AT&T Wireless 2009 Annual Report Download - page 55

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AT&T 09 AR 53
the potential dollar losses resulting from changes in exchange
rates that have a reasonable probability of occurring.
We cover the exposure that results from changes that
exceed acceptable amounts.
For the purpose of assessing specific risks, we use a
sensitivity analysis to determine the effects that market
risk exposures may have on the fair value of our financial
instruments and results of operations. To perform the
sensitivity analysis, we assess the risk of loss in fair values
from the effect of a hypothetical 10% depreciation of the
U.S. dollar against foreign currencies from the prevailing
foreign currency exchange rates, assuming no change in
interest rates. For foreign exchange contracts outstanding at
December 31, 2009, the change in fair value was immaterial.
Furthermore, because our foreign exchange contracts are
entered into for hedging purposes, we believe that these
losses would be largely offset by gains on the underlying
transactions.
Foreign Exchange Risk
We are exposed to foreign currency exchange risk through our
foreign affiliates and equity investments in foreign companies.
We do not hedge foreign currency translation risk in the net
assets and income we report from these sources. However,
we do hedge a large portion of the exchange risk involved in
anticipation of highly probable foreign currency-denominated
transactions and cash flow streams, such as those related to
issuing foreign-denominated debt, receiving dividends from
foreign investments, and other receipts and disbursements.
Through cross-currency swaps, all of our foreign-
denominated debt has been swapped from fixed-rate
foreign currencies to fixed-rate U.S. dollars at issuance,
removing interest rate risk and foreign currency exchange
risk associated with the underlying interest and principal
payments. We expect gains or losses in our cross-currency
swaps to offset the losses and gains in the financial
instruments they hedge.
In anticipation of other foreign currency-denominated
transactions, we often enter into foreign exchange contracts
to provide currency at a fixed rate. Our policy is to measure
the risk of adverse currency fluctuations by calcu lating
Maturity
Fair Value
2010 2011 2012 2013 2014 Thereafter Total 12/31/09
Interest Rate Derivatives
Interest Rate Swaps:
Receive Fixed/Pay Variable Notional Amount Maturing — $3,200 $3,050 $1,750 — $1,000 $9,000 $399
Weighted-Average Variable Rate Payable1 3.1% 4.4% 4.8% 5.6% 6.1% 6.4%
Weighted-Average Fixed Rate Receivable 5.8% 5.7% 5.3% 5.6% 5.6% 5.6%
1Interest payable based on current and implied forward rates for One, Three or Six Month London Interbank Offered Rate (LIBOR) plus a spread ranging between approximately
36 and 654 basis points.