McKesson 2013 Annual Report Download - page 22

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McKESSON CORPORATION
A material reduction in purchases or the loss of a large customer or group purchasing organization, as well as substantial
defaults in payment by a large customer or group purchasing organization, could have a material adverse impact on our
financial condition, results of operations and liquidity.
In recent years, a significant portion of our revenue growth has been with a limited number of large customers. During
2013, sales to our ten largest customers accounted for approximately 51% of our total consolidated revenues. Sales to our
largest customer, CVS, accounted for approximately 17% of our total consolidated revenues. At March 31, 2013, trade
accounts receivable from our ten largest customers were approximately 44% of total trade accounts receivable. Accounts
receivable from CVS and Walmart were approximately 16% and 10% of total trade accounts receivable. As a result, our sales
and credit concentration is significant. 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, as well as
with government entities and agencies. A material default in payment, change in our customer mix, reduction in purchases, or
the loss of a large customer or GPO could have a material adverse impact on our financial condition, results of operations and
liquidity.
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, because 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.