Indicate by check mark whether the registrantRegistrant (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 registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

     Indicate by check mark whether the registrant is a shell company (asas defined in Rule 12b-2 of the Exchange Act).Act. Yeso Noþ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

     Basis of Presentation: The condensed consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all wholly-owned subsidiaries, majority-owned or controlled companies and certain immaterial variable interest entities (“VIEs”) of which we are the primary beneficiary. Intercompany transactions and balances have been eliminated. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed.

     In accordance with the Financialapplicable sections of Accounting Standards BoardCodification (“FASB”ASC” or “Codification”) Interpretation (“FIN”) No. 46 (revised December 2003),810, “Consolidation, of Variable Interest Entities,” we evaluate our ownership, contractual and other interests in entities to determine if they are VIEs, if we have a variable interest in those entities and the nature and extent of those interests. These evaluations are highly complex and involve judgment and the use of estimates and assumptions based on available historical information and management’s estimates, among other factors.

     To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts may differ from these estimated amounts. In our opinion, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial position as of JuneSeptember 30, 2009, the results of operations for the quarters and six months ended September 30, 2009 and the results of operations2008 and cash flows for the quarterssix months ended JuneSeptember 30, 2009 and 2008.

     The results of operations for the quarter and six months ended JuneSeptember 30, 2009 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies and financial notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 (“2009 Annual Report”) previously filed with the SEC on May 5, 2009. Certain prior period amounts have been reclassified to conform to the current period presentation.

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

     We evaluated all subsequent events that occurred after the balance sheet date through the date and time our financial statements were issued on July 28,October 27, 2009.

     Recently Adopted Accounting Pronouncements:In September 2006,On July 1, 2009, we adopted Accounting Standards Update (“ASU”) No. 2009-1, “Topic 105 — Generally Accepted Accounting Principles,” which amended ASC 105, “Generally Accepted Accounting Principles,” to establish the FASB issued StatementCodification as the source of authoritative GAAP recognized by the Financial Accounting Standards Board (“SFAS”FASB”) No. 157, “Fair Value Measurements,” which provides a consistent definitionto be applied by nongovernmental entities. Rules and interpretive releases of fair value that focuses on exit price and prioritizes the useSEC under authority of market-based inputs over entity-specific inputsfederal securities laws are also sources of authoritative GAAP for measuring fair value. SFAS No. 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements. In February 2008, the FASB issued FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” which removes leasing from the scope of SFAS No. 157. In February 2008, the FASB also issued FSP FAS No. 157-2, “Effective Date of FASB Statement No. 157,” which permits companies to partially deferSEC registrants. On the effective date, of SFAS No. 157 for one year for nonfinancial assetsthe Codification superseded all then-existing non-SEC accounting and nonfinancial liabilities that are recognized or disclosed at fair valuereporting standards. All previous references to the superseded standards in theour consolidated financial statements have been replaced by references to the applicable sections of the Codification. The adoption of these sections did not have a material impact on a nonrecurring basis.our consolidated financial statements.

     ASC 820, “Fair Value Measurements and Disclosures,” provides a consistent definition of fair value that focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-level hierarchy for fair value measurements. On April 1, 2008, we adopted SFAS No. 157the applicable sections of ASC 820 for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. At that time, we elected to defer adoption of SFAS No. 157ASC 820 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. On April 1, 2009, we adopted the provisionssections of SFAS No. 157ASC 820 regarding nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The provisionsapplicable sections of SFAS No. 157 areASC 820 were applied prospectively. The adoption of the various provisionssections of SFAS No. 157ASC 820 on April 1, 2008 and 2009 did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted SFAS No. 141 (revised 2007),the applicable sections of ASC 805, “Business Combinations.” SFAS No. 141(R) amends SFAS No. 141, “Business Combinations,” andASC 805 provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed and any noncontrolling interest in the acquiree.acquiree in a business combination. Additionally, this SFASASC provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R)ASC 805 amends SFAS No. 109, “Accounting for Incomethe applicable sections of ASC 740, “Income Taxes,” such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies related to acquisitions made prior to April 1, 2009 are also required to applyfall within the provisionsscope of this standard.these sections. The adoption of the applicable sections of this SFASASC did not have a material impact on our consolidated financial statements; however, the SFASASC may have an impact on the accounting for any future acquisitions or divestitures.

