McKesson 2013 Annual Report Download - page 92

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86
McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Weighted-average assumptions used to estimate the net periodic pension expense and the actuarial present value of
benefit obligations were as follows:
Years Ended March 31,
2013 2012 2011
Net periodic pension expense
Discount rates 4.22% 4.98% 5.30%
Rate of increase in compensation 3.58 3.74 3.75
Expected long-term rate of return on plan assets 6.94 7.60 7.79
Benefit obligation
Discount rates 3.55% 4.23% 4.99%
Rate of increase in compensation 3.59 3.56 3.74
Our U.S. defined benefit pension plan liabilities are valued using a discount rate based on a yield curve developed from a
portfolio of high quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments
of our plans. For March 31, 2013, we used a weighted average discount rate of 3.40%, which represents a decrease of 75 basis
points from our 2012 weighted-average discount rate of 4.15%.
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 $(41) $ 48
Increase (decrease) on net periodic pension cost (2) 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 at March 31, 2013 are 45% equity investments, 42% fixed income investments and
13% to all other types of investments, including cash and cash equivalents. The target allocations for plan assets at March 31,
2012 were 53% equity investments, 35% fixed income investments and 12% to all other types of investments, including cash
and cash equivalents. Equity investments include common stock, preferred stock, and equity commingled funds. Fixed
income investments include corporate bonds, government securities, mortgage-backed securities, asset-backed securities,
other directly held fixed income investments, and fixed income commingled funds. Other investments include real estate
funds, hedge funds, other commingled funds and cash and cash equivalents.
We develop our expected long-term rate of return assumption based on the projected performance of the asset classes in
which plan assets are invested. Our target asset allocation was determined based on the liability and risk tolerance
characteristics of the plans and at times may be adjusted to achieve our overall investment objectives.
Fair Value Measurements: The following tables represent our pension plan assets as of March 31, 2013 and 2012, 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 unobservable inputs.