SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): January 22, 2002
McKESSON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-13252 94-3207296
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
McKesson Plaza
One Post Street
San Francisco, CA 94104
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(Address of principal executive offices) (Zip Code)
(415) 983-8300
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Registrant's telephone number, including area code
Item 5. Other Events
McKesson Corporation ("McKesson" or the "Company") is filing this
Current Report on Form 8-K to make generally available certain information
regarding the Company.
On January 22, 2002, the Company issued a press release announcing
the Company's results for the third quarter ended December 31, 2001. A copy of
the press release announcing the Company's third quarter results is set forth in
Exhibit 99.1 to this Current Report on Form 8-K and is hereby incorporated by
reference herein.
In connection with a proposed debt offering by the Company, the
Company provided the following updated legal proceedings information in the
preliminary prospectus supplement relating to such debt offering:
LEGAL PROCEEDINGS
Accounting Litigation
Since the announcements by McKesson Corporation, formerly known as McKesson
HBOC, Inc. ("McKesson"), in April, May and July of 1999 that McKesson had
determined that certain software sales transactions in its Information
Technology Business unit (now referred to as the Information Solutions segment),
formerly HBO & Company ("HBOC"), were improperly recorded as revenue and
reversed, as of January 15, 2002, eighty-seven lawsuits have been filed against
McKesson, HBOC, certain of McKesson's or HBOC's current or former officers or
directors, and other defendants, including Bear Stearns & Co. Inc. and Arthur
Andersen LLP.
Federal Actions
Sixty-six of these actions have been filed in Federal Court (the "Federal
Actions"). Of these, sixty were filed in the U.S. District Court for the
Northern District of California, one in the Northern District of Illinois, which
has been voluntarily dismissed without prejudice, one in the Northern District
of Georgia, which has been transferred to the Northern District of California,
one in the Eastern District of Pennsylvania, which has been transferred to the
Northern District of California, two in the Western District of Louisiana, which
have been transferred to the Northern District of California, and one in the
District of Arizona, which has been transferred to the Northern District of
California.
On November 2, 1999, the Honorable Ronald M. Whyte of the Northern District of
California issued an order consolidating fifty-three of these actions into one
consolidated action entitled In re McKesson HBOC, Inc. Securities Litigation
(Case No. C-99-20743 RMW) (the "Consolidated Action"). By order dated December
22, 1999, Judge Whyte appointed the New York State Common Retirement Fund as
lead plaintiff ("Lead Plaintiff") and approved Lead Plaintiff's choice of
counsel. Judge Whyte's November 2, 1999, order also provided that related cases
transferred to the Northern District of California shall be consolidated with
the Consolidated Action. Judge Whyte's December 22 order also consolidated an
individual action, Jacobs v. McKesson HBOC, Inc. et al. (C-99-21192 RMW), with
the Consolidated Action. On September 21, 2000, the plaintiffs in Jacobs filed
an individual action in the Northern District of California entitled Jacobs v.
HBO & Company (Case No. C-00-20974 RMW), which has been consolidated with the
Consolidated Action and which purports to state claims under Sections 11 and
12(2) of the Securities Act, Section 10(b) of the Exchange Act and various state
law causes of action.
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By order dated February 7, 2000, Judge Whyte coordinated a class action alleging
claims under the Employee Retirement Income Security Act (commonly known as
"ERISA"), Chang v. McKesson HBOC, Inc. et al. (Case No. C-00-20030 RMW), and a
shareholder derivative action that had been filed in the Northern District under
the caption Cohen v. McCall et. al., (Case No. C-99-20916 RMW) with the
Consolidated Action. There has been no further significant activity in the Cohen
action. Recent developments in the Chang action are discussed below.
Lead Plaintiff filed an Amended and Consolidated Class Action Complaint (the
"ACCAC") on February 25, 2000. The ACCAC generally alleged that defendants
violated the federal securities laws in connection with the events leading to
McKesson's announcements in April, May and July 1999. On September 28, 2000,
Judge Whyte dismissed all of the ACCAC claims against McKesson under Section 11
of the Securities Act with prejudice, dismissed a claim under Section 14(a) of
the Exchange Act with leave to amend and declined to dismiss a claim against
McKesson under Section 10(b) of the Exchange Act.