     On April 1, 2009, we adopted FSP No. FAS 141(R)-1, “Accountingthe applicable sections of ASC 805, “Business Combinations,” that address accounting for Assets Acquiredassets acquired and Liabilities Assumedliabilities assumed in a Business Combination That Arisebusiness combination that arise from Contingencies.” FSP No. FAS 141(R)-1 amends and clarifies SFAS No. 141(R) tocontingencies. These applicable sections address application issues raised on the initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. This FSPThese sections generally appliesapply to assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of SFAS No. 5, “Accounting for Contingencies,ASC 450, “Contingencies,” if not acquired or assumed in a business combination. The adoption of this FSPthese applicable sections did not have a material impact on our consolidated financial statements; however, the FSPthese sections may have an impact on the accounting for any future acquisitions or divestitures.

     On April 1, 2009, we adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.ASC 810-10-65-1, “Consolidation.” This statementsection requires reporting entities to present noncontrolling interests in any of its consolidated entities as equity (as opposed to a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. The adoption of this SFASsection did not have a material impact on our consolidated financial statements; however, the SFASthis section may have an impact on any future investments or divestitures of our investments.

     On April 1, 2009, we adopted FSP No. FAS 142-3, “Determinationthe applicable sections of ASC 275, “Risks and Uncertainties,” and ASC 350, “Intangibles — Goodwill and Other,” that address the determination of the Useful Lifeuseful life of Intangible Assets.” FSP No. FAS 142-3 amendsintangible assets. These sections address the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.”asset. The adoption of this FSPthese applicable sections did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted FSP No. Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Grantedthe applicable sections of ASC 260-10, “Earnings Per Share,” that address whether instruments granted in Share-Based Payment Transactions Are Participating Securities.” FSP No. EITF 03-6-1 concludedshare-based payment transactions are participating securities. These sections conclude that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of basic earnings per share pursuant to the two-class method. The adoption of this FSPthese applicable sections did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted EITF 08-6, “Equitythe applicable sections of ASC 323-10, “Investments — Equity Method Investment Accounting Considerations.and Joint Ventures,” This EITF providesthat provide guidance on how an investor should initially measure an equity method investment, test the investment for other-than-temporary impairment and account for any subsequent equity activities by the investee. Upon adoption, this EITFthese applicable sections did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted EITF 08-7, “Accountingthe applicable sections of ASC 350-30, “Intangibles — Goodwill and Other: General Intangibles Other than Goodwill,” that address accounting for Defensive Intangible Assets.” This EITF providesdefensive intangible assets. These applicable sections provide guidance to situations in which an entity does not intend to actively use an acquired intangible asset but will hold (lock up) the asset to prevent others from obtaining access to the asset (a defensive intangible asset), except forexcluding intangible assets that are used in research and development activities. Upon adoption, this EITFthese applicable sections did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted FSP No. FAS 115-2ASC 320-10-65-1, “Investments — Debt and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.Equity Securities.” This FSPsection of the Codification revises guidance for determining how and when to recognize other-than-temporary impairments of debt securities for which changes in fair value are not regularly recognized in earnings and the financial statement presentation of such impairments. This FSPsection also expands and increases the frequency of disclosures related to other-than-temporary impairments of both debt and equity securities. Upon adoption, this FSPsection did not have a material impact on our consolidated financial statements.

     On April 1, 2009, we adopted FSP No. FAS 157-4, “Determining FairASC 820-10-65-4, “Fair Value When the VolumeMeasurements and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.Disclosures.” FSP No. FAS 157-4This section provides additional guidance for estimating fair value in accordance with SFAS No. 157 when an asset or liability experiencedexperiences a significant decrease in volume and activity in relation to their normal market activity. Additionally, this FSPsection provides guidance on identifying circumstances that may indicate if a transaction is not orderly. Retrospective application of this FSPsection to a prior interim or annual reporting period was not permitted. The adoption of this FSPsection did not have a material impact on our consolidated financial statements.

     On June 30, 2009, we adopted FSP No. FAS 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim DisclosuresASC 825-10-65-1, “Financial Instruments.” This section requires disclosures about Fair Value of Financial Instruments.” FSP No. FAS 107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures aboutthe fair value of financial instruments for interim reporting periods as well as inand annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in interim financial statements. FSP No. FAS 107-1 and APB Opinion No. 28-1section does not require disclosures for earlier periods presented for comparative purposes at initial adoption. The adoption of this standardsection did not have a material impact on our consolidated financial statements. Refer to Financial Note 10,11, “Financial Instruments,” for further discussion.

     On June 30, 2009, we adopted SFAS No. 165,ASC 855-10, “Subsequent Events.” This statementASC establishes general standards of accounting and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of this standard requiredASC requires us to evaluate all subsequent events that occurredoccur after the balance sheet date through the date and time our financial statements are issued.

     Newly Issued Accounting Pronouncements:In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about PostretirementASC 715-20-65-2, “Compensation — Retirement Benefits: Defined Benefit Plan Assets.Plans.” FSP No. FAS 132(R)-1 amends SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provideThis section provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This FSPsection will become effective for us on March 31, 2010. We do not currently anticipate that this FSPsection will have a material impact on our consolidated financial statements upon adoption.

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” SFAS No. 167 is a revision to FINFASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” and amends the consolidation guidance for consolidation of VIEs under FIN No. 46(R).primarily related to the determination of the primary beneficiary of the VIE. This statement will become effective for us on April 1, 2010. SFAS No. 167 is currently not included in the Codification. We are currently evaluating the impact of this standard on our consolidated financial statements.

     In JuneAugust 2009, the FASB issued SFASASU No. 168, “The FASB Accounting Standards Codification and2009-05, “Measuring Liabilities at Fair Value.” ASU 2009-05 amends ASC 820, “Fair Value Measurements,” by providing additional guidance on determining the Hierarchyfair value of Generally Accepted Accounting Principles — A Replacement of FASB Statement No. 162.” The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAPliabilities when a quoted price in an active market for SEC registrants. On the effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards.an identical liability is not available. This standardASU will become effective for us on JulyOctober 1, 2009. We2009 and is not expected to have a significant impact on the measurement of our liabilities as of that date; however, the ASU may affect the fair value measurement of liabilities for future acquisitions and divestitures.

     In September 2009, the FASB issued ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which amends ASC 820-10, “Fair Value Measurements and Disclosures—Overall.” ASU No. 2009-12 permits a reporting entity to measure the fair value of certain alternative investments that do not expect that this standardhave a readily determinable fair value on the basis of the investments’ net asset value per share or its equivalent. This ASU also requires expanded disclosures. This guidance will become effective for us October 1, 2009 and will not have a material impact on our consolidated financial statements upon adoption; however, it may impact the valuation of our future investments.

     In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force),” which amends ASC 605-25, “Revenue Recognition: Multiple-Element Arrangements.” ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for us for revenue arrangements entered into or materially modified on or after April 1, 2011. Earlier application is permitted with required transition disclosures based on the period of adoption. We are currently evaluating the application date and the impact of this standard on our consolidated financial statements.

