Verizon Wireless 2013 Annual Report Download - page 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
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Fixed income securities include U.S. Treasuries and agencies, debt obli-
gations of foreign governments and domestic and foreign corporations.
Fixed income also includes investments in collateralized mortgage obli-
gations, mortgage backed securities and interest rate swaps. The fair
value of xed income securities is based on observable prices for iden-
tical or comparable assets, adjusted using benchmark curves, sector
grouping, matrix pricing, broker/dealer quotes and issuer spreads, and
thus is classied 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 a comparable
sales approach, taking into consideration discount and capitalization
rates, nancial conditions, local market conditions and the status of the
capital markets, and thus are classied 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 nancing taking into con-
sideration illiquidity, and thus are classied 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 diversication. 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 classied within Level 2. Investments that cannot be redeemed
in the near term are classied within Level 3.
Cash Flows
In 2013, contributions to our qualied pension plans were not material.
Also in 2013, we contributed $0.1 billion to our nonqualied pension
plans and $1.4 billion to our other postretirement benet plans. We antic-
ipate approximately $1.2 billion in contributions to our qualied pension
plans, $0.2 billion to our nonqualied pension plans and $1.4 billion to
our other postretirement benet plans in 2014.
Health Care and Life Plans
The fair values for the other postretirement benet plans by asset cat-
egory at December 31, 2013 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 237 $ 12 $ 225 $ –
Equity securities 2,178 1,324 854 –
Fixed income securities
U.S. Treasuries and agencies 121 94 27 –
Corporate bonds 252 45 207 –
International bonds 104 18 86 –
Other 161 40 121 –
Total $ 3,053 $ 1,533 $ 1,520 $ –
The fair values for the other postretirement benet plans by asset cat-
egory at December 31, 2012 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 291 $ 13 $ 278 $ –
Equity securities 1,753 1,004 749 –
Fixed income securities
U.S. Treasuries and agencies 118 80 38 –
Corporate bonds 192 11 181 –
International bonds 189 72 117 –
Other 114 – 114 –
Total $ 2,657 $ 1,180 $ 1,477 $ –
The following are general descriptions of asset categories, as well as the
valuation 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 diversied portfolios of investment grade money market instruments
and are valued using quoted market prices or other valuation methods,
and thus are classied 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 classied within Level 1 or Level 2.
The following is a reconciliation of the beginning and ending balance of pension plan assets that are measured at fair value using signicant unob-
servable inputs:
(dollars in millions)
Corporate Bonds Real Estate Private Equity Hedge Funds Total
Balance at January 1, 2012 $ 189 $ 2,158 $ 6,055 $ 662 $ 9,064
Actual gain on plan assets 12 84 146 43 285
Purchases and sales (14) (224) (1,162) (147) (1,547)
Transfers in 9 – – – 9
Balance at December 31, 2012 $ 196 $ 2,018 $ 5,039 $ 558 $ 7,811
Actual gain on plan assets 12 81 674 84 851
Purchases and sales (13) (315) (1,732) (124) (2,184)
Transfers in (out) (33) – (39) 678 606
Balance at December 31, 2013 $ 162 $ 1,784 $ 3,942 $ 1,196 $ 7,084