On November 14, 2000, Lead Plaintiff filed its Second Amended and Consolidated
Class Action Complaint ("SAC"). As with its ACCAC, Lead Plaintiff's SAC
generally alleges that the defendants named therein violated the federal
securities laws in connection with the events leading to McKesson's
announcements in April, May and July 1999. The SAC names McKesson, HBOC, certain
of McKesson's or HBOC's current or former officers or directors, Arthur Andersen
and Bear Stearns as defendants. The SAC purports to state claims against
McKesson and HBOC under Sections 10(b) and 14(a) of the Exchange Act.
On January 7, 2002, Judge Whyte dismissed the claim against McKesson under
Section 10(b) to the extent that claim was based on any pre-merger conduct or
statements by McKesson, and also dismissed the claim against McKesson under
Section 14(a) of the Exchange Act, granting Lead Plaintiff thirty (30) days
leave "for one last opportunity" to amend those claims. Judge Whyte dismissed
the claim against HBOC under Section 14(a) of the Exchange Act without leave to
amend. Section 10(b) claims based on post-merger statements remain pending
against McKesson, and Section 10(b) claims based on pre-merger statements remain
pending against HBOC.
On January 11, 2001, McKesson filed an action in the U.S. District Court for the
Northern District of California against the Lead Plaintiff in the Consolidated
Action individually, and as a representative of a defendant class of former HBOC
shareholders who exchanged HBOC shares for McKesson shares in the HBOC
transaction, McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc.
et al. (Case No. C01-20021 RMW) (the "Complaint and Counterclaim"). In the
Complaint and Counterclaim, McKesson alleges that the exchanged HBOC shares were
artificially inflated due to undisclosed accounting improprieties, and that the
exchange ratio therefore provided more shares to former HBOC shareholders than
would have otherwise been the case. In this action, McKesson seeks to recover
the "unjust enrichment" received by those HBOC shareholders who exchanged more
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than 20,000 HBOC shares in the HBOC transaction. McKesson does not allege any
wrongdoing by these shareholders. On January 9, 2002, Judge Whyte dismissed the
Complaint and Counterclaim with prejudice.
Two other individual actions, Bea v. McKesson HBOC, Inc., et al. (Case No.
C-0020072 RMW), and Cater v. McKesson Corporation et al., (Case No. C-00-20327
RMW), have also been filed in the Northern District of California. By
stipulation, Bea has been consolidated with the Consolidated Action and Cater
has been stayed pending resolution of McKesson's motions to dismiss the
consolidated complaint. One other individual action, Baker v. McKesson HBOC,
Inc. et al., (Case No. CV 00-0188) was filed in the U.S. District Court for the
Western District of Louisiana. McKesson moved to transfer Baker to the Northern
District of California, together with a parallel state court action, Baker v.
McKesson HBOC, Inc. et al., (filed as Case No. 199018; Case No. CV-00-0522 after
removal), which had been removed to federal court. Both of the Baker cases have
been transferred to the Northern District of California where they have been
consolidated with the Consolidated Action. An additional action, Rosenberg v.
McCall et al. (Case No. 1:99-CV-1447 JEC) was filed in the Northern District of
Georgia and subsequently transferred to the Northern District of California, but
that action names only two former officers and does not name McKesson or HBOC.
On July 24, 2000, an action captioned Hess v. McKesson HBOC, Inc. et al., was
filed in state court in Arizona (Case No. C-20003862) on behalf of former
shareholders of Ephrata Diamond Spring Water Company ("Ephrata") who acquired
McKesson shares in exchange for their Ephrata stock when McKesson acquired
Ephrata in January 1999. On August 24, 2000, McKesson removed the Hess action to
the United States District Court for the District of Arizona, and on March 28,
2001, the District Court in Arizona granted McKesson's motion to transfer the
case to the Northern District of California. On April 20, 2001, the Hess
plaintiffs filed an objection to consolidation of the Hess action with the
Consolidated Action which McKesson opposed. By order dated November 1, 2001,
Judge Whyte overruled the Hess plaintiffs' objection to consolidation and
ordered Hess consolidated with the Consolidated Action for pretrial purposes.
