SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

McKESSON CORPORATION

TABLE OF CONTENTS

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McKESSON CORPORATION

McKESSON CORPORATION

PART I. FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)

See Financial Notes.Notes

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McKESSON CORPORATION

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)

See Financial Notes.Notes

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McKESSON CORPORATION

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

See Financial Notes.Notes

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McKESSON CORPORATION

McKESSON CORPORATION

1. Significant Accounting Policies

     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, 2003,June 30, 2004, and the results of operations for the quarter and nine months ended December 31, 2003 and 2002 and cash flows for the nine monthsquarters ended December 31, 2003June 30, 2004 and 2002.2003.

     The results of operations for the quarterquarters ended June 30, 2004 and nine months ended December 31, 2003 and 2002 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 20032004 consolidated financial statements previously filed with the Securities and Exchange Commission.Commission (“SEC”). As described in our Annual Report on Form 10-K for the year ended March 31, 2004, we reorganized our businesses on April 1, 2004. This reorganization resulted in changes to our reporting segments. On April 29 and 30, 2004, we provided financial information about this reorganization, as it relates to prior periods, in a Form 8-K. 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.

     New Accounting Pronouncements.Pronouncements. In January 2004,June 2001, the Financial Accounting Standards Board (“FASB”) issued a Financial Staff Position (“FSP”) pertaining to Statement of Financial Accounting StandardsStandard (“SFAS”) No. 106-1,143, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.for Asset Retirement Obligations,” FSP SFAS No. 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer recognizing the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) until authoritative guidance onwhich addresses financial accounting requirements for the federal subsidy is issued or until certain other events occur. Accordingly, the consolidated financial statements do not reflect the effect of the Act, if any. Authoritative guidance, when issued, could require the Company to change previously reported information.

     In December 2003, the FASB issued a revision to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement does not change the measurement or recognition aspects for pensions and other postretirement benefit plans, however it does revise employers’ disclosures to include more information about the plan assets,retirement obligations to pay benefits and funding obligations. SFAS No. 132, as revised, is effective for our March 31, 2004 consolidated financial statements.

associated with tangible long-lived assets. In May 2003,2002, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics145, “Rescission of both LiabilitiesFASB Statements 4, 44, 64, Amendment to FASB Statement No. 13, and Equity.Technical Corrections as of April 2002.” SFAS No. 150 clarifies the definition of a liability as currently defined in FASB Concepts Statement No. 6, “Elements of Financial Statements,” as well as145 amends other planned revisions. This statement requires a financial instrument that embodies an obligation of an issuerexisting authoritative pronouncements to be classified as a liability. In addition, the statement establishes standards for the initialmake various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS Nos. 143 and subsequent measurement of these financial instruments and disclosure requirements. SFAS No. 150 is145 became effective for financial instruments entered into or modified after May 31, 2003 and for all other matters, at the beginning of our second quarter of 2004. The adoption of this standardthese standards did not have a material impact on our consolidated financial statements.

     In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends SFAS No. 133 for decisions made by the FASB’s Derivatives Implementation Group, other FASB projects dealing with financial instruments, and in response to implementation issues raised in relation to the application of the definition of a derivative. This statement is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this standard did not have a material impact on our consolidated financial statements.

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

     In January 2003, the FASB issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities” and in December 2003, a revised interpretation was issued (FIN No. 46(R)). In general, a variable interest entity (“VIE”) is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. The interpretation applies to VIEs created after January 31, 2003, and for all financial statements issued after December 15, 2003 for VIEs in which an enterprise held a variable interest that it acquired before February 1, 2003.

     We implemented FIN No.Nos. 46 and 46(R) on a retroactive basis as required in the third quarter of 2004. As a result of the implementation, the Company no longer consolidates its investment in the McKesson Financing Trust (the “Trust”) (see Financial Note 9) as the Company was not designated as the Trust’s primary beneficiary. In accordance with this accounting standard, the Company now recognizes the debentures issued to the Trust as long-term debt in its consolidated financial statements in lieu of the preferred securities that the Trust issued to third parties. Additionally, the consolidated financial statements include interest expense on the debentures and no longer report dividends on the preferred securities, net of tax. These changes increased the Company’s net debt to net capital employed ratio slightly but did not have a material impact on our consolidated financial statements, including diluted earnings per share (see Financial Note 3). We will adopt the remaining provisions of FIN No. 46(R), which are not anticipated to have a material impact on our consolidated financial statements, in the fourth quarter of 2004.share.

     In December 2002,April 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition149, “Amendment of Statement 133 on Derivative Instruments and Disclosure.Hedging Activities.” This statementSFAS No. 149 amends SFAS No. 123, “Accounting133 for Stock-Based Compensation,” to provide alternative methodsdecisions made as part of transition for a voluntary changethe FASB’s Derivatives Implementation Group process, other FASB projects dealing with financial instruments, and in connection with implementation issues raised in relation to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effectapplication of the method used on reported results. We adopted the disclosure provisionsdefinition of this standard, as discussed below underEmployee Stock-Based Compensation. We are currently assessing the fair value approach under SFAS No. 123 and the transitional provisions of SFAS No. 148.

     In November 2002, the FASB reached a consensus regarding Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The guidance provided by EITF Issue No. 00-21derivative. This statement is generally effective for contracts entered into on or modified after July 1,June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement did not have a material effect on our consolidated financial statements.

     In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. In May 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements 4, 44, 64, Amendment to FASB Statement No. 13, and Technical Corrections as of April 2002.” SFAS No. 145 amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS Nos. 143 and 145 were effective commencing April 1, 2003 andstandard did not have a material impact on our consolidated financial statements.

7     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 clarifies the definition of a liability as currently

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McKESSON CORPORATION

FINANCIAL NOTES (Continued)
(Unaudited)

defined in FASB Concepts Statement No. 6, “Elements of Financial Statements,” as well as other planned revisions. This statement requires a financial instrument that embodies an obligation of an issuer to be classified as a liability. In addition, the statement establishes standards for the initial and subsequent measurement of these financial instruments and disclosure requirements. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and for all other matters, at the beginning of our second quarter 2004. The adoption of this standard did not have a material impact on our consolidated financial statements.

     In December 2003, the Staff of the SEC issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which supersedes SAB No. 101, “Revenue Recognition in Financial Statements.” SAB No. 104’s primary purpose is to rescind the accounting guidance contained in SAB No. 101 related to multiple-element revenue arrangements that was superseded as a result of the issuance of Emerging Issues Task Force (“EITF”) Issue No. 00-21. Additionally, SAB No. 104 rescinds the SEC’s related Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB No. 101 that had previously been codified by the SEC. While the wording of SAB No. 104 reflects the issuance of EITF Issue No. 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104, which was effective upon issuance. The adoption of SAB No. 104 did not have a material effect on our consolidated financial position or results of operations.

     In January 2004, the FASB issued Financial Staff Position (“FSP”) 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” As permitted by FSP No. 106-1, we elected to defer recognizing the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) until authoritative guidance on accounting for the new federal subsidy is issued. In May 2004, the FASB issued FSP No. 106-2 which provides accounting guidance for this new subsidy. The Company sponsors a number of postretirement benefit plans which may benefit from the subsidy and as a result, we are currently evaluating the impact of FSP No. 106-2, which we are required to adopt in our second quarter of 2005.

     Employee Stock-Based Compensation.Compensation. We account for our employee stock-based compensation plans using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” We apply the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting 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 with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” net income and earnings per share would have been as follows:

     SFAS No. 123 compensation expense, as indicated in the above table, decreased in the first quarter of 2005 compared to the same period a year ago. The decrease is primarily attributable to accelerated vesting of substantially all unvested stock options outstanding during the fourth quarter of 2004. SFAS No. 123 compensation expense is typically amortized over the related vesting period; as a result, these fully vested stock options did not have an impact on the expense during the current quarter. Partially offsetting this decrease, during the first quarter of 2005, we granted 6.0 million stock options that vest on or before March 31, 2005 and have a seven year term. Historically, options granted by the Company generally vest over four years and have a ten year term.

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
(Unaudited)

2. Acquisitions and Divestiture

     In the second quarter of 2003,On April 1, 2004, we acquired all of the issued and outstanding stockshares of A.L.I. Technologies Inc.Moore Medical Corp. (“A.L.I.”MMC”), of New Britain, Connecticut, for an aggregate cash purchase price of $347.0approximately $37 million. A.L.I. provides digital medical imaging solutions which are designedMMC is an Internet-enabled, multi-channel marketer and distributor of medical-surgical and pharmaceutical products to streamline access to diagnostic information, automate clinical workflow and eliminate the need for film purchase and storage. The acquisition of A.L.I. complemented our Horizon Clinicals™ offering by incorporating medical images into a computerized patient record.non-hospital provider settings. Approximately $328$24 million of A.L.I.’sthe purchase price washas been assigned to goodwill, none of which is deductible for tax purposes. The aggregate purchase price was financed through cash and short-term borrowings. The results of A.L.I.’sMMC’s operations have been included in the condensed consolidated financial statements within our InformationMedical-Surgical Solutions segment since itsthe acquisition date.

