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34
McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Distribution Solutions segment's operating expenses and operating expenses as a percentage of revenues increased in
2013 compared to 2012 primarily due to our business acquisitions, a $40 million charge for a legal dispute in our Canadian
business and higher employee compensation and benefits costs. These increases were partially offset by lower AWP litigation
charges. Additionally, this ratio is negatively impacted as a result of decreases in revenue resulting from deflation.
Distribution Solutions segment's operating expenses increased in 2012 compared to 2011 primarily reflecting the
addition of US Oncology, higher employee compensation and benefits expenses and an increase in expenses associated with
supporting higher revenues, partially offset by a lower AWP litigation charge. Operating expenses as a percentage of revenues
decreased in 2012 compared to 2011 primarily due to operating leverage and lower AWP litigation charge, partially offset by
the addition of US Oncology.
The Company has a reserve relating to AWP public entity claims, which is reviewed at least quarterly and whenever
events or circumstances indicate changes, including consideration of the pace and progress of discussions relating to
potentially resolving other public entity claims.
The following is the activity related to the AWP litigation reserve for the years ended March 31, 2013, 2012 and 2011:
Years Ended March 31,
(In millions) 2013 2012 2011
AWP Litigation reserve at beginning of period $ 453 $ 330 $ 143
Charges incurred 72 149 213
Payments made (483) (26) (26)
AWP litigation reserve at end of period $ 42 $ 453 $ 330
Pre-tax charges relating to changes in the Company's AWP litigation reserve, including accrued interest, are recorded in
the Distribution Solutions segment. The charges for 2013 primarily related to state Medicaid claims. The charges for 2012
primarily related to the Douglas County, Kansas Action settlement and the state and federal Medicaid claims. The charges for
2011 primarily related to state and federal Medicaid claims. In view of the number of outstanding cases and expected future
claims, and the uncertainties of the timing and outcome of this type of litigation, it is possible that the ultimate costs of these
matters may exceed or be less than the reserve.
Since 2009 the Company has cooperated with and responded to an investigation by the Regie de l'assurance maladie du
Quebec (“RAMQ”), a provincial government agency with administrative authority over the conduct of pharmaceutical
businesses in the province of Quebec, Canada. The investigation focused on certain discounts and payments offered to
pharmacies in Quebec, as well as payments received by the Company from certain manufacturers. In the third quarter of
2013, we engaged in settlement discussions to resolve potential legal claims against the Company and its customers and
suppliers arising from the investigation. In consideration of the pace and progress of settlement discussions, in the third
quarter of 2013, we recorded a pre-tax charge of $40 million for estimated probable loss from potential legal claims arising
from the investigation. The charge was recorded to operating expenses within our Distribution Solutions segment. On April
19, 2013, the Company entered into a settlement agreement with the RAMQ, to settle all potential claims of the RAMQ
arising from the investigation. The agreement provides that the Company will pay $40 million to the RAMQ, and provides for
a full release of all potential claims by the RAMQ arising from the investigation.
Refer to Financial Note 22, “Other Commitments and Contingent Liabilities,” to the consolidated financial statements
appearing in this Annual Report on Form 10-K for further information.
Technology Solutions segment's operating expenses and operating expenses as a percentage of revenues increased in
2013 compared to 2012 primarily due to our continued investment in research and development activities, a $36 million
goodwill impairment charge and business acquisitions. These increases were partially offset by product alignment charges of
$20 million incurred in 2012.