UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the fiscal year ended
December 31, 2009
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OR
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¨
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the transition period
from
to
Commission
File Number: 1-8610
AT&T INC.
Incorporated
under the laws of the State of Delaware
I.R.S.
Employer Identification Number 43-1301883
208 S.
Akard St., Dallas, Texas, 75202
Telephone
Number 210-821-4105
Securities
registered pursuant to Section 12(b) of the Act: (See attached Schedule
A)
Securities
registered pursuant to Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [X] No
[ ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [X] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12-b2 of the Exchange Act.
Large
accelerated filer [X]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company
[ ]
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No
[X]
Based on
the closing price of $24.84 per share on June 30, 2009, the aggregate market
value of our voting and non-voting common stock held by non-affiliates was
$146.6 billion.
At
January 31, 2010, common shares outstanding were 5,902,074,438.
DOCUMENTS
INCORPORATED BY REFERENCE
(1)
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Portions
of AT&T Inc.’s Annual Report to Stockholders for the fiscal year ended
December 31, 2009 (Parts I and
II).
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(2)
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Portions
of AT&T Inc.’s Notice of 2010 Annual Meeting and Proxy Statement dated
on or about March 11, 2010 to be filed within the period permitted under
General Instruction G(3) (Parts III and
IV).
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SCHEDULE
A
Securities Registered Pursuant To
Section 12(b) Of The Act:
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Name
of each exchange
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Title of each class
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on which registered
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Common
Shares (Par Value $1.00 Per Share)
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New
York Stock Exchange
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6.125%
AT&T Inc.
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New
York Stock Exchange
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Global
Notes, Due April 2, 2015
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5.875%
AT&T Inc.
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New
York Stock Exchange
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Global
Notes due April 28, 2017
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7.00%
AT&T Inc.
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New
York Stock Exchange
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Global
Notes due April 30, 2040
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6.375%
Forty-Nine Year AT&T Inc.
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New
York Stock Exchange
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Senior
Notes, Due February 15, 2056
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TABLE
OF CONTENTS
Item
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Page
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PART
I
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1.
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Business
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1
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1A.
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Risk
Factors
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8
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2.
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Properties
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9
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3.
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Legal
Proceedings
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9
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4.
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Submission
of Matters to a Vote of Security Holders
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9
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Executive
Officers of the Registrant
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10
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PART
II
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5.
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Market
for Registrant’s Common Equity, Related Stockholder
Matters
and
Issuer Purchases of Equity Securities
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11
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6.
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Selected
Financial Data
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11
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7.
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Management’s
Discussion and Analysis of Financial Condition
and Results of
Operations
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11
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7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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11
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8.
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Financial
Statements and Supplementary Data
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11
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9.
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Changes
in and Disagreements with Accountants on Accounting
and Financial
Disclosure
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11
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9A.
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Controls
and Procedures
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11
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9B.
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Other
Information
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12
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PART
III
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10.
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Directors,
Executive Officers and Corporate Governance
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13
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11.
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Executive
Compensation
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13
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12.
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Security
Ownership of Certain Beneficial Owners and
Management
and Related Stockholder Matters
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14
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
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15
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14.
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Principal
Accountant Fees and Services
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15
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PART
IV
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15.
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Exhibits
and Financial Statement Schedules
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15
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PART
I
ITEM
1. BUSINESS
GENERAL
AT&T
Inc. (“AT&T,” “we” or the “Company”) is a holding company incorporated under
the laws of the State of Delaware in 1983 and has its principal executive
offices at
208 S. Akard St.,
Dallas Texas, 75202
(telephone number 210-821-4105). We maintain an
Internet website at www.att.com. (This website address is for information only
and is not intended to be an active link or to incorporate any website
information into this document.) We make available, free of charge,
on our website our annual report on Form 10-K, our quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports as soon as
reasonably practicable after such reports are electronically filed with, or
furnished to, the Securities and Exchange Commission (SEC). We also make
available on that website, and in print, if any stockholder or other person so
requests, our code of business conduct and ethics entitled “Code of Ethics”
applicable to all employees and Directors, our “Corporate Governance
Guidelines,” and the charters for all committees of our Board of Directors,
including Audit, Human Resources and Corporate Governance and Nominating. Any
changes to our Code of Ethics or waiver of our Code of Ethics for senior
financial officers, executive officers or Directors will be posted on that
website.
History
AT&T,
formerly known as SBC Communications Inc. (SBC), was formed as one of several
regional holding companies created to hold AT&T Corp.’s (ATTC) local
telephone companies. On January 1, 1984, we were spun-off from ATTC pursuant to
an anti-trust consent decree, becoming an independent publicly traded
telecommunications services provider. At formation, we primarily operated in
five southwestern states. Our subsidiaries merged with Pacific Telesis Group in
1997, Southern New England Telecommunications Corporation in 1998 and Ameritech
Corporation in 1999, thereby expanding our wireline operations as the incumbent
local exchange carrier (ILEC) into a total of 13 states. In November 2005, one
of our subsidiaries merged with ATTC, creating one of the world’s leading
telecommunications providers. In connection with the merger, we changed the name
of our company from “SBC Communications Inc.” to “AT&T Inc.” In
December 2006, one of our subsidiaries merged with BellSouth Corporation
(BellSouth) making us the ILEC in an additional nine states. With the BellSouth
acquisition, we thereby acquired BellSouth’s 40% economic interest in AT&T
Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC, and
BellSouth’s 34% economic interest in YELLOWPAGES.COM (YPC), resulting in 100%
ownership of AT&T Mobility and YPC. Our services and products are marketed
under the AT&T brand name, including alliances such as AT&T Yahoo! and
AT&T | DIRECT TV.
Scope
We rank
among the leading providers of telecommunications services in the United States
and the world. We offer our services and products to consumers in the U.S. and
services and products to businesses and other providers of telecommunications
services worldwide.
The
services and products that we offer vary by market, and include: wireless
communications, local exchange services, long-distance services, data/broadband
and Internet services, video services, telecommunications equipment, managed
networking, wholesale services and directory advertising and publishing. We
group our operating subsidiaries as follows, corresponding to our operating
segments for financial reporting purposes:
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wireless
subsidiaries provide both wireless voice and data communications services
across the U.S. and, through roaming agreements, in a substantial number
of foreign countries,
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wireline
subsidiaries provide primarily landline voice and data communication
services, AT&T U-Verse
SM
TV, high-speed broadband and voice services (U-Verse) and managed
networking to business customers.,
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·
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advertising
solutions subsidiaries publish Yellow and White Pages directories and sell
directory advertising and Internet-based advertising and local
search.
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·
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other
subsidiaries provide results from Sterling Commerce, Inc. (Sterling), all
corporate and other operations.