     During the first quarter of 2009, we acquired McQueary Brothers Drug Company (“McQueary Brothers”) of Springfield, Missouri for approximately $190 million. McQueary Brothers is a regional distributor of pharmaceutical, health and beauty products to independent and regional chain pharmacies in the Midwestern U.S. This acquisition expanded our existing U.S. pharmaceutical distribution business. The acquisition was funded with cash on hand. Approximately $126 million of the purchase price allocation was assigned to goodwill, which primarily reflects the expected future benefits from synergies to be realized upon integrating the business. During the first quarter of 2010, the acquisition accounting was completed. Financial results for McQueary Brothers have been included within our Distribution Solutions segment since the date of acquisition.

     During the last two years, we also completed a number of other smaller acquisitions within both of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition. Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. Pro forma results of operations for our business acquisitions have not been presented because the effects were not material to the consolidated financial statements on either an individual or an aggregate basis.

     We provide share-based compensation for our employees, officers and non-employee directors, including stock options, an employee stock purchase plan, restricted stock (“RS”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PeRSUs”) (collectively, “share-based awards”). Most of the Company’s share-based awards are granted in the first quarter of each fiscal year.

     Compensation expense for employee stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. We have elected to expense the fair value of RS and RSUs with only graded vesting and service conditions on a straight-line basis over the requisite service period.

     The components of share-based compensation expense and the related tax benefit for the quarters and six months ended JuneSeptember 30, 2009 and 2008 are shown in the following table:

     As of JuneSeptember 30, 2009, we had $581$597 million of unrecognized tax benefits, of which $345$358 million would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $27$19 million. However, this amount may change because we continue to have ongoing negotiations with various taxing authorities throughout the year. In Canada, we have received assessments from the Canada Revenue Agency for a total of $55 million related to transfer pricing for 2003, 2004 and 2005. We have appealed the assessment for 2003 and have filed a notice of objection for 2004. We plan to file a notice of objection for 2005.

     We continue to report interest and penalties on tax deficiencies as income tax expense. At JuneSeptember 30, 2009, before any tax benefits, our accrued interest on unrecognized tax benefits amounted to $106$109 million. We recognized $5$4 million and $9 million of interest expense before any tax benefits in our condensed consolidated statements of operations during the quarter and six months ended JuneSeptember 30, 2009. We have no material amounts accrued for penalties.

     Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similarsimilarly to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

     The computations for basic and diluted earnings per share are as follows:

     Changes in the carrying amount of goodwill for the quartersix months ended JuneSeptember 30, 2009 are as follows:

     Through this facility, McKesson Corporation sells certain U.S. pharmaceutical trade accounts receivable on a non-recourse basis to a wholly-owned and consolidated subsidiary which then sells these receivables to a special purpose entity (“SPE”), which is a wholly-owned, bankruptcy-remote subsidiary of McKesson Corporation that is consolidated in our financial statements. This SPE then sells undivided interests in the receivables to third-party purchaser groups, each of which includes commercial paper conduits (“Conduits”), which are special purpose legal entities administered by financial institutions. Sales of undivided interests in the receivables by the SPE to the Conduits are accounted for as a sale in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” because we have relinquished control of the receivables. Accordingly, accounts receivable sold under these transactions are excluded from receivables, net in the accompanying condensed consolidated balance sheets. Receivables sold and receivables retained by the Company are carried at face value, which due to the short-term nature of our accounts receivable and terms of the facility, approximates fair value. McKesson receives cash in the amount of the face value for the undivided interests in the receivables sold. No gain or loss is recorded upon sale as fee charges from the Conduits are based upon a floating yield rate and the period the undivided interests remain outstanding. Fee charges from the Conduits are accrued at the end of each month and are recorded within administrative expenses in the condensed consolidated statements of operations. Should we default under the accounts receivable sales facility, the Conduits are entitled to receive only collections on receivables owned by the SPE.

     We continue servicing the receivables sold. No servicing asset is recorded at the time of sale because we do not receive any servicing fees from third parties or other income related to servicing the receivables. We do not record any servicing liability at the time of sale as the receivables collection period is relatively short and the costs of servicing the receivables sold over the servicing period are insignificant. Servicing costs are recognized as incurred over the servicing period.

