AT&T Uverse 2007 Annual Report Download - page 49

2007 AT&T Annual Report
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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Current accounting standards require us to disclose our
material obligations and commitments to making future
payments under contracts, such as debt and lease agreements,
and under contingent commitments, such as debt guarantees.
We occasionally enter into third-party debt guarantees, but
they are not, nor are they reasonably likely to become, material.
We disclose our contractual long-term debt repayment
obligations in Note 8 and our operating lease payments in
Note 5. Our contractual obligations do not include expected
pension and postretirement payments as we maintain pension
funds and Voluntary Employee Beneficiary Association trusts
to fully or partially fund these benefits (see Note 11). In the
ordinary course of business we routinely enter into commercial
commitments for various aspects of our operations, such as
plant additions and office supplies. However, we do not believe
that the commitments will have a material effect on our
financial condition, results of operations or cash flows.
Our contractual obligations as of December 31, 2007, are
in the following table. The purchase obligations that follow
are those for which we have guaranteed funds and will be
funded with cash provided by operations or through incre-
mental borrowings. The minimum commitment for certain
obligations is based on termination penalties that could be
paid to exit the contract. Since termination penalties would
not be paid every year, such penalties are excluded from the
table. Other long-term liabilities were included in the table
based on the year of required payment or an estimate of the
year of payment. Such estimate of payment is based on a
review of past trends for these items, as well as a forecast
of future activities. Certain items were excluded from the
following table as the year of payment is unknown and could
not be reliably estimated since past trends were not deemed
to be an indicator of future payment.
Substantially all of our purchase obligations are in our
wireline and wireless segments. The table does not include the
fair value of our interest rate swaps. Our capital lease obliga-
tions have been excluded from the table due to the immaterial
value at December 31, 2007. Many of our other noncurrent
liabilities have been excluded from the following table due to
the uncertainty of the timing of payments, combined with the
absence of historical trending to be used as a predictor of such
payments. Additionally, certain other long-term liabilities have
been excluded since settlement of such liabilities will not require
the use of cash. However, we have included in the following
table obligations which primarily relate to benefit funding and
severance due to the certainty of the timing of these future
payments. Our other long-term liabilities are: deferred income
taxes (see Note 10) of $24,939; postemployment benefit
obligations (see Note 11) of $24,011; and other noncurrent
liabilities of $14,648, which included deferred lease revenue
from our agreement with American Tower of $539 (see Note 5).
Contractual Obligations
Payments Due By Period
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
Long-term debt obligations1 $ 59,856 $ 4,926 $ 9,731 $12,428 $32,771
Interest payments on long-term debt 54,835 3,582 6,562 5,151 39,540
Commercial paper obligations 1,859 1,859 — — —
Other short-term borrowings 62 62 — — —
Operating lease obligations 15,147 2,088 3,479 2,622 6,958
Unrecognized tax benefits2 6,579 685 — — 5,894
Purchase obligations3,4 6,366 2,461 2,237 1,197 471
Other long-term obligations5 429 188 228 13 —
Total Contractual Obligations $145,133 $15,851 $22,237 $21,411 $85,634
1
The impact of premiums/discounts and derivative instruments included in debt amounts on the balance sheet are excluded from the table.
2
The non-current portion of the unrecognized tax benefits is included in the “More than 5 Years” column as we cannot reasonably estimate the timing or amounts of additional
cash payments, if any, at this time. See Note 10 for additional information.
3
We have contractual obligations to utilize network facilities from local exchange carriers with terms greater than one year. Since the contracts have no minimum volume
requirements and are based on an interrelationship of volumes and discounted rates, we assessed our minimum commitment based on penalties to exit the contracts, assuming
that we had exited the contracts on December 31, 2007. At December 31, 2007, the penalties we would have incurred to exit all of these contracts would have been $703. These
termination fees could be $374 in 2008, $132 in the aggregate for 2009 and 2010 and $4 for 2011, assuming that all contracts are exited. These termination fees are excluded
from the above table as the fees would not be paid every year and the timing of such payments, if any, is uncertain.
4
We calculated the minimum obligation for certain agreements to purchase goods or services based on termination fees that can be paid to exit the contract. If we elect to exit
these contracts, termination fees for all such contracts in the year of termination could be approximately $642 in 2008, $720 in the aggregate for 2009 and 2010, $257 in the
aggregate for 2011 and 2012 and $137 in the aggregate, thereafter. Certain termination fees are excluded from the above table as the fees would not be paid every year and the
timing of such payments, if any, is uncertain.
5
Other long-term obligations include commitments with local exchange carriers for dedicated leased lines.
MARKET RISK
We are exposed to market risks primarily from changes in
interest rates and foreign currency exchange rates. In managing
exposure to these fluctuations, we may engage in various
hedging transactions that have been authorized according to
documented policies and procedures. On a limited basis, we use
certain derivative financial instruments, including foreign currency
exchange contracts and combined interest rate foreign currency
contracts, to manage these risks. We do not use derivatives for
trading purposes, to generate income or to engage in speculative
activity. Our capital costs are directly linked to financial and
business risks. We seek to manage the potential negative effects
from market volatility and market risk. The majority of our
financial instruments are medium- and long-term fixed rate notes
and debentures. Fluctuations in market interest rates can lead to
significant fluctuations in the fair value of these notes and
debentures. It is our policy to manage our debt structure and
foreign exchange exposure in order to manage capital costs,
control financial risks and main tain financial flexibility over the
long term. Where appropriate, we will take actions to limit the
negative effect of interest and foreign exchange rates, liquidity
and counterparty risks on stockholder value.