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Our
traditional wireline local exchange subsidiaries operate in 22 states: Alabama,
Arkansas, California, Connecticut, Illinois, Indiana, Florida, Georgia,
Kentucky, Louisiana, Kansas, Michigan, Mississippi, Missouri, Nevada, North
Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Wisconsin
(22-state area). Our wireline local exchange services are provided through
regulated subsidiaries which operate within authorized regions subject to
regulation by each state in which they operate and by the Federal Communications
Commission (FCC). Wireless service providers are regulated by the FCC.
Additional information relating to regulation is contained under the heading
“Government Regulation” and in the Annual Report under the heading “Operating
Environment and Trends of the Business,” and is incorporated herein by reference
pursuant to General Instruction G(2).
With the
expansion of our company through acquisitions and the resulting ownership
consolidation of AT&T Mobility, and with continuing advances in technology,
we plan to offer new services that combine our traditional wireline and wireless
services, thereby making our customers’ lives more convenient and productive and
fostering competition and further innovation in the communications and
entertainment industry. In 2010, we plan to focus on the areas discussed
below.
Wireless
AT&T
Mobility began operations in October 2000 as a joint venture between us and
BellSouth and, in 2004, acquired AT&T Wireless Services, Inc. Upon our
acquisition of BellSouth, AT&T Mobility became a wholly-owned
subsidiary.
Our
Universal Mobile Telecommunications System/ High-Speed Downlink Packet Access
third generation (3G) network technology covers most major metropolitan areas of
the U.S. This technology provides superior speeds for data and video services,
as well as operating efficiencies, using the same spectrum and infrastructure
for voice and data on an IP-based platform. Our wireless network also relies on
digital transmission technologies known as Global System for Mobile
Communication, General Packet Radio Services and Enhanced Data Rates for GSM
Evolution for data communications. We have also announced plans to
transition our network to more advanced Long Term Evolution technology in 2011
as network equipment and handsets are expected to become widely available. We
also have continued to expand the number of locations, including airports and
cafes, where customers can access broadband internet connections using wireless
fidelity (local radio frequency commonly referred as Wi-Fi) wireless
technology.
As of
December 31, 2009, we served 85.1 million customers and were a leading provider
of mobile wireless voice and data communications services in the
U.S. As the wireless industry continues to mature, we believe that
future wireless growth will become increasingly dependent on our ability to
offer integrated handsets and other innovative devices such as netbooks and
eReaders and innovative services that will encourage existing customers to
upgrade their services and will attract customers from other providers as well
as our ability to minimize turnover of our existing customer base (customer
churn). We intend to accomplish these goals by continuing to expand our network
coverage, improve our network quality and offer a broad array of products and
services, including exclusive devices such as Apple iPhone, Wi-Fi enabled
devices and free mobile-to-mobile calling among our wireless customers. The
effective management of customer churn is critical to our ability to maximize
revenue growth and to maintain and improve our operating margins.
Business
Customers
We expect
to continue to strengthen the reach and sophistication of our network facilities
and our ability to offer a variety of communications services, both wireless and
wireline, to large businesses and wholesale customers worldwide. We expect to
offer similar services to small- and medium-businesses and to increase the
attractiveness of our services to governmental customers. We also expect to
extend our wholesale business offerings to other service products and systems
integration services.
Data/Broadband
As the
communications industry continues to move toward internet-based technologies
that are capable of blending traditional wireline and wireless services, we plan
to offer services that take advantage of these new and more sophisticated
technologies. In particular, we intend to continue to focus on deploying our
AT&T U-verse
sm
high-speed broadband and video services and on developing internet
protocol-based services that allow customers to unite their home or business
wireline services with their wireless service.
U-verse Services
We are
continuing to expand our deployment of our U-verse services. In December 2009,
we added our two millionth U-verse video customer, ending the year with
approximately 2,065,000 customers. As of December 31, 2009, we passed
22.8 million living units (constructed housing units as well as platted housing
lots) and are marketing the services to almost 72 percent of those units. Our
deployment strategy is to enter each new area on a limited basis in order to
ensure that all operating and back-office systems are functioning successfully
and then expand within each area as we continue to monitor these systems. Our
rate of expansion will be slowed if we cannot obtain all required local building
permits in a timely fashion. We also continue to work with our vendors on
improving, in a timely manner, the requisite hardware and software technology.
Our deployment plans could be delayed if we do not receive required equipment
and software on schedule.
We
believe that our U-verse TV service is subject to federal oversight as a “video
service” under the Federal Communications Act. However, some cable providers and
municipalities have claimed that certain IP services should be treated as a
traditional cable service and therefore subject to the applicable state and
local cable regulation. Certain municipalities have delayed our request or have
refused us permission to use our existing right-of-ways to deploy or activate
our U-verse-related services and products, resulting in litigation. Pending
negotiations and current or threatened litigation involving municipalities could
delay our deployment plans in those areas. In July 2008, the U.S. District Court
for Connecticut affirmed its October 2007 ruling that AT&T’s U-verse TV
service is a cable service in Connecticut. We have appealed that decision on the
basis that state legislation rendered the case moot. Petitions have been filed
at the FCC alleging that the manner in which AT&T provisions “public,
educational, and governmental” (PEG) programming over its U-verse TV service
conflicts with federal law, and a lawsuit has been filed in a California state
superior court raising similar allegations under California law. If the courts
having jurisdiction where we have significant deployments of our U-verse
services were to decide that federal, state and/or local cable regulation were
applicable to our U-verse services, or if the FCC, state agencies or the courts
were to rule that AT&T must deliver PEG programming in a manner
substantially different from the way it does today or in ways that are
inconsistent with AT&T’s current network architecture, it could have a
material adverse effect on the cost, timing and extent of our deployment
plans.
Voice over Internet
Protocol
VoIP is generally used to describe the transmission
of voice using Internet-Protocol-based technology rather than a traditional wire
and switch-based telephone network. A company using this technology often can
provide voice services at a lower cost because this technology uses bandwidth
more efficiently than a traditional network and because this technology has not
been subject to traditional telephone industry regulation. While the development
of VoIP has resulted in increased competition for our wireless and wireline
voice services, it also presents growth opportunities for us to develop new
products for our customers.
BUSINESS
OPERATIONS
OPERATING
SEGMENTS
Our
segments are strategic business units that offer different products and services
over various technology platforms and are managed accordingly. We analyze our
various operating segments based on segment income before income taxes,
reviewing operating revenues, operating expenses (depreciation and
non-depreciation) and equity income for each segment. We make our capital
allocations decisions primarily based on the network (wireless or wireline)
providing services. Interest expense and other income (expense) – net, are
managed only on a total company basis and are, accordingly, reflected only in
consolidated results. Therefore, these items are not included in the calculation
of each segment’s percentage of our total segment income. We have four
reportable segments: (1) Wireless; (2) Wireline;
(3) Advertising Solutions; and (4) Other.
Additional
information about our segments, including financial information, is included
under the heading “Segment Results” on pages 33 through 41 and in Note 4 of the
Annual Report and is incorporated herein by reference pursuant to General
Instruction G(2).
