I am working on a group project and I am working on assignment 5. I have attached the assignment and the financial report I need to work off of. I would like some one to help me with this. Please let me know if there is any other questions you may have.

Expanding Globally For Better Health Annual Report Fiscal Year Ended March 31, 2015 Improving the Global Business of Healthcare Improving the Global Business of Healthcare At McKesson, we know thatthat better business health and better patient health go hand At McKesson, we know better business health and better patient health go hand in hand. Our Our supply chain and information technology solutions help healthcare in hand. supply chain and information technology solutions help healthcare businesses run better, improve patient carecare and integratecarecare experienceall for businesses run better, improve patient and integrate the the experienceall for better health. United by our strong company values, our global team of nearly 77,000 better health. United by our strong company values, our global team of nearly 77,000 associates is working to create a healthier future for patients worldwide. associates is working to create a healthier future for patients worldwide. 28%% appreciation 28 appreciation in stock price; in stock price; >$ 11 to >$ added added 11BB to Market Capitalization Market Capitalization 77KK 77 Nearly Nearly employees employees worldwide worldwide Market Leadership Market Leadership Global pharmaceutical Global pharmaceutical distribution distribution U.S. U.S. Medical-Surgical Medical-Surgical alternate site distribution alternate site distribution U.S. U.S. Specialty distribution Specialty distribution for community for community oncology oncology U.S. U.S. pharmacy pharmacy management management systems systems 182 182 year history year history of serving of serving customers customers Deliver Deliver 1/3 1/3 of all prescription of all prescription medications in in medications North America North America More than More than 12,000 12,000 owned and owned and banner banner pharmacies pharmacies $3.1BB $3.1 in operating in operating cash ow cash ow 3.3BB 3.3 nancial transactions nancial transactions processed annually processed annually Operations in in Operations more than more than 20 20 countries countries 99.98%% 99.98 Order Order Accuracy Accuracy Dear Shareholders: Revenues $179B I am pleased to report that McKesson completed a strong Fiscal 2015 as we helped our customers improve their performance in the name of better patient care. We extended our steady track record of top-line growth, recording revenues of $179 billion compared to $137.4 billion in Fiscal 2014. Our Fiscal 2015 Adjusted EPS of $11.11* represents a 29% increase over last year, contributing to a 17% compound annual growth rate since Fiscal 2009. For 182 years, McKesson has been a leader in healthcare services. And while we are very proud of our history, we could not be more excited about the promise of our future. Our business model, our strategy and our performance position us for continued growth, increased scale, and deeper relationships with our customers and our supplier and manufacturer partners. In Business for Better Health Adjusted EPS * 29% increase Compound Annual Growth Rate 17% Since Fiscal 2009 As a company, we believe that better business health and better patient health are inextricably linked. To achieve one means to succeed in the other. And we know that the only way to accomplish both is to join efforts across the industry to work together with all parties to deliver better, safer care. McKesson pursues this purpose across three broad dimensions. First, we focus on business health. Through our distribution and technology solutions, we help our customers improve the efficiency and effectiveness of their healthcare operations, because a hospital, clinic or pharmacy that runs smoothly can provide patients with more consistent, convenient and cost-effective services. Second, we focus on care. The science of medicine and the art of care have never been more advanced or complex. By truly understanding the process of care delivery across virtually every healthcare setting, we are able to offer solutions that give providers access to the right information and the right medication or medical tools at the right time, so they can provide the clinical care, focus and support that patients need. Third, we focus on connectivity. The sheer size and scale of healthcare demands new ways to improve the flow of information among all parts of the healthcare ecosystem. From the manufacturer, to the hospital, to the pharmacy, to the payer, and ultimately to the patient, better access to and management of information enables high-quality care at a lower cost. Our leadership role in the CommonWell Health Alliance, a not-for-profit association of healthcare companies working to create universal access to healthcare data, is just the latest example of our pioneering work to improve connectivity across every setting of care. Clearly, the business of healthcare is evolving at an unprecedented pace. In the face of so much change, our customers are looking to McKesson more than ever to provide the resources, scale and expertise that will position them for continued health and vitality. Fiscal 2015: Expanding Our Scale and Strength Against this backdrop, we drove progress in several key areas over the past year that position McKesson as a partner of choice for our customers and an investment of choice for our shareholders. Increasing Our Global Scale At the top of the list, achieving operational control of Celesio was a major step in our strategy to expand the scale and strength of our global supply chain. In Fiscal 2014, we acquired Celesio, a German company that provides logistics and services to the pharmaceutical and healthcare sectors primarily in Europe. Like McKesson, Celesio has a long, successful history in pharmaceutical distribution and a customer-first approach. Together, we are one of the *See Appendix A to this 2015 Annual Report for a reconciliation of earnings per share as reported under U.S. generally accepted accounting principles (\"GAAP\") to adjusted earnings per share. Non-GAAP measures such as adjusted earnings per share and adjusted operating profit should be viewed in addition to, and not as an alternative for, financial results prepared in accordance with GAAP. largest pharmaceutical wholesalers and providers of logistics and services in the healthcare sector worldwide, with purchasing scale that drives value for our customers and shareholders. At the same time, McKesson and Celesio have much to offer each other beyond scale advantages. McKesson has best-in-class operational practices for supply chain management that will help strengthen Celesio's performance and