Good afternoon, everyone, and welcome to the McKesson Corporation Quarterly Earnings Call. All participants are in a listen-only mode. (Operator Instructions) Today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Erin Lampert, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Talarie. Good afternoon and welcome to the McKesson fiscal 2014 fourth quarter earnings call. I'm joined today by John Hammergren, McKesson's Chairman and CEO; and James Beer, McKesson's Executive Vice President and Chief Financial Officer. John will first provide a business update and will then introduce James who will review the financial results for the quarter. After James's comments, we will open the call for your questions. We plan to end the call promptly after one hour at 6.00 PM Eastern Time. Before we begin, I'll remind listeners that during the course of this call, we will make forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties regarding the operations and future results of McKesson. In addition to the Company's periodic, current, and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release for a discussion of the risks associated with such forward-looking statements. Finally, please note that on today's call, we will refer to certain non-GAAP financial measures, in which we exclude from our GAAP financial results, acquisition expenses and related adjustments, amortization of acquisition-related intangible assets, certain litigation reserve adjustments and LIFO related adjustments. We believe these non-GAAP measures will provide useful information for investors. Please refer to our press release announcing fourth quarter fiscal 2014 results available on our Web site for a reconciliation of the non-GAAP performance measures to the GAAP financial results. Thanks, and here is John Hammergren.

Thanks, Erin, and thanks everyone for joining us on our call today. We reported results for the fourth quarter and full year that reflect strong operating results across all of our businesses. For the full year, revenues were up 13% to $137.6 billion and adjusted earnings per share increased by 31% over the prior year to $8.35. Fiscal 2014 was a year of exceptional execution across McKesson. There are many areas to highlight, but to name just a few we saw tremendous performance in our generics business, including strong growth in our proprietary OneStop Generics program. We delivered solid results from the first full year of the PSS World Medical acquisition and met or exceeded all of our year one integration priorities. We expanded our long-standing distribution agreement with Rite Aid to include the sourcing and distribution of all of Rite Aid's brands and generic pharmaceutical requirements. And we secured the acquisition of Celesio in a disciplined manner and established a platform for McKesson as a global leader in pharmaceutical distribution. In addition to these terrific accomplishments, we've generated $3.1 billion in operating cash flow for the year another outstanding result. We successfully funded the acquisition of Celesio while maintaining a solid investment grade rating, and we invested $415 million in capital to support the growth of our businesses. I'm extremely proud of our accomplishments in fiscal 2014, and would like to take this opportunity to thank the employees of McKesson for their dedication to our customers and their constant focus on delivering exceptional value in all they do. Today, we also provided fiscal 2015 guidance of $10.40 to $10.80 per diluted share and expected year-over-year increase in adjusted earnings per share of 25% to 29%, reflecting strong growth across our broad portfolio of businesses and the expected full year…

Thank you, John, and good afternoon everyone. As you've just heard, we are very pleased by the strength of our results this quarter and for the full year. We've had a great year of operating performance including strong growth in adjusted earnings per share, record operating cash flow, and the acquisition of Celesio. Looking forward, we believe our strategic and operational execution during fiscal 2014 will set the foundation for continued adjusted EPS growth. Today, I will cover both the fourth quarter and full year results. I will also present guidance for fiscal 2015. As a reminder, we provide our guidance on an annual basis due to the seasonality and the quarter-to-quarter variability inherent in many of our businesses. Before I begin, there are three aspects of our financial results for our fourth quarter and full year that I would like to bring to your attention. First, our fourth quarter and full year results reflect the consolidation of Celesio’s results for the two-month period ended March 31, 2014. In the fourth quarter and for the full year, McKesson's share of Celesio’s net income for the two-months ended March 31 was offset by a charge to cost of sales associated with a reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. Therefore McKesson's share of Celesio's results had no material impact on adjusted earnings for the fourth quarter and the full year. Second, as detailed on Schedules 3A and 3B, we have revised our revenue presentation for the Distribution Solutions segment. Celesio's revenues are presented within a new caption called international pharmaceutical distribution and services. Additionally, the results from our Canadian and U.S. pharmaceutical distribution businesses are now both included within a broader North America pharmaceutical distribution and services caption. This line also includes the…

(Operator Instructions) We will take our first question from Steven Valiquette, UBS. Steven J. Valiquette – UBS Securities LLC: Thanks, good afternoon. Just a question on the generic price trends. You had that – there was a bullet in the slide deck or in the press release about price trends on generics outside the exclusivity periods expected to be in the high single-digits, and you’re saying that’s a decline from the trend in fiscal 2014. So I just want to make sure; firstly, you’re talking about growth there sort of declines, but also I think both of them I think are probably a lot higher than what I thought they were as far as the trend lines for fiscal 2014 and 2015. So I guess any additional color on what’s going on there would be definitely helpful? Thanks.

Well, as you say, the guidance that we have there in the press release talks about growth in FY 2015. It’s between the high-single-digit realm. Yes, that is lower than the percentage growth that we saw for generics that are past that exclusivity period that we saw in fiscal 2014. So, it is a relative headwind year-over-year, but still growth for fiscal 2015 year-over-year.

Steven, these are price trends, not the growth of the market overall. This is just the trend of price inflation on generics. So we do expect this year to be a good launch year for generics. Steven J. Valiquette – UBS Securities LLC: Okay. For the quarter just reported though, was there pretty consistent trends in the March quarter versus what you saw back in the December quarter sequentially or was there a little bit of tapering off on some of the economics tied to that? Just curious on the sequential quarterly trend.

Well, at the beginning of the year, we talked about the strength in the first half of the year and we expected that to moderate in the back half and that’s exactly what we saw in our third and fourth quarters. Steven J. Valiquette – UBS Securities LLC: Okay, perfect. Thanks.

We’ll move on to Lisa Gill with JPMorgan. Lisa C. Gill – JPMorgan Securities LLC: Thanks very much and good afternoon. John, I just want to make sure that I understood this correctly. Operational control late in the first half of 2015, but, just being conservative as far as the guidance goes on Celesio?

Well, the operational control is a technical accomplishment that has to be reached after a shareholder meeting and a bunch of other things that we have to do from a European perspective or German perspective. So that is proceeding as we have planned. There is no change in our forecast when we expected to achieve operational control. As you recall, we wanted to have the 75% threshold, which we thought would enable this to happen in the timeframe that we’ve outlined. We did pick up another percent in ownership from 75% to 76%, which is really also what we had expected. Our guidance that we talked about – we said in our guidance that Celesio was going to grow moderately this year including our first year modest synergies. So, I’m not quite sure what portion of our guidance you’re asking the question about. Is it the operational control, the ownership percentage or talk about the… Lisa C. Gill – JPMorgan Securities LLC: Yes. Maybe just trying to understand that a little more clearly. So, you are talking about the operational control first half of 2015, but you are saying that ownership is at 76%. At 76%, you don’t have operational control, isn’t that correct?

That’s correct. We have to go through a couple of more steps. We don’t believe there is any risk in us not obtaining operational control, but we don’t have it automatically just from ownership. We don’t need 100% to get operational control. So what will happen is, we’ll get this operational control, which will allow us to be more interactive with the company than we can today, because we still have a responsibility with regard to operational control to manage the business independent of McKesson and that will change when we achieve operational control. The difference between 76% and 100% ownership is just how much of the earnings we actually consolidated in the end and that’s what James was trying to describe. So we have 100% of the revenue in, we take out the minority ownership from an earnings perspective on that full schedule. Lisa C. Gill – JPMorgan Securities LLC: Okay, that’s very helpful.

And I’d just add to that if I could, the attainment of operational control towards the end of the first half of fiscal 2015 that allows us to really get going on the synergy business case. Lisa C. Gill – JPMorgan Securities LLC: And then just so I understand when you look at for example Celesio reported today and may talk about the German market reimbursement economics getting better. Are those trends that you are going to talk to us about John or James going forward and what are your overall thoughts on those markets right now?

Well, it’s difficult for us to talk about their view of their markets until we get operational controls. So I think you should expect us to be more open and perhaps, discuss more freely what’s going on in the various businesses inside of Celesio and various markets inside of Celesio. Our view, I have spent a lot of time in Europe now with the country managers and I think Paul, and I both would share a point of view that business is run by professional managers we respect and admire what they are doing in many of their markets. And in their press release this morning, they did talk about the strength in their European pharmacy network activities and the strength in particular, Lloyds out of the U.K. and we certainly have seen some of that in our travels. I think it’s probably difficult for us to speculate at this point what will happen with the German discounting in the outside our end of our fiscal year, which is really what they are referring to. Lisa C. Gill – JPMorgan Securities LLC: Okay, great. Thank you for the clarification.

Yes.

