McKesson 2005 Annual Report Download - page 85

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Environmental Matters
Primarily as a result of the operation of our former chemical businesses, which were fully divested by 1987, we are involved in various
matters pursuant to environmental laws and regulations. We have received claims and demands from governmental agencies relating to
investigative and remedial actions purportedly required to address environmental conditions alleged to exist at six sites where we, or entities
acquired by us, formerly conducted operations; and we, by administrative order or otherwise, have agreed to take certain actions at those sites,
including soil and groundwater remediation. In addition, we are one of multiple recipients of a New Jersey Department of Environmental
Protection Agency directive and a separate United States Environmental Protection Agency directive relating to potential natural resources
damages (“NRD”) associated with one of these six sites. Although the Company’s potential allocation under either directive cannot be
determined at this time, we have agreed to participate with a potentially responsible party (“PRP”) group in the funding of an NRD assessment,
the costs of which are reflected in the aggregate estimates set forth below.
Based on a determination by our environmental staff, in consultation with outside environmental specialists and counsel, the current
estimate of reasonably possible remediation costs for these six sites is $11.5 million, net of approximately $2 million that third parties have
agreed to pay in settlement or we expect, based either on agreements or nonrefundable contributions which are ongoing, to be contributed by
third parties. The $11.5 million is expected to be paid out between April 2005 and March of 2028. Our estimated liability for these
environmental matters has been accrued in the accompanying balance sheets.
In addition, we have been designated as a PRP under the Comprehensive Environmental Compensation and Liability Act of 1980 (as
amended, the “Superfund” law or its state law equivalent) for environmental assessment and cleanup costs as the result of our alleged disposal
of hazardous substances at 28 sites. With respect to each of these sites, numerous other PRPs have similarly been designated and, while the
current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter costs of these sites are typically shared
with other PRPs. Our estimated liability at those 28 sites is approximately $2 million. The aggregate settlements and costs paid by us in
Superfund matters to date have not been significant. The accompanying consolidated balance sheets include this environmental liability.
The potential costs to us related to environmental matters are uncertain due to such factors as: the unknown magnitude of possible pollution
and cleanup costs; the complexity and evolving nature of governmental laws and regulations and their interpretations; the timing, varying costs
and effectiveness of alternative cleanup technologies; the determination of our liability in proportion to that of other PRPs; and the extent, if
any, to which such costs are recoverable from insurance or other parties.
While it is not possible to determine with certainty the ultimate outcome or the duration of any of the litigation or governmental proceedings
discussed under this section II, “Other Litigation and Claims”, we believe based on current knowledge and the advice of our counsel that,
except as otherwise noted, such litigation and proceedings will not have a material adverse effect on our financial position, results of operations
or cash flows.
III. Contingency
In 2002, we entered into a $500 million, ten year contract with the National Health Services Information Authority (“NHS”), an
organization of the British government charged with the responsibility of delivering healthcare in England and Wales. The contract engages the
Company to develop, implement and operate a human resources and payroll system at more than 600 NHS locations.
As previously reported, there have been contract delays to date which have increased costs and decreased the amount of time in which we
can earn revenues. These delays have adversely impacted the contract’s projected profitability and no material revenue has yet been recognized
on this contract. As of March 31, 2005, our consolidated balance sheet includes an investment of approximately $114 million in net assets,
consisting of prepaid expenses, software and capital assets, net of cash received, related to this contract. Due to the delays and other desired
modifications to the original contract, we have negotiated a tentative agreement with the NHS on changes to certain key terms and conditions
in the contract including a term extension and updated implementation plan. We expect this contract amendment to be signed in the first
quarter of the 2006 fiscal year. While we believe it is likely that we can deliver and operate a satisfactory system and recover our investment in
this contract, failure to sign the tentative agreement in its current form and/ or further implementation delays may result in significant losses
that
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