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corresp

November 30, 2005

Mr. Jim B. Rosenberg

Division of Corporate Finance

United States Securities and Exchange Commission

100 F Street N.E.

Mail Stop 6010

Washington, D.C. 20002

Re: McKesson Corporation

Form 10-K for the year ended March 31, 2005

File Number: 1-13252

Dear Mr. Rosenberg:

     On behalf of McKesson Corporation (the “Company”), we are responding to the comments of the
staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) contained in the
letter dated October 7, 2005 received by us on October 21, 2005 relating to our Form 10-K for the
year ended March 31, 2005 (referred to herein as 2005). We have recited the comments of the Staff
in bold type below, and have followed each comment with the Company’s response. In addition, in
all instances whereby we have indicated that we will enhance our disclosure, we are referring to
the Company’s Form 10-K for the year ended March 31, 2006 and subsequent filings thereafter.

Form 10-K for March 31, 2005

Management’s Discussion and Analysis

    1.

    You discuss the business model transition in your pharmaceutical distribution business to
fee-based arrangements, yet we do not see any disclosure of:

    •

    The different nature of these arrangements including their terms and how you are
compensated;

    •

    The effects/expected effects on historical/future operations, cash flows and
financial position of these arrangements, both quantitative and qualitative; or

    •

    Your accounting policies for recording and classifying in your financial statements
amounts received and costs incurred under these new arrangements.

    Please provide us the above information in disclosure-type format.

    In response to the Staff’s comments, below are revisions to our 2005 Form 10-K disclosures
pertaining to our U.S. pharmaceutical distribution business’ transition to new distribution
arrangements. In future filings, we will include this expanded disclosure.

    Gross profit margin for our Pharmaceutical Solutions segment in 2005 reflects the change in
our distribution arrangements with the U.S. pharmaceutical manufacturers (“manufacturers”).

    Historically, a significant portion of compensation from the manufacturers was
inflation-based. We purchased and held pharmaceutical inventory in anticipation of
manufacturers increasing their prices. These price increases would then be passed on to
customers and we benefited when the inventory was sold at the higher price. Beginning in
2003, branded pharmaceutical manufacturers began to assert control over the amount of
pharmaceutical product available in the supply chain by restricting the volume of product
available for purchase by pharmaceutical wholesalers. Manufacturers also increasingly sought
more data concerning product sales and distribution patterns. We believe that the

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    manufacturers sought these changes to provide them with greater control over product supply
and movement in the market and to increase product safety and integrity by reducing the
risks associated with product being available to, and distributed in, the secondary market.
These changes limited our ability to purchase inventory in advance of price increases. In
2005, manufacturers also reduced the number and average magnitude of price increases. As a
result, gross profit margin for our U.S. pharmaceutical distribution business decreased in
2005 as compared to 2004.

    Commencing in the second half of 2005, we started revising some of our distribution
arrangements with the manufacturers. Under these new arrangements, a significant portion of
our compensation from the manufacturers is generated based on a percentage of purchases and,
as a result, was no longer as dependent upon pharmaceutical price increases. These
distribution arrangements are, however, subject to compliance with various customary
performance requirements.

    By the end of 2005, our U.S. pharmaceutical distribution business had transitioned or was in
the process of transitioning to these new distribution arrangements with almost all of the
manufacturers. However, certain distribution arrangements with manufacturers still include
an inflation-based compensation component while other arrangements remain structured under
the historical inflation-based compensation model. For these manufacturers, a reduction in
the frequency and magnitude of price increases as well as restrictions in the amount of
inventory available to us could adversely impact segment gross profit margin.

    With the transition to these new arrangements, purchases from certain of the manufacturers
are better aligned with customer demand and as a result, net financial inventory (inventory
net of accounts payable) has decreased. This decrease has had a positive impact on our cash
flow from operations. These new arrangements also are expected to diminish the seasonality
of gross profit margin which has historically reflected the pattern of manufacturers’ price
increases.

    In accordance with Emerging Issues Task Force 02-16, “Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor,” compensation received from
manufacturers is recognized as a reduction to the carrying cost of inventory and then to
cost of goods sold at the time of sale of the related inventory. With the exception of
product costs, costs incurred for all of our arrangements, which primarily consist of
warehousing, distribution and selling costs are included in operating expenses.

