Corporate Citizenship Report

DELIVERING ON OUR

VALUESMcKesson’s Corporate Citizenship Report 2005

COMMITMENT TO OUR EMPLOYEES

COMMITMENT TO IMPROVING THEQUALITY OF HEALTHCARE

COMMITMENT TO OUR COMMUNITY

McKesson Corporation is the leadingprovider of supply, information and care management products and servicesdesigned to reduce costs and improve quality across healthcare. From heart medicines to stethoscopes to electronicmedical records records, McKesson solu-tions empower healthcare professionalswith the tools they need to deliver caremore efficiently and effectively. Foundedover 170 years ago, with annual revenues of more than $80 billion, McKesson isamong the 15 largest companies in the United States based on FortuneMagazine’s rankings.

MCKESSON CORPORATE–Citizenship Report 2005

“WE ARE A COMMUNITY PARTNER AND WE STRIVE TO ADD VALUE IN WAYS THAT GO BEYOND THE TRADITIONAL DEFINITIONS. WE ARE MCKESSON,EMPOWERING HEALTHCARE.”JOHN HAMMERGREN, CHAIRMAN AND CEO

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LETTER FROM THE CHAIRMAN

Today’s businesses are increasingly held accountable for theiractions by shareholders, employees, government, customers andvarious community stakeholders. This emphasis on increasedtransparency encourages companies to reflect on their businesspractices and core values, and provides the opportunity for positive change.

At McKesson, we have a long, rich history of change leadership.We were founded in 1833 on the belief that our companyshould help provide medicines to those that need them. By the1970s, our company had become a diverse holding companywith distribution operations in pharmaceutical, water, dairy,chemical and food products.

In the 1990s, McKesson once again narrowed its focus back toits heritage—healthcare. This evolution has guided our behaviorsand actions. It has helped us keep sight of the bigger picture. Weconcentrate our efforts on our total company value—not just onour near-term financial results, but on our long-term sustainabilityand our contribution to the quality of life in our communities.

This is McKesson’s first Corporate Citizenship Report. It is astarting point from which we will benchmark ourselves as wemove forward.

We are more than the nation’s largest distributor of pharmaceuti-cals, more than #15 in the Fortune 500. We are a companyworking to improve the quality of healthcare for generations to come, and a company grounded in positive values. We are anindustry leader that is delivering outstanding results for our cus-tomers, and is always striving to do better. We are alsocommitted to treating our employees well, and giving back tothe communities where we do business. We are a communitypartner and we strive to add value in ways that go beyond thetraditional definitions. We are McKesson, Empowering Healthcare.

John HammergrenChairman and Chief Executive Officer


OUR CORE VALUES DRIVE OUR CORPORATE CULTURE. OUTLINED IN THIS REPORT IS HOW WE BRING THESE PRINCIPLES TO BEAR ON OURDAILY OPERATIONS, PRACTICESTHAT AFFECT OUR COMPANY,OUR PEOPLE AND OUR WORLD.

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COMPANY HISTORY

A commitment to corporate citizenship runs deep through

McKesson’s history. More than 170 years ago, the company was

founded with the goal of helping people receive the healthcare

they deserve. We trace our roots back to 1833 when John

McKesson and Charles Olcott opened a small drug import and

wholesale shop in New York City’s financial district. The

McKesson and Olcott business thrived, providing clients botani-

cal drugs, such as herbs, roots, leaves, bark and vegetable

extracts. Early on they brought Daniel Robbins on board and in

1853, after Olcott passed away, the company was renamed

McKesson & Robbins.

By 1929, McKesson & Robbins’s profits had reached $4.1 million

on unprecedented sales of $140 million. Due to progressive busi-

ness strategies, the company achieved steady growth despite the

Great Depression.

Leveraging post-war opportunities, McKesson & Robbins created

McKesson Chemical Company, another major operating unit. By

1955, McKesson Chemical Company had become a diversified

national distribution leader.

In 1967, Foremost, a nationwide dairy distributor, and McKesson

& Robbins merged to become Foremost-McKesson. Foremost-

McKesson, Inc. was the largest United States distributor of

pharmaceuticals, alcoholic beverages and chemicals. It was the

nation’s largest supplier of milk-based products and was the

largest producer of processed water in the western half of the

United States.

During the 1980s, Foremost-McKesson divested most of its

peripheral businesses and began the process of refocusing on its

core healthcare supply management businesses and investing in

new technologies. In 1984, McKesson Corporation became the

new name of the company.

In the 1990s, McKesson further focused its mission: To be the

world leader in healthcare supply management and information

technologies by advancing the success of its partners as they

restructure and improve healthcare. This focus led McKesson to

acquire medical technology company HBOC to bring innovative

software solutions to its broad base of retail, hospital, health sys-

tem, payor, long-term care, physician and home care customers.

With annual revenues of more than $80 billion, McKesson now

ranks as the 15th-largest publicly-traded industrial company in

the United States.


