So our days sales and inventory of 33 days was up two days from a year ago, while our days sales and payables increased three days from a year ago to 46 days. These working capital metrics contributed to us generating $528 million in operating cash flow in the quarter, a good start to the year. Going forward, we continue to expect to generate approximately $1.5 billion in full year cash flow from operations. We ended the quarter with a cash balance of $3.3 billion, down slightly from our year-end balance of $3.7 billion. Our ability to deliver consistent operating cash flows, along with our strong balance sheet, uniquely positions us to create shareholder value through the continued use of our portfolio approach to capital deployment. As part of this approach, we were pleased to launch this quarter both the $1 billion accelerated share repurchase program and the 50% increase in our dividend. Property acquisitions and capitalized software expenditures combined were essentially flat with the prior year at $87 million, and we continue to expect our capital expenditures for the year to be in the range of $400 million to $450 million. Now to conclude. Our first quarter results were solid and on track. Our guidance range remains at earnings from continuing operations of $4.72 to $4.92 per fully diluted share. For clarity, let me make just one other point about this range. As you saw in our press release, after the quarter ended, we completed the sale of our McKesson Asia-Pacific business. As a result of the sale, we will record a pretax gain in the second quarter of approximately $94 million, which we will show in the discontinued operations line. For modeling purposes, this business is primarily reflected in the services revenue line within our Technology Solutions segment and rolls up to our Payor business, with revenues running approximately $21 million per quarter and profits being insignificant. Also as you know, we give guidance based on our earnings from continuing operations. So this transaction and the gain on it will not have an impact on our EPS guidance range. In summary, we feel our first quarter results provide us with a solid foundation for another good year. Thank you for joining us this morning, and with that, I will turn the call over to the Operator for your questions. I would ask that you limit your questions to just one per person to allow others an opportunity to participate. Operator?

Thank you, sir. [Operator Instructions] We'll go first to Tom Gallucci with Lazard Capital Markets. Thomas Gallucci - Lazard Capital Markets LLC: I guess on the Distribution side, you primarily highlighted generics as being a driver in the quarter. At the Investor Day, I thought maybe there was a little bit more to it in terms of timing of some price increases and things. So can you just maybe go into the profit increase there a little bit further?

Well, I guess I'd make two comments on that, Tom. For the year, as you recall, the assumption we had on branded price increases to the modest extent they still impact our P&L, was that the price increases would run pretty much in line with what we saw in the prior year. We're only 90 days in, but I'd say 90 days in, that still seems like a reasonable assumption to us. You are correct that there's always some quarterly differences and timing in terms of when some of our compensation from the branded manufacturers comes in. When you look at the June quarter we just ended, just due to timing, it was down from the prior year, but actually a little bit better than we had originally anticipated when, way back in May, I first made some directional comments about what we thought our June quarter results would be. Thomas Gallucci - Lazard Capital Markets LLC: Okay. Any color you could offer on inventory and the payables there that you saw the increase on?

Again, there's also quarterly volatility on the inventory side. I think what's important to note here is that we actually had a very good cash flow quarter, probably a little bit better than we had anticipated. And so while you saw the DSIs up a little bit, you see the days sales and payables up by a little greater amount. That's really just the timing of when we made certain buys, and you see that in the fact that both of those rose fairly equally and will probably both work down fairly equally as we go through the next couple of months.

Our next question will come from Robert Willoughby of Bank of America Merrill Lynch.

Can you give us the actual shares at the end of the quarter? And say again what your goal for the years in terms of fully diluted shares were? And then just one for John, the media has you buying assorted assets around the globe. Can you put any parameters at all on what you may or may not be up to you on that front?

So let me, John, I'll take the mechanics of our share calculation, and then you can talk a little bit about the broader questions. On the mechanics of the shares, Bob. So as you'll see in our Q, the actual number of shares outstanding on June 30 was about a little over 261 million. Of course, our fully diluted share calculation, which was 272 million for the quarter, has to do that on an average daily basis and then, very importantly, add the fully diluted shares. So when you look at the number year-over-year, we, of course, have a much higher stock price, which is a very good thing. We have a much higher stock price this year than we did a year ago, so that drove a pretty significant increase in the dilution impact of options that are outstanding, and that drove the share price up a little bit. When you think about the full -- or excuse me, the number of shares outstanding used in the fully diluted calculation. When you think about the full year, I'd say we're still tracking to the original assumption that we think the full year number will be 267 million shares outstanding.

