McKesson 2005 Annual Report Download - page 83

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Partners, Curran Partners, Green, and Hall Family Investments actions is proceeding in coordination with the Consolidated Action. The
Gilbert action has been stayed until final disposition of the Consolidated Action. No trial date has been set for any of these actions.
As a result of the Company’s various pretrial motions, only a single post-merger accounting oversight claim against the directors of post-
merger McKesson remains to be litigated in the previously-reported action captioned: Saito, et. al. v. McCall (Civil Action No. 17132.) The
Company filed its answer to the Fourth Amended Complaint in Saito on February 8, 2005. The parties are currently engaged in discovery. No
trial date has been set.
On March 30, 2004, the United States Attorney’s Office for the Northern District of California filed a three count indictment against former
McKesson Executive Vice President and Chief Financial Officer, Richard H. Hawkins, charging him with conspiracy to commit securities and
wire fraud, securities fraud, and making false statements to an accountant. On March 31, 2004, Hawkins pled not guilty to the charges. The
Hawkins court trial closed on March 11, 2005. No verdict has yet been issued.
During the third quarter of 2005, we also established a reserve of $240 million, which the Company believes will be adequate to address its
remaining potential exposure with respect to all other previously reported Accounting Litigation, including the State Actions discussed above.
That sum includes the proposed $18.2 million settlement amount in the HBOC Plan ERISA Action noted above. However, in view of the
number of remaining cases, the uncertainties of the timing and outcome of this type of litigation, and the substantial amounts involved, it is
possible that the ultimate costs of these matters may exceed or be less than the reserve. The range of possible resolutions of these proceedings
could include judgments against the Company or settlements that could require payments by the Company in addition to the reserve, which
could have a material adverse impact on McKesson’s financial position, results of operations and cash flows.
II. Other Litigations and Claims
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 product liability and other damages, investigations relating to governmental laws and regulations and other matters arising out
of the normal conduct of our business. These include:
Product Liability Litigation and Other Claims
Our subsidiary, McKesson Medical-Surgical Inc., is one of multiple defendants in approximately 11 cases in which plaintiffs claim they
were injured due to exposure, over many years, to latex proteins in gloves manufactured by numerous manufacturers and distributed by a
number of distributors, including McKesson Medical-Surgical Inc. Efforts to resolve tenders of defense to its suppliers are continuing and final
agreements have been reached with two major suppliers.
We, along with more than 100 other companies, have been named in a lawsuit brought in 2000 by the Lemelson Medical, Educational &
Research Foundation (the “Foundation”) alleging that we and our subsidiaries are infringing seven (7) U.S. patents relating to common bar
code scanning technology and its use for the automated management and control of product inventory, warehousing, distribution and point-of-
sale transactions. Due to the pendency of earlier litigation brought against the Foundation by the manufacturers of bar code devices attacking
the validity of the patents at issue, the court stayed the suit against the Company until the conclusion of the earlier case, including any appeals
that may be taken. The trial in this earlier case concluded in January 2003 and the court subsequently ruled that each of the patents at issue was
unenforceable due to prosecutorial laches. The case is now on appeal to the Federal Circuit Court of Appeals. It is anticipated that oral
argument will not occur before May of 2005. While the suit against the Company was stayed, the U.S. Patent and Trademark Office granted
petitions for reexamination of 3 of the 7 patents asserted by the Foundation against the Company. The reexamination will determine, among
other things, whether these patents have expired. Each of the remaining 4 patents in the action has already expired by its own terms, or by the
Foundation’s disclaiming the remaining portion of the patent’s life.
The Company is a defendant in approximately 110 California cases alleging that the plaintiffs were injured by Vioxx, an anti-inflammatory
drug manufactured by Merck & Company (“Merck”). The cases typically assert causes of action for strict liability, negligence, breach of
warranty and false advertising for improper design, testing, manufacturing, and warnings relating to the manufacture and distribution of Vioxx.
None of the cases involving the
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