     Information regarding our outstanding balances related to our interests in accounts receivable sold or qualifying receivables retained is as follows:

     We have a syndicated $1.3 billion five-year, senior unsecured revolving credit facility which expires in June 2012. Borrowings under this credit facility bear interest based upon either a Prime rate or the London Interbank Offering Rate. Total borrowings under this facility were nil and $62$189 million for the first quarterssix months of 2010 and 2009. As of JuneSeptember 30, 2009 and March 31, 2009, there were no amounts outstanding under this facility.

     We issued and repaid commercial paper of nil and $496 million in commercial paperapproximately $3.3 billion for the first quarterssix months of 2010 and 2009. There were no commercial paper issuances outstanding at JuneSeptember 30, 2009 and March 31, 2009.

     On February 12, 2009, we issued 6.50% notes due February 15, 2014 (the “2014 Notes”) in an aggregate principal amount of $350 million and 7.50% notes due February 15, 2019 (the “2019 Notes”) in an aggregate principal amount of $350 million. Interest is payable on February 15 and August 15 of each year beginning on August 15, 2009. The 2014 Notes will mature on February 15, 2014 and the 2019 Notes will mature on February 15, 2019. We utilized net proceeds, after offering expenses, of $693 million from the issuance of the 2014 Notes and 2019 Notes for general corporate purposes.

     Net periodic expense for the Company’s defined benefit pension and other postretirement benefit plans was $8$4 million and $3$12 million for the second quarter and first quarterssix months of 2010 compared to $2 million and 2009.$5 million for the comparable prior year periods. Cash contributions to these plans for the first quarterssix months of 2010 and 2009 were $10 million and $7$16 million.

     As previously reported in our 2009 Annual Report and Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (“First Quarter 2010 Form 10-Q”), the McKesson Corporation Profit Sharing Investment Plan (“PSIP”) is a member of the settlement class in the Consolidated Securities Litigation Action. On April 27, 2009, the court issued an order approving the distribution of the settlement funds. TheOn October 9, 2009, the PSIP is anticipating receiving its share of the settlement ofreceived approximately $90 million during 2010. Approximately $30$119 million of the Consolidated Securities Litigation Action proceeds. Approximately $42 million of the proceeds are attributable to the allocated shares of McKesson common stock owned by the PSIP participants during the Consolidated Securities Litigation Action class holding period and will be allocated to the respective participants on that basis.basis as soon as administratively feasible during the third quarter of 2010. Approximately $60$77 million of the proceeds are attributable to the unallocated shares (the “Unallocated Proceeds”) of McKesson common stock owned by the PSIP in an employee stock ownership plan (the “ESOP”(“ESOP”) suspense account. In accordance with the plan terms, the PSIP will distribute all of the Unallocated Proceeds to current PSIP participants as soon as administratively feasible after the close of the plan year. The receipt of the Unallocated Proceeds by the PSIP is reimbursement for the loss in value of the Company’s common stock held by the PSIP in its ESOP suspense account during the Consolidated Securities Litigation Action class holding period and is not a contribution made by the Company to the PSIP or ESOP. Accordingly, there are no accounting consequences to the Company’s financial statements relating to the receipt of the Unallocated Proceeds by the PSIP.