OUR COMPANY

Company Overview

McKesson is a healthcare services and information technology

company dedicated to helping our customers deliver high-quality

healthcare by reducing costs, streamlining processes and

improving the quality and safety of patient care. We are helping

create a healthcare system where quality is higher, mistakes are

fewer, costs are lower, physicians know more and pharmacists

have more time for customers.

McKesson’s Vision

Our vision is to bring together clinical knowledge, process

expertise, technology and the resources of a leading company to

fundamentally change the cost and quality of healthcare.

Every day…

– We help 25,000 neighborhood drug stores, retail chains

and healthcare facilities improve their pharmacy operations.

– We help more than 600 payor organizations manage

costs and improve the quality of patient care.

– We help over 50,000 healthcare facilities and physician

practices deliver safer, more-efficient care.

– We help some 3,000 pharmaceutical and medical-supply

manufacturers deliver their products to all points of care.

LEADING THE EVOLUTION

McKesson is leading the evolution of healthcare by helping our

customers provide patients with the most cost effective, quality-

driven, results-based medical care:

– Playing an active role in changing the way healthcare

is delivered.

– Providing tools and technology to pharmacists and

hospitals to bring about improvements in efficiency,

safety and patient care.

– Collaborating with our customers to improve every

aspect of healthcare.

– Creating innovative solutions, delivering exceptional

customer service and enabling operational excellence.

– Making changes at McKesson that will enable us—

and our customers—to achieve our visions.

Products and Services

McKesson’s products and services empower healthcare providers

to improve the quality of patient care by managing inventory in

retail pharmacies, reducing unnecessary paperwork in hospitals,

and freeing pharmacists to counsel patients. Here is a summary

of some of McKesson’s key offerings:

Major Trends Driving Growth

Demographics drive drug consumption

Increased involvement by consumers in their own healthcare

Demand by payors and employers for improved outcomes

Focus on patient safety

Focus on managing chronic diseases

Pressure to control healthcare costs

McKesson delivers 30% of the nation’s daily drug needs

McKesson technology helps drive healthcare quality

McKesson solutions deliver best practice information at point of care

McKesson solutions provide pharmaceutical supply chain integrity and reduce medication errors

McKesson provides health management solutions across spectrum of care

McKesson coordinates solutions between manufacturers, customers, and payors to manage costs, improve quality, and increase efficiency

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– McKesson supplies branded, generic and over-the-counter

pharmaceutical drugs to pharmacies, hospitals and other

care providers.

– McKesson is the nation’s largest supplier of medical-

surgical supplies, distributing more than 150,000 products

to nursing homes, physician offices and surgery centers.

– McKesson provides hospital and retail pharmacy customers

with robots to aid in pharmaceutical dispensing, bedside

bar-coding technology, and automated inventory and

order management.

– McKesson provides disease management services for

Medicare and state Medicaid programs to improve care

and outcomes for the chronically ill.

– McKesson delivers bio-pharmaceutical drugs to providers

to treat patients with chronic conditions such as cancer,

hepatitis C, arthritis and multiple sclerosis.

– McKesson offers outsourcing services for pharmacy

management of acute care hospitals, health systems

and other healthcare providers.

– McKesson offers a variety of health information technologies

to reduce paperwork, facilitate physician access to data at

the point of care and expedite accurate payment for providers

and payors.

OUR SHARED PRINCIPLES

Employees at successful companies are driven to perform

because they share a common vision for their company, and a

common set of values for the way they interact with each other

and their customers. In 1997, a group of employees at McKesson

developed the five Shared Principles (I CARE) that described the

set of behaviors that define the company’s culture.

McKesson’s I CARE Shared Principles:

Integrity

Customer-first

Accountability

Respect

Excellence

These values and their corresponding behaviors connect

McKesson employees through a common language and common

approach to their jobs. Guiding our decisions using the I CARE

Shared Principles every day helps us reach our company goals

and strengthens our relationships with fellow employees.

By embracing the I CARE Shared Principles, we have the founda-

tion necessary to deliver on our vision.

By embracing the I CAREShared Principles, we havethe foundation necessaryto deliver on our vision.


COMPLIANCE AND INTEGRITY

Rigorous, unwavering compliance with laws and regulations is

the foundation for economic performance and customer and

shareholder value creation. McKesson focuses intensely on devel-

oping, implementing and continually refining systems and

processes that enable full compliance with the laws and regula-

tions that govern our operations. These include: Financial laws

and regulations such as the Securities and Exchange Commission,

Sarbanes-Oxley and Financial Accounting Standards Board; the

Food and Drug Administration; and all federal and state laws.

We are especially aware of our responsibility to maintain the

integrity of the pharmaceutical supply chain and consumer and

patient safety. We provide our customers the complete range of

pharmaceuticals approved for use by the FDA, and apply all nec-

essary controls governing the distribution of these substances.

CORPORATE GOVERNANCE AND ETHICS

McKesson recently updated its Corporate Governance Guidelines

to reflect the Board’s commitment to transparency and oversight

both at the Board and management level, and to provide the

framework for the governance of the company.

– McKesson currently has four standing committees:

Audit, Compensation, Finance, and Governance. Each

of the committees is composed entirely of independent

directors, satisfying applicable legal, regulatory, and

stock exchange requirements.

– The Board is also responsible for assuring that McKesson’s

management and employees operate in a legal and ethically

responsible manner. To ensure transparent accounting and

reporting practices, independent board members have

access to the company’s outside advisors and meet in

executive session without company management present

on a regularly scheduled basis.

Ethics Hotline

Speaking up about misconduct is an important part of McKesson’s

dedication to ethical behavior. To make it easier for employees to

voice their concerns about suspected illegal, unethical, or unsafe

conduct, McKesson has established the McKesson EthicsLine,

independently operated by Global Compliance Services. It is a

toll-free hotline, available 24 hours a day, 7 days a week.

When an employee calls the EthicsLine, a trained third-party com-

munication specialist will ask a series of questions to better

understand the situation. A report is prepared and forwarded to

McKesson’s compliance attorney for review and appropriate action.

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Callers may remain anonymous if they choose to do so; no call-tracing or recording devices are used. Any employee whochooses to reveal his or her identity is protected by the compa-ny’s Code of Business Conduct and Ethics, which explicitlyforbids any action that could be construed as retaliation.

PUBLIC AFFAIRS

As the nation’s largest healthcare services company, McKessonCorporation recognizes its responsibility to participate in thepublic policy process on healthcare issues and concerns. Throughour Public Affairs Department, the company builds and maintainsworking relationships with elected and appointed officials atevery level of government, from Washington, D.C., to state capi-tals to city halls across America. More importantly, we encouragethese policymakers to visit our facilities and customer sites tomeet with our executives and to witness firsthand how ourhealthcare businesses and innovative solutions improve thequality and delivery of care while removing unnecessary costs.

Each day, McKesson actively works with industry colleagues, gov-ernment agencies, and elected officials to find solutions to someof the most challenging problems facing the healthcare system.

Protecting the Integrity of the Pharmaceutical Supply Chain

For more than 170 years, McKesson has led the industry in the delivery of medicines to drug stores. We purchase medicinesdirectly from 450 manufacturers and supply more than 75,000customer sites in all 50 states. McKesson has long been a leader in developing and implementing cutting-edge technologyto enhance the security of the pharmaceutical supply chain.We were the first wholesaler to fully automate our warehousesand distribution networks with radio frequency and scanningtechnology. Today, we are again taking the lead as we work withmanufacturers and major retailers to test radio frequency identification (RFID) technology that will track pharmaceuticalproducts from the manufacturer to the wholesaler to the pharmacy. In addition to more stringent wholesaler licensurestandards and tougher criminal penalties for those who counterfeit drugs, RFID technology will limit the ability andopportunity for compromised or adulterated products to enterthe pharmaceutical distribution network.

Patient Safety

As the world’s largest provider of healthcare information technol-ogy (HIT), McKesson offers comprehensive solutions designed toenhance patient safety at every touch point of the healthcare system. Our barcoding technology promotes the safe delivery of


medicines from pharmacy robotic systems to bedside medicationadministration. This unique medication management processsaves lives and time, removes rework, and reduces human errorand resulting costs. This is just the first step, however, on thepath to ensure patient safety through greater use of technology.Digitizing the healthcare system through widespread adoption ofHIT will improve the quality of care for all Americans. McKessonhas developed solutions that enable healthcare professionals tocapture discrete patient data from disparate sources, includingthe pharmacy, physician’s office, laboratory and hospital, to forma comprehensive, portable and confidential electronic patientrecord. Thousands of lives and millions of dollars can be saved inreduced healthcare spending through the rapid adoption of HIT.We continue to work with our government partners to make thisdream a reality.

Disease Management

McKesson provides disease management programs for com-mercial, Medicaid and Medicare populations in which we leverage our experience with patient services, pharmacymanagement and healthcare quality improvement activities.These outcome-focused, evidence-based interventionsimprove patients’ abilities to participate in their care and helpphysicians by reinforcing their medical recommendations.

As federal and state governments consider new ways toimprove the quality and delivery of healthcare to populationswith chronic illnesses, McKesson believes greater utilization ofdisease management programs is vital to enhancing care out-comes for the elderly and vulnerable populations, whileconcurrently reducing the cost of care. In states where we pro-vide disease management services to Medicaid patients,physician and patient satisfaction has improved along withhealth outcomes. We estimate these states are saving approxi-mately two dollars for every dollar spent with McKesson.

FINANCIALS

McKesson strives to be a leader in the corporate citizenshipefforts of our industry. We believe that through ethical corporategovernance, fair employment policies, and sound environmentalpractices, we will deliver enhanced financial performance.

Business Segments

McKesson’s strategy is to create strong, value-based relationshipswith customers. Our diverse business segments allow us to offerour customers a full range of products and services that reducecosts and improve quality care.

