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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended March 31, 2002

OR

Commission File Number 1-13252

McKESSON CORPORATION

I.R.S. Employer Identification Number
94-3207296

One Post Street,
San Francisco, CA 94104
Telephone (415) 983-8300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

     Aggregate market value of voting stock held by nonaffiliates of the Registrant on June 6, 2002: $10,516,429,238

     Number of shares of common stock outstanding on June 6, 2002: 289,788,626

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on July 31, 2002 are incorporated by reference into Part III of this report.

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PART  I

Item 1.  Business

General

     McKesson Corporation (“McKesson,” the “Company,” the “Registrant”, or “we” and other similar pronouns), the world’s largest healthcare service and technology company and a Fortune 31 corporation, delivers supply and information management solutions that are designed to reduce costs and improve quality for its healthcare customers.

     The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year.

Business Segments

     We conduct our business through three operating segments: Pharmaceutical Solutions, Medical-Surgical Solutions and Information Solutions. The Pharmaceutical Solutions segment includes our U.S. and Canadian pharmaceutical and healthcare products distribution businesses and an equity interest in a leading pharmaceutical distributor in Mexico. Our U.S. Pharmaceutical Solutions business also includes the manufacture and sale of automated pharmaceutical dispensing systems for hospitals and retail pharmacists, medical management services and tools to payors and providers, marketing and other support services to pharmaceutical manufacturers, consulting and outsourcing services to pharmacies, and distribution of first-aid products to industrial and commercial customers. The Medical-Surgical Solutions segment distributes medical-surgical supplies and equipment, and provides logistics and related services within the U.S. The Information Solutions segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, as well as outsourcing and other services, to healthcare organizations throughout the U.S. and certain foreign countries.

     Net revenues for our business segments for the last three years were as follows:

Pharmaceutical Solutions

     Through our Pharmaceutical Solutions segment, we are a leading distributor of ethical and proprietary drugs, and health and beauty care products and we are a leading provider of services to the healthcare industry in North America. Our Pharmaceutical Solutions segment consists of the following businesses: U.S. Pharmaceutical, International Pharmaceutical, Automation, Health Solutions, Zee Medical and Medication Management (collectively, the “Pharmaceutical Solutions” segment).

     The U.S. Pharmaceutical distribution business supplies pharmaceuticals and healthcare related products to three primary customer segments: retail chains (drug chains, food stores, mail order and mass merchandisers), retail independent pharmacies and institutional providers (including hospitals, integrated delivery networks and long-term care providers) through a network of 30 distribution centers that covers 50 states. These three customer categories represented approximately 41%, 22%, and 37% of U.S. Pharmaceutical Distribution’s revenues in 2002. We promote electronic order entry systems and a wide range of computerized merchandising and asset management services for pharmaceutical retailers and healthcare institutions using the trade name of EconoLink® and a number of related service marks. We have developed advanced marketing programs and information services for independent retail pharmacies. These initiatives include the Valu-Rite®, Valu-Rite/CareMax® and Health Mart® retail networks, the OmniLink® centralized pharmacy technology platform, which offers retail network members connectivity with managed care organizations while promoting compliance with managed care plans, McKesson OneStop Generics^SM, our program to purchase generic

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drugs and .com pharmacy solutions^SM, a service initiative that allows independent pharmacies to set up their own websites for selling over the counter products and prescription refills to their customers. The business’ Supply Management OnLine^SM enables ordering of pharmaceuticals and access to information through Internet connections. Our nationwide network of distribution centers utilizes the Acumax® Plus warehouse management system, which provides real-time inventory statistics and tracks products from the receiving dock to shipping using scanned bar code information and radio frequency signals, with accuracy levels above 99%, to help ensure that the right product arrives at the right time and place for both our customers and their patients. We believe that our financial strength, purchasing leverage, affiliation networks, nationwide network of distribution centers, and advanced logistics and information technologies provide competitive advantages to our pharmaceutical distribution operations.

     The International Pharmaceutical business includes Medis Health and Pharmaceutical Services, Inc. (“Medis”), a wholly-owned subsidiary and the largest pharmaceutical distributor in Canada; and our 22% equity interest in Nadro, S.A. de C.V., a leading pharmaceutical distributor in Mexico.

     Automation manufactures and markets automated pharmacy systems and services to hospitals through its McKesson Automated Healthcare (“MAH”) and to retail pharmacies through its McKesson Automated Prescription Systems (“APS”) units. Key products of MAH include the ROBOT-Rx™ system, a robotic pharmacy dispensing and utilization tracking system that enables hospitals to lower pharmacy costs while significantly improving the accuracy of pharmaceutical dispensing, AcuDose-Rx™ unit-based cabinets which automate the storage, dispensing and tracking of commonly used drugs in patient areas, Admin-Rx™, which records, automates, and streamlines drug administration and medication information requirements through bar code scanning at the patient’s bedside and SupplyScan^SM, a point-of-use supply management system. APS manufactures a wide range of pharmaceutical dispensing and productivity products including Baker Cells™ and Baker Cassettes™, modular units that provide pharmacists with quick and accurate counting capabilities combined with efficient space management, Autoscript™, a robotic pharmacy dispensing system that enables retail pharmacies to lower pharmacy costs through high volume dispensing while improving accuracy through the use of bar code technology, and Pharmacy 2000™, an interactive workstation system which combines software and automation to improve productivity throughout the pharmacy prescription sales process.

     Health Solutions offers a comprehensive selection of products and programs that allows payor organizations to better manage patient costs while improving outcomes of medical care. It also provides pharmaceutical and biotechnology manufacturers with a wide array of technology-based marketing and patient support services to help advance their market success. Health Solutions’ CareEnhance™ brand of products and services enables health plans, employers and other payor organizations to improve health care while managing costs. Services such as disease management, 24/7 nurse triage, health counseling and patient education, together with software tools for patient care management, analysis and reporting, serve to enhance quality, improve profitability, reduce risk and optimize program performance. Health Solutions also designs and implements a broad assortment of marketing and patient support programs that help pharmaceutical and biotechnology manufacturers succeed in the marketplace, manages distribution programs that control access to products in short supply, and offers a complete range of specialty pharmaceutical distribution and support services. DTCSolutions® represents a full suite of database management, telecommunications and fulfillment services that work in support of manufacturers’ direct-to-consumer campaigns, and the group’s single point-of-contact Patient Resource Center™ offers direct-to-patient support programs built around a manufacturer’s brand product.

     Zee Medical is the nation’s leading provider of first-aid and safety products, training and services. Zee Medical distributes first-aid products and safety supplies and offers safety programs and materials to assist industrial and commercial customers, reducing their exposure to escalating healthcare costs associated with on-the-job injuries and illnesses.

     Medication Management is a leading pharmacy management, purchasing, consulting and information services company that combines clinical expertise, financial management capabilities, operational tools and technologies and experience to assist healthcare organizations optimize care and pharmaceutical resources. Medication Management provides customized solutions that allow its customers to improve their pharmaceutical distribution, automation and information technology capabilities and measure quality improvement through proven clinical and operational metrics.

