REG - AT & T Inc. - 3rd Quarter Results 2017 <Origin Href="QuoteRef">T.N</Origin> - Part 2
11/12/2017 07:05
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for the
interim periods are not necessarily indicative of those for the full year.
In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted
with a dash.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation These consolidated financial statements include all adjustments that are necessary to present fairly
the results for the presented interim periods, consisting of normal recurring accruals and other items. The consolidated
financial statements include the accounts of the Company and our subsidiaries and affiliates over which we exercise
control.
All significant intercompany transactions are eliminated in the consolidation process. Investments in unconsolidated
subsidiaries and partnerships where we have significant influence are accounted for under the equity method. Earnings from
certain investments accounted for using the equity method are included for periods ended within up to one quarter of our
period end. We also record our proportionate share of our equity method investees' other comprehensive income (OCI) items,
including cumulative translation adjustments.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes, including estimates of probable losses and expenses. Actual results could differ from those estimates.
Recently Adopted Accounting Standards
Income Taxes As of January 1, 2017, we adopted Accounting Standards Update (ASU) No. 2016-16, "Income Taxes (Topic 740)"
(ASU 2016-16), with modified retrospective application, resulting in our recognition of an immaterial adjustment to
retained earnings. Under ASU 2016-16, we recognize the income tax effects of intercompany sales or transfers of assets
other than inventory (e.g., intellectual property or property, plant and equipment) during the period of intercompany sale
or transfer instead of the period of either sale or transfer to a third party or recognition of depreciation or
impairment.
New Accounting Standards
Pension and Other Postretirement Benefits In March 2017, the Financial Accounting Standards Board (FASB) issued ASU No.
2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost" (ASU 2017-07), which changes the presentation of periodic benefit cost components.
Under ASU 2017-07, we will continue to present service costs within our operating expenses but present amortization of
prior service credits and other components of our net periodic benefit cost in "other income (expense) - net" in our
consolidated statements of income. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017.
See Note 5 for our components of net periodic benefit cost.
Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASC
606), and has modified the standard thereafter. This standard replaces existing revenue recognition rules with a
comprehensive revenue measurement and recognition standard and expanded disclosure requirements. ASC 606, as amended,
becomes effective for annual reporting periods beginning after December 15, 2017, at which point we plan to adopt the
standard using the "modified retrospective method." Under that method, we will apply the rules to all open contracts
existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the
change and providing additional disclosures comparing results to previous accounting standards.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and nine
months ended September 30, 2017 and 2016, is shown in the table below:
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Numerators
Numerator for basic earnings per share:
Net Income $ 3,123 $ 3,418 $ 10,711 $ 10,818
Less: Net income attributable to noncontrolling interest (94) (90) (298) (279)
Net Income attributable to AT&T 3,029 3,328 10,413 10,539
Dilutive potential common shares:
Share-based payment 3 3 9 9
Numerator for diluted earnings per share $ 3,032 $ 3,331 $ 10,422 $ 10,548
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 6,162 6,168 6,164 6,171
Dilutive potential common shares:
Share-based payment (in shares) 20 21 20 20
Denominator for diluted earnings per share 6,182 6,189 6,184 6,191
Basic earnings per share attributable to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
Diluted earnings per share attributable to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated other comprehensive income (accumulated OCI) are
presented below. All amounts are net of tax and exclude noncontrolling interest.
Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (Losses) on Cash Flow Hedges Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income
Balance as of December 31, 2016 $ (1,995) $ 541 $ 744 $ 5,671 $ 4,961
Other comprehensive income (loss) before reclassifications 484 128 (174) 969 1,407
Amounts reclassified from accumulated OCI - 1 (86) 1 29 2 (731) 3 (788)
Net other comprehensive income (loss) 484 42 (145) 238 619
Balance as of September 30, 2017 $ (1,511) $ 583 $ 599 $ 5,909 $ 5,580
Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (Losses) on Cash Flow Hedges Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income
Balance as of December 31, 2015 $ (1,198) $ 484 $ 16 $ 6,032 $ 5,334
Other comprehensive income (loss) before reclassifications (72) 25 183 - 136
Amounts reclassified from accumulated OCI - 1 (5) 1 29 2 (644) 3 (620)
Net other comprehensive income (loss) (72) 20 212 (644) (484)
Balance as of September 30, 2016 $ (1,270) $ 504 $ 228 $ 5,388 $ 4,850
1 (Gains) losses are included in Other income (expense) - net in the consolidated statements of income.
2 (Gains) losses are included in Interest expense in the consolidated statements of income (see Note 6).
3 The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor,are included in Cost of services and sales and Selling, general and administrative in the
consolidated statements of income (see Note 5).
