McKesson 2010 Annual Report Download - page 91

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
85
Sensitivity to changes in the weighted-average discount rate for our U. S. pension plans is as follows:
(In millions)
One Percentage Point
Increase
One Percentage Point
Decrease
Increase (decrease) on projected benefit obligation $ (37) $ 44
Increase (decrease) on net periodic pension cost (3) 3
Plan Assets
Investment Strategy: The overall objective for McKesson’s pension plan assets is to generate long-term
investment returns consistent with capital preservation and prudent investment practices, with a diversification of
asset types and investment strategies. Periodic adjustments are made to provide liquidity for benefit payments and
to rebalance plan assets to their target allocations.
The target allocations for plan assets are 59% equity securities, 33% fixed income securities and 8% to all other
types of investments including cash and cash equivalents. Equity securities include primarily exchange-traded
common stock and preferred stock of companies from diversified industries. Fixed income securities include
corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-
backed securities and other. Other types of investments include investments in real estate and venture capital funds,
hedge funds and cash and cash equivalents. Portions of the equity, fixed income and cash and cash-equivalent
investments are held in commingled funds.
We develop our expected long-term rate of return assumption based on the historical experience of our portfolio
and review of projected performance by asset class of broad, publicly traded equity and fixed-income indices. Our
target asset allocation was determined based on the risk tolerance characteristics of the plans and at times may be
adjusted to achieve our overall investment objectives.
Fair Value Measurements: The following table represents our pension plan assets as of March 31, 2010, using
the fair value hierarchy by asset class. The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value. Level 1 refers to fair values determined based on unadjusted quoted prices in active
markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and
Level 3 includes fair values estimated using significant non-observable inputs.
(In millions) Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 10 $ 17 $ — $ 27
Equity securities:
Common and preferred stock 104 1 — 105
Equity commingled funds — 126 — 126
Fixed income securities:
Government securities — 23 — 23
Corporate bonds — 41 — 41
Mortgage-backed securities — 17 1 18
Asset-backed securities and other — 15 1 16
Fixed income commingled funds — 22 — 22
Other:
Real estate and venture capital funds — — 19 19
Hedge funds — — 5 5
Total $ 114 $ 262 $ 26 $ 402
Receivables (1) 6
Payables (1) (17)
Total $ 391
(1) Represents pending trades at March 31, 2010.