McKesson 2012 Annual Report Download - page 95

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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We also provide warranties regarding the performance of software and automation products we sell. Our
liability under these warranties is to bring the product into compliance with previously agreed upon specifications.
For software products, this may result in additional project costs, which are reflected in our estimates used for the
percentage-of-completion method of accounting for software installation services within these contracts. In
addition, most of our customers who purchase our software and automation products also purchase annual
maintenance agreements. Revenues from these maintenance agreements are recognized on a straight-line basis over
the contract period and the cost of servicing product warranties is charged to expense when claims become
estimable. Accrued warranty costs were not material to the consolidated balance sheets.
19. Other Commitments and Contingent Liabilities
In addition to commitments and obligations in the ordinary course of business, we are subject to various claims,
other pending and potential legal actions for damages, investigations relating to governmental laws and regulations
and other matters arising out of the normal conduct of our business. As described below, many of these proceedings
are at preliminary stages and many seek an indeterminate amount of damages.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best
estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often
difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based
on the information available and the potential effect of future events and decisions by third parties that will
determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved
over many years, during which time relevant developments and new information must be reevaluated at least
quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range
of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the proceeding is
provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably
possible that the amount of a loss will exceed the recorded provision. We review all contingencies at least quarterly
to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or
range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential
loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as
regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible
to reasonably estimate a range of potential loss and boundaries of high and low estimates.
We are party to the legal proceedings described below. Unless otherwise stated, we are currently unable to
estimate a range of reasonably possible losses for the unresolved proceedings described below. Should any one or a
combination of more than one of these proceedings be successful, or should we determine to settle any or a
combination of these matters, we may be required to pay substantial sums, become subject to the entry of an
injunction or be forced to change the manner in which we operate our business, which could have a material adverse
impact on our financial position or results of operations.
I. Average Wholesale Price Litigation
The following matters involve a benchmark referred to as “AWP,” which is utilized by some public and private
payers to calculate a portion of the amount that pharmacies and other providers are reimbursed for dispensing certain
covered prescription drugs.
A. In re McKesson Governmental Entities Average Wholesale Price Litigation
Commencing in May of 2008, a series of complaints were filed in the United States District Court for the
District of Massachusetts by various public payers — governmental entities that paid a portion of the price of certain
prescription drugs — alleging that in late 2001 the Company and First DataBank, Inc. (“FDB”), a publisher of
pharmaceutical pricing information, conspired to improperly raise the published AWP for certain prescription drugs,
and that this alleged conduct resulted in higher drug reimbursement payments by plaintiffs and others similarly
situated. These actions were all consolidated under the caption In re McKesson Governmental Entities Average
Wholesale Price Litigation. A description of the actions pending during fiscal year 2012 is as follows: