McKesson 2006 Annual Report Download - page 83

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
We have income tax net operating loss carryforwards related to our U.K. operations of approximately $111 million, which have an
indefinite life.
We have federal and state income tax net operating loss carryforwards of $118 million and $660 million which will expire at various dates
from 2007 through 2026. We believe that it is more likely than not that the benefit from certain state net operating loss carryforwards will now
be realized. In recognition of this risk, we have provided a valuation allowance of $3 million on the deferred tax assets relating to these state
net operating loss carryforwards.
We also have income tax credit carryforwards of $159 million, which are primarily alternative minimum tax credit carryforwards that have
an indefinite life.
In 2005, we have reversed a portion of the valuation allowance related to these state net operating loss carryforwards, of which $10 million
of the tax benefit, net of impairment, was credited to equity.
17. Financial Guarantees and Warranties
Financial Guarantees
We have agreements with certain of our customers’ financial institutions under which we have guaranteed the repurchase of inventory
(primarily for our Canadian business) at a discount in the event these customers are unable to meet certain obligations to those financial
institutions. Among other requirements, these inventories must be in resalable condition. We have also guaranteed loans, credit facilities and
the payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. Customer guarantees range
from one to ten years and were primarily provided to facilitate financing for certain strategic customers. At March 31, 2006, the maximum
amounts of inventory repurchase guarantees and other customer guarantees were $190 million and $7 million of which a nominal amount had
been accrued.
In 2004, a Pharmaceutical Solutions customer filed for bankruptcy. Accordingly, we reviewed all amounts owed to us from this customer as
well as financial guarantees provided to third parties in favor of this customer, and as a result, we increased our provision for doubtful accounts
by $30 million. On April 21, 2004, we converted a $40 million credit facility guarantee in favor of this customer to a note receivable due from
this customer. This secured note bears interest and is repayable in 2007. In conjunction with this modification, an inventory repurchase
guarantee in favor of this customer for approximately $12 million was also terminated. The amount due under the note receivable from this
customer was approximately $31 million at March 31, 2006.
At March 31, 2006, we had commitments of $5 million, primarily consisting of the purchase of services from our equity-held investments,
for which no amounts had been accrued.
The expirations of the above noted financial guarantees and commitments are as follows: $122 million, $22 million, $2 million, nil and
$1 million from 2007 through 2011, and $55 million thereafter.
In addition, our banks and insurance companies have issued $102 million of standby letters of credit and surety bonds on our behalf in order
to meet the security requirements for statutory licenses and permits, court and fiduciary obligations, and our workers’ compensation and
automotive liability programs.
Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products
infringe on a third party’s intellectual property rights. To date, we have not incurred any material costs as a result of such indemnification
agreements and have not accrued any liabilities related to such obligations.
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