XML 38 R14.htm IDEA: XBRL DOCUMENT v3.24.2
Fair Value Measurements and Financial Instruments
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments
Note 7. Fair Value Measurements and Financial Instruments
Recurring Fair Value Measurements
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2024:
(dollars in millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Assets:
Prepaid expenses and other:
Fixed income securities$— $15 $— $15 
Cross currency swaps— 2 — 2 
Interest rate caps— 40 — 40 
Other assets:
Fixed income securities— 271 — 271 
Cross currency swaps— 518 — 518 
Total$— $846 $— $846 
Liabilities:
Other current liabilities:
Interest rate swaps$— $1,606 $— $1,606 
Cross currency swaps— 321 — 321 
Foreign exchange forwards— 2 — 2 
Interest rate caps— 40 — 40 
Other liabilities:
Interest rate swaps— 3,704 — 3,704 
Cross currency swaps— 1,948 — 1,948 
Total$— $7,621 $— $7,621 
(1)Quoted prices in active markets for identical assets or liabilities.
(2)Observable inputs other than quoted prices in active markets for identical assets and liabilities.
(3)Unobservable pricing inputs in the market.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2023:
(dollars in millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Assets:
Prepaid expenses and other:
Fixed income securities$— $25 $— $25 
Cross currency swaps— 4 — 4 
Foreign exchange forwards— 4 — 4 
Interest rate caps— 37 — 37 
Other assets:
Fixed income securities— 254 — 254 
Cross currency swaps— 758 — 758 
Interest rate caps— 7 — 7 
Total$— $1,089 $— $1,089 
Liabilities:
Other current liabilities:
Interest rate swaps
$— $823 $— $823 
Cross currency swaps
— 294 — 294 
Foreign exchange forwards
— 1 — 1 
Interest rate caps
— 37 — 37 
    Contingent consideration— — 52 52 
Other liabilities:
Interest rate swaps
— 3,648 — 3,648 
Cross currency swaps
— 1,791 — 1,791 
Interest rate caps
— 7 — 7 
Total$— $6,601 $52 $6,653 
(1)Quoted prices in active markets for identical assets or liabilities.
(2)Observable inputs other than quoted prices in active markets for identical assets and liabilities.
(3)Unobservable pricing inputs in the market.

Certain of our equity investments do not have readily determinable fair values and are excluded from the tables above. Such investments are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer and are included in Investments in unconsolidated businesses in our condensed consolidated balance sheets. As of June 30, 2024 and December 31, 2023, the carrying amount of our investments without readily determinable fair values was $750 million and $764 million, respectively. During both the three and six months ended June 30, 2024, there were insignificant adjustments due to observable price changes and there were insignificant amounts of impairment charges. As of June 30, 2024, cumulative adjustments due to observable price changes and impairment charges were $209 million and $115 million, respectively.

Verizon had a liability for contingent consideration related to its acquisition of TracFone, completed in November 2021. The fair value was calculated using a probability-weighted discounted cash flow model and represented a Level 3 measurement. Level 3 instruments include valuation based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. Subsequent to the Acquisition Date, at each reporting date, the contingent consideration liability was remeasured to fair value. Contingent consideration payments were completed in January of 2024. During the six months ended June 30, 2024 and June 30, 2023, we made payments of $52 million and $102 million, respectively, related to the contingent consideration. See Note 3 for additional information.

Fixed income securities consist primarily of investments in municipal bonds. The valuation of the fixed income securities is based on the quoted prices for similar assets in active markets or identical assets in inactive markets or models that apply inputs from observable market data. The valuation determines that these securities are classified as Level 2.

Derivative contracts are valued using models based on readily observable market parameters for all substantial terms of our derivative contracts and thus are classified within Level 2. We use mid-market pricing for fair value measurements of our derivative instruments. Our derivative instruments are recorded on a gross basis.

We recognize transfers between levels of the fair value hierarchy as of the end of the reporting period.

