McKesson 2008 Annual Report Download - page 47

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
40
−We acquired all of the issued and outstanding shares of Medcon Ltd., (“Medcon”), an Israeli company, for an
aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information
management services to healthcare providers. Approximately $60 million of the purchase price was assigned to
goodwill and $20 million was assigned to intangibles which represent technology assets and customer lists
which have an estimated weighted-average useful life of four years. Financial results for Medcon are included
within our Technology Solutions segment.
During the last three years, we also completed a number of other smaller acquisitions and investments within
both of our operating segments. Financial results for our business acquisitions have been included in our
consolidated financial statements since their respective acquisition dates. Purchase prices for our business
acquisitions have been allocated based on estimated fair values at the date of acquisition and, for certain recent
acquisitions, may be subject to change as we continue to evaluate and implement various restructuring initiatives.
Goodwill recognized for our business acquisitions is not expected to be deductible for tax purposes. Pro forma
results of operations for our business acquisitions have not been presented because the effects were not material to
the consolidated financial statements on either an individual or an aggregate basis. Refer to Financial Note 2,
“Acquisitions and Investments,” to the accompanying consolidated financial statements for further discussions
regarding our acquisitions and investing activities.
2009 Outlook
Information regarding the Company’ s 2009 outlook is contained in our Form 8-K dated May 5, 2008. This
Form 8-K should be read in conjunction with the sections “Factors Affecting Forward-looking Statements” and
“Additional Factors That May Affect Future Results” included in this Financial Review.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We consider an accounting estimate to be critical if the estimate requires us to make assumptions about matters
that were uncertain at the time the accounting estimate was made and if different estimates that we reasonably could
have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period
to period, could have a material impact on our financial condition or results from operations. Below are the
estimates that we believe are critical to the understanding of our operating results and financial condition. Other
accounting policies are described in Financial Note 1, “Significant Accounting Policies,” to the accompanying
consolidated financial statements. Because of the uncertainty inherent in such estimates, actual results may differ
from these estimates.
Allowance for Doubtful Accounts: We provide short-term credit and other customer financing arrangements to
customers who purchase our products and services. Other customer financing primarily relates to guarantees
provided to our customers, or their creditors, regarding the repurchase of inventories. 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.
In determining the appropriate allowance for doubtful accounts, which includes portfolio and specific reserves,
the Company reviews accounts receivable aging, industry trends, customer financial strength, credit standing,
historical write-off trends and payment history to assess the probability of collection. 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, 2008, revenues and accounts receivable from our ten largest customers accounted for approximately 53%
of consolidated revenues and approximately 43% of accounts receivable. At March 31, 2008, revenues and accounts
receivable from our two largest customers, CVS Caremark Corporation (“Caremark”) and Rite Aid Corporation
(“Rite Aid”), represented approximately 14% and 13% of total consolidated revenues and 12% and 11% of 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.