McKesson 2015 Annual Report Download - page 116

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
the security requirements for statutory licenses and permits, court and fiduciary obligations and our workers’
compensation and automotive liability programs. Additionally, at March 31, 2015, we have a commitment to
contribute up to $16 million to a non-consolidated investment for building and equipment construction.
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 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.
23. 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
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