     The Company accounts for shares of its common stock contributed to the ESOP prior to 1993 in accordance with the American Institute of Certified Public Accountants Statement of Position (“SOP”) 76-3, “Accounting Practices for Certain Employee Stock Ownership Plans.” SOP 76-3 requires that compensation expense be recognized only to the extent that the Company contributes or commits to contribute to the ESOP. The Company accounts for all contributions of shares of its common stock made to the ESOP after 1993 under SOP 93-6, “Employers’ Accounting forASC 718-40, “Compensation — Stock Compensation: Employee Stock Ownership Plans.” During the first quarter of 2010, the Company contributed $1 million to the ESOP in order to extinguish the remaining ESOP loan and made no commitments to otherwise contribute to the PSIP or ESOP. Upon repayment, our ESOP became a non-leveraged ESOP. At JuneSeptember 30, 2009, of the 24 million shares of the Company’s common stock purchased by the ESOP since its inception, all but 66,444 shares have been allocated to PSIP participants. As a result of the payment in the first quarter of 2010, pre-tax PSIP expense for the first quartersix months of 2010 was $1 million. The Company anticipates that its PSIP expense for the full year will remain at $1 million, as it currently does not anticipate making or committing to make additional contributions to the PSIP or ESOP. As a result, our compensation expense in 2010 will be lower than 2009. During the first quartersix months of and full year 2009, PSIP expense was $17$28 million and $53 million.

     PSIP expense by segment for the quarters and six months ended JuneSeptember 30, 2009 and 2008 was as follows:

     In conjunction with certain transactions, primarily divestitures, we may provide routine indemnification agreements (such as retention of previously existing environmental, tax and employee liabilities) whose terms vary in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have historically not made significant payments as a result of these indemnification provisions.

     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 damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. In accordance with SFAS No. 5, “Accounting for Contingencies,ASC 450, “Contingencies,” we record a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have adequate provisions for any such matters. Management reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.case and during the second quarter of 2010, we reversed a previously established litigation reserve of $20 million. Because litigation outcomes are inherently unpredictable, these decisions often involve a series of complex assessments by management about future events that can rely heavily on estimates and assumptions and it is possible that the ultimate cost of these matters could impact our earnings, either negatively or positively, in the quarter of their resolution.

     We have previously reported on certain private party class action litigation filed against the Company in the United States District Court for Massachusetts relating to alleged misstatements and manipulations of the benchmark for drug reimbursement known as Average Wholesale Price (“AWP”) and regardingrelating to a proposed settlement of that litigation,New England Carpenters Health Benefits Fund, et al. v. First DataBank, Inc. and McKesson Corporation,(Civil Action No. 1:05-CV-11148-PBS) (the “Private Payor RICO Action”) andNew England Carpenters Health Benefits Fund, et al. v. McKesson Corporation,(Civil Action No. 1:07-CV-12277-PBS) (the “Antitrust Action”). The final approval hearing on the Company’s previously disclosed settlement of private party claims was conducted by the trial court as scheduled on July 23, 2009 and on July 24, 2009, the trial court issued an order approving the settlement. On August 21, 2009, a motion by a settlement class member challenging the settlement approval order was filed. Prior to any ruling on that motion, a final judgment based on the settlement and dismissing all of the private party claims was entered by the trial court on August 31, 2009. On October 9, 2009, in accordance with the terms of the settlement, we paid $295 million into the settlement escrow account as the final installment on the $350 million total settlement and we recorded the additional payment of $295 million as restricted cash. Between September 29 and 30, 2009, four notices of appeal were filed by settlement class members challenging the final judgment approving the class settlement. The appeals relate to the award of attorneys’ fees and costs, the settlement’s covenant not to sue provision and the mechanisms for identifying absent settlement class members. On October 13, 2009, appellee-plaintiffs filed a motion with the First Circuit Court of Appeals to consolidate the appeals. No briefing schedule has yet been set.

