McKesson 2014 Annual Report Download - page 101

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
98
We estimate that the amortization of the actuarial gain from stockholders’ equity to other postretirement expense in 2015 will
be $4 million. Comparable 2014 amount was $1 million.
Other postretirement benefits are funded as claims are paid. Expected benefit payments for our postretirement welfare benefit
plans are as follows: $10 million annually for 2015 to 2019 and $45 million cumulatively for 2020 through 2024. 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 2015.
Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 3.84%, 4.44% and 5.09% for
2014, 2013 and 2012. Weighted-average discount rates for the actuarial present value of benefit obligations were 4.08%, 3.84%
and 4.44% for 2014, 2013 and 2012.
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 7.00% and 7.50%
for prescription drugs, 7.50/7.00% and 7.50/7.25% for ages pre-65/post-65 medical and 5.00% and 5.25% for dental in 2014 and
2013. For 2014, 2013 and 2012, 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, 2014, 2013, and
2012.
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
Prior to the acquisition of Celesio, the majority of our operations were conducted in U. S. dollars; however, certain assets and
liabilities, revenues and expense and purchasing activities were 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.
Over the last three years, we have entered into forward contracts and a foreign currency option to hedge against cash flows
denominated primarily in Canadian dollars and British pounds. At March 31, 2014, forward contracts having a total notional value
of $463 million were designated for hedge accounting. These contracts will mature between March 2015 and March 2020. Changes
in the fair values for contracts designated for hedge accounting were recorded to accumulated other comprehensive income and
reclassified into earnings in the same period in which the hedged transaction affects earnings; amounts recorded to earnings for
these contracts were not material in 2014, 2013 and 2012. Changes in the fair values for contracts not designated for hedge
accounting were recorded directly to earnings; amounts recorded to earnings for these contracts were not material in 2014, 2013
and 2012.
Celesio has a number of forward contracts to hedge against cash flows denominated primarily in British pounds and other
European currencies. The contracts will mature from April 1, 2014 to January 2015. None of these contracts were designated for
hedge accounting and accordingly, changes in the fair value of these contracts are recorded directly in earnings. At March 31,
2014, the total notional values of these contracts was $1,091 million. Amounts recorded to earnings were not material for 2014.