McKesson 2009 Annual Report Download - page 106

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
100
McKesson’s U.S. defined benefit pension plans use a discount rate based on a yield curve approach. We use a
portfolio of high quality corporate bonds rated AA or better whose maturity is timed with the expected payments of
our plans. For March 31, 2009, we used a discount rate of 7.95% which represents an increase of 162 basis points
from our 2008 discount rate of 6.33%.
Sensitivity to changes in the weighted-average discount rate for our U. S. pension plans is as follows:
(In millions)
Percentage
Point Change
Projected
Benefit
Obligation Expense
+/- 1.0 pt (27)/31 (2)/2
Other Defined Benefit Plans
Under various U.S. bargaining unit labor contracts, we make payments into multi-employer pension plans
established for union employees. We are liable for a proportionate part of the plans’ unfunded vested benefit
liabilities upon our withdrawal from the plan, however information regarding the relative position of each employer
with respect to the actuarial present value of accumulated benefits and net assets available for benefits is not
available. Contributions to the plans and amounts accrued were not material for the years ended March 31, 2009,
2008 and 2007.
Defined Contribution Plans
We have a contributory profit sharing investment plan (“PSIP”) for U.S. employees not covered by collective
bargaining arrangements. Eligible employees may contribute to the PSIP up to 20% of their monthly eligible
compensation for pre-tax contributions and up to 67% of compensation for catch-up contributions not to exceed IRS
limits. The Company makes matching contributions in an amount equal to 100% of the employee’s first 3% of pay
contributed and 50% for the next 2% of pay contributed. The Company also may make an additional annual
matching contribution for each plan year to enable participants to receive a full match based on their annual limit,
effective 2008. Prior to 2009, the Company provided for the PSIP contributions primarily with its common shares
through its leveraged ESOP.
The ESOP has purchased an aggregate of 24 million shares of the Company’s common stock since its inception.
These purchases were financed by 10 to 20 year loans from or guaranteed by us. At March 31, 2009, the ESOP’s
outstanding borrowing is reported as short-term debt of the Company and the related receivables from the ESOP are
shown as a reduction of stockholders’ equity. The loans are repaid by the ESOP from interest earnings on cash
balances and common dividends on unallocated shares and Company cash contributions. The ESOP loan maturities
and rates are identical to the terms of related Company borrowings. Stock is made available from the ESOP based
on debt service payments on ESOP borrowings. ESOP expense and other contribution expense, including interest
expense on ESOP debt, was $53 million, $13 million and $13 million in 2009, 2008 and 2007. ESOP expense for
2008 and 2007 was significantly lower than 2009 due to the utilization of lower cost basis shares in the ESOP to
fund the Company’s matching contributions. Approximately 1 million shares of common stock were allocated to
plan participants in 2008 and 2007. In 2009, the Company made contributions primarily in cash or with the issuance
of treasury shares. At March 31, 2009, substantially all of the 24 million common shares had been allocated to plan
participants. As a result, we will need to fund most of our future PSIP contributions with cash or treasury shares.
As previously reported on the PSIP’s Annual Report on Form 11-K for the year ended March 31, 2008, the
PSIP is a member of the settlement class in the Consolidated Securities Litigation Action (refer to Financial Note 18,
“Other Commitments and Contingent Liabilities,” to the consolidated financial statements appearing in this Annual
Report on Form 10-K). On April 27, 2009, the court issued an order approving the distribution of the settlement
funds. At this time, we do not know the date on which the distribution of settlement funds to the PSIP will occur.