profitability. Celesio, in turn, offers deep experience in retail that will help McKesson provide even greater value to our retail pharmacy partners in North America. With the addition of our Lloyd's pharmacy brand in Europe, McKesson is now one of the largest pharmacy retailers in Europe. We estimate annual synergies of $275-$325 million of our combined operations by the end of Fiscal 2019, and we are well on track to achieve that goal through a combination of procurement and operational efficiencies. Helping Our Retail Pharmacy Partners Thrive We are a strong partner to our retail and independent pharmacy customers, and our business strategy is focused on helping them thrive. We value our partnerships with independent pharmacies and are always looking for new ways to deepen our relationships. In Fiscal 2015, we added more than 500 new Health Mart stores and increased our presence in the Canadian market with the acquisition of Remedy, that nation's fastest-growing independent pharmacy network. Enhancing Manufacturer Relationships Our focus is on our customers and the patients they serve, but we simply could not be as successful as we are today without the long-term and healthy relationships we have with our manufacturing partners. Our supplier partners play a key role in our ongoing growth, and we work hard to add value to their business models. For example, in the specialty market, we have taken advantage of opportunities to expand value-added services to manufacturers, including offering multiple distribution channels, a distinctive go-to market approach and clinical trial access to our network of oncology physicians. Leading in Specialty The specialty market continues to expand, and McKesson is proud to be a leader in the distribution of specialty drugs to physicians and other healthcare providers throughout the U.S. In addition to distribution services, our Specialty business supports our manufacturing partners with additional offerings, including comprehensive programs for clinical trial research and commercialization. This business delivered excellent results with growth across its broad portfolio of solutions. In Fiscal 2015, we continued to add physicians to our US Oncology Network, one of the nation's largest networks of integrated, community-based oncology practices dedicated to advancing high-quality, evidence-based cancer care. An important development in the coming year will be the emergence of biosimilars in the United States. McKesson is well positioned to support our customers and manufacturing partners as this new category is introduced in the U.S. market. Extending Medical-Surgical Market Leadership In our Medical-Surgical business, we continued to make great progress on the integration of PSS World Medical. In Fiscal 2015, our team did a tremendous amount of work to harmonize our distribution network, product portfolio and general operations. We are pleased to have successfully increased our market share while expanding the support we provide to our Medical-Surgical customers. Focusing on Innovation and Technology Innovative technology is playing an increasingly important role in healthcare. The shift to value-based reimbursement, combined with increasing consumerism and the proliferation of alternative, technology-enabled caredelivery services, is reshaping the landscape for healthcare information technology. In response to these emerging needs, our Technology Solutions businesses are focused on several areas we know are crucial to our customers' future success: connectivity, imaging solutions, payer and financial solutions, and provider revenue and risk management. These are the areas where we are best positioned to help our customers and business partners navigate the changing landscape of healthcare to emerge as stronger, more efficient organizations. Our Greatest Advantage: Our People Looking toward the future, the challenges and opportunities may be different from the ones we have previously faced, but the recipe for our success remains unchanged: by helping our customers succeed, so do we. We have an organization filled with people of diverse backgrounds who are committed to this philosophy. They work at McKesson because they want to make a difference. They want to improve, extend and save lives by helping doctors, pharmacies, hospitals and others across healthcare perform at the highest level. This commitment starts at the top, with our executive leadership team. We have an exceptionally talented, experienced and strategic team of leaders with a strong bench of talent behind them. We welcomed two new members to our Executive Committee this year: Lori Schechter, executive vice president, general counsel and chief compliance officer, and Bansi Nagji, executive vice president for corporate strategy and business development. Both of these talented executives bring tremendous experience and a history of accomplishment to their new roles. We also added three new directors in Fiscal 2015, and their strong business and healthcare backgrounds add great perspectives and experience to our Board. Our management team has historically mapped out an ambitious strategy for growth and then executed against that strategy to deliver the value our customers and shareholders expect of us. There are few companies in our industry that can match our consistent record of growth and performance. From our strategy to our proven and experienced leadership team and our remarkable performance, I think you will agree that the future of our company is very bright. We stand out as a business dedicated to an important mission and guided by a deeply held value system. We are humble, we learn from our failures and we are grateful for our success. For nearly two centuries, we have been creating a healthier future for our customers and their patients. As one of the largest pharmaceutical wholesalers and providers of healthcare services in the world, we are excited by the opportunities that lie ahead for our company, our customers and our investors. On behalf of the entire organization, thank you for your commitment to McKesson. John H. Hammergren Chairman of the Board, President and Chief Executive Officer McKesson Corporation UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2015 OR ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-13252 McKESSON CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3207296 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One Post Street, San Francisco, California 94104 (Address of principal executive offices) (Zip Code) (415) 983-8300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which registered) Common stock, $0.