AT&T Wireless 2015 Annual Report Download - page 66

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
64 | AT&T INC.
Unrealized gains on derivatives designated as cash flow
hedges are recorded at fair value as assets, and unrealized
losses on derivatives designated as cash flow hedges are
recorded at fair value as liabilities, both for the period they
are outstanding. For derivative instruments designated as
cash flow hedges, the effective portion is reported as a
component of accumulated OCI until reclassified into
interest expense in the same period the hedged transaction
affects earnings. The gain or loss on the ineffective portion
is recognized as “Other income (expense) – net” in the
consolidated statements of income in each period. We
evaluate the effectiveness of our cross-currency swaps
each quarter. In the years ended December 31, 2015, and
December 31, 2014, no ineffectiveness was measured on
cross-currency swaps designated as cash flow hedges.
Periodically, we enter into and designate interest rate locks
to partially hedge the risk of changes in interest payments
attributable to increases in the benchmark interest rate
during the period leading up to the probable issuance of
fixed-rate debt. We designate our interest rate locks as
cash flow hedges. Gains and losses when we settle our
interest rate locks are amortized into income over the life
of the related debt, except where a material amount is
deemed to be ineffective, which would be immediately
reclassified to “Other income (expense) – net” in the
consolidated statements of income. In the years ended
December 31, 2015, and December 31, 2014, no
ineffectiveness was measured on interest rate locks.
Over the next 12 months, we expect to reclassify $59
from accumulated OCI to interest expense due to the
amortization of net losses on historical interest rate locks.
We hedge a portion of the exchange risk involved in
anticipation of highly probable foreign currency-denominated
transactions. In anticipation of these transactions, we often
enter into foreign exchange contracts to provide currency at
a fixed rate. Gains and losses at the time we settle or take
delivery on our designated foreign exchange contracts are
amortized into income in the same period the hedged
transaction affects earnings, except where an amount is
deemed to be ineffective, which would be immediately
reclassified to “Other income (expense) – net” in the
consolidated statements of income. In the years ended
December 31, 2015, and December 31, 2014, no
ineffectiveness was measured on foreign exchange
contracts designated as cash flow hedges.
Collateral and Credit-Risk Contingency We have entered
into agreements with our derivative counterparties
establishing collateral thresholds based on respective credit
ratings and netting agreements. At December 31, 2015, we
had posted collateral of $2,343 (a deposit asset) and held
collateral of $124 (a receipt liability). Under the agreements,
if our credit rating had been downgraded one rating level
by Fitch Ratings, before the final collateral exchange in
December, we would have been required to post additional
collateral of $105. If DIRECTV Holdings LLC’s credit rating
had been downgraded below BBB- (S&P) and below
Baa3 (Moody’s) we would owe an additional $163.
At December 31, 2014, we had posted collateral of $530
(a deposit asset) and held collateral of $599 (a receipt
liability). We do not offset the fair value of collateral,
whether the right to reclaim cash collateral (a receivable)
or the obligation to return cash collateral (a payable) exists,
against the fair value of the derivative instruments.
Following is the notional amount of our outstanding
derivative positions:
2015 2014
Interest rate swaps $ 7,050 $ 6,550
Cross-currency swaps 29,642 26,505
Interest rate locks — 6,750
Foreign exchange contracts 100 —
Total $36,792 $39,805
Following is the related hedged items affecting our financial
position and performance:
Effect of Derivatives on the
Consolidated Statements of Income
Fair Value Hedging Relationships
For the years ended December 31, 2015 2014 2013
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $(16) $(29) $(113)
Gain (Loss) on long-term debt 16 29 113
In addition, the net swap settlements that accrued and
settled in the periods above were included in interest
expense.
Cash Flow Hedging Relationships
For the year ended December 31, 2015 2014 2013
Cross-currency swaps:
Gain (Loss) recognized in
accumulated OCI $ (813) $ 528 $ 813
Interest rate locks:
Gain (Loss) recognized in
accumulated OCI (361) (128) —
Interest income (expense)
reclassified from accumulated
OCI into income (58) (44) (46)
Foreign exchange contracts:
Gain (Loss) recognized in
accumulated OCI — — (2)