WIRELESS
Wireless
consists of our subsidiary, AT&T Mobility, which operates as a wireless
provider to both business and consumer customers. Our Wireless segment provided
approximately 43% of 2009 total segment operating revenues and 60% of our 2009
total segment income. At December 31, 2009, we had more than 85 million wireless
subscribers.
Services
and Products
We offer
a comprehensive range of high-quality nationwide wireless voice communications
services in a variety of pricing plans, including postpaid and prepaid service
plans. Our voice offerings are tailored to meet the communications needs of
targeted customer segments, including youth, family, active professionals, small
businesses, government and major national corporate accounts.
Service –
Our voice service is
generally offered on a contract basis for one- or two-year periods, referred to
as postpaid. Under the terms of these contracts, service is billed and provided
on a monthly basis according to the applicable rate plan chosen. Our wireless
services include basic local wireless communications service, long-distance
service and roaming services. Roaming services enable our subscribers to utilize
other carriers’ networks when they are “roaming” outside our network footprint.
We also charge fees to other carriers for providing roaming services to their
customers when their customers utilize our network. Additionally, we offer
prepaid service to meet the demands of distinct consumer segments, such as the
youth market, families and small business customers, who prefer to control usage
or pay in advance.
Wireless
data revenues continue to be a growing area of our business, representing an
increasing share of our overall subscriber revenue. We are experiencing solid
growth from both consumer and enterprise wireless data services, as an
increasing number of our subscribers have upgraded their handsets to more
advanced integrated devices, including Apple iPhone. We are also seeing rapid
growth in demand for new wireless devices such as notebooks, eReaders, direction
and navigation aids and monitoring devices. We continue to upgrade our network
and coordinate with equipment manufacturers and applications developers in order
to further capitalize on the continued growth in the demand for wireless data
services. At December 31, 2009, we were a leading provider of wireless data in
the U.S. wireless industry based on subscribers.
Equipment –
We sell a wide
variety of handsets, wirelessly enabled computers (i.e., notebooks and netbooks)
and personal computer wireless data cards manufactured by various suppliers for
use with our voice and data services. We sell through our own
company-owned stores or through agents or third-party retail stores. We
also sell accessories, such as carrying cases, hands-free devices, batteries,
battery chargers and other items, to consumers, as well as to agents and other
third-party distributors for resale. Like other wireless service providers, we
often provide postpaid contract subscribers substantial equipment subsidies to
initiate or upgrade service. Our subscriber base also includes emerging
devices (e.g., eReaders and mobile navigation devices) purchased by consumers
from third-party suppliers which buy data access supported by our network;
purchasers of these devices are included in our reseller base.
Additional
information on our Wireless segment is contained in the Annual Report in the
“Operating Environment Overview” section under the heading “Expected Growth
Areas,” “Wireless” beginning on page 42 and is incorporated herein by reference
pursuant to General Instruction G(2).
WIRELINE
Our
Wireline subsidiaries provide both retail and wholesale communication services
domestically and internationally. Our Wireline segment provided approximately
52% of 2009 segment operating revenues and 36% of our 2009 total segment income.
We divide our wireline services into three product-based categories: voice, data
and other. Revenues from our traditional voice services have been
declining as customers have been switching to wireless, cable and other
internet-based providers. In addition, the continuing economic recession has
caused wireline customers to terminate their residential or business phone
service as individuals have lost jobs or otherwise combined households and
businesses have closed or reduced operations. We have responded by offering
packages of combined voice and data services, including broadband and video, and
intend to continue this strategy during 2010.
Services
and Products
Voice
– Voice includes
traditional local and long-distance service provided to retail customers and
wholesale access to our network and individual network elements provided to
competitors. At December 31, 2009, our wireline subsidiaries served
approximately 26 million retail consumer access lines, 20 million retail
business access lines and 3 million wholesale access lines. We also have a
number of integrated voice and data services, such as integrated network
connections, that provide customers the ability to integrate access for their
voice and data services, the data component of which is included in the data
category. Additionally, voice revenues do not include any of our VoIP revenues,
which are included in data revenues.
Long
distance consists of traditional long distance and international long distance
for customers that select us as their primary long-distance carrier. Long
distance also includes services provided by calling card, 1-800 services and
conference calling. These services are used in a wide variety of business
applications, including sales, reservation centers or customer service centers.
We also provide wholesale switched access service to other service
providers.
Voice
also includes calling features, fees to maintain wire located inside customer
premises and other miscellaneous voice products.
Calling features are
enhanced telephone services available to retail customers such as Caller ID,
Call Waiting and voice mail. These calling features services are generally more
profitable than basic local phone service.
Data -
Data includes
traditional products, such as switched and dedicated transport, Internet access
and network integration, and data equipment sales, and U-verse services.
Additionally, data products include high-speed connections such as private
lines, packet, dedicated Internet and enterprise networking services, as well as
products such as DSL/broadband, dial-up Internet access and Wi-Fi (local radio
frequency commonly known as wireless fidelity). We also provide businesses voice
applications over IP-based networks (i.e., Enhanced Virtual Private Networks or
“EVPN”). Over the past several years, we have built out our new multi-protocol
label switching/asynchronous transfer mode, or MPLS/ATM network, to supplement,
and eventually replace, our other extensive global data networks. These products
allow us to provide highly complex global data networks.
Private
Line uses high-capacity digital circuits to transmit from point-to-point in
multiple configurations and allows customers to create internal data networks
and to access external data networks.
Switched
Transport services transmit data using switching equipment to transfer the data
between multiple lines before reaching its destination. Dedicated Transport
services use a single direct line to transmit data between destinations. DSL is
a digital modem technology that converts existing twisted-pair telephone lines
into access paths for multimedia and high-speed data communications to the
Internet or private networks. DSL allows customers to simultaneously make a
phone call and access information via the Internet or an office local area
network. Digital Services use dedicated digital circuits to transmit digital
data at various high rates of speed.
Network
integration services include installation of business data systems, local area
networking and other data networking offerings. Internet access services include
a wide range of products for residences and businesses, Internet services
offered include basic dial-up access service, dedicated access, web hosting,
e-mail and high-speed access services. Our managed web-hosting services for
businesses provide network, server and security infrastructure as well as
built-in data storage and include application performance management, database
management, hardware and operating system management. Our hosting services also
provide customers with secure access to detailed reporting information about
their infrastructure and applications.
Packet
services consist of data networks using packet switching and transmission
technologies, including traditional circuit-based, and IP connectivity services.
Packet services enable customers to transmit large volumes of data economically
and securely and are used for local area network interconnection, remote site,
point of sale and branch office communications. High-speed packet services are
used extensively by enterprise (large business) customers.
Dedicated
Internet services are designed to meet the needs of all types of commercial and
governmental enterprises, including small and medium sized businesses. Our
managed Internet services provide customers with dedicated high-speed access to
the Internet managed by us.
Enterprise
networking services provide comprehensive support from network design,
implementation and installation to ongoing network operations and management for
networks of varying scales, including local area networks, wide area networks,
and virtual private networks. These services include applications such as
e-mail, order entry systems, employee directories, human resource transactions
and other database applications.
