AT&T Wireless 2008 Annual Report Download - page 67

AT&T Annual Report 2008
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These hedges include initial and final exchanges of principal
from fixed foreign denominations to fixed U.S.-denominated
amounts, to be exchanged at a specified rate, which was
determined by the market spot rate upon issuance. They also
include an interest rate swap of a fixed foreign-denominated
rate to a fixed U.S.-denominated interest rate. These
derivatives have been designated at inception and qualify
as cash flow hedges with a net fair value of $(930) at
December 31, 2008. These swaps are valued using current
market quotes, which were obtained from dealers.
Interest Rate Locks We entered into interest rate forward
contracts to partially hedge interest expense related to our debt
issuances. At December 31, 2008, we carried an unutilized
interest rate lock with a notional value of $250 and a fair value
of $7. During 2009, we expect to reclassify into earnings net
settlement expenses of approximately $12 to $16, net of tax.
The following table summarizes our interest rate lock activity:
Utilized Settlement
Rate Lock Notional Notional Settlement Gain/(Cost) –
Execution Period Amount Amount Gain/(Cost) net of tax
2008 $ 750 $ 500 $(5) $(3)
2007 1,800 1,800 (8) (5)
2006 750 600 4 3
2005 500 500 (2) (1)
Foreign Currency Forward Contracts We enter into foreign
currency forward contracts to manage our exposure to
changes in currency exchange rates related to foreign
currency-denominated transactions. At December 31, 2008
and 2007, our foreign exchange contracts consisted principally
of Mexican pesos, Euros, Danish krone, Swedish krona and
Canadian dollars. At December 31, 2008, the notional
amounts under contract were $243, of which none were
designated as net investment hedges. At December 31, 2007,
the notional amounts under contract were $345, of which none
were designated as net investment hedges. The remaining
contracts in both periods were not designated for accounting
purposes. At December 31, 2008 and 2007, these foreign
exchange contracts had a net carrying and fair value asset
of less than $14 and fair value liability of less than $3,
respectively. These contracts were valued using current
market quotes, which were obtained from independent
sources.
NOTE 10. INCOME TAXES
Significant components of our deferred tax liabilities (assets)
are as follows at December 31:
2008 2007
Depreciation and amortization $ 18,269 $17,004
Intangibles (nonamortizable) 1,990 1,990
Equity in foreign affiliates 275 231
Employee benefits (14,825) (6,121)
Currency translation adjustments (491) (287)
Allowance for uncollectibles (368) (388)
Net operating loss and other carryforwards (2,220) (2,838)
Investment in wireless partnership 16,028 13,997
Other – net (1,666) (1,763)
Subtotal 16,992 21,825
Deferred tax assets valuation allowance 1,190 1,070
Net deferred tax liabilities $ 18,182 $22,895
Net long-term deferred tax liabilities $ 19,196 $24,939
Less: Net current deferred tax assets (1,014) (2,044)
Net deferred tax liabilities $ 18,182 $22,895
At December 31, 2008, we had combined net operating and
capital loss carryforwards (tax effected) for federal, and for
state and foreign income tax purposes of $673 and $1,142,
respectively, expiring through 2027. The federal net operating
loss carryforward primarily relates to the acquisitions of
AT&T Wireless Services, Inc. in 2004 and Dobson in 2007.
Additionally, we had federal and state credit carryforwards
of $105 and $300, respectively, expiring primarily
through 2025.
We recognize a valuation allowance if, based on the
weight of available evidence, it is more likely than not
that some portion, or all, of a deferred tax asset will not
be realized. Our valuation allowances at December 31, 2007
and 2008 relate primarily to state net operating loss
carryforwards.
On January 1, 2007, we adopted FIN 48 and, as
required, we reclassified $6,225 from net deferred tax
liabilities to unrecognized tax benefits. As a result of the
implementation of FIN 48, we recognized a $50 increase
in the liability for unrecognized tax benefits, which was
accounted for as a reduction to the January 1, 2007
balance of retained earnings. A reconciliation of the