     During the nine months ended December 31, 2003 and 2002, our Pharmaceutical Solutions and Information Solutions segmentsWe also completed several smaller acquisitions.acquisitions in 2004 within our Medical-Surgical Solutions and Provider Technologies segments. Pro forma results of operations for our business acquisitions have not been presented for these acquisitions, nor the acquisition of A.L.I., asbecause the effects were not material to the condensed consolidated financial statements on either an individual or aggregate basis.

     On January 19, 2004,During the first quarter of 2005, we entered intosold a merger agreement (the “Merger Agreement”) providingbusiness for our acquisition, subject to the satisfactionnet cash proceeds of customary closing conditions,$12.3 million. The disposition resulted in a pre-tax loss of all$1.1 million and an after-tax loss of the issued and outstanding shares of Moore Medical Corp. (“MMC”), of New Britain, Connecticut, for $12 per share or a total of approximately $40$4.6 million. MMC is an internet-enabled, multi-channel marketer and distributor of medical-surgical and pharmaceutical products to non-hospital provider settings. On completion of the acquisition, financialFinancial results for MMC from the date of closing would be reflected as part of our Medical-Surgical Solutions segment. We have been advised that, on January 21, 2004, MMC received an indication of interest from a private investment firm in the form of a cash offer of $15 per share, subject to certain conditions, including completion of due diligence. Under the Merger Agreement, MMC has the right to terminate its agreement with us and accept a financially superior offer under certain circumstances. Accordingly, there can be no assurance that our proposed acquisition of MMC will be completed on the terms set forth in the Merger Agreement or at all.

     In September 2002, we sold the net assets of a marketing fulfillmentthis business which was previouslywere included in our Pharmaceutical Solutions segment and were not material to our condensed consolidated financial statements.

3. Restructuring Activities

     Net charges from restructuring activities for the first quarter of 2005 and 2004 were $0.6 million and $1.3 million. These charges primarily related to a number of smaller initiatives offset in part by a reversal of prior years’ restructuring reserves due to a change in estimated costs to complete these activities.

     The following table summarizes restructuring activities for the quarter ended June 30, 2004:

     Accrued restructuring liabilities are included in other liabilities in the accompanying condensed consolidated balance sheets. In connection with the acquisition of MMC, we recorded $4.0 million of restructuring reserves related to employee termination costs. These costs have been recognized as liabilities assumed in the purchase price of MMC.

     In addition to the above restructuring activities, we are still managing a 2001/2000 restructuring plan associated with customer settlements for the discontinuance of overlapping and nonstrategic products and other product development projects within our Provider Technologies segment. Net proceedsCustomer settlement allowances, which are included as a reduction of accounts receivable in the accompanying condensed consolidated balance sheets, were reduced by $0.4 million in non-cash settlements during the first quarter of 2005 to $5.8 million at June 30, 2004 from $6.2 million at March 31, 2004. Total cash and non-cash settlements of $45.3 million and $95.4 million have been incurred since the saleinception of this business were $4.5 million. The disposition resulted in an after-tax lossrestructuring plan. Non-cash settlements represent write-offs of $3.7 million or $0.01 per diluted share which was recorded in the second quarter of 2003. Financial results for this businesscustomer receivables. There have been presentedno significant offsetting changes in estimates that increased the provision for customer settlements. At March 31, 2004, we substantially completed our negotiations with the affected customers. As a result, we do not anticipate additional significant increases to the allowance for customer settlements. However, as a discontinued operation.settlement negotiations with the remaining customers are finalized, additional adjustments to the reserve may be necessary.

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FINANCIAL NOTES (Continued)
(Unaudited)

3.4. Earnings Per Share

     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.

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

     For the quarters ended December 31, 2003 and 2002, 38.0Approximately 34 million and 48.743 million stock options were excluded from the computations of diluted net earnings per share for the quarters ended June 30, 2004 and 2003 as their exercise price was higher than the Company’s average stock price. For the nine months ended December 31, 2003 and 2002, the number of stock options excluded was 38.0 million and 33.8 million.

4.     Restructuring Activities

     We recorded net charges for restructuring activities of $1.3 million and $3.1 million during the quarter and nine months ended December 31, 2003. Third quarter and year-to-date net charges include $2.0 million for severance costs relating to a program to restructure our Medical-Surgical Solutions segment distribution center network to mitigate the impact of the loss of a large customer. Net restructuring charges for the nine months ended December 31, 2003 also include expenses associated with the consolidation of our Corporate enterprise-wide information network support departments and the closure of a distribution center in our Pharmaceutical Solutions segment. These charges were partially offset by reversals of accruals from prior year restructuring programs. Approximately 257 employees were provided termination notices as a result of our 2004 restructuring initiatives, of which 123 were terminated at December 31, 2003.

