McKesson 2015 Annual Report Download - page 27

McKESSON CORPORATION
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 position
and results of operations.
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 foreign and domestic government entities and their agencies pose additional risks relating to
future funding and compliance.
Contracts with foreign and domestic government entities and their agencies are subject to various
uncertainties, restrictions and regulations, including oversight audits by various government authorities.
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 a 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 or 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.
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