Judge Whyte also stayed all further proceedings in Hess except for the filing of
an amended complaint. The Hess plaintiffs filed their amended complaint on or
about December 15, 2001 (the "Hess Amended Complaint"). The Hess Amended
Complaint generally incorporated the allegations and claims asserted in Lead
Plaintiff's SAC in the Consolidated Action and also included various common law
causes of action relating to McKesson's acquisition of Ephrata. The Company is
not currently required to respond to the Hess Amended Complaint.
On June 28, 2001, the Chang plaintiffs filed an amended complaint against
McKesson, HBOC, certain current or former officers or directors of McKesson or
HBOC, and The Chase Manhattan Bank. The amended complaint in Chang generally
alleges that the defendants breached their fiduciary duties in connection with
administering the McKesson HBOC Profit Sharing Investment Plan (the "PSI Plan")
and the HBOC Profit Sharing and Savings Plan (the "HBOC Plan"). The amended
complaint adds two new plaintiffs, both of whom are alleged to be former
employees of McKesson and participants in the PSI Plan,
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and purportedly seeks relief under sections 404-405, 409 and 502 of ERISA on
behalf of a class defined to include participants in the PSI Plan, including
participants under the HBOC Plan, who maintained an account balance under the
PSI Plan as of April 27, 1999, and who had not received a distribution from the
PSI Plan as of April 27, 1999, and who suffered losses as a result of the
alleged breaches of duty. On October 12, 2001, McKesson, HBOC and Chase moved to
dismiss the Chang action. Plaintiffs filed their opposition on December 14,
2001. McKesson's motion to dismiss is currently set for hearing on February 15,
2002, but the parties have agreed to continue the hearing until March 8, 2002,
subject to court approval.
Finally, on July 27, 2001, an action was filed in the United States District
Court for the Northern District of California captioned Pacha, et al., v.
McKesson HBOC, Inc., et al., (No. C01-20713 PVT) ("Pacha"). The Pacha plaintiffs
allege that they were individual shareholders of McKesson stock on November 27,
1998, and assert that McKesson and HBOC violated Section 14(a) of the Exchange
Act and SEC Rule 14a-9, and that McKesson, aided by HBOC, breached its fiduciary
duties to plaintiffs by issuing a joint proxy statement in connection with the
McKesson-HBOC merger which allegedly contained false and misleading statements
or omissions. Plaintiffs name as defendants McKesson, HBOC, certain current or
former officers or directors of McKesson or HBOC, Arthur Andersen and Bear
Stearns. The action has been assigned to the Honorable Ronald M. Whyte, the
judge overseeing the Consolidated Action. On September 25, 2001, the Pacha
plaintiffs filed an application with the Court requesting that their action not
be consolidated with the Consolidated Action. McKesson and HBOC filed an
opposition to that application on October 3, 2001, and on November 13, 2001,
Judge Whyte ordered Pacha consolidated with the Consolidated Action and stayed
all further proceedings.
State Actions
Twenty-one actions have also been filed in various state courts in California,
Colorado, Delaware, Georgia, Louisiana and Pennsylvania (the "State Actions").
Like the Consolidated Action, the State Actions generally allege misconduct by
the defendants in connection with the events leading to McKesson's need to
restate HBOC's financial statements.
Two of the State Actions are derivative actions: Ash, et al. v. McCall, et al.,
(Case No. 17132), filed in the Delaware Chancery Court and Mitchell v. McCall et
al., (Case. No. 304415), filed in California Superior Court, City and County of
San Francisco. McKesson moved to dismiss both of these actions and to stay the
Mitchell action in favor of the earlier filed Ash and Cohen derivative actions.
Plaintiffs in Mitchell agreed to defer any action by the court on McKesson's
motions pending resolution of McKesson's dismissal motion in Ash. On September
15, 2000, the Ash court dismissed all causes of action with leave to replead
certain of the dismissed claims, and on January 22, 2001, the Ash plaintiffs
filed a Third Amended Complaint which is presently the subject of McKesson's
motion to dismiss.
Five of the State Actions are class actions. Three of these were filed in
Delaware Chancery
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Court: Derdiger v. Tallman et al., (Case No. 17276), Carroll v. McKesson HBOC,
Inc., (Case No. 17454), and Kelly v. McKesson HBOC, Inc., et al., (Case No.
