McKesson 2012 Annual Report Download - page 83

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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Upon 30 days notice to holders of a Series, we may redeem that Series at any time prior to maturity, in whole or
in part, for cash at redemption prices that include accrued and unpaid interest and a make-whole premium, as
specified in the indenture and officers’ certificate relating to that Series. In the event of the occurrence of both (1) a
change of control of the Company and (2) a downgrade of a Series below an investment grade rating by each of
Fitch Ratings, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services within a specified period, an
offer will be made to purchase that Series from the holders at a price in cash equal to 101% of the then outstanding
principal amount of that Series, plus accrued and unpaid interest to, but not including, the date of repurchase. The
indenture and the related officers’ certificate for each Series, subject to the exceptions and in compliance with the
conditions as applicable, specify that we may not incur liens, enter into sale and leaseback transactions or
consolidate, merge or sell all or substantially all of our assets. The indentures also contain customary events and
default provisions.
In February 2012, we repaid our $400 million 7.75% Notes which had matured. In March 2010, we repaid our
$215 million 9.13% Series C Senior Notes which had matured.
Scheduled future payments of long-term debt are $508 million in 2013, $351 million in 2014, $2 million in
2015, $600 million in 2016, $500 million in 2017 and $1,619 million thereafter.
Accounts Receivable Sales Facility
In May 2011, we renewed our existing accounts receivable sales facility (the “Facility”) for a one year period
under terms substantially similar to those previously in place. The committed capacity of the Facility is $1.35
billion, although, from time-to-time, the available amount of the Facility may be less than $1.35 billion based on
accounts receivable concentration limits and other eligibility requirements. The accounts receivable sales facility
will expire in May 2012. We anticipate renewing the Facility before its expiration.
Through the Facility, McKesson Corporation, the parent company, transfers certain U.S. pharmaceutical trade
accounts receivable on a non-recourse basis to a special purpose entity (“SPE”), which is a wholly-owned,
bankruptcy-remote subsidiary of McKesson Corporation that is consolidated in our financial statements. This SPE
then sells undivided interests in the pool of accounts receivable to third-party purchaser groups (the “Purchaser
Groups”), which include financial institutions and commercial paper conduits.
Since April 1, 2010, transactions under the Facility have been accounted for as secured borrowings rather than
asset sales primarily because the Company’s retained interest in the pool of accounts receivable is subordinated to
the Purchaser Groups to the extent there is any outstanding balance in the Facility. Consequently, the related
accounts receivable continue to be recognized on our consolidated balance sheets and proceeds from the Purchaser
Groups are shown as secured borrowings.
The Facility contains requirements relating to the performance of the accounts receivable and covenants relating
to the SPE and the Company. If we do not comply with these covenants, our ability to use the Facility may be
suspended and repayment of any outstanding balances under the Facility may be required. At March 31, 2012, we
were in compliance with all covenants.
We continue servicing accounts receivable subject to the Facility. However, no servicing asset or liability is
recorded at the time the Facility is utilized as there is no service fee or other income received and the costs of
servicing the receivables subject to the Facility are not material. Servicing costs are recognized as incurred over the
servicing period.
During 2012, we borrowed $400 million under the Facility. There were no borrowings in 2011 under the
Facility. At March 31, 2012, there were $400 million in secured borrowings and $400 million of related securitized
accounts receivable outstanding, which are included in short-term borrowings and receivables in the consolidated
balance sheets, under the Facility. At March 31, 2011, there were no secured borrowings or related securitized
accounts receivables outstanding under the Facility. Fees and charges on the facility were $6 million, $9 million and
$11 million in 2012, 2011 and 2010 and were recorded as interest expense in 2012 and 2011 and in operating
expenses in 2010. Should we default under the Facility, the Purchaser Groups are entitled to receive only
collections on the accounts receivable owned by the SPE and in the amount necessary to recover the interest, fees
and principal amounts due the Purchaser Groups under the terms of the Facility.