We also
provide local, interstate and international wholesale networking capacity to
other service providers. We offer a combination of high-volume transmission
capacity and conventional dedicated line services on a regional, national and
international basis to wireless carriers, interexchange carriers, Internet
service providers (ISPs) and facility-based and switchless resellers. Our
wholesale customers are primarily large ISPs, wireless carriers, competitive
local exchange carriers (CLECs), regional phone companies, interexchange
carriers, cable companies and systems integrators. We also have sold dedicated
network capacity through indefeasible rights-of-use agreements under which
capacity is furnished for contract terms as long as 25 years.
Other -
Other includes
application management, security service, integration services, customer
premises equipment, outsourcing, government-related services, and satellite
video services. Security services include business continuity and disaster
recovery services as well as premise and network based security
products.
Customer
premises equipment and other equipment sales range from single-line and cordless
telephones to sophisticated digital PBX systems. PBX is a private telephone
switching system, typically used by businesses and usually located on a
customer’s premises, which provides intra-premise telephone services as well as
access to our network.
ADVERTISING
SOLUTIONS
Advertising
Solutions includes our directory operations, which publish Yellow and White
Pages directories and sell directory advertising and Internet-based advertising
and local search. The Advertising Solutions segment provided approximately 4% of
total segment operating revenues and 6% of our 2009 total segment income. This
segment sells advertising services throughout the United States, with our print
directory operations primarily covering our 22-state area.
OTHER
Our Other
segment includes operations from Sterling, our business integration software and
services subsidiary, operator services, corporate and other operations. The
Other segment provided approximately 1% of total segment operating revenues and
less than 1% of our 2009 total segment income. We also include in
this segment the equity income (loss) from our investments in Telmex, America
Movil and Telmex Internacional. Sterling provides “multi-enterprise
collaboration” services to businesses in various industries, including retail,
financial services, manufacturing, healthcare and telecom. In recent years,
Sterling has completed a number of acquisitions in order to provide end-to-end
order fulfillment for customers.
MAJOR
CLASSES OF SERVICE
The
following table sets forth the percentage of total consolidated reported
operating revenues by any class of service that accounted for 10% or more of our
consolidated total operating revenues in any of the last three fiscal
years:
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Percentage
of Total
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Consolidated
Operating Revenues
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2009
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2008
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2007
|
Wireless
Segment
|
|
|
|
|
|
|
|
|
|
Wireless
service
|
|
|
40
|
%
|
|
|
36
|
%
|
|
|
33
|
%
|
Wireline
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice
|
|
|
27
|
%
|
|
|
31
|
%
|
|
|
35
|
%
|
Data
|
|
|
22
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
GOVERNMENT
REGULATION
Wireless
communications providers must be licensed by the FCC to provide communications
services at specified spectrum frequencies within specified geographic areas and
must comply with the rules and policies governing the use of the spectrum as
adopted by the FCC. Wireless licenses are issued for a fixed time period,
typically ten years, and we must seek renewal of these
licenses. While the FCC has generally renewed licenses given to
operating companies such as us, the FCC has authority to both revoke a license
for cause and to deny a license renewal if a renewal is not in the public
interest. Additionally, while wireless communications providers’ prices and
service offerings are generally not subject to regulation, the federal
government and an increasing number of states are considering new regulations
and legislation relating to various aspects of wireless services.
Our
wireline subsidiaries are subject to regulation by state commissions which have
the power to regulate intrastate rates and services, including local,
long-distance and network access services. These subsidiaries are also subject
to the jurisdiction of the FCC with respect to interstate and international
rates and services, including interstate access charges. Access charges are
designed to compensate our wireline subsidiaries for the use of their networks
by other carriers.
Our
subsidiaries operating outside the U.S. are subject to the jurisdiction of
national and supranational regulatory authorities in the market where service is
provided. Regulation is generally limited to operational licensing authority for
the provision of enterprise services.
Additional
information relating to regulation of our subsidiaries is contained in the
Annual Report under the heading “Operating Environment Overview” beginning on
page 41 and is incorporated herein by reference pursuant to General Instruction
G(2).
IMPORTANCE,
DURATION AND EFFECT OF LICENSES
Certain
of our subsidiaries own or have licenses to various patents, copyrights,
trademarks and other intellectual property necessary to conduct business. Many
of our subsidiaries also hold government-issued licenses or franchises to
provide wireline or wireless services and regulation affecting those rights is
contained in the Annual Report under the heading “Operating Environment
Overview” beginning on page 41 and is incorporated herein by reference pursuant
to General Instruction G(2). We actively pursue patents, trademarks and service
marks to protect our intellectual property within the U.S. and abroad. We
maintain a global portfolio of more than 5,000 trademark and service mark
registrations. We have also entered into agreements that permit other companies,
in exchange for fees and subject to appropriate safeguards and restrictions, to
utilize certain of our trademarks and service marks. We periodically receive
offers from third parties to obtain licenses for patent and other intellectual
rights in exchange for royalties or other payments. We also receive notices
asserting that our products or services infringe on their patents and other
intellectual property rights. These claims, whether against us directly or
against third-party suppliers of products or services that we, in turn, sell to
our customers, such as wireless handsets, could require us to pay damages,
royalties, stop offering the relevant products or services and/or cease other
activities. While the outcome of any litigation is uncertain, we do not believe
that the resolution of any of these infringement claims or the expiration or
non-renewal of any of our intellectual property rights would have a material
adverse effect on our results of operations.
MAJOR
CUSTOMER
No
customer accounted for 10% or more of our consolidated revenues in 2009, 2008 or
2007.
COMPETITION
Information
relating to competition in each of our operating segments is contained in the
Annual Report under the heading “Competition” beginning on page 44, and is
incorporated herein by reference pursuant to General Instruction
G(2).
RESEARCH
AND DEVELOPMENT
The
majority of our research activities are related to our wireline segment,
performed at our subsidiary AT&T Labs. AT&T Labs’ scientists and
engineers conduct research in a variety of areas, including IP; advanced network
design and architecture; network operations support systems; data mining
technologies and advanced speech technologies. The majority of the development
activities are performed by AT&T Services. The developers within AT&T
Services work with our business units and AT&T Labs to create new services
and invent tools and systems to manage secure and reliable networks for us and
our customers. We also have a research agreement with Telcordia Technologies,
formerly Bell Communications Research, Inc. Research and development expenses
were $986 in 2009, $832 in 2008 and $985 million in 2007.
EMPLOYEES
As of
January 31, 2010, we employed approximately 281,000 persons. Approximately
58 percent of our employees are represented by the Communications Workers of
America (CWA), the International Brotherhood of Electrical Workers (IBEW) or
other unions. Contracts covering approximately 120,000 collectively-bargained
wireline employees expired during 2009. As of
January 31, 2010, the Company and approximately 86,000 employees, covered by
these expired collectively-bargained wireline contracts have ratified new labor
agreements. In the absence of an effective contract, the union is entitled to
call a work stoppage.
