McKesson 2009 Annual Report Download - page 56

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
50
Revolving Credit Facility
We have a $1.3 billion five-year, senior unsecured revolving credit facility which expires in June 2012.
Borrowings under this credit facility bear interest based upon either a Prime rate or the London Interbank Offering
Rate. Total borrowings under this facility were $279 million for 2009. There were no borrowings for 2008. As of
March 31, 2009 and 2008, there were no amounts outstanding under this facility.
In January 2007, we entered into a $1.8 billion interim credit facility. The interim credit facility was a single-
draw 364-day unsecured facility with terms substantially similar to those contained in the Company’s existing
revolving credit facility. We utilized $1.0 billion of this facility to fund a portion of our purchase of Per-Se.
Commercial Paper
We issued and repaid approximately $3.3 billion and $260 million in commercial paper during 2009 and 2008.
There were no commercial paper issuances outstanding at March 31, 2009 and 2008.
Our senior debt credit ratings from S&P, Fitch, and Moody’s are currently BBB+, BBB+ and Baa3, and our
commercial paper ratings are currently A-2, F-2 and P-3. Our ratings outlook is positive with S&P and stable with
Fitch and Moody’s. 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 $215 million of term debt could be
accelerated. At March 31, 2009, this ratio was 28.9% and we were in compliance with all other covenants. A
reduction in our credit ratings or the lack of compliance with our covenants could result in a negative impact on our
ability to finance our operations.
Funds necessary for the resolution of future debt maturities and our other cash requirements are expected to be
met by existing cash balances, cash flows from operations, existing credit sources and other capital market
transactions.
MARKET RISKS
Interest rate risk: Our long-term debt bears interest predominately at fixed rates, whereas our short-term
borrowings are at variable interest rates. If the underlying weighted average interest rate on our variable rate debt
were to have changed by 50 bp in 2009, interest expense would not have been materially different from that
reported.
Our cash and cash equivalent balances earn interest at variable rates. Given recent declines in interest rates, our
interest income may be negatively impacted. If the underlying weighted average interest rate on our cash and cash
equivalent balances changed by 50 bp in 2009, interest income would have increased or decreased by approximately
$7 million.
As of March 31, 2009 and 2008, the net fair value liability of financial instruments with exposure to interest rate
risk was approximately $2,545 million and $1,861 million. Fair value was estimated on the basis of quoted market
prices, although trading in these debt securities is limited and may not reflect fair value. Fair value is subject to
fluctuations based on our performance, our credit ratings, changes in the value of our stock and changes in interest
rates for debt securities with similar terms.
Foreign exchange risk: We derive revenues and earnings from Canada, the United Kingdom, Ireland, other
European countries, Israel, Asia Pacific and Mexico, which expose us to changes in foreign exchange rates. We
seek to manage our foreign exchange risk in part through operational means, including managing same currency
revenues in relation to same currency costs, and same currency assets in relation to same currency liabilities.
Foreign exchange risk is also managed through the use of foreign currency forward-exchange contracts. These
contracts are used to offset the potential earnings effects from mostly intercompany foreign currency investments
and loans. As of March 31, 2009, an adverse 10% change in quoted foreign currency exchange rates would not have
had a material impact on our net fair value of financial instruments that have exposure to foreign currency risk.