And next, we’ll move to Ricky Goldwasser with Morgan Stanley. Ricky Goldwasser – Morgan Stanley & Co. LLC: Yes, hi, good afternoon. Some questions around the Rite Aid contribution, so how should we think of the ramp up for the Rite Aid distribution agreements throughout the year? Also, does guidance factor in improved economics to OneStop from your enhanced scale that comes with the Rite Aid contract?

Thanks for the question, Ricky. The guidance we’ve provided includes our entire outlook for the year. so it does include our view of the ramp-up of our relationship with Rite Aid. What’s great about the Rite Aid relationship for both Rite Aid and McKesson is that we don’t have any structural impediments to our speed to market and we were able to move very rapidly once that agreement was complete to work with our manufacturing partners to begin building momentum against the opportunity that lies ahead for all of us. I would say to you that I think we’re substantially complete now with the work that we need to do with manufacturers. As to the rollout of the service offering to Rite Aid related to distribution of generics, we’re very, very early in that process. We have only just begun the process of serving the Rite Aid stores or some of the Rite Aid stores with their generic requirements. Ricky Goldwasser – Morgan Stanley & Co. LLC: Is that something that will take your full fiscal year to achieve?

I think it will ramp up over the next half of the year. Next two to three months, we should be well into it. Ricky Goldwasser – Morgan Stanley & Co. LLC: Thank you.

Yes.

Next, we’ll move on to Glen Santangelo with Credit Suisse. Glen J. Santangelo – Credit Suisse Securities LLC: Hey John, I just want to follow up on the generic question. Essentially, given that the Celesio revenues are now sort of being consolidated and you’ve pulled Rite Aid into the fold, and I guess you answered this by suggesting that substantially you’ve completed all the work with the manufacturers. I guess what I’m kind of curious is, have you been able to take that incremental volume amount to the manufactures and start to renegotiate the terms of those agreements? And if you’re not, are you starting to see some benefits today and if not, how long will that ultimately take?

When I spoke about the Rite Aid implementation, the first step really was to bring the combined volumes of our corporations together and go to the marketplace to make sure that we are providing the best opportunity to the manufacturers to gain access to that share position. We are now in the process of implementing the generics actually into – the distribution business into Rite Aid, but the value for McKesson relative to the renegotiation should begin to be realized basically effective right now at the beginning of this fiscal year. I might note however that none of the Celesio synergies or volumes or generic purchases, et cetera have been included in any of this upfront work with the manufacturers. It’s simply been McKesson’s business that has continued to grow and thrive, including the incremental Health Mart stores we’ve added, as well as the increment of Rite Aid generic bind that we were able to put together and complete – as I said, substantially complete the negotiations with manufacturers as we sit here today. And clearly, as we get into the late summer months, we should be reworking those relationships to include the Celesio volume as well. Glen J. Santangelo – Credit Suisse Securities LLC: So James, and if I could just follow up on that Celesio accretion analysis. Essentially, when you guys first announced the deal, I think you suggested it’d be a $1 to $1.20 accretive and that was with very modest synergies. Now that you have76% ownership, should we think about that year one accretion being in the $0.75 to $0.80 range with only moderate synergies because based on John’s comments, it kind of sounds like the Company hasn’t been able to bring those volumes into the fold and start to really exercise some of that synergy potential at this point.

Well, we stand by the $1 to $1.20 of accretion for 100% of the ownership. Of course, as you say, we’re only at 76% and that was for the first 12 months of operations, after beginning of February. So in essence, we got the first two months of that in the Q4, just finished and then the balance of the 10 months, we’d be receiving in fiscal 2015. Now, the reason that we ended up net neutral in fiscal 2014 was because we had this one-time inventory write-up consistent with the acquisition accounting and so forth. Glen J. Santangelo – Credit Suisse Securities LLC: Okay, okay. Thank you.

Next, we’ll move to George Hill with Deutsche Bank. George R. Hill – Deutsche Bank Securities, Inc.: Hey. Good afternoon, John and James. Thanks for taking the question, John; I don’t know if I missed – if I didn’t hear this properly. I didn’t hear NorthStar mentioned in the prepared comments. I guess, can you provide any color on how Northstar’s doing and when you’ll have the chance to provide NorthStar products to Rite Aid and Celesio?

