McKesson 2013 Annual Report Download - page 55

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49
McKESSON CORPORATION
FINANCIAL REVIEW (Concluded)
RELATED PARTY BALANCES AND TRANSACTIONS
Information regarding our related party balances and transactions is included in Financial Note 24, “Related Party
Balances and Transactions,” to the consolidated financial statements appearing in this Annual Report on Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements that we have recently adopted, as well as those that have been recently issued but not
yet adopted by us, are included in Financial Note 1, “Significant Accounting Policies,” to the consolidated financial
statements appearing in this Annual Report on Form 10-K.
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 2013, 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 2013, interest income would have increased or decreased by approximately $12 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, 2013 and 2012, the net fair value liability of financial instruments with exposure to interest rate risk was
approximately $5.5 billion and $4.1 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 record 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, 2013, 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.