AT&T Wireless 2010 Annual Report Download - page 87

AT&T Inc. 85
At December 31, 2010, AT&T securities represented less than
0.5% of assets held by our pension plans and VEBA trusts.
Investment Valuation
Investments are stated at fair value. Fair value is the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. See “Fair Value Measurements”
for further discussion.
Investments in securities traded on a national securities
exchange are valued at the last reported sales price on the
last business day of the year. If no sale was reported on
that date, they are valued at the last reported bid price.
Investments in securities not traded on a national securities
exchange are valued using pricing models, quoted prices of
securities with similar characteristics or discounted cash flows.
Over-the-counter (OTC) securities and government obligations
are valued at the bid price or the average of the bid and
asked price on the last business day of the year from
published sources where available and, if not available, from
other sources considered reliable. Depending on the types
and contractual terms of OTC derivatives, fair value is
measured using a series of techniques, such as Black-Scholes
option pricing models, simulation models or a combination of
various models.
Common/collective trust funds and other commingled
(103-12) investment entities are valued at quoted redemption
values that represent the net asset values of units held at
year end which management has determined approximates
fair value.
Alternative investments, including investments in private equity,
real estate, natural resources, mezzanine and distressed debt,
limited partnership interest, private bonds and hedge funds do
not have readily available market values. These estimated fair
values may differ significantly from the values that would have
been used had a ready market for these investments existed,
and such differences could be material. Alternative investments
not having an established market are valued at fair value as
determined by the investment managers. Private equity,
mezzanine and distressed investments are often valued initially
by the investment managers based upon cost. Thereafter,
investment managers may use available market data to
determine adjustments to carrying value based upon
observations of the trading multiples of public companies
considered comparable to the private companies being valued.
Such market data used to determine adjustments to accounts
for cash flows and company-specified issues include current
operating performance and future expectations of the
investments, changes in market outlook, and the third-party
financing environment. Private equity partnership holdings may
also include publicly held equity investments in liquid markets
that are marked-to-market at quoted public values, subject to
adjustments for large positions held. Real estate and natural
resource direct investments are valued either at amounts based
upon appraisal reports prepared by independent third-party
appraisers or at amounts as determined by internal appraisals
performed by the investment manager, which has been agreed
to by an external valuation consultant. Private bond valuation
is based upon pricing provided by an external pricing service
when such pricing is available. In the event a security is too
thinly traded or narrowly held to be priced by such a pricing
service, or the price furnished by such external pricing services
is deemed inaccurate, the managers will then solicit broker/
dealer quotes (spreads or prices). In cases where such quotes
are available, fair value will be determined based solely upon
such quotes provided. Managers will typically use a pricing
matrix for determining fair value in cases where an approved
pricing service or a broker/dealer is unable to provide a fair
valuation for specific fixed-rate securities such as many private
placements. New fixed-rate securities will be initially valued at
cost at the time of purchase. Thereafter, each bond will be
assigned a spread from a pricing matrix that will be added to
current Treasury rates. The pricing matrix derives spreads for
each bond based on external market data, including the current
credit rating for the bonds, credit spreads to Treasuries for each
credit rating, sector add-ons or credits, issue specific add-ons
or credits as well as call or other options.
Purchases and sales of securities are recorded as of the trade
date. Realized gains and losses on sales of securities are
determined on the basis of average cost. Interest income is
recognized on the accrual basis. Dividend income is
recognized on the ex-dividend date.
Non-interest bearing cash, temporary assets and overdrafts
are valued at cost, which approximates fair value.
Fair Value Measurements
See Note 9 “Fair Value Measurements and Disclosure” for a
discussion of fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value.