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ' Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ' No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ' Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ' Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer ' Non-accelerated filer ' (Do not check if a smaller reporting company) Smaller reporting company ' Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ' No The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant's most recently completed second fiscal quarter, September 30, 2014, was approximately $45.0 billion. Number of shares of common stock outstanding on April 30, 2015: 231,553,531 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. McKESSON CORPORATION TABLE OF CONTENTS Item Page PART I 1 Business 3 1A Risk Factors 12 1B Unresolved Staff Comments 28 2 Properties 28 3 Legal Proceedings 28 4 Mine Safety Disclosures 28 Executive Officers of the Registrant 29 PART II 5 Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30 6 Selected Financial Data 32 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 34 7A Quantitative and Qualitative Disclosures About Market Risk 56 8 Financial Statements and Supplementary Data 58 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 122 9A Controls and Procedures 122 9B Other Information 122 PART III 10 Directors, Executive Officers and Corporate Governance 123 11 Executive Compensation 123 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 123 13 Certain Relationships and Related Transactions and Director Independence 125 14 Principal Accounting Fees and Services 125 PART IV 15 Exhibits and Financial Statement Schedule Signatures 126 127 McKESSON CORPORATION PART I Item 1. Business. General McKesson Corporation (\"McKesson,\" the \"Company,\" the \"Registrant\" or \"we\" and other similar pronouns), currently ranked 15th on the Fortune 500, delivers pharmaceuticals, medical supplies and healthcare information technology that make healthcare safer while reducing costs. The Company's fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company's fiscal year. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the \"Exchange Act,\") are available free of charge on our website (www.mckesson.com under the \"Investors Financial Information SEC Filings\" caption) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (\"SEC\" or the \"Commission\"). The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this report, unless expressly noted otherwise. The public may also read or copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The address of the website is www.sec.gov. Business Segments We operate in two segments. The McKesson Distribution Solutions segment distributes ethical and proprietary drugs and equipment and health and beauty care products throughout North America and internationally. This segment includes our International pharmaceutical distribution and services business which reflects the results of operations of Celesio AG (\"Celesio\"), which we acquired in February 2014. Celesio supplies pharmaceuticals and other healthcare-related products through its pharmaceutical wholesale business and retail pharmacies. The Distribution Solutions segment provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, and practice management, technology, clinical support and business solutions to oncology and other specialty practices operating in the community setting. It also provides medical-surgical supply distribution, equipment, logistics and other services to healthcare providers through a network of distribution centers within the U.S. In addition, this segment sells financial, operational and clinical solutions for pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing and other services. The Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. Net revenues for our segments for the last three years were as follows: (Dollars in billions) Years Ended March 31, 2014 2015 Distribution Solutions $176.0 Technology Solutions 3.1 Total $179.1 3 98% 2 100% $134.1 3.3 $137.4 98% 2 100% 2013 $119.0 3.2 $122.2 97% 3 100% McKESSON CORPORATION Distribution Solutions Segment McKesson Distribution Solutions consists of the following businesses: North America pharmaceutical distribution and services, International pharmaceutical distribution and services and Medical Surgical distribution and services. North America pharmaceutical distribution and services Our North America pharmaceutical distribution and services business is comprised of the following business units: U.S. Pharmaceutical Distribution, McKesson Specialty Health, McKesson Canada, and McKesson Pharmacy Systems and Automation. U.S. Pharmaceutical Distribution: This business supplies pharmaceuticals and/or other healthcare-related products to customers throughout the United States in three primary customer channels: (1) retail national accounts (including national and regional chains, food/drug combinations, mail order pharmacies and mass merchandisers); (2) independent retail pharmacies; and (3) institutional healthcare providers (including hospitals, health systems, integrated delivery networks, clinics and alternate site providers). This business also provides solutions and services to pharmaceutical manufacturers. This business sources materials and products from a wide-array of different suppliers, including certain generic pharmaceutical drugs produced through a contractmanufacturing program. Our U.S. pharmaceutical distribution business operates and serves thousands of customer locations through a network of 29 distribution centers, as well as a primary redistribution center, a strategic redistribution center and two repackaging facilities, serving all 50 states and Puerto Rico. We invest in technology and other systems at all of our distribution centers to enhance safety and reliability and provide the best product availability for our customers. For example, in most of our distribution centers we use Acumax Plus, an award-winning technology that integrates and tracks all internal inventory-related functions such as receiving, put-away and order fulfillment. Acumax Plus uses bar code technology, wrist-mounted computer hardware and radio frequency signals to provide customers with real-time product availability and industry-leading order quality and fulfillment in excess of 99.9% adjusted accuracy. In addition, we offer Mobile ManagerSM, which integrates portable handheld technology with Acumax Plus to give customers complete ordering and inventory control. We also offer McKesson ConnectSM, an internet-based ordering system that provides item lookup and real-time inventory availability as well as ordering, purchasing, third-party reconciliation and account management functionality. Together, these features help ensure customers have the right products at the right time for their facilities and patients. To maximize distribution efficiency and effectiveness, we follow the Six Sigma methodology an analytical approach that emphasizes setting high-quality objectives, collecting data and analyzing results to a fine degree in order to improve processes, reduce costs and minimize errors. We continue to implement information systems to help achieve greater consistency and accuracy both internally and for our customers. The major customer groups of our U.S. Pharmaceutical Distribution business can be categorized as retail national accounts, institutional healthcare providers and independent retail pharmacies. Retail National Accounts Business solutions that help national account customers increase revenues and profitability. Solutions include: Central FillSM Prescription refill service that enables pharmacies to more quickly refill prescriptions remotely, more accurately and at a lower cost, while reducing inventory levels and improving customer service. 