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. Yesþ     Noo

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

     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.Presentation. The condensed consolidated financial statements of McKesson Corporation (“McKesson,” the “Company,” or “we” and other similar pronouns) include the financial statements of all majority-owned or controlled companies. Significant intercompany transactions and balances have been eliminated. 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 December 31, 2005,June 30, 2006, and the results of operations for the quarters and nine months ended December 31, 2005 and 2004 and cash flows for the nine monthsquarters ended December 31, 2005June 30, 2006 and 2004.2005.

     The results of operations for the quarters ended June 30, 2006 and nine months ended December 31, 2005 and 2004 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 20052006 consolidated financial statements previously filed with the Securities and Exchange Commission.

     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. Certain prior periodyear amounts have been reclassified to conform to the current periodyear presentation.

     EmployeeNew Accounting Pronouncements. On April 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which requires the recognition of expense resulting from transactions in which we acquire goods and services by issuing our shares, share options, or other equity instruments. This standard requires a fair-value based measurement method in accounting for share-based payment transactions. The share-based compensation expense is recognized for the portion of the awards that is ultimately expected to vest. This standard replaces SFAS No. 123, “Accounting for Stock-Based Compensation,. We account for our employee stock-based compensation plans using the intrinsic value method under” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the use of the intrinsic value method as provided under APB Opinion No. 25, which was utilized by the Company, was eliminated. We apply the disclosure provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended byadopted SFAS No. 148, “Accounting123(R) using the modified prospective method of transition. See Financial Note 4, “Share-Based Payment,” for Stock-Based Compensation — Transition and Disclosure.” Had compensation cost for our employee stock-based compensation been recognized based on the fair value method, consistent withfurther details.

     As a result of the provisions of SFAS No. 123,123(R), in 2007, we expect share-based compensation charges to approximate $0.08 to $0.10 per diluted share, or approximately $0.05 to $0.07 per diluted share more than the share-based compensation expense recognized in our net income (loss)in 2006. Our assessments of estimated compensation charges are affected by our stock price as well as assumptions regarding a number of complex and earnings (loss) per share would have been as follows:

     In 2004, we accelerated vesting of substantially all unvested stock options outstanding whose exercise price was equal to or greater than $28.20,July 2006, the Financial Accounting Standards Board issued Financial Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which was substantially all ofclarifies the total unvested stock options then outstanding. Duringaccounting for uncertainty in income taxes recognized in the second quarter of 2005, we granted 6 million stock options, substantially all of which vested on or before March 31, 2005. Similarly, during the second quarter of 2006, we granted 5 million stock options, substantially all of which will vest on or before March 31, 2006. Prior to 2004, stock options typically vested over a four year period. These actions were approved by the Compensation Committee of the Company’s Board of Directors for employee retention purposes andfinancial statements in anticipation of the requirements ofaccordance with SFAS No. 123(R), “Share-Based Payment.109, “Accounting for Income Taxes.” FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 will become effective for us in 2008. We are currently assessing the impact of FIN No. 48 on our consolidated financial statements.

     During the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation (“BioServices”), for net proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million or $0.04 per diluted share. The results of BioServices’ operations have been presented as a discontinued operation for all periods presented in the accompanying condensed consolidated financial statements. Financial results for this business were previously included in our Pharmaceutical Solutions segment and were not material to our condensed consolidated financial statements.

     In 2005, our Medical-Surgical Solutions segment entered into an agreementconjunction with a third party vendor to sell the vendor’s proprietary software and services. The termsadoption of SFAS No. 123(R), we elected the contract required us to prepay certain royalties. During“short-cut” method for calculating the third quarter of 2006, we ended marketing and sale of the software under the contract. As a result of this decision, we recorded a $15 million charge to cost of sales within our Medical-Surgical Solutions segment in the third quarter of 2006 to write-off the remainingbeginning balance of the prepaid royalties.additional paid-in capital pool (“APIC pool”) related to the tax effects of share-based compensation. Under this method, a simplified calculation is applied in establishing the beginning APIC pool balance as well as determining the future impact on the APIC pool and our consolidated statements of cash flows relating to the tax effects of share-based compensation. The election of this accounting policy did not have a material impact on our financial statements.