Great.

And, Bob, on the acquisition front, we don't ever comment specifically about what we're doing, but I certainly can comment directionally on how we do some of these rumors and speculations. First of all, we hear some of the same rumors you hear, and sometimes, we're not involved in the activities at all. And actually, when we inquire, the companies that are purportedly for sale aren't for sale, and somebody is trying to either, on the media side, to generate a story or sometimes, potentially, bankers are trying to generate interest in a company that may not have an interest in a transaction. Secondly, sometimes there are real sales activities going on, and I think our company views anything in health care around the globe, frankly, as, at a minimum, a learning experience for us to at least view the opportunity and take a look at the financial and strategic implications of moving forward in any kind of a transaction. And I think on behalf of our shareholders, we have a responsibility to remain globally aware of what’s going on in health care. And then lastly, I'd comment that any smart banker would always have us included in a deal even if we're not, just in an effort to make sure that fair price is being paid for the asset. So I've seen occasions where we're not involved in a deal or we’ve long since moved on in our minds, but yet we're still purportedly involved heavily at the final stages of negotiation for whatever reasons that you guys could dream up. So thinking in a broader context, what would we look at and actually want to buy? As I've mentioned in the past, we don't necessarily feel constrained, necessarily, geographically or even size-related. We feel more constrained about whether or not it makes financial sense, and it makes it through that gate and that hurdle, then we can actually create value for our shareholders, both with and without synergies and what is our dependence on synergies, what is our likely probability of realizing those synergies. And then if we get past those financial gates, then the question is sort of the strategic implications of making those moves. As Jeff mentioned in his comments, we do believe a portfolio approach to capital deployment is the best way to create value. We plan to continue that approach. You’ve seen evidence of the share repurchases and the dividend increase recently. On the acquisition front, we've not been very active in the last 18 months, and primarily due to valuations, many of the assets that we think might make sense for us strategically, as I said, don't make it through the first gate. And lastly, I'd say you see tremendous evidence of our discipline, both in terms of our performance from an acquisition perspective retrospectively, but also in our ability to sell assets that we might feel are valuable to us and meet the needs of our strategy. But frankly, we can't produce the same financial result over a long-term view that we could realize on a DCF basis very quickly. And so Jeff talked once again about the amount of, I think, tremendous cash flow we've generated from a company that was well-run and strategic to us. But frankly, we were offered a price that made sense for us to stop and listen, and we executed the transaction. So I think that discipline and that lack of sort of being married to being global or not being global, having an asset or not having an asset and thinking about it in a more analytical context will drive value for our shareholders, and it demonstrates our discipline.

Our next question will come from Lisa Gill of JPMorgan. Lisa Gill - JP Morgan Chase & Co: John, AmerisourceBergen talked about signing an agreement with Glaxo on the fee-for-service side. Have you signed one as well, number one? And number two, are you seeing any changes in sourcing on the generic product side? We've heard about different manufacturers, especially in India, having manufacturing problems and therefore having less supply in the market.

Well, on the specific question regarding the branded supplier, we typically don't talk about our branded relationships or the agreements that we have with our partners. All I could say is that we have had a long-term, very positive relationship with Glaxo, and we're pleased with that relationship. And we continue to benefit -- both parties, I think, benefit from that partnership, and we would expect nothing to change as we look out. And on the generic sourcing side, I think our team does a good job of making sure that we are partnering with the people that have the adequate supply and adequate quality. Those are the first two parameters we deal with before we ever get to the price discussion, and so our job is to make sure we navigate through the challenges of availability by picking the right people upfront. So we are not expecting any generic shortage in the major lines of partnership that we have. Lisa Gill - JP Morgan Chase & Co: And do you think that, that helps you, just given your relationships, that maybe some others can't get product? Are you seeing any difference in purchasing patterns from your customers because of this?

