McKesson 2011 Annual Report Download - page 23

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McKESSON CORPORATION
17
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, 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 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, or payment of our costs could be disallowed. 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.
Our Distribution Solutions segment is dependent upon sophisticated information systems. The implementation
delay, malfunction, or failure of these systems for any extended period of time could have a material adverse
impact on our business.
We rely on sophisticated information systems in our business to obtain, rapidly process, analyze and manage
data to (1) facilitate the purchase and distribution of thousands of inventory items from numerous distribution
centers, (2) receive, process and ship orders and handle other product and services on a timely basis, (3) manage the
accurate billing and collections for thousands of customers, and (4) process payments to suppliers. If these systems
are interrupted, damaged by an unforeseen event or actions of a third party, or fail for any extended period of time,
we could have a material adverse impact on our results of operations.
We could experience losses or liability not covered by insurance.
In order to provide prompt and complete service to our major Distribution Solutions segment’s customers, we
maintain significant product inventory at certain of our distribution centers. While we seek to maintain property
insurance coverage in amounts sufficient for our business, there can be no assurance that our property insurance will
be adequate or available on acceptable terms. One or more large casualty losses caused by fire, earthquake or other
natural disaster in excess of our coverage limits could have a material adverse impact on our results of operations.