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products and services to different customer segments over various
technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on Segment
Contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as
discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have four
reportable segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.
We also evaluate segment performance based on EBITDA and/or EBITDA margin, which is defined as Segment Contribution
excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant
and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is
an important metric that management uses to evaluate segment operating performance. EBITDA does not give effect to cash
used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other
discretionary uses. EBITDA margin is EBITDA divided by total revenues.
The Business Solutions segment provides services to business customers, including multinational companies; governmental and
wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We provide
advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively
referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired
networks to provide a complete communications solution to our business customers.
The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising
services to customers located in the United States or in U.S. territories. We utilize our copper and IP-based wired network
and our satellite technology.
The Consumer Mobility segment provides nationwide wireless service to consumers, wholesale and resale wireless subscribers
located in the United States or in U.S. territories. We utilize our network to provide voice and data services, including
high-speed internet, video and home monitoring services over wireless devices.
The International segment provides entertainment services in Latin America and wireless services in Mexico. Video
entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional
and national networks in Mexico to provide consumer and business customers with wireless data and voice communication
services. Our international subsidiaries conduct business in their local currency, and operating results are converted to
U.S. dollars using official exchange rates.
In reconciling items to consolidated operating income and income before income taxes, Corporate and Other includes: (1)
operations that are not considered reportable segments and that are no longer integral to our operations or which we no
longer actively market, and (2) impacts of corporate-wide decisions for which the individual segments are not being
evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.
Certain operating items are not allocated to our business segments, and those include:
· Acquisition-related items which consists of (1) items associated with the merger and integration of acquired
businesses and (2) the noncash amortization of intangible assets acquired in acquisitions.
· Certain significant items which consists of (1) noncash actuarial gains and losses from pension and other
postretirement benefits, (2) employee separation charges associated with voluntary and/or strategic offers, (3) losses
resulting from abandonment or impairment of assets and (4) other items for which the segments are not being evaluated.
Interest expense and other income (expense) - net, are managed only on a total company basis and are, accordingly,
reflected only in consolidated results.
Our operating assets are utilized by multiple segments and consist of our wireless and wired networks as well as our
satellite fleet. Our domestic communications business strategies reflect bundled product offerings that increasingly cut
across product lines and utilize our asset base. Therefore, asset information and capital expenditures by segment are not
presented. Depreciation is allocated based on asset utilization by segment.
For the three months ended September 30, 2017
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 17,061 $ 10,233 $ 6,828 $ 2,325 $ 4,503 $ - $ 4,503
Entertainment Group 12,648 9,953 2,695 1,379 1,316 (6) 1,310
Consumer Mobility 7,748 4,551 3,197 877 2,320 - 2,320
International 2,099 1,937 162 304 (142) 17 (125)
Segment Total 39,556 26,674 12,882 4,885 7,997 $ 11 $ 8,008
Corporate and Other 201 89 112 21 91
Acquisition-related items - 134 (134) 1,136 (1,270)
Certain significant items (89) 326 (415) - (415)
AT&T Inc. $ 39,668 $ 27,223 $ 12,445 $ 6,042 $ 6,403
For the nine months ended September 30, 2017
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 51,016 $ 30,722 $ 20,294 $ 6,972 $ 13,322 $ - $ 13,322
Entertainment Group 37,953 29,112 8,841 4,256 4,585 (23) 4,562
Consumer Mobility 23,279 13,599 9,680 2,621 7,059 - 7,059
International 6,054 5,468 586 905 (319) 62 (257)
Segment Total 118,302 78,901 39,401 14,754 24,647 $ 39 $ 24,686
Corporate and Other 657 397 260 54 206
Acquisition-related items - 622 (622) 3,508 (4,130)
Certain significant items (89) 44 (133) - (133)
AT&T Inc. $ 118,870 $ 79,964 $ 38,906 $ 18,316 $ 20,590
For the three months ended September 30, 2016
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 17,767 $ 10,925 $ 6,842 $ 2,539 $ 4,303 $ - $ 4,303
Entertainment Group 12,720 9,728 2,992 1,504 1,488 - 1,488
Consumer Mobility 8,267 4,751 3,516 944 2,572 - 2,572
International 1,879 1,640 239 293 (54) 1 (53)
Segment Total 40,633 27,044 13,589 5,280 8,309 $ 1 $ 8,310
Corporate and Other 270 270 - 17 (17)
Acquisition-related items - 290 (290) 1,282 (1,572)
Certain significant items (13) 299 (312) - (312)
AT&T Inc. $ 40,890 $ 27,903 $ 12,987 $ 6,579 $ 6,408
For the nine months ended September 30, 2016
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 52,955 $ 32,584 $ 20,371 $ 7,568 $ 12,803 $ - $ 12,803
Entertainment Group 38,089 28,875 9,214 4,481 4,733 1 4,734
Consumer Mobility 24,781 14,343 10,438 2,798 7,640 - 7,640
International 5,374 4,951 423 868 (445) 24 (421)
Segment Total 121,199 80,753 40,446 15,715 24,731 $ 25 $ 24,756
Corporate and Other 759 940 (181) 54 (235)
Acquisition-related items - 818 (818) 3,949 (4,767)
Certain significant items (13) (383) 370 - 370
AT&T Inc. $ 121,945 $ 82,128 $ 39,817 $ 19,718 $ 20,099
The following table is a reconciliation of Segment Contribution to "Income Before Income Taxes" reported on our consolidated statements of income.
