Cardinal Health 2009 Annual Report Download - page 113

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an indefinite carryforward period. Approximately $136.3 million of the valuation allowance at June 30, 2009
applies to certain federal, international, and state and local carryforwards that, in the opinion of management, are
more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards
are realized in the future, the reduction in the valuation allowance would reduce income tax expense.
Effective July 1, 2007, the Company adopted the provisions of FIN No. 48, resulting in a $139.3 million
reduction of retained earnings. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in
the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation
provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that
the position will be sustained upon examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit
that is greater than 50% likely of being realized upon settlement. This interpretation also provides guidance on
measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition.
The Company had $848.8 million and $762.9 million of unrecognized tax benefits at June 30, 2009 and
June 30, 2008, respectively. Included in the June 30, 2009 and June 30, 2008 balances are $610.9 million and
$547.9 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the
effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility
is highly certain but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax
benefits would not affect the Company’s effective tax rate. The Company includes the full amount of
unrecognized tax benefits in deferred income taxes and other liabilities in the consolidated balance sheets. A
reconciliation of the beginning and ending amounts of unrecognized tax benefits for fiscal 2009 and 2008 is as
follows:
June 30,
(in millions) 2009 2008
Balance at beginning of fiscal year .............................. $762.9 $596.6
Additions for tax positions of the current year ..................... 64.5 83.3
Additions for tax positions of prior years ......................... 118.7 189.4
Reductions for tax positions of prior years ........................ (54.3) (75.6)
Settlements with tax authorities ................................ (37.8) (7.8)
Expiration of the statute of limitations ........................... (5.2) (23.0)
Balance at end of fiscal year ................................... $848.8 $762.9
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax
expense. As of June 30, 2009 and June 30, 2008, the Company had $246.8 million and $195.4 million,
respectively, accrued for the payment of interest and penalties. These balances are gross amounts before any tax
benefits and are included in deferred income taxes and other liabilities in the condensed consolidated balance
sheets. For the year ended June 30, 2009, the Company recognized $51.3 million of interest and penalties in the
consolidated statement of earnings.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and
various foreign jurisdictions. With few exceptions, the Company is subject to audit by taxing authorities for fiscal
years ending June 30, 2001 through the current fiscal year.
The Internal Revenue Service (“IRS”) currently has ongoing audits of fiscal years 2001 through 2007.
During the three months ended December 31, 2007, the Company was notified that the IRS has transferred
jurisdiction over fiscal years 2001 and 2002 from the Office of Appeals back to the Examinations level to
reconsider previously-unadjusted specific issues. During the three months ended March 31, 2008, the Company
received Notices of Proposed Adjustment (“NPA’s”) from the IRS related to fiscal years 2001 through 2005
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