     During the quarter and nine months ended December 31, 2002, we recorded net reductions in restructuring accruals of $0.2 million and $7.2 million. Results for the nine months ended December 31, 2002 included $12.2 million in reversals of accruals as a result of a modification to our Medical-Surgical Solutions segment’s distribution center strategy, which was partially offset by $6.0 million of charges associated with the planned closure of a distribution center and additional facility closure costs for a prior year restructuring plan within our Pharmaceutical Solutions segment.

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FINANCIAL NOTES (Continued)
(Unaudited)

     The following table summarizes restructuring activities for the nine months ended December 31, 2003:

     In addition to the above restructuring activities, we are still managing a 2001/2000 restructuring plan associated with customer settlements for the discontinuance of overlapping and nonstrategic products and other product development projects within our Information Solutions segment. Customer settlement allowances, which are included as a reduction of accounts receivable in the accompanying condensed consolidated balance sheets, decreased to $62.9 million at December 31, 2003 from $86.9 million at March 31, 2003. Reductions in the allowance were due to a reversal of $19.7 million of the allowance into operating expenses in the second quarter of 2004 due to favorable settlements and continued negotiations with affected customers, and $0.9 million and $3.4 million of cash and non-cash settlements. In addition, during the third quarter of 2003, we reversed $22.3 million of the allowance into operating expenses also due to favorable settlements and negotiations with affected customers. Total cash and non-cash settlements of $44.1 million and $86.2 million have been incurred since the inception of the restructuring plan. Although the timing and final outcome of remaining customer settlements cannot be determined, we believe that any additional liability and related expenditures will not have a material adverse effect on our financial position, results of operations or cash flows.

5.     Contract Losses

     During the third quarter of 2003, we recorded a contract loss provision of $51.0 million to recognize expected losses for certain multi-year contracts within our Information Solutions’ international business. Additionally, during the third quarter of 2004, we recorded an incremental $20.0 million loss provision. The contract losses are reflected in cost of sales in the accompanying condensed consolidated statement of operations. Changes in estimates to complete and revisions in overall profit estimates are recognized in the period in which they are determined. These provisions are subject to change as additional information is obtained and as the contracts progress toward completion.

6.     Income Taxes

     During the quarter ended December 31, 2003, we recorded a $7.9 million income tax benefit arising from settlements and adjustments with various taxing authorities. The nine months ended December 31, 2003 also reflects a $15.3 million income tax benefit relating to favorable tax settlements with the U.S. Internal Revenue Service. This benefit, which was not previously recognized by the Company, resulted from the filing of amended tax returns by our subsidiary McKesson Information Solutions (formerly known as HBO & Company (“HBOC”)) for the years ended December 31, 1997 and 1998.

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FINANCIAL NOTES (Continued)
(Unaudited)

7. Goodwill and Other Intangible AssetsIntangibles

     Changes in the carrying amount of goodwill for the nine monthsquarter ended December 31, 2003June 30, 2004, are as follows:

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FINANCIAL NOTES (Continued)
(Unaudited)

     Information regarding other intangibles is as follows:

     Amortization expense of other intangibles was $5.5$6.2 million and $15.2$4.6 million for the quarterquarters ended June 30, 2004 and nine months ended December 31, 2003 and $4.7 million and $13.2 million for the comparable prior year periods.2003. The weighted average remaining amortization periods for customer lists, technology and trademarks and other intangible assets at December 31, 2003June 30, 2004 were: 7.68 years, 4.54 years and 5.05 years. As of December 31, 2003, estimatedEstimated future annual amortization expense forof these assets is as follows: $20.0$16.5 million, $19.4$14.9 million, $14.3$15.1 million, $13.8$15.7 million and $10.2$6.1 million for 20042005 through 2008,2009, and $12.7$9.1 million thereafter. At December 31, 2003,June 30, 2004, there were $13.9was $15.0 million of other intangibles not subject to amortization.

8.6. Financing ActivitiesActivity

     In June 2003,2004, we renewed our committed revolving receivables saleaccounts receivable sales facility under substantially similar terms to those previously in place with the exception that the facility was increased by $150.0$300.0 million to $1.1$1.4 billion. The renewed facility expires in June 2004.

     In September 2003, we renegotiated our 364-day revolving credit agreement. With the exception that the facility was increased by $100.0 million to $650.0 million, the terms of the new agreement are substantially similar to those previously in place. The renewed facility expires in September 2004.

