McKesson 2005 Annual Report Download - page 84

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Company is scheduled for trial. The Company has tendered each of these cases to Merck and has reached an agreement with Merck to defend
and indemnify the Company.
The Company is a defendant in approximately 42 cases alleging that the plaintiffs were injured because they took the drugs known as fen-
phen, the term commonly used to describe the weight-loss combination of fenfluramine or dexfenfluramine with phentermine. The Company
has been named as a defendant along with several other defendants in 41 cases; and has accepted the tender of one of its customers named as
defendant in the one remaining case. The cases are pending in state courts in California and Mississippi and in state and federal courts in
Florida and New York, and typically assert causes of action for strict liability, negligence, breach of warranty, false advertising and unfair
business practices for improper design, testing, manufacturing and warnings relating to the distribution and/or prescription of fen-phen. The
Company has tendered each of these cases to its suppliers and has reached an agreement with its major supplier to defend and indemnify the
Company and its customers.
We, through our former McKesson Chemical Company division, are named in approximately 200 cases involving the alleged distribution of
asbestos. These cases typically involve either single or multiple plaintiffs claiming personal injuries and unspecified compensatory and
punitive damages as a result of exposure to asbestos-containing materials. Pursuant to an indemnification agreement signed at the time of the
1986 sale of McKesson Chemical Company to what is now called Univar USA Inc. (“Univar”), we have tendered each of these actions to
Univar. Univar has raised questions concerning the extent of its obligations under the indemnification agreement, and while Univar continues
to defend us in many of these cases, it has been rejecting our tenders of new cases since February 2005. We believe Univar remains obligated
for all tendered cases under the terms of the indemnification agreement, however we are beginning to incur defense costs in connection with
these more recently-served actions. We also believe that a portion of the claims against us will be covered by insurance, and we are pursuing
the available coverage.
On May 3, 2004, judgment was entered against the Company and one of its employees in the action Roby v. McKesson HBOC, Inc. et al.
(Superior Court of Yolo County, California, Case No. CV01-573.) Former employee Charlene Roby brought claims for wrongful termination,
disability discrimination and disability-based harassment against the Company and a claim for disability-based harassment against her former
supervisor. The jury awarded Roby compensatory damages in the amount of $3.5 million against the Company and $0.5 million against her
supervisor, and punitive damages in the amount of $15.0 million against the Company and a nominal amount against her supervisor. Following
post-trial motions, the trial court reduced the amount of compensatory damages against the Company to $2.8 million; the punitive damages
awarded against both defendants and the compensatory damages awarded against the individual employee defendant were not reduced. On
October 18, 2004, the trial court awarded Roby her attorney’s fees in the amount of $0.7 million. The Company has filed a Notice of Appeal,
seeking reduction or reversal of the compensatory and punitive damage awards and the award of attorney’s fees. If these efforts are not
successful, the judgment in this case could have an adverse impact on our consolidated financial statements.
In December 2004, the Company received a request for documents from the Federal Trade Commission (“FTC”) that asks the Company to
voluntarily produce certain documents to the FTC. The document request, which does not allege wrongdoing, is part of an FTC non-public
investigation to determine whether the Company, in violation of Section 5 of the Federal Trade Commission Act, may have engaged, or may be
engaging, in anti-competitive practices with other wholesale pharmaceutical distributors in order to limit competition for provider customers
seeking distribution services. The investigation is at an early stage, and the Company is in the process of responding to the FTC document
request.
In April 2005, we received a subpoena from the office of the Attorney General of the State of New York (“NYAG”) requesting the
production of documents, responses to interrogatories and other information concerning our participation in the secondary or “alternate source”
market for pharmaceutical products. This investigation appears to be in its early stages; and we are cooperating with the NYAG and intend to
be fully responsive to the subpoena.
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