$81 billion in revenue

16% increase in revenues

$1.5 billion cash flow from operations

18.7% debt-to-capital ratio

$1.8 billion in cash

25,200 employees

Corporate Financial HighlightsFISCAL YEAR ENDING MARCH 31, 2005

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

$ BILLIONS 2005 2004 2003

Pharmaceutical Solutions $ 76.3 95% $ 65.6 94% $ 53.2 93% Medical-Surgical Solutions 2.9 4 2.7 4 2.8 5 Information Solutions 1.3 1 1.0 2 1.1 2

Total $ 80.5 100% $ 69.3 100% $ 57.1 100%

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McKesson Conducts Business Through Three Segments

Through our Pharmaceutical Solutions segment, McKesson is aleading distributor of ethical and proprietary drugs, and healthand beauty care products throughout North America. This seg-ment also manufactures and sells automated pharmaceuticaldispensing systems for retail pharmacies, medical managementand specialty pharmaceutical solutions for biotech and pharma-ceutical manufacturers, patient and payor services, consultingand outsourcing services to pharmacies, and distribution of first-aid products in the United States.

McKesson’s Medical-Surgical Solutions segment distributes med-ical-surgical supplies and equipment, and provides logistics andrelated services within the United States.

McKesson’s Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care,automation and strategic management software solutions, aswell as outsourcing and other services, to healthcare organiza-tions throughout North America, the United Kingdom and otherEuropean countries.

OUR PEOPLE

McKesson believes that our most valuable and important asset isour workforce. It is for this reason that McKesson continuallystrives to be an employer of choice, by treating our employeeswith respect, fairness, and dignity.

McKesson employee compensation and benefits programsreflect the wide variety of needs faced by our employees. Fromretirement planning to chronic disease management to adoptionassistance to partner benefits, McKesson is committed to offering our employees the tools they need to manage thedemands of both work and family life.

COMPENSATION

McKesson believes that every employee has the potential to addvalue to our business, which is why we follow a “pay-for-per-formance” compensation philosophy. This compensationphilosophy rewards employees of all levels based on their contri-bution to the company’s success.

*Assumes $100 invested in McKesson Common Stock and in each index on March 31,1999 andthat all dividends are reinvested.

FISCAL YEAR ENDING MARCH 31

Five Year Cumulative Total Return*

Value Line HealthCare Sector Index

S&P 500 Index

McKesson Corporation


Revenues$ MILLIONS

40000

50000

60000

70000

80000

90000Revenues

0504030201

04 0503020100

$ DOLLARS


Cash Dividends Declared$ MILLIONS

66

68

70

72

0504030201


Gross Profit & Net Income$ MILLIONS

0

500

1000

1500

2000

2500

3000

3500

Net Income

** Excludes impact of theshareholder litigation charge

Gross Profit

05**04030201


Total Assets, Equity, Debt$ MILLIONS

0

5000

10000

15000

20000

Total Debt

Stockholders’ Equity

Total Assets

0504030201


Market Value Per Common Share$ DOLLARS

20

25

30

35

40Market Value/Common Share

0504030201

0

50

100

150

200

0

50

100

150

200

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, 2000 and

that all dividends are reinvested.*Assumes $100 invested in McKesson Common Stock and in each index on March 31,1999 andthat all dividends are reinvested.


Revenues$ MILLIONS

40000

50000

60000

70000

80000

90000Revenues

0504030201


Cash Dividends Declared$ MILLIONS

66

68

70

72

0504030201


Trends in McKesson’s OSHA Inspections & ViolationsINSPECTIONS/VIOLATIONS PER YEAR

0

5

10

15

20

OSHA Violations

OSHA Inspections

04030201


McKesson’s OSHA FinesDOLLAR AMOUNT OF FINES PER YEAR

0

1000

2000

3000

4000

5000

6000OSHA Fines

04030201

Number of McKesson’s Worker’s Compensation ClaimsTOTAL CLAIMS PER YEAR

900

1200

1500OSHA Fines

0

Cost of McKesson’s Worker’s Compensation Claims$ MILLIONS

6

9

12

15Cost of Claims

0


Gross Profit & Net Income$ MILLIONS

0

500

1000

1500

2000

2500

3000

3500

Net Income

** Excludes impact of theshareholder litigation charge

Gross Profit

05**04030201


Market Value Per Common Share$ DOLLARS

20

25

30

35

40Market Value/Common Share

0504030201

* Assumes $100 invested in McKesson Common Stock and in each index on March 31, 2000 and

that all dividends are reinvested.


BENEFITS

McKesson’s benefits programs are another way of adding valueto our employees’ total compensation package, and focusing onimproving the long-term health and welfare of our employees.Our benefits program can add as much as 27% percent or morein value to an employee’s pay. According to our 2005 EmployeeSurvey, 76% of employees responded favorably to McKesson’sbenefits offering. This score is five points higher than the globalhigh-performing benchmark. Due to the fact that McKesson hasgrown over many years of mergers and acquisitions, our HumanResources department has recently been focused on aligning all of the employee benefits offered so that they are fair andequitable across the company.