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Medical–Surgical Solutions

     The Medical-Surgical Solutions segment offers a full range of medical-surgical supplies, equipment, logistics and related services to healthcare providers that include hospitals, physicians’ offices, extended care, and homecare sites. The Medical-Surgical Solutions segment is the nation’s third largest distributor of medical-surgical supplies to hospitals (acute care) and is the leading provider of supplies to the full range of alternate-site healthcare facilities, including physicians and clinics (primary care), and extended care and homecare sites (extended care). The Medical-Surgical Solutions segment’s electronic ordering system, Supply Management On-Line^SM, provides an advanced way of ordering medical-surgical products over the Internet, and its Optipak® program allows physicians to customize ordering of supplies according to individual surgical procedure preferences.

Information Solutions

     Our Information Solutions segment provides a comprehensive portfolio of software, support and services to help healthcare organizations improve patient safety, reduce the cost and variability of care, and better manage their resources and revenue stream. The Information Solutions segment markets its products and services to integrated delivery networks, hospitals, physician group practices, home health providers, managed care providers and payors. Sixty-one percent of hospital-based integrated delivery networks use one or more products from this segment. The segment also sells its solutions internationally through subsidiaries and/or distribution agreements in Canada, the United Kingdom, Ireland, Cyprus, France, the Netherlands, Saudi Arabia, Kuwait, Australia and New Zealand. This business segment has sales offices in the United Kingdom and Europe and a software manufacturing facility in Ireland.

     The product portfolio for the Information Solutions segment is organized into three major solutions sets — clinical management, revenue cycle management and resource management, with a variety of subsets of these solutions designed to address specific healthcare business issues (e.g., physician access, medication safety and homecare agency needs). To ensure that organizations achieve the maximum value of their information technology investment, the Information Solutions segment also offers a variety of services to support the implementation and use of solutions as well as assist with business and clinical redesign, process re-engineering and staffing (both information technology and back office).

     Clinical Management. The segment’s clinical solutions are designed to enable organizations to improve medication safety, accelerate physician acceptance of information technology and reduce variability in healthcare quality and costs. The clinical management solution set, known as Horizon Clinicals™, is built using architecture to facilitate integration and enable modular deployment of systems. It includes a clinical data repository, document imaging, real-time decision support, point-of-care nursing documentation, enterprise laboratory and pharmacy, an emergency department solution and an ambulatory medical record. Horizon Clinicals™ also includes solutions to facilitate physician access to patient information such as Web-based physician portals and wireless devices that draw on information from the hospital’s information systems.

     Revenue Cycle Management. The segment’s revenue cycle solution sets is designed to reduce days in accounts receivable, facilitate insurance claim processing, reduce costs and improve productivity. Examples of solutions sets include contract management, electronic claims processing and coding compliance checking. The segment’s hospital information systems also play a key role in revenue cycle management by working with these solutions to automate the operation of individual departments and their respective functions within the inpatient environment.

     Resource Management. The segment’s resource management solution consists of an integrated suite of applications that enhance an organization’s ability to forecast and optimize the enterprise-wide use of resources (labor, supplies, equipment and facilities) associated with the delivery of care. The solution helps automate and link resource requirements to care protocols, resulting in increased profitability, enhanced decision-making, and improved business processes.

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     Technology Services. The group works with healthcare organizations to support the operation of their information systems by providing the technical infrastructure designed to maximize application accessibility, availability, security and performance.

     Professional Services. Professional services help customers achieve business results from their software investment through a wide array of quality service options including consulting for business process improvement and re-design, as well as implementation, project management, technical, and education services relating to all products in the Information Solutions segment.

     Outsourcing Services. The Information Solutions segment has been in the business of helping healthcare organizations focus their resources where they are needed while the segment manages their information technology or revenue cycle operations through outsourcing. Outsourcing service options include managing hospital data processing operations, as well as strategic information systems planning and management, revenue cycle processes, payroll processing, business office administration, and major system conversions.

Acquisitions, Investments and Dispositions

     We have undertaken strategic initiatives in recent years designed to further focus on our core healthcare businesses and enhance our competitive position. These include the following significant acquisitions, investments and dispositions:

•		On May 17, 2002, the Company and Quintiles Transnational Corporation formed a joint venture, Verispan, L.L.C. (“Verispan”). Verispan is a provider of patient-level data delivered in near real time as well as a supplier of other healthcare information. We have an approximate 46% equity interest in the joint venture. The initial contribution to the joint venture of $12.1 million consisted of $7.7 million in net assets from a Pharmaceutical Solutions’ business and $4.4 million in cash, and is subject to adjustment. We have also committed to provide additional aggregate cash contributions of $9.4 million and to purchase a total of $15.0 million in services from the joint venture through 2007.
•		On May 2, 2002, we entered into an agreement to acquire A.L.I. Technologies Inc. (“A.L.I.”), of Vancouver, British Columbia, Canada, by means of a cash tender offer for CN$43.50 per share, or about CN$530 million (approximately US$340 million). A.L.I. provides medical imaging solutions which are designed to streamline access to diagnostic information, automate clinical workflow and eliminate the need for film. The acquisition is expected to close by the second quarter of fiscal 2003, and is subject to regulatory approval and other customary conditions.
•		In February 2002, our Pharmaceutical Solutions segment acquired the net assets of PMO, Inc., a national specialty pharmacy business (doing business under the name of VitaRx), that provides mail order pharmaceutical prescription services to managed care patients for approximately $62 million in cash.
•		In 2002, we sold three businesses, Abaton.com, Inc., Amysis Managed Care Systems, Inc. and Pro Dental Corporation. Two of these businesses were from our Information Solutions segment and one was from our Pharmaceutical Solutions segment. Net proceeds from the sale of these businesses were $0.2 million.
•		In July 2000, we acquired MediVation, Inc., a provider of an automated web-based system for physicians to communicate with patients online, for approximately $24 million in cash, $14 million in our common stock and the assumption of $6 million of employee stock incentives.
•		In April 2000, the Company and three other healthcare product distributors announced an agreement to form the New Health Exchange, which was subsequently renamed Health Nexis LLC (“Health Nexis”). In the third quarter of 2002, Health Nexis merged with The Global Health Exchange, which significantly diluted our percentage ownership in the combined organization. As a result, we changed from the equity to the cost method of accounting for this investment. In 2002 and 2001, we invested $7.0 million and $10.8 million in Health Nexis.

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•		In November 1999, we acquired Abaton.com, Inc., a provider of internet-based clinical applications for use by physician practices, pharmacy benefit managers, benefit payors, laboratories and pharmacies, for approximately $95 million in cash and the assumption of $8 million of employee stock incentives.
•		In February 2000, we disposed of our last non-healthcare business, our wholly-owned subsidiary, McKesson Water Products Company, for approximately $1.1 billion in cash.
•		In the fourth quarter of 2000, we sold a software business, Imnet France S.A.R.L. for net proceeds of $0.8 million.

