McKesson 2015 Annual Report Download - page 26

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McKESSON CORPORATION
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.
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.
Competition may erode our profit.
In every area of healthcare distribution operations, our Distribution Solutions segment faces strong
competition, both in price and service, from international, national, regional and local full-line, short-line and
specialty wholesalers, service merchandisers, self-warehousing chains, manufacturers engaged in direct
distribution, third-party logistics companies and large payer organizations. In addition, this segment faces
competition from various other service providers and from pharmaceutical and other healthcare manufacturers as
well as other potential customers of the segment, which may from time-to-time decide to develop, for their own
internal needs, supply management capabilities that would otherwise be provided by the segment. Price, quality
of service, and in some cases, convenience to the customer are generally the principal competitive elements in
this segment.
In recent years, pharmaceutical suppliers have been subject to increasing consolidation. As a result, a small
number of very large companies control a significant share of the market. Accordingly, we depend on fewer
suppliers for our products and therefore we may be less able to negotiate price terms with suppliers. Many
healthcare organizations that purchase our products and services have also consolidated to create larger
healthcare enterprises with greater market power. If this consolidation trend continues, it could reduce the
number of market participants and give the resulting enterprises greater bargaining power, which may lead to
erosion of the prices for our products and services. In addition, when healthcare organizations combine they often
consolidate infrastructure including IT systems, which in turn may erode the diversity of our customer and
revenue base.
Our Technology Solutions segment experiences substantial competition from many firms, including other
software services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, payers,
care management organizations, hardware vendors and internet-based companies with technology applicable to
the healthcare industry. Competition varies in size from small to large companies, in geographical coverage and
in scope and breadth of products and services offered. These competitive pressures could have a material adverse
impact on our results of operations.
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 position and results of operations.
In recent years, a significant portion of our revenue growth has been with a limited number of large
customers. During 2015, sales to our ten largest customers accounted for approximately 44% of our total
consolidated revenues. Sales to our largest customer, CVS Caremark Corporation (“CVS”), accounted for
approximately 15% of our total consolidated revenues. At March 31, 2015, trade accounts receivable from our
ten largest customers were approximately 36% of total trade accounts receivable. Accounts receivable from CVS
were approximately 14% of total trade accounts receivable. As a result, our sales and credit concentration is
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