4 McKESSON CORPORATION Redistribution Centers Two facilities totaling over 750,000 square feet that offer access to inventory for single source warehouse purchasing, including pharmaceuticals and biologics. These distribution centers also provide the foundation for a two-tiered distribution network that supports best-in-class direct store delivery. McKesson SynerGx Generic pharmaceutical purchasing program and inventory management that helps pharmacies maximize their cost savings with a broad selection of generic drugs, low pricing and one-stop shopping. EnterpriseRx A Software as a Service (SaaS) pharmacy management system, that allows large retail chain, health system and retail independent pharmacies to meet demand for prescriptions while maximizing profits and optimizing operations. RxPakSM Bulk-to-bottle repackaging service that leverages our purchasing scale and supplier relationships to provide pharmaceuticals at reduced prices, help increase inventory turns and reduce working capital investment. Inventory Management An integrated solution comprising forecasting software and automated replenishment technologies that reduce inventory-carrying costs. ExpressRx Track Pharmacy automation solution featuring state-of-the-art robotics, upgraded imaging and expanded vial capabilities, and industry-leading speed and accuracy in a radically small footprint. Supplylogix Develops and delivers practical supply chain intelligence solutions for pharmacy and related businesses and services a wide array of healthcare providers nationwide. Institutional Healthcare Providers Electronic ordering/purchasing and supply chain management systems that help customers improve financial performance, increase operational efficiencies and deliver better patient care. Solutions include: Fulfill-RxSM Ordering and inventory management system that empowers hospitals to optimize the often complicated and disjointed processes related to unit-based cabinet replenishment and inventory management. Asset Management Award-winning inventory optimization and purchasing management program that helps institutional providers lower costs while ensuring product availability. SKY Packaging Blister-format packaging containing the most widely prescribed dosages and strengths in generic oral-solid medications. SKY Packaging enables acute care, long-term care and institutional pharmacies to provide cost-effective, uniform packaging. McKesson Plasma and BioLogics A full portfolio of plasma-derivatives and biologic products. McKesson OneStop Generics Generic pharmaceutical purchasing program that helps pharmacies maximize their cost savings with a broad selection of generic drugs, low pricing and one-stop shopping. McKesson 340B Solution Suite and Macro Helix Solutions that help providers manage, track and report on medication replenishment associated with the federal 340B Drug Pricing Program. Independent Retail Pharmacies Solutions for managed care contracting, branding and advertising, merchandising, purchasing, operational efficiency and automation that help independent pharmacists focus on patient care while improving profitability. Solutions include: Health Mart Health Mart is a national network of more than 3,500 independently-owned pharmacies and is one of the industry's most comprehensive pharmacy franchise programs. 5 McKESSON CORPORATION Health Mart provides franchisees support for managed care contracting, branding and local marketing solutions, the Health Mart private label line of products, merchandising solutions and programs for enhanced patient support. AccessHealth Comprehensive managed care and reconciliation assistance services that help independent pharmacies save time, access competitive reimbursement rates and improve cash flow. McKesson Reimbursement AdvantageSM (\"MRA\") MRA is one of the industry's most comprehensive reimbursement optimization packages, comprising financial services (automated claim resubmission), analytic services and customer care. McKesson OneStop Generics described above. EnterpriseRx described above. Sunmark Complete line of more than 700 products that provide retail independent pharmacies with value-priced alternatives to national brands. FrontEdge Strategic planning, merchandising and price maintenance program that helps independent pharmacies maximize store profitability. McKesson Sponsored Clinical Services (SCS) Network Access to patient-support services that allow pharmacists to earn service fees and develop stronger patient relationships. McKesson Specialty Health: This business provides solutions for oncology and other specialty practices operating in communities across the country, as well as for pharmaceutical and biotech suppliers who manufacture specialty drugs and vaccines, payers and hospitals. Through expertise in specialty drug distribution, commercialization, revenue cycle and practice management and reimbursement support, McKesson Specialty Health seeks to empower the community patient care delivery system and facilitates collaboration among community healthcare providers, drug manufacturers and payers. We provide direct-to-physician specialty distribution services, ensuring supply chain safety and delivery of specialty drugs in manufacturer recommended conditions. Third party logistics, or 3PL, are offered primarily for vaccine distribution, including our exclusive distributor relationship in the Centers for Disease Control and Prevention's (CDC) Vaccines for Children program. When classifying a pharmaceutical product or service as \"specialty,\" we consider the following factors: high cost; diseases requiring complex treatment regimens such as cancer and rheumatoid arthritis; special handling, storage and delivery requirements; and, in some cases, exclusive distribution arrangements. This business also provides practice management and other consulting services to healthcare providers, pharmaceutical manufacturers and third party payers supporting the clinical research and distribution