McKesson 2014 Annual Report Download - page 41

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
38
Income Taxes
Our reported income tax rates were 35.4%, 30.1% and 27.2% in 2014, 2013 and 2012. 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 and discrete items. Income tax expense included $94 million of net discrete tax expense
in 2014, and $29 million and $66 million of net discrete tax benefit in 2013 and 2012. Discrete tax expense for 2014 primarily
related to a $122 million charge regarding an unfavorable decision from the Tax Court of Canada with respect to transfer pricing
issues. Included in the 2012 discrete tax benefit is a $31 million credit to income tax expense as a result of the reversal of an
unrecognized tax benefit relating to our AWP litigation.
We have received reassessments from the Canada Revenue Agency (“CRA”) for a total of $219 million related to a transfer
pricing matter impacting years 2003 through 2009. We previously appealed the reassessment for 2003 to the Tax Court of Canada
and have filed a notice of objection for 2004 through 2009. On December 13, 2013, the Tax Court of Canada dismissed our appeal
of the reassessment with respect to 2003. On January 10, 2014, we filed a Notice of Appeal to the Federal Court of Appeal in
response to the judgment of the Tax Court of Canada. As a result of the unfavorable Tax Court decision relating to 2003, we
recognized a discrete tax expense of $122 million in the third quarter of 2014, which includes tax and interest for the years 2003
through 2013. The ultimate resolution of these issues could result in an increase or decrease to income tax expense.
We have received tax assessments of $98 million from the U.S. Internal Revenue Service (“IRS”) relating to 2003 through
2006. We are pursuing administrative relief through the appeals process. 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.
Income (Loss) from Discontinued Operations, Net of Tax
Results from discontinued operations, net of tax, were losses of $96 million and $9 million in 2014 and 2013, and income of
$24 million in 2012. Results for 2014 include a non-cash pre-tax and after-tax impairment charge of $80 million.
In 2014, we committed to a plan to sell our International Technology business and our Hospital Automation business from
our Technology Solutions segment and certain small businesses from our Distribution Solutions segment. During the third quarter
of 2014, we recorded the $80 million impairment charges to reduce the carrying value of our International Technology business
to its estimated net realizable value (fair value less costs to sell). The charge was primarily the result of the terms of the preliminary
purchase offers received for all of the business during the third quarter of 2014. A portion of the impairment charge was attributed
to goodwill and other long-lived assets and as a result, there was no tax benefit associated with this portion of the charge. The
ultimate selling price of our International Technology business may be higher or lower than our current assessment of fair value.
In 2014, we sold our Hospital Automation business for cash proceeds of $55 million, which approximates the business’ net
book value. The results of operations for these businesses are included in income (loss) from discontinued operations for 2014,
2013 and 2012.
Net Loss Attributable to Noncontrolling Interests: Noncontrolling interests primarily represent the portion of Celesio’s net
profit or loss that is not allocable to McKesson Corporation. At March 31, 2014, McKesson owned approximately 75.4% of
Celesio’s common shares on an outstanding fully diluted basis.
Net Income Attributable to McKesson Corporation: Net income attributable to McKesson Corporation was $1,263 million,
$1,338 million and $1,403 million in 2014, 2013 and 2012 and diluted earnings per common share were $5.41, $5.59 and $5.59.
Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share was calculated based on a
weighted average number of shares outstanding of 233 million, 239 million and 251 million for 2014, 2013 and 2012. The
decreases in the number of weighted average diluted common shares outstanding primarily reflect the cumulative effect of share
repurchases, partially offset by the exercise and settlement of share-based awards.