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Business Solutions $ 4,503 $ 4,303 $ 13,322 $ 12,803
Entertainment Group 1,310 1,488 4,562 4,734
Consumer Mobility 2,320 2,572 7,059 7,640
International (125) (53) (257) (421)
Segment Contribution 8,008 8,310 24,686 24,756
Reconciling Items:
Corporate and Other 91 (17) 206 (235)
Merger and integration charges (134) (290) (622) (818)
Amortization of intangibles acquired (1,136) (1,282) (3,508) (3,949)
Actuarial gain (loss) - - 259 -
Employee separation costs (208) (260) (268) (314)
Gain (loss) on wireless spectrum transactions - (22) 181 714
Natural disaster costs and revenue credits (207) (30) (207) (30)
Venezuela devaluation - - (98) -
Segment equity in net (income) loss of affiliates (11) (1) (39) (25)
AT&T Operating Income 6,403 6,408 20,590 20,099
Interest expense 1,686 1,224 4,374 3,689
Equity in net income (loss) of affiliates 11 16 (148) 57
Other income (expense) - net 246 (7) 354 154
Income Before Income Taxes $ 4,974 $ 5,193 $ 16,422 $ 16,621
NOTE 5. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental,
life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined
postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits
described in the plans to employees upon their retirement.
In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility II), the primary
holding company for our domestic wireless business, to the pension trust used to pay benefits under our qualified pension
plans. The preferred equity interest had a value of $9,354 at September 30, 2017. The trust is entitled to receive
cumulative cash distributions of $560 per annum, which are distributed quarterly by Mobility II to the trust, in equal
amounts and accounted for as contributions. Mobility II distributed $420 to the trust during the nine months ended
September 30, 2017. So long as those distributions are made, we will have no limitations on our ability to declare a
dividend or repurchase shares. This preferred equity interest is a plan asset under ERISA and is recognized as such in the
plan's separate financial statements. However, because the preferred equity interest is not unconditionally transferable to
an unrelated party, it is not reflected in plan assets in our consolidated financial statements and instead has been
eliminated in consolidation.
The preferred equity interest is not transferable by the trust except through its put and call features. In early September
2017, AT&T notified the trust and the fiduciary of the preferred equity interest that AT&T committed that it would not
exercise its call option of the preferred interest until at least September 9, 2022, which resulted in an increase in the
fair value of the preferred interest of approximately $1,245.
We recognize actuarial gains and losses on pension and postretirement plan assets in our operating results at our annual
measurement date of December 31, unless earlier remeasurements are required. During the second quarter of 2017, a
substantive plan change involving the frequency of considering potential health reimbursement account credit increases was
communicated to our retirees. This plan change triggered a remeasurement of our postretirement obligations and resulted in
additional prior service credits recognized in other comprehensive income, reducing our liability by $1,563. Such credits
amortize through earnings over a period approximating the average service period to full eligibility. Upon our adoption of
ASU 2017-07, the amortization of these prior service credits will be recorded in other income (expense) - net.
The following table details pension and postretirement benefit costs included in operating expenses in the accompanying
consolidated statements of income. A portion of these expenses is capitalized as part of internal construction projects,
providing a small reduction in the net expense recorded. Service costs and prior service credits are reported in our
segment results while interest costs and expected return on plan assets are included with Corporate and Other (see Note
4).
