McKesson 2015 Annual Report Download - page 73

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Marketable Securities Available-for-Sale: We carry our marketable securities, which are available-for-sale,
at fair value and they are included in prepaid expenses and other in the consolidated balance sheets. The
unrealized gains and losses, net of the related tax effect, computed in marking these securities to market have
been reported within stockholders’ equity. At March 31, 2015 and 2014, marketable securities were not material.
In determining whether an other-than-temporary decline in market value has occurred, we consider the
duration that, and extent to which, the fair value of the investment is below its cost, the financial condition and
future prospects of the issuer or underlying collateral of a security, and our intent and ability to retain the security
in order to allow for an anticipated recovery in fair value. Other-than-temporary declines in fair value from
amortized cost for available-for-sale equity securities that we intend to sell or would more likely than not be
required to sell before the expected recovery of the amortized cost basis are charged to other income, net, in the
period in which the loss occurs.
Concentrations of Credit Risk and Receivables: Our trade receivables are subject to a concentration of credit
risk with customers primarily in our Distribution Solutions segment. 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 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. The accounts receivables balances are with individual members of the
GPOs. A default in payment, a material reduction in purchases from these or any other large customers, or the
loss of a large customer or customer groups could have a material adverse impact on our financial condition,
results of operations and liquidity. In addition, trade receivables are subject to a concentration of credit risk with
customers in the institutional, retail and healthcare provider sectors, which can be affected by a downturn in the
economy and changes in reimbursement policies. This credit risk is mitigated by the size and diversity of the
customer base as well as its geographic dispersion. We estimate the receivables for which we do not expect full
collection based on historical collection rates and ongoing evaluations of the creditworthiness of our customers.
An allowance is recorded in our consolidated financial statements for these amounts.
Financing Receivables: We assess and monitor credit risk associated with financing receivables, namely
lease and notes receivables, through regular review of our collection experience in determining our allowance for
loan losses. On an ongoing basis, we also evaluate credit quality of our financing receivables utilizing aging of
receivables and write-offs, as well as considering existing economic conditions, to determine if an allowance is
necessary. Financing receivables are derecognized if legal title to them has been transferred and all related risks
and rewards incidental to ownership have passed to the buyer. As of March 31, 2015 and 2014, financing
receivables and the related allowance were not material to our consolidated financial statements.
Inventories: We report inventories at the lower of cost or market (“LCM”). Inventories for our Distribution
Solutions segment consist of merchandise held for resale. For our Distribution Solutions segment, the majority of
the cost of domestic inventories is determined using the last-in, first-out (“LIFO”) method. The majority of the
cost of inventories held in foreign locations is based on weighted average purchase prices using the first-in, first-
out method. Technology Solutions segment inventories consist of computer hardware with cost generally
determined by the standard cost method, which approximates average cost. Rebates, cash discounts, and other
incentives received from vendors are accounted for as a reduction in the cost of inventory and are recognized
when the inventory is sold.
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