For
approximately 60,000 employees covered by these ratified agreements, the
agreements provide for a three-year term and, for the vast majority of those
covered employees, a 3 percent wage increase in years one and two, a wage
increase in year three of 2.75 percent, and pension band increases of 2 percent
for each year of the agreement. For both wage and pension band increases, there
is potential cost-of-living increase based on the consumer price index for the
third year. These agreements also provide for continued health care coverage
with reasonable cost sharing.
For the
remaining approximately 26,000 employees covered by these ratified agreements,
the agreement provides for a four-year term. The provisions of the tentative
agreement are substantially similar to the provisions of the ratified agreements
discussed above, with a wage increase in year four of 2.75 percent and a
potential cost-of-living increase in year four instead of in year
three.
On
February 8, 2010, the Company and the CWA announced a tentative agreement
covering approximately 30,000 core wireline employees in the nine-state former
BellSouth region, subject to ratification by those covered
employees. The tentative agreement provides for a three-year term
and, for the vast majority of those covered employees, a 3 percent wage increase
in years one and two, a wage increase in year three of 2.75 percent, and pension
band increases of 2 percent for each year of the agreement. These agreements
also provide for continued health care coverage with reasonable cost
sharing.
ITEM
1A. RISK FACTORS
Information
required by this Item is included in the Annual Report under the heading “Risk
Factors” on page 55 through page 57 which is incorporated herein by reference
pursuant to General Instruction G(2).
CAUTIONARY
LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
The
following factors could cause our future results to differ materially from those
expressed in the forward-looking statements:
·
|
Adverse
economic and/or capital access changes in the markets served by us or in
countries in which we have significant investments, including the impact
on customer demand and our ability and our suppliers’ ability to access
financial markets.
|
·
|
Changes
in available technology and the effects of such changes, including product
substitutions and deployment costs.
|
·
|
Increases
in our benefit plans’ costs, including increases due to adverse changes in
the U.S. and foreign securities markets, resulting in worse-than-assumed
investment returns and discount rates, and adverse medical cost
trends
and
unfavorable healthcare legislation and
regulations.
|
·
|
The
final outcome of Federal Communications Commission and other Federal
agency proceedings and reopenings of such proceedings and judicial review,
if any, of such proceedings, including issues relating to access charges,
broadband deployment, E911 services, competition, net neutrality,
unbundled loop and transport elements, wireless license awards and
renewals and wireless services.
|
·
|
The
final outcome of regulatory proceedings in the states in which we operate
and reopenings of such proceedings, and judicial review, if any, of such
proceedings, including proceedings relating to Interconnection terms,
access charges, universal service, unbundled network elements and resale
and wholesale rates, broadband deployment including our U-verse services,
net neutrality, performance measurement plans, service standards and
traffic compensation.
|
·
|
Enactment
of additional state, federal and/or foreign regulatory and tax laws and
regulations pertaining to our subsidiaries and foreign investments,
including laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
|
·
|
Our
ability to absorb revenue losses caused by increasing competition,
including offerings using alternative technologies (e.g., cable, wireless
and VoIP) and our ability to maintain capital
expenditures.
|
·
|
The
extent of competition and the resulting pressure on access line totals and
wireline and wireless operating
margins.
|
·
|
Our
ability to develop attractive and profitable product/service offerings to
offset increasing competition in our wireless and wireline
markets.
|
·
|
The
ability of our competitors to offer product/service offerings at lower
prices due to lower cost structures and regulatory and legislative actions
adverse to us, including state regulatory proceedings relating to
unbundled network elements and nonregulation of comparable alternative
technologies (e.g., VoIP).
|
·
|
The
timing, extent and cost of deployment of our U-verse services; the
development of attractive and profitable service offerings; the extent to
which regulatory, franchise fees and build-out requirements apply to this
initiative; and the availability, cost and/or reliability of the various
technologies and/or content required to provide such
offerings.
|
·
|
Our
continued ability to attract and offer a diverse of portfolio of devices,
some on an exclusive basis.
|
·
|
The
availability and cost of additional wireless spectrum and regulations
relating to licensing and technical standards and deployment and usage,
including network management rules.
|
·
|
Our
ability to manage growth in wireless data services, including network
quality.
|
·
|
The
outcome of pending or threatened litigation including patent and product
safety claims by or against third
parties.
|
·
|
The
impact on our networks and business of major equipment failures, our
inability to obtain equipment/software or have equipment/software serviced
in a timely and cost-effective manner from suppliers, severe weather
conditions, natural disasters, pandemics or terrorist
attacks.
|
·
|
Our
ability to successfully negotiate new collective bargaining contracts and
the terms of those contracts.
|
·
|
The
issuance by the Financial Accounting Standards Board or other accounting
oversight bodies of new accounting standards or changes to existing
standards.
|
·
|
The
issuance by the Internal Revenue Service and/or state tax authorities of
new tax regulations or changes to existing standards and actions by
federal, state or local tax agencies and judicial authorities with respect
to applying applicable tax laws and regulations and the resolution of
disputes with any taxing
jurisdictions.
|
·
|
Our
ability to adequately fund our wireless operations, including payment for
additional spectrum, network upgrades and technological
advancements.
|
·
|
Changes
in our corporate strategies, such as changing network requirements or
acquisitions and dispositions, to respond to competition and regulatory,
legislative and technological
developments.
|
Readers
are cautioned that other factors discussed in this report, although not
enumerated here, also could materially affect our future earnings.
ITEM
2. PROPERTIES
Our
properties do not lend themselves to description by character and location of
principal units. At December 31, 2009, approximately 84% of our property, plant
and equipment was owned by our wireline subsidiaries and approximately 15% was
owned by our wireless subsidiaries. Central office equipment represented 34%;
network access lines represented approximately 32% of our telephone plant; other
equipment, comprised principally of furniture and office equipment and vehicles
and other work equipment, represented 18%; land and buildings represented 11%;
and other miscellaneous property represented 5%.
Substantially
all of the installations of central office equipment are located in buildings
and on land we own. Many garages, administrative and business offices, and
telephone centers and retail stores are in leased quarters.
ITEM
3. LEGAL PROCEEDINGS
We are a
party to numerous lawsuits, regulatory proceedings and other matters arising in
the ordinary course of business. Additional information regarding litigation is
included in the Annual Report under the headings “Retiree Phone
Concession Litigation” and “NSA Litigation” on page 48, which is incorporated
herein by reference pursuant to General Instruction G(2). As of the date of this
report, we do not believe any pending legal proceedings to which we or our
subsidiaries are subject are required to be disclosed as material legal
proceedings pursuant to this item.
We
are subject from time to time to judicial and administrative proceedings
brought by various governmental authorities under federal, state or
local environmental laws. We are required to discuss
in our Forms 10-Q and 10-K two of these proceedings, (which are listed
below), because each could result in monetary sanctions (exclusive of interest
and costs) of one hundred thousand dollars or more. However, we do
not believe that any of them currently pending will have a material adverse
effect on our results of operations.
