Hedging Activities

9 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Hedging Activities Disclosure [Text Block]

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

The majority of McKesson’s operations are conducted in U.S. dollars; however, certain assets and liabilities, revenues and expense and purchasing activities are incurred in and exposed to other currencies. We have 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.

We currently maintain forward contracts and foreign currency options to hedge against cash flows denominated in Canadian dollars. At December 31, 2014 and 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 are 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 during the quarter and nine months ended December 31, 2014 and 2013. Changes in the fair values for contracts not designated for hedge accounting are recorded directly to earnings; amounts recorded to earnings for these contracts were not material during the quarter and nine months ended December 31, 2013. All forward contracts were designated for hedge accounting during the first nine months of 2015.

Celesio has a number of forward contracts to hedge against cash flows denominated primarily in British pounds and other European currencies. These contracts are used to offset the potential earnings effects from mostly intercompany foreign currency loans and will mature from January 2015 to December 2015. None of these contracts were designated for hedge accounting and accordingly, net losses from the changes in the fair value of these contracts of $24 million and $74 million were recorded within operating expenses during the third quarter and first nine months of 2015. However, the losses from these contracts are largely offset by changes in the value of the underlying intercompany foreign currency loans. At December 31, 2014 and March 31, 2014, the total notional values of these contracts were $1,808 million and $1,091 million.

Interest Rate Risk

From time to time, Celesio has entered into interest rate swaps to hedge the interest rate risk associated with Celesio’s variable rate debt. Interest rate swaps were used to modify the market risk exposures in connection with the variable rate debt to achieve primarily fixed rate Euro interest expense. The interest rate swap transactions generally involve the exchange of floating or fixed interest payments. Celesio’s interest rate swaps that were outstanding at March 31, 2014 all matured during the first half of 2015. These contracts were not designated for hedge accounting and, accordingly, changes in the fair value of the swaps were recorded directly in earnings. At March 31, 2014, the total gross notional value of these contracts was $96 million. Amounts recorded to earnings were not material during the first nine months of 2015.

Information regarding the fair value of derivatives on a gross basis is as follows:

	Balance Sheet Caption	December 31, 2014						March 31, 2014
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S Dollar Notional
(In millions)		Asset		Liability				Asset		Liability
Derivatives designated for hedge accounting
Foreign exchange  contracts (current)	Prepaid expenses and other	$	7	$	—	$	64	$	4	$	—	$	64
Foreign exchange  contracts (non-current)	Other assets	42		—		399		27		—		399
Total		$	49	$	—			$	31	$	—
Derivatives not designated for hedge accounting
Foreign exchange  contracts (current)	Prepaid expenses and other	$	—	$	—	$	127	$	2	$	—	$	255
Foreign exchange  contracts (current)	Other accrued liabilities	—		34		1,681		—		13		836
Interest rate swap contracts (current)	Other accrued liabilities	—		—		—		—		1		96
Total		$	—	$	34			$	2	$	14

Refer to Financial Note 12, "Fair Value Measurements," for more information on these recurring fair value measurements.