McKesson 2014 Annual Report Download - page 106

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
103
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 material
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 U.S. 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 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.