Employee benefits include a wide variety of life services, including:

– Help with medical, dental and vision care costs

– Domestic partner benefits

– Retirement savings

– Disability coverage

– Life insurance

– Tuition reimbursement

– Adoption assistance

– Access to a triage nurse call-in center

– Learning opportunities focused on healthy living and work-life balance

Through “MyMcKessonHR,” the company’s human resourcesintranet, employees have access to detailed information on ben-efit plans, along with contact information and features at their fingertips, in order to help employees make the most of theavailable programs.

Health Benefits

McKesson is dedicated to providing employees with access toquality healthcare through a wide variety of programs and servic-es. McKesson strives to provide employees with the tools theyneed to proactively manage their own health through subsidizedhealth coverage, the McKesson CareEnhance website, healtheducation lunch-and-learns, McKesson’s nurse triage hotline,chronic disease management information, free on-site healthscreenings, and other preventative measures.

Through CareEnhance, the company’s online web service thatallows employees to get a full range of information on most anyhealth topic, employees can take a free, confidential health riskassessment. Employees answer a simple health questionnaireand provide their basic health history to receive personalized

17

information about their risk factors. Employees can also researcha medical concern, read articles online and listen to audio health information.

Eligible McKesson employees are offered employer-sponsoredhealth coverage in the United States and Canada, and statesponsored health coverage in Europe, which is partly fundedthrough required contributions. All medical plans cover office visits, hospital stays, surgery, and other common medical services.

Pharmacy customers make up a large part of our business, andthose relationships allow our Company to offer a generousemployee prescription benefit plan. There are over 55,000 phar-macies in McKesson’s drug benefit plan network, allowing ouremployees maximum choice. Our employees also have theoption to maximize savings by ordering prescriptions by mail fora three-month supply of any brand name medication. Whetherour employees visit a pharmacy or fill their prescriptions online,there is an annual cap on out-of-pocket costs.

Basic life and AD&D insurance are automatically provided toMcKesson employees. Employees may purchase reduced costvision, dental, disability, supplemental life and AD&D coverage,as well as dependent life insurance for a spouse, domestic partner, and children.

EAP

The McKesson Employee Assistance Program (EAP) provides toll-free, 24-hour, 365-day support services at no cost to ouremployees. EAP representatives can help with everyday prob-lems, including referrals for locating child care, getting advice onlegal matters and help with financial planning to more seriousproblems related to stress, marital and relationship concerns, andalcohol or other drug problems.

Retirement Savings

McKesson’s Profit-Sharing Investment Plan is a 401(k) plan thataffords employees a smart, convenient way to save for a securefinancial future. It offers financial choice and flexibility, and givesemployees the opportunity to become a company shareholder.Approximately two-thirds of our employees are currently takingadvantage of the plan.

McKesson believes strongly in providing our employees with thetools they need to be financially prepared for retirement. Sincethe plan’s inception in 1972, McKesson has matched employeecontributions, up to the first six percent of salary. In recent years,McKesson has contributed a monthly match, as well as an addi-tional amount tied to annual business performance. Companycontributions for the past five years were as follows:


Plan Year Ending Company Match

March 31, 2005 See Below

March 31, 2004 60%

March 31, 2003 65%

March 31, 2002 78%

March 31, 2001 70%

Beginning April 1, 2005, McKesson’s matching contribution is

100% on the first 3% of pay contributed and 50% on the next

2% of pay.

Stock purchase plan

The Employee Stock Purchase Plan (ESPP) allows eligible employ-

ees to participate in the plan and purchase shares of the

company’s common stock at a 15% discount through payroll

deductions. Each participating employee receives shares of the

company’s common stock based on their contributions over a

three-month purchase period.

Adoption Assistance

Adoption Assistance is available to help our employees with the

cost of adoption. This program reimburses up to $2,000 in

expenses for adoptions.

Educational Assistance

McKesson believes in life-long learning, and the company offers

an education reimbursement program that pays 100% of eligible

expenses for approved courses. All course required fees (such as

tuition, lab fees, and registration fees) are considered eligible

expenses. The lifetime maximum for undergraduate courses is

$21,000 and the graduate lifetime maximum is $10,500.

McKesson also offers two scholarship programs for employees’

children:

National Merit™ Scholarship Program

Up to 20 four-year college scholarships, ranging from $1,000 to

$2,500 per year are awarded to employees’ children each year.

This is a competitive academic scholarship and winners are deter-

mined by an independent scholarship administrator.

Scholarship America

Up to 20 four-year awards ranging from $1,000 to $2,500 are

made each year to employees’ children enrolled full-time in

accredited colleges or vocational schools. This scholarship is

awarded based upon the student’s overall potential to succeed,

rather than strictly focusing on academic achievement. Winners

are determined by an independent scholarship administrator.

