McKesson 2015 Annual Report Download - page 49

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
acquisition of Celesio. Partially offsetting these increases, interest expense benefited from the repayment of term
debt in the fourth quarters of 2014 and 2013. Interest expense fluctuates based on timing, amounts and interest
rates of term debt that is repaid and new term debt issued, as well as amounts incurred for bridge loan fees. Refer
to our discussion under the caption “Credit Resources” within this Financial Review for additional information
regarding our financing activities.
Income Taxes
Our reported income tax rates were 30.7%, 34.9% and 30.1% in 2015, 2014 and 2013. 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 net discrete tax benefits of $33 million in 2015, net discrete tax expenses of $94 million in 2014 and net
discrete tax benefits of $29 million in 2013. 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.
We have received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing
matter impacting years 2003 through 2010, and have filed Notices of Appeal to the Tax Court of Canada for all
of these years. On December 13, 2013, the Tax Court of Canada dismissed our appeal of the 2003 reassessment
and we have filed a Notice of Appeal to the Federal Court of Appeal regarding this tax year. After the close of
2015, we reached an agreement in principle with the CRA to settle the transfer pricing matter for years 2003
through 2010. Since the agreement in principle did not occur within 2015, we have not reflected this potential
settlement in our 2015 financial statements. We will record the final settlement amount in a subsequent quarter
and do not expect it to have a material impact to income tax expense.
During 2015, we reached an agreement with the Internal Revenue Service (“IRS”) to settle all outstanding
issues relating to years 2003 through 2006 and recognized discrete tax benefits of $55 million to record
previously unrecognized tax benefits and related interest.
Loss from Discontinued Operations, Net of Tax
Losses from discontinued operations, net of tax, were $299 million, $156 million and $25 million in 2015,
2014 and 2013.
During the fourth quarter of 2015, we committed to a plan to sell our Brazilian pharmaceutical distribution
business and a small business from our Distribution Solutions segment, as well as a small business from our
Technology Solutions segment. As a result, we recorded $241 million pre-tax ($235 million after-tax) non-cash
impairment charges to write off the business’ long-lived assets and reduce the carrying value of the Brazilian
business to its estimated fair value, less cost to sell. The ultimate loss from the sale of the business may be higher
or lower than our current assessment of the business’ fair value.
In 2014, we committed to a plan to sell our International Technology and our Hospital Automation
businesses from our Technology Solutions segment and certain businesses from our Distribution Solutions
segment. As a result, we recorded a pre-tax and after-tax $80 million non-cash impairment charge to reduce the
carrying value of the International Technology business to its estimated fair value, less cost to sell. A portion of
this business was sold in 2015 for nominal proceeds. Our Hospital Automation business was sold in 2014 for net
cash proceeds of $55 million which approximated the business’ net book value.
As required, we classified the results of operations and cash flows of these businesses as discontinued
operations for all periods presented in our consolidated financial statements.
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