17282 NC). Two additional actions were filed in Delaware Superior Court:
Edmondson v. McKesson HBOC, Inc., (Case No. 99-951) and Caravetta v. McKesson
HBOC, Inc., (Case No. 00C-04-214 WTQ). The Carroll and Kelly actions have been
voluntarily dismissed without prejudice. McKesson has removed Edmondson to
Federal Court in Delaware where plaintiffs have filed a motion to remand, which
is pending. McKesson's motions to stay the Derdiger and Caravetta actions in
favor of proceedings in the federal Consolidated Action have been granted. The
plaintiff in the Derdiger action has filed a motion to vacate the stay, but the
motion has not yet been briefed or heard by the Court.
Fourteen of the State Actions are individual actions which have been filed in
various state courts. Four of these were filed in the California Superior Court,
City and County of San Francisco: Yurick v. McKesson HBOC, Inc. et al.,(Case No.
303857), The State of Oregon by and through the Oregon Public Employees
Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 307619), Utah State
Retirement Board v. McKesson HBOC, Inc. et al., (Case No. 311269), and Minnesota
State Board of Investment v. McKesson HBOC, Inc. et al., (Case No. 311747). In
Yurick, the trial court sustained McKesson's demurrer to the original complaint
without leave to amend with respect to all causes of action, except the claims
for common law fraud and negligent misrepresentation as to which amendment was
allowed. The Court also stayed Yurick pending the commencement of discovery in
the Consolidated Action, but allowed the filing of an amended complaint. On May
23, 2001, the California Court of Appeals affirmed the Yurick trial court's
order dismissing claims against certain of the individual defendants in the
action without leave to amend. On July 31, 2001, McKesson's demurrer to the
Second Amended Complaint was overruled and McKesson's alternative motion to
strike was denied.
The Oregon, Utah and Minnesota actions referenced above are individual
securities actions filed in the California Superior Court for the City and
County of San Francisco by out-of-state pension funds. On April 20, 2001,
plaintiffs in Utah and Minnesota filed amended complaints against McKesson,
HBOC, certain current or former officers or directors of McKesson or HBOC,
Arthur Andersen and Bear Stearns. The amended complaints in Utah and Minnesota
assert claims under California's and Georgia's securities laws, claims under
Georgia's RICO statute, and various common law claims under California and
Georgia law. On June 22, 2001, McKesson and HBOC demurred to and moved to strike
portions of the amended complaints and also moved to stay these actions pending
the final resolution of the Consolidated Action. The court held a partial
hearing on McKesson's demurrers and motions to strike on November 15, 2001, and
is currently scheduled to complete that hearing on January 29, 2002. By order
dated December 3, 2001, the court denied McKesson's motion to stay but ordered
that all discovery in the Utah and Minnesota actions would be stayed pending the
commencement of discovery in the Consolidated Action.
On May 30, 2001, plaintiffs in Oregon filed a second amended complaint against
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McKesson, HBOC, certain current or former officers or directors of McKesson or
HBOC, and Arthur Andersen. The second amended complaint in Oregon asserts claims
under California's and Georgia's securities laws, claims under Georgia's RICO
statute, and various common law claims under California and Georgia law. The
parties to the Oregon action previously agreed to a stay of all proceedings in
that action, other than motions to test the sufficiency of the pleadings,
pending the commencement of discovery in the Consolidated Action. On April 4,
2001, the plaintiff in Oregon filed a motion to lift the stipulated stay of
discovery, which McKesson and HBOC opposed. McKesson also moved the court for an
order modifying the stipulated stay to stay all proceedings in the action
pending the final resolution of the Consolidated Action. Also on June 22, 2001,
McKesson and HBOC demurred to and moved to strike portions of Oregon's second
amended complaint. The court held a partial hearing on McKesson's demurrers and
motions to strike on November 15, 2001, and is currently scheduled to complete
that hearing on January 29, 2002. To our knowledge, the court has not issued a
written order on Oregon's motion to lift the stipulated stay or McKesson and
HBOC's motion to modify the stipulated stay. However, it is our understanding
that, at the November 15, 2001, hearing, the court stayed all discovery in the
Oregon action pending the commencement of discovery in the Consolidated Action.