We continue to make great progress with NorthStar and in fact, have launched a version of NorthStar that’s called, Savant in Canada. And so both of those product lines are continuing to gain momentum. Now, clearly, we’re working closely with the manufacturing community to make sure we’ve got the best choice of product and the best choice of partners and the Rite Aid agreement does include NorthStar as one of the value offerings to both companies. As it relates to Celesio, which is probably premature to talk about, what we might be able to do with NorthStar or with the NorthStar model as it relates to many of the markets in Europe, but we clearly will have that as part of our evaluation as we get into that next phase. George R. Hill – Deutsche Bank Securities, Inc.: Maybe a quick follow-up. A couple of your competitors are using JV or GPO type structures for the procurement of generic drugs. Is that something that makes sense to do with the inclusion of Celesio, or is the straight integration just McKesson buying the drugs directly from manufacturers and selling through the – I guess, through the supply chain, is that the right way? I guess, I’m just trying to think about industry structure going forward? Thank you.

No problem, George. We don’t plan to have any JVs or any type of unusual structure to get access to the synergy we believe are possible, and there was no JV structure as it relates to Rite Aid, will not be one related to Celesio. It will be McKesson’s sourcing operation that does all of the work. George R. Hill – Deutsche Bank Securities, Inc.: Thank you.

Yes.

We’ll move on next to Steve Halper with FBR & Company.

Steve, are you on mute?

Mr. Halper, your line is now open.

Talarie, maybe, we’ll move to the next question.

Certainly, and we’ll move on to the next question from Charles Rhyee with Cowen & Company. Charles Rhyee – Cowen & Co. LLC: Yes, thanks. Can you guys hear me?

Yes. Charles Rhyee – Cowen & Co. LLC: Okay, hey, guys. Thanks for taking the question. John, just going back to Celesio real quick. Obviously, you’re going to the core process. You talked about a jointly staffed coordination office. Can you talk about specifically what then – is this more focused on the integration itself, or is this, as other people have kind of asked, more towards how you approach manufacturers?

Well, it’s a little bit of both. A part of that coordination activity is to make sure we’re getting after the synergies that we think exist in the primary synergies we’ve outlined in our conversations regarding Celesio is around product sourcing. so clearly, that’s a top priority and those teams are already beginning to do some work. But as I said it really can’t accelerate until we get pass this operational control phase. With the other part of the project management or coordination office role is to make sure that we understand what Celesio is working on today and what they might need our assistance with, things like IT or other kinds of projects that we might be able to lend a helping hand to. So, I would say that it’s basically a process of understanding more completely Celesio’s operations and corporate functions, so that work is under way. Charles Rhyee – Cowen & Co. LLC: Great. And as a follow-up James. I don’t know if I saw it in the assumptions you gave on the guidance. Can you give us an estimate of, what sort of interest expense are you expecting for fiscal 2015? Thank you.

Yes. We would expect interest expense to be rising year-over-year, consistent with the new debt that we took on to finance Celesio. So that is all publicly available and so I’ll just leave at there at the moment. Charles Rhyee – Cowen & Co. LLC: Great, thank you.

We’ll move on to Robert Jones with Goldman Sachs. Robert P. Jones – Goldman Sachs & Co.: Thanks for the question. Just wanted to go back, John, if I could to the generic inflation assumption in guidance. I know this has been a tailwind if you will for the last several years. It seems like Distribution Solutions, I was just curious, how much visibility do you have into this variable and given that your expectations are for it to moderate a bit into fiscal 2015. Just wondering what the main drivers of that in your view could be?

Well, the inflation – just to remind the listeners, generics has been driven by a relatively small subset of the overall generic portfolio and a relative small subset of manufacturers. Like any other estimate that we have to make, whether it’s brand inflation or generic inflation or generic launches, et cetera, what we attempt to do is use the best resources we have internal to the company and whatever resources are available externally to create those views. I think we were correct on our assumption that it was going to moderate in the back half of this year, of fiscal 2014 which it did, and we believe the assumption we’ve given relative to FY 2015 is our best thinking as it stands today for what inflation will be. It certainly could be wrong, and the manufacturers don’t typically tell us what they’re going to do. One of the reasons we state our assumptions so clearly in our press release is, so those of you on the phone can create your own view of our assumptions, and provide that input into your own models as you reflect on what we’ve done. But we still think it’s going to be an important part of our 2015 performance. We expect it to still be very solid, and it just will be slightly less than we experienced in 2014. Robert P. Jones – Goldman Sachs & Co.: Got it. That’s helpful. And then just a quick follow-up within specialty. John, you continue to sound very pleased with the performance of U.S. oncology. I was wondering if you’ve seen a shift at all in the site of care within oncology treatment? Any pressure in the marketplace for oncology treatment to be done more in the acute care setting?