2005. At December 31, 2003, $217.6 million of short-term borrowingsJune 30, 2004, there were outstanding. Nono amounts were outstanding or utilized under the revolving receivables sale facility at December 31, 2003 and March 31, 2003.this facility.

     In addition, during the quarter and nine months ended December 31, 2003, we sold customer lease receivables from our Pharmaceutical Solutions segment for cash proceeds of $7.0 million and $42.2 million. The sales of these receivables resulted in pre-tax gains of $0.5 million and $3.0 million. During the quarter and nine months ended December 31, 2002, we sold customer lease receivables from the same segment for cash proceeds of $117.9 million, which resulted in a pre-tax gain of $5.3 million. These gains are included in Other Income in the condensed consolidated statements of operations.

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FINANCIAL NOTES (Continued)
(Unaudited)

9.     Long-Term Debt7. Convertible Junior Subordinated Debentures

     In February 1997, we issued 5% Convertible Junior Subordinated Debentures (the “Debentures”) in an aggregate principal amount of $206,186,000. The Debentures, which are included in long-term debt, mature on June 1, 2027, bear interest at an annual rate of 5%, payable quarterly, and are currently redeemable by us at 102.0%101.5% of the principal amount. The Debentures were purchased by the Trust, which is wholly owned by the Company, with proceeds from its issuance of four million shares of preferred securities to the public and 123,720 common securities to us. These preferred securities are convertible at the holder’s option into the Company’s common stock. The Debentures represent the sole assets of the Trust.

     Holders of the preferred securities are entitled to cumulative cash distributions at an annual rate of 5% of the liquidation amount of $50 per security. Each preferred security is convertible at the rate of 1.3418 shares of the Company’s common stock, subject to adjustment in certain circumstances. The preferred securities will be redeemed upon repayment of the Debentures and are callable by us on or after March 4, 2000, in whole or in part, initially at 103.5% of the liquidation preference per share, and thereafter at prices declining at 0.5% per annum to 100% of the liquidation preference on and after March 4, 2007 plus, in each case, accumulated, accrued and unpaid distributions, if any, to the redemption date.

     We have guaranteed, on a subordinated basis, distributions and other payments due on the preferred securities (the “Guarantee”). The Guarantee, when taken together with our obligations under the Debentures, and in the indenture pursuant to which the Debentures were issued, and our obligations under the Amended and Restated Declaration of Trust governing the subsidiary trust,Trust, provides a full and unconditional guarantee of amounts due on the preferred securities.

10.     Stockholders’ Equity10

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FINANCIAL NOTES (Continued)
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8. Pension and Other Postretirement Benefit Plans

     The following table provides the components of the net periodic expense for the Company’s defined benefit pension and postretirement plans:

     In 2001,April 2004, we made several lump sum payments totaling approximately $42 million from an unfunded U.S. pension plan. In accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, approximately $12 million in settlement charges associated with these payments were expensed in the Company’s Boardfirst quarter of Directors approved a program to repurchase up to $250.0 million2005. Substantially all of this expense was recorded in the Company’s common stock in open market or private transactions. During the nine months ended December 31, 2003, we repurchased 3.9 million shares having an aggregate cost of $115.3 million, which effectively completes the 2001 program. On October 30, 2003, the Company’s Board of Directors approved a new program to repurchase up to $250.0 million of additional common stock of the Company. Repurchased shares will be used for general corporate purposes.Corporate segment.

9. Stockholders’ Equity

     Comprehensive income is as follows:

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11.10. Financial Guarantees and Warranties

     Financial Guarantees.

     We have agreements with certain of our 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 requirements,limitations, these inventories must be in resalable condition. We have also guaranteed loans, credit facilities and the payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. During the first quarter of 2005, we converted a $40.0 million credit facility guarantee in favor of a customer (that recently emerged from bankruptcy) to a note receivable due from this customer. This secured note bears interest and is repayable in various payments through 2007. Customer guarantees range from one to ten years and were primarily provided to facilitate financing for certain strategic customers. At December 31, 2003,June 30, 2004, the maximum amounts of inventory repurchase guarantees and other customer guarantees were approximately $167$155 million and $61$15 million of which a nominal amount hadhas been accrued for these guarantees.

     During the second quarter of 2004, a Pharmaceutical Solutions customer announced its bankruptcy. Accordingly, we reviewed all amounts owed to us from this customer as well as financial guarantees provided to third parties in favor of this customer, and as a result, we increased our provision for doubtful accounts by $30.0 million.accrued.

     At December 31, 2003,June 30, 2004, we had commitments to provide $3.9of $11.0 million, primarily consisting of cash contributions and $9.8 millionthe purchase of other commitments toservices from our equity-held investments, for which no amounts had been accrued.