McKesson 2011 Annual Report Download - page 74

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
68
Compensation expense for the share-based awards is recognized for the portion of awards ultimately expected
to vest. We estimate the number of share-based awards, which will ultimately vest primarily based on historical
experience. The estimated forfeiture rate established upon grant is re-assessed throughout the requisite service
period. As required, the forfeiture estimates are adjusted to reflect actual forfeitures when an award vests. The
actual forfeitures in future reporting periods could be higher or lower than current estimates. The weighted-average
forfeiture rate was approximately 5% at March 31, 2011.
The compensation expense recognized has been classified in the consolidated statements of operations or
capitalized on the consolidated balance sheets in the same manner as cash compensation paid to our employees.
There was no material share-based compensation expense capitalized as part of the cost of an asset in 2011, 2010
and 2009.
Impact on Net Income
The components of share-based compensation expense and related tax benefits are as follows:
Years Ended March 31,
(In millions)
2011
2010
2009
RSUs
$
(1)
79
$
47
$
60
PeRSUs
(2)
27
39
13
Stock options
22
19
18
Employee stock purchase plan
9
9
8
Share-based compensation expense
137
114
99
Tax benefit for share-based compensation expense
(3)
(48)
(41)
(34)
Share-based compensation expense, net of tax
$
89
$
73
$
65
(1) This expense was primarily the result of PeRSUs awarded in prior years, which converted to RSUs due to the attainment of
goals during the applicable years’ performance period.
(2) Represents estimated compensation expense for PeRSUs that are conditional upon attaining performance objectives during
the current year’s performance period.
(3) Income tax expense is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of pre-tax
compensation expense is not tax-deductible.
Stock Plans
The 2005 Stock Plan provides our employees, officers and non-employee director’s share-based long-term
incentives. The 2005 Stock Plan permits the granting of up to 42.5 million shares in the form of stock options,
restricted stock, RSUs, PeRSUs and other share-based awards. As of March 31, 2011, 13 million shares remain
available for future grant under the 2005 Stock Plan.
Stock Options
Stock options are granted at no less than fair market value and those options granted under the 2005 Stock Plan
generally have a contractual term of seven years and follow a four-year vesting schedule.