McKesson 2014 Annual Report Download - page 105

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
102
20. Lease Obligations
We lease facilities and equipment almost solely under operating leases. At March 31, 2014, 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
2015 $ 358
2016 299
2017 246
2018 193
2019 168
Thereafter 806
Total minimum lease payments (1) $ 2,070
(1) Minimum lease payments have not been reduced by minimum sublease rentals of $44 million due under future noncancelable subleases.
Rental expense under operating leases was $298 million, $232 million and $229 million in 2014, 2013 and 2012. 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 twelve years, while remaining terms for
equipment leases range from one to five 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 2014, 2013 and 2012.
21. Financial Guarantees and Warranties
Financial Guarantees
We have agreements with certain of our customers’ financial institutions, mainly in Canada and Europe, under which we have
guaranteed the repurchase of our customers’ inventory or our customers’ debt in the event these customers are unable to meet their
obligations to those financial institutions. For our inventory repurchase agreements, among other requirements, inventories must
be in resalable condition and any repurchase would be at a discount. The inventory repurchase agreements mostly relate to certain
Canadian customers and range from one to two years. Customers’ debt guarantees range from one to fifteen years and are primarily
provided to facilitate financing for certain customers. The majority of our customers’ debt guarantees are secured by certain assets
of the customer. At March 31, 2014, the maximum amounts of inventory repurchase guarantees and customers’ debt guarantees
were $204 million and $272 million, of which $4 million had been accrued. The expirations of these financial guarantees are as
follows: $154 million, $31 million, $17 million, $21 million and $37 million from 2015 through 2019 and $216 million thereafter.
At March 31, 2014, our banks and insurance companies have issued $161 million of standby letters of credit and surety bonds,
which were issued on our behalf mostly related to our customer contracts and in order to meet the security requirements for
statutory licenses and permits, court and fiduciary obligations and our workers’ compensation and automotive liability programs.
Additionally, at March 31, 2014, we have a commitment to contribute up to $40 million to a non-consolidated investment for
building and equipment construction.
Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our
software products infringe a third party’s intellectual property rights. To date, we have not incurred any material costs as a result
of such indemnification agreements and have not accrued any liabilities related to such obligations.