AT&T Wireless 2010 Annual Report Download - page 54

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
52 AT&T Inc.
obligations and bank borrowings have been excluded from the
table due to the immaterial amounts of such obligations at
December 31, 2010. 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 that 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 $22,361;
postemployment benefit obligations of $28,803; and other
noncurrent liabilities of $12,743, which included deferred
lease revenue from our agreement with American Tower Corp.
of $480 (see Note 5).
Interest Rate Risk
The majority of our financial instruments are medium- and
long-term fixed-rate notes and debentures. Changes in
interest rates can lead to significant fluctuations in the fair
value of these instruments. The principal amounts by
expected maturity, average interest rate and fair value of
our liabilities that are exposed to interest rate risk are
described in Notes 8 and 9. In managing interest expense,
we control our mix of fixed and floating rate debt, principally
through the use of interest rate swaps. We have established
interest rate risk limits that we closely monitor by measuring
interest rate sensitivities in our debt and interest rate
derivatives portfolios.
Our contractual obligations as of December 31, 2010 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 incremental
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
MARKET RISK
We are exposed to market risks primarily from changes
in interest rates and foreign currency exchange rates.
These risks, along with other business risks, impact our cost
of capital. It is our policy to manage our debt structure and
foreign exchange exposure in order to manage capital costs,
control financial risks and maintain financial flexibility over
the long term. In managing market risks, we employ
derivatives according to documented policies and procedures,
including interest rate swaps, interest rate locks, foreign
currency exchange contracts and combined interest rate
foreign currency contracts (cross-currency swaps). We do
not use derivatives for trading or speculative purposes.
We do not foresee significant changes in the strategies
we use to manage market risk in the near future.
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 $ 64,156 $ 5,535 $11,277 $ 9,302 $ 38,042
Interest payments on long-term debt 62,693 3,781 6,542 5,476 46,894
Operating lease obligations 24,804 2,590 4,711 4,156 13,347
Unrecognized tax benefits2 3,141 — — — 3,141
Purchase obligations3 10,603 3,158 4,904 1,934 607
Total Contractual Obligations $165,397 $15,064 $27,434 $20,868 $102,031
1 Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity.
2 The noncurrent 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 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 $863 in 2011, $668 in the aggregate for 2012 and 2013, $38 in the
aggregate for 2014 and 2015, and $5 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.