McKesson 2013 Annual Report Download - page 25

19
McKESSON CORPORATION
Various risks could interrupt customers' access to their data residing in our service center, exposing us to significant costs.
We provide remote hosting services that involve operating both our software and the software of third-party vendors for
our customers. The ability to access the systems and the data that we host and support on demand is critical to our customers.
Our operations and facilities are vulnerable to interruption and/or damage from a number of sources, many of which are
beyond our control, including, without limitation: (1) power loss and telecommunications failures; (2) fire, flood, hurricane
and other natural disasters; (3) software and hardware errors, failures or crashes; and (4) cyber attacks, computer viruses,
hacking and other similar disruptive problems. We attempt to mitigate these risks through various means including disaster
recovery plans, separate test systems and change controls, information security procedures, and continued development and
enhancement of our cyber security, but our precautions may not protect against all risks. If customers' access is interrupted
because of problems in the operation of our facilities, we could be exposed to significant claims, particularly if the access
interruption is associated with problems in the timely delivery of medical care. If customers' access is interrupted from failure
or breach of our operational or information security systems, or those of our third party service providers, we could suffer
reputational harm or be exposed to liabilities arising from the unauthorized and improper use or disclosure of confidential or
proprietary information. We must maintain disaster recovery and business continuity plans that rely upon third-party
providers of related services and if those vendors fail us at a time that our center is not operating correctly, we could incur a
loss of revenue and liability for failure to fulfill our contractual service commitments. Any significant instances of system
downtime could negatively affect our reputation and ability to sell our remote hosting services.
The length of our sales and implementation cycles for our Technology Solutions segment could have a material adverse
impact on our future results of operations.
Many of the solutions offered by our Technology Solutions segment have long sales and implementation cycles, which
could range from a few months to two years or more from initial contact with the customer to completion of implementation.
How and when to implement, replace, or expand an information system, or modify or add business processes, are major
decisions for healthcare organizations. Many of the solutions we provide typically require significant capital expenditures and
time commitments by the customer. Any decision by our customers to delay or cancel implementation could have a material
adverse impact on our results of operations. Furthermore, delays or failures to meet milestones established in our agreements
may result in a breach of contract, termination of the agreement, damages and/or penalties as well as a reduction in our
margins or a delay in our ability to recognize revenue.
We may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.
We are required under U.S. generally accepted accounting principles (“GAAP”) to test our goodwill for impairment,
annually or more frequently if indicators for potential impairment exist. Indicators that are considered include significant
changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative
industry, or economic trends or a significant decline in the Company's stock price and/or market capitalization for a sustained
period of time. In addition, we periodically review our intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances
indicating that the carrying value of our intangible assets may not be recoverable include slower growth rates and the loss of a
significant customer. We may be required to record a significant charge to earnings in our consolidated financial statements
during the period in which any impairment of our goodwill or intangible assets is determined. This could have a material
adverse impact on our results of operations. There are inherent uncertainties in management's estimates, judgments and
assumptions used in assessing recoverability of goodwill and intangible assets. Any changes in key assumptions, including
failure to meet business plans, a further deterioration in the market or other unanticipated events and circumstances, may
affect the accuracy or validity of such estimates and could potentially result in an impairment charge.