McKesson 2006 Annual Report Download - page 75

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
In 2006, 2005 and 2004, we sold customer lease portfolio receivables for cash proceeds of $60 million, $59 million and $45 million.
The employee stock ownership program (“ESOP”) debt bears interest at rates ranging from 8.6% fixed rate to approximately 89% of the
London Interbank Offering Rate (“LIBOR”) or LIBOR plus 0.4% and is due in semi-annual and annual installments through 2009.
Our various borrowing facilities and certain long-term debt instruments are subject to covenants. Our principal debt covenant is our debt to
capital ratio, which cannot exceed 56.5%. If we exceed this ratio, repayment of debt outstanding under the revolving credit facility and $235
million of term debt could be accelerated. At March 31, 2006, this ratio was 14.4% and we were in compliance with all other covenants.
Aggregate annual payments on long-term debt, including capital lease obligations, for the years ending March 31, are as follows:
$26 million in 2007, $156 million in 2008, $7 million in 2009, $222 million in 2010, nil in 2011 and $580 million thereafter.
At March 31, 2006 and 2005, the carrying amounts of cash and cash equivalents, restricted cash, marketable securities, receivables, drafts
and accounts payable, and other liabilities approximated their estimated fair values because of the short maturity of these financial instruments.
The carrying amounts and estimated fair values of our long-term debt were $991 million and $1,082 million at March 31, 2006 and
$1,211 million and $1,335 million at March 31, 2005. The estimated fair value of our long-term debt was determined based on quoted market
prices and may not be representative of actual values that could have been realized or that will be realized in the future.
In the normal course of business, we are exposed to interest rate changes and foreign currency fluctuations. We limit these risks through the
use of derivatives such as interest rate swaps and forward contracts. In accordance with our policy, derivatives are only used for hedging
purposes. We do not use derivatives for trading or speculative purposes.
We lease facilities and equipment under both capital and operating leases. Net assets held under capital leases included in property, plant
and equipment were $3 million at both March 31, 2006 and 2005. Rental expense under operating leases was $113 million, $112 million and
$108 million in 2006, 2005 and 2004. We recognize rent expense on a straight-line basis over the term of the lease, taking into account, when
applicable, lessor incentives for tenant improvements, periods where no rent payment is required and escalations in rent payments over the term
of the lease. Deferred rent is recognized for the difference between the rent expense recognized on a straight-line basis and the payments made
per the terms of the lease. Most real property leases contain renewal options and provisions requiring us to pay property taxes and operating
expenses in excess of base period amounts.
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12. Financial Instruments and Hed
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13. Lease Obli
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