McKesson 2009 Annual Report Download - page 95

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
89
In 2007, we recorded a credit to current income tax expense of $83 million which primarily pertained to our
receipt of a private letter ruling from the IRS holding that our payment of approximately $960 million to settle our
Consolidated Securities Litigation Action (refer to Financial Note 18, “Other Commitments and Contingent
Liabilities,” for further discussion) is fully tax-deductible. We previously established tax reserves to reflect the lack
of certainty regarding the tax deductibility of settlement amounts paid in the Consolidated Securities Litigation
Action and related litigation. In 2007, we also recorded $24 million in income tax benefits arising primarily from
settlements and adjustments with various taxing authorities and research and development investment tax credits
from our Canadian operations.
Significant judgments and estimates are required in determining the consolidated income tax provision.
Although our major taxing jurisdictions are the U.S. and Canada, we are subject to income taxes in numerous
foreign jurisdictions. Annually, we file a federal consolidated income tax return with the IRS, and over 1,200
returns with various state and foreign jurisdictions. Our income tax expense, deferred tax assets and liabilities
reflect management’s best assessment of estimated current and future taxes to be paid.
The reconciliation between the Company’s effective tax rate on income from continuing operations and the
statutory tax rate is as follows:
Years Ended March 31,
(In millions) 2009 2008 2007
Income tax provision at federal statutory rate $ 372 $ 510 $ 454
State and local income taxes net of federal tax benefit 18 43 34
Foreign tax rate differential (120) (120) (104)
Consolidated Securities Litigation Action reserve - - (83)
Unrecognized tax benefits and settlements (21) 31 44
Tax credits (20) (16) (5)
Other, net 12 20 (11)
Income tax provision $ 241 $ 468 $ 329
At March 31, 2009, undistributed earnings of our foreign operations totaling $1,836 million were considered to
be permanently reinvested. No deferred tax liability has been recognized for the remittance of such earnings to the
U.S. since it is our intention to utilize those earnings in the foreign operations as well as to fund certain research and
development activities for an indefinite period of time, or to repatriate such earnings when it is tax efficient to do so.
The determination of the amount of deferred taxes on these earnings is not practicable because the computation
would depend on a number of factors that cannot be known until a decision to repatriate the earnings is made.