Fair Value of Short-term and Long-term Debt
The fair value of our debt is determined using various methods, including quoted prices for identical debt instruments, which is a Level 1 measurement, as well as quoted prices for similar debt instruments with comparable terms and maturities, which is a Level 2 measurement.
The fair value of our short-term and long-term debt, excluding finance leases, was as follows:
 Fair Value
(dollars in millions)Carrying AmountLevel 1Level 2Level 3Total
At June 30, 2024$147,047 $85,231 $56,030 $— $141,261 
At December 31, 2023148,583 86,806 58,804 — 145,610 

Derivative Instruments
We enter into derivative transactions primarily to manage our exposure to fluctuations in foreign currency exchange rates and interest rates. We employ risk management strategies, which may include the use of a variety of derivatives including interest rate swaps, cross currency swaps, forward starting interest rate swaps, treasury rate locks, interest rate caps, swaptions and foreign exchange forwards. We do not hold derivatives for trading purposes.

The following table sets forth the notional amounts of our outstanding derivative instruments:
At June 30,At December 31,
(dollars in millions)20242023
Interest rate swaps$26,071 $26,071 
Cross currency swaps32,053 33,526 
Foreign exchange forwards600 1,050 

The following tables summarize the activities of our designated derivatives:
Three Months EndedSix Months Ended
June 30,June 30,
(dollars in millions)2024202320242023
Interest Rate Swaps:
Notional value entered into$— $— $— $— 
Notional value settled— — — — 
Pre-tax gain recognized in Interest expense1 2 3 1 
Cross Currency Swaps:
Notional value entered into— — 2,146 — 
Notional value settled552 612 3,619 1,450 
Pre-tax gain/(loss) on cross currency swaps recognized in Interest expense
(92)370 (834)725 
Pre-tax gain/(loss) on hedged debt recognized in Interest expense
92 (370)834 (725)
Excluded components recognized in Other comprehensive income (loss)
(116)420 166 42 
    Initial value of the excluded component amortized into Interest expense24 27 50 54 
Treasury Rate Locks:
Notional value entered into— 500 — 500 
Notional value settled— 500 — 500 
Pre-tax gain recognized in Other comprehensive income (loss)
— 5 — 5 

Six Months Ended
June 30,
(dollars in millions)20242023
Other, net Cash Flows from Operating Activities:
Cash received for settlement of treasury rate locks$— $5 
Other, net Cash Flows from Financing Activities:
Cash paid for settlement of cross currency swaps, net(243)(67)
The following table displays the amounts recorded in Long-term debt in our condensed consolidated balance sheets related to cumulative basis adjustments for our interest rate swaps designated as fair value hedges. The cumulative amounts exclude cumulative basis adjustments related to foreign exchange risk.
At June 30,At December 31,
(dollars in millions)20242023
Carrying amount of hedged liabilities$20,964 $21,838 
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged liabilities(5,197)(4,354)
Cumulative amount of fair value hedging adjustment remaining for which hedge accounting has been discontinued356 400 

Interest Rate Swaps
We enter into interest rate swaps to achieve a targeted mix of fixed and variable rate debt. We principally receive fixed rates and pay variable rates, resulting in a net increase or decrease to Interest expense. These swaps are designated as fair value hedges and hedge against interest rate risk exposure of designated debt issuances. We record the interest rate swaps at fair value in our condensed consolidated balance sheets as assets and liabilities. Changes in the fair value of the interest rate swaps are recorded to Interest expense, which are primarily offset by changes in the fair value of the hedged debt due to changes in interest rates.

Cross Currency Swaps
We have entered into cross currency swaps to exchange our British Pound Sterling, Euro, Swiss Franc, Canadian Dollar and Australian Dollar-denominated cash flows into U.S. dollars and to fix our cash payments in U.S. dollars, as well as to mitigate the impact of foreign currency transaction gains or losses. These swaps are designated as fair value hedges. We record the cross currency swaps at fair value in our condensed consolidated balance sheets as assets and liabilities. Changes in the fair value of the cross currency swaps attributable to changes in the spot rate of the hedged item and changes in the recorded value of the hedged debt due to changes in spot rates are recorded in the same income statement line item. We present exchange gains and losses from the conversion of foreign currency denominated debt as a part of Interest expense. During both the three and six months ended June 30, 2024 and June 30, 2023, these amounts completely offset each other and no net gain or loss was recorded.

