McKesson 2016 Annual Report Download - page 122

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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.
24. Commitments and Contingent Liabilities
In addition to commitments and obligations in the ordinary course of business, we are subject to various
claims, including claims with customers and vendors, 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
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