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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
68
Concentrations of Credit Risk: Trade receivables subject us to a concentration of credit risk with customers
primarily in our Distribution Solutions segment. A significant proportion of our revenue growth has been with a
limited number of large customers and as a result, our credit concentration has increased. Accordingly, any defaults
in payment by or a reduction in purchases from these large customers could have a significant negative impact on
our financial condition, results of operations and liquidity. 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 and Rite Aid Corporation, represented approximately 14% and 13% of total consolidated
revenues and 12% and 11% of accounts receivable. We have also provided financing arrangements to certain of our
customers, some of which are on a revolving basis. At March 31, 2008, these customer financing arrangements
totaled approximately $120 million.
Accounts Receivable Sales: At March 31, 2008, we had a $700 million revolving receivables sales facility,
which was fully available. The program qualifies for sale treatment under Statement of Financial Accounting
Standards (“SFAS”) No. 140, “Accounting For Transfers and Servicing Financial Assets and Extinguishments of
Liabilities.” Sales are recorded at the estimated fair values of the receivables sold, reflecting discounts for the time
value of money based on U.S. commercial paper rates and estimated loss provisions. Discounts are recorded in
administrative expenses in the consolidated statements of operations.
Share-Based Payment: Beginning in 2007, we account for all share-based payment transactions using a fair-
value based measurement method required by SFAS No. 123(R), “Share-Based Payment.” The share-based
compensation expense is recognized, for the portion of the awards that is ultimately expected to vest, on a straight-
line basis over the requisite service period for those awards with graded vesting and service conditions. For the
awards with performance conditions, we recognize the expense on an accelerated basis.
Prior to the adoption of SFAS No. 123(R), we accounted for our employee stock-based compensation plans
using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees.” Under this policy, since the exercise price of stock options we granted was generally
set equal to the market price on the date of the grant, we did not record any expense to the income statement related
to the grants of stock options, unless certain original grant-date terms were subsequently modified. See Financial
Note 19, “Share-Based Payment,” for the pro forma effect on net income and diluted earnings per common share
required under the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as
amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” for the year
ended March 31, 2006.
Recently Adopted Accounting Pronouncements: On April 1, 2007, we adopted Financial Accounting Standards
Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” Among other things, FIN No.
48 requires application of a “more likely than not” threshold for the recognition and derecognition of tax positions.
It further requires that a change in judgment related to prior years’ tax positions be recognized in the quarter of such
change. The April 1, 2007 adoption of FIN No. 48 resulted in a reduction of our retained earnings by $46 million.
Effective March 31, 2007, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans.” SFAS No. 158 requires the recognition of an asset or a liability in the consolidated
balance sheets reflecting the funded status of pension and other postretirement benefits, with current-year changes in
the funded status recognized in stockholders’ equity. SFAS No. 158 did not change the existing criteria for
measurement of periodic benefit costs, plan assets or benefit obligations. The incremental effect of the initial
adoption of SFAS No. 158 reduced our shareholders’ equity by $63 million at March 31, 2007. Additionally, SFAS
No. 158 requires the measurement of defined benefit plan assets and obligations to be the date of the Company’ s
fiscal year-end. We plan on adopting this provision of SFAS No. 158 in 2009.