McKesson 2005 Annual Report Download - page 78

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
percentage-point increase and a one-percentage-point decrease in the assumed healthcare cost trend rate on the total service and interest cost
components and on the postretirement benefit obligation:
17. Income Taxes
The provision (benefit) for income taxes related to continuing operations consists of the following:
In 2005, we recorded an income tax benefit of $390 million for the Securities Litigation described in more detail in Financial Note 19. We
believe the settlement of the consolidated securities class action and the ultimate resolution of the lawsuits brought independently by other
shareholders will be tax deductible. However, the tax attributes of the litigation are complex and the Company expects challenges from the
taxing authorities, and accordingly such deductions will not be finalized until all the lawsuits are concluded and an examination of the
Company’s tax returns is completed. Accordingly, we have provided a reserve of $85 million for future resolution of these uncertain tax
matters. While we believe the tax reserve is adequate, the ultimate resolution of these tax matters may exceed or be below the reserve.
In 2005, we recorded a $9.6 million income tax benefit arising primarily from settlements and adjustments with various taxing authorities
and a $2.8 million income tax benefit primarily due to a reduction of a valuation allowance related to state income tax net operating loss
carryforwards. We believe that the income tax benefit from a portion of these state net operating loss carryforwards will now be realized.
In 2004, we recorded a $23.2 million income tax benefit relating to favorable tax settlements with the U.S. Internal Revenue Service and
with various other taxing authorities. A large portion of this benefit, which was not previously recognized by the Company, resulted from the
filing of amended tax returns by our subsidiary, McKesson Information Solutions LLC (formerly known as HBO & Company (“HBOC”)) for
the years ended December 31, 1998 and 1997.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the
estimated worldwide provision for income taxes. During the ordinary course of business, there are many transactions and calculations for
which the ultimate tax determination is uncertain. We recognize liabilities for anticipated tax audit issues based on estimates of whether
additional amounts will be due. As of March 31, 2005, approximately $242 million has been accrued for such matters. To the extent that the
final tax
77
(In millions) 2005 2004 2003
One-percentage-point increase
Effect on total service and interest cost components $ 1.1 $ 1.2 $ 0.9
Effect on postretirement benefit obligation 13.8 13.0 10.7
One-percentage-point decrease
Effect on total service and interest cost components (1.0) (1.0)(0.8)
Effect on postretirement benefit obligation (12.3) (11.5) (9.5)
Years Ended March 31,
(In millions) 2005 2004 2003
Current
Federal $ 236.7 $ 157.4 $ 117.2
State and local (0.8) 25.3 21.1
Foreign 9.8 12.7 24.4
Total current 245.7 195.4 162.7
Deferred
Federal (277.1) 73.9 116.3
State and local (52.3) 1.8 31.4
Foreign 0.6 (6.2)(21.1)
Total deferred (328.8) 69.5 126.6
Income tax provision (benefit) $(83.1) $ 264.9 $289.3