     As previously reported regardingRegarding the consolidated public payor actions, collectively known asIn re McKesson Governmental Entities Average Wholesale Price Litigation,pending in United States District Court for the District of Massachusetts, which actions are based on allegations nearly identical to those made in the AWPPrivate Payor RICO Actionand theAntitrust Actionreferenced above (Board of County Commissioners of Douglas County, Kansas v. McKesson Corporation, et al., (Civil Action No. 1:08-CV-11349-PBS) (“Douglas County, Kansas Action”),San Francisco Health Plan, et al. v. McKesson Corporation, (Civil Action No. 1:08-CV-10843-PBS) (“San Francisco Action”),State of Connecticut v. McKesson Corporation, (Civil Action No. 1:08-CV-10900-PBS) (“Connecticut Action”)), the trial court set a discovery cut-off of October 30, 2009, a class certification hearing in theDouglas County, KansasandSan Francisco Actionsof February 10, 2010 and trial in theConnecticut Actionfor July 19, 2010. No trial date has yet been set or proposed in theSan FranciscoandDouglas County, Kansas Actions. On July 10, 2009, plaintiffs in theSan Francisco, ConnecticutandDouglas County, Kansas Actionsfiled an unopposed motion to modify the court’s scheduling order by movingextended the discovery cut-off in all of the consolidated actions to January 14,8, 2010, reset the class certification hearing in theDouglas County, KansasandSan Francisco Actionstofor April 28, 2010 and left unchanged the trial in theConnecticut Action,to Octoberpreviously set for July 19, 2010. The courtNo trial date has not yet ruled on plaintiffs’been proposed or set in theSan FranciscoandDouglas County, Kansas Actions.Our previously disclosed motion to modifystay the previously described schedule. The parties to theIn re McKesson Governmental Entities Average Wholesale Price Litigationare currently engaged in class and merits discovery.

     Comprehensive income is as follows:

       We report our operations in two operating segments: McKesson Distribution Solutions and McKesson Technology Solutions. The factors for determining the reportable segments included the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. We evaluate the performance of our operating segments based on operating profit before interest expense, income taxes and results from discontinued operations. Financial information relating to our reportable operating segments and reconciliations to the condensed consolidated totals is as follows:

     Revenues:

     Gross Profit:

     Operating Expenses and Other Income:

     As previously reported in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, the McKesson Corporation Profit Sharing Investment Plan (“PSIP”) is a member of the settlement class in the Consolidated Securities Litigation Action. On April 27, 2009, the court issued an order approving the distribution of the settlement funds. TheOn October 9, 2009, the PSIP is anticipating receiving its share of the settlement ofreceived approximately $90 million during 2010. Approximately $30$119 million of the Consolidated Securities Litigation Action proceeds. Approximately $42 million of the proceeds are attributable to the allocated shares of McKesson common stock owned by the PSIP participants during the Consolidated Securities Litigation Action class holding period and will be allocated to the respective participants on that basis.basis as soon as administratively feasible during the third quarter of 2010. Approximately $60$77 million of the proceeds are attributable to the unallocated shares (the “Unallocated Proceeds”) of McKesson common stock owned by the PSIP in an employee stock ownership plan (the “ESOP”(“ESOP”) suspense account. In accordance with the plan terms, the PSIP will distribute all of the Unallocated Proceeds to current PSIP participants as soon as administratively feasible after the close of the plan year. The receipt of the Unallocated Proceeds by the PSIP is reimbursement for the loss in value of the Company’s common stock held by the PSIP in its ESOP suspense account during the Consolidated Securities Litigation Action class holding period and is not a contribution made by the Company to the PSIP or ESOP. Accordingly, there are no accounting consequences to the Company’s financial statements relating to the receipt of the Unallocated Proceeds by the PSIP.

     The Company anticipates that its PSIP expense for the full year will be negligible, as it currently does not anticipate making or committing to make additional contributions to the PSIP or ESOP. As a result, our compensation expense in 2010 will be lower than 2009. During the first quartersix months of and full year 2009, PSIP expense was $17$28 million and $53 million.

     Corporate expenses increased compared to the same periods a year ago mostly due to additional costs incurred to support various initiatives. The increase during the second quarter is primarily due to higher compensation, pension and benefit costs. In the second quarter of 2010, we reversed a previously established litigation reserve. See Financial Note 12, “Other Commitments and Contingent Liabilities,” for further information.