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Award and Recognition Programs

McKesson’s Community Relations department offers two award

programs for employees showing leadership involvement in

the community. The President’s Award is a quarterly award

given by each business unit president to employees that have

demonstrated outstanding community service, and the Neil

Harlan Award, an annual national employee volunteer recognition

program, provides five award winners with cash grants ranging

from $1,000 to $5,000 to the non-profits of their choice.

WORKPLACE SAFETY

McKesson takes employee safety very seriously, and is constantly

striving to improve the safety of our workplaces. In addition

to complying with all Occupational Safety and Health

Administration (OSHA) regulations, McKesson also provides each

of our facility managers with emergency preparedness courses,

fire drills, automatic defibrillators, first aid kits, and emergency

preparedness posters for all break rooms.

OSHA violations have decreased from 18 in 2001 to 0 in 2005

and OSHA fines have decreased from $5,938 in 2001 to $0 in

2005. Worker’s compensation claims have decreased from 960

claims in 2001 to 701 claims in 2005, reflecting the company’s

emphasis on improved workplace safety.

DIVERSITY

When you hear the word “diversity” at McKesson, we are not

only speaking of gender, age and race. We believe that diversity

can be found everywhere—a diverse upbringing or life experi-

ence can cause diversity of thought and enable employees to

bring a new perspective to the table. McKesson believes that

valuing diversity gives us a competitive advantage and is a

cornerstone of our reputation as a great company. To that end,

we promote a business model of diversity excellence.

McKesson was voted #1 in Workplace Diversity by Computer

World Magazine in 2003, was voted one of the best places for

minorities in Atlanta by The Atlanta Business Times, and was

voted #14 of the Top 25 Companies for Women in the Bay Area

by the San Francisco Chronicle. As a company, McKesson is

acknowledged internationally as one of the Top Ten Companies

for Women on the Board of Directors by the National Association

of Women Business Leaders.

McKesson employees, under the guidance of the Vice President

of Diversity, have formed pilot Diversity Councils in four of the

company’s largest offices.


The purpose of these councils is to:

– Create awareness by conveying the company’s diversity

message.

– Help create the environment for living diversity daily.

– Recommend diversity management implementation

strategies to senior management.

– Share information across business units and local chapters.

– Lead development of and alignment with local chapter

tactical objectives.

– Create change agents in our individual business units in

support of the diversity vision.

– Empower McKesson’s workforce to meet business

objectives through a diversity focus.

Supplier Diversity

Our belief in diversity extends to our suppliers as well. McKesson

recognizes and promotes the outstanding contributions made by

diverse businesses to the economic health and diversity of com-

munities throughout the United States. Our business partners

include small, disadvantaged, historically underutilized, minority-

owned, women-owned, veteran-owned, service-disabled, and

Historically Underutilized Business Zones (HUB) businesses, as

well as Javits-Wagner-O’Day Act (JWOD) non-profit agencies.

Through our company-wide subcontracting program, McKesson

encourages and facilitates small and diverse business sales

opportunities.

In addition to subcontracting opportunities, McKesson’s supplier

diversity program supports the viability and growth of diverse

businesses through contractual mentoring relationships that

advance meaningful growth opportunities. Since 1994, McKesson

has maintained a mentoring program that provides extraordinary

support and guidance to its business protégés.

OUR WORLD

The Environment

It is common knowledge in the business world that what you can

measure, you can manage. McKesson’s dedication to reducing

our energy, water and fuel consumption has driven us to begin

the complex task of measuring these resources.

Electricity and CO2 Emissions

In this first year of data gathering and consolidation, we have

been able to monitor a quarter of our 16.5 million square feet of

real estate for purchased electricity usage and resultant carbon

dioxide emissions.

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To calculate carbon dioxide emissions from our purchased elec-

tricity and from our fleet fuel usage, we used the highly

esteemed GHG Protocol, a corporate accounting and reporting

standard for greenhouse gas (GHG) emissions.

Fleet Fuel Usage and CO2 Emissions

McKesson is not a manufacturer; therefore our CO2 emissions

are mainly derived from the impact of our delivery vehicles and

those of our outsourced carriers. We have begun to measure our

fleet fuel usage statistics in order to monitor, manage and reduce

our CO2 emissions. The average CO2 emissions per vehicle

in Fiscal Year 2005 was 17.4 metric tons, down from 18.4 in

Fiscal Year 2004.

ECO-EFFICIENCY INITIATIVES

In addition to beginning to measure and reduce our water, fuel

and electricity consumption, we are also committed to a variety of

eco-efficiency initiatives aimed at conserving natural resources,

which in turn, saves money and adds shareholder value.

