McKesson 2009 Annual Report Download - page 65

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
59
Regulations relating to confidentiality of sensitive personal information and to format and data content
standards could depress the demand for our products and impose significant product redesign costs and
unforeseen liabilities on us.
State and federal laws regulate the confidentiality of patient records and the circumstances under which those
records may be released. These regulations govern the disclosure and use of confidential patient medical record
information and require the users of such information to implement specified security measures. Regulations
currently in place governing electronic health data transmissions continue to evolve and are often unclear and
difficult to apply. Although our systems have been updated and modified to comply with the current requirements
of state laws and the Federal Health Insurance Portability and Accountability Act of 1996, evolving laws and
regulations in this area could restrict the ability of our customers to obtain, use or disseminate patient information or
could require us to incur significant additional costs to re-design our products in a timely manner, either of which
could have an adverse impact on our business. Furthermore, failure to maintain confidentiality of sensitive personal
information in accordance with the applicable regulatory requirements could expose us to breach of contract claims,
fines and penalties.
The length of our sales and implementation cycles for our Technology Solutions segment could have an
adverse impact on our future operating results.
Many of the solutions offered by our Technology Solutions segment have long sales and implementation cycles,
which could range from a few months to two years or more from initial contact with the customer to completion of
implementation. How and when to implement, replace, or expand an information system, or modify or add business
processes, are major decisions for healthcare organizations. Many of the solutions we provide typically require
significant capital expenditures and time commitments by the customer. Recent legislation that provides incentives
to purchase health information systems imposes strict conditions on these incentives, including the requirement that
purchased systems must comply with applicable federally-endorsed standards. To the extent these standards are
narrowly construed or delayed in publication, our customers may delay or cancel their purchase decisions. Any
decision by our customers to delay or cancel implementation could have an adverse impact on our results of
operations. Furthermore, delays or failures to meet milestones established in our agreements may result in a breach
of contract, termination of the agreement, damages and/or penalties as well as a reduction in our margins or a delay
in our ability to recognize revenue.
We may be required to record a significant charge to earnings if our goodwill or intangible assets become
impaired.
We are required under GAAP to test our goodwill for impairment, annually or more frequently if indicators for
potential impairment exist. Indicators that are considered include, but are not limited to, significant changes in
performance relative to expected operating results, significant changes in the use of the assets, significant negative
industry or economic trends or a significant decline in the Company’s stock price and/or market capitalization for a
sustained period of time. In addition, we periodically review our intangible assets for impairment when events or
changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a
change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include
slower growth rates and the loss of a significant customer. We may be required to record a significant charge to
earnings in our consolidated financial statements during the period in which any impairment of our goodwill or
intangible assets is determined. This could have an adverse impact on our results of operations. There are inherent
uncertainties in management’s estimates, judgments and assumptions used in assessing recoverability of goodwill
and intangible assets. Any changes in key assumptions, including failure to meet business plans, a further
deterioration in the market or other unanticipated events and circumstances, may affect the accuracy or validity of
such estimates and could potentially result in an impairment charge.