McKesson 2008 Annual Report Download - page 104

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
97
Impact on Net Income
The components of share-based compensation expense and the related tax benefit are shown in the following
table:
Years Ended March 31,
(In millions, except per share amounts) 2008 2007 2006
RSU and RS (1) $50$22$16
PeRSUs (2) 22 24 -
Stock options 11 7 -
Employee stock purchase plan 8 7 -
Share-based compensation expense 91 60 16
Tax benefit for share-based compensation expense (3) (31) (20) (6)
Share-based compensation expense, net of tax (4) $60$40$10
Impact of share-based compensation:
Earnings per share
Diluted $ 0.20 $ 0.13 $ 0.03
Basic 0.21 0.13 0.03
(1) Substantially all of the 2008 expense was the result of our 2007 PeRSUs that have been converted to RSUs in 2008 due to
the attainment of goals during the 2007 performance period.
(2) Represents estimated compensation expense for PeRSUs that are conditional upon attaining performance objectives during
the current year’ s performance period. These PeRSUs are expected to be granted in May 2008.
(3) Income tax expense is computed based on applicable tax jurisdictions. Additionally, a portion of pre-tax compensation
expense is not tax-deductible.
(4) No material share-based compensation expense was included in Discontinued Operations.
I. SFAS No. 123 Pro Forma Information for 2006
As described in Financial Note 1, prior to April 1, 2006 we accounted for our employee share-based
compensation plans using the intrinsic value method under APB Opinion No. 25. Had compensation expense for
our employee share-based compensation been recognized based on the fair value method, consistent with the
provisions of SFAS No. 123, net income and earnings per share would have been as follows:
Year Ended
March 31,
(In millions, except per share amounts) 2006
Net income, as reported $ 751
Compensation expense, net of tax:
APB Opinion No. 25 expense included in net income 10
SFAS No. 123 expense (66)
Pro forma net income $ 695
Earnings per common share:
Diluted – as reported $ 2.38
Diluted – pro forma 2.20
Basic – as reported 2.46
Basic – pro forma 2.27
In 2006 and 2005, we granted 5 million and 6 million employee stock options, substantially all of which vested
on or before March 31, 2006. The shortened vesting schedules at grant were approved by the Compensation
Committee of the Company’ s Board of Directors (“Compensation Committee”) for employee retention purposes and
in anticipation of the requirements of SFAS No. 123(R). Prior to 2005, stock options typically vested over a four
year period. Accordingly, SFAS No. 123 compensation expense for the 2006 employee stock options that were
fully vested prior to April 1, 2006 is reflected on the pro forma results above, but not recognized in our earnings
after the adoption of SFAS No. 123(R).