Cardinal Health 2014 Annual Report Download - page 43

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
41
relating to operating leases was $107 million, $92 million and
$86 million in fiscal 2014, 2013 and 2012, respectively. Sublease
rental income was immaterial for all periods presented.
Legal Proceedings
We become involved from time to time in disputes, litigation and
regulatory matters incidental to our business, including
governmental investigations and enforcement actions, personal
injury claims, employment matters, commercial disputes,
intellectual property matters, government contract compliance
matters, disputes regarding environmental clean-up costs,
claims in connection with acquisitions and divestitures, and
other matters arising out of the normal conduct of our business.
We intend to vigorously defend ourselves in such matters.
We may be named from time to time in qui tam actions, which
are cases initiated by private parties purporting to act on behalf
of federal or state governments that allege that false claims have
been submitted or have been caused to be submitted for
payment by the government. After a private party has filed a qui
tam action, the government must investigate the private party's
claim and determine whether to intervene in the matter. These
actions may remain under seal while the government makes
this determination.
In addition, we occasionally may suspect that products we
manufacture, market or distribute do not meet product
specifications, published standards or regulatory requirements.
In such circumstances, we investigate and take appropriate
corrective action. Such actions can lead to product recalls, costs
to repair or replace affected products, temporary interruptions
in product sales and action by regulators.
We accrue for contingencies related to disputes, litigation and
regulatory matters if it is probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated. Because these matters are inherently unpredictable
and unfavorable developments or resolutions can occur,
assessing contingencies is highly subjective and requires
judgments about future events. We regularly review
contingencies to determine whether our accruals and related
disclosures are adequate. The amount of ultimate loss may differ
from these estimates.
We are unable to estimate a range of reasonably possible loss
for matters described below, since damages or fines have not
been specified or the proceedings are at stages where
significant uncertainty exists as to legal or factual issues and as
to whether such matters will proceed to trial. We do not believe,
based on currently available information, that the outcomes of
these matters will have a material adverse effect on our financial
position, results of operations or cash flows, though the outcome
of one or more of these matters could be material to our results
of operations for a particular period.
We recognize income from the favorable outcome of litigation
when we receive the associated cash or assets.
We recognize estimated loss contingencies for litigation and
regulatory matters and income from favorable resolution of
litigation in litigation (recoveries)/charges, net in our
consolidated statements of earnings.
Lakeland, Florida Distribution Center DEA Investigation
and Related Matters
In February 2012, the U.S. Drug Enforcement Administration
(the "DEA") issued an order to show cause and immediate
suspension of our Lakeland, Florida distribution center's
registration to distribute controlled substances, asserting that
we failed to maintain required controls against the diversion of
controlled substances. In May 2012, we entered into a
settlement agreement with the DEA that resolved the
administrative aspects of the DEA's action, but did not foreclose
the possibility of the U.S. Department of Justice (the “DOJ”)
seeking civil fines for conduct covered by the settlement
agreement. In that regard, we are continuing to provide
information to and engage in discussions, including preliminary
discussions regarding the feasibility of a settlement, with the
DEA and the DOJ.
State of West Virginia vs. Cardinal Health, Inc.
In June 2012, the West Virginia Attorney General filed, and in
January 2014 amended, complaints against 13 pharmaceutical
wholesale distributors, including us, in the Circuit Court of Boone
County, West Virginia alleging, among other things, that the
distributors failed to maintain effective controls to guard against
diversion of controlled substances in West Virginia, failed to
report suspicious orders of controlled substances in accordance
with the West Virginia Uniform Controlled Substances Act and
were negligent in distributing controlled substances to
pharmacies that serve individuals who abuse controlled
substances. In addition to injunctive and other equitable relief,
the complaints seek monetary damages and the creation of a
court-supervised fund, to be financed by the defendants in these
actions, for a medical monitoring program focused on
prescription drug abuse.
Federal False Claims Investigation
The DOJ has requested information in connection with an
investigation of possible violations of the federal False Claims
Act with respect to our Medical segment’s administration of a
prime vendor agreement with the federal government. We are
cooperating with the DOJ in this matter.
Antitrust Litigation Proceeds
We recognized income resulting from settlements of class action
antitrust claims in which we were a class member of $24 million
and $38 million during fiscal 2014 and 2013, respectively.
10. Guarantees
In the ordinary course of business, we agree to indemnify certain
other parties under acquisition and disposition agreements,
customer agreements, intellectual property licensing
agreements, and other agreements. Such indemnification