AT&T Wireless 2011 Annual Report Download - page 52

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
50 AT&T Inc.
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.
Our contractual obligations as of December 31, 2011, 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
obligations and bank borrowings have been excluded from the
table due to the immaterial amounts of such obligations at
December 31, 2011. 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 $25,748;
postemployment benefit obligations of $34,011; and other
noncurrent liabilities of $12,694, which included deferred
lease revenue from our agreement with American Tower Corp.
of $450 (see Note 14).
 •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.
 •Ourbankruptcyorinsolvency.
364-day Agreement
The obligations of the lenders to provide advances will
terminate on December 17, 2012, 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 17, 2012, 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.
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 LIBOR for a period of one month plus
1.00%, plus (2) an applicable margin as set forth in
such agreement (Applicable Margin); or
 •atarateequalto:(i)LIBORforaperiodofone,two,three
or six months, as applicable, plus (ii) the Applicable Margin.
The Applicable Margin will equal 0.595% if our unsecured
long-term debt is rated at least A+ by Standard & Poor’s or
Fitch, Inc. or A1 by Moody’s Investors Service. The Applicable
Margin will be 0.710% per annum if our unsecured long-term
debt ratings are A or A2 and will be 0.950% per annum in
the event our unsecured long-term debt ratings are A-
and A3 (or below).
The 364-day Agreement contains a negative pledge covenant
that is identical to the negative pledge in the Four-Year
Agreement. 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
applicable to the Four-Year Agreement 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 América
Móvil. At December 31, 2011, our debt ratio was 38.0%,
compared to 37.1% at December 31, 2010, and 41.4% at
December 31, 2009. The debt ratio is affected by the same
factors that affect total capital, and reflects our recent debt
issuances. Total capital decreased $7,567 in 2011 compared
to an increase of $4,046 in 2010. The 2011 capital decrease
was primarily due to a decrease in retained earnings of
$6,339, which increased the debt ratio in 2011.