McKesson 2013 Annual Report Download - page 96

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
We estimate that the amortization of the actuarial gain from stockholders' equity to other postretirement expense in 2014
will be $2 million. Comparable 2013 amounts were $2 million.
Other postretirement benefits are funded as claims are paid. Expected benefit payments for our postretirement welfare
benefit plans, net of expected Medicare subsidy are as follows: $11 million annually for 2014 to 2018 and $48 million
cumulatively for 2019 through 2023. Expected benefit payments are based on the same assumptions used to measure the
benefit obligations and include estimated future employee service. Expected contributions to be made for our postretirement
welfare benefit plans are $11 million for 2014.
Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 4.44%, 5.09% and 5.33%
for 2013, 2012 and 2011. Weighted-average discount rates for the actuarial present value of benefit obligations were 3.84%,
4.44% and 5.09% for 2013, 2012 and 2011.
Actuarial gain or loss for the postretirement welfare benefit plan is amortized to income or expense over a three-year
period. The assumed healthcare cost trends used in measuring the accumulated postretirement benefit obligation were 7.50%
and 8.00% for prescription drugs, 7.50%/7.25% and 7.50%/7.50% for ages pre-65/post-65 medical and 5.25% and 5.50% for
dental in 2013 and 2012. For 2013, 2012 and 2011, a one-percentage-point increase or decrease in the assumed healthcare
cost trend rate would not have a material impact on the postretirement benefit obligations.
Pursuant to various collective bargaining agreements, we contribute to multiemployer health and welfare plans that cover
union-represented employees. Our liability is limited to the contractual dollar obligations set forth by the collective bargaining
agreements. Contributions to the plans and amounts accrued were not material for the years ended March 31, 2013, 2012, and
2011.
18. Hedging Activities
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.
In 2012, we entered into a number of forward contracts to hedge Canadian dollar denominated cash flows with gross
notional value of $528 million. These contracts mature over a period of eight years and have been designated for hedge
accounting. Accordingly, changes in the fair values of these contracts are recorded to accumulated other comprehensive
income and reclassified into earnings in the same period in which the hedged transaction affects earnings. In the fourth quarter
of 2013, one forward contract to hedge Canadian dollar cash flow with gross notional value of $25 million matured,
accordingly, the realized gain related to this contract was reclassified during the quarter into operating expenses from
accumulated other comprehensive income. At March 31, 2013 and 2012, the notional values of these contracts, designated
for hedge accounting, were $503 million and $528 million. Amounts reclassified to earnings were not material for 2013 and
2012.
In 2012, we also entered into a number of forward contracts to hedge British pound denominated cash flows with a gross
notional value of $151 million. These contracts matured in 2013. In 2013, we entered into an additional forward contract to
hedge a separately identifiable Canadian dollar denominated cash flow with a gross notional value of $177 million. This
contract matures in less than one year. Neither of these contracts were designated for hedge accounting and accordingly,
changes in the fair values of these contracts are recorded directly in earnings. At March 31, 2013 and 2012, the notional
values of these contracts, not designated for hedge accounting, were $172 million and $151 million. Amounts recorded to
earnings were not material for 2013 and 2012.
Refer to Financial Note 19, "Fair Value Measurements," for more information on these recurring fair value measurements.