Verizon Wireless 2012 Annual Report Download - page 41

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We contributed approximately $2.6 billion to the Plan between
September 1, 2012 and December 31, 2012 in connection with the trans-
actionsothatthePlan’sfundingpercentagewouldnotdecreaseasa
result of the transaction.
Employer Contributions
We operate numerous qualified and nonqualified pension plans and
other postretirement benefit plans. These plans primarily relate to our
domestic business units. During 2012 and 2011, we contributed $0.9 bil-
lion and $0.4 billion, respectively, to our qualified pension plans, excluding
the pension annuitization discussed above. During 2010, contributions to
our qualified pension plans were not significant. We also contributed $0.2
billion, $0.1 billion and $0.1 billion to our nonqualified pension plans in
2012, 2011 and 2010, respectively.
In an effort to reduce the risk of our portfolio strategy and better align
assets with liabilities, we have shifted our strategy to one that is more
liability driven, where cash flows from investments better match pro-
jected benefit payments but result in lower asset returns. We intend to
reduce the likelihood that assets will decline at a time when liabilities
increase (referred to as liability hedging), with the goal to reduce the risk
of underfunding to the plan and its participants and beneficiaries. Based
on the revised strategy and the funded status of the plans at December
31, 2012, we expect the minimum required qualified pension plan contri-
bution in 2013 to be immaterial. Nonqualified pension contributions are
estimated to be approximately $0.1 billion in 2013.
Contributions to our other postretirement benefit plans generally relate
to payments for benefits on an as-incurred basis since the other post-
retirement benefit plans do not have funding requirements similar to
the pension plans. We contributed $1.5 billion, $1.4 billion and $1.2 bil-
lion to our other postretirement benefit plans in 2012, 2011 and 2010,
respectively. Contributions to our other postretirement benefit plans are
estimated to be approximately $1.5 billion in 2013.
Leasing Arrangements
We are the lessor in leveraged and direct financing lease agreements for
commercial aircraft and power generating facilities, which comprise the
majority of our leasing portfolio along with telecommunications equip-
ment, commercial real estate property and other equipment. These
leases have remaining terms of up to 38 years as of December 31, 2012.
In addition, we lease space on certain of our cell towers to other wireless
carriers.Minimumleasepaymentsreceivablerepresentunpaidrentals,
less principal and interest on third-party nonrecourse debt relating to lev-
eraged lease transactions. Since we have no general liability for this debt,
which is secured by a senior security interest in the leased equipment
and rentals, the related principal and interest have been offset against
the minimum lease payments receivable in accordance with GAAP. All
recourse debt is reflected in our consolidated balance sheets.
Covenants
Our credit agreements contain covenants that are typical for large,
investment grade companies. These covenants include requirements to
pay interest and principal in a timely fashion, pay taxes, maintain insur-
ance with responsible and reputable insurance companies, preserve our
corporate existence, keep appropriate books and records of financial
transactions, maintain our properties, provide financial and other reports
to our lenders, limit pledging and disposition of assets and mergers and
consolidations, and other similar covenants.
We and our consolidated subsidiaries are in compliance with all debt
covenants.
Increase (Decrease) In Cash and Cash Equivalents
Our Cash and cash equivalents at December 31, 2012 totaled $3.1 bil-
lion, a $10.3 billion decrease compared to Cash and cash equivalents
at December 31, 2011 for the reasons discussed above. Our Cash and
cash equivalents at December 31, 2011 totaled $13.4 billion, a $6.7 billion
increase compared to Cash and cash equivalents at December 31, 2010
for the reasons discussed above.
As of December 31, 2012, Verizon Wireless cash and cash equivalents and
debt outstanding totaled $0.8 billion and $10.1 billion, respectively.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that management
believesisusefultoinvestorsandotherusersofVerizon’sfinancialinfor-
mationinevaluatingcashavailabletopaydebtanddividends.Freecash
flow is calculated by subtracting capital expenditures from net cash
provided by operating activities. The following table reconciles net cash
providedbyoperatingactivitiestoFreecashflow:
(dollars in millions)
Years Ended December 31, 2012 2011 2010
Net cash provided by operating activities $ 31,486 $ 29,780 $ 33,363
Less Capital expenditures (including
capitalized software) 16,175 16,244 16,458
Free cash flow $ 15,311 $ 13,536 $ 16,905
The changes in free cash flow during 2012, 2011 and 2010 were a result
of the factors described in connection with net cash provided by oper-
ating activities and capital expenditures above.
Employee Benefit Plan Funded Status and Contributions
Pension Annuitization
On October 17, 2012, we, along with our subsidiary Verizon Investment
ManagementCorp.,andFiduciaryCounselorsInc.,asindependentfidu-
ciaryoftheVerizonManagementPensionPlan(thePlan),enteredintoa
definitive purchase agreement with The Prudential Insurance Company
ofAmerica(Prudential)andPrudentialFinancial,Inc.,pursuanttowhich
the Plan would purchase a single premium group annuity contract from
Prudential.
On December 10, 2012, upon issuance of the group annuity contract by
Prudential, Prudential irrevocably assumed the obligation to make future
annuity payments to approximately 41,000 Verizon management retirees
whobeganreceivingpensionpaymentsfromthePlanpriortoJanuary1,
2010.Theamountofeachretiree’sannuitypaymentequalstheamount
ofsuchindividual’spensionbenefit.Inaddition,thegroupannuitycon-
tract is intended to replicate the same rights to future payments, such as
survivor benefits, that are currently offered by the Plan.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued