McKesson 2012 Annual Report Download - page 93

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
89
The carrying amount and estimated fair value of our long-term debt and other financing was $3.6 billion and
$4.1 billion at March 31, 2012 and $4.0 billion and $4.3 billion at March 31, 2011. 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. These are considered to be Level 2 inputs under the fair value measurements
and disclosure guidance, 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. At
times 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.
Foreign currency rate risk
The majority of our operations are conducted in US dollars however, certain assets and liabilities, revenues and
expense and purchasing activities are incurred in and exposed to other currencies. We have established certain
foreign currency rate risk programs that manage the impact of foreign currency fluctuation. These programs are
utilized on a transactional basis when we consider there to be a risk in fair value or volatility in cash flows. These
programs reduce but do not entirely eliminate foreign currency rate risk. Currently, our foreign currency rate risk
programs include:
In March 2012, we entered into a number of forward contracts to hedge Canadian dollar denominated cash
flows. These contracts mature over a period of eight years and have a gross notional value of $528 million. These
contracts have been designated for hedge accounting and accordingly, changes in the contracts’ fair value will be
recorded to accumulated other comprehensive income and reclassified into earnings in the same period in which the
hedged transaction affects earnings. At March 31, 2012, the fair value of these contracts was not material and no
amounts were reclassified to earnings in 2012.
In 2012, we entered into a number of forward contracts to hedge British pound denominated cash flows. These
contracts mature in 2013 and have a gross notional value of $151 million. These contracts have not been designated
for hedge accounting and accordingly, changes in these contracts’ fair value are recorded directly in earnings. At
March 31, 2012, the fair value of these contracts was not material and net gains or losses for the year ended March
31, 2012 were also not material.
The fair values of all derivatives are considered to be Level 2 inputs under the fair value measurements and
disclosure guidance and may not be representative of actual values that could have been realized or that will be
realized in the future.
17. Lease Obligations
We lease facilities and equipment almost solely under operating leases. At March 31, 2012, future minimum
lease payments required under operating leases that have initial or remaining noncancelable lease terms in excess of
one year for years ending March 31 are:
(In millions)
Noncancelable
Operating
Leases
2013 $ 188
2014 157
2015 123
2016 92
2017 75
Thereafter 233
Total minimum lease payments
(
1
)
$ 868
(1) Minimum lease payments have not been reduced by minimum sublease rentals of $74 million due under future
noncancelable subleases.