Avis 2013 Annual Report Download - page 110

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F-38
to the level of risk associated with investment securities, it is reasonably possible that changes in the values
of the pension plans’ investment securities will occur in the near term and that such changes would
materially affect the amounts reported in the Company’s financial statements.
The U.S. defined benefit pension plans’ investment goals and objectives are managed by the Company with
consultation from independent investment advisors. The Company seeks to produce returns on pension
plan investments, which are based on levels of liquidity and investment risk that the Company believes are
prudent and reasonable, given prevailing capital market conditions. The pension plans’ assets are managed
in the long-term interests of the participants and the beneficiaries of the plans. The Company’s overall
investment strategy has been to achieve a mix of approximately 65% of investments for long-term growth
and 35% for near-term benefit payments with a wide diversification of asset types and fund strategies. The
Company believes that diversification of the pension plans’ assets is an important investment strategy to
provide reasonable assurance that no single security or class of securities will have a disproportionate
impact on the pension plans. As such, the Company allocates assets among traditional equity, fixed income
(U.S. and non-U.S. government issued securities, corporate bonds and short-term cash investments) and
other investment strategies.
The equity component’s purpose is to provide a total return that will help preserve the purchasing power of
the assets. The pension plans hold various mutual funds that invest in equity securities and are diversified
among funds that invest in large cap, small cap, growth, value and international stocks as well as funds that
are intended to “track” an index, such as the S&P 500. The equity investments in the portfolios will
represent a greater assumption of market volatility and risk as well as provide higher anticipated total return
over the long term. The equity component is expected to approximate 45%-65% of the U.S. pension plans’
assets.
The purpose of the fixed income component is to provide a deflation hedge, to reduce the overall volatility of
the pension plans assets in relation to the liability and to produce current income. The pension plans hold
mutual funds that invest in securities issued by governments, government agencies and corporations. The
fixed income component is expected to approximate 30%-40% of the U.S. pension plans’ assets.
The management of the Company’s non-U.S. defined benefit pension plans’ investment goals and
objectives vary slightly by country, but are managed with consultation and advice from independent
investment advisors. The investment policy is set with the primary objective to provide appropriate security
for all beneficiaries; to achieve long-term growth in the assets sufficient to provide for benefits from the plan;
and to achieve an appropriate balance between risk and return with regards to the cost of the plan and the
security of the benefits. A suitable strategic asset allocation benchmark is determined for the plans to
maintain diversified portfolios, taking into account government requirements, if any, regarding unnecessary
investment risk and protection of pension plans’ assets. The defined benefit pension plans’ assets are
primarily invested in equities, bonds, absolute return funds and cash.
The Company used significant observable inputs (Level 2 inputs) to determine the fair value of the defined
benefit pension plans’ assets. See Note 2—Summary of Significant Accounting Policies for the Company’s
methodology used to measure fair value. The following table presents the defined benefit pension plans’
assets measured at fair value, as of December 31:
Asset Class 2013 2012
Cash equivalents $ 10 $ 3
Short term investments 5 7
U.S. stock 104 91
Non-U.S. stock 166 149
Real estate investment trusts 9 6
Non-U.S. government securities 80 70
U.S. government securities 3 20
Corporate bonds 137 105
Other assets 314
Total assets $ 517 $ 465
The Company estimates that future benefit payments from plan assets will be $23 million, $24 million, $25
million, $26 million, $27 million and $159 million for 2014, 2015, 2016, 2017, 2018 and 2019 to 2023,
respectively.