McKesson 2006 Annual Report Download - page 79

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Other Defined Benefit Plans
Under various U.S. bargaining unit labor contracts, we make payments into multi-employer pension plans established for union employees.
We are liable for a proportionate part of the plans’ unfunded vested benefits liabilities upon our withdrawal from the plan, however information
regarding the relative position of each employer with respect to the actuarial present value of accumulated benefits and net assets available for
benefits is not available. Contributions to the plans and amounts accrued were not material for the years ended March 31, 2006, 2005 and 2004.
Defined Contribution Plans
We have a contributory profit sharing investment plan (“PSIP”) for U.S. employees not covered by collective bargaining arrangements.
Eligible employees may contribute up to 20% of their compensation to an individual retirement savings account. Prior to 2006, the Company
made matching contributions equal to or greater than 50% of employee contributions, not to exceed 3% of employee compensation. Effective
April 1, 2005, the Company makes matching contributions in an amount equal to 100% of the employee’s first 3% of pay deferred, and 50% of
the employee’s deferral for the next 2% of pay deferred. The Company provides for the PSIP contributions primarily with its common shares
through its leveraged ESOP or cash payments.
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 shares not yet allocated to participants, common dividends on certain allocated 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.
Contribution expense for the PSIP in 2006, 2005 and 2004 was primarily ESOP related. After-tax ESOP expense and other contribution
expense, including interest expense on ESOP debt, was $7 million, $9 million and $8 million in 2006, 2005 and 2004. Approximately
1 million, 1 million and 2 million shares of common stock were allocated to plan participants in 2006, 2005 and 2004. Through March 31,
2006, 23 million common shares have been allocated to plan participants, resulting in a balance of 2 million common shares in the ESOP,
which have not yet been allocated to plan participants.
15. Other Postretirement Benefits
We maintain a number of postretirement benefits, consisting of healthcare and life insurance 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 plans is December 31.
The net periodic expense for our postretirement benefits is as follows:
74
Years Ended March 31,
(In millions) 2006 2005 2004
Service cost—benefits earned during the year $ 2 $ 2 $ 2
Interest cost on projected benefit obligation 11 11 12
Amortization of unrecognized loss and prior service costs 20 22 23
Net periodic postretirement expense $33 $35 $37