Cardinal Health 2015 Annual Report Download - page 16

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MD&A Results of Operations
15 Cardinal Health | Fiscal 2015 Form 10-K
Provision for Income Taxes
The provision for income taxes increased $120 million in fiscal 2015 over fiscal 2014 due to an increase in earnings before income taxes and
discontinued operations and an increase in our effective tax rate of 3.1 percentage points.
Generally, fluctuations in the effective tax rate are due to changes within international and U.S. state effective tax rates resulting from our
business mix and discrete items. A reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate
from continuing operations is as follows (see Note 8 of the "Notes to Consolidated Financial Statements" for a detailed disclosure of the effective
tax rate reconciliation):
2015 2014 2013
Provision at Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit 4.1 2.2 2.5
Foreign tax rate differential (2.4) (1.2) (4.0)
Nondeductible/nontaxable items 0.7 (0.2) (0.5)
Nondeductible goodwill impairment —— 33.2
Change in measurement of uncertain tax positions and impact of IRS settlements 0.9 (0.4) (5.7)
Other 0.1 (0.1) 1.8
Effective income tax rate 38.4% 35.3% 62.3%
Fiscal 2015
The fiscal 2015 effective income tax rate was impacted by the state
and local income tax rate, which increased 1.9 percentage points due
to the de-recognition of certain state tax benefits. The foreign tax rate
differential also increased 1.2 percentage points primarily due to
recognition of deferred tax benefits resulting from new tax legislation.
In addition, the change in measurement of uncertain tax positions
increased 1.3 percentage points primarily as a result of proposed
assessment of additional tax.
Ongoing Audits
The IRS is currently conducting audits of fiscal years 2006 through
2010.
Fiscal 2014
The fiscal 2014 effective tax rate was impacted by net favorable
discrete items of $37 million, which reduced the rate by 2.1 percentage
points. The discrete items include the favorable impact of the
settlement of federal and state tax controversies ($80 million) and
release of valuation allowances ($12 million) and the unfavorable
impact of remeasurement of unrecognized tax benefits ($65 million),
primarily as a result of proposed assessments of additional tax.
Fiscal 2013
The fiscal 2013 effective tax rate was unfavorably impacted by 33.2
percentage points ($295 million) due to the nondeductibility of
substantially all of the goodwill impairment related to our Nuclear
Pharmacy Services division, which was partially offset by the
favorable impact of the revaluation of our deferred tax liability and
related interest on unrepatriated foreign earnings as a result of an
agreement with tax authorities ($64 million or 7.2 percentage points).