McKesson 2008 Annual Report Download - page 60

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Substantial defaults in payment or a material reduction in purchases of our products by large customers
could have a significant negative impact on our financial condition and results of operations and liquidity.
In recent years, a significant portion of our revenue growth has been with a limited number of large customers.
During the year ended March 31, 2008, sales to our ten largest customers accounted for approximately 53% of our
total consolidated revenues. Sales to our two largest customers, Caremark and Rite Aid, represented approximately
14% and 13% of our 2008 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. We also have agreements with group purchasing
organizations, each of which functions as a purchasing agent on behalf of member hospitals, pharmacies and other
healthcare providers. As a result, our sales and credit concentration is significant. Any defaults in payment or a
material reduction in purchases from a large customer could have an adverse impact on our results of operations.
Any adverse change in general economic conditions can adversely reduce sales to our customers or affect
consumer buying practices which would reduce our revenue growth and cause a decrease in our profitability.
Further, interest rate fluctuations and changes in capital market conditions may affect our customers’ ability to
obtain credit to finance their business under acceptable terms, which would reduce our revenue growth and cause a
decrease in our profitability.
Our Distribution Solutions segment is dependent upon sophisticated information systems. The
implementation delay, malfunction or failure of these systems for any extended period of time could adversely
affect our business.
We rely on sophisticated information systems in our business to obtain, rapidly process, analyze and manage
data to: (i) facilitate the purchase and distribution of thousands of inventory items from numerous distribution
centers; (ii) receive, process and ship orders on a timely basis; (iii) manage the accurate billing and collections for
thousands of customers; and (iv) process payments to suppliers. If these systems are interrupted, damaged by
unforeseen events, or fail for any extended period of time, we could have an adverse impact on our results of
operations.
Reduced capacity in the commercial property insurance market exposes us to potential loss.
In order to provide prompt and complete service to our major Distribution Solutions customers, we maintain
significant product inventory at certain of our distribution centers. While we seek to maintain property insurance
coverage in amounts sufficient for our business, there can be no assurance that our property insurance will be
adequate or available on acceptable terms. One or more large casualty losses caused by fire, earthquake or other
natural disaster in excess of our coverage limits could have an adverse impact on our results of operations.
We could become subject to liability claims that are not adequately covered by our insurance, and may have
to pay damages and other expenses which could have an adverse impact on our results of operations.
Our business exposes us to risks that are inherent in the distribution, manufacturing, dispensing of
pharmaceuticals and medical-surgical supplies, the provision of ancillary services, the conduct of our payor
businesses (which include disease management programs and our nurse triage services) and the provision of
products that assist clinical decision-making and relate to patient medical histories and treatment plans. If customers
assert liability claims against our products and/or services, any ensuing litigation, regardless of outcome, could
result in a substantial cost to us, divert management’ s attention from operations and decrease market acceptance of
our products. We attempt to limit, by contract, our liability to customers; however, the limitations of liability set
forth in the contracts may not be enforceable or may not otherwise protect us from liability for damages. We also
maintain general liability coverage; however, this coverage may not continue to be available on acceptable terms or
may not be available in sufficient amounts to cover one or more large claims against us. In addition, the insurer
might disclaim coverage as to any future claim. A successful product or professional liability claim not fully
covered by our insurance could have an adverse impact on our results of operations.