    2.

    You identify critical accounting policies requiring significant estimates such as supplier
reserves and merchandise inventories. We believe that the focus of this disclosure should be
on the estimate identified as critical rather than policies. For each critical accounting
estimate, please provide us in disclosure-type format management’s analysis of how the
estimate has affected your results of operations for each period presented, and how the
variability that is reasonably likely to result from application of each critical accounting
estimates may affect your future operations. Refer to Release 33-8350.

    In response to your comments, we have provided revisions to our 2005 Form 10-K disclosures
for those critical accounting policies that we believe are impacted by the expanded
disclosure, in the attached Appendix A. These changes are identified in bold font. In
future filings we will include this expanded disclosure.

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    3.

    Please provide us a revised contractual obligation table that includes interest on debt
because we believe that interest is part of that contractual obligation.

    Below is our 2005 Form 10-K contractual obligation table, amended to include interest on
debt. As a result of this change, total obligations were increased by $664 million, to
$6,653 million. In future filings, we will include interest within the contractual
obligation table.

    Years

    (In millions)

    Total

    Within 1

    Over 1 to 3

    Over 3 to 5

    After 5

    On balance sheet

    Securities Litigation

    $
    1,200

    $
    1,200

    $
    —

    $
    —

    $
    —

    Long-term debt

    1,208

    8

    184

    231

    785

    Other(1)

    326

    28

    56

    49

    193

    Off balance sheet

    Purchase obligations

    2,742

    2,682

    16

    12

    32

    Interest on borrowings

    664

    82

    157

    133

    292

    Customer guarantees

    190

    24

    34

    2

    130

    Other(2)

    323

    88

    124

    53

    58

    Total

    $
    6,653

    $
    4,112

    $
    571

    $
    480

    $
    1,490

    (1)

    Primarily includes estimated payments for pension and postretirement plans.

    (2)

    Primarily includes operating lease obligations.

Financial Statements

    4.

    You include in revenues sales of products for shipments from the supplier directly to
customers’ warehouses. Absent any other clarifying disclosure, these disclosures could be
construed to mean that you are an agent rather than a principal in these transactions. In
order to help us understand whether you are a principal or an agent, describe for us the
form of these transactions and the rights and obligations of the parties involved. Also,
provide us a thorough analysis of how your presentation of the gross amount of these
product sales as revenues complies with EITF 99-19. In your response, explicitly analyze
each of the EITF 99-19 indicators for gross reporting and explain to us why you
believe the weight of these indicators dictate gross reporting. As part of, but not in
place of, your analysis of the primary obligor indicator, tell us (A) whether your
customers have ever looked to the supplier for the acceptability of the products purchased,
including, but not limited to, the quantity, quality, and/or return rights of purchased
products, and (B) if not, what causes them to look to you for fulfillment in light of the
fact that they appear to have some level of direct interaction with the supplier, who is
also the manufacturer of the products they purchased. If the indicators in EITF 99-19
dictate gross reporting, please propose revised disclosure that will clearly and concisely
convey to investors why sales of products in which you act as an intermediary and shipments
from the supplier directly to the customers’ warehouse are recorded on a gross basis.

    In response to the Staff’s comments, a summary analysis of our product sales to warehouse
customers for each of the criteria for gross revenue reporting established in EITF 99-19 is
included in the attached Appendix B. We continue to believe that we act as a principal in
these transactions, and that our existing statement of operations presentation, in which we
report revenues and cost of sales on a gross basis, is in compliance with EITF 99-19. We
believe this primarily because we take title to and possession of the inventory and assume
the risk of loss for collection from our customers, as well as delivery or return of the
product.