McKesson’s Commitment to Recycling

McKesson has established recycling programs in more than

84% of our locations, with a goal of 100% by end of Fiscal Year

2006. Additionally, McKesson’s Procurement Department strives

to source recycled products whenever possible. In Fiscal Year

2004, we began to track the percentage of post-consumer recy-

cled materials that we purchase compared to total spending on

office products. According to Corporate Express, the largest

supplier of office products to American corporations, McKesson’s

recycled office products spending is 22%, which is 10% greater

than the national average

McKesson’s Energy-Efficiency Lighting Program

In 2002, McKesson began a major initiative to increase energy

efficiency in its distribution centers. In this first phase (ending

Fiscal Year 2004), 17 facilities have retrofitted their lights with

energy efficient technology. The cost savings from these

projects was $260,513 in Fiscal Year 2004 alone. There were also

significant energy savings that translated into a reduced impact

on the global climate: 2,888,212 kilowatt-hours were conserved

in Fiscal Year 2004.

Ozone Depleting Substances (ODS)

McKesson is concerned with the existence of ozone depleting

substances in operations. Where these materials exist (in cooling,

air conditioning, and fire suppression systems) we have been

making extensive efforts to replace these substances with

environmentally-preferable options.

Electricity and Water Consumption

Fiscal Year 04 Fiscal Year 05

Facilities monitored for kWh 24 21

sq ft monitored for kWh 4,247,814 4,580,233

Total MWh (kWh/1000) 66,612 65,421

kWh/sq ft 15.68 14.28

lbs. CO2/sq ft (resulting from consumption of electricity) 22.42 20.72

lbs. SO2/sq ft (resulting from consumption of electricity) not tracked 0.10

lbs. NOx /sq ft (resulting from consumption of electricity) not tracked 0.04

% of RE monitored for kWh/sq ft and CO2/sq ft 27% 29%

Facilities monitored for gallons of water 11 23

sq ft monitored for gallons of water 2,062,285 5,091,510

Gallons /sq ft 12.25 6.66

% of RE monitored for gallons /sq ft 13% 32%


Savings Realized through McKesson’s Plastic Tote Program

Each week, McKesson delivers 583,000 boxes of pharmaceuti-

cals to its customers. The Company was spending an average of

$338,000 per week on cardboard boxes for these deliveries.

McKesson decided to make an initial investment of $3 million for

reusable plastic totes to replace the cardboard boxes. That

investment has paid off. McKesson now saves over $17 million

each year on cardboard costs and has saved an incredible 16.8

metric tons of cardboard each year.

ENVIRONMENTAL, HEALTH, AND SAFETY

Environmental Health and Safety at Current McKesson Operations

Because the amount of potentially hazardous materials McKesson

handles is so small, the Environmental Protection Agency has

labeled us a “conditionally-exempt, small-quantity generator.”

Although McKesson has been labeled “exempt,” we still proac-

tively monitor any potential hazardous waste issues.

COMMUNITY INVOLVEMENT

The McKesson Foundation was established in 1943 and the com-

pany’s commitment to giving back has grown deeper ever since.

Investing in the communities where we live and work truly brings

our I CARE Shared Principles to life.

In addition to cash grants from the McKesson Foundation,

McKesson employees donate their time to the causes most

important to them. Our employees volunteered an incredible

16,521 hours in 2004, which has a cash value of $290,312.

The McKesson Foundation and the Community Relations

Department are committed to building healthier communities by

investing our company’s resources in non-profit agencies and

supporting employees in their volunteer activities.

Employee Volunteer Support:

McKesson’s AngelPoints Program

McKesson’s AngelPoints Program promotes employee participa-

tion at non-profit organizations by providing grants linked to

individual volunteer involvement with no personal monetary

donation required. Employees earn one AngelPoint for every

hour of completed volunteer work. McKesson’s volunteer web

portal allows employees to search for volunteer opportunities,

read stories, and view photos from volunteer events, log their

volunteer hours, and download grant application forms.

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This web portal can be accessed from employees’ home or workcomputers, giving them the flexibility they need to find the per-fect volunteer event.

AngelPoints Volunteer Grants

For every 50 hours (50 Angel Points) of volunteer work complet-ed per fiscal year, a $250 grant will be made to the employee’scharity of choice. In order to encourage employees to volunteerwith any cause that they are connected to, employees do notneed to volunteer with the same agency each month.

AngelPoints Board of Director’s Grants

McKesson values the leadership role played by the Board ofDirectors of non-profit organizations. In order to recognize theseleaders, employees that serve on the Board of Directors of a qualifying non-profit organization are eligible for a $500 grant.

AngelPoints Team Volunteer Grants

In order to encourage teamwork among McKesson employeesand to support volunteer projects that require a long-term com-mitment, we offer employees AngelPoints Team VolunteerGrants. These grants require a minimum of four employees partic-ipating, and each must volunteer a minimum of 25 hours (earn 25AngelPoints) with the same organization before receiving a grant.

The Foundation makes AngelPoints grants totaling a maximumof $1000 per calendar year per employee.

Volunteer Recognition

Neil Harlan Award

The Neil Harlan Award, named after a former Chairman andchampion of community involvement, is presented each year tofive outstanding employee volunteers. The first prize is a $5000grant to the employee’s non-profit choice, and the four otherwinners receive grants ranging from $1000-$2500. SheilaPacheco, the 2003 Gold Award winner, started a local RebuildingTogether chapter that does home improvements for low-incomeseniors and disabled people in nine counties. Mike Kassmeier,our 2004 Gold Award winner, trains dogs for adoption by thosewith disabilities. He brings his puppies-in-training to work withhim every day to prepare them for life in the real world.

