McKesson 2016 Annual Report Download - page 64

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Our cash and cash equivalents balances earn interest at variable rates. At March 31, 2016, we had $4 billion
in cash and cash equivalents. The effect of a hypothetical 50 bp increase in the underlying interest rate on our
cash and cash equivalents, net of short-term borrowings and variable rate debt, would have resulted in a favorable
impact to earnings in 2016 and 2015 of approximately $26 million and $19 million.
Foreign exchange risk: We conduct our business worldwide in U.S. dollars and the functional currencies of
our foreign subsidiaries, including Euro, British pound sterling and Canadian dollar. Changes in foreign currency
exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We
are also exposed to foreign exchange rate risk related to our foreign subsidiaries, including intercompany loans
denominated in non-functional currencies.
We have certain foreign exchange rate risk programs that use foreign currency forward contracts and cross
currency swaps. The forward contracts and cross currency swaps are designated to reduce the income statement
effects from fluctuations in foreign exchange rates and have been designated as cash flow hedges. These
programs reduce but do not entirely eliminate foreign exchange risk.
As of March 31, 2016 and 2015, the effect of a hypothetical adverse 10% change in the underlying foreign
currency exchange rates would have impacted the fair value of our foreign exchange contracts by approximately
$131 million and $223 million. However, our risk management programs are designed such that the potential loss
in value of these risk management portfolios described above would be largely offset by changes in the value of
the underlying exposure. Refer to Financial Note 20, “Hedging Activities,” for more information on our foreign
currency forward contracts and cross currency swaps.
The selected hypothetical change in interest rates and foreign currency exchange rates does not reflect what
could be considered the best or worst case scenarios.
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