Competition

     In every area of healthcare distribution operations, our Pharmaceutical Solutions and Medical-Surgical Solutions segments face strong competition, both in price and service, from national, regional and local full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing chains, and manufacturers engaged in direct distribution. The Pharmaceutical Solutions and Medical-Surgical Solutions segments face competition from various other service providers and from pharmaceutical and other healthcare manufacturers (as well as other potential customers of the segments) which may from time to time decide to develop, for their own internal needs, supply management capabilities which are provided by the segments and other competing service providers. Price, quality of service, and, in some cases, convenience to the customer are generally the principal competitive elements in these segments.

     Our Information Solutions segment experiences substantial competition from many firms, including other computer services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, hardware vendors and internet-based companies with technology applicable to the healthcare industry. Competition varies in size from small to large companies, in geographical coverage, and in scope and breadth of products and services offered.

Intellectual Property

     The principal trademarks and service marks of the Pharmaceutical Solutions segment include: ECONOLINK®, VALU-RITE®, Valu-Rite/CareMax®, OmniLink®, McKesson OneStop Generics^SM Health Mart®, ASK-A-NURSE®, Credentialer®, Episode Profiler®, InterQual®, America’s Source for Healthcare Answers®, coSource®, ROBOT-Rx™, AcuDose-Rx™, AcuScan-Rx™, Admin-Rx™, Acumax® Plus, Pak Plus-Rx™, SelfPace™, Baker Cells™, Baker Cassettes™, Baker Universal™, Autoscript™, Pharmacy 2000™, CRMS™, Patterns Profiler™, CareEnhance^SM, Closed Loop Distribution^SM, .com Pharmacy Solutions^SM and SupplyScan^SM.

     The substantial majority of technical concepts and codes embodied in the Information Solutions segment’s computer programs and program documentation are not protected by patents or copyrights but constitute trade secrets that are proprietary to us. The principal trademarks and service marks of the Information Solutions segment are: HealthQuest®, Paragon®, Pathways 2000®, TRENDSTAR®, Horizon Clinicals™, HorizonWP™, Series 2000™, STAR 2000™, Connect 2000^SM, and PracticePoint^SM.

     We also own other registered and unregistered trademarks and service marks and similar rights used by our business segments. All of the principal trademarks and service marks are registered in the United States, or registrations have been applied for with respect to such marks, in addition to certain other jurisdictions. The United States federal registrations of these trademarks have terms of ten or twenty years, depending on date of registration, and are subject to unlimited renewals. We believe we have taken all necessary steps to preserve the registration and duration of our trademarks and service marks, although no assurance can be given that we will be able to successfully enforce or protect our rights there under in the event that they are subject to third-party infringement claims. We do not, however, consider any particular patent, license, franchise or concession to be material to our business.

     The segment also offers a comprehensive range of services to help organizations derive greater value from, and ensure maximum return on investment and satisfaction throughout the life of, the solutions implemented. The range of services includes the following:

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Other Information About the Business

     Customers— In recent years, a significant portion of our revenue growth has been with a limited number of large customers. During 2002, sales to our largest customer, Rite Aid Corporation, and ten largest customers accounted for approximately 14% and 55% of our revenues. All of these customers are from our Pharmaceutical Solutions segment.

     Research and Development— Most of our research and development expenses are incurred by our Information Solutions segment, where their product development efforts apply computer technology and installation methodologies to specific information processing needs of hospitals. We believe a substantial and sustained commitment to such research and development (“R&D”) expenditures is important to the long-term success of this business.

     Investment in software development includes both R&D expense as well as capitalized software held for sale. The Information Solutions segment expended $145.1 million (15% of revenue) for R&D activities during 2002, compared to $152.5 million (16% of revenue) and $148.4 million (14% of revenue) during 2001 and 2000. The Information Solutions segment capitalized 21%, 20% and 29% of its R&D expenditures in 2002, 2001 and 2000. Information regarding R&D is included in Financial Note 1 to the consolidated financial statements, “Significant Accounting Policies,” appearing on pages 54 to 57 of this Annual Report on Form 10-K.

     Environmental Legislation—We sold our chemical distribution operations in 1987 and retained responsibility for certain environmental obligations. Agreements with the Environmental Protection Agency and certain states may require environmental assessments and cleanups at several closed sites. These matters are described further in “Item 3. Legal Proceedings” on page 8 of this Annual Report on Form 10-K. Other than any capital expenditures that may be required in connection with those matters, we do not anticipate making substantial capital expenditures for environmental control facilities, or be required to comply with environmental laws and regulations in the future. The amount of our capital expenditures for environmental compliance was not material in 2002 and is not expected to be material in the next year.

     Employees— On March 31, 2002, we employed approximately 24,000 persons compared with 23,000 in 2001 and 21,100 in 2000.

     Financial Information About Foreign and Domestic Operations and Export Sales— Information as to foreign operations is included in Financial Notes 1 and 20 to the consolidated financial statements, “Significant Accounting Policies” and “Segments of Business,” appearing on pages 54 to 57 and 88 to 90 of this Annual Report on Form 10-K.

Item 2.  Properties

     Because of the nature of our principal businesses, plant, warehousing, office and other facilities are operated in widely dispersed locations. The warehouses are typically owned or leased on a long-term basis. We consider our operating properties to be in satisfactory condition and adequate to meet our needs for the next several years without making capital expenditures materially higher than historical levels. Information as to material lease commitments is included in Financial Note 13 to the consolidated financial statements, “Lease Obligations,” appearing on page 68 of this Annual Report on Form 10-K.

Item 3.  Legal Proceedings

I. Accounting Litigation

     Since the announcements by McKesson, formerly known as McKesson HBOC, Inc., in April, May and July of 1999 that McKesson had determined that certain software sales transactions in its Information Technology Business unit (now referred to as the Information Solutions segment), were improperly recorded as revenue and reversed, as of May 10, 2002, ninety-one lawsuits have been filed against McKesson, HBO & Company (“HBOC”), certain of McKesson’s or HBOC’s current or former officers or directors, and other defendants, including Bear Stearns & Co. Inc. (“Bear Stearns”) and Arthur Andersen LLP (“Andersen”).

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Federal Actions

     Sixty-seven of the above-mentioned actions have been filed in Federal Court (the “Federal Actions”). Of these, sixty-one were filed in the U.S. District Court for the Northern District of California, one in the Northern District of Illinois, which has been voluntarily dismissed without prejudice, one in the Northern District of Georgia, which has been transferred to the Northern District of California, one in the Eastern District of Pennsylvania, which has been transferred to the Northern District of California, two in the Western District of Louisiana, which have been transferred to the Northern District of California, and one in the District of Arizona, which has been transferred to the Northern District of California.

     On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of California issued an order consolidating fifty-three of these actions into one consolidated action entitled In re McKesson HBOC, Inc. Securities Litigation, (Case No. C-99-20743 RMW) (the “Consolidated Action”). By order dated December 22, 1999, Judge Whyte appointed the New York State Common Retirement Fund as lead plaintiff (“Lead Plaintiff”) and approved Lead Plaintiff’s choice of counsel.