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    In addition, in future filings we will include the following expanded disclosures, as
identified in bold font, in our Financial Note under “Significant Accounting Policies” to
clarify the form and the nature of these transactions:

    Financial Note — “Significant Accounting Policies”

    Revenue Recognition. Included in our Pharmaceutical Solutions segment revenues are large
volume sales of pharmaceuticals to a limited number of large self-warehousing customers
whereby we order bulk product from the manufacturer, receive and process the product
through our central distribution facility and subsequently deliver the bulk product
(generally in the same form as received from the manufacturer) directly to our customer
warehouses. In addition to these revenues, we also record revenues associated with direct
store deliveries from most of these same customers. Sales to customer warehouses amounted
to $24.1 billion in 2005, $21.6 billion in 2004, and $14.8 billion in 2003. In accordance
with Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent”, these sales are recorded gross as we take title to and possession
of the inventory and assume the risk of loss for collection from our customers, as well as
delivery or return of the product. We have significantly lower gross profit margin on these
sales as we pass much of the efficiencies of this low cost-to-serve model on to the
customer. These sales do, however, contribute to our gross profit dollars in that the
volume allows us to earn incremental product sourcing profit.

    5.

    Explain to us why you do not present any disclosure required by paragraph 37 of FAS 131
for your Pharmaceutical Solutions segment.

    Total revenues for our Pharmaceutical Solutions segment were $76.3 billion, $65.5 billion,
and $53.1 billion for the three years ended March 31, 2005, of which less than 2% pertain to
service revenues. The Company did not report the breakdown for service revenues as amounts
derived from services were not material to the segment’s revenues. We will, however,
include the following disclosure in future filings:

    “Revenues derived from services represent less than 2% of the Pharmaceutical Solutions
segment’s 2006, 2005 and 2004 revenues”.

As requested, we hereby acknowledge that:

    •

    we are responsible for the adequacy and accuracy of the disclosure in the filings;

    •

    the Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Commission from taking any action with respect to the filing; and

    •

    we may not assert Staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

     We trust the foregoing responses sufficiently address the issues raised in your letter.
Should you have any questions concerning the enclosed, please do not hesitate to contact either
Nigel Rees, Corporate Controller, at (415) 983-9390, or me at (415) 983-8882.

Sincerely,

/s/ Jeffrey C. Campbell

Jeffrey C. Campbell

Executive Vice President, Chief Financial Officer and

     Principal Financial Officer

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Appendix A

     Critical Accounting Policies and Estimates

     Valuation of Receivables: We provide short-term credit and other customer financing
arrangements to customers who purchase our products and services. Other customer financing relates
to guarantees provided to our customers, or their creditors, regarding the repurchase of
inventories, and lease and credit financing. We estimate the receivables for which we do not
expect full collection based on historical collection rates and specific knowledge regarding the
current creditworthiness of our customers. An allowance is recorded in our consolidated financial
statements for these amounts.

     If the frequency and severity of customer defaults due to our customers’ financial condition
or general economic conditions change, our allowance for uncollectible accounts may require
adjustment. As a result, we continuously monitor outstanding receivables and other customer
financing and adjust allowances for accounts where collection may be in doubt. At March 31, 2005,
trade and notes receivables were $5,492 million, and other customer financing was $190 million,
prior to allowances of $160 million. For the years ended March 31, 2005, 2004 and 2003 our
provision for bad debts was $16 million, $54 million and $69 million. The decrease in our provision
for bad debts was primarily attributed to better accounts receivable management and due to a $30
million expense recorded in 2004 as a result of a customer bankruptcy. At March 31, 2005 and 2004,
the allowance as a percentage of trade and notes receivables was 2.1% and 2.7%. During the year
ended March 31, 2005, sales to our ten largest customers accounted for approximately 50% of our
total consolidated revenues. Sales to our largest customer, Rite Aid Corporation, represented
approximately 10% of our 2005 total consolidated revenues. At March 31, 2005, accounts receivable
from our ten largest customers and Rite Aid Corporation were approximately 49% and 7% of total
accounts receivable. As a result, our sales and credit concentration is significant. Any defaults
in payment or a material reduction in purchases from this or any other large customer could have a
significant negative impact on our financial condition, results of operations and liquidity.
Additional information concerning our allowance for doubtful accounts may be found in
Schedule II included in this annual report on Form 10-K.

     Valuation of Inventories: We state inventories at the lower of cost or market. Inventories
for our Pharmaceutical Solutions and Medical-Surgical Solutions segments consist of merchandise
held for resale. For our Pharmaceutical Solutions segment, t