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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
49
In connection with our acquisition of PSS World Medical, in December 2012 we entered into a $2.1 billion unsecured Senior
Bridge Term Loan Agreement (“2013 Bridge Loan”). In February 2013, we reduced the 2013 Bridge Loan commitment to
$900 million. On February 22, 2013, we borrowed $900 million under the 2013 Bridge Loan, with such proceeds and cash on
hand were used to redeem the assumed debt from PSS World Medical and pay the equity shareholders of PSS World Medical. On
March 8, 2013, we repaid the 2013 Bridge Loan borrowings with funds obtained from the issuance of long-term debt and the
bridge loan agreement was subsequently terminated. During the time it was outstanding, the 2013 Bridge Loan borrowings bore
interest at 1.20% per annum, based on the London Interbank Offered Rate plus a margin based on the Company’s credit rating.
Interest expense for 2013 includes $11 million of fees related to the 2013 Bridge Loan.
Celesio Debt
Upon our acquisition of Celesio, as required, we consolidated a total of $2.3 billion of outstanding debt of Celesio as a liability
on our consolidated balance sheet. The Celesio debt consists primarily of corporate bonds, convertible debt, promissory notes and
amounts outstanding under their accounts receivable facility arrangements and lines of credits. Debt maturities range from our
fiscal years 2015 to 2024. As of March 31, 2014, Celesio convertible debt of $344 million was extinguished through the issuance
of Celesio common stock or cash. As of March 31, 2014, $246 million and $188 million were outstanding under the accounts
receivable factoring facility arrangements and lines of credits with committed balances of $308 million and $1,662 million.
According to certain terms and conditions of Celesio’s 4.00% bonds maturing on October 18, 2016 and their 4.50% bonds
maturing on April 26, 2017, effective May 7, 2014 bondholders have the option to ask for repayment of the bonds at par value
plus accrued interest. If bondholders do not exercise this option by May 19, 2014, the bonds will remain outstanding until their
respective maturity dates. Accordingly, as at March 31, 2014, these bonds having a book value of $1,244 million have been classified
as a current liability. As of May 7, 2014, the fair value of these bonds of $1,272 million was more than their par value of $1,184
million.
PSS World Medical Debt
Upon our acquisition of PSS World Medical, we assumed the outstanding debt of PSS World Medical. Prior to our acquisition,
PSS World Medical called for redemption of all of its outstanding 6.375% Senior Notes due 2022. Due to the change in control
provisions of the 3.125% Senior Convertible Notes due 2014, the notes were convertible to cash at the option of the note holders.
All the note holders opted to receive cash. In the fourth quarter of 2013, we redeemed both of these notes, including accrued
interest for $643 million using cash on hand and borrowings under our 2013 PSS Bridge Loan.
Long-Term Debt
In connection with the acquisition of Celesio, on March 5, 2014, we issued floating rate notes (“Floating Rate Notes”) due
September 10, 2015 in an aggregate principal amount of $400 million, 1.29% notes due March 10, 2017 in an aggregate principal
amount of $700 million (“2017 Notes”), 2.28% notes due March 15, 2019 in an aggregate principal amount of $1,100 million
(“2019 Notes”), 3.80% notes due March 15, 2024 in an aggregate principal amount of $1,100 million (“2024 Notes”) and 4.88%
notes due March 15, 2044 in an aggregate principal amount of $800 million (“2044 Notes”). The Floating Rate Notes bear interest
at a floating rate equal to the three-month London Interbank Offered Rate plus 0.40% (0.64% at March 31, 2014). We utilized net
proceeds, after discounts and offering expenses of $4,068 million from the issuance of these notes (each note constitutes a “Series”)
to repay borrowings under the 2014 Bridge Loan.
On March 8, 2013, we issued 1.40% notes due March 15, 2018 in an aggregate principal amount of $500 million and 2.85%
notes due March 15, 2023 in an aggregate principal amount of $400 million. We utilized net proceeds, after discounts and offering
expenses of $891 million from the issuance of these notes (each note constitutes a “Series”) to repay borrowings under the 2013
Bridge Loan.
On December 4, 2012, we issued 0.95% notes due December 4, 2015 in an aggregate principal amount of $500 million (“2015
Notes”) and 2.70% notes due December 15, 2022 in an aggregate principal amount of $400 million (“2022 Notes”). We utilized
net proceeds, after discounts and offering expenses, of $892 million from the issuance of these notes (each note constitutes a
“Series”) for general corporate purposes and replenishing working capital that was used to repay long-term debt that matured.