     By order dated February 7, 2000, Judge Whyte coordinated a class action alleging claims under the Employee Retirement Income Security Act (commonly known as “ERISA”), Chang v. McKesson HBOC, Inc. et al., (Case No. C-00-20030 RMW), and a shareholder derivative action that had been filed in the Northern District under the caption Cohen v. McCall et al., (Case No. C-99-20916 RMW) with the Consolidated Action. There has been no further significant activity in the Cohen action. Recent developments in the Chang action are discussed below.

     Lead Plaintiff filed an Amended and Consolidated Class Action Complaint (the “ACCAC”) on February 25, 2000. The ACCAC generally alleged that defendants violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. On September 28, 2000, Judge Whyte dismissed all of the ACCAC claims against McKesson under Section 11 of the Securities Act with prejudice, dismissed a claim under Section 14(a) of the Exchange Act with leave to amend, and declined to dismiss a claim against McKesson under Section 10(b) of the Exchange Act.

     On November 14, 2000, Lead Plaintiff filed its Second Amended and Consolidated Class Action Complaint (“SAC”). As with its ACCAC, Lead Plaintiff’s SAC generally alleged that McKesson violated the federal securities laws in connection with the events leading to McKesson’s announcements in April, May and July 1999. The SAC names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Andersen and Bear Stearns as defendants. The SAC purported to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act.

     On January 11, 2001, McKesson filed an action in the U.S. District Court for the Northern District of California against the Lead Plaintiff in the Consolidated Action individually, and as a representative of a defendant class of former HBOC shareholders who exchanged HBOC shares for Company shares in the January 12, 1999 merger of a McKesson subsidiary into HBOC (the “Merger”), McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc. et al., (Case No. C01-20021 RMW) (the “Complaint and Counterclaim”). In the Complaint and Counterclaim, the Company alleges that the exchanged HBOC shares were artificially inflated due to undisclosed accounting improprieties, and that the exchange ratio therefore provided more shares to former HBOC shareholders than would have otherwise been the case. In this action, the Company seeks to recover the “unjust enrichment” received by those HBOC shareholders who exchanged more than 20,000 HBOC shares in the Merger. The Company does not allege any wrongdoing by these shareholders. On January 9, 2002, Judge Whyte dismissed the Complaint and Counterclaim with prejudice. On February 8, 2002, the Company filed a Notice of Appeal from this ruling to the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”). The Company’s opening brief to the Ninth Circuit is currently due to be filed on or before July 5, 2002. Because certain decisions of the Ninth Circuit raise a question as to whether the Ninth Circuit has appellate jurisdiction over the Company’s appeal, the Company has also filed a motion before Judge Whyte for an order certifying his January 9 dismissal order for immediate appeal.

     On January 7, 2002, Judge Whyte dismissed the claim in the SAC against McKesson under Section 10(b), to the extent that the claim was based on any pre-Merger conduct or statements by McKesson, and also dismissed the claim against McKesson under Section 14(a) of the Exchange Act, granting Lead Plaintiff thirty (30) days leave “for one last opportunity” to amend those claims. Judge Whyte dismissed the claim against HBOC under Section 14(a) of the

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Exchange Act without leave to amend. The Section 10(b) claim based on post-Merger statements remains pending against McKesson, and a Section 10(b) claim based on pre-Merger statements remains pending against HBOC.

     On February 15, 2002, Lead Plaintiff filed a Third Amended and Consolidated Class Action Complaint (the “TAC”) in the Consolidated Action. The TAC, like the SAC, purports to state claims against McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act in connection with the events leading to McKesson’s announcements in April, May and July 1999, and names McKesson, HBOC, certain of McKesson’s or HBOC’s current or former officers or directors, Andersen and Bear Stearns as defendants. On April 5, 2002, McKesson filed a motion to dismiss Lead Plaintiff’s claim under Section 10(b) of the Exchange Act to the extent that it is based on McKesson’s pre-Merger conduct, and the claim under Section 14(a) of the Exchange Act in its entirety. McKesson’s motion to dismiss was heard on June 7, 2002, and the court has not yet issued an opinion.

     Several individual actions have also been filed in or transferred to the Northern District of California. On November 12, 1999, an individual shareholder action was filed in the U.S. District Court for the Northern District of California under the caption Jacobs v. McKesson HBOC, Inc., et al., (C-99-21192 RMW). The Plaintiffs in Jacobs are former HBOC shareholders who acquired their HBOC shares pursuant to a registration statement issued by HBOC prior to the Merger, and then exchanged their HBOC shares for McKesson shares in the Merger. Plaintiffs in Jacobs assert claims under federal and state securities laws and a claim for common law fraud. Plaintiffs seek unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. Judge Whyte’s December 22, 1999, order consolidated the Jacobs action with the Consolidated Action. With leave of court, the Jacobs plaintiffs amended their complaint, but the action remains stayed and there has been no discovery, motion practice or other activity in the case.

     On September 21, 2000, the plaintiffs in Jacobs v. McKesson HBOC, Inc., filed a new individual action entitled Jacobs v. HBO & Company (Case No. C-00-20974 RMW). The Jacobs complaint names only HBOC as a defendant and asserts claims under Sections 11 and 12(2) of the Securities Act, Section 10(b) of the Exchange Act and various state law causes of action. The complaint seeks unspecified compensatory and punitive damages, and costs of suit, including attorneys’ fees. This action has been assigned to Judge Whyte and consolidated with the Consolidated Action.

     On December 16, 1999, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Bea v. McKesson HBOC, Inc. et al., (Case No. C-00-20072 RMW). Plaintiffs in Bea filed an Amended Complaint on March 9, 2000. Plaintiffs in Bea allege that they acquired the Company’s common stock prior to the Merger and sold that stock after the April 1999 announcement at a loss. The Bea complaint asserts claims under the federal and state securities laws, and a claim for fraud. Plaintiffs seek (i) unspecified compensatory and punitive damages, and (ii) reasonable costs and expenses of suit, including attorneys’ fees. Bea is currently stayed and has been consolidated with the Consolidated Action.

     On January 7, 2000, an individual action was filed in the U.S. District Court for the Northern District of California under the caption Cater v. McKesson Corporation et al., (Case No. C-00-20327 RMW). The plaintiff is Terry Cater, a former employee of the Company who, at the time he ceased active employment with the Company, held options to purchase shares of Company stock, and also held shares of the Company’s restricted stock. Plaintiff alleges that these options and restricted stock were substantially devalued as a result of the Merger and the subsequent drop in the Company’s stock price. Plaintiff in Cater asserts claims under the federal securities laws as well as claims for breach of good faith and fair dealing, fraud and negligent misrepresentation. Plaintiff seeks (i) unspecified special damages in excess of $50,000, (ii) unspecified general damages, (iii) prejudgment interest and (iv) reasonable attorneys’ fees. The case has been assigned to Judge Whyte and the parties have stipulated to a stay pending the outcome of the motions to dismiss in the Consolidated Action.