Volunteer Leaders

Regional Volunteer Coordinators

In dozens of McKesson offices around the country, outstandingemployee volunteers serve as Regional Volunteer Coordinators(RVCs). These RVCs have volunteered to serve in a leadershipcapacity in their area to motivate employee volunteers andorganize group volunteer activities. Our Regional VolunteerCoordinators allow us to foster a sense of “One McKesson” bybringing company-wide initiatives into our regional offices.


Community Day

In 2005, San Francisco headquarter employees celebrated the 7thAnnual Community Day, and the program was expanded to twenty-nine regional offices. Employees volunteered with agencies thathave recently received grants from the McKesson Foundation, furthering the impact of our giving beyond cash and strengtheningour commitment to these important agencies. Around the country,nearly 2,000 McKesson employees participated in Community Dayand contributed over 8,500 volunteer hours.

Heart Walk

As a healthcare company, McKesson understands the importanceof taking preventative measures to preserve good health. That’swhy our company encourages all employees to participate in theAmerican Heart Association’s Heart Walks. In 2004, 1,100McKesson employees in 23 offices focused on their own hearthealth by participating in their local Heart Walk and helped fightheart disease and stroke by raising $166,000.

Educational Support

The McKesson Foundation supports education through a varietyof educational grants, scholarships for employees’ children and our educational matching gift program. Since 1990, the

McKesson Foundation has awarded 1400 scholarships toemployees’ children and given over $1.3 million in cash grants toemployees’ favorite schools.

As mentioned in the benefits section of this report, McKessonbelieves strongly that one of the most important keys to a child’ssuccess is through education. To that end, McKesson offers twoscholarship programs for employees’ children to help defray thecosts of higher education, the National Merit Scholarships andScholarship America educational awards.

Educational Matching Gifts

The Foundation matches gifts made by employees dollar for dollarto accredited educational institutions (elementary through grad-uate) for educational purposes up to a total of $1,000 per year.Last year, 3,500 McKesson employees took advantage of thiscompany match to their favorite schools.

Pharmacy Scholarships

In order to help address the need for more pharmacists, 50$1,000 McKesson Pharmacy Scholarships are awarded annuallyto pharmacy students who are nominated by one of our compa-ny’s pharmacy customers. Once awarded, scholarships can berenewed for an additional three years.

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Philanthropic Programs

McKesson Foundation

We believe that healthy communities are tied to the health of ourcompany. If people are well-educated, provided with job training,and have access to the childcare and healthcare they need, thenMcKesson will have access to a qualified, healthy, and diverse talent pool that is focused on work. To that end, the McKessonFoundation contributes more than $4 million every year to non-profit organizations working to improve the health of ourcommunities. Grants are focused on organizations and programsproviding access to healthcare services for low-income childrenand are made in cities where we have the greatest concentrationof employees.

In 2004 alone, the McKesson Foundation was recognized by thefollowing organizations:

National Philanthropy Day’s Outstanding Corporate Grantmaker Award

San Francisco Business Times’ Corporate Grantmaker of the Year Award

Alta Bates Hospital’s Foundation of the Year Award

Quest for Quality Award

This cash award is a joint effort by the American HospitalAssociation (AHA), McKesson Corporation, and McKessonFoundation to recognize hospitals or health systems for leader-ship and innovation in quality, safety, and commitment to patientcare. Winning hospitals gain recognition as a leader in patientsafety and receive a $75,000 cash grant to continue their work.

Regional Grant Committees

The McKesson Foundation’s philosophy is one of decentralizedgrantmaking—the Foundation staff in the San Francisco head-quarters are not as intimately aware of the needs of thegrassroots organizations in cities across the country as theemployees that live and work there, so they should not makegrant giving decisions on behalf of the employees that live there.To support this philosophy, we have created 20 Regional GrantsCommittees around the country to determine where grants willbe given on a local level. The committee members are volunteersand come from various business units throughout the organiza-tion, allowing for an opportunity to build relationships acrossdifferent parts of the organization.


Areas with Regional Grants Committees:

Amherst, MA

Atlanta, GA

Broomfield/Louisville, CO

Canada

Carrollton, TX

Charlotte, NC

Chicago, IL

Delran, NJ/Philadelphia, PA

Dubuque, IA

Hartford, CT

Livonia, MI

Los Angeles, CA

Memphis, TN

Orlando, FL

Phoenix, AZ/Scottsdale, AZ

Pittsburgh, PA

San Francisco, CA

Springfield, MO

Richmond, VA

Twin Cities, MN

For further information, or to provide us with your feedback on

this report, please contact [email protected].

Design: Howry Design Associates SF/CA

Corporate Citizenship Report

Economy & Finance

Transcript of Corporate Citizenship Report