Verizon Wireless 2014 Annual Report Download - page 66

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
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.
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.
Employer Contributions
In 2014, we contributed $1.5 billion to our qualied pension plans, $0.1
billion to our nonqualied pension plans and $0.7 billion to our other
postretirement benet plans. We anticipate a minimum contribution of
$0.7 billion to our qualied pension plans in 2015. Nonqualied pension
plans contributions are estimated to be $0.1 billion and contributions to
our other postretirement benet plans are estimated to be $0.8 billion
in 2015.
Health Care and Life Plans
The fair values for the other postretirement benet plans by asset cat-
egory at December 31, 2014 are as follows:
(dollars in millions)
Asset Category Total Level 1 Level 2 Level 3
Cash and cash equivalents $ 208 $ 6 $ 202 $ –
Equity securities 1,434 1,172 262 –
Fixed income securities
U.S. Treasuries and agencies 105 98 7 –
Corporate bonds 461 119 296 46
International bonds 111 14 97 –
Other 116 – 116 –
Total $ 2,435 $ 1,409 $ 980 $ 46
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 following is a reconciliation of the beginning and ending balance of
the other postretirement benet plans assets that are measured at fair
value using signicant unobservable inputs:
Corporate
Bonds Total
Balance at December 31, 2013 $ – $ –
Actual gain on plan assets 1 1
Purchases and sales 45 45
Balance at December 31, 2014 $ 46 $ 46
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.
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)
Equity
Securities
Corporate
Bonds
International
Bonds
Real
Estate
Private
Equity
Hedge
Funds Total
Balance at January 1, 2013 $ – $ 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
Actual gain (loss) on plan assets (1) 5 – 42 73 33 152
Purchases and sales 106 (50) 8 (34) (471) 144 (297)
Transfers in (out) 5 (5) 11 – – (575) (564)
Balance at December 31, 2014 $ 110 $ 112 $ 19 $ 1,792 $ 3,544 $ 798 $ 6,375