McKesson 2010 Annual Report Download - page 97

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
91
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 this guarantee
cannot reasonably be estimated. At March 31, 2010, the maximum amounts of inventory repurchase guarantees and
other customer guarantees were $124 million and $17 million, none of which had been accrued.
At March 31, 2010, we had commitments of $2 million of cash contributions to our equity-held investments, for
which no amounts had been accrued and a loan commitment of $5 million to an equity-held investment, of which
$2 million had been funded and is included under other assets in our consolidated balance sheet.
The expirations of the above noted financial guarantees and commitments are as follows: $64 million,
$24 million, $1 million, nil and $6 million from 2011 through 2015 and $51 million thereafter.
In addition, at March 31, 2010, our banks and insurance companies have issued $111 million of standby letters
of credit and surety bonds, which were issued on our behalf mostly related to our customer contracts and 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.
Warranties
In the normal course of business, we provide certain warranties and indemnification protection for our products
and services. For example, we provide warranties that the pharmaceutical and medical-surgical products we
distribute are in compliance with the Food, Drug and Cosmetic Act and other applicable laws and regulations. We
have received the same warranties from our suppliers, which customarily are the manufacturers of the products. In
addition, we have indemnity obligations to our customers for these products, which have also been provided to us
from our suppliers, either through express agreement or by operation of law.