Well, I'd say that I think our scale matters. We're a very important partner to the generics and, frankly, to the branded companies, and I think that they do everything they can to assure that we have supply and that we can meet the obligations that we set out for our customers. One of the reasons that our customers do business with us is because we provide that shock absorber from a supply perspective. When their demand spikes, we usually can handle it, and when supply becomes constrained, we have the ability, typically, to manage our way through it. And I think that as an industry, wholesalers have demonstrated our ability to help make sure that our customers, frankly, across the board are getting better service levels outbound from us than we receive inbound from the manufacturers on many occasions. Lisa Gill - JP Morgan Chase & Co: I think the question, though, is from the other side, John. So because you're in that position, are you finding that, perhaps, someone that was buying direct before is saying, “Well, I had trouble getting the product. I know McKesson can get it for me. I'm going to buy more of my generics from them going forward because of this issue?”

I think that's absolutely correct, Lisa. I think you actually are seeing increases in our DSD lines as people are moving away from the warehousing model to the Direct Store Delivery models. And I think that's really related to our ability to provide tremendous service at a very low cost. And so I absolutely believe that our customers are relying more and more on McKesson to provide product and are going to continue to move their purchases, whether direct on the brand or direct on the generic side, to McKesson.

We'll go next to Lawrence Marsh of Barclays Capital. Lawrence Marsh - Barclays Capital: My question really is a comment on your customers and customer consolidation, and then a quick follow-up on Canada. I mean, based on your public statements on service, a lot of mail providers, including Aetna and CVS, obviously the consolidation there would suggest that there's still a relationship going forward. Are you in a position to comment at all about what sort of impact that might have around your generic buying program? And then, any impact in terms with the Omnicare window? Which, congratulations, it seems to be extended for another five years.

On the customer consolidation front, as you mention, we do have a relationship with Aetna and, obviously, one with CVS Caremark, particularly on the mail side. So I think the nuances there are the slight differences that may exist between those relationships, and I think that we have a very positive relationship with both parties and plan to continue. On the Omnicare renewal, obviously we've had a very long-term partnership with Omnicare, and we’re really pleased to have renewed that relationship. And as is typically the case, I don't comment about specific customers, but both on the supplier side and the customer side, every year, we renew roughly a third of our business. And so those renewals, typically, are a benefit to us, and we continue to demonstrate our benefit to our customers, and that's why we retain the business. And Larry, I'm not sure what the question was on Canada. Lawrence Marsh - Barclays Capital: Yes, I’m sorry. Yes, just a clarification. When do you think you'll have resolution around some of the provinces' attempts to cut back? And if I'm doing my math correctly, I mean, is worst case it could be $0.03 to $0.05 that could be offset other places in your guidance this year? Or is that too much?

I think that's a little aggressive. As both Jeff and I mentioned, we are concerned with changes to reimbursement in Canada, especially if it happens all at once. But our job is to mitigate those changes, both at the government level, to make sure we’re negotiating to make sure that we maintain our profit stream. Because out of all of the people that are affected from a generic perspective, we have the least amount of margin rate and, therefore, can make the argument that we provide great utility value and our profit structure should be protected. So mitigation strategies are always part of our overall approach. And I think from a materiality perspective, we said that the changes we might experience this year are clearly, we believe, captured in the boundaries of our guidance. So albeit we admit that there's a negative here relative to generic reimbursement in Canada, we believe it's manageable. And over the long haul, if you think about our Canadian position, we actually are very optimistic that we'll continue to have momentum in that business and in that marketplace, and we're expanding our footprint in our offering, as I mentioned in my comments about Specialty, our Technology businesses. So we are actively expanding our business in Canada and are well-respected for the role we play. Lawrence Marsh - Barclays Capital: Very good. Okay.

We'll go next to Ross Muken with Deutsche Bank. Ross Muken - Deutsche Bank AG: Could you elaborate a little more on what you're seeing in the Technology Solutions business pre and post sort of the definition of meaningful use? And in terms of the activity and the types of products or the types of hospitals, the physician offices where you're seeing the most activity, any color would be helpful.