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Pension cost:
Service cost - benefits earned during the period $ 282 $ 278 $ 846 $ 834
Interest cost on projected benefit obligation 484 495 1,452 1,485
Expected return on assets (783) (778) (2,350) (2,336)
Amortization of prior service credit (31) (26) (93) (77)
Net pension (credit) cost $ (48) $ (31) $ (145) $ (94)
Postretirement cost:
Service cost - benefits earned during the period $ 32 $ 48 $ 107 $ 144
Interest cost on accumulated postretirement benefit obligation 193 243 617 729
Expected return on assets (81) (88) (240) (266)
Amortization of prior service credit (382) (320) (1,084) (958)
Actuarial (gain) loss - - (259) -
Net postretirement (credit) cost $ (238) $ (117) $ (859) $ (351)
Combined net pension and postretirement (credit) cost $ (286) $ (148) $ (1,004) $ (445)
As part of our second-quarter 2017 remeasurement, we decreased the weighted-average discount rate used to measure our
postretirement benefit obligation to 4.10%. The discount rate in effect for determining postretirement service and interest
costs after remeasurement is 4.50% and 3.30%, respectively.
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings
plans. For the third quarter ended 2017 and 2016, net supplemental pension benefits costs not included in the table above
were $22 and $23. For the first nine months of 2017 and 2016, net supplemental pension benefit costs were $67 and $70.
NOTE 6. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described
below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in
active markets that we have the ability to access.
Level 2 Inputs to the valuation methodology include:
· Quoted prices for similar assets and liabilities in active markets.
· Quoted prices for identical or similar assets or liabilities in inactive markets.
· Inputs other than quoted market prices that are observable for the asset or liability.
· Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
· Fair value is often based on developed models in which there are few, if any, external observations.
The fair value measurements level of an asset or liability within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs
and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with
other market participants. The use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different fair value measurement at the reporting date. There have been no changes
in the methodologies used since December 31, 2016.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial
instruments, are summarized as follows:
September 30, 2017 December 31, 2016
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and debentures 1 $ 162,450 $ 171,025 $ 122,381 $ 128,726
Bank borrowings 2 2 4 4
Investment securities 2,565 2,565 2,587 2,587
1 Includes credit agreement borrowings.
The carrying amount of debt with an original maturity of less than one year approximates market value. The fair value
measurements used for notes and debentures are considered Level 2 and are determined using various methods, including
quoted prices for identical or similar securities in both active and inactive markets.
Following is the fair value leveling for available-for-sale securities and derivatives as of September 30, 2017 and
December 31, 2016:
September 30, 2017
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
Domestic equities $ 1,274 $ - $ - $ 1,274
International equities 380 - - 380
Fixed income bonds - 659 - 659
Asset Derivatives 1
Interest rate swaps - 45 - 45
Cross-currency swaps - 967 - 967
Liability Derivatives 1
Interest rate swaps - (34) - (34)
Cross-currency swaps - (1,809) - (1,809)
1 Derivatives designated as hedging instruments are reflected as "Other assets," "Other noncurrent liabilities" and, for a portion of
interest rate swaps, "Other current assets" in our consolidated balance sheets.
December 31, 2016
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
Domestic equities $ 1,215 $ - $ - $ 1,215
International equities 594 - - 594
Fixed income bonds - 508 - 508
Asset Derivatives 1
Interest rate swaps - 79 - 79
Cross-currency swaps - 89 - 89
Liability Derivatives 1
Interest rate swaps - (14) - (14)
Cross-currency swaps - (3,867) - (3,867)
1 Derivatives designated as hedging instruments are reflected as "Other assets," "Other noncurrent liabilities" and, for a portion of
interest rate swaps, "Other current assets" in our consolidated balance sheets.
Investment Securities
Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair
values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not
traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. Realized gains and losses on securities are included in "Other income (expense) -
net" in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of
tax, on available-for-sale securities are recorded in accumulated OCI. Unrealized losses that are considered other than
temporary are recorded in "Other income (expense) - net" with the corresponding reduction to the carrying basis of the
investment. Fixed income investments of $509 have maturities of less than one year, $33 within one to three years, $32
within three to five years and $85 for five or more years.
Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable
customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term
investments and nonrefundable customer deposits are recorded in "Other current assets" and our investment securities are
recorded in "Other Assets" on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency
exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and
combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or
speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from
observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows
associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as
the item being hedged.
Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps
is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt
of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying
principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense in the consolidated
statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized
losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair values of the interest
rate swaps are exactly offset by changes in the fair value of the underlying debt. Gains or losses realized upon early
termination of our fair value hedges are recognized in interest expense. In the nine months ended September 30, 2017 and
September 30, 2016, no ineffectiveness was measured on interest rate swaps designated as fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency
swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk
generated from the issuance of our Euro, British pound sterling, Canadian dollar and Swiss franc denominated debt. These
agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S.
dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon
issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated rate to a fixed U.S.
dollar denominated interest rate.
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