AT&T Wireless 2010 Annual Report Download - page 53

AT&T Inc. 51
Advances would bear interest, at our option, either:
 •atavariableannualrateequalto(1)thehighestof
(a) the base (or prime) rate of a designated bank,
(b) 0.50% per annum above the Federal funds rate,
and (c) the British Bankers Association Interest
Settlement Rate applicable to Dollars for a period of
one month plus 1.00%, plus (2) a rate based on AT&T’s
credit default swap mid-rate spread and subject to a
floor or cap as set forth in such Agreement (Applicable
Margin) minus 1.00% provided such total exceeds zero; or
 •atarateequalto:(i)LIBOR(adjustedupwardstoreflect
any bank reserve costs) for a period of one, two, three or
six months, as applicable, plus (ii) the Applicable Margin.
The 364-day Agreement contains a negative pledge covenant
that is identical to the negative pledge described above.
In the event we elect to convert any outstanding advances
to term loan(s), the debt-to-EBITDA financial ratio covenant
described above also would apply while such term loan(s)
were outstanding. The events of default described above also
apply to the 364-day Agreement.
Other
Our total capital consists of debt (long-term debt and
debt maturing within one year) and stockholders’ equity.
Our capital structure does not include debt issued by our
international equity investees. Our debt ratio was 37.1%,
41.4% and 43.8% at December 31, 2010, 2009 and 2008.
The debt ratio is affected by the same factors that affect total
capital. Total capital increased $4,046 in 2010 compared to
an increase of $2,716 in 2009. The 2010 total capital increase
was primarily due to a $9,848 increase in retained earnings,
partially offset by a $5,914 decrease in debt, both factors
which lowered the debt ratio in 2010.
CONTRACTUAL OBLIGATIONS,
COMMITMENTS AND CONTINGENCIES
Current accounting standards require us to disclose our
material obligations and commitments to making future
payments under contracts, such as debt and lease agreements,
and under contingent commitments, such as debt guarantees.
We occasionally enter into third-party debt guarantees,
but they are not, nor are they reasonably likely to become,
material. We disclose our contractual long-term debt
repayment obligations in Note 8 and our operating lease
payments in Note 5. Our contractual obligations do not
include expected pension and postretirement payments as we
maintain pension funds and Voluntary Employee Beneficiary
Association trusts to fully or partially fund these benefits
(see Note 11). In the ordinary course of business, we routinely
enter into commercial commitments for various aspects of
our operations, such as plant additions and office supplies.
However, we do not believe that the commitments will have
a material effect on our financial condition, results of
operations or cash flows.
 •atarateequalto:(i)theLondonInterBankOfferedRate
(LIBOR) (adjusted upwards to reflect any bank reserve
costs) for a period of one, two, three or six months, as
applicable, plus (ii) the Applicable Margin.
If we pledge assets or otherwise have liens on our properties,
then advances will be ratably secured, subject to specified
exceptions. We also must maintain a debt-to-EBITDA (earnings
before interest, income taxes, depreciation and amortization,
and other modifications described in the agreement) ratio of
not more than three-to-one, as of the last day of each fiscal
quarter, for the four quarters then ended.
Defaults under the agreement, which would permit the
lenders to accelerate required repayment and which would
increase the Applicable Margin by 2.00% per annum, include:
 •Wefailtopayprincipalorinterest,orotheramounts
under the agreement beyond any grace period,
 •Wefailtopaywhendueotherdebtof$400ormorethat
results in acceleration of that debt (commonly referred
to as “cross-acceleration”) or a creditor commences
enforcement proceedings within a specified period after
a money judgment of $400 or more has become final,
 •Apersonacquiresbeneficialownershipofmorethan50%
of AT&T common shares or more than a majority of
AT&T’s directors changes in any 24-month period other
than as elected by the remaining directors (commonly
referred to as a “change in control”),
 •Materialbreachesofrepresentationsorwarrantiesin
the agreement,
 •Wefailtocomplywiththenegativepledgeordebt-to-
EBITDA ratio covenants described above,
 •Wefailtocomplywithothercovenantsunderthe
Agreement for a specified period after notice,
 •Wefailtomakecertainminimumfundingpayments
under ERISA, and
 •Ourbankruptcyorinsolvency.
364-day Agreement
The obligations of the lenders to provide advances will
terminate on December 19, 2011, unless prior to that date
either: (i) we reduce to $0 the commitments of the lenders,
or (ii) certain events of default occur. We and lenders
representing more than 50% of the facility amount may agree
to extend their commitments for an additional 364-day period
beyond the December 19, 2011 termination date, under
certain circumstances. We also can convert all or part of
outstanding advances under the 364-day Agreement into
term loan(s) maturing no later than the first anniversary of
the termination date, under certain circumstances.