Cardinal Health 2010 Annual Report Download - page 88

A
t June 30, 2010, we had gross federal, state and international loss and credit carryforwards of
$
159.
1
million,
$
538.9 million and
$
168.6 million, respectively, the tax effect of which is an aggregate deferred tax asset
o
f
$
197.1 million. Substantially all of these carryforwards are available for at least three years or have an
indefinite carryforward period. Approximately
$
142.7 million of the valuation allowance at June 30, 2010 applie
s
to certain federal, state and international loss carryforwards that, in our opinion, are more likely than not t
o
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 ex
p
ense.
E
ffective July 1, 2007, we adopted new accounting guidance regarding the accounting for tax benefits fro
m
uncertain tax positions, resulting in a
$
139.3 million reduction of retained earnings. This accounting guidance
p
rovides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not tha
t
the position will be sustained upon examination, including resolutions of any related appeals or litigation
p
rocesses, based on the technical merits. The amount recognized is measured as the largest amount of tax benefit
that is greater than
5
0% likely of being realized upon settlement. This interpretation also provides guidance on
measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure an
d
transition.
We had
$
730.6 million and
$
848.8 million of unrecognized tax benefits at June 30, 2010 and June 30, 2009,
r
espectively. Included in the June 30, 2010 and June 30, 2009 balances are
$
311.3 million and
$
610.9 million
,
r
espectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. Th
e
r
emaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain bu
t
f
or which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not
affect our effective tax rate. We include 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 o
f
unrecognized tax benefits for fiscal 2010 and 2009 is as follows
:
J
une
30,
(
in millions
)
2010
2009
2008
B
alance at beginning of fiscal year
.
....................
$
848.8
$
762.9
$
596.6
Additions for tax positions of the current yea
r
............
43.1 64.
5
83.3
Additions for tax positions of prior year
s
................
90
.
0 118
.7
189
.
4
R
eductions for tax positions of prior year
s
...............
(
240.0) (
5
4.3) (7
5
.6)
Settlements with tax authorities
.......................
(10
.7
)(3
7.
8) (
7.
8)
Ex
p
iration of the statute of limitation
s
..................
(0.6) (
5
.2) (23.0)
B
a
l
ance at en
d
o
ffi
sca
l
year ..........................
$
730.6
$
848.8
$
762.9
We reco
g
n
i
ze accrue
di
nterest an
d
pena
l
t
i
es re
l
ate
d
to unreco
g
n
i
ze
d
tax
b
ene
fi
ts
i
n
i
ncome tax expense. A
s
o
f June 30, 2010 and June 30, 2009, we had
$
233.0 million and
$
246.8 million, respectively, accrued for the
p
ayment o
fi
nterest an
d
pena
l
t
i
es. T
h
ese
b
a
l
ances are gross amounts
b
e
f
ore any tax
b
ene
fi
ts an
d
are
i
nc
l
u
d
e
din
d
e
f
erre
di
ncome taxes an
d
ot
h
er
li
a
bili
t
i
es
i
nt
h
e conso
lid
ate
db
a
l
ance s
h
eets. For t
h
e year en
d
e
d
June 30, 2010
,
we recognized $34.5 million of interest and penalties in income tax expense
.
We
fil
e
i
ncome tax returns
i
nt
h
e U.S.
f
e
d
era
lj
ur
i
s
di
ct
i
on, var
i
ous U.S. state
j
ur
i
s
di
ct
i
ons an
d
var
i
ou
s
f
ore
i
gn
j
ur
i
s
di
ct
i
ons. W
i
t
hf
ew except
i
ons, we are su
bj
ect to au
di
t
b
y tax
i
ng aut
h
or
i
t
i
es
f
or
fi
sca
l
2001 t
h
roug
h
t
h
e current
fi
sca
l
year.
T
h
e Interna
l
Revenue Serv
i
ce (“IRS”) current
ly h
as on
g
o
i
n
g
au
di
ts o
ffi
sca
l
2001 t
h
rou
gh
2007. Dur
i
n
g
fi
sca
l
2008, we were not
ifi
e
d
t
h
at t
h
e IRS
h
as trans
f
erre
dj
ur
i
s
di
ct
i
on over
fi
sca
ly
ears 2001 an
d
2002
f
rom t
he
O
ffi
ce o
f
Appea
l
s
b
ac
k
to t
h
e Exam
i
nat
i
ons
l
eve
l
to recons
id
er prev
i
ous
ly
-una
dj
uste
d
spec
ifi
c
i
ssues. Dur
i
n
g
fi
sca
l
2008, we rece
i
ve
d
Not
i
ces o
f
Propose
d
A
dj
ustment (“NPA’s”)
f
rom t
h
e IRS re
l
ate
d
to
fi
sca
ly
ears 2001
throu
g
h 2005 challen
g
in
g
deductions arisin
g
from the sale of trade receivables to a special purpose account
s
62