McKesson 2016 Annual Report Download - page 80

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
rates in effect for the year in which the differences are expected to reverse. Tax benefits from uncertain tax
positions are recognized when it is more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on the technical merits. The amount
recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized
upon effective settlement. Deferred taxes are not provided on undistributed earnings of our foreign operations
that are considered to be permanently reinvested.
Foreign Currency Translation: The reporting currency of the Company and its subsidiaries is the U.S.
dollar. Our foreign subsidiaries generally consider their local currency to be their functional currency. Foreign
currency-denominated assets and liabilities of these foreign subsidiaries are translated into U.S. dollars at year-
end exchange rates and revenues and expenses are translated at average exchange rates during the corresponding
period, and stockholders’ equity accounts are primarily translated at historical exchange rates. Foreign currency
translation adjustments are included in other comprehensive income or loss in the statements of consolidated
comprehensive income, and the cumulative effect is included in the stockholders’ equity section of the
consolidated balance sheets. Realized gains and losses from currency exchange transactions are recorded in
operating expenses in the consolidated statements of operations and were not material to our consolidated results
of operations in 2016, 2015 or 2014. We release cumulative translation adjustment from stockholders’ equity into
net income as a gain or loss only upon complete or substantially complete liquidation of a controlling interest in a
subsidiary or a group of assets within a foreign entity. We also release all or a pro rata portion of the cumulative
translation adjustment into net income upon the sale of an equity method investment that is a foreign entity.
Derivative Financial Instruments: Derivative financial instruments are used principally in the management
of foreign currency exchange and interest rate exposures and are recorded on the consolidated balance sheets at
fair value. If a derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of
the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. If the derivative is
designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are included
in other comprehensive income or loss in the statements of consolidated comprehensive income, and the
cumulative effect is included in the stockholders’ equity section of the consolidated balance sheets. The
cumulative changes in fair value are reclassified to the consolidated statements of operations when the hedged
item affects earnings. We periodically evaluate hedge effectiveness, and ineffective portions of changes in the
fair value of cash flow hedges are recognized as a charge or credit to earnings. Derivative instruments not
designated as hedges are marked-to-market at the end of each accounting period with the change included in
earnings.
Comprehensive Income: Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income refers to revenue, expenses, and gains and losses that under
GAAP are recorded as an element of stockholders’ equity but are excluded from net income. Our other
comprehensive income primarily consists of foreign currency translation adjustments from those subsidiaries
where the local currency is the functional currency, unrealized gains and losses on cash flow hedges, as well as
unrealized gains and losses on retirement-related benefit plans.
Noncontrolling Interests and Redeemable Noncontrolling Interests: Noncontrolling interests represent the
portion of profit or loss, net assets and comprehensive income that is not allocable to McKesson Corporation. In
2016 and 2015, net income attributable to noncontrolling interests primarily represents guaranteed dividends and
recurring compensation that McKesson is obligated to pay to the noncontrolling shareholders of Celesio AG
(“Celesio”). Noncontrolling interests with redemption features, such as put rights, that are not solely within the
Company’s control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are
presented outside of Stockholders’ Equity on our consolidated balance sheet. Refer to Financial Note 10,
“Noncontrolling Interests and Redeemable Noncontrolling Interests,” for more information.
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