McKesson 2014 Annual Report Download - page 108

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
105
III. Government Subpoenas and Investigations
From time-to-time, the Company receives subpoenas or requests for information from various government agencies. The
Company generally responds to such subpoenas and requests in a cooperative, thorough and timely manner. These responses
sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and
requests also can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company
and other members of the health care industry, as well as to settlements. Examples of such subpoenas and investigations include
subpoenas commencing in 2013 from the U.S. Drug Enforcement Administration to certain of the Company’s pharmaceutical
distribution facilities seeking information and records about the Company’s distribution of certain controlled substances. The
Company is currently responding to these requests. In addition, in the third quarter 2013, the Company was informed of an
investigation by the United States Department of Justice through the United States Attorney’s Office for the Middle District of
Tennessee. The Company believes that the investigation is focused on distribution procedures with respect to the Vaccine for
Children’s Program administered by the Centers for Disease Control and Prevention. In connection with the investigation, the
Company has received and has responded to a subpoena seeking information and records from the Company’s Specialty Health
business. In the third quarter of 2014, the Company was informed of an investigation by the United States Department of Justice
through the United States Attorney’s Office for the Northern District of West Virginia of potential claims under the Comprehensive
Drug Abuse Prevention and Control Act. The Company believes that the investigation is focused on the Company’s pharmaceutical
distribution of certain controlled substances by its Landover, Maryland distribution center, which closed in 2012. In addition, in
the fourth quarter 2014, the Company was informed of an investigation by the United States Department of Justice through the
United States Attorney’s Office for the Eastern District of Tennessee. The Company believes that the investigation is focused on
billing and coding services performed by our Technology business. The Company is in the process of providing requested
documents.
IV. 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 eight 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. In
addition, the Company is one of multiple recipients of a New Jersey Department of Environmental Protection Agency directive
and a separate United States Environmental Protection Agency directive relating to potential natural resources damages (“NRD”)
associated with one of these eight sites. Although the Company’s potential allocation under either directive cannot be determined
at this time, it has agreed to participate with a potentially responsible party (“PRP”) group in the funding of certain tasks to support
an NRD assessment, the costs of which are reflected in the aggregate estimates set forth below.
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 eight sites is $7 million,
net of approximately $1 million that third parties have agreed to pay in settlement or is expected, based either on agreements or
nonrefundable contributions which are ongoing, to be contributed by third parties. The $7 million is expected to be paid out
between May 2014 and March 2034. 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 PRP under the Superfund law for environmental assessment and cleanup
costs as the result of its alleged disposal of hazardous substances at 14 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 $70 million. It is not certain at this
point in time what proportion of this estimated liability will be borne by the Company or by the other PRPs. Accordingly, the
Company’s estimated probable loss at those 14 sites is approximately $20 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.