Sure, Ross. The Technology Solutions business is continuing to focus on, really, the demand for clinical products, as our customers are racing to get these products installed and ready. As I mentioned also in my comments, we're pleased that the government has allowed for a multiple approach to accomplishing meaningful use, and we think that multifaceted approach will facilitate our customers actually achieving the results that they're after. Our technology and the other part of that meaningful-use process is making sure they’re using certified products. And as I also mentioned, that we believe that our products will be certified once we get the party that needs to do the certification put in there and we have a body to go to. Our development work right now is to make sure that our product continues to have the components necessary as defined by meaningful use and that we have the implementation and installation people on hand to make that happen. Now turning to doctor offices, we are not really seeing an acceleration in buying at that level. So when I talk about our booking strength in clinical products, frankly, we have a large footprint in physician offices, so I don't think we're losing any share to others. I would just comment that I don't think those doctor offices are yet focused on their requirement from an EHR perspective. So we're seeing a little bit of it in the hospital-related doctors. So when physicians are purchased by hospitals, that idea of getting them up on EHR's and integrating them with the McKesson inpatient products is important to them, but standalone documents, frankly, are still on the sidelines. Ross Muken - Deutsche Bank AG: John, that’s very helpful. And maybe one for Jeff, just going back on the M&A angle. Valuations in the public market have been quite volatile as of late. Could you talk a bit about the complications that, that brings to actually getting a deal done? And how sellers are thinking about adjusting their expectations relative to what we've seen? And typically, based on times past, how long it takes for them to kind of get to a level that more reflects what we’re seeing in the public market?

Well, John had a comment as well. I think the reality, Ross, is that there are few sellers I have run into in my entire career who don't pick the highest stock price that they've had over the last several years and say, “Obviously, I have to have a premium off of that price.” And they are remarkably oblivious to what the public market might be telling them about valuation. How long does it take to overcome that? I don't know, but if you think about John pointing out we haven't done an acquisition of scale in six to eight quarters, well, within that time frame, you have the real collapse of equity values that you saw beginning in the fall of 2008. And I think it's fair to say, John, that even though that collapse lasted for quite some time, I don't know that we found anyone of any significant note who suddenly said, “Yes, I'm going to sell my company based on the new public market valuation.”

Yes, I think that's the case. I mean, I would agree with Jeff entirely that valuations are largely driven by the view that I should be back where I was and then put a premium on it. That said, I think that over time, people begin to become more realistic about the real value of their enterprise. And I think the other thing that we struggle with, frankly, on the smaller acquisitions is they already have a premium built in for a takeover by us or one of our larger competitors. So they come to us with a built-in premium, and you'll even see sometimes the sell-side reports say, “Well, the stability in this stock will be held up. Even though their performance is waning, the stability will be held up, because they're going to be bought if they drop too low.” Well, that obviously feeds that view that they have a floor on their PEs or a floor on their valuations that is driven by performance when, in fact, the floor is driven by the optics of us coming in to buy. So it makes it challenging for us. And so we need to be patient, we need to work these deals over time and we need to convince ourselves and potentially the target owners that the kind of valuations that we might be willing to pay are more realistic. So I think that's our view. Ross Muken - Deutsche Bank AG: Great. Makes me glad I changed careers.

We'll go next to the John Ransom of Raymond James. John Ransom - Raymond James & Associates: Does the Lovenox news change the parameters at all about how you're thinking about fiscal '11?

No, as we've talked about before, our Generic business manages a portfolio. And albeit we believe that generics over the current term and the long term are going to be very additive to our business, at any one point in time, products complicate and go, and most of the time, we have something budgeted or we have something reflected in our expectations around launches. Lovenox, for example, we probably had that view that this product was going to launch last year. So you just never know when things are going to happen, and we try to be prepared. We always have hits and misses, but Lovenox, from our view, was not a Dow mover to begin with. John Ransom - Raymond James & Associates: Okay. And my other question just quickly is has anything changed in your dynamics with the retail pharmacy sector? We're just seeing stress there with weak front-end sales and A&P and reimbursement pressures. Is there anything that you're doing for them that's different than maybe two years ago?

Well, I think, to your point, I think when customers come under pressure, their instinct is to attempt to get a better deal from their vendors. And I think given the training our sales force has and what we attempt to do is to give them a better deal through the value that we can deliver. So we're seeing an expansion in Health Mart. More stores are coming online. We’re seeing more interest in buying our generics. To the point was made earlier on the call, people are beginning to become more dependent on our ability to manage their inventory and their buys. And we can get access to product that might not be able to get access to. And so I think the symbiotic relationship between retail and wholesalers are actually reinforced when the market gets difficult, because we just do a terrific job of delivering value. As it relates specifically to a weakness at the storefront level or the outbound sales level, we do see that in our revenue line. So clearly, when our largest customers begin to tail off from a revenue perspective or if they lose market share, frankly, that's a direct reflection back into our business. So when they win, we win, and when they lose, we lose. And our goal is to continue to try to bolster their performance as much as we can, but they've got to win patients at the front counter. Otherwise, our model is negatively affected. John Ransom - Raymond James & Associates: Okay.

Robert Jones of Goldman Sachs has our next question. Robert Jones - UBS: Just a follow-up on the generic question. Obviously we've seen some positive updates since the Analyst Day and, not to get too far to the specifics, I was just wondering, as we look out over the course of this year, how are you thinking about the overall generic launch schedule relative to what we've seen over your fiscal 2010?

I think as we came into this, we expected fiscal '11 to be slightly better than '10, and I think that's still our view. We think '11’s going to be a very good year. We think '12 is going to be a good year from a launch perspective, and as we see out, we're optimistic. I have to caveat that with: This is not an absolute science. Our guys downstairs are making guesses as to what quarter things might launch in, and that is an estimate. And we're also making estimates as to how many entrants will be in the market and what kind of margin rates we might realize from it. The one thing I can say to you, though, is, as we look over multi-quarter periods going out, we have a very positive outlook on how generics are going to affect the financial performance of our company. And we also have a very positive outlook on our ability to continue to expand the franchise of generics, as we've mentioned, beyond just independent pharmacies to larger retail players, now the hospital marketplace, long-term care, specialty and physician offices and Canada. So as you think about our generic portfolio, we think about it not geographically bounded and not business bounded, and our goal is to drive value for our customers through our ability to understand this market and where it's headed. Robert Jones - UBS: That’s helpful. And then just along those lines quickly, on pricing. Could you maybe just comment on the generic pricing environment as we come into your fiscal '11 relative to maybe what we saw last year?

Well, I'm not sure that there's significant differences. The model, really, is if there's a dozen players in a generic compound, the pricing is going to be lower than if there's just several players. And obviously, if it's an exclusive or co-exclusive kind of a launch, then the pricing is retained at a higher level, at least during that exclusivity period. So I don't think we've seen any difference, really, in the dynamics there. If there's a lot of people in the business of that specific compound or that particular strength or dosage, then we'll see prices erode more rapidly. And if there isn't, then the profit and the prices held up a little bit higher for a longer period of time. But what does happen is that, over time, these things begin to normalize, and we end up with a growing bolus of profit that is increasingly important to the company and continues to grow. And so I know there are people that say, “Well, what happens when there are fewer generic launches?” Clearly, our growth rates might decrease to some extent, but that pot of profit is not going to diminish and it is not going to disappear. And so it's just a question of how fast it expands, from our view.

We'll go next to Garen Sarafian from Citigroup. Garen Sarafian - Citigroup Inc: The question is around utilization. We've heard some mixed messages on skort fines [ph] (1:00:12) utilization lately. So I'm curious if, John, you could elaborate your comments made in the prepared remarks regarding doc visits being off somewhat, if we could quantify that. And which businesses are you seeing the most impact? And what's making up for it?

