Verizon Wireless 2014 Annual Report Download - page 61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
59
Forward Interest Rate Swaps
In order to manage our exposure to future interest rate changes, during
the fourth quarter of 2013, we entered into forward interest rate swaps
with a notional value of $2.0 billion. In March 2014, we settled these for-
ward interest rate swaps and the pre-tax gain was not material. During
2014, we entered into forward interest rate swaps with a total notional
value of $4.8 billion. We designated these contracts as cash ow hedges.
During the fourth quarter of 2014, we settled $2.8 billion of forward
interest rate swaps and the pre-tax loss was not material. The fair value of
these contracts was $0.2 billion, which was included within Other liabili-
ties on our consolidated balance sheet, at December 31, 2014 and was
not material at December 31, 2013.
Cross Currency Swaps
Verizon Wireless previously entered into cross currency swaps designated
as cash ow hedges to exchange approximately $1.6 billion of British
Pound Sterling and Euro-denominated debt into U.S. dollars and to x our
future interest and principal payments in U.S. dollars, as well as to mitigate
the impact of foreign currency transaction gains or losses. In June 2014,
we settled $0.8 billion of these cross currency swaps and the gains with
respect to these swaps were not material.
During the rst quarter of 2014, we entered into cross currency swaps
designated as cash ow hedges to exchange approximately $5.4 billion
of Euro and British Pound Sterling denominated debt into U.S. dollars.
During the second quarter of 2014, we entered into cross currency swaps
designated as cash flow hedges to exchange approximately $1.2 bil-
lion of British Pound Sterling denominated debt into U.S. dollars. During
the fourth quarter of 2014, we entered into cross currency swaps des-
ignated as cash ow hedges to exchange approximately $3.0 billion of
Euro denominated debt into U.S. dollars and to x our future interest and
principal payments in U.S. dollars. Each of these cross currency swaps was
entered into in order to mitigate the impact of foreign currency transac-
tion gains or losses.
A portion of the gains and losses recognized in Other comprehensive
income was reclassied to Other income and (expense), net to oset the
related pre-tax foreign currency transaction gain or loss on the underlying
debt obligations. The fair value of the outstanding swaps was $0.6 billion,
which was primarily included within Other liabilities on our consolidated
balance sheet, at December 31, 2014 and was not material at December
31, 2013. During 2014 and 2013, a pre-tax loss of $0.1 billion and an
immaterial pre-tax gain, respectively, were recognized in Other compre-
hensive income with respect to these swaps.
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 tempo-
rary cash investments with major nancial institutions. Counterparties to
our derivative contracts are also major nancial institutions with whom
we have negotiated derivatives agreements (ISDA master agreement)
and credit support annex agreements which provide rules for collateral
exchange. We generally apply collateralized arrangements with our coun-
terparties for uncleared derivatives to mitigate credit risk. At December
31, 2014, we posted collateral of approximately $0.6 billion related to
derivative contracts under collateral exchange arrangements, which were
recorded as Prepaid expenses and other in our consolidated balance
sheet. At December 31, 2013, we held an immaterial amount of collateral
related to derivative contracts under collateral exchange arrangements,
which were recorded as Accounts payable and accrued liabilities in our
consolidated balance sheet. We may enter into swaps on an uncollateral-
ized basis in certain circumstances. While we may be exposed to credit
losses due to the nonperformance of our counterparties, we consider the
risk remote and do not expect the settlement of these transactions to
have a material eect on our results of operations or nancial condition.
Nonrecurring Fair Value Measurements
The Company measures certain assets and liabilities at fair value on a
nonrecurring basis. During the fourth quarter of 2014, certain long-lived
assets met the criteria to be classied as held for sale. At that time, the
fair value of these long-lived assets was measured, resulting in expected
disposal losses of $0.1 billion. The fair value of these assets held for sale
was measured with the assistance of third-party appraisals and other esti-
mates of fair value, which used market approach techniques as part of
the analysis. The fair value measurement was categorized as Level 3, as
signicant unobservable inputs were used in the valuation. The expected
disposal losses, which represented the dierence between the fair value
less cost to sell and the carrying amount of the assets held for sale, were
included in Selling, general and administrative expenses.