     On February 7, 2000, an action entitled Baker v. McKesson HBOC, Inc., et al., (Case No. CV 00-0188) was filed in the U.S. District Court for the Western District of Louisiana. The same plaintiffs then filed a virtually identical parallel action in Louisiana State Court, Rapides Parish, under the caption Baker v. McKesson HBOC, Inc., et al. (filed as Case No. 199018; Case No. CV-00-0522 after removal to federal court). Plaintiffs, former shareholders of Automatic Prescription Services, allege claims under the federal securities laws, and claims for breach of fiduciary duty, misrepresentation and detrimental reliance. The state court action was removed to federal court and the two Baker cases have been transferred to the Northern District of California and consolidated with the Consolidated Action.

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     On July 27, 2001, an action was filed in the United States District Court for the Northern District of California captioned Pacha, et al., v. McKesson HBOC, Inc., et al., (No. C01-20713 PVT) (“Pacha”). The Pacha plaintiffs allege that they were individual shareholders of McKesson stock on November 27, 1998, and assert that McKesson and HBOC violated Section 14(a) of the Exchange Act and SEC Rule 14a-9, and that McKesson, aided by HBOC, breached its fiduciary duties to plaintiffs by issuing a joint proxy statement in connection with the Merger which allegedly contained false and misleading statements or omissions. Plaintiffs name as defendants McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. On November 13, 2001, Judge Whyte ordered Pacha consolidated with the Consolidated Action and stayed all further proceedings.

     Hess v. McKesson HBOC, Inc. et al., an action filed in state court in Arizona (Case No. C-20003862) on behalf of former shareholders of Ephrata Diamond Spring Water Company (“Ephrata”) who acquired McKesson shares in exchange for their Ephrata stock when McKesson acquired Ephrata in January 1999, was removed to federal court, transferred to the Northern District and consolidated with the Consolidated Action. Judge Whyte also stayed all further proceedings in Hess except for the filing of an amended complaint, which was filed on or about December 15, 2001 (the “Hess Amended Complaint”). The Hess Amended Complaint generally incorporates the allegations and claims asserted in Lead Plaintiff’s SAC in the Consolidated Action and also includes various common law causes of action relating to McKesson’s acquisition of Ephrata. The Company is not currently required to respond to the Hess Amended Complaint.

     On June 28, 2001, the Chang plaintiffs filed an amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and The Chase Manhattan Bank. The amended complaint in Chang generally alleges that the defendants breached their fiduciary duties in connection with administering the McKesson HBOC Profit Sharing Investment Plan (the “PSI Plan”) and the HBOC Profit Sharing and Savings Plan (the “HBOC Plan”). Plaintiffs in Chang are alleged former employees of McKesson and participants in the PSI Plan, and purportedly seek relief under sections 404-405, 409 and 502 of ERISA on behalf of a class defined to include participants in the PSI Plan, including participants under the HBOC Plan, who maintained an account balance under the PSI Plan as of April 27, 1999, who had not received a distribution from the PSI Plan as of April 27, 1999, and who suffered losses as a result of the alleged breaches of duty. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the PSI Plan all losses caused by these purported breaches of fiduciary duty, and (iii) attorneys’ fees. In October 2001, McKesson, HBOC, Chase and other defendants moved to dismiss the Chang action. These motions are currently set for hearing on May 17, 2002.

     On February 7, 2002, an action was filed in the United States District Court for the Northern District of California captioned Adams v. McKesson Information Solutions, Inc. et al., No. C-02-06 85 JCS (“Adams”). Plaintiff in Adams filed a first amended complaint on March 15, 2002, against McKesson Information Solutions, Inc. (formerly HBOC), McKesson, certain current or former officers, directors or employees of McKesson or HBOC, and other defendants. Plaintiff alleges that he was a participant in the HBOC Plan and generally alleges that McKesson and HBOC breached their fiduciary duties to the HBOC Plan and its participants or engaged in transactions prohibited by ERISA. Plaintiff asserts his claims on behalf of a putative class defined to include all participants in the HBOC Plan and their beneficiaries for whose benefit the HBOC Plan acquired HBOC stock from March 31, 1996 to April 1, 1999. Plaintiff seeks (i) a judgment that McKesson and HBOC breached their fiduciary duties, (ii) an order requiring defendants to restore to the plan all losses caused by these purported breaches of fiduciary duty, and (iii) reasonable attorneys’ fees, costs and expenses. On April 3, 2002, Judge Whyte issued a Related Case Order in which he found that Adams is related to the Consolidated Action. By operation of a pretrial order entered in the Consolidated Action, Judge Whyte’s Related Case Order automatically consolidated Adams into the Consolidated Action. On April 25, 2002, Plaintiff filed an application with the Court requesting that the Adams action be relieved from automatic consolidation with the Consolidated Action, which HBOC intends to oppose. Defendants are presently not obligated to respond to the first amended complaint.

State Actions

     Twenty-four actions have also been filed in various state courts in California, Colorado, Delaware, Georgia, Louisiana and Pennsylvania (the “State Actions”). Like the Consolidated Action, the State Actions generally allege misconduct by McKesson or HBOC in connection with the events leading to McKesson’s decision to restate HBOC’s financial statements.

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     Two of the State Actions are derivative actions: Ash, et al., v. McCall, et al., (Case No. 17132), filed in the Delaware Chancery Court and Mitchell v. McCall et al., (Case. No. 304415), filed in California Superior Court, City and County of San Francisco. McKesson moved to dismiss both of these actions and to stay the Mitchell action in favor of the earlier filed Ash and Cohen derivative actions. Plaintiffs in Mitchell agreed to defer any action by the court on McKesson’s motions pending resolution of McKesson’s dismissal motion in Ash. On September 15, 2000, in the Ash case, the Court of Chancery dismissed all causes of action with leave to re-plead certain of the dismissed claims, and on January 22, 2001, the Ash plaintiffs filed a Third Amended Complaint which is presently the subject of McKesson’s motion to dismiss.

     Five of the State Actions are class actions. Three of these were filed in Delaware Chancery Court: Derdiger v. Tallman et al., (Case No. 17276), Carroll v. McKesson HBOC, Inc., (Case No. 17454), and Kelly v. McKesson HBOC, Inc., et al., (Case No. 17282 NC). Two additional actions were filed in Delaware Superior Court: Edmondson v. McKesson HBOC, Inc., (Case No. 99-951) and Caravetta v. McKesson HBOC, Inc., (Case No. 00C-04-214 WTQ). The Carroll and Kelly actions have been voluntarily dismissed without prejudice. McKesson removed Edmondson to federal court in Delaware and filed a motion to dismiss, which was granted by the federal court on March 5, 2002. McKesson filed motions to stay the Derdiger and Caravetta actions in favor of proceedings in the federal Consolidated Action, which were granted. On December 20, 2001, the plaintiff in the Derdiger action filed a motion to vacate the stay, but that motion has not yet been briefed or heard by the Court.

