McKesson 2011 Annual Report Download - page 43

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Corporate expenses, net of other income were flat in 2011 compared to 2010 primarily due to an increase in
operating expenses which were fully offset by an increase in other income, including the $16 million benefit
associated with the reimbursement of post-acquisition interest expense by the former shareholders of US Oncology.
Corporate expenses, net of other income increased in 2010 compared to 2009 primarily due to an increase in
operating expenses and a decrease in interest income.
Interest Expense: Interest expense increased in 2011 compared to 2010 primarily due to $25 million of bridge
loan fees related to the acquisition of US Oncology, interest expense associated with the assumed debt and the
subsequent refinancing of the debt, and fees from our accounts receivable sales facility which are recorded in
interest expense commencing in 2011. These increases were partially offset by lower interest expense due to the
repayment of $215 million of our long-term debt in March 2010. Interest expense increased in 2010 compared to
2009 primarily due to our issuance of $700 million of long-term debt in February 2009. Refer to our discussion
under the caption “Credit Resources” within this Financial Review for additional information regarding our
financing activities.
Income Taxes: Our reported tax rates were 30.9%, 32.2% and 22.7% in 2011, 2010 and 2009. In addition to
the items noted below, fluctuations in our reported tax rate are primarily due to changes within our business mix,
including varying proportions of income attributable to foreign countries that have lower income tax rates.
In 2011, income tax expense included $34 million of net income tax benefits for discrete items, which primarily
relates to the recognition of previously unrecognized tax benefits and accrued interest.
In 2009, income tax expense included $111 million of net income tax benefits for discrete items of which
$87 million represents a non-cash benefit. These benefits primarily relate to the recognition of previously
unrecognized tax benefits and related accrued interest. The recognition of these discrete items was primarily due to
the lapsing of the statutes of limitations.
The U.S. Internal Revenue Service (“IRS”) is currently examining our fiscal years 2003 through 2006 and we
anticipate the field work will be completed and they will issue the Revenue Agent Report in our first quarter of
fiscal 2012. We have received assessments from the Canada Revenue Agency (“CRA”) for a total of $169 million
related to transfer pricing for 2003 through 2007. Payments of most of the assessments to the CRA have been made
to stop the accrual of interest. We have appealed the assessment for 2003 to the Tax Court of Canada and have filed
a notice of objection for 2004 through 2007. If we are not successful in resolving these issues with the CRA, a trial
date has been set for October 17, 2011 with the Tax Court of Canada. We believe that we have adequately provided
for any potential adverse results relating to the IRS and CRA examinations. However, the final resolution of these
issues could result in an increase or decrease to income tax expense.
Discontinued Operation: In July 2010, our Technology Solutions segment sold MAP, a provider of phone and
web-based healthcare services in Australia and New Zealand, for net sales proceeds of $109 million. The divestiture
generated a pre-tax and after-tax gain of $95 million and $72 million. As a result of the sale, we were able to utilize
capital loss carry-forwards for which we previously recorded a valuation allowance of $15 million. The release of
the valuation allowance is included as a tax benefit in our after-tax gain on the divestiture. The after-tax gain on
disposition was recorded as a discontinued operation in our statement of operations in 2011. The historical financial
operating results and net assets of MAP were not material to our consolidated financial statements for all periods
presented.