Verizon Wireless 2008 Annual Report Download - page 59

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Notes to Consolidated Financial Statements continued
57
Guarantees
We guarantee the debt obligations of GTE Corporation (but not the
debt of its subsidiary or affiliate companies) that were issued and out-
standing prior to July 1, 2003. As of December 31, 2008, $2,200 million
principal amount of these obligations remained outstanding. Verizon
Communications Inc. and NYNEX Corporation are the joint and several
co-obligors of the 20-Year 9.55% Debentures due 2010 previously issued
by NYNEX on March 26, 1990. As of December 31, 2008, $47 million prin-
cipal amount of this obligation remained outstanding. NYNEX and GTE
no longer issue public debt or file SEC reports.
Debt Covenants
We and our consolidated subsidiaries are in compliance with all of our
debt covenants.
Maturities of Long-Term Debt
Maturities of long-term debt outstanding at December 31, 2008 are as
follows:
Years (dollars in million)
2009 $ 3,506
2010 5,018
2011 5,647
2012 4,306
2013 5,638
Thereafter 26,350
NOTE 11
FINANCIAL INSTRUMENTS
Derivatives
The ongoing effect of SFAS No. 133 and related amendments and inter-
pretations on our consolidated financial statements will be determined
each period by several factors, including the specific hedging instru-
ments in place and their relationships to hedged items, as well as market
conditions at the end of each period.
Interest Rate Risk Management
We have entered into domestic interest rate swaps to achieve a targeted
mix of fixed and variable rate debt, where we principally receive fixed
rates and pay variable rates based on LIBOR. These swaps are designated
as fair value hedges and hedge against changes in the fair value of our
debt portfolio. We record the interest rate swaps at fair value in our bal-
ance sheet as assets and liabilities and adjust debt for the change in
its fair value due to changes in interest rates. During 2008, we entered
into domestic interest rate swaps, designated as fair value hedges, with a
notional principal value of approximately $2 billion. The fair value of our
entire portfolio of interest rate swaps at December 31, 2008 included in
Other assets and Long-term debt was $415 million.
Foreign Exchange Risk Management
During 2008, we entered into cross currency swaps designated as cash
flow hedges to exchange the net proceeds from the December 18, 2008
Verizon Wireless and Verizon Wireless Capital LLC offering (see Note 10)
from British Pound Sterling and Euros into U.S. dollars, to fix our future
interest and principal payments in U.S. dollars as well as mitigate the
impact of foreign currency transaction gains or losses. We record these
contracts at fair value and any gains or losses on the contract will, over
time, offset the gains or losses on the underlying debt obligations.
Net Investment Hedges
During 2007, we entered into foreign currency forward contracts to
hedge a portion of our net investment in Vodafone Omnitel. Changes
in fair value of these contracts due to Euro exchange rate fluctuations
are recognized in Accumulated other comprehensive loss and partially
offset the impact of foreign currency changes on the value of our net
investment. During 2008, our positions in these foreign currency forward
contracts were settled. As of December 31, 2008, Accumulated other
comprehensive loss includes unrecognized losses of approximately
$166 million ($108 million after-tax) related to these hedge contracts,
which along with the unrealized foreign currency translation balance on
the investment hedged, remain in Accumulated other comprehensive
loss until the investment is sold.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk con-
sist primarily of temporary cash investments, short-term and long-term
investments, trade receivables, certain notes receivable, including lease
receivables, and derivative contracts. Our policy is to deposit our tem-
porary cash investments with major financial institutions. Counterparties
to our derivative contracts are also major financial institutions. The finan-
cial institutions have all been accorded high ratings by primary rating
agencies. We limit the dollar amount of contracts entered into with any
one financial institution and monitor our counterparties’ credit ratings.
We generally do not give or receive collateral on swap agreements due
to our credit rating and those of our counterparties. While we may be
exposed to credit losses due to the nonperformance of our counterpar-