McKesson 2010 Annual Report Download - page 92

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
86
Cash and cash equivalents – Cash and cash equivalents consist of a short-term investment fund that maintains
daily liquidity and has a constant unit value of $1.00. The fund also invests in short-term domestic fixed income
securities and other securities with debt-like characteristics emphasizing short-term maturities and quality. Cash and
cash equivalents are generally classified as Level 1 investments. Some cash and cash equivalents are held in
commingled funds, which have a daily net value derived from quoted prices for the underlying securities in active
markets; 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 are not 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 securities consisting of common and preferred stock 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.
Government securities – This investment class consists of bonds and debentures issued by central governments
or federal agencies. Multiple prices and price types are obtained from pricing vendors whenever possible, which
enables cross-provider validations. We have obtained an understanding of how these prices are derived, including
the nature and observability of the inputs used in deriving such prices. These securities are classified as Level 2
investments.
Corporate bonds – This investment class consists of bonds and debentures issued by corporations. Multiple
prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider
validations. We have obtained an understanding of how these prices are derived, including the nature and
observability of the inputs used in deriving such prices. When inputs are observable, securities are classified as
Level 2 investments; otherwise, securities are classified as Level 3 investments.
Mortgage-backed securities – This investment class consists of debt obligations secured by a mortgage or
collection of mortgages. Multiple prices and price types are obtained from pricing vendors whenever possible,
which enables cross-provider validations. We have obtained an understanding of how these prices are derived,
including the nature and observability of the inputs used in deriving such prices. When inputs are observable,
securities are classified as Level 2 investments; otherwise, securities are classified as Level 3 investments.
Asset-backed securities and other – This investment class consists of debt obligations secured by an asset or
collection of assets. Multiple prices and price types are obtained from pricing vendors whenever possible, which
enables cross-provider validations. We have obtained an understanding of how these prices are derived, including
the nature and observability of the inputs used in deriving such prices. When inputs are observable, securities are
classified as Level 2 investments; otherwise, securities are classified as Level 3 investments.
Fixed income commingled funds – Some of the fixed income securities 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 and venture capital 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. The real estate fund is in the process of redemption. However, redemptions are
restricted by the fund’s liquidity. The plans also have an interest in venture capital funds structured as limited
partnerships that invest in privately-held companies. Due to the private nature of the partnership investments,
pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the
partnerships. These valuations are based on proprietary appraisals, application of public market multiples to private
company cash flows, utilization of market transactions that provide valuation information for comparable companies
and other methods. Holdings of limited partnerships pertaining to venture capital investments are classified as
Level 3.