McKesson 2013 Annual Report Download - page 17

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McKESSON CORPORATION
We are subject to legal proceedings that could have a material adverse impact on our financial position and results of operations.
From time-to-time and in the ordinary course of our business, we and certain of our subsidiaries may become involved in
various legal proceedings involving antitrust, commercial, employment, environmental, intellectual property, regulatory, tort
and other various claims. All such legal proceedings are inherently unpredictable, and the outcome can result in excessive
verdicts and/or injunctive relief that may affect how we operate our business or we may enter into settlements of claims for
monetary damages. In some cases, substantial non-economic remedies or punitive damages may be sought. For some
complaints filed against the Company, we are currently unable to estimate the amount of possible losses that might be
incurred should these legal proceedings be resolved against the Company.
The outcome of litigation and other legal matters is always uncertain and outcomes that are not justified by the evidence
or existing law can occur. The Company believes that it has valid defenses to the legal matters pending against it and is
defending itself vigorously. Nevertheless, it is possible that resolution of one or any combination of more than one legal
matter could result in a material adverse impact on our financial position or results of operations. For example, we are
involved in a number of legal proceedings described in Financial Note 22, “Other Commitments and Contingent Liabilities,”
to the accompanying consolidated financial statements that could have such an impact, including legal proceedings alleging
that we engaged in illegal conduct that caused average wholesale prices to rise for certain prescription drugs during specified
periods.
Litigation is costly, time-consuming and disruptive to normal business operations. The defense of these matters could
also result in continued diversion of our management's time and attention away from business operations, which could also
harm our business. Even if these matters are not resolved against us, the uncertainty and expense associated with unresolved
legal proceedings could harm our business and reputation. For additional information regarding certain of the legal
proceedings in which we are involved, see Financial Note 22, “Other Commitments and Contingent Liabilities,” to the
accompanying consolidated financial statements.
Changes in the United States healthcare industry and regulatory environment could have a material adverse impact on our
results of operations.
Our products and services are primarily intended to function within the structure of the healthcare financing and
reimbursement system currently being used in the United States. In recent years, the healthcare industry in the United States
has changed significantly in an effort to reduce costs. These changes have included cuts in Medicare and Medicaid
reimbursement levels, consolidation of pharmaceutical and medical-surgical supply distributors and the development of large,
sophisticated purchasing groups. We expect the healthcare industry in the United States to continue to change and for
healthcare delivery models to evolve in the future.
Changes in the healthcare industry's or our pharmaceutical suppliers' pricing, selling, inventory, distribution or supply
policies or practices could significantly reduce our revenues and net income. Due to the diverse range of healthcare supply
management and healthcare information technology products and services that we offer, such changes could have a material
adverse impact on our results of operations, while not affecting some of our competitors who offer a narrower range of
products and services.
The majority of our U.S. pharmaceutical distribution business' agreements with manufacturers are structured to ensure
that we are appropriately and predictably compensated for the services we provide; however, failure to successfully renew
these contracts in a timely and favorable manner could have a material adverse impact on our results of operations. In
addition, branded pharmaceutical price inflation can be the partial economic basis of some of our distribution business
agreements with pharmaceutical manufacturers. If the frequency or rate of branded price increases slows, it could have a
material adverse impact on our results of operations.
In addition, we distribute generic pharmaceuticals, which can be subject to both price deflation and price inflation. In
recent years, our financial results have improved from our generic drug offerings combined with an increase in the number of
generic drug formularies available in the marketplace. However, in fiscal year 2014 we anticipate the number of branded to
generics conversions to decrease as compared to recent years. Continued volatility in the availability, pricing trends or
reimbursement of these generic drugs, or significant fluctuations in the rate of increase in the number of generic drugs, could
have a material adverse impact on our results of operations.