McKesson 2014 Annual Report Download - page 12

McKESSON CORPORATION
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Patents, Trademarks, Copyrights and Licenses
McKesson and its subsidiaries hold patents, copyrights, trademarks and trade secrets related to McKesson products and
services. We pursue patent protection for our innovation, and obtain copyrights covering our original works of authorship, when
such protection is advantageous. Through these efforts, we have developed a portfolio of patents and copyrights in the U.S. and
worldwide. In addition, we have registered or applied to register certain trademarks and service marks in the U.S. and in foreign
countries. Generally, our employees are required to execute agreements that prohibit the disclosure of confidential information
and establish an obligation to assign to McKesson intellectual property that they create during their employment.
We believe that, in the aggregate, McKesson’s confidential information, patents, copyrights, and trademarks are important to
its operations and market position, but we do not consider any of our businesses to be dependent upon any one patent, copyright,
trademark, or trade secret, or any family or families of the same. We cannot guarantee that our intellectual property portfolio will
be sufficient to deter misappropriation, theft, or misuse of our technology, nor that we can successfully enjoin infringers. We
periodically receive notices alleging that our products or services infringe on third party patents and other intellectual property
rights. These claims may result in McKesson entering settlement agreements, paying damages, discontinuing use or sale of accused
products, or ceasing other activities. While the outcome of any litigation or dispute is inherently uncertain, we do not believe that
the resolution of any of these infringement notices would have a material adverse impact on our results of operation.
We hold inbound licenses for certain intellectual property that is used internally, and in some cases, utilized in McKesson’s
products or services. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products
and services, we believe, based upon past experience and industry practice, such licenses generally can be obtained on commercially
reasonable terms. We believe our operations and products and services are not materially dependent on any single license or other
agreement with any third party.
Other Information about the Business
Customers: During 2014, sales to our ten largest customers accounted for approximately 48% of our total consolidated
revenues. Sales to our largest customer, CVS Caremark Corporation ("CVS"), accounted for approximately 16% of our total
consolidated revenues. At March 31, 2014, trade accounts receivable from our ten largest customers were approximately 32% of
total trade accounts receivable. Accounts receivable from CVS were approximately 12% of total trade accounts receivable. 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. The accounts receivables balances are with individual members
of the GPOs. Substantially all of these revenues and accounts receivable are included in our Distribution Solutions segment.
Suppliers: We obtain pharmaceutical and other products from manufacturers, none of which accounted for more than
approximately 6% of our purchases in 2014. The loss of a supplier could adversely affect our business if alternate sources of
supply are unavailable. We believe that our relationships with our suppliers, on the whole, are good. The ten largest suppliers in
2014 accounted for approximately 46% of our purchases.
A significant portion of our distribution arrangements with the manufacturers provides us compensation based on a percentage
of our purchases. In addition, we have certain distribution arrangements with pharmaceutical manufacturers that include an
inflation-based compensation component whereby we benefit when the manufacturers increase their prices as we sell our existing
inventory at the new higher prices. For these manufacturers, a reduction in the frequency and magnitude of price increases, as
well as restrictions in the amount of inventory available to us, could have a material adverse impact on our gross profit margin.
Research and Development: Research and development costs were $456 million, $433 million and $402 million during 2014,
2013 and 2012. These costs do not include $40 million, $49 million and $47 million of costs capitalized for software held for sale
during 2014, 2013 and 2012. Development expenditures are primarily incurred by our Technology Solutions segment. Our
Technology Solutions segment’s product development efforts apply computer technology and installation methodologies to specific
information processing needs of hospitals and other customers. We believe that a substantial and sustained commitment to such
expenditures is important to the long-term success of this business. Additional information regarding our development activities
is included in Financial Note 1, “Significant Accounting Policies,” to the consolidated financial statements appearing in this Annual
Report on Form 10-K.
Environmental Regulation: Our operations are subject to regulations under various federal, state, local and foreign laws
concerning the environment, including laws addressing the discharge of pollutants into the air and water, the management and
disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We could incur substantial costs, including
cleanup costs, fines and civil or criminal sanctions and third-party damage or personal injury claims, if in the future we were to
violate or become liable under environmental laws.