Windstream 2015 Annual Report Download - page 206

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-76
8. Employee Benefit Plans and Postretirement Benefits, Continued:
We utilize a third party to assist in evaluating the allocation of the total assets in the pension trust, taking into consideration the
pension liabilities and funded status of the pension plan. Assets are managed utilizing a liability driven investment approach,
meaning that assets are managed within a risk management framework which addresses the need to generate incremental returns
in the context of an appropriate level of risk, based on plan liability profiles and changes in funded status. The return objectives
are to satisfy funding obligations when and as prescribed by law and to keep pace with the growth of the pension plan liabilities.
Given the long time horizon for paying out benefits and our strong financial condition, the pension plan can accept an average
level of risk relative to other similar plans. The liquidity needs of the pension plan are manageable given that lump sum payments
are not available to most participants.
Equity securities include stocks of both large and small capitalization domestic and international companies. Equity securities are
expected to provide both diversification and long-term real asset growth. Domestic equities may include modest holdings of non-
U.S. equities, purchased by domestic equity managers as long as they are traded in the U.S. and denominated in U.S. dollars and
both active and passive (index) investment strategies. International equities provide a broad exposure to return opportunities and
investment characteristics associated with the world equity markets outside the U.S. The pension plan’s equity holdings are
diversified by investment style, market capitalization, market or region, and economic sector.
Fixed income securities include securities issued by the U.S. Government and other governmental agencies, asset-backed securities
and debt securities issued by domestic and international entities, and derivative instruments comprised of swaps, futures, forwards
and options. These securities are expected to provide diversification benefits, and are expected to reduce asset volatility and pension
funding volatility, and a stable source of income.
Alternative investments may include hedge funds and hedge funds of funds, commodities, both private and public real estate and
private equity investments. In addition to attractive diversification benefits, the alternative investments are expected to provide
both income and capital appreciation.
Investments in money market and other short-term interest bearing securities are maintained to provide liquidity for benefit
payments with protection of principal being the primary objective.
The pension plan is permitted to make investments in our common stock. On March 7, 2014, we contributed 1.0 million shares
of our common stock to the Windstream Pension Plan to meet our quarterly 2014 funding requirements. At the time of this
contribution, the shares had an appraised value, as determined by a third party valuation firm, of approximately $8.3 million.
Similarly, in 2013, we contributed approximately $27.8 million of our common stock to the Windstream Pension Plan to meet our
remaining 2013 funding obligations and a portion of our expected 2014 funding obligation.
As previously discussed in Note 5, we contributed certain of our own real property to our qualified pension plan during the third
quarter of 2014. Independent appraisals of the properties contributed were obtained and the Windstream Pension Plan recorded
the contribution based on the properties’ aggregate fair value of $80.9 million at the dates of contribution. We subsequently entered
into leases for the contributed properties with initial lease terms of 10 years for certain properties and 20 years for the remaining
properties at an aggregate annual rent of approximately $6.3 million. The lease agreements provide for annual rent increases
ranging from 2.0 percent to 3.0 percent over the initial lease term and may be renewed for up to three additional 5-year terms. The
properties are managed on behalf of the Windstream Pension Plan by an independent fiduciary and terms of the lease agreements
were negotiated with the fiduciary on an arm’s-length basis. During the fourth quarter of 2015 in conjunction with the sale of the
data center business, Windstream Services repurchased at fair value one of the properties contributed to the Windstream Pension
Plan for $8.2 million in cash. Following the repurchase, annual rent due under the lease agreements declined from approximately
$6.3 million to $6.0 million.