We do see that pressure. It ebbs and flows depending on the markets and where our physicians are based. I would say that the pressure is not coming from payers and it’s not coming from patients. The pressure is usually driven by the purchase of a practice where a local hospital or hospital system decides to buy a group of oncologists that were customers of McKesson. And many times if the hospital is a customer of McKesson, we’ll retain all of that business, clearly if it just go through standard distribution. But I think the beauty of the U.S. Oncology model is that, many times we’re able to follow those physicians into the hospital setting and begin to manage the practices on behalf of the hospital, maybe you pick up net new physicians that are part of the network as the hospital relies on our expertise to continue to work with those doctors to optimize the quality of care and the cost of that care. So, although it continues to be something we have to pay attention to, and on occasion we’ll lose a practice if a customer that goes into a hospital and we don’t have any affiliation with the hospital afterwards and obviously, that’s a net loss for us. But I would say the team has been very good at working with our customers in these transitions and retaining our position. Robert P. Jones – Goldman Sachs & Co.: Got it. Thanks.

Yes.

We’ll move on next to Greg Bolan with Sterne Agee. Greg T. Bolan – Sterne, Agee & Leach, Inc.: Thanks for taking the question. So just a few technical questions, James. Celesio, was it fair to say that it added about 700 basis points to total revenue growth in the fiscal fourth quarter?

Yes. It added about $8 billion in revenue in fiscal fourth quarter. Greg T. Bolan – Sterne, Agee & Leach, Inc.: Okay, got it.

Yes. Greg T. Bolan – Sterne, Agee & Leach, Inc.: Okay. Thank you, and then, I know obviously annual guidance is being given here and that’s historically been the case, but just as you think about how the first half of the fiscal year will gate into the second half, obviously you’ve got Celesio that will be coming on board from an earnings contribution perspective in the back half, as well as – well, I guess that was somewhat offset kind of a slight headwind from a little bit lower generic pricing increases. So, is it kind of fair to say, first half 45% of earnings and back half 55% of earnings, if we kind of think about the midpoint of guidance?

Well, just one thing I misspoke on the Celesio revenue that was $4.8 billion in Q4, not $8 billion. Greg T. Bolan – Sterne, Agee & Leach, Inc.: Got it, thank you.

So in terms of the mix of earnings during the year, what I would point to is that last year, we had particularly strong earnings in the first half of the year, year-over-year and that was driven by somewhat unusually high generic price increase activity. So returning in our fiscal 2015 plan to more the profile that we saw in fiscal 2013 back through fiscal 2011 that type of picture in some quarterly seasonality. Greg T. Bolan – Sterne, Agee & Leach, Inc.: Okay, that’s very helpful. Thank you.

We will move next to David Larsen, Leerink Partners. David M. Larsen – Leerink Partners LLC: Hi, congratulations on a good quarter. For the $1 to $1.20 in Celesio synergies, can you just describe what the nature of that is and would that be expected to be achieved after domination is realized? Thanks.

So that’s an accretion number, not a synergy number. The synergy number was $275 million to $325 million realized over four years, with a modest impact this fiscal year.

Yes. So the $1 to $1.20 of accretion is very largely just our share of Celesio’s earnings. Now again, that always assumed 100% ownership and we only own 76% of the shares at this point. So it’s important to factor that into account. David M. Larsen – Leerink Partners LLC: And then the driver of the synergies $275 million to $325 million, can you just talk about the nature of those please?

By far the most significant driver there are the purchasing synergies that we would look to be able to attain over time. As John said, we’d look to get to $275 million to $325 million per year by year four. So, it will really be that procurement synergy effort that drives that to some modest amount of tank savings that we believe will be available as well. David M. Larsen – Leerink Partners LLC: Great. Thanks a lot.

So operator, I don’t think there are any other questions on the phone. So, I think that we’ll wrap this up. I want to thank all of you on the call today for your time. We certainly have a strong plan in place for fiscal 2015 and we’re excited about the tremendous growth opportunities that are available to us across McKesson. I’m certainly once again; proud of our track record in our delivery to our customers and the tremendous financial returns we’ve delivered to our shareholders this year and for many years, and I also want to thank all of our tremendous employees for their effort this last year on driving that success for us. With that, I’ll turn it over to Erin for a view of upcoming events for the financial community.

Thank you, John. I have a preview of upcoming events. We will participate in the UBS Global Healthcare Conference in New York on May 20th and the Goldman Sachs Healthcare Conference in Rancho Palos Verdes on June 11th. We will release first quarter earnings results in late July. We look forward to seeing you at one of these upcoming events. Thank you and good-bye.

And everyone, that does conclude our conference call for today. Thank you all for your participation.