McKesson 2005 Annual Report Download - page 72

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
13. Financial Instruments and Hedging Activities
At March 31, 2005 and 2004, the carrying amounts of cash and cash equivalents, marketable securities, receivables, drafts and accounts
payable, and other liabilities approximated their estimated fair values because of the short maturity of these financial instruments. The carrying
amounts and estimated fair values of our long-term debt were $1,210.5 million and $1,334.5 million at March 31, 2005 and $1,484.6 million
and $1,701.8 million at March 31, 2004. The estimated fair value of our long-term debt was determined based on quoted market prices and
may not be representative of actual values that could have been realized or that will be realized in the future.
In the normal course of business, we are exposed to interest rate changes and foreign currency fluctuations. We limit these risks through the
use of derivatives such as interest rate swaps and forward contracts. In accordance with our policy, derivatives are only used for hedging
purposes. We do not use derivatives for trading or speculative purposes.
The net fair value of our derivatives was as follows:
14. Lease Obligations
We lease facilities and equipment under both capital and operating leases. Net assets held under capital leases included in property, plant
and equipment were $3.0 million and $4.5 million at March 31, 2005 and 2004. Rental expense under operating leases was $115.4 million,
$111.0 million and $109.6 million in 2005, 2004 and 2003. We recognize rent expense on a straight-line basis over the term of the lease, taking
into account, when applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent
payments over the term of the lease. Deferred rent is recognized for the difference between the rent expense recognized on a straight-line basis
and the payments made per the terms of the lease. Most real property leases contain renewal options and provisions requiring us to pay
property taxes and operating expenses in excess of base period amounts.
Future minimum lease payments and sublease rental income for years ending March 31 are:
71
March 31,
2005 2004
Hedge
(In millions) Desi
g
nation Fair Value Maturit
y
Fair Value Maturit
y
Net asset (liability):
Interest rate swaps Fair Value $
—
$ 6.4 2005
Foreign currency Various dates Various dates
exchange contracts Fair Value (13.1)through 2009 (6.4) through 2008
Total $ (13.1) $ —
Non-cancelable Non-cancelable
Operating Sublease
(In millions) Leases Rentals Capital Leases
2006 $84.4 $ 5.1 $1.0
2007 73.0 4.1 0.5
2008 47.0 1.9 0.1
2009 29.0 0.6 0.1
2010 24.2 0.4 0.1
Thereafter 57.2 1.9 0.6
Total minimum lease payments $ 314.8 $ 14.0 2.4
Less amounts representing interest (0.3)
Present value of minimum lease payments $ 2.1