McKesson 2008 Annual Report Download - page 94

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
87
The following table summarizes the activity related to our gross unrecognized tax benefits from March 31, 2007
to March 31, 2008:
(In millions)
Unrecognized
Tax Benefits
Balance at March 31, 2007 $465
Additions based on tax positions related to current year 58
Reductions based on settlements (27)
Balance at March 31, 2008 $496
Of the total $496 million in unrecognized tax benefits at March 31, 2008, $318 million would reduce income
tax expense and the effective tax rate if recognized. We continue to report interest and penalties on tax deficiencies
as income tax expense. At March 31, 2008, before any tax benefits, our accrued interest on unrecognized tax
benefits amounted to $130 million and we recognized $31 million of interest expense, before any tax benefits, in our
consolidated statements of operations during 2008. We have no amounts accrued for penalties. It is reasonably
possible that audit resolutions and expiration of statutes of limitations could potentially reduce our unrecognized tax
benefits by up to $133 million during the next twelve months.
16. Financial Guarantees and Warranties
Financial Guarantees
We have agreements with certain of our customers’ financial institutions under which we have guaranteed the
repurchase of inventory (primarily for our Canadian business) at a discount in the event these customers are unable
to meet certain obligations to those financial institutions. Among other requirements, these inventories must be in
resalable condition. Customer guarantees range from one to seven years and were primarily provided to facilitate
financing for certain strategic customers. At March 31, 2008, the amounts of inventory repurchase guarantees and
other customer guarantees were $115 million and $5 million of which a nominal amount had been accrued.
At March 31, 2008, we had commitments of $2 million of cash contributions to our equity-held investments, for
which no amounts had been accrued.
The expirations of the above noted financial guarantees and commitments are as follows: $46 million, $20
million, $1 million, $1 million and nil from 2009 through 2013 and $54 million thereafter.
In addition, our banks and insurance companies have issued $101 million of standby letters of credit and surety
bonds on our behalf in order to meet the security requirements for statutory licenses and permits, court and fiduciary
obligations, and our workers’ compensation and automotive liability programs.
Our software license agreements generally include certain provisions for indemnifying customers against
liabilities if our software products infringe on a third party’ s intellectual property rights. To date, we have not
incurred any material costs as a result of such indemnification agreements and have not accrued any liabilities
related to such obligations.
In conjunction with certain transactions, primarily divestitures, we may provide routine indemnification
agreements (such as retention of previously existing environmental, tax and employee liabilities) whose terms vary
in duration and often are not explicitly defined. Where appropriate, obligations for such indemnifications are
recorded as liabilities. Because the amounts of these indemnification obligations often are not explicitly stated, the
overall maximum amount of these commitments cannot be reasonably estimated. Other than obligations recorded as
liabilities at the time of divestiture, we have historically not made significant payments as a result of these
indemnification provisions.