(a) The
City of Philadelphia notified AT&T Corp. in December 2008 that it would seek
civil penalties for alleged violations of state and local air emissions control
requirements and permit terms applicable to back-up power generators at an
AT&T Corp. facility. In July 2009, AT&T Corp. and the City settled this
matter on terms that included civil penalties of less than one hundred thousand
dollars.
(b) The
U.S. Environmental Protection Agency (EPA) is seeking civil penalties from
AT&T Mobility in connection with alleged violations of federal environmental
statutes in connection with management of back-up power systems at AT&T
Mobility facilities. The EPA’s allegations include noncompliance with
requirements to obtain air emission permits for generators and to prepare spill
prevention plans for fuel storage tanks. We expect to settle those allegations
on terms that would include civil penalties in the range of $1 to $3 million
dollars.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter
was submitted to a vote of stockholders in the fourth quarter of
2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
(As of January
20 , 2010)
|
Name
|
Age
|
Position
|
Held Since
|
|
|
|
|
Randall
L. Stephenson
|
49
|
Chairman
of the Board, Chief Executive Officer
and
President
|
6/2007
|
William
A. Blase Jr.
|
54
|
Senior
Executive Vice President – Human Resources
|
6/2007
|
James
W. Callaway
|
63
|
Senior
Executive Vice President – Executive Operations
|
5/2007
|
James
W. Cicconi
|
57
|
Senior
Executive Vice President – External and Legislative Affairs, AT&T
Services, Inc.
|
11/2008
|
Catherine
M. Coughlin
|
52
|
Senior
Executive Vice President and Global Marketing Officer
|
6/2007
|
Ralph
de la Vega
|
58
|
President
and Chief Executive Officer, AT&T Mobility and Consumer
Markets
|
10/2008
|
Richard
G. Lindner
|
55
|
Senior
Executive Vice President and Chief Financial Officer
|
5/2004
|
Forrest
E. Miller
|
57
|
Group
President – Corporate Strategy and Development
|
6/2007
|
Ronald
E. Spears
|
61
|
President
and Chief Executive Officer, AT&T Business Solutions
|
11/2008
|
John
T. Stankey
|
47
|
President
and Chief Executive Officer, AT&T Operations, Inc.
|
10/2008
|
Wayne
Watts
|
56
|
Senior
Executive Vice President and General Counsel
|
6/2007
|
Rayford
Wilkins, Jr.
|
58
|
Chief
Executive Officer – AT&T Diversified Businesses
|
10/2008
|
All of
the above executive officers have held high-level managerial positions with
AT&T or its subsidiaries for more than the past five years. Executive
officers are not appointed to a fixed term of office.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our
common stock is listed on the New York Stock Exchange. The number of
stockholders of record as of December 31, 2009 and 2008 was 1,454,030 and
1,541,767. The number of stockholders of record as of February 20, 2010, was
1,448,975. We declared dividends, on a quarterly basis, totaling $1.65 per share
in 2009 and $1.61 per share in 2008.
Other
information required by this Item is included in the Annual Report under the
headings “Quarterly Financial Information” on page 91, “Selected Financial and
Operating Data” on page 30, “Issuer Equity Repurchases” on page 54, and
“Stock Trading Information” on the back cover, which are incorporated herein by
reference pursuant to General Instruction G(2).
ITEM
6. SELECTED FINANCIAL DATA
Information
required by this Item is included in the Annual Report under the heading
“Selected Financial and Operating Data” on page 30, which is incorporated herein
by reference pursuant to General Instruction G(2).
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Information
required by this Item is included in the Annual Report on pages 31 through 52,
which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information
required by this Item is included in the Annual Report under the heading “Market
Risk” on pages 52 through 53, which is incorporated herein by reference pursuant
to General Instruction G(2).
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information
required by this Item is included in the Annual Report on pages 59 through 91,
which is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During
our two most recent fiscal years, there has been no change in the independent
accountant engaged as the principal accountant to audit our financial statements
and the independent accountant has not expressed reliance on other independent
accountants in its reports during such time period.
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
The
registrant maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the registrant is recorded,
processed, summarized, accumulated and communicated to its management, including
its principal executive and principal financial officers, to allow timely
decisions regarding required disclosure, and reported within the time periods
specified in the SEC’s rules and forms. The Chief Executive Officer and Chief
Financial Officer have performed an evaluation of the effectiveness of the
design and operation of the registrant’s disclosure controls and procedures as
of December 31, 2009. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the registrant’s disclosure controls and
procedures were effective as of December 31, 2009.
Internal
Control Over Financial Reporting
(a) Management’s
Annual Report on Internal Control over Financial Reporting
The
management of AT&T is responsible for establishing and maintaining adequate
internal control over financial reporting. AT&T’s internal control system
was designed to provide reasonable assurance as to the integrity and reliability
of the published financial statements. AT&T management assessed the
effectiveness of the company’s internal control over financial reporting as of
December 31, 2009. In making this assessment, it used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control – Integrated
Framework
. Based on its assessment, AT&T management believes that, as
of December 31, 2009, the Company’s internal control over financial reporting is
effective based on those criteria.
(b) Attestation
Report of the Registered Public Accounting Firm
The
registered public accounting firm that audited the financial statements included
in the Annual Report containing the disclosure required by this Item, Ernst
& Young LLP, has issued an attestation report on the Company’s internal
control over financial reporting. The attestation report issued by Ernst &
Young LLP is included in the Annual Report on page 93, which is incorporated
herein by reference pursuant to General Instruction G(2).
ITEM 9B.
OTHER
INFORMATION
There is
no information that was required to be disclosed in a report on Form 8-K during
the fourth quarter of 2009 but was not reported.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information
regarding executive officers required by Item 401 of Regulation S-K is furnished
in a separate disclosure at the end of Part I of this report since the
registrant did not furnish such information in its definitive proxy statement
prepared in accordance with Schedule 14A. Information regarding directors
required by Item 401 of Regulation S-K is incorporated herein by reference
pursuant to General Instruction G(3) from the registrant’s definitive proxy
statement, dated on or about March 11, 2010 (Proxy Statement) under the heading
“Election of Directors.”
There is
no disclosure in this Form 10-K of reporting person delinquencies in response to
Item 405 and the registrant, at the time of filing this Annual Report on Form
10-K, has reviewed the information necessary to ascertain, and has determined
that Item 405 disclosure is not expected to be contained in this Form 10-K or
incorporated by reference.
The
registrant has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the committee are Messrs. Aldinger, Chico, Kelly and Madonna. The
additional information required by Item 407(d)(5) of Regulation S-K is
incorporated herein by reference pursuant to General Instruction G(3) from the
registrant’s Proxy Statement under the heading “Audit Committee.”
