Verizon Wireless 2014 Annual Report Download - page 31

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
Employer Contributions
We operate numerous qualied and nonqualied pension plans and
other postretirement benet plans. These plans primarily relate to our
domestic business units. During 2014 and 2013, contributions to our
qualied pension plans were $1.5 billion and not material, respectively.
During 2012, we contributed $0.9 billion to our qualied pension plans,
excluding the pension annuitization discussed above. We also contrib-
uted $0.1 billion, $0.1 billion and $0.2 billion to our nonqualied pension
plans in 2014, 2013 and 2012, respectively.
In an eort to reduce the risk of our portfolio strategy and better align
assets with liabilities, we have adopted a liability driven pension strategy
that seeks to better match cash ows from investments with projected
benet payments. We expect that the strategy will 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 beneciaries, however, we also expect the
strategy to result in lower asset returns. Based on this strategy and the
funded status of the plans at December 31, 2014, we expect the min-
imum required qualied pension plan contribution in 2015 to be $0.7
billion. Nonqualied pension contributions are estimated to be approxi-
mately $0.1 billion in 2015.
Contributions to our other postretirement benet plans generally relate
to payments for benets on an as-incurred basis since the other post-
retirement benet plans do not have funding requirements similar to
the pension plans. We contributed $0.7 billion, $1.4 billion and $1.5 bil-
lion to our other postretirement benet plans in 2014, 2013 and 2012,
respectively. Contributions to our other postretirement benet plans are
estimated to be approximately $0.8 billion in 2015.
Leasing Arrangements
See Note 7 to the consolidated nancial statements for a discussion of
leasing arrangements.
Increase (Decrease) In Cash and Cash Equivalents
Our Cash and cash equivalents at December 31, 2014 totaled $10.6 bil-
lion, a $42.9 billion decrease compared to Cash and cash equivalents at
December 31, 2013 primarily as a result of the cash payment made to
Vodafone as part of the completion of the Wireless Transaction. Our Cash
and cash equivalents at December 31, 2013 totaled $53.5 billion, a $50.4
billion increase compared to Cash and cash equivalents at December 31,
2012 primarily as a result of the issuance of $49.0 billion aggregate prin-
cipal amount of xed and oating rate notes.
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nancial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ow:
(dollars in millions)
Years Ended December 31, 2014 2013 2012
Net cash provided by operating activities $ 30,631 $ 38,818 $ 31,486
Less Capital expenditures (including
capitalized software) 17,191 16,604 16,175
Free cash ow $ 13,440 $ 22,214 $ 15,311
The changes in free cash ow during 2014, 2013 and 2012 were a result of
the factors described in connection with net cash provided by operating
activitiesandcapitalexpenditures.OnFebruary21,2014,wecompleted
the Wireless Transaction which provides full access to the cash ows of
Verizon Wireless. The completion of the Wireless Transaction resulted in
an increase in income tax payments as well as an increase in interest pay-
ments, which reduced our net cash provided by operating activities (see
“CashFlowsProvidedbyOperatingActivities”).
Employee Benet 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du-
ciaryoftheVerizonManagementPensionPlan(thePlan),enteredintoa
denitive 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benet.Inaddition,thegroupannuitycon-
tract is intended to replicate the same rights to future payments, such as
survivor benets, that are currently oered by the Plan.
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.