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37
McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Income Taxes: Our reported income tax rates were 30.3%, 26.9% and 30.9% in 2013, 2012 and 2011. Fluctuations in our
reported income tax rates 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 2013, 2012 and 2011, income tax expense included $29
million, $66 million and $34 million of net income tax benefits for discrete items, which primarily relates to the recognition
of previously unrecognized tax benefits and accrued interest. Included in the 2012 discrete tax benefit is a $31 million credit
to income tax expense as a result of the reversal of an income tax reserve relating to our AWP litigation.
We have received tax assessments of $98 million from the U.S. Internal Revenue Service (“IRS”) relating to 2003
through 2006. We disagree with a substantial portion of the tax assessments primarily relating to transfer pricing. We are
pursuing administrative relief through the appeals process. We have also received assessments from the Canada Revenue
Agency (“CRA”) for a total of $199 million related to transfer pricing for 2003 through 2008. 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, and are in the process of filing a notice of
objection for 2008. The trial between McKesson Canada Corporation and the CRA, argued in the Tax Court of Canada,
concluded in early February 2012, and we are waiting for the decision. We continue to believe in the merits of our tax
positions and that we have adequately provided for any potential adverse results relating to these examinations in our
financial statements. 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 its wholly-owned subsidiary, 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 consolidated 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.
Net Income: Net income was $1,338 million, $1,403 million and $1,202 million in 2013, 2012 and 2011 and diluted
earnings per common share were $5.59, $5.59 and $4.57. Net income and diluted earnings per common share for 2013, 2012
and 2011 include after-tax AWP litigation charges of $45 million, $60 million and $149 million, or $0.19, $0.24 and $0.57
per diluted common share. Net income and diluted earnings per common share for 2011 also included an after-tax gain of $72
million, or $0.28 per diluted share relating to our sale of MAP.
Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share was calculated based on a
weighted average number of shares outstanding of 239 million, 251 million and 263 million for 2013, 2012 and 2011. The
decreases in the number of weighted average diluted common shares outstanding primarily reflect the cumulative effect of
share repurchases over the past three years, partially offset by the exercise and settlement of share-based awards.
International Operations
International operations accounted for 8.3%, 8.6% and 8.9% of 2013, 2012 and 2011 consolidated revenues. International
operations are subject to certain risks, including currency fluctuations. We monitor our operations and adopt strategies
responsive to changes in the economic and political environment in each of the countries in which we operate. Additional
information regarding our international operations is also included in Financial Note 25, “Segments of Business,” to the
consolidated financial statements appearing in this Annual Report on Form 10-K.