Well, thanks for the question. I think it is a complex question, and we only see a sample of the physician offices. We do have many businesses, though, that are involved in physician offices, which might give us a different view or, certainly, maybe a better view than others might have. As you know, we have a transaction processing business that brings the actual visit itself between the physician and the payor. From a reimbursement-cycle perspective, we get to see those transactions. So we do see frequency and we do see sort of the load on the doctors. We also see some people buying software at the physician office level, and then clearly, our footprint in Medical-Surgical, where we’re actually selling to the alternate site, in particular to the doctor offices, we get to see volume and have discussions with physicians at that level. So I do think we believe doc visits are down, and as a result there will be some moderation of the use of medical supplies and perhaps also a moderation in the amount of scrips being written. But I would say that we still believe that the scrip volume levels are okay. We're not seeing a step function change in scrip volumes. But once again, we are focused, really, on the pull-through in our business and what product is pulled through. So if scrip volumes are off with our customers because they’re losing share, that's a problem for us. If our scrip volumes are off with them in a branded way, but more is being converted to generics, we can have a little scrip volume degradation on brand if we have a scrip volume conversion increase on generics. From a financial perspective, that's a pretty good trade for us. It's an offset. So I think that there is some correlation, obviously, over time, but our models are slightly different than what a retailer might experience right at the counter. Garen Sarafian - Citigroup Inc: And then previously, I think you had mentioned that IMS data is directionally correct, but the data recently is pretty choppy. I think the last couple of months, it went from negative back to a positive. Would you still say that, that data is directionally correct?

Yes, I'd say we think it's directionally correct, but usually after we say directionally correct, we say it over time. But when you see these weekly and daily and monthly fluctuations and positive to negative, it's a little bit like other indicators, sometimes, in our economy. They're not right on a short-term basis. They're right on a longer-term basis as you smooth those lines. And so I think it is a indicator. It is not the indicator.

We'll go next to Ricky Goldwasser with Morgan Stanley. Ricky Goldwasser - Morgan Stanley: First of all, for the Technology segment, what percent of the year-over-year margin decline for the segment reflects the investments versus products mix? And then, similar question on the drug distribution side. What would be the growth rate for U.S. distribution, excluding some specific customer losses?

Well, two things. Let me go backwards. On Distribution Solutions, we really didn't have any significant customer losses that we’re lapping anymore. I think, though, Ricky, your question is a good one. It is a fact that we have a couple of our largest customers whose buying patterns vary from quarter-to-quarter. And so a couple of our largest customers we actually saw lower purchases from year-over-year.

Which could also be reflective of our inventory work.

Right, and that's all I think it is. But just to give you some sense of the magnitude of that, if those customers had, had just flat purchases year-over-year, it would have added about two more points to our revenue growth this quarter. On the Technology Solutions side, I'd say pretty much all of what you see happening at the gross margin level is driven by the increased investment that we've been talking about for a while in our clinical software solutions and our next-generation enterprise revenue management solutions. Ricky Goldwasser - Morgan Stanley: So it fair for us, when we think about the models for that segment, to assume that if it wasn't for the investments, margins would have been flattish year-over-year?

Yes.

We'll go next to Helene Wolk of Sanford Bernstein. Helene Wolk - Bernstein Research: I just wanted to follow up on the Technology segment. I'm just understanding the sort of back-half acceleration in expected both demand as well as revenue recognition. What are you assuming? Or what's required, in terms of the certification process, to make that happen?

Well, I'm not so sure that it's as dependent on the certification process, or even our customers accomplishing meaningful use, as much as it is our ability to recognize revenue through the successful implementation of those contracts. So there might be some dependence on some of our relationships where our certification is another one of the factors associated with the revenue recognition. That wouldn't be the case in, certainly, 100% of our clinical relationships. So the most important thing for us, regaining momentum in the back half of this year, is a combination of decreasing our investment in some of these areas from kind of a ramp-up perspective, but also, and perhaps most importantly, beginning to recognize revenue through the successful implementation. And another dependence, obviously, is our customer's ability to ramp up their resources to make those implementations successful. So I think that's really the key driver there, is the successful completion. Helene Wolk - Bernstein Research: Great. And then one other question. You had mentioned earlier the contribution of generic Eloxatin. Are you willing to speak in terms of potential supply whether that carries you through the fiscal '11 time frame?

Well, clearly want to be positioned to meet our customers’ needs, and I think we did a good job of preparing for that as this product was made available to us through our partnerships. So I think you can count on fact we’ll continue to have the product, certainly, into the end of our fiscal year. I think we have time for one more question, Operator.

