McKesson 2013 Annual Report Download - page 88

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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 of default provisions.
We repaid our $500 million 5.25% Notes on March 1, 2013 and our $400 million 7.75% Notes on February 1, 2012, both
of which had matured.
Scheduled future payments of long-term debt are $352 million in 2014, $2 million in 2015, $1,099 million in 2016, $501
million in 2017, $500 million in 2018 and $2,419 million thereafter.
Accounts Receivable Sales Facility
In May 2012, 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 balance 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 renewed Facility will expire in May 2013. We anticipate extending or renewing
the Facility before 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.
Transactions under the Facility are 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, 2013, 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.
There were no borrowings in 2011 under the Facility. During 2012, we borrowed $400 million under the Facility. At
March 31, 2012, there were $400 million in secured borrowings and $400 million of related securitized accounts receivable
outstanding under the Facility, which were included in short-term borrowings and receivables in the consolidated balance
sheets. During the first quarter of 2013, these short-term borrowings were repaid using cash on hand. In addition, during
2013, we borrowed a total of $1,325 million under the Facility, all of which were repaid during the year using cash on hand.
At March 31, 2013, there were no secured borrowings and related securitized accounts receivable outstanding under the
Facility. Fees and charges on the facility were $6 million, $6 million and $9 million in 2013, 2012 and 2011 and were
recorded as interest expense. 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.