McKesson 2006 Annual Report Download - page 71

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
The following table summarizes the activity related to our restructuring liabilities, excluding customer settlement reserves, for the three
years ended March 31, 2006:
Restructuring expenses for 2004, excluding customer settlement reserve reversals, included $7 million of expenses associated with a number
of smaller initiatives, partially offset by $3 million of credits pertaining to adjustments to prior years’ restructuring reserves. There were no
material offsetting amounts for our 2006 and 2005 restructuring expenses.
Accrued restructuring liabilities are included in other liabilities in the consolidated balance sheets. In connection with the D&K acquisition,
we recorded $10 million of liabilities relating to employee severance costs and $30 million for facility exit and contract termination costs. We
anticipate that approximately 300 employees, consisting primarily of distribution, general and administrative staff, will be terminated as part of
this restructuring plan. As of March 31, 2006, $4 million and $4 million of these liabilities have been paid. The remaining severance liability of
$6 million is anticipated to be paid by the end of 2007, while the remaining facility exit and contract termination liability of $26 million is
anticipated to be paid at various dates through 2015. Additional restructuring costs are anticipated to be incurred as the business integration
plans are finalized.
In 2005 and 2004, we were still managing a 2001/2000 restructuring plan associated with customer settlements for the discontinuance of
overlapping and nonstrategic products and other product development projects within our Provider Technologies segment. Customer settlement
reserves were established, reviewed and assessed on a customer and contract specific basis, and actual settlements for each customer varied
significantly depending on the specific mix and number of products, and each customer’s contract or contracts. In 2004, we had significant
customer settlement activity, including the completion and execution of a number of the more difficult settlements. As of March 31, 2004, we
were substantially complete with our settlements and as a result, the customer settlement reserve was reduced by $66 million. In 2005, the
reserves were further reduced by $4 million based on additional favorable settlements. There were no significant offsetting changes in estimates
that increase the provision for customer settlements. Total cash and non-cash settlements of $45 million and $96 million have been incurred
since the inception of this restructuring plan. Non-cash settlements represent write-offs of customer receivables. As of March 31, 2005, accrued
customer settlement reserves were not material to our consolidated financial statements and the restructuring plan was essentially completed.
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5. Restructurin
g
Activities
Pharmaceutical Medical-Surgical Provider
Solutions Solutions Technologies Corporate
Exit- Exit- Exit-
(In millions) Severance Related Severance Related Severance Related Severance Total
Balance, March 31, 2003 $— $ 8 $ 2 $ 4 $ 1 $ 3 $ 14 $32
Expenses — (1) 2 (1)
—
— 4 4
Cash expenditures — (2) (2)(1)(1) (1) (7)(14)
Balance, March 31, 2004 — 5 2 2 — 2 11 22
Expenses — — 2
—
—
— — 2
Cash expenditures — (2) (3) (1)
—
(1) (10) (17)
Balance, March 31, 2005 — 3 1 1
—
1 1 7
Expenses — 1 (1)
—
—
— —
—
Liabilities related to the
acquisition of D&K 10 30
—
—
—
— — 40
Cash expenditures (4) (4)
—
(1)
—
(1) (1) (11)
Balance, March 31, 2006 $ 6 $30 $
—
$
—
$
—
$— $ — $ 36