Changes in the fair value of cross currency swaps attributable to time value and cross currency basis spread are initially recorded to Other comprehensive income (loss). Unrealized gains or losses on excluded components are recorded in Other comprehensive income (loss) and are recognized into Interest expense on a systematic and rational basis through the swap accrual over the life of the hedging instrument. The amount remaining in Accumulated other comprehensive loss related to cash flow hedges on the date of transition will be reclassified to earnings when the hedged item is recognized in earnings or when it becomes probable that the forecasted transactions will not occur.

On March 31, 2022, we elected to de-designate our cross currency swaps previously designated as cash flow hedges and re-designated these swaps as fair value hedges. For these hedges, we elected to exclude the change in fair value of the cross currency swaps related to both time value and cross currency basis spread from the assessment of hedge effectiveness (the excluded components). The initial value of the excluded components of $1.0 billion as of March 31, 2022 will continue to be amortized into Interest expense over the remaining life of the hedging instruments. During both the three and six months ended June 30, 2024 and June 30, 2023, the amortization of the initial value of the excluded component completely offset the amortization related to the amount remaining in Other comprehensive income (loss) related to cash flow hedges. See Note 9 for additional information. We estimate that $92 million will be amortized into Interest expense within the next 12 months.

Treasury Rate Locks
We have entered into treasury rate locks designated as cash flow hedges to mitigate our interest rate risk on future transactions. We recognize gains and losses resulting from interest rate movements in Other comprehensive income (loss).

Net Investment Hedges
We have designated certain foreign currency debt instruments as net investment hedges to mitigate foreign exchange exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against changes in foreign exchange rates. The notional amount of Euro-denominated debt designated as a net investment hedge was €750 million as of both June 30, 2024 and December 31, 2023.

Undesignated Derivatives
We also have the following derivative contracts which we use as economic hedges but for which we have elected not to apply hedge accounting.
The following table summarizes the activity of our derivatives not designated in hedging relationships:
Three Months EndedSix Months Ended
June 30,June 30,
(dollars in millions)2024202320242023
Foreign Exchange Forwards:
    Notional value entered into$2,140 $2,770 $5,280 $5,425 
Notional value settled2,670 2,770 5,730 5,365 
Pre-tax gain (loss) recognized in Other income (expense), net
(1)12 (23)22 

Foreign Exchange Forwards
We enter into British Pound Sterling and Euro foreign exchange forwards to mitigate our foreign exchange rate risk related to non-functional currency denominated monetary assets and liabilities of international subsidiaries.

Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of temporary cash investments, short-term and long-term investments, trade receivables, including device payment plan agreement receivables, certain notes receivable, including lease receivables, and derivative contracts.
Counterparties to our derivative contracts are major financial institutions with whom we have negotiated derivatives agreements (ISDA master agreements) and credit support annex (CSA) agreements which provide rules for collateral exchange. The CSA agreements contain fixed cap amounts or rating based thresholds such that we or our counterparties may be required to hold or post collateral based upon changes in outstanding positions as compared to established thresholds or caps and changes in credit ratings. We do not offset fair value amounts recognized for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments recognized at fair value. At June 30, 2024, we did not hold any collateral. At June 30, 2024, we posted $1.8 billion of collateral related to derivative contracts under collateral exchange agreements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. At December 31, 2023, we did not hold any collateral. At December 31, 2023, we posted $1.4 billion of collateral related to derivative contracts under collateral exchange arrangements, which was recorded as Prepaid expenses and other in our condensed consolidated balance sheet. While we may be exposed to credit losses due to the nonperformance of our counterparties, we consider the risk remote and do not expect that any such nonperformance would result in a significant effect on our results of operations or financial condition due to our diversified pool of counterparties.