McKesson 2008 Annual Report Download - page 90

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
83
The ESOP has purchased an aggregate of 24 million shares of the Company’ s common stock since its inception.
These purchases were financed by 10 to 20 year loans from or guaranteed by us. The ESOP’ s outstanding
borrowings are reported as long-term debt of the Company and the related receivables from the ESOP are shown as
a reduction of stockholders’ equity. The loans are repaid by the ESOP from interest earnings on cash balances and
common dividends on unallocated shares and Company cash contributions. The ESOP loan maturities and rates are
identical to the terms of related Company borrowings. Stock is made available from the ESOP based on debt
service payments on ESOP borrowings. After-tax ESOP expense and other contribution expense, including interest
expense on ESOP debt, was $8 million, $8 million and $7 million in 2008, 2007 and 2006. Approximately 1 million
shares of common stock were allocated to plan participants in each of the years 2008, 2007 and 2006. At March 31,
2008, almost all of the 24 million common shares had been allocated to plan participants.
14. Postretirement Benefits
We maintain a number of postretirement benefits, primarily consisting of healthcare and life insurance
(“welfare”) benefits, for certain eligible U.S. employees. Eligible employees consist of those who retired before
March 31, 1999 and those who retire after March 31, 1999, but were an active employee as of that date, after
meeting other age-related criteria. We also provide postretirement benefits for certain U.S. executives. The
measurement date for our postretirement welfare plan is December 31.
The net periodic expense for our postretirement welfare benefits is as follows:
Years Ended March 31,
(In millions) 2008 2007 2006
Service cost—benefits earned during the year $ 2 $ 2 $ 2
Interest cost on projected benefit obligation 10 11 11
Amortization of unrecognized actuarial loss and prior
service costs 4 16 20
Net periodic postretirement expense $ 16 $ 29 $ 33
Information regarding the changes in benefit obligations for our postretirement welfare plans is as follows:
March 31,
(In millions) 2008 2007
Change in benefit obligations
Benefit obligation at beginning of year $ 183 $ 213
Service cost 2 2
Interest cost 10 11
Plan amendments and other 5 -
Actuarial gain (27) (26)
Benefit payments (16) (17)
Benefit obligation at end of year $ 157 $ 183
In 2009, we estimate that we will amortize $13 million of actuarial gain for the other postretirement plans from
shareholders’ equity to other postretirement expense. The comparable 2008 amount was $4 million of actuarial loss.
Other postretirement benefits are funded as claims are paid. Expected benefit payments for our postretirement
welfare benefit plans, net of expected Medicare subsidy receipts of $18 million, are as follows: $15 million annually
for 2009 to 2013, and $70 million cumulatively for 2014 through 2018. Expected benefit payments are based on the
same assumptions used to measure the benefit obligations and include estimated future employee service. Expected
contributions to be made for our postretirement welfare benefit plans are $15 million for 2009.
Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 5.78%, 5.55%
and 5.75% for 2008, 2007 and 2006. Weighted-average discount rates for the actuarial present value of benefit
obligations were 6.19%, 5.78% and 5.55% for 2008, 2007 and 2006.