     Several of the State Actions are individual actions which have been filed in various state courts. Five of these were filed in the California Superior Court, City and County of San Francisco: Yurick v. McKesson HBOC, Inc. et al., (Case No. 303857), The State of Oregon by and through the Oregon Public Employees Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 307619), Utah State Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 311269), Minnesota State Board of Investment v. McKesson HBOC, Inc. et al., (Case No. 311747), and Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792. In Yurick, the trial court has sustained McKesson’s demurrer to the original complaint without leave to amend with respect to all causes of action except plaintiffs’ claims for common law fraud and negligent misrepresentation, which the trial court has allowed to remain in the case. The Court also stayed Yurick pending the commencement of discovery in the Consolidated Action, but allowed the filing of an amended complaint. On May 23, 2001, the California Court of Appeals affirmed the Yurick trial court’s order dismissing claims against certain of the individual defendants without leave to amend. On July 31, 2001, McKesson’s demurrer to the Second Amended Complaint was overruled and McKesson’s alternative motion to strike was denied.

     The Oregon, Utah and Minnesota actions referenced above are individual securities actions filed in the California Superior Court for the City and County of San Francisco by out-of-state pension funds. On April 20, 2001, plaintiffs in Utah and Minnesota filed amended complaints against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, Andersen and Bear Stearns. The amended complaints in Utah and Minnesota assert claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. On June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of the amended complaints and also moved to stay these actions pending the final resolution of the Consolidated Action. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January 29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 3, 2001, the court denied McKesson’s motion to stay the entire action pending the final resolution of the Consolidated Action but ordered that all discoveries in the Utah and Minnesota actions would be stayed pending the commencement of discovery in the Consolidated Action.

     On May 30, 2001, plaintiffs in Oregon filed a second amended complaint against McKesson, HBOC, certain current or former officers or directors of McKesson or HBOC, and Andersen. The second amended complaint in Oregon asserts claims under California and Georgia’s securities laws, claims under Georgia’s RICO statute, and various common law claims under California and Georgia law. The parties to the Oregon action previously agreed to a stay of all proceedings in that action, other than motions to test the sufficiency of the pleadings, pending the commencement of discovery in the Consolidated Action. On April 4, 2001, the plaintiff in Oregon filed a motion to lift the stipulated stay of discovery, which McKesson and HBOC opposed. McKesson also moved the court for an order modifying the stipulated stay to stay all proceedings in the action pending the final resolution of the Consolidated Action. Also on June 22, 2001, McKesson and HBOC demurred to and moved to strike portions of Oregon’s second amended complaint. The court held hearings on McKesson’s demurrers and motions to strike on November 15, 2001, January

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29, 2002, and April 23, 2002, but has not issued a final ruling on the motions. By order dated December 7, 2001, the court denied McKesson’s motion to stay all proceedings in Oregon but ordered that all discoveries would be stayed pending the commencement of discovery in the Consolidated Action.

     Merrill Lynch Fundamental Growth Fund et al. v. McKesson HBOC, Inc. et al., CGC-02-405792 (“Merrill Lynch Fundamental Growth Fund”) was filed on March 19, 2002, in Superior Court in San Francisco. Plaintiffs in Merrill Lynch Fundamental Growth Fund allege that they purchased Company stock after the Merger and sold that stock at a loss after April 28, 1999. Plaintiffs name as defendants the Company, HBOC, Andersen, Bear Stearns and certain current or former officers or directors of the Company or HBOC, and assert causes of action under California’s securities statutes, Business and Professions Code § 17200, and common law claims for fraud, negligent misrepresentation, conspiracy, and aiding and abetting in connection with the events leading to McKesson’s need to restate HBOC’s financial statements. Plaintiffs also assert claims under New Jersey’s RICO statute, Georgia’s securities statutes, and Georgia RICO. Plaintiffs seek restitution in an unspecified amount, unspecified compensatory and treble damages, reasonable attorneys’ and experts’ fees, and costs and expenses. The Company’s counsel and counsel for the plaintiffs are currently discussing an appropriate response date to the complaint.

     Several individual actions have been filed in various state courts outside of California. Several of these cases have been filed in Georgia state courts. On October 29, 1999, an action was filed in Georgia Superior Court under the caption Powell v. McKesson HBOC, Inc. et al., and (Case No. 1999-CV- 15443). Plaintiff in Powell is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law causes of action. The Powell action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The Company filed a motion to stay, which was granted as to the Georgia securities law claims but not the Georgia RICO claims. Plaintiff thereafter voluntarily dismissed the action. On September 11, 2000, Plaintiff re-filed his action under the caption Powell v. McKesson HBOC, Inc. et al., Case No. 2000-CV-27864, reasserting the same claims against the same defendants. On October 11, 2000, McKesson and HBOC filed answers, motions to dismiss, and motions for a partial stay. The motions for partial stay were granted. This case has been settled and the action was dismissed on February 22, 2002.

     On December 9, 1999, an action was filed in Georgia State Court, Gwinnett County, under the caption Adler v. McKesson HBOC, Inc. et al., (Case No. 99-C-7980-3). Plaintiff in Adler is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Adler action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks damages in excess of $43 million, as well as punitive damages, and costs of suit, including attorneys’ fees. The Company has answered the complaint in Adler. On May 26, 2000, the court denied McKesson’s motion to stay. On July 14, 2000, plaintiff filed an Amended Complaint, which McKesson and HBOC answered on August 21, 2000. Discovery has commenced in the Adler action and is ongoing.

     On October 24, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Suffolk Partners Limited Partnership et al., v. McKesson HBOC, Inc. et al., (No. 00VS010469A). Plaintiffs in the Suffolk action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. Plaintiffs assert claims under Georgia’s securities and racketeering laws, and for common law fraud, negligent misrepresentation, conspiracy, and aiding and abetting. The Suffolk action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. Like the Consolidated Action, the claims in the Suffolk action generally arise out of the January 12, 1999, Merger, and the Company’s announcement of the need to restate its financial statements. Plaintiffs seek (i) compensatory damages of approximately $21.8 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Suffolk action in favor of the Consolidated Action on January 10, 2001. On August 2, 2001, the Court granted the motions to stay, and this case is stayed until all discoveries are completed in the Consolidated Class Action pending in California.

     On November 1, 2000, an action was filed in Georgia State Court, Fulton County, captioned: Curran Partners, L.P. v. McKesson HBOC, Inc. ET al., and (No. 00 VS 010801). Plaintiff in the Curran action allegedly purchased the Company’s common stock after the Merger but before the April 1999 announcement. The claims in the Curran action are identical to the claims in the Suffolk action. Plaintiff seeks (i) compensatory damages of approximately $2.6 million, as well as general, rescissory, special, punitive, exemplary, and with respect to certain causes of action, treble

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damages, and (ii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ and experts’ fees. The Curran action names as defendants the Company, HBOC, and certain of the Company’s or HBOC’s current or former officers or directors, and Andersen. The Company and HBOC separately answered the complaint on January 9, 2001. The Company and HBOC moved for an order staying the Curran action in favor of the Consolidated Action on January 10, 2001. The Court granted the motions to stay on August 22, 2001.