The
registrant has adopted a code of ethics entitled “Code of Ethics” that applies
to the registrant’s principal executive officer, principal financial officer,
principal accounting officer, or controller or persons performing similar
functions. The additional information required by Item 406 of Regulation S-K is
provided in this report under the heading “General” under Part I, Item 1.
Business.
ITEM
11. EXECUTIVE COMPENSATION
Information
required by Item 402(k) of Regulation S-K is incorporated herein by reference
pursuant to General Instruction G(3) from the registrant’s Proxy Statement under
the heading “Compensation of Directors.” Information regarding
officers is included in the registrant’s Proxy Statement on the pages beginning
with the heading “Compensation Discussion and Analysis” and ending with, and
including, the pages under the heading “Potential Payments upon Termination or
Change in Control” which are incorporated herein by reference pursuant to
General Instruction G(3). Information required by Item 407(e)(5) of Regulation
S-K is included in the registrant’s Proxy Statement under the heading
“Compensation Committee Report” and is incorporated herein by reference pursuant
to General Instruction G(3) and shall be deemed furnished in this Annual Report
on Form 10-K and will not be deemed incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of
1934.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information
required by Item 403 of Regulation S-K is included in the registrant’s Proxy
Statement under the heading “Common
Stock Ownership,” which
is incorporated herein by reference pursuant to General Instruction
G(3).
Information
required by Item 201(d) of Regulation S-K is provided below:
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2009 concerning shares
of AT&T common stock authorized for issuance under AT&T’s existing
equity compensation plans:
Equity
Compensation Plan Information
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
Equity compensation plans
approved by security holders
|
75,250,858
|
(1)
|
$36.46
|
|
110,172,927
|
(2)
|
Equity
compensation plans not approved by security holders
|
54,042,255
|
(3)
|
$39.07
|
|
0
|
|
Total
|
129,293,113
|
(4)
|
$37.85
|
|
110,172,927
|
|
(1)
|
Includes
the issuance of stock in connection with the following stockholder
approved plans: (a) 38,020,599 stock options under the 1996 Stock and
Incentive Plan, 2001 Incentive Plan, and Stock Purchase and Deferral Plan
(SPDP), (b) 1,575,223 phantom stock units under the Stock Savings Plan
(SSP) and 3,633,282 phantom stock units under the SPDP, and (c) 18,194,742
target number of stock-settled performance shares under the 2006 Incentive
Plan. At payout, the target number of performance shares may be reduced to
zero or increased by up to 150% (452,025 of the performance shares may be
increased by up to 200%). Each phantom stock unit and performance share is
settleable in stock on a 1-to-1 basis. The weighted-average exercise price
in the table does not include outstanding performance shares or phantom
stock units.
|
The SSP
was approved by stockholders in 1994, and was amended by the Board of Directors
in 2000 to increase the number of shares available for purchase under the Plan
(including shares from the company match and reinvested dividend equivalents)
and shares subject to options. Stockholder approval was not required for the
amendment. To the extent applicable, the amount shown for approved plans in
column (a), in addition to the above amounts, includes 4,242,727 phantom stock
units (computed on a first-in-first-out basis) and 9,584,285 stock options that
were approved by the Board in 2000. Under the SSP, shares could be purchased
with payroll deduction and reinvested dividend equivalents by mid-level and
above managers and limited company partial matching contributions. No new
contributions may be made to the Plan. In addition, participants received
approximately 2 options for each share purchased with employee payroll
deductions. The options have a 10-year term and an exercise strike price equal
to the fair market value of the stock on the date of grant.
(2)
|
Includes
14,564,165 shares that may be issued under the SPDP, 68,280,585 shares
that may be issued under the 2006 Incentive Plan, and up to 4,320,234
shares that may be purchased through reinvestment of dividends on phantom
shares held in the SSP.
|
(3)
|
Number
of outstanding stock options under the 1995 Management Stock Option Plan
(1995 MSOP), which has not been approved by stockholders. The
1995 MSOP provides for grants of stock options to management employees
(10-year terms) subject to vesting requirements and shortened exercise
terms upon termination of employment. No further options may be issued
under this plan.
|
(4)
|
Does
not include certain stock options issued by companies acquired by AT&T
that were converted into options to acquire AT&T stock. As of December
31, 2009, there were 76,052,645 shares of AT&T common stock subject to
the converted options, having a weighted-average exercise price of
$35.3764. Also, does not include 186,700 outstanding phantom
stock units that were issued by companies acquired by AT&T that are
convertible into stock on a 1-to-1 basis, along with up to 74,569 shares
that may be purchased with reinvested dividend equivalents (applies only
to 112,012 of the outstanding phantom stock units). These units have no
exercise price. No further phantom stock units, other than reinvested
dividends, may be issued under the assumed plans. The weighted-average
exercise price in the table does not include outstanding performance
shares or phantom stock units.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information
required by Item 404 of Regulation S-K is included in the registrant’s Proxy
Statement under the heading “Related Person Transactions,” which is incorporated
herein by reference pursuant to General Instruction G(3). Information required
by Item 407(a) of Regulation S-K is included in the registrant’s Proxy Statement
under the heading “Independence of Directors,” which is incorporated herein by
reference pursuant to General Instruction G(3).
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information
required by this Item is included in the registrant’s Proxy Statement under the
heading “Principal Accountant Fees and Services,” which is incorporated herein
by reference pursuant to General Instruction G(3).
Part
IV
ITEM
15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as a part of the report:
|
|
|
Page
|
(1)
|
Report of
Independent Registered Public Accounting Firm
|
|
*
|
|
Financial
Statements covered by Report of Independent Registered Public Accounting
Firm:
|
|
|
|
Consolidated
Statements of Income
|
|
*
|
|
Consolidated Balance
Sheets
|
|
*
|
|
Consolidated
Statements of Cash Flows
|
|
*
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
|
*
|
|
Notes to
Consolidated Financial Statements
|
|
*
|
*
|
Incorporated
herein by reference to the appropriate portions of the registrant’s Annual
Report to Stockholders for the fiscal year ended December 31, 2009. (See
Part
II.)
|
|
|
|
Page
|
(2)
|
Financial Statement
Schedules:
|
|
|
|
II - Valuation and Qualifying
Accounts
|
|
22
|
|
Financial
statement schedules other than those listed above have been omitted
because the required information is contained in the financial statements
and notes thereto, or because such schedules are not required or
applicable.
|
|
Exhibits
identified in parentheses below, on file with the SEC, are incorporated
herein by reference as exhibits hereto. Unless otherwise indicated, all
exhibits so incorporated are from File No.
1-8610.
|
Exhibit
Number
|
3-a
|
Restated
Certificate of Incorporation, filed with the Secretary of State of
Delaware on May 1, 2009. (Exhibit 3 to Form 10-Q filed for June 30,
2009.)
|
|
3-b
|
Bylaws
amended December 18, 2009. (Exhibit 3 to Form 8-K dated December 18,
2009.)
|
|
4-a
|
Certificate
of Designations for Perpetual Cumulative Preferred Stock of SBC
Communications Inc., filed with the Secretary of State of the State of
Delaware on November 18, 2005. (Contained in Restated Certificate of
Incorporation filed as Exhibit
3-a.)
|
|
4-b
|
No
instrument which defines the rights of holders of long-term debt of the
registrant and all of its consolidated subsidiaries is filed herewith
pursuant to Regulation S-K, Item 601b)(4)(iii)(A), except for the
instruments referred to in 4-c, 4-d, 4-e, 4-f, 4-g and 4-h
below. Pursuant to this regulation, the registrant hereby agrees to
furnish a copy of any such instrument not filed herewith to the SEC upon
request.
|
|
4-c
|
Guaranty
of certain obligations of Pacific Bell Telephone Co. and SBC
Communications Inc. (Exhibit 4-c to Form 10-K for
2007.)
|
|
4-d
|
Guaranty
of certain obligations of Ameritech Capital Funding Corp., Illinois Bell
Telephone Co., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone
Co., The Ohio Bell Telephone Co., Pacific Bell Telephone Co., Southern New
England Telecommunications Corp., The Southern New England Telephone Co.,
Southwestern Bell Telephone Co., Wisconsin Bell, Inc. (Exhibit 4-c to Form
10-Q for September 30, 2005.)
|
|
4-e
|
Guarantee
of certain obligations of AT&T Corp. (Exhibit 4-e to Form 8-K dated
December 16, 2005.)
|
|
4-f
|
Guarantee
of certain obligations of BellSouth. (Exhibit 4.3 to Form 8-K dated
December 29, 2006.)
|
|
4-g
|
Cingular
Third Supplemental Indenture. (Exhibit 4.1 to Form 8-K dated December 29,
2006.)
|
|
4-h
|
Indenture
dated as of November 1, 1994 between SBC Communications Inc. and The Bank
of New York, as Trustee. (Exhibit 4-h to Form 10-K for
2008.)
|
|
10-a
|
Short
Term Incentive Plan, dated November 18, 2005. (Exhibit 10-a to
Form 10-K for 2008.)
|
|
10-b
|
Supplemental
Life Insurance Plan, amended and restated effective January 1, 2010.
(Exhibit 10-d to Form 10-Q filed for June 30,
2009.)
|
|
10-c
|
Supplemental
Retirement Income Plan, amended and restated December 31,
2008. (Exhibit 10-c to Form 10-K for
2008.)
|
|
10-d
|
Senior
Management Deferred Compensation Plan (effective for Units of
Participation Having a Unit Start Date Prior to January 1,
1988). (Exhibit 10-d to Form 10-K for
2008.)
|
|
10-e
|
Senior
Management Deferred Compensation Program of 1988 (effective for Units of
Participation Having a Unit Start Date of January 1, 1988 or
later). (Exhibit 10-e to Form 10-K for
2008.)
|
|
10-f
|
Officer
Disability Plan, amended and restated effective January 1, 2010. (Exhibit
10-i to Form 10-Q filed for June 30,
2009.)
|
|
10-g
|
Salary
and Incentive Award Deferral Plan, dated December 31, 2004. (Exhibit 10-g
to Form 10-K for 2006.)
|
|
10-h
|
AT&T
Inc. Health Plan, amended and restated effective January 1,
2010. (Exhibit 10-e to Form 10-Q filed for June 30,
2009.)
|
|
10-i
|
Retirement
Plan for Non-Employee Directors. (Exhibit 10-i to Form 10-K for
2007.)
|
|
10-j
|
Form
of Indemnity Agreement, effective July 1, 1986, between SBC (now AT&T
Inc.) and its directors and officers. (Exhibit 10-j to Form 10-K for
2007.)
|
|
10-k
|
Administrative
Plan, amended and restated November 1,
2009.
|
|
10-l
|
Stock
Savings Plan, dated December 31, 2004. (Exhibit 10-l to Form 10-K for
2006.)
|
|
10-m
|
Pacific
Telesis Group Supplemental Cash Balance Plan, amended as of July 1, 1996.
(Exhibit 10-lll to Form 10-K for
2007.)
|
|
10-n
|
1996
Stock and Incentive Plan, dated November 2, 2002. (Exhibit 10-n
to Form 10-K for 2008.)
|
|
10-o
|
Non-Employee
Director Stock and Deferral Plan, amended and restated June 26, 2008.
(Exhibit 10-f to Form 10-Q filed for June 30,
2008.)
|
|
10-p
|
Pacific
Telesis Group Deferred Compensation Plan for Nonemployee Directors.
(Exhibit 10-p to Form 10-K for
2007.)
|
|
10-p(i)
|
Resolutions
amending the Plan, effective November 21, 1997. (Exhibit 10-p(i) to
Form10-K for 2007.)
|
|
10-q
|
Pacific
Telesis Group Outside Directors’ Deferred Stock Unit Plan. (Exhibit 10-q
to Form 10-K for 2007.)
|
|
10-r
|
Pacific
Telesis Group 1996 Directors’ Deferred Compensation Plan. (Exhibit 10-r to
Form 10-K for 2007.)
|
|
10-r(i)
Resolutions amending the Plan, effective November 21, 1997. (Exhibit
10-r(i) to Form 10-K for 2007.)
|
|
10-s
|
Transition
Agreement by and between BellSouth Corporation and Rafael de la Vega,
dated December 29, 2003. (Exhibit 10-s to Form 10-K for
2007.)
|
|
10-t
|
2001
Incentive Plan, dated November 18, 2005. (Exhibit 10-t to Form
10-K for 2008.)
|
|
10-u
|
Pacific
Telesis Group 1996 Executive Deferred Compensation Plan, amended November
20, 2008. (Exhibit 10-u to Form 10-K for
2008.)
|
|
10-v
|
AT&T
Inc. Change in Control Severance Plan, amended and restated effective
January 1, 2010.
|
|
10-w
|
1995
Management Stock Option Plan, dated November 16, 2001. (Exhibit
10-w to Form 10-K for 2008.)
|
|
10-x
|
Non-Employee
Director Stock Purchase Plan, effective June 27, 2008. (Exhibit 10-e to
Form 10-Q filed for June 30, 2008.)
|
|
10-y
|
Communications
Concession Program for Directors, amended and restated November
2009.
|
|
10-z
|
Pacific
Telesis Group Executive Deferral Plan, amended November 20, 2008. (Exhibit
10-z to Form 10-K for 2008.)
|
|
10-aa
|
Five
Year Credit Agreement. (Exhibit 10 to Form 8-K dated July 12,
2006.)
|
|
10-bb
|
Stock
Purchase and Deferral Plan, amended and restated November 19,
2009.
|
|
10-cc
|
Cash
Deferral Plan, amended and restated November 19,
2009.
|
|
10-dd
|
Master
Trust Agreement for AT&T Inc. Deferred Compensation Plans and Other
Executive Benefit Plans and