McKesson 2016 Annual Report Download - page 125

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
centers’ DEA registrations suspended for the specified products and time periods: Aurora, Colorado: all
controlled substances for three years; Livonia, Michigan: all controlled substances for two years; Washington
Courthouse, Ohio: all controlled substances for the two-year period following completion of the Livonia
suspension; and Lakeland, Florida: hydromorphone products for one year. Throughout the terms of these
suspensions, the Company will be permitted to continue to ship controlled substances from its Livonia,
Washington Courthouse and Lakeland distribution centers to customers that purchase products under its
pharmaceutical prime vendor contract with the Department of Veterans Affairs. The Company expects that the
suspensions will not result in a supply disruption to any customer. Customers located in the distribution center
service areas described above will receive controlled substances from a different distribution center during the
applicable suspension periods. As a result of our agreement in principle, during the fourth quarter of 2015, we
recorded a $150 million pre-tax and after-tax charge relating to these claims.
III. Environmental Matters
Primarily as a result of the operation of the Company’s former chemical businesses, which were fully
divested by 1987, the Company is involved in various matters pursuant to environmental laws and regulations.
The Company has received claims and demands from governmental agencies relating to investigative and
remedial actions purportedly required to address environmental conditions alleged to exist at five sites where it,
or entities acquired by it, formerly conducted operations and the Company, by administrative order or otherwise,
has agreed to take certain actions at those sites, including soil and groundwater remediation.
Based on a determination by the Company’s environmental staff, in consultation with outside environmental
specialists and counsel, the current estimate of the Company’s probable loss associated with the remediation
costs for these five sites is $8.1 million, net of amounts anticipated from third parties. The $8.1 million is
expected to be paid out between April 2016 and March 2046. The Company’s estimated probable loss for these
environmental matters has been entirely accrued for in the accompanying consolidated balance sheets.
In addition, the Company has been designated as a Potentially Responsible Party (“PRP”) under the
Superfund law for environmental assessment and cleanup costs as the result of its alleged disposal of hazardous
substances at 15 sites. With respect to these sites, numerous other PRPs have similarly been designated and while
the current state of the law potentially imposes joint and several liability upon PRPs, as a practical matter, costs
of these sites are typically shared with other PRPs. At one of these sites, the United States Environmental
Protection Agency has selected a preferred remedy with an estimated cost of approximately $1.38 billion. It is
not certain at this point in time what proportion of this estimated liability will be borne by the Company or by the
numerous other PRPs. Accordingly, the Company’s estimated probable loss at those 15 sites is approximately
$26 million, which has been entirely accrued for in the accompanying consolidated balance sheets. However, it is
possible that the ultimate costs of these matters may exceed or be less than the reserves.
IV. Value Added Tax Assessments
We operate in various countries outside the United States which collect value added taxes (“VAT”). The
determination of the manner in which a VAT applies to our foreign operations is subject to varying
interpretations arising from the complex nature of the tax laws. We have received assessments for VAT which
are in various stages of appeal. We disagree with these assessments and believe that we have strong legal
arguments to defend our tax positions. Certain VAT assessments relate to years covered by an indemnification
agreement. Due to the complex nature of the tax laws, it is not possible to estimate the outcome of these
matters. However, based on the currently available information, we believe the ultimate outcome of these matters
will not have a material adverse effect on our financial position, cash flows or results of operations.
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