of specialty pharmaceutical products and services. Our use of the term \"specialty\" to define a portion of our distribution business may not be comparable to that used by other industry participants, including our competitors. We also offer our industry leading iKnowMedSM and iKnowMed Generation 2 Electronic Health Record, Lynx integrated technologies, and clinical and practice management tools, all of which help community practices achieve better business health-improving inventory management and practice workflow and reimbursement processes, as well as delivering business efficiencies and clinical-decision support. McKesson Specialty Health works with manufacturers across all phases of the product development and commercialization lifecycle, including clinical research, to optimize delivery of complex medication to patients. Through custom distribution and safety programs, we help support appropriate product utilization, as well as the development and management of Risk Evaluation Mitigation Strategies reimbursement, healthcare informatics and patient access programs, and we enable manufacturers to deliver cost effective patient access to needed therapies. McKesson Specialty Health supports The US Oncology Network and US Oncology Research. The US Oncology Network is one of the nation's largest networks of community-based oncology physicians dedicated to advancing highquality, evidence-based cancer care. US Oncology Research is one of the nation's largest research networks, specializing in Phase I Phase IV oncology clinical trials. 6 McKESSON CORPORATION McKesson Canada: McKesson Canada is one of the largest pharmaceutical distributors in Canada. McKesson Canada, through its network of 16 distribution centers, provides logistics and distribution for more than 900 manufacturers delivering their products to retail pharmacies, hospitals, long-term care centers, clinics and institutions throughout Canada. Beyond pharmaceutical distribution, logistics and order fulfillment, McKesson Canada provides automation solutions to its retail and hospital customers, dispensing millions of doses each year. McKesson Canada also provides health information exchange solutions that streamline clinical and administrative communication and retail banner services that help independent pharmacists compete and grow through innovative services and operation support. In partnership with other McKesson businesses, McKesson Canada provides a full range of services to Canadian manufacturers and healthcare providers, contributing to the quality and safety of care for patients. McKesson Pharmacy Systems and Automation: This business supplies integrated pharmacy management systems, automated dispensing systems and related services to retail, outpatient, central fill, specialty and mail order pharmacies. Its primary approach is to provide the customer with a pharmacy management system that best suits the particular needs of their business operation. This objective is achieved by offering three pharmacy management products: EnterpriseRx, an industry-leading, Software as a Service or SaaS-based management system that intelligently integrates all workflow and communication processes within the pharmacy environment; Pharmaserv, a fully integrated, server-based pharmacy management system that gives the customer complete control of their pharmacy data; and PharmacyRx, a cost-effective, SaaS-based pharmacy management system that can be installed quickly and makes processing prescriptions fast and easy. These offerings allow large retail chain, hospital outpatient pharmacies and small and independent pharmacies to meet the high demand for prescriptions while maximizing profits and optimizing operations. International pharmaceutical distribution and services Our international pharmaceutical distribution and services business provides logistics and services to the pharmaceutical and healthcare sectors primarily in Europe. The pharmaceutical wholesale business supplies pharmaceuticals and other healthcare-related products generally to retail pharmacies and institutional customers. Its wholesale network consisting of approximately 130 branches delivers to over 65,000 pharmacies daily in ten European countries. This business functions as a vital link between manufacturers and pharmacies in supplying pharmaceuticals to patients, and generally procures the pharmaceuticals approved in each country as well as other products sold in pharmacies directly from the manufacturers. Pharmaceutical and other healthcare-related products are stored at regional wholesale branches with the support of its efficient warehousing management system. With a refined distribution system, this business strives to ensure rapid and reliable delivery directly to its pharmacy customers. The retail pharmacy business serves patients and consumers in six European countries directly through over 2,100 of its own pharmacies and almost 4,300 participant pharmacies operating under brand partnership arrangements. The retail business provides traditional prescription pharmaceuticals, non-prescription products and medical services and operates under the Lloyds Pharmacy brand in the United Kingdom, which accounted for approximately 68% of the total volume of the retail pharmacy business for the year ended March 31, 2015. In 2015, we committed to a plan to sell our Brazilian pharmaceutical distribution business, which we acquired through our February 2014 acquisition of Celesio. Refer to Financial Note 4, \"Discontinued Operations\" to the consolidated financial statements appearing in this Annual Report on Form 10-K. Medical-Surgical distribution and services This business provides medical-surgical supply distribution, equipment, logistics and other services to healthcare providers including physicians' offices, surgery centers, extended care facilities, homecare and occupational health sites through a network of distribution centers within the U.S. This business is a leading provider of supplies to the full range of alternate-site healthcare facilities, including physicians' offices, clinics and surgery centers (primary care), long-term care and homecare sites (extended care). Through a variety of 7 McKESSON CORPORATION products and services geared towards the supply chain, our Medical-Surgical Distribution business is focused on helping its customers operate more efficiently while providing one of the industry's most extensive product offerings, including our own private label line. Technology Solutions Segment Our Technology Solutions segment provides a comprehensive portfolio of software and services to help healthcare organizations improve quality and patient safety, reduce the cost and variability of care and better manage their resources and revenue stream. The Technology Solutions segment markets its