International Paper 2012 Annual Report Download - page 108

Fair Value Measurement at December 31, 2012
Asset
Class Total
Quoted
Prices
in
Active
Markets
For
Identical
Assets
(Level
1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
In millions
Equities – domestic $ 2,171 $1,241 $ 927 $ 3
Equities – international 1,513 1,145 368 —
Common collective
funds – fixed income 180 — 180 —
Corporate bonds 1,539 — 1,539 —
Government securities 1,593 — 1,593 —
Mortgage backed securities 127 — 127 —
Other fixed income 75 — 67 8
Commodities 216 — 216 —
Hedge funds 492 — — 492
Private equity 503 — — 503
Real estate 1,037 — — 1,037
Derivatives 354 — — 354
Cash and cash
equivalents 311 (15) 326 —
Total Investments $10,111 $2,371 $5,343 $2,397
Fair Value Measurement at December 31, 2011
Asset Class Total
Quoted
Prices in
Active
Markets
For
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs (Level
3)
In millions
Equities – domestic $1,889 $1,130 $ 758 $ 1
Equities – international 1,231 959 272 —
Common collective
funds – fixed income 293 — 293 —
Corporate bonds 744 — 744 —
Government securities 983 — 983 —
Mortgage backed securities 124 — 124 —
Other fixed income 25 — 16 9
Commodities 213 — 213 —
Hedge funds 699 — — 699
Private equity 473 — — 473
Real estate 872 — — 872
Derivatives 303 — — 303
Cash and cash equivalents 336 2 334 —
Total Investments $8,185 $2,091 $3,737 $2,357
Equity securities consist primarily of publicly traded
U.S. companies and international companies. Pub-
licly traded equities are valued at the closing prices
reported in the active market in which the individual
securities are traded.
Fixed income consists of government securities,
mortgage-backed securities, corporate bonds and
common collective funds. Government securities are
valued by third-party pricing sources. Mortgage-
backed security holdings consist primarily of agency-
rated holdings. The fair value estimates for mortgage
securities are calculated by third-party pricing sour-
ces chosen by the custodian’s price matrix. Corpo-
rate bonds are valued using either the yields
currently available on comparable securities of
issuers with similar credit ratings or using a dis-
counted cash flows approach that utilizes observable
inputs, such as current yields of similar instruments,
but includes adjustments for certain risks that may
not be observable, such as credit and liquidity risks.
Common collective funds are valued at the net asset
value per share multiplied by the number of shares
held as of the measurement date.
Commodities consist of commodity-linked notes and
commodity-linked derivatives. Commodities are
valued at closing prices determined by calculation
agents for outstanding transactions.
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 instru-
ment 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 com-
parable 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.
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