McKesson 2013 Annual Report Download - page 100

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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.
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.
22. 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.