products and services to integrated delivery networks, hospitals, physician practices, home healthcare providers, retail pharmacies and payers. The product portfolio for the Technology Solutions segment is designed to address a wide array of healthcare clinical and business performance needs ranging from medication safety and information access to revenue cycle management, resource utilization and physician adoption of electronic health records (\"EHR\"). Analytics software enables organizations to measure progress as they automate care processes for optimal clinical outcomes, business and operating results and regulatory compliance. To ensure that organizations achieve the maximum value for their information technology investment, we also offer a wide range of services to support the implementation and use of solutions as well as assist with business and clinical redesign, process re-engineering and staffing (both information technology and back-office). Technology Solutions consists of the following businesses: McKesson Health Solutions, Connected Care and Analytics, Imaging and Workflow Solutions, Business Performance Services and Enterprise Information Solutions. The workforce business within our International Technology business will transition to another service provider during the first quarter of 2016. McKesson Health Solutions: This suite of services and software products is designed to manage the cost and quality of care for payers, providers, hospitals and government organizations. Solution sets include: InterQual Criteria for clinical decision support and utilization management; Clear CoverageTM for point-of-care utilization management, coverage determination and network compliance; Claims payment solutions to facilitate accurate and efficient medical claim payments; Business intelligence tools for measuring, reporting and improving clinical and financial performance; Network management tools to enable health plans to transform the performance of their networks; and RelayHealth financial solutions to facilitate communication between healthcare providers and patients, and to aggregate data for claims management and trend analysis, and optimize revenue cycle management processes. Connected Care and Analytics: Through our vendor-neutral RelayHealth and its intelligent network, the Company provides health information exchange solutions that streamline clinical and administrative communication between patients, providers, payers, pharmacies, manufacturers, government entities and financial institutions. RelayHealth helps to accelerate the delivery of high-quality care and improve financial performance through online consultation of physicians by patients, electronic prescribing by physicians, and point-of-service resolution of pharmacy claims by payers. We provide disease management programs to improve the health status and health outcomes of patients with chronic conditions, nurse advice services to provide health information and recommend appropriate levels of care, and clinical and analytical software to support utilization, case and disease management workflows and a comprehensive solution for homecare. We also provide 8 McKESSON CORPORATION performance management solutions designed to enhance an organization's ability to plan and optimize quality care delivery. Enterprise visibility and performance analytics provide business intelligence that enables providers to manage capacity, outcomes, productivity and patient flow. Imaging and Workflow Solutions: We offer medical imaging and information management systems for healthcare enterprises, including a picture archiving communications system, a radiology information system and a comprehensive cardiovascular information system. Our enterprise-wide approach to medical imaging enables organizations to take advantage of specialty-specific workstations while building an integrated image repository that manages all of the images and information captured throughout the care continuum. Business Performance Services: We help providers focus their resources on delivering healthcare while managing their revenue cycle operations and information technology through a comprehensive suite of managed services. Services include full and partial revenue cycle outsourcing, remote hosting and business office administration. We also provide a complete solution for physician practices of all sizes, whether they are independent or employed, that includes software, revenue cycle outsourcing and connectivity services. Software solutions include practice management and EHR software for physicians of every size and specialty. Our physician practice offering includes outsourced billing, collection, data input, medical coding, billing, contract management, cash collections, accounts receivable management and extensive reporting of metrics related to the physician practice. We also offer a full suite of physician and hospital consulting services, including financial management, coding and compliance services, revenue cycle services and strategic services. Enterprise Information Solutions: We provide comprehensive clinical and financial information systems for hospitals and health systems of all sizes. These systems are designed to improve the safety and quality of patient care and improve clinical, financial and operational performance. Clinical functionality includes a data repository, care planning, physician order entry and documentation, nursing documentation with bar-coded medication administration, pharmacy, surgical management, emergency department and ambulatory EHR systems, and a Web-based physician portal. Revenue management solutions are designed to improve financial performance by reducing days in accounts receivable, preventing insurance claim denials, reducing costs and improving productivity. Solutions include online patient billing, contract management, electronic claims processing and coding compliance checking. These solutions streamline patient access and help organizations to forecast financial responsibility for constituents before and during care, allowing providers to collect their reimbursements more quickly and at a lower cost. We also provide professional services to help customers achieve business results from their software or automation investment. A wide array of service options is available, including consulting for business and/or clinical process improvement and re-design as well as implementation, project management, technical and education services relating to all products in the Technology Solutions segment as well as providing the technical infrastructure designed to maximize application accessibility, availability, security and performance. In addition, workflow management solutions assist caregivers with staffing and maintaining labor rule continuity between