     On December 12, 2001, an action was filed in Georgia State Court, Fulton County, captioned: Drake v. McKesson Corp., et al., and (Case No. 01VS026303A). Plaintiff in Drake is a former HBOC employee seeking lost commissions as well as asserting claims under Georgia’s securities and racketeering laws, and various common law causes of action. Plaintiff seeks (i) approximately $0.3 million in unpaid commissions, (ii) unspecified compensatory, consequential, actual, exemplary, and punitive damages, and (iii) prejudgment and post-judgment interest and costs of suit, including reasonable attorneys’ fees. The Drake action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. The parties entered into a Consent Order for Partial Stay on February 27, 2002, which stayed Plaintiff’s Georgia securities law, fraud and RICO claims. On March 4, 2002, McKesson and McKesson Information Solutions Inc. separately filed their answers.

     On January 31, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Holcombe T. Green and HTG Corp. v McKesson, Inc. et. al., (Case No. 2002-CV-48407). Plaintiffs in the Green action are former HBOC shareholders and assert claims for common law fraud and fraudulent conveyance. Plaintiff Holcombe Green was also a former officer, chairman and director of HBOC. The Green action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiffs seek compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers and counterclaims on April 22, 2002. The Company and HBOC also filed their motions to stay and dismiss. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss.

     On February 6, 2002, an action was filed in Georgia Superior Court, Fulton County, under the caption Hall Family Investments, L.P. v. McKesson, Inc. et al., (Case No. 2002-CV-48612). Plaintiff in the Hall action is a former HBOC shareholder and asserts a claim for common law fraud and fraudulent conveyance. The Hall action names as defendants the Company, HBOC, Albert Bergonzi and Jay Gilbertson. Plaintiff seeks compensatory damages in excess of $100 million, as well as unspecified general, special and punitive damages, and costs of suit, including attorneys’ fees. The Company and HBOC filed their respective answers on April 22, 2002. The Company also filed its counterclaim for unjust enrichment. On April 26, 2002, the Company and HBOC filed motions to stay and dismiss. HBOC also filed a third party complaint against Holcombe Green for indemnification. Discovery is under way and will proceed for some time, unless the court grants the Company’s and HBOC’s motions to stay and/or dismiss. Additionally, the defendants in Hall have moved to have the case consolidated with the Green action.

     On September 28, 1999, an action was filed in Delaware Superior Court under the caption Kelly v. McKesson HBOC, Inc. et al., and (C.A. No. 99C-09-265 WCC). Plaintiffs in Kelly are former shareholders of KWS&P/SFA, which merged into McKesson after the HBOC transaction. Plaintiffs assert claims under the federal securities laws, as well as claims for breach of contract and breach of the duty of good faith and fair dealing. On January 17, 2002, the Delaware Superior Court denied the Kelly plaintiffs’ motion for partial summary judgment and denied McKesson’s motion to dismiss, while granting the motions to dismiss for lack of personal jurisdiction that were filed by certain former officers and directors of McKesson and HBOC. The parties thereafter commenced discovery by exchanging document requests and interrogatories. The court in Kelly has scheduled a trial to begin on May 5, 2003.

     The United States Attorneys’ Office and the Securities and Exchange Commission are conducting investigations into the matters leading to the restatement. On May 15, 2000, the United States Attorney’s Office filed a one-count information against former HBOC officer, Dominick DeRosa, charging Mr. DeRosa with aiding and abetting securities fraud, and on May 15, 2000, Mr. DeRosa entered a guilty plea to that charge. On September 28, 2000, an indictment was unsealed in the Northern District of California against former HBOC officer, Jay P. Gilbertson, and former Company and HBOC officer, Albert J. Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On that same date, a civil complaint was filed by the Securities and Exchange Commission against Mr. Gilbertson, Mr. Bergonzi and Mr. DeRosa (Securities and Exchange Commission v. Gilbertson, et al., Case No. C-00-3570). Mr. DeRosa has settled with the Securities Exchange Commission without admitting or denying the substantive allegations of the complaint. On January 10, 2001, the grand jury returned a superseding indictment in the Northern District of

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California against Messrs. Gilbertson and Bergonzi (United States v. Bergonzi, et al., Case No. CR-00-0505). On September 27, 2001, the Securities and Exchange Commission filed securities fraud charges against six former HBOC officers and employees. Simultaneous with the filing of the Commission’s civil complaints, four of the six defendants settled the claims brought against them by, among other things, consenting, without admitting or denying the allegations of the complaints, to entry of permanent injunctions against all of the alleged violations, and agreed to pay civil penalties in various amounts. On January 3, 2002, the Company was notified in writing by the Securities and Exchange Commission that its investigation has been terminated as to the Company, and that no enforcement action has been recommended to the Commission.

     We do not believe it is feasible to predict or determine the outcome or resolution of the accounting litigation proceedings, or to estimate the amounts of, or potential range of, loss with respect to those proceedings. In addition, the timing of the final resolution of these proceedings is uncertain. The range of possible resolutions of these proceedings could include judgments against the Company or settlements that could require substantial payments by the Company, which could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.

II. Other Litigation and Claims

     In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, other pending and potential legal actions for product liability and other damages, investigations relating to governmental laws and regulations, and other matters arising out of the normal conduct of our business. These include:

     Antitrust Matters

     We are currently a defendant in numerous civil antitrust actions filed since 1993 in federal and state courts by retail pharmacies. The federal cases were coordinated for pretrial purposes in the United States District Court in the Northern District of Illinois and are known as MDL 997. MDL 997 consists of approximately 109 actions brought by approximately 3,500 individual retail, chain and supermarket pharmacies (the “Individual Actions”). In 1999, the court dismissed a related class action following a judgment as a matter of law entered in favor of defendants, which was unsuccessfully appealed. There are numerous other defendants in these actions, including several pharmaceutical manufacturers and several other wholesale distributors. These cases allege, in essence, that the defendants have violated the Sherman Act by conspiring to fix the prices of brand-name pharmaceuticals sold to plaintiffs at artificially high, and non-competitive levels, especially as compared with the prices charged to mail-order pharmacies, managed care organizations and other institutional buyers. The wholesalers’ motion for summary judgment in the Individual Actions has been granted. Plaintiffs have appealed to the Seventh Circuit. On May 6, 2002, the Seventh Circuit affirmed the summary judgment.

     Most of the individual cases brought by chain stores have been settled. The Judicial Panel on Multidistrict Litigation recommended remand of the Sherman Act claims in MDL 997 and on November 2, 2001, the court remanded those claims to their original jurisdictions.

     A state court antitrust case against McKesson and other defendants is currently pending in California. This case is based on essentially the same facts alleged in the Federal Class Action and Individual Actions and asserts violations of state antitrust and/or unfair competition laws. The case (Paradise Drugs, et al. v. Abbott Laboratories, et al., (Case No. CV793852) was filed in the Superior Court of the County of Santa Clara and was transferred to the Superior Court for the County of San Francisco. The case is trailing MDL 997.

     In each of the cases, plaintiffs seek remedies in the form of injunctive relief and unquantified monetary damages, attorneys’ fees and costs. Plaintiffs in the California cases also seek restitution. In addition, treble damages are sought in the Individual Actions and the California case. We and other wholesalers have entered into a judgment sharing agreement with certain pharmaceutical manufacturer defendants, which provides generally that we, together with the other wholesale distributor defendants, will be held harmless by such pharmaceutical manufacturer defendants and will be indemnified against the costs of adverse judgments, if any, against the wholesaler and manufacturers in these or similar actions, in excess of $1 million in the aggregate per wholesale distributor defendant.

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     Product Liability Litigation and Other Claims

     Our subsidiary, McKesson Medical-Surgical, is one of many defendants in approximately 138 cases in which plaintiffs claim that they were injured due to exposure, over many years, to the latex proteins in gloves manufactured by numerous manufacturers and distributed by a number of distributors, including McKesson Medical-Surgical. Efforts to resolve tenders of defense to its suppliers are continuing and a final agreement has been reached with one major supplier. McKesson Medical-Surgical’s insurers are providing coverage for these cases, subject to the applicable deductibles.

     We, along with 134 other companies, have been named in a lawsuit brought by the Lemelson Medical, Educational & Research Foundation (“the Foundation”) alleging that we and our subsidiaries are infringing seven U.S. patents relating to common bar code scanning technology and its use for the automated management and control of product inventory, warehousing, distribution and point-of-sale transactions. The Foundation seeks to enter into a license agreement with us, the lump sum fee for which would be based upon a fraction of a percent of our overall revenues over the past ten years. Due to the pendency of earlier litigation brought against the Foundation attacking the validity of the patents at issue, the court has stayed the action until the conclusion of the earlier case.

III. Environmental Matters

     Primarily as a result of the operation of our former chemical businesses, which were divested in 1987, we are involved in various matters pursuant to environmental laws and regulations. We have received claims and demands from governmental agencies relating to investigative and remedial action purportedly required to address environmental conditions alleged to exist at five sites where we, or entities acquired by us, formerly conducted operations; and we, by administrative order or otherwise, have agreed to take certain actions at those sites, including soil and groundwater remediation.

     Based on a determination by our environmental staff, in consultation with outside environmental specialists and counsel, the current estimate of reasonably possible remediation costs for these five sites is approximately $13 million, net of approximately $1.5 million which third parties have agreed to pay in settlement or which we expect, based either on agreements or nonrefundable contributions which are ongoing, to be contributed by third parties. The $13 million is expected to be paid out between April 2002 and March 2029. Our liability for these environmental matters has been accrued in the accompanying consolidated balance sheets.

     In addition, we have been designated as a potentially responsible party, or PRP, under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the “Superfund” law or its state law equivalent) for environmental assessment and cleanup costs as the result of our alleged disposal of hazardous substances at 19 sites. With respect to each of these sites, numerous other PRPs have similarly been designated and, while the current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter costs of these sites are typically shared with other PRPs. Our estimated liability at those 19 PRP sites is approximately $1.1 million. The aggregate settlements and costs paid by us in Superfund matters to date have not been significant. The accompanying consolidated balance sheets include this environmental liability.

     The potential costs to us related to environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs and effectiveness of alternative cleanup technologies; the determination of our liability in proportion to other PRPs; and the extent, if any, to which such costs are recover able from insurance or other parties.

     Except as specifically stated above with respect to the litigation matters summarized under “Accounting Litigation” above, we believe, based on current knowledge and the advice of our counsel, that the outcome of the litigation and governmental proceedings discussed under “Legal Proceedings” will not have a material adverse effect on our financial position, results of operations or cash flows.

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Item 4.  Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the three months ended March 31, 2002.

Executive Officers of the Registrant

     The following table sets forth information regarding the executive officers of the Company, including their principal occupations during the past five years. The number of years of service with the Company includes service with predecessor companies.

     There are no family relationships between any of the executive officers or directors of the Company. The executive officers are chosen annually to serve until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their successors are elected and have qualified, or until death, resignation or removal, whichever is sooner.

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PART  II

Item 5.  Market for the Registrant’s Common Stock and Related Stockholder Matters

(a)		Market Information. The principal market on which the Company’s common stock is traded is the New York Stock Exchange. The Company’s common stock is also traded on the Pacific Exchange, Inc. High and low prices for the common stock by quarter are included in Financial Note 21 to the consolidated financial statements, “Quarterly Financial Information (Unaudited),” appearing on pages 90 to 91 of this Annual Report on Form 10-K.
(b)		Holders. The number of record holders of the Company’s common stock at March 31, 2002 was approximately 15,100.
(c)		Dividends. Dividend information is included in Financial Note 21 to the consolidated financial statements, “Quarterly Financial Information (Unaudited),” appearing on pages 90 to 91 of this Annual Report on Form 10-K.

Item 6.  Selected Financial Data

     Selected financial data is presented in the Five-Year Highlights on pages 26 to 27 of this Annual Report on Form 10-K.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s discussion and analysis of the Company’s financial condition and results of operations are presented in the Financial Review on pages 28 to 48 of this Annual Report on Form 10-K.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

     Information required by this item is included in the Financial Review on page 44 of this Annual Report on Form 10-K.

Item 8.  Financial Statements and Supplementary Data

     Financial Statements and Supplementary Data appear on pages 49 to 91 of this Annual Report on Form 10-K.

Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

     Not applicable.

PART  III

Item 10.  Directors and Executive Officers of the Registrant

     Information with respect to Directors of the Company is incorporated by reference from the Company’s 2002 Proxy Statement (the “Proxy Statement”). Certain information relating to Executive Officers of the Company appears on page 17 of this Annual Report on Form 10-K. The information with respect to this item required by Item 405 of Regulation S-K is incorporated herein by reference from the Proxy Statement.

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Item 11.  Executive Compensation

     Information with respect to this item is incorporated herein by reference from the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information with respect to this item is incorporated herein by reference from the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

     Information with respect to certain transactions with management is incorporated by reference from the Proxy Statement. Certain information regarding related party transactions, is also included in the Financial Review on page 44 of this Annual Report on Form 10-K.

PART  IV

Item 14.  Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a)

Financial Statements, Financial Statement Schedule and Exhibits

(b)

Reports on Form 8-K

	The following reports on Form 8-K were filed during the three months ended March 31, 2002:
	Form 8-K, dated January 22, 2002 and filed on January 24, 2002, relating to our 2002 third quarter financial results and updated legal proceedings.
	Form 8-K, dated January 24, 2002 and filed on January 28, 2002, relating to our issuance of $400 million aggregate principal amount of 7.75% notes due 2012.

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SIGNATURES

     Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Pursuant on behalf of the Registrant and to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated:

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SCHEDULE II

SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended March 31, 2002, 2001 and 2000
(In millions)

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McKESSON CORPORATION

EXHIBIT INDEX

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McKESSON CORPORATION

INDEX TO CONSOLIDATED FINANCIAL INFORMATION

CONTENTS

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McKESSON CORPORATION

FIVE-YEAR HIGHLIGHTS