McKesson: $960M to settle class lawsuit
McKesson Corp. announced this week that it has reached an agreement to settle the consolidated securities class action suit arising out of a 1999 financial restatement pending against it and its subsidiary, the former HBO & Co. Inc. (HBOC).
Under the agreement, McKesson will pay shareholders $960 million to settle the class action lawsuit. The consolidated securities class action, which is described in more detail in the company's Form 10-K for its fiscal year ended March 31, 2004, was initiated following the discovery in April 1999 of accounting improprieties at HBOC, which was acquired by McKesson in January 1999. After public disclosure of that discovery, McKesson's board promptly initiated an independent investigation that led to the Restatement.
Certain lawsuits brought independently by other stockholders of McKesson or HBOC arising from the restatement are expected to remain outstanding and not to be resolved by this settlement, McKesson said. McKesson is establishing additional reserves of $240 million, which the company believes will be adequate to address its remaining potential exposure.
The combination of the class action settlement announced this week and the decision by the company to establish reserves for the remaining HBOC restatement litigation arising out of the Restatement and related matters will result in an aggregate charge for McKesson's third fiscal quarter ended Dec. 31, 2004, of $1.2 billion pre-tax, $810 million after-tax, or approximately $2.70 per share.
"Today's agreement represents a significant step toward fully resolving the uncertainty related to this unfortunate chapter in the company's history and allows us to focus once again only on the future," said John Hammergren, McKesson's chairman and CEO.
"Since 2000, McKesson has made tremendous progress improving our operating and financial performance," continued Hammergren. "McKesson has a very strong balance sheet, with a low net debt to net capital ratio, and we expect to have no difficulty financing the settlement as payment becomes due later this calendar year. Following payment, we will continue to have a strong balance sheet that will provide financial flexibility to execute our strategy. McKesson can again be valued on the performance of our business without the distraction and uncertainty of the consolidated class action."
Under the agreement, McKesson will pay shareholders $960 million to settle the class action lawsuit. The consolidated securities class action, which is described in more detail in the company's Form 10-K for its fiscal year ended March 31, 2004, was initiated following the discovery in April 1999 of accounting improprieties at HBOC, which was acquired by McKesson in January 1999. After public disclosure of that discovery, McKesson's board promptly initiated an independent investigation that led to the Restatement.
Certain lawsuits brought independently by other stockholders of McKesson or HBOC arising from the restatement are expected to remain outstanding and not to be resolved by this settlement, McKesson said. McKesson is establishing additional reserves of $240 million, which the company believes will be adequate to address its remaining potential exposure.
The combination of the class action settlement announced this week and the decision by the company to establish reserves for the remaining HBOC restatement litigation arising out of the Restatement and related matters will result in an aggregate charge for McKesson's third fiscal quarter ended Dec. 31, 2004, of $1.2 billion pre-tax, $810 million after-tax, or approximately $2.70 per share.
"Today's agreement represents a significant step toward fully resolving the uncertainty related to this unfortunate chapter in the company's history and allows us to focus once again only on the future," said John Hammergren, McKesson's chairman and CEO.
"Since 2000, McKesson has made tremendous progress improving our operating and financial performance," continued Hammergren. "McKesson has a very strong balance sheet, with a low net debt to net capital ratio, and we expect to have no difficulty financing the settlement as payment becomes due later this calendar year. Following payment, we will continue to have a strong balance sheet that will provide financial flexibility to execute our strategy. McKesson can again be valued on the performance of our business without the distraction and uncertainty of the consolidated class action."