     PensionThe following table illustrates the impact of share-based compensation on reported amounts:

     As noted above, prior to April 1, 2006 we accounted for our employee share-based compensation plans using the intrinsic value method under APB Opinion No. 25. Had compensation expense for our employee share-based compensation been recognized based on the fair value method, consistent with the provisions of SFAS No. 123, net income and earnings per share would have been as follows:

     In anticipation of the requirements of SFAS No. 123(R), the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) reviewed our long-term compensation program for key employees across the Company. As a result, beginning in 2006, reliance on options was $2reduced with more long-term incentive value delivered by grants of PeRSUs and performance-based cash compensation.

     The total intrinsic value of stock options exercised during the first quarters of 2007 and 2006 was $23 million and $7 million for the quarter and nine months ended December 31, 2005, and $3 million and $26 million for the comparable prior year periods. Postretirement expense was $8 million and $25 million for the quarter and nine months ended December 31, 2005, and $9 million and $26 million for the comparable prior year periods.

     InV. RS, RSUs and PeRSUs

     RS and RSUs, which entitle the third quarterholder to receive, at the end of 2005, we recorded an income tax benefita vesting term, a specified number of $390 millionshares of McKesson common stock, are accounted for at fair value at the Securities Litigation whichdate of grant. The fair value of RS and RSUs under our stock plans is described in more detail in Financial Note 12. We believedetermined by the settlementproduct of the consolidated securities class actionnumber of shares that are expected to vest and the ultimate resolution of the lawsuits brought independently by other shareholders will be tax deductible. However, the tax attributes of the litigation are complex and we expect challenges from the appropriate taxing authorities, and accordingly such deductions will not be finalized until all the lawsuits are concluded and an examinationgrant date market price of the Company’s tax returnscommon stock. The Compensation Committee determines the vesting terms at the time of grant. These awards generally vest in full after three years. The fair value of RS and RSUs with graded vesting and service conditions is completed. Asexpensed on a result,straight-line basis over the requisite service period. RS contains certain restrictions on transferability and may not be transferred until such restrictions lapse.

     PeRSUs are accounted for as variable awards until the performance goals are reached and the grant date is established. The fair value of PeRSUs is determined by the product of the number of shares eligible to be awarded and expected to vest, and the market price of the Company’s common stock, commencing at the inception of the requisite service period. During the performance period, the PeRSUs are re-valued using the market price and the performance modifier at the end of a reporting period. At the end of the performance period, if the goals are attained, the award is classified as a RSU and is accounted for on that basis. The fair value of PeRSUs is expensed on a straight-line basis, treating each vesting tranche as a separate award, over the requisite service period of four years. For RS and RSUs with service conditions, we have providedelected to amortize the expense on a reserve of $85 million for future resolution of these uncertain tax matters. While we believestraight-line basis.

     The following table summarizes RS and RSU activity during the tax reserve is adequate, the ultimate resolution of these tax matters may exceed or be below the reserve. During the thirdfirst quarter of 2005, we also recorded a $52007:

     The total fair value of shares vested during the first quarter of 2007 was $3 million. As of June 30, 2006, the total compensation cost, net of estimated forfeitures, related to nonvested RS and RSU awards not yet recognized was approximately $34 million, income tax expense arising primarily from settlementspre-tax, and adjustmentsthe weighted-average period over which the cost is expected to be recognized is 3 years.

     In accordance with various taxing authorities.the provisions of SFAS No. 128, “Earnings per Share,” the 2007 PeRSUs are not included in the calculation of diluted weighted average shares until the performance goals have been achieved.