Several individual actions have been filed in various state courts outside of
California. Six of these cases have been filed in Georgia state courts: Moulton
v. McKesson HBOC, Inc. et al., (Case No. 98-13176-9), involving a former HBOC
employee's claims for unpaid commissions, claims under Georgia's securities and
racketeering laws, as well as various common law causes of action, has been
settled and dismissed with prejudice. Powell v. McKesson HBOC, Inc. et al.,
(Case No. 2000-CV-27864), involving a former HBOC employee's claims for unpaid
commissions, claims under Georgia's securities and racketeering laws, as well as
various common law causes of action has been settled in principle. On December
12, 2001, an action was filed in Georgia State Court in Fulton County captioned:
Drake v. McKesson Corporation et al., (No. 01VS026303A). Drake is an action by a
former HBOC employee for unpaid commissions and includes common law claims and
claims under Georgia's securities and racketeering laws. The Company's response
to the Drake complaint is due on February 15, 2002. In Adler v. McKesson HBOC,
Inc. et al., (Case No. 99-C-7980-3), a former HBOC shareholder asserts a claim
for common law fraud. The Georgia Court of Appeals has granted interlocutory
review of a discovery order issued in Adler. At this time discovery is underway.
There is no currently scheduled trial date. Suffolk Partners Limited Partnership
et al. v. McKesson HBOC, Inc. et al., (Case No.00-VS-010469A) and Curran
Partners, L.P. v. McKesson HBOC, Inc. et al.,(Case No. 00-VS-010801) are related
actions brought on behalf of individual shareholders and assert claims based on
Georgia securities, racketeering and common law claims. McKesson and HBOC's
motion to stay both the Suffolk and Curran actions in favor of proceedings in
the federal Consolidated Action has been granted.
Three individual state court cases have been filed in Delaware, Pennsylvania or
Colorado. Grant v. McKesson HBOC, Inc., (C.A. No. 99-03978) was filed on May 12,
1999 in the Pennsylvania Court of Common Pleas, Chester County. The Grant case
relates to
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McKesson's acquisition of Keystone/Ozone Pure Water Company ("Keystone").
Plaintiffs are former shareholders of Keystone who received McKesson shares in
exchange for their shares in Keystone pursuant to a merger agreement between
plaintiffs and one of McKesson's subsidiaries consummated shortly before the
HBOC transaction. On March 6, 2001, the Court denied McKesson's motion to stay
and dismissed with prejudice all plaintiffs' claims except for those based on
breach of contract and negligent misrepresentation. A settlement in principle
has been reached in Grant which will have no material impact on the McKesson. On
September 28, 1999, an action was filed in Delaware Superior Court under the
caption Kelly v. McKesson HBOC, Inc. et al., (C.A. No. 99C-09-265 WCC).
Plaintiffs in Kelly are former shareholders of KWS&P/ SFA, which merged into
McKesson after the HBOC transaction. Plaintiffs assert claims under the federal
securities laws, as well as claims for breach of contract and breach of the duty
of good faith and fair dealing. On January 17, 2002, the court issued a decision
in Kelly denying the plaintiffs' motion for partial summary judgment and denying
McKesson's motion to dismiss the complaint for failure to state a claim. On
October 19, 1999, an individual action was filed in Colorado District Court,
Boulder County, under the caption American Healthcare Fund II v. HBO & Company
et al., (Case No. 00-CV-1762). American Healthcare involved contract and
interference with contract claims brought against McKesson and HBOC by certain
former shareholders of Access Health Inc., a company acquired by HBOC in
December of 1998. American Healthcare has been settled and was dismissed with
prejudice on October 24, 2001, and that resolution had no material impact on the
Company.
The United States Attorneys' Office and the Securities and Exchange Commission
have commenced investigations into the matters leading to the restatement. On
May 15, 2000, the United States Attorney's Office filed a one-count information
against former HBOC officer, Dominick DeRosa, charging Mr. DeRosa with aiding
and abetting securities fraud, and on May 15, 2000, Mr. DeRosa entered a guilty
plea to that charge. On September 28, 2000, an indictment was unsealed in the
Northern District of California against former HBOC officer, Jay P. Gilbertson,
and former McKesson and HBOC officer, Albert J. Bergonzi (United States v.
Bergonzi, et al., Case No. CR-00-0505). On that same date, a civil complaint was
filed by the Securities and Exchange Commission against Mr. Gilbertson, Mr.
