McKesson 2014 Annual Report Download - page 92

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
89
Investments in Unconsolidated Variable Interest Entities
We are involved with VIEs, which we do not consolidate because we do not have the power to direct the activities that most
significantly impact their economic performance and thus are not considered the primary beneficiary of the entities. Our
relationships include equity investments, lending, leasing, contractual or other relationships with the VIEs. Our most significant
relationships are with oncology and other specialty practices. Under these practice arrangements, we generally own or lease all of
the real estate and the equipment used by the affiliated practices and manage the practices’ administrative functions. As a result
of our acquisition of Celesio, we also have relationships with certain pharmacies in Europe with whom we may provide financing,
have equity ownership and/or a supply agreement whereby we supply the vast majority of the pharmacies’ purchases. Our maximum
exposure to loss (regardless of probability) as a result of all unconsolidated VIEs was $1.2 billion and $1.1 billion at March 31,
2014 and 2013, which primarily represents the value of intangible assets related to service agreements and lease and loan receivables.
These amounts exclude the customer loan guarantees discussed in Financial Note 21, “Financial Guarantees and Warranties.” We
believe that there is no material loss exposure on these assets or from these relationships.
16. Pension Benefits
We maintain a number of qualified and nonqualified defined benefit pension plans and defined contribution plans for eligible
employees.
Defined Benefit Pension Plans
Eligible U.S. employees who were employed by the Company as of December 31, 1995 are covered under the Company-
sponsored defined benefit retirement plan. In 1997, the plan was amended to freeze all plan benefits as of December 31, 1996.
Benefits for the defined benefit retirement plan are based primarily on age of employees at date of retirement, years of creditable
service and the average of the highest 60 months of pay during the 15 years prior to the plan freeze date. We also have defined
benefit pension plans for eligible employees outside of the U.S., as well as an unfunded nonqualified supplemental defined benefit
plan for certain U.S. executives. Most of the non-U.S. defined benefit pension plans cover employees located in Germany, Norway
and the United Kingdom.
Celesio has defined benefit pension plans for eligible employees located predominately in Germany, Norway and the United
Kingdom. Upon the acquisition of Celesio, as required, we consolidated Celesio’s pension assets and obligations on our
consolidated balance sheet. Benefits for these plans are based primarily on each employee’s final salary, with annual adjustments
for inflation. The obligations in Norway are largely related to the state-regulated pension plan which is managed by the Norwegian
Public Service Pension Fund (“SPK”). According to the terms of the SPK, the plan assets of state regulated plans in Norway must
correspond very closely to the pension obligation calculated using the principles codified in Norwegian law. The shortfall may
not exceed 1% of the obligation. If the shortfall exceeds this threshold, it must be remedied within 2 years. In the United Kingdom,
several Celesio subsidiaries participate in a joint pension plan. This plan is largely funded by contractual trust arrangements that
hold Company assets that may only be used to pay pension obligations. The Trustee Board decides on the minimum contribution
to the plan in association with selected employees of the entity. A valuation is performed at regular intervals in order to determine
the amount of the contribution and to ensure that the minimum contribution is made. The pension obligation in Germany is
unfunded with the exception of the contractual trust arrangement used to fund pensions of Celesio’s Management Board.
Defined benefit plan assets and obligations are measured as of the Company’s fiscal year-end.