     Income tax expense forVI. Employee Stock Purchase Plan (“ESPP”)

     The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions occur over three-month purchase periods and the nine months ended December 31, 2005 includes a $7 million charge which primarily relatesshares are then purchased at 85% of the market price at the end of each purchase period. Employees are allowed to tax settlements and adjustments with various taxing authorities. In additionterminate their participation in the ESPP at any time during the purchase period prior to the third quarter 2005 expense noted above, income tax expense forpurchase of the nine months ended December 31, 2004shares, and any amounts accumulated during that period are refunded.

     The 15% discount provided to employees on these shares is included a $6 million income tax benefit which was primarily due to a reductionin compensation expense. The funds outstanding at the end of a portion of a valuation allowance related to state income tax net operating loss carryforwards. In addition, we sold a business for net cash proceeds of $12 million. The disposition resulted in a pre-tax loss of $1 million and an after-tax loss of $5 million. The after-tax loss on the disposition was the result of a lower tax adjusted cost basis for the business. Financial results for this business werequarter are included in our Pharmaceutical Solutions segment and werethe calculation of diluted weighted average shares outstanding. These amounts have not material to our condensed consolidated financial statements. Partially offsetting the tax impact of this disposition, a net income tax benefit of $2 million relating to favorable tax settlements and adjustments was recorded.been significant.

     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 similarly 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. For 2005, because of the reported net loss, potentially dilutive securities were excluded from the per share computations due to their antidilutive effect.

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

     For the quarter and nine months ended December 31, 2005, approximatelyApproximately 12 million and 1713 million stock options were excluded from the above computations of diluted net earnings per share for the quarters ended June 30, 2006 and 2005 as their exercise price was higher thaneffect would be anti-dilutive.

     In connection with the D&K acquisition, in 2006 we recorded $10 million of liabilities relating to employee severance costs and $30 million for facility exit and contract termination costs. Approximately 260 employees, consisting primarily of distribution, general and administrative staff, have been terminated as part of this restructuring plan. To date, $6 million and $4 million of severance and exit costs have been paid. In connection with the Company’s average stock price.investment in Parata, $13 million of contract termination costs that were initially estimated as part of the D&K acquisition were extinguished and, as a result, the Company decreased goodwill and decreased its restructuring liability. Remaining severance liabilities of $4 million are anticipated to be paid by the end of 2007, while the facility exit liability of $13 million is anticipated to be paid at various dates through 2015.

     Changes in the carrying amount of goodwill for the nine monthsquarter ended December 31, 2005June 30, 2006, are as follows:

     Financial Guarantees

     We have agreements with certain of our Canadian customers’ financial institutions under which we have guaranteed the repurchase of inventory (primarily for our Canadian businesses), at a discount in the event these customers are unable to meet certain obligations to those financial institutions. Among other limitations, these inventories must be in resalable condition. We have also guaranteed loans and the payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. Customer guarantees range from one to ten years and were primarily provided to facilitate financing for certain strategic customers. At December 31, 2005,June 30, 2006, the maximum amounts of inventory repurchase guarantees and other customer guarantees were approximately $193 million and $8$211 million of which no amounts have been accrued.

     At December 31, 2005,June 30, 2006, we had commitments of $4 million, primarily consisting of the purchase of services from our equity-held investments, for which no amounts hadhave been accrued.

     In addition, our banks and insurance companies have issued $102$108 million of standby letters of credit and surety bonds on our behalf in order to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, and our workers’ compensation and automotive liability programs.

     Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification agreements and have not accrued any liabilities related to such obligations.

     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.

     Warranties

     In the normal course of business, we provide certain warranties and indemnification protection for our products and services. For example, we provide warranties that the pharmaceutical and medical-surgical products we distribute are in compliance with the Food, Drug and Cosmetic Act and other applicable laws and regulations. We have received the same warranties from our suppliers, who customarily are the manufacturers of the products. In addition, we have indemnity obligations to our customers for these products, which have also been provided to us from our suppliers, either through express agreement or by operation of law.

