McKesson 2012 Annual Report Download - page 89

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
85
Cash and cash equivalents – Cash and cash equivalents include short-term investment funds that maintain daily
liquidity and aim to have constant unit values of $1.00. The funds invest in short-term fixed income securities and
other securities with debt-like characteristics emphasizing short-term maturities and high credit quality. Directly
held cash and cash equivalents are classified as Level 1 investments. Cash and cash equivalents include
commingled funds, which have daily net asset values derived from the underlying securities; these are classified as
Level 2 investments.
Common and preferred stock – This investment class consists of common and preferred shares issued by U.S.
and non-U.S. corporations. Common shares are traded actively on exchanges and price quotes are readily available.
Preferred shares may not be actively traded. Holdings of common shares are generally classified as Level 1
investments. Preferred shares are classified as Level 2 investments.
Equity commingled funds – Some equity investments are held in commingled funds, which have daily net asset
values derived from quoted prices for the underlying securities in active markets; these are classified as Level 2
investments.
Fixed income securities — Government securities consist of bonds and debentures issued by central
governments or federal agencies; corporate bonds consist of bonds and debentures issued by corporations;
mortgage-backed securities consist of debt obligations secured by a mortgage or pool of mortgages; and asset-
backed securities primarily consist of debt obligations secured by an asset or pool of assets other than mortgages.
Inputs to the valuation methodology include quoted prices for similar assets in active markets, and inputs that are
observable for the asset, either directly or indirectly, for substantially the full term of the asset. Multiple prices and
price types are obtained from pricing vendors whenever possible, which enables cross-provider validations. The
Company obtains an understanding of how these prices are derived, including the nature and observability of the
inputs used in deriving such prices. Fixed income securities are generally classified as Level 2 investments.
Fixed income commingled funds – Some fixed income investments are held in commingled funds, which have
daily net asset values derived from the underlying securities; these are classified as Level 2 investments.
Real estate funds – The value of the real estate funds is reported by the fund manager and is based on a
valuation of the underlying properties. Inputs used in the valuation include items such as cost, discounted future
cash flows, independent appraisals and market based comparable data. The real estate funds are classified as Level
3 investments.
Hedge funds – The hedge funds are invested in fund-of-fund structures and consist of multiple investments in
interest and currency funds designed to hedge the risk of rate fluctuations. Given the complex nature of valuation
and the broad spectrums of investments, the hedge funds are classified as Level 3 investments.
Other commingled funds – The other commingled funds are invested in equities, bonds, commodities, other
alternative investments and cash and cash equivalents. These funds are valued generally based on the weekly net
asset values derived from the quoted prices for the underlying securities in active markets and, for alternative
investments, based on other complex valuation techniques. Other commingled funds are classified as Level 2
investments.