AT&T Wireless 2008 Annual Report Download - page 66

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
64
| AT&T Annual Report 2008
In February of 2009, we issued $1,000 of 4.85% global notes
due 2014, $2,250 of 5.8% global notes due 2019 and $2,250
of 6.55% global notes due 2039.
Credit Facility We have a five-year $10,000 credit
agreement with a syndicate of investment and commercial
banks, which we have the right to increase up to an
additional $2,000, provided no event of default under the
credit agreement has occurred. One of the participating
banks is Lehman Brothers Bank, Inc., which recently declared
bankruptcy. We are unable to determine the status of its
stated commitment of $595 at this time. The current
agreement will expire in July 2011. We also have the right
to terminate, in whole or in part, amounts committed by the
lenders under this agreement in excess of any outstanding
advances; however, any such terminated commitments may
not be reinstated. Advances under this agreement may be
used for general corporate purposes, including support
of commercial paper borrowings and other short-term
borrowings. There is no material adverse change provision
governing the drawdown of advances under this credit
agreement. This agreement contains a negative pledge
covenant, which requires that, if at any time we or
a subsidiary pledge assets or otherwise permits a lien on
its properties, advances under this agreement will be ratably
secured, subject to specified exceptions. We must maintain
a debt-to-EBITDA (earnings before interest, income taxes,
depreciation and amortization, and other modifications
described in the agreement) financial ratio covenant of not
more than three-to-one as of the last day of each fiscal
quarter for the four quarters then ended. We comply with
all covenants under the agreement. We had no borrowings
outstanding under committed lines of credit as of
December31,2008 or 2007.
Defaults under the agreement, which would permit the
lenders to accelerate required payment, include nonpayment
of principal or interest beyond any applicable grace period;
failure by AT&T or any subsidiary to pay when due other
debt above a threshold amount that results in acceleration
of that debt (commonly referred to as “cross-acceleration”)
or commencement by a creditor of enforcement proceedings
within a specified period after a money judgment above a
threshold amount has become final; acquisition by any
person of beneficial ownership of more than 50% of AT&T
common shares or a change of more than a majority of
AT&T’s directors in any 24-month period other than as
elected by the remaining directors (commonly referred to
as a “change-of-control”); material breaches of representa-
tions in the agreement; failure to comply with the negative
pledge or debt-to-EBITDA ratio covenants described above;
failure to comply with other covenants for a specified period
after notice; failure by AT&T or certain affiliates to make
certain minimum funding payments under Employee
Retirement Income Security Act of 1974, as amended
(ERISA); and specified events of bankruptcy or insolvency.
NOTE 9. 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 at December 31:
2008 2007
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and debentures $70,208 $70,955 $61,993 $62,544
Commercial paper 4,575 4,575 1,859 1,859
Bank borrowings 41 41 62 62
Available-for-sale
equity securities 1,632 1,632 2,735 2,735
EchoStar note receivable — — 491 489
The fair values of our notes and debentures were estimated
based on quoted market prices, where available, or on the
net present value method of expected future cash flows using
current interest rates. The carrying value of debt with an original
maturity of less than one year approximates market value.
Our available-for-sale equity securities are carried at fair
value, and realized gains and losses on these equity securities
were included in “Other income (expense) – net” in the
consolidated statements of income. The fair value of our
available-for-sale equity securities was principally determined
based on quoted market prices, and the carrying amount
of the remaining securities approximates fair value.
Our short-term investments, other short-term and
long-term held-to-maturity investments and customer
deposits are recorded at amortized cost, and the carrying
amounts approximate fair values. We held other short-term
marketable securities of $25 at December31,2008
compared to $1 at December 31, 2007.
Derivatives We use interest rate swaps, interest rate
forward contracts and foreign currency exchange contracts
to manage our market risk changes in interest rates and
foreign exchange rates. We do not use financial instruments
for trading or speculative purposes. Each swap matches the
exact maturity dates of the underlying debt to which they are
related, allowing for perfectly-effective hedges. Each utilized
forward contract matches the interest payments of the
underlying debt to which they are related, allowing for
perfectly-effective hedges.
Interest Rate Swaps We had fair value interest rate swaps
with a notional value of $5,750 at December 31, 2008, and
$3,250 at December 31, 2007, with a net carrying and fair
value asset of $564 and $88, respectively.
Interest Rate Foreign Currency Swaps We have combined
interest rate foreign currency swap agreements for Euro-
denominated debt and British pound sterling-denominated
debt, which hedge our risk to both interest rate and currency
movements. In April 2008, we entered into fixed-to-fixed
cross-currency swaps on Euro-denominated debt instruments
with a U.S. dollar notional value of $1,975 to hedge our
exposure to changes in foreign currency exchange rates.