McKesson 2013 Annual Report Download - page 26

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McKESSON CORPORATION
Our foreign operations may subject us to a number of operating, economic, political and regulatory risks that may have a
material adverse impact on our financial condition and results of operations.
We have operations based in, and we source and contract manufacture pharmaceutical and medical-surgical products in,
a number of foreign countries. In the future, we look to continue to grow our foreign operations both organically and through
acquisitions and investments; however, increasing our foreign operations carries additional risks. Operations outside of the
United States may be affected by changes in trade protection laws, policies and measures and other regulatory requirements
affecting trade and investment; unexpected changes in regulatory requirements for software, social, political, labor or
economic conditions in a specific country or region; import/export regulations in both the United States and foreign countries
and difficulties in staffing and managing foreign operations. Political changes and natural disasters, some of which may be
disruptive, can interfere with our supply chain, our customers and all of our activities in a particular location. We may also be
affected by potentially adverse tax consequences and difficulties associated with repatriating cash generated or held abroad.
Additionally, foreign operations expose us to foreign currency fluctuations that could adversely impact our results of
operations based on the movements of the applicable foreign currency exchange rates in relation to the U.S. dollar.
Foreign operations are also subject to risks of violations of laws prohibiting improper payments and bribery, including
the U.S. Foreign Corrupt Practices Act and similar regulations in foreign jurisdictions. Failure to comply with these laws
could subject us to civil and criminal penalties that could have a material adverse impact on our financial condition and
results of operations.
We also may experience difficulties and delays inherent in sourcing products and contract manufacturing from foreign
countries, including but not limited to: (1) difficulties in complying with the requirements of applicable federal, state and
local governmental authorities in the United States and of foreign regulatory authorities; (2) inability to increase production
capacity commensurate with demand or the failure to predict market demand; (3) other manufacturing or distribution
problems including changes in types of products produced, limits to manufacturing capacity due to regulatory requirements,
physical limitations, or scarce or inadequate resources that could impact continuous supply; and (4) damage to our reputation
due to real or perceived quality issues. Manufacturing difficulties could result in production shutdowns, product shortages and
other similar delays in product manufacturing that could have a material adverse impact on our financial condition and results
of operations.
Tax legislation initiatives or challenges to our tax positions could have a material adverse impact on our results of
operations.
We are a large multinational corporation with operations in the United States and international jurisdictions. As such, we
are subject to the tax laws and regulations of the United States federal, state and local governments and of many international
jurisdictions. From time-to-time, legislation may be enacted that could adversely affect our tax positions. There can be no
assurance that our effective tax rate and the resulting cash flow will not be adversely affected by these changes in legislation.
For example, if legislation is passed to repeal the LIFO (last-in, first-out) method of inventory accounting for income tax
purposes, it would adversely impact our cash flow, and if legislation is passed to change the current U.S. taxation treatment of
income from foreign operations, it may adversely impact our income tax expense. The tax laws and regulations of the various
countries where we have major operations are extremely complex and subject to varying interpretations. Although we believe
that our historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be
no assurance that these tax positions will not be challenged by relevant tax authorities or that we would be successful in any
such challenge.
Our business could be hindered if we are unable to complete and integrate acquisitions successfully.
An element of our strategy is to identify, pursue and consummate acquisitions that either expand or complement our
business. Since 2011, we have completed approximately $5.8 billion of business acquisitions. Integration of acquisitions
involves a number of significant risks, including the diversion of management's attention to the assimilation of the operations
of businesses we have acquired; difficulties in the integration of operations and systems; the realization of potential operating
synergies; the assimilation and retention of the personnel of the acquired companies; accounting, regulatory or compliance
issues that could arise, including internal control over financial reporting; challenges in retaining the customers, including
physician affiliates, of the combined businesses. Further, acquisitions may have a material adverse impact on our operating
results if unanticipated expenses or charges to earnings were to occur, including unanticipated depreciation and amortization
expenses over the useful lives of certain assets acquired, as well as costs related to potential impairment charges, assumed
litigation and unknown liabilities. In addition, we may potentially require additional financing in order to fund future
acquisitions, which may or may not be attainable and is subject to potential volatility in the credit markets. If we are unable to
successfully complete and integrate strategic acquisitions in a timely manner, our business and our growth strategies could be
negatively affected.