McKesson 2008 Annual Report Download - page 16

Download and view the complete annual report

Please find page 16 of the 2008 McKesson annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 119

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119

McKESSON CORPORATION
9
Other Information About the Business
Customers: In recent years, a significant portion of our revenue growth has been with a limited number of large
customers. During 2008, sales to our ten largest customers accounted for approximately 53% of our total
consolidated revenues. Sales to our two largest customers, CVS Caremark Corporation (“Caremark,”) and Rite Aid
Corporation (“Rite Aid”) accounted for 14% and 13% of our total consolidated revenues. At March 31, 2008,
accounts receivable from our ten largest customers were approximately 43% of total accounts receivable. Accounts
receivable from Caremark and Rite Aid were approximately 12% and 11% of total accounts receivable.
Substantially all of these revenues and accounts receivable are included in our Distribution Solutions segment.
Suppliers: We obtain pharmaceutical and other products from manufacturers, none of which accounted for
more than approximately 9% of our purchases in 2008. The loss of a supplier could adversely affect our business if
alternate sources of supply are unavailable. We believe that our relationships with our suppliers on the whole are
good. The ten largest suppliers in 2008 accounted for approximately 48% of our purchases.
A significant portion of our distribution arrangements with the manufacturers provides us compensation based
on a percentage of our purchases. However, we also have certain distribution arrangements with manufacturers that
include an inflation-based compensation component whereby we benefit when the manufacturers increase their
prices as we sell our inventory being held at the new higher prices. 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 our gross profit margin. In 2008 and 2007, we benefited from certain branded manufacturers’
price increases on selected drugs.
Research and Development: Our development expenditures primarily consist of our investment in software
development held for sale. We expended $420 million, $359 million and $285 million for development activities in
2008, 2007 and 2006, and of these amounts, we capitalized 17%, 21% and 22%. Development expenditures are
primarily incurred by our Technology Solutions segment. Our Technology Solutions segment’ s product
development efforts apply computer technology and installation methodologies to specific information processing
needs of hospitals and other customers. We believe a substantial and sustained commitment to such expenditures is
important to the long-term success of this business. Additional information regarding our development activities is
included in Financial Note 1 to the consolidated financial statements, “Significant Accounting Policies,” appearing
in this Annual Report on Form 10-K.
Environmental Regulation: We sold our chemical distribution operations in 1987 and retained responsibility for
certain environmental obligations. Agreements with the Environmental Protection Agency and certain states may
require environmental assessments and cleanups at several closed sites. These matters are described further in
Financial Note 17 to the consolidated financial statements, “Other Commitments and Contingent Liabilities,”
appearing in this Annual Report on Form 10-K. Other than any expenditures that may be required in connection
with those legal matters, we do not anticipate making substantial capital expenditures either for environmental
issues, or to comply with environmental laws and regulations in the future. The amount of our capital expenditures
for environmental compliance was not material in 2008 and is not expected to be material in the next year.
Employees: On March 31, 2008, we employed approximately 32,900 persons compared to 31,800 in 2007 and
26,400 in 2006.
Financial Information About Foreign and Domestic Operations: Information as to foreign and domestic
operations is included in Financial Notes 1 and 21 to the consolidated financial statements, “Significant Accounting
Policies” and “Segments of Business,” appearing in this Annual Report on Form 10-K.