McKesson 2010 Annual Report Download - page 16

McKESSON CORPORATION
10
Other Information about the Business
Customers: During 2010, sales to our ten largest customers accounted for approximately 53% of our total
consolidated revenues. Sales to our two largest customers, CVS Caremark Corporation (“CVS”) and Rite Aid
Corporation (“Rite Aid”), accounted for approximately 15% and 12% of our total consolidated revenues. At
March 31, 2010, accounts receivable from our ten largest customers were approximately 45% of total accounts
receivable. Accounts receivable from CVS and Rite Aid were approximately 14% and 10% of total accounts
receivable. 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 8% of our purchases in 2010. 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 2010 accounted for approximately 46% 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 branded
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 $451 million, $438 million and $420 million for development activities in 2010, 2009 and
2008 and of these amounts, we capitalized 17% for each of the last three years. 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 regulation 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 18, “Other
Commitments and Contingent Liabilities,” to the consolidated financial statements appearing in this Annual Report
on Form 10-K.
The liability for environmental remediation and other environmental costs is accrued when the Company
considers it probable and can reasonably estimate the costs. Environmental costs and accruals, including that related
to our legacy chemical distribution operations, are presently not material to our operations or financial position.
Although there is no assurance that existing or future environmental laws applicable to our operations or products
will not have a material adverse impact on our operations or financial condition, we do not currently anticipate
material capital expenditures for environmental matters. Other than the expected expenditures that may be required
in connection with our legacy chemical distribution operations, we do not anticipate making substantial capital
expenditures either for environmental issues, or to comply with environmental laws and regulations in the future.
The amount of our capital expenditures for environmental compliance was not material in 2010 and is not expected
to be material in the next year.