Bergonzi and Mr. DeRosa (Securities and Exchange Commission v. Gilbertson, et
al., Case No. C-00-3570). Mr. DeRosa has settled with the Securities Exchange
Commission without admitting or denying the substantive allegations of the
complaint. On January 10, 2001, the grand jury returned a superseding indictment
in the Northern District of California against Messrs. Gilbertson and Bergonzi
(United States v. Bergonzi, et al., Case No. CR-00-0505). On September 27, 2001,
the Securities and Exchange Commission filed securities fraud charges against
six former HBOC officers and employees. Simultaneous with the filing of the
Commission's civil complaints, four of the six defendants settled the claims
brought against them by, among other things, consenting, without admitting or
denying the allegations of the complaints, to entry of permanent injunctions
against all of the alleged violations, and agreed to pay civil penalties in
various amounts. On January 3, 2002, McKesson was notified in writing by the
Staff of the Securities and Exchange Commission that its investigation of
McKesson has been terminated, and that no enforcement action with respect
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to McKesson has been recommended to the Commission.
McKesson does not believe it is feasible to predict or determine the outcome or
resolution of the accounting litigation proceedings, or to estimate the amounts
of, or potential range of, loss with respect to the above-mentioned proceedings.
In addition, the timing of the final resolution of these proceedings is
uncertain. The range of possible resolutions of these proceedings could include
judgments against McKesson or HBOC or settlements that could require substantial
payments by McKesson or HBOC, which could have a material adverse impact on
McKesson's financial position, results of operations and cash flows.
Other Litigation 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:
Antitrust Matters
We are currently a defendant in numerous civil antitrust actions filed since
1993 in federal and state courts by retail pharmacies. The federal cases were
coordinated for pretrial purposes in the United States District Court in the
Northern District of Illinois and are known as MDL 997. MDL 997 consists of
approximately 109 actions brought by approximately 3,500 individual retail,
chain and supermarket pharmacies (the "Individual Actions"). In 1999, the court
dismissed a related class action following a judgment as a matter of law entered
in favor of defendants which was unsuccessfully appealed. There are numerous
other defendants in these actions including several pharmaceutical manufacturers
and several other wholesale distributors. These cases allege, in essence, that
the defendants have violated the Sherman Act by conspiring to fix the prices of
brand name pharmaceuticals sold to plaintiffs at artificially high, and
non-competitive levels, especially as compared with the prices charged to mail
order pharmacies, managed care organizations and other institutional buyers. The
wholesalers' motion for summary judgment in the Individual Actions has been
granted. Plaintiffs have appealed to the Seventh Circuit. Most of the individual
cases brought by chain stores have been settled. The Judicial Panel on
Multidistrict Litigation recommended remand of the Sherman Act claims in MDL 997
and on November 2, 2001, the court remanded those claims to their original
jurisdictions.
State court antitrust cases against us are currently pending in California and
Mississippi. The state cases are based on essentially the same facts alleged in
the Federal Class Action and Individual Actions and assert violations of state
antitrust and/or unfair competition laws. The case (Paradise Drugs, et al. v.
Abbott Laboratories, et al., Case No. CV793852) was filed in the Superior Court
of the County of Santa Clara and was transferred to the Superior Court for the
County of San Francisco. The case is trailing MDL 997. The case in Mississippi
(Montgomery Drug Co., et al. v. The Upjohn Co., et al.) is pending in the
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Chancery Court of Prentiss County Mississippi. The Chancery Court has held that
the case may not be maintained as a class action.
In each of the cases, plaintiffs seek remedies in the form of injunctive relief
and unquantified monetary damages, attorneys' fees and costs. Plaintiffs in the
California cases also seek restitution. In addition, treble damages are sought
in the Individual Actions and the California case. We and other wholesalers have
entered into a judgment sharing agreement with certain pharmaceutical
manufacturer defendants, which provides generally that we, together with the
other wholesale distributor defendants, will be held harmless by such
pharmaceutical manufacturer defendants and will be indemnified against the costs
of adverse judgments, if any, against the wholesaler and manufacturers in these
or similar actions, in excess of $1 million in the aggregate per wholesale
distributor defendant.