     We also provide warranties regarding the performance of software and automation products we sell. Our liability under these warranties is to bring the product into compliance with previously agreed upon specifications. For software products, this may result in additional project costs which are reflected in our estimates used for the percentage-of-completion method of accounting for software installation services within these contracts. In addition, most of our customers who purchase our software and automation products also purchase annual maintenance agreements. Revenue from these maintenance agreements is recognized on a straight-line basis over the contract period and the cost of servicing product warranties is charged to expense when claims become estimable. Accrued warranty costs were not material to the condensed consolidated balance sheets.

     In 2005, we recorded a $1,200 million pre-tax ($810 million after-tax) charge with respect to the Company’s Securities Litigation. The charge consisted of $960 million for the Consolidated Action and $240 million for other Securities Litigation proceedings, as discussed inproceedings. During 2006, we settled many of the following paragraph.

     As of June 30, 2006, amounts in escrow increased by $19 million to $981 million primarily reflecting cash transferred for the settlement of the ERISA claims as described above. Additionally, the Securities Litigation accrual was $1,008 million at June 30, 2006 which reflects a $6 million cash payment made in connection with a settlement. We believe our Securities Litigation accrual is adequate to address itsour remaining potential exposure with respect to all of the Securities Litigation.Litigation matters. However, in view of the number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is possible that the ultimate costs of these matters may exceedcould impact our earnings, either negatively or be belowpositively, in the revised reserve. The rangequarter of possible resolutionstheir resolution. We do not believe that the resolution of these proceedings could include judgments against the Company or settlements that could require payments by the Company in addition to the reserve, which couldmatters will have a material adverse impacteffect on McKesson’s financial position,our results of operations, and cash flows.

     I. SecuritiesII. Other Litigation and Claims

     In the Company's report as noted above, we described an agreement we reached to settleOn July 8, 2006, in the previously reported Consolidated Action. As of December 23, 2005, the deadline the Court imposed for objecting to final confirmation of the settlement, three individual class members directed letters to the Court purporting to object to the settlement. One of McKesson’s co-defendants, Bear, Stearns & Co. Inc., also objected to the settlement. The Company and Lead Plaintiff responded to these objections on January 13, 2006. The hearing on the motion of the Company and Lead Plaintiff seeking final approval of the class action, settlement, originally scheduled for January 27, 2006, has been continued by the Court to February 24, 2006.

has been approved by the Company’s Board of Directors, but which remains subject to court approval, the Company’s insurance companies will pay $30 million, less attorneys fees and costs up to a maximum amount of $6 million, to the Company in exchange for a release of the Company’s potential claims against eighteen present or former directors or officers of the Company or HBO & Company, among other terms. The settlement will also resolve claims asserted in two other derivative actions, one pending in federal court in California, captionedCohen v. McCall et al. (N.D. Cal. Case No. 99-20916-RMW) and one pending in state court in California, captionedMitchell v. McCall, et al.(Cal. Super. Ct., S.F. County Case No. 304415). The Delaware court has set a hearing for February 21,     On July 14, 2006, to consider approval of the settlement.

     TheAs indicated in our previous periodic reports, the health care industry is highly regulated, and government agencies continue to increase their scrutiny over certain practices affecting government programs. From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require considerable time and effort, and can result in considerable costs being incurred by the Company. Two such subpoenas are the following: (1) the Company has received a subpoena from the U.S. Attorney’s Office in Massachusetts seeking documents relating to the Company’s business relationship with a long-term care pharmacy organization. We are cooperating with this request and are in the process of responding to the subpoena; (2) the Company has received a Civil Investigative Demand (“CID”) from the Attorney General’s Office of the State of Tennessee. The CID indicates that the Tennessee Attorney General’s Office is investigating possible violations of the Tennessee Medicaid False Claims Act in connection with repackaged pharmaceuticals. The Company is in the process of responding to the subpoena. Because these investigations appear to be in their early stages, the Company cannot predict their outcome or impact, if any, on the Company’s business.

     Financial information relating to our reportable operating segments is as follows: