AT&T Wireless 2014 Annual Report Download - page 35

AT&T INC. | 33
distributions of $560 per annum, which will be distributed
quarterly in equal amounts. We distributed $560 to the
trust in 2014. So long as we make the distributions, the
terms of the preferred equity interest will not impose
any limitations on our ability to declare a dividend, or
repurchase shares. At the time of the contribution of
the preferred equity interest, we made an additional cash
contribution of $175 and have agreed to annual cash
contributions of $175 no later than the due date for our
federal income tax return for each of 2014, 2015 and 2016.
The preferred equity interest is not transferable by the trust
except through its put and call features. After a period of
five years from the contribution or, if earlier, the date upon
which the pension plan trust is fully funded as determined
under U.S. generally accepted accounting principles (GAAP),
AT&T has a right to purchase from the pension plan trust
some or all the preferred equity interest at the greater of
their fair market value or minimum liquidation value plus
any unpaid cumulative dividends. In addition, AT&T will have
the right to purchase the preferred equity interest in the
event AT&T’s ownership of Mobility is less than 50% or
there is a transaction that results in the transfer of 50%
or more of the pension plan trust’s assets to an entity not
under common control with AT&T (collectively, a change
of control). The pension plan trust has the right to require
AT&T to purchase the preferred equity interest at the
greater of their fair market value or minimum liquidation
value plus any unpaid cumulative dividends, and in
installments, as specified in the contribution agreement
upon the occurrence of any of the following: (1) at any time
if the ratio of debt to total capitalization of Mobility exceeds
that of AT&T, (2) the date on which AT&T is rated below
investment grade for two consecutive calendar quarters,
(3) upon a change of control if AT&T does not exercise its
purchase option, or (4) at any time after a seven-year
period from the contribution date. In the event AT&T elects
or is required to purchase the preferred equity interest,
AT&T may elect to settle the purchase price in cash or
shares of AT&T common stock or a combination thereof.
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 9 and our
operating lease payments in Note 6. Our contractual
obligations do not include contributions associated with
our voluntary contribution of the Mobility preferred equity
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 equity
method investments. At December 31, 2014, our debt ratio
was 48.6%, compared to 45.0% at December 31, 2013, and
43.0% at December 31, 2012. The debt ratio is affected by
the same factors that affect total capital, and reflects our
recent debt issuances and stock repurchases. Total capital
increased $2,721 in 2014 compared to an increase of
$3,731 in 2013. The 2014 capital increase was primarily
due to increases in debt balances and increases in
accumulated other comprehensive income related to
prior service credits resulting from amendments to our
postretirement benefit plans, partially offset by a
decrease in net income, due to actuarial losses on our
pension and postretirement benefit plans and a charge
for our abandonment of certain network assets; and
additional stock repurchases.
A significant amount of our cash outflows are related
to tax items and benefits paid for current and former
employees. Total taxes incurred, collected and remitted
by AT&T during 2014, 2013, and 2012 were $20,870,
$21,004 and $19,703. These taxes include income,
franchise, property, sales, excise, payroll, gross receipts
and various other taxes and fees. Total health and welfare
benefits provided to certain active and retired employees
and their dependents totaled $5,113 in 2014, with $1,498
paid from plan assets. Of those benefits, $4,168 related to
medical and prescription drug benefits. During 2014, we
paid $6,543 of pension benefits out of plan assets.
During 2014, we also received approximately $10,650 from
monetization of various assets. A majority of that cash was
attributable to the sale of our investment in América Móvil
and the sale of our Connecticut wireline operations (see
Note 5) as well as our sales of certain equipment installment
receivables and real estate holdings. We plan to continue
to explore monetization opportunities in 2015.
In September 2013, we made a voluntary contribution of a
preferred equity interest in AT&T Mobility II LLC (Mobility),
the holding company for our wireless business, to the trust
used to pay pension benefits under our qualified pension
plans. In September 2013, the U.S. Department of Labor
(DOL) published a proposed exemption that authorized
retroactive approval of this voluntary contribution.
In July 2014, the DOL published in the Federal Register
their final retroactive approval of our voluntary contribution.
The preferred equity interest had a value of $9,021 as of
December 31, 2014, and $9,104 on the contribution date,
does not have any voting rights and has a liquidation value
of $8,000. The trust is entitled to receive cumulative cash