And that will come from George Hill of Leerink Swann. George Hill - Leerink Swann LLC: I guess, quick question with respect to the IT segment. I guess, if we're expecting to see the revenue pull through in the back half of the year, I'm wondering if you give us any color with respect to the magnitude of the pull-through. And, Jeff, is there any chance that you might give us an updated breakdown of the revenue components of the Technology segment, with respect to what is the life see [ph] (1:07:46) patient accounting systems? How much is the legacy per se business? How much is radiology? Just trying to understand the relative impact that we should see to the Technology business from clinical uptake.

Well, I guess I'll try to start this, and I'm not sure we fully understand the questions, George, so stay on the line. Our revenue pull-through at the end of the year has to be quite dramatic for us to get to the guidance that we've given you as we started the year. We talked about the back-half load, and we also gave you a margin goal that we had in the business. And so we have significant dependency for that segment, in terms of accomplishing our segment level of guidance, that we get those implementations successfully installed. And in addition, we're able to recognize the revenue. So there’s two dependencies. We've got to get the stuff in our customers’ sights, and they have to help us do that. And the second thing is we have to have clear sailing relative to the way we view the accounting associated with this contracts to actually be able to recognize the revenue. So at this point, we still have confidence we will see the strength in the back half of the year, and our objective, certainly, is to continue to head in that direction. Jeff, I don't know if there's some other question that was asked that I missed there. George Hill - Leerink Swann LLC: When I think about the Clinicals business, the EMR component that served the hospital physician practice business, I figured that it probably can't be a third of the total segment revenue. I don't think the business is going to be that size yet. That's why I'm just trying to understand, as we model going forward, I wouldn't expect that, that would lead to anything that approaches double-digit revenue growth in the segment. So I was just hoping that we could get an update on the size of the Clinicals business with respect to the size of the segment.

Well, I think that's a difficult question to answer, but I don't think we'll get to double-digit revenue growth at the segment level simply driven by the Clinicals business. I think that's our view. As we've talked about in the past, there's a large transaction-processing business in there that is more of a software-as-a-service kind of model, where we get continued revenue. And that business certainly can grow nicely, but it is a steady grower. We also have our Payor business, which in the past, actually, has had some lumpy revenue characteristics with it. But that also is a strong part of our business. And then, as we’ve described, at our McKesson Provider Technologies is actually multiple businesses. We have our Medical Imaging business, we have our Legacy Financial Systems businesses, we have an Automation business. So those businesses are all part of that segment, and the Clinicals are but a sub-segment of that. Now having said that, I just said that our fourth quarter's dependent on our successful implementation of clinical contracts in terms of actually achieving the objectives that we've given you. So there is a significant amount of profit in clinical software sales, and that'll be necessary. But you're not going to drive the whole true success in the Clinical side in the fourth quarter. I don't think you're going to drive for the year double-digit revenue increases for the segment. That simply is difficult to do. George Hill - Leerink Swann LLC: Okay. And, I guess, just lastly, the company is confident in its ability to get customers to meaningful use?

Yes, we're absolutely confident in our ability to do our part of getting our customers to meaningful use. As you know, the meaningful-use criteria require adoption inside of the customer base relative to the utilization of these technologies. And so I think we have the expertise to help our customers do it, and our expectation is that most of our customers, if not all of them, will achieve meaningful use with our help. But clearly, it's not something we own solely on our own shoulders. What we do own solely on our own shoulders is a certification of our product, and we're confident we will get our product certified once those certification bodies and criteria are out there. So thank you, Operator. And I want to thank, also, all of you that have joined us on the call early this morning. At McKesson, we do start all of our days at 4:30 on the West Coast, so you should be confident that we work hard on your behalf. I'm very pleased with our first quarter performance and excited about the opportunities that lie ahead. I'll now turn the call over to Ana for some comments about our coming events. Ana?

Thank you, John. I have a preview of upcoming events. On September 14, we will present at both the Morgan Stanley conference in New York and at the Bank of America Merrill Lynch 2010 Investment Conference in San Francisco. On September 15, we will present at the Stifel Nicolaus Health Care Conference in Boston. On November 11, we will present at the Credit Suisse Health Care Conference in Phoenix. On November 17, we will present at the Lazard Capital Markets Health Care Conference in New York. We will release second quarter earnings results in late October. We look forward to seeing you at one of these upcoming events. Thank you, and goodbye.

Thank you. That does conclude today's conference. Thank you all for your participation.