McKesson 2011 Annual Report Download - page 92

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
86
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 non-mortgage-
backed assets or pools 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 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.
The following table represents a reconciliation of Level 3 plan assets held during the years ended
March 31, 2010 and 2011:
(In millions)
Real Estate
Funds
Hedge Funds
Other
Total
Balance at March 31, 2009
$
25
$
5
$
2
$
32
Unrealized (loss) on plan assets still held
(6)
—
—
(6)
Balance at March 31, 2010
$
19
$
5
$
2
$
26
Purchases, sales and settlements
(14)
—
—
(14)
Transfer in and/or out of Level 3
—
—
(2)
(2)
Balance at March 31, 2011
$
5
$
5
$
—
$
10
Concentration of Credit Risk: We evaluated our pension plans’ asset portfolios for the existence of significant
concentrations of credit risk as of March 31, 2011. Types of concentrations that were evaluated include investment
funds that represented 10% or more of the pension plans’ net assets. As of March 31, 2011, 11% of our plan assets
is comprised of Bartram International Fund, which holds only actively traded stock.
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 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, 2011, 2010 and
2009.