McKesson 2009 Annual Report Download - page 109

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
103
Rental expense under operating leases was $146 million, $149 million and $117 million in 2009, 2008 and
2007. We recognize rent expense on a straight-line basis over the term of the lease, taking into account, when
applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in
rent payments over the term of the lease. Deferred rent is recognized for the difference between the rent expense
recognized on a straight-line basis and the payments made per the terms of the lease. Most real property leases
contain renewal options and provisions requiring us to pay property taxes and operating expenses in excess of base
period amounts. Sublease rental income was not material for any period presented.
17. Financial Guarantees and Warranties
Financial Guarantees
We have agreements with certain of our customers’ financial institutions under which we have guaranteed the
repurchase of inventory (primarily for our Canadian business) at a discount in the event these customers are unable
to meet certain obligations to those financial institutions. Among other requirements, these inventories must be in
resalable condition. The inventory repurchase agreements mostly range from one to two years. Customer
guarantees range from one to five years and were primarily provided to facilitate financing for certain customers.
The majority of our other customer guarantees are secured by certain assets of the customer. We also have an
agreement with one software customer that, under limited circumstances, may require us to secure standby
financing. Because the amount of the standby financing is not explicitly stated, the overall amount of these
guarantees cannot reasonably be estimated. At March 31, 2009, the maximum amounts of inventory repurchase
guarantees and other customer guarantees were $102 million and $10 million, none of which had been accrued.
At March 31, 2009, we had commitments of $2 million of cash contributions to our equity-held investments, for
which no amounts had been accrued.
The expirations of the above noted financial guarantees and commitments are as follows: $51 million, $23
million, $1 million, $1 million and nil from 2010 through 2014 and $38 million thereafter.
In addition, our banks and insurance companies have issued $115 million of standby letters of credit and surety
bonds on our behalf mostly in order to meet the security requirements for statutory licenses and permits, court and
fiduciary obligations and our workers’ compensation and automotive liability programs.
Our software license agreements generally include certain provisions for indemnifying customers against
liabilities if our software products infringe a third party’s intellectual property rights. To date, we have not incurred
any material costs as a result of such indemnification agreements and have not accrued any liabilities related to such
obligations.
In conjunction with certain transactions, primarily divestitures, we may provide routine indemnification
agreements (such as retention of previously existing environmental, tax and employee liabilities) whose terms vary
in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are
recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the
overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as
liabilities at the time of divestiture, we have historically not made significant payments as a result of these
indemnification provisions.