FoxMeyer Litigation
In January 1997, we and twelve pharmaceutical manufacturers (the "Manufacturer
Defendants") were named as defendants in the matter of FoxMeyer Health
Corporation vs. McKesson, et al. (Case No. 97 00311) filed in the District Court
in Dallas County, Texas (the "Texas Action"). Plaintiff, now known as Avatex
Corporation ("Avatex"), was the parent corporation of FoxMeyer Drug Company,
FoxMeyer Corporation and certain other subsidiaries (collectively "FoxMeyer
Corporation") which, in August 1996, filed bankruptcy petitions in the United
States Bankruptcy Court for the District of Delaware (the "Delaware court"). In
November 1996, we acquired substantially all of the assets of FoxMeyer
Corporation in a sale approved by the Delaware court.
In the Texas Action, Avatex alleged, among other things, that we (1) defrauded
Avatex, (2) competed unfairly and tortiously interfered with FoxMeyer
Corporation's business operations, and (3) conspired with the Manufacturer
Defendants, all in order to destroy FoxMeyer Corporation's business, restrain
trade and monopolize the marketplace, and allow us to purchase that business at
a distressed price. Avatex sought compensatory damages of at least $400 million,
punitive damages, attorneys' fees and costs. We removed the case to bankruptcy
court in Dallas and moved to transfer it to the Delaware court.
In March 1997, we and the Manufacturer Defendants intervened in an action filed
by the FoxMeyer Unsecured Creditors Committee in the Delaware court to enjoin
Avatex from pursuing the Texas Action (the "Delaware Actions"). The complaint in
intervention sought declaratory relief and an order enjoining Avatex from
pursuing the Texas Action.
In May 1997, a trustee (the "Trustee") was appointed in the FoxMeyer Corporation
bankruptcy cases, and he then intervened as a plaintiff in the Texas Action,
asserting that if there was any recovery in that action, it belonged to FoxMeyer
Corporation, not Avatex. Thereafter, we answered Avatex's complaint, denied the
allegations and filed counterclaims against Avatex, FoxMeyer Corporation and the
Trustee, and third party claims against certain officers and directors of
Avatex, asserting various claims of misrepresentation and
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breach of contract.
In November 1998, the Delaware court granted our motion for summary judgment to
preclude Avatex from pursuing the first three counts asserted in the Texas
Action on the ground of judicial estoppel. We filed a renewed motion for summary
judgment to preclude the four remaining counts of Avatex's complaint in the
Texas Action which was denied without prejudice by the Delaware court on August
9, 1999. In addition, we filed cross-claims against FoxMeyer Corporation and the
Trustee seeking the same relief as sought in our complaint against Avatex.
Based on the Delaware court's order granting summary judgment as to the first
three counts, the Texas bankruptcy court dismissed those counts with prejudice
and ordered the Texas Action remanded to state court. We and the Manufacturer
Defendants appealed the remand ruling, as well as an August 1997 ruling denying
defendants' motion to transfer the Texas Action to Delaware, to the federal
district court, and Avatex cross-appealed the order dismissing the first three
counts with prejudice. The federal district court upheld the remand order and
denied as moot the appeal from the order denying transfer on May 17, 1999, and
affirmed the order dismissing the first three counts with prejudice on March 28,
2001. We and several of the other defendants appealed to the federal court of
appeals the ruling upholding the order denying transfer but subsequently moved
to dismiss the appeal with prejudice, which motion was granted and the appeal
was dismissed on October 4, 1999. Avatex appealed to the federal court of
appeals the ruling affirming the Texas bankruptcy court's dismissal with
prejudice of the first three counts of Avatex's complaint.
As a result, the Texas Action was pending in Texas state court. All of the
Manufacturer Defendants settled with Avatex. On February 28, 2001, we settled
with the Trustee resulting in a mutual release of all claims asserted in the
Delaware litigation and the Texas Action between us and FoxMeyer Corporation. On
April 26, 2001, our settlement with the Trustee was approved by the Delaware
bankruptcy court. Avatex amended its complaint to add claims for unjust
enrichment and constructive trust seeking damages of at least $700 million, and
we denied the allegations underlying these claims. We filed two dispositive
motions seeking the dismissal of the remaining claims asserted by Avatex. After
completing discovery on the merits of the various claims remaining in the Texas
Action, we and Avatex settled all claims on December 6, 2001. As a result, the
Delaware Action and the Texas Action have been dismissed with prejudice, and
that resolution had no material impact on the Company.
