McKesson 2010 Annual Report Download - page 96

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
90
15. Financial Instruments and Hedging Activities
At March 31, 2010 and 2009, the carrying amounts of cash and cash equivalents, restricted cash, marketable
securities, receivables, drafts and accounts payable and other current liabilities approximated their estimated fair
values because of the short maturity of these financial instruments. All highly liquid debt instruments purchased
with original maturity of three months or less at the date of acquisition are included in cash and cash equivalents.
Included in cash and cash equivalents at March 31, 2010 and 2009, are money market fund investments of
$2.3 billion and $1.7 billion, which are reported at fair value. The fair value of these investments was determined by
using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the
fair value measurements and disclosures guidance. The carrying value of all other cash equivalents approximates
fair value due to their relatively short-term nature.
The carrying amount and estimated fair value of our long-term debt and other financing was $2.3 billion and
$2.5 billion at March 31, 2010 and $2.5 billion each at March 31, 2009. 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.
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 foreign exchange contracts.
In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading
or speculative purposes. The volume of activity related to derivative financial instruments was not material for
2010, 2009 and 2008.
16. Lease Obligations
We lease facilities and equipment almost solely under operating leases. At March 31, 2010, future minimum
lease payments required under operating leases that have initial or remaining noncancellable lease terms in excess of
one year for years ending March 31 are:
(In millions)
Noncancellable
Operating
Leases
2011 $ 106
2012 85
2013 55
2014 38
2015 29
Thereafter 50
Total minimum lease payments $ 363
Rental expense under operating leases was $154 million, $146 million and $149 million in 2010, 2009 and
2008. 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. Remaining terms for facilities
leases generally range from one to seven years, while remaining terms for equipment leases range from one to three
years. Most real property leases contain renewal options (generally for five-year increments) and provisions
requiring us to pay property taxes and operating expenses in excess of base period amounts. Sublease rental income
was not material for any period presented.