McKesson 2012 Annual Report Download - page 14

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McKESSON CORPORATION
10
Other Information about the Business
Customers: During 2012, sales to our ten largest customers accounted for approximately 52% of our total
consolidated revenues. Sales to our two largest customers, CVS Caremark Corporation (“CVS”) and Rite Aid
Corporation (“Rite Aid”), accounted for approximately 16% and 10% of our total consolidated revenues. At
March 31, 2012, accounts receivable from our ten largest customers were approximately 49% of total accounts
receivable. Accounts receivable from CVS, Wal-Mart Stores, Inc. (“Walmart”) and Rite Aid were approximately
17%, 10% and 9% of total accounts receivable. We also have agreements with group purchasing organizations
(“GPOs”), each of which functions as a purchasing agent on behalf of member hospitals, pharmacies and other
healthcare providers. The accounts receivables balances are with individual members of the GPOs. 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 6% of our purchases in 2012. 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 2012 accounted for approximately 45% of our purchases.
A significant portion of our distribution arrangements with the manufacturers provides us compensation based
on a percentage of our purchases. In addition, we have certain distribution arrangements with pharmaceutical
manufacturers that include an inflation-based compensation component whereby we benefit when the manufacturers
increase their prices as we sell our existing inventory 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 have a material adverse impact on our gross profit margin.
Research and Development: Our development expenditures primarily consist of our investment in software
held for sale. We spent $487 million, $471 million and $451 million for development activities in 2012, 2011 and
2010 and of these amounts, we capitalized 10%, 14% and 17%. 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 that 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, “Significant Accounting Policies,” to the consolidated financial statements appearing in this Annual Report
on Form 10-K.
Environmental Regulation: Our operations are subject to regulations under various federal, state, local and
foreign laws concerning the environment, including laws addressing the discharge of pollutants into the air and
water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We
could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party damage or
personal injury claims, if in the future we were to violate or become liable under environmental laws.
We are committed to maintaining compliance with all environmental laws applicable to our operations,
products and services and to reducing our environmental impact across all aspects of our business. We meet this
commitment through an environmental strategy and sustainability program.
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 19, “Other
Commitments and Contingent Liabilities,” to the consolidated financial statements appearing in this Annual Report
on Form 10-K.