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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
92
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.
18. 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. We record a provision for a liability when
management believes that it is both probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. We believe we have made adequate provisions for any such matters. Management reviews
these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements,
rulings, advice of legal counsel and other information and events pertaining to a particular case. Because litigation
outcomes are inherently unpredictable, these decisions often involve a series of complex assessments by
management about future events that can rely heavily on estimates and assumptions and it is possible that the
ultimate cost of these matters could impact our earnings, either negatively or positively, in the period of their
resolution.
We are party to the significant legal proceedings described below. Based on our experience, we believe that
any damage amounts claimed in the specific matters discussed below are not meaningful indicators of our potential
liability. We believe that we have valid defenses to these legal proceedings and are defending the matters
vigorously. Nevertheless, the outcome of any litigation is inherently uncertain. We are currently unable to estimate
the remaining possible losses in these unresolved legal proceedings. 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. Accounting Litigation
Following the announcements by McKesson in April, May and July of 1999 that McKesson had determined that
certain software sales transactions in its Information Solutions segment, formerly HBO & Company, Inc. (“HBOC”)
and later known as McKesson Information Solutions LLC, were improperly recorded as revenue and reversed,
numerous lawsuits were filed against McKesson, HBOC, certain of McKesson’s and HBOC’s current and former
officers or directors, and other defendants . Although almost all of these cases (collectively the “Securities
Litigation”) have now been resolved, certain matters remain pending as more fully described below. On January 12,
2005, we announced that we reached an agreement to settle the previously-reported action in the Northern District of
California captioned: In re McKesson HBOC, Inc. Securities Litigation, (No. C-99-20743 RMW) (the
“Consolidated Securities Litigation Action”).
The last two Securities Litigation lawsuits pending against the Company are Holcombe T. Green and HTG
Corp. v. McKesson Corporation, et al. (Georgia State Court, Fulton County, Case No. 06-VS-096767-D) and Hall
Family Investments, L.P. v. McKesson Corporation, et al. (Georgia State Court, Fulton County, Case No. 06-VS-
096763-F). Plaintiffs in those matters allege common law fraud and deceit against the Company and certain of
HBOC’s former officers. In addition, plaintiff Green seeks indemnification for attorneys’ fees that he allegedly
incurred in connection with a class action lawsuit, now settled, which was filed on behalf of participants in the
McKesson Corporation Profit Sharing Investment Plan against the Company and Green, among others. In the fraud
and deceit actions, plaintiffs seek actual and punitive damages, attorneys’ fees and costs of suit in amounts
unspecified in the complaint.