McKesson 2012 Annual Report Download - page 54

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McKESSON CORPORATION
FINANCIAL REVIEW (Concluded)
50
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest rate risk: Our long-term debt bears interest predominately at fixed rates, whereas our short-term
borrowings are at variable interest rates. If the underlying weighted average interest rate on our variable rate debt
were to have changed by a hypothetical 50 bp in 2012, interest expense would not have been materially different
from that reported.
Our cash and cash equivalents balances earn interest at variable rates. Should interest rates decline, our interest
income may be negatively impacted. If the underlying weighted average interest rate on our cash and cash
equivalents balances changed by 50 bp in 2012, interest income would have increased or decreased by
approximately $18 million. The selected hypothetical change in interest rates does not reflect what could be
considered the best or worst case scenarios.
As of March 31, 2012 and 2011, the net fair value liability of financial instruments with exposure to interest rate
risk was approximately $4.1 billion and $4.3 billion. The estimated fair value of our long-term debt and other
financing was determined using quoted market prices and other inputs that were derived from available market
information and may not be representative of actual values that could have been realized or that will be realized in
the future. Fair value is subject to fluctuations based on our performance, our credit ratings, changes in the value of
our stock and changes in interest rates for debt securities with similar terms.
Foreign exchange risk: We derive revenues and earnings from Canada, the United Kingdom, Ireland, other
European countries, Israel and Mexico, which exposes us to changes in foreign exchange rates. We seek to manage
our foreign exchange risk in part through operational means, including managing same currency revenues in relation
to same currency costs, and same currency assets in relation to same currency liabilities. Foreign exchange risk is
also managed through the use of foreign currency forward-exchange contracts. These contracts are used to offset
the potential earnings effects from mostly intercompany foreign currency investments and loans. As of March 31,
2012, a hypothetical adverse 10% change in quoted foreign currency exchange rates would not have had a material
impact on our net fair value of financial instruments that have exposure to foreign currency risk.