McKesson 2012 Annual Report Download - page 21

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McKESSON CORPORATION
17
We generally sell our products and services to customers on credit that is short-term in nature and unsecured.
Any adverse change in general economic conditions can adversely reduce sales to our customers, affect consumer
buying practices or cause our customers to delay or be unable to pay accounts receivable owed to us, which may in
turn materially reduce our revenue growth and cause a material decrease in our profitability and cash flow. Further,
interest rate fluctuations and changes in capital market conditions may also affect our customers’ ability to obtain
credit to finance their business under acceptable terms, which in turn may materially reduce our revenue growth and
cause a decrease in our profitability.
Contracts with the U.S. federal government and other governments and their agencies pose additional risks
relating to future funding and compliance.
Contracts with the U.S. federal government and other governments and their agencies are subject to various
uncertainties, restrictions and regulations, including oversight audits by various government authorities and profit
and cost controls. Government contracts also are exposed to uncertainties associated with funding. Contracts with
the U.S. federal government, for example, are subject to the uncertainties of Congressional funding. Governments
are typically under no obligation to maintain funding at any specific level, and funds for government programs may
even be eliminated. As a result, our government clients may terminate our contracts for convenience or decide not
to renew our contracts with little or no prior notice. The loss of such contracts could have a material adverse impact
on our results of operations.
In addition, since government contracts are subject to specific procurement regulations and a variety of other
socio-economic requirements, we must comply with such requirements. For example, for contracts with the U.S.
federal government, with certain exceptions, we must comply with the Federal Acquisition Regulation, the Truth in
Negotiations Act, and the Cost Accounting Standards. We must also comply with various other government
regulations and requirements as well as various statutes related to employment practices, environmental protection,
recordkeeping and accounting. These regulations and requirements affect how we transact business with our clients
and, in some instances, impose additional costs on our business operations. Government contracts also contain
terms that expose us to higher levels of risk and potential liability than non-government contracts.
We also are subject to government audits, investigations, and proceedings. For example, government agencies
routinely review and audit government contractors to determine whether allowable costs are in accordance with
applicable government regulations. These audits can result in adjustments to the amount of contract costs we
believe are reimbursable by the agencies and the amount of our overhead costs allocated to the agencies.
If we violate these rules or regulations, fail to comply with a contractual or other requirement or do not satisfy
an audit, a variety of penalties can be imposed by the government including disallowance of costs claimed, monetary
damages and criminal and civil penalties. In addition, any or all of our government contracts could be terminated,
we could be suspended or debarred from all government contract work. The occurrence of any of these actions
could harm our reputation and could have a material adverse impact on our results of operations.
Our future results could be materially affected by a number of public health issues whether occurring in the
United States or abroad.
Public health issues, whether occurring in the United States or abroad, could disrupt our operations, disrupt the
operations of suppliers or customers, or have a broader adverse impact on consumer spending and confidence levels
that would negatively affect our suppliers and customers. We have developed contingency plans to address
infectious disease scenarios and the potential impact on our operations, and we will continue to update these plans as
necessary. However, there can be no assurance that these plans will be effective in eliminating the negative impact
of any such diseases on the Company’s operating results. We may be required to suspend operations in some or all
of our locations, which could have a material adverse impact on our business, financial condition and results of
operations.