International Paper 2014 Annual Report Download - page 115

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Hedge funds are investment structures for managing
private, loosely-regulated investment pools that can
pursue a diverse array of investment strategies with a
wide range of different securities and derivative
instruments. These investments are made through
funds-of-funds (commingled, multi-manager fund
structures) and through direct investments in individual
hedge funds. Hedge funds are primarily valued by each
fund’s third-party administrator based upon the
valuation of the underlying securities and instruments
and primarily by applying a market or income valuation
methodology as appropriate depending on the specific
type of security or instrument held. Funds-of-funds are
valued based upon the net asset values of the
underlying investments in hedge funds.
Private equity consists of interests in partnerships that
invest in U.S. and non-U.S. debt and equity securities.
Partnership interests are valued using the most recent
general partner statement of fair value, updated for any
subsequent partnership interest cash flows.
Real estate includes commercial properties, land and
timberland, and generally includes, but is not limited to,
retail, office, industrial, multifamily and hotel properties.
Real estate fund values are primarily reported by the
fund manager and are based on valuation of the
underlying investments which include inputs such as
cost, discounted cash flows, independent appraisals
and market based comparable data.
Derivative investments such as futures, forward
contracts, options, and swaps are used to help manage
risks. Derivatives are generally employed as asset
class substitutes (such as when employed within a
portable alpha strategy), for managing asset/liability
mismatches, or bona fide hedging or other appropriate
risk management purposes. Derivative instruments are
generally valued by the investment managers or in
certain instances by third-party pricing sources.
The fair value measurements using significant unobservable inputs (Level 3) at December 31, 2014 were as
follows:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
In millions
Equities-
Domestic
Other
Fixed
Income
Hedge
Funds
Private
Equity
Real
Estate Derivatives Total
Beginning balance at December 31, 2013 $ 1 $ 10 $ 831 $ 484 $ 1,038 $ 313 $ 2,677
Actual return on plan assets:
Relating to assets still held at the reporting date (1) — 37 17 88 18 159
Relating to assets sold during the period 1 — 4 (1) 14 76 94
Purchases, sales and settlements (1) — (5) (13) (7) (260) (286)
Transfers in and/or out of Level 3 (a) ———32(32)
229 229
Ending balance at December 31, 2014 $ — $ 10 $ 867 $ 519 $ 1,101 $ 376 $ 2,873
(a) Includes the transfer of a $32 million investment historically shown as Real
Estate now categorized as Private Equity.
FUNDING AND CASH FLOWS
The Company’s funding policy for the Pension Plan is
to contribute amounts sufficient to meet legal funding
requirements, plus any additional amounts that the
Company may determine to be appropriate considering
the funded status of the plans, tax deductibility, cash
flow generated by the Company, and other factors. The
Company continually reassesses the amount and
timing of any discretionary contributions. Contributions
to the qualified plan totaling $353 million, $31 million
and $44 million were made by the Company in 2014,
2013 and 2012, respectively. Generally, International
Paper’s non-U.S. pension plans are funded using the
projected benefit as a target, except in certain countries
where funding of benefit plans is not required.
At December 31, 2014, projected future pension benefit
payments, excluding any termination benefits, were as
follows:
In millions
2015 $802
2016 769
2017 781
2018 795
2019 811
2020 – 2024 4,279
OTHER U.S. PLANS
International Paper sponsors the International Paper
Company Salaried Savings Plan and the International
Paper Company Hourly Savings Plan, both of which are