scheduling, time and attendance and payroll. We also offer a comprehensive supply chain management solution that integrates enterprise resource planning applications, including financials, materials, human resources/payroll, scheduling, point of use, surgical and anesthesia services and enterprise-wide analytics. Business Combinations, Equity Investments and Discontinued Operations We have undertaken additional strategic initiatives in recent years designed to further focus on our core healthcare businesses and enhance our competitive position. We expect to continue to undertake such strategic initiatives in the future. These initiatives are detailed in Financial Notes 2, 4 and 6, \"Business Combinations,\" \"Discontinued Operations\" and \"Equity Investments,\" to the consolidated financial statements appearing in this Annual Report on Form 10-K. 9 McKESSON CORPORATION Competition In every area of healthcare distribution operations, our Distribution Solutions segment faces a highly competitive global environment with 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, innovation and, in some cases, convenience to the customer are generally the principal competitive elements in this segment. 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. 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. 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 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. We also have agreements with group purchasing organizations (\"GPOs\"), each of which functions as a purchasing agent on behalf of member hospitals, pharmacies 10 McKESSON CORPORATION 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 7% of our purchases in 2015. 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, as a whole, are good. The ten largest suppliers in 2015 accounted for approximately 45% 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 $392 million, $457 million and $433 million during 2015, 2014 and 2013. These costs do not include $34 million, $40 million and $49 million of costs capitalized for software held for sale during 2015, 2014 and 2013. 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. We are committed to maintaining compliance with all environmental laws applicable to our operations, products and services and to reducing our environmental impact across all aspects of our business. We meet this commitment through an environmental strategy and sustainability program. We sold our chemical distribution operations in 1987 and retained responsibility for certain environmental obligations. Agreements with the Environmental Protection Agency and certain states may require environmental assessments and cleanups at several closed sites. These matters are described further in Financial Note 23, \"Other Commitments and Contingent Liabilities,\" to the consolidated financial statements appearing in this Annual Report on Form 10-K. The liability for environmental remediation and other environmental costs is accrued when the Company considers it probable and can reasonably estimate the costs. Environmental costs and accruals, including that related to our legacy chemical distribution operations, are presently not material to our operations or financial position. Although there is no assurance that existing or future environmental laws applicable to our operations or products will not have a material adverse impact on our operations or financial condition, we do not currently anticipate material capital expenditures for environmental matters. Other than the expected expenditures that may be required in connection with our legacy chemical distribution operations, we do not anticipate making substantial capital expenditures either for environmental issues, or to comply with environmental laws and regulations in the future. The amount of our capital expenditures for environmental compliance was not material in 2015 and is not expected to be material in the next year. 11 McKESSON CORPORATION Employees: On March 31, 2015, we employed approximately 70,400 full-time equivalent employees. Financial Information About Foreign and Domestic Operations: Information as to foreign and domestic operations is included in Financial Notes 1 and 26, \"Significant Accounting Policies\" and \"Segments of Business,\" to the consolidated financial statements appearing in this Annual Report on Form 10-K. Forward-Looking Statements This Annual Report on Form 10-K, including the Chairman's 2015 letter, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Item 7 of Part II of this report and the \"Risk Factors\" in Item 1A of Part I of this report, contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended and section 21E of the Securities Exchange Act of 1934, as amended. Some of these statements can be identified by use of forward-looking words such as \"believes,\" \"expects,\" \"anticipates,\" \"may,\" \"will,\" \"should,\" \"seeks,\" \"approximately,\" \"intends,\" \"plans\" or \"estimates,\" or the negative of these words, or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the factors discussed in Item 1A of Part I of this report under \"Risk Factors.\" The reader should not consider the list to be a complete statement of all potential risks and uncertainties. These and other risks and uncertainties are described herein and in other information contained in our publicly available SEC filings and press releases. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by federal securities laws, we undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. Item 1A. Risk Factors The risks described below could have a material adverse impact on our financial position, results of operations, liquidity and cash flows. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the factors discussed below. Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider not to be material. The reader should not consider this list to be a complete statement of all risks and uncertainties. Changes in the United States healthcare industry and regulatory environment could have a material adverse impact on our results of operations. Many of our products and services are intended to function within the structure of the healthcare financing and reimbursement system currently being used in the United States. In recent years, the healthcare industry in the United States has changed significantly in an effort to reduce costs. These changes have included cuts in Medicare and Medicaid reimbursement levels, increases in the use of managed care, consolidation of pharmaceutical and medical-surgical supply distributors and the development of large, sophisticated purchasing groups. We expect the healthcare industry in the United States to continue to change and for healthcare delivery models to evolve in the future. Changes in the healthcare industry's or our pharmaceutical suppliers' pricing, selling, inventory, distribution or supply policies or practices could significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare information technology products and services that we offer, such changes could have a material adverse impact on our results of operations, while not affecting some of our competitors who offer a narrower range of products and services. 12 McKESSON CORPORATION The majority of our U.S. pharmaceutical distribution business agreements with manufacturers are structured to ensure that we are appropriately and predictably compensated for the services we provide; however, failure to successfully renew these contracts in a timely and favorable manner could have a material adverse impact on our results of operations. In addition, branded pharmaceutical price inflation can be the partial economic basis of some of our distribution business agreements with pharmaceutical manufacturers. If the frequency or rate of branded price increases slows, it could have a material adverse impact on our results of operations. In addition, we distribute generic pharmaceuticals, which can be subject to both price deflation and price inflation. In recent years, our financial results have improved from our generic drug offerings combined with an increase in the number of generic drugs available in the marketplace. In fiscal year 2016, we anticipate the number of branded to generics conversions to increase as compared to the prior year. Continued volatility in the availability, pricing trends or reimbursement of these generic drugs, or significant fluctuations in the rate of increase in the number of generic drugs, could have a material adverse impact on our results of operations. Generic drug manufacturers are increasingly challenging the validity or enforceability of patents on branded pharmaceutical products. During the pendency of these legal challenges, a generics manufacturer may begin manufacturing and selling a generic version of the branded product prior to the final resolution of its legal challenge over the branded product's patent. To the extent we source, contract manufacture, and distribute such generic products, the brand-name company could assert infringement claims against us. While we generally obtain indemnification against such claims from generic manufacturers as a condition of distributing their products, there can be no assurances that these rights will be adequate or sufficient to protect us. The healthcare industry is highly regulated and further regulation of our distribution businesses and technology-related products and services could impose increased costs, negatively impact our profit margins, and the profit margins of our customers, delay the introduction or implementation of our new products, or otherwise negatively impact our business and expose the Company to litigation and regulatory investigations. Healthcare Fraud: We are subject to extensive and frequently changing local, state and federal laws and regulations relating to healthcare fraud, waste and abuse. Local, state and federal governments continue to strengthen their position and scrutiny over practices involving fraud, waste and abuse affecting Medicare, Medicaid and other government healthcare programs. Our relationships with pharmaceutical and medicalsurgical product manufacturers and healthcare providers, as well as our provision of products and services to government entities, subject our business to laws and regulations on fraud and abuse, which among other things: (1) prohibit persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a patient for treatment or to induce the ordering or purchasing of items or services that are in any way paid for by Medicare, Medicaid or other government-sponsored healthcare programs; (2) impose a number of restrictions upon referring physicians and providers of designated health services under Medicare and Medicaid programs; and (3) prohibit the knowing submission of a false or fraudulent claim for payment to, and knowing retention of an overpayment by, a federal healthcare program such as Medicare and Medicaid. Many of the regulations applicable to us, including those relating to marketing incentives, are vague or indefinite and have not been interpreted by the courts. The regulations may be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that could require us to make changes in our operations. If we fail to comply with applicable laws and regulations, we could become liable for damages and suffer civil and criminal penalties, including the loss of licenses or our ability to participate in Medicare, Medicaid and other federal and state healthcare programs. Reimbursements: Both our profit margins and the profit margins of our customers may be adversely affected by laws and regulations reducing reimbursement rates for pharmaceuticals, medical treatments and related services, or changing the methodology by which reimbursement levels are determined. For example, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively the \"Affordable Care Act\"), signed into law in 2010, revised the federal upper limits for Medicaid reimbursement for 13 McKESSON CORPORATION multiple source generic drugs available for purchase by retail community pharmacies on a nationwide basis to a limit of not less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer price (\"AMP\") using a smoothing process. The Centers for Medicare and Medicaid Services (\"CMS\") has proposed new rules for calculating AMP (\"Revised AMP\") and is also offering states the option to replace traditional reimbursement metrics for certain drugs with alternatives such as the average acquisition cost (\"AAC\") method or the national average drug acquisition cost benchmark (\"NADAC\"). Under AAC and NADAC, reimbursement is based on the actual acquisition costs from invoiced amounts and from a statistically validated cost of dispensing survey. States will have the option of using any of these metrics to determine appropriate Medicaid reimbursement to pharmacies for generic or brand drugs. We expect that the use of a Revised AMP benchmark or the use of an alternative reimbursement metric, such as AAC or NADAC, would result in a reduction in the Medicaid reimbursement rates to our customers for certain pharmaceuticals, which could indirectly impact the prices that we can charge our customers and cause corresponding declines in our profitability. The federal government may adopt measures that could reduce Medicare and/or Medicaid spending, or impose additional requirements on healthcare entities. For example, under the terms of the Budget Control Act of 2011, an automatic 2% reduction of Medicare program payments for all healthcare providers became generally effective for services provided on or after April 1, 201