Product Liability Litigation
We have been named as a defendant, or have received from customers tenders of
defense, in thirteen pending cases alleging injury due to the diet drug
combination of fenfluramine or dexfenfluramine and phentermine. All of the cases
are pending in the state courts of California and New Jersey. Our tender of the
cases to the manufacturers of the drugs has been accepted and the manufacturer
is paying for counsel and fully indemnifying us for
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judgments or settlements arising from our distribution of the manufacturer's
products.
Certain of our subsidiaries, MGM and RedLine, are two of the defendants in
approximately ninety cases in which plaintiffs claim that they were injured due
to exposure, over many years, to the latex proteins in gloves manufactured by
numerous manufacturers and distributed by a number of distributors, including
MGM and RedLine. Efforts to resolve tenders of defense to their suppliers are
continuing and a tentative final agreement has been reached with one major
supplier. MGM and RedLine's insurers are providing coverage for these cases,
subject to the applicable deductibles.
There is one remaining state court class action in South Carolina filed against
MGM on behalf of all health care workers in that state who suffered accidental
needle sticks that exposed them to potentially contaminated bodily fluids,
arising from MGM's distribution of allegedly defective syringes. MGM's suppliers
of the syringes are also named defendants in this action. The tender of all
cases has been accepted by the two major suppliers. By this acceptance, these
suppliers are paying for separate distributors' counsel and have agreed to fully
indemnify us for any judgments in these cases arising from its distribution of
their products.
We, along with 134 other companies, have been named in a lawsuit brought by the
Lemelson Medical, Educational & Research Foundation ("the Foundation") alleging
that we and our subsidiaries are infringing seven 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. The Foundation seeks to enter into a license agreement with us,
the lump sum fee for which would be based upon a fraction of a percent of our
overall revenues over the past ten years. Due to the pendency of earlier
litigation brought against the Foundation attacking the validity of the patents
at issue, the court has stayed the action until the conclusion of the earlier
case. We are assessing our potential exposure and evaluating the Foundation's
claim with the assistance of expert patent counsel, after which we will
determine an appropriate course of action.
Environmental Matters
Primarily as a result of the operation of our former chemical businesses, which
were divested in fiscal 1987, we are involved in various matters pursuant to
environmental laws and regulations. We have received claims and demands from
governmental agencies relating to investigative and remedial action purportedly
required to address environmental conditions alleged to exist at five sites
where we, or entities acquired by us, formerly conducted operations; and we, by
administrative order or otherwise, have agreed to take certain actions at those
sites, including soil and groundwater remediation.
Based on a determination by our environmental staff, in consultation with
outside environmental specialists and counsel, the current estimate of
reasonably possible remediation costs for these five sites is approximately $13
million, net of approximately $1.5 million which
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third parties have agreed to pay in settlement or which we expect, based either
on agreements or nonrefundable contributions which are ongoing, to be
contributed by third parties. The $13 million is expected to be paid out between
April 2001 and March 2029 and is included in our recorded environmental
liabilities at March 31, 2001.
In addition, we have been designated as a potentially responsible party, or PRP,
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 (as amended, the "Superfund" law or its state law equivalent) for
environmental assessment and cleanup costs as the result of our alleged disposal
of hazardous substances at 21 sites. With respect to each of 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. Our
estimated liability at those 21 PRP sites is approximately $1.5 million. The
aggregate settlements and costs paid by us in Superfund matters to date have not
been significant. The $1.5 million is included in our recorded environmental
liabilities at March 31, 2001.
The potential costs to us related to environmental matters is uncertain due to
such factors as: the unknown magnitude of possible pollution and cleanup costs;
the complexity and evolving nature of governmental laws and regulations and
their interpretations; the timing, varying costs and effectiveness of
alternative cleanup technologies; the determination of our liability in
proportion to other PRPs; and the extent, if any, to which such costs are
recover able from insurance or other parties.
Except as specifically stated above with respect to the litigation matters
summarized under "Accounting Litigation" above, we believe, based on current
knowledge and the advice of our counsel, that the outcome of the litigation and
governmental proceedings discussed under "Legal Proceedings" will not have a
material adverse effect on our financial position, results of operations or cash
flows.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
99.1 Press Release issued by the Company on January 22, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
McKESSON CORPORATION
Date: January 23, 2002 By: /s/ William R. Graber
----------------------
Name: William R. Graber
Title: Senior Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Press Release issued by the Company on January 22, 2002.
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