McKesson 2005 Annual Report Download - page 67

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
The following table summarizes the activity related to the restructuring liabilities, excluding customer settlement reserves, for the three
years ended March 31, 2005:
Accrued restructuring liabilities are included in other liabilities in the consolidated balance sheets. In connection with the acquisition of
MMC in 2005, we recorded $1.7 million of liabilities for employee severance costs. The balances at March 31, 2004 for Corporate included
approximately $7 million of retirement costs, which were paid in April 2004.
In addition to the above restructuring activities, we are 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 contract or
contracts. In 2005, 2004 and 2003, we reversed $4.0 million, $66.4 million and $22.3 million of accrued customer settlement reserves into
operating expenses due to favorable settlements and negotiations with affected customers. There have been no significant offsetting changes in
estimates that increase the provision for customer settlements. Total cash and non-cash settlements of $45.3 million and $95.6 million have
been incurred since the inception of this restructuring plan. Non-cash settlements represent write-offs of customer receivables.
During the third quarter of 2003, we had completed, on a cumulative basis, settlements with 71% of our affected customers. Additionally,
we announced the general availability of a critical software component of our clinical strategy, which helped us refine our estimate of
customers expected to move forward with the clinical product replacements and provided a more favorable prognosis of remaining settlements.
Accordingly, we reversed $22.3 million of the customer settlement reserve in the fiscal year. In 2004, we had significant settlement activity,
including the completion and execution of a number of the more difficult customer settlements. As of March 31, 2004, we were substantially
complete (97%) with our customer settlements. As a result, the customer settlement reserve was reduced by $66.4 million. The reserves were
further reduced by $4.0 million based on favorable settlements finalized as of March 31, 2005. We do not anticipate additional significant
adjustments to the customer settlement reserves.
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Pharmaceutical Medical-Surgical Provider
Solutions Solutions Technologies Corporate
Exit- Exit- Exit- Exit-
(In millions) Severance Related Severance Related Severance Related Severance Related Total
Balance, March 31, 2002 $ 1.2 $ 4.4 $10.9 $14.3 $5.6 $4.5 $ 16.8 $ 0.3 $58.0
Current year expenses 0.8 1.1
—
—
—
— —
—
1.9
Adjustments to prior years’ expenses (0.3) 5.1 (5.5) (6.5) — — (0.8) — (8.0)
Net expense for the period 0.5 6.2 (5.5) (6.5)
—
— (0.8)
—
(6.1)
Cash expenditures (1.7) (2.5)(3.7)(3.8)(4.7)(1.5) (2.0) (0.3)(20.2)
Balance, March 31, 2003 — 8.1 1.7 4.0 0.9 3.0 14.0
—
31.7
Current year expenses 0.6 0.2 2.0 0.1
—
— 3.9
—
6.8
Adjustments to prior years’ expenses — (1.3) (0.4) (1.1)
—
(0.2) (0.3)
—
(3.3)
Net expense for the period 0.6 (1.1) 1.6 (1.0) — (0.2) 3.6 — 3.5
Cash expenditures (0.2) (1.8) (1.6) (1.1) (0.7) (0.9) (7.1)
—
(13.4)
Balance, March 31, 2004 0.4 5.2 1.7 1.9 0.2 1.9 10.5
—
21.8
Current year expenses — 0.2 0.7
—
—
— —
—
0.9
Adjustments to prior years’ expenses (0.1) 0.5 (0.2) (0.2) — (0.4) — — (0.4)
Net expense for the period (0.1) 0.7 0.5 (0.2)
—
(0.4) —
—
0.5
Liabilities related to the MMC
acquisition — — 1.7
—
—
— —
—
1.7
Cash expenditures (0.3) (2.6) (3.0) (0.6) — (0.5) (10.0) — (17.0)
Balance, March 31, 2005 $ — $ 3.3 $0.9 $1.1 $0.2 $1.0 $ 0.5 $
—
$7.0