Verizon Wireless 2010 Annual Report Download - page 67

Notes to Consolidated Financial Statements continued
65
The following is a reconciliation of the beginning and ending balance of pension plan assets that are measured at fair value using significant unob-
servable inputs:
(dollars in millions)
Corporate Bonds Real Estate Private Equity Hedge Funds Total
Balance at December 31, 2008 $ 23 $ 1,665 $ 5,101 $ – $ 6,789
Actual gain (loss) on plan assets 26 (455) (5) – (434)
Purchases and sales 84 331 263 – 678
Transfers in and/or out of Level 3 4 – (23) – (19)
Balance at December 31, 2009 $ 137 $ 1,541 $ 5,336 $ – $ 7,014
Actual gain (loss) on plan assets 3 (49) 518 24 496
Purchases and sales 37 294 (5) 109 435
Transfers in and/or out of Level 3 3 (17) – 583 569
Balance at December 31, 2010 $ 180 $ 1,769 $ 5,849 $ 716 $ 8,514
Fixed income securities include U.S. Treasuries and agencies, debt obli-
gations of foreign governments and debt obligations in corporations of
domestic and foreign issuers. Fixed income also includes investments
in asset backed securities such as collateralized mortgage obligations,
mortgage backed securities and interest rate swaps. The fair value of
fixed income securities are based on observable prices for identical or
comparable assets, adjusted using benchmark curves, sector grouping,
matrix pricing, broker/dealer quotes and issuer spreads, and thus are clas-
sified within Level 1 or Level 2.
Real estate investments include those in limited partnerships that invest
in various commercial and residential real estate projects both domesti-
cally and internationally. The fair values of real estate assets are typically
determined by using income and/or cost approaches or comparable
sales approach, taking into consideration discount and capitalization
rates, financial conditions, local market conditions and the status of the
capital markets, and thus are classified within Level 3.
Private equity investments include those in limited partnerships that
invest in operating companies that are not publicly traded on a stock
exchange. Investment strategies in private equity include leveraged buy-
outs, venture capital, distressed investments and investments in natural
resources. These investments are valued using inputs such as trading
multiples of comparable public securities, merger and acquisition activity
and pricing data from the most recent equity financing taking into con-
sideration illiquidity, and thus are classified within Level 3.
Hedge fund investments include those seeking to maximize absolute
returns using a broad range of strategies to enhance returns and provide
additional diversification. The fair values of hedge funds are estimated
using net asset value per share (NAV) of the investments. Verizon has the
ability to redeem these investments at NAV within the near term and
thus are classified within Level 2. Investments that cannot be redeemed
in the near term are classified within Level 3.
Cash Flows
In 2010, contributions to our qualified pension plans were not significant.
In 2010, we contributed $0.1 billion to our nonqualified pension plans
and $1.2 billion to our other postretirement benefit plans. During January
2011, we contributed approximately $0.4 billion to our qualified pension
plans. We do not expect to make additional qualified pension plan contri-
butions during the remainder of 2011. We anticipate approximately $0.1
billion in contributions to our non-qualified pension plans and $1.5 bil-
lion to our other postretirement benefit plans in 2011.
Health Care and Life Plans
The fair values for the other postretirement benefit plans by asset cat-
egory at December 31, 2010 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 394 $ 21 $ 373 $ –
Equity securities 1,919 1,202 717 –
Fixed income securities
U.S. Treasuries and agencies 80 47 33 –
Corporate bonds 173 58 115 –
International bonds 125 8 117 –
Other 198 – 198 –
Other 56 – 56 –
Total $ 2,945 $ 1,336 $ 1,609 $ –
The fair values for the other postretirement benefit plans by asset cat-
egory at December 31, 2009 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 166 $ 27 $ 139 $ –
Equity securities 2,240 1,681 559 –
Fixed income securities
U.S. Treasuries and agencies 61 36 25 –
Corporate bonds 275 42 233 –
International bonds 81 13 68 –
Other 231 – 231 –
Other 37 – 37 –
Total $ 3,091 $ 1,799 $ 1,292 $ –
Plan assets are recognized and measured at fair value in accordance
with the accounting standards regarding fair value measurements. The
following are general descriptions of asset categories, as well as the valu-
ation methodologies and inputs used to determine the fair value of each
major category of assets.
Cash and cash equivalents include short-term investment funds, primarily
in diversified portfolios of investment grade money market instruments
and are valued using quoted market prices or other valuation methods,
and thus are classified within Level 1 or Level 2.
Equity securities are investments in common stock of domestic and
international corporations in a variety of industry sectors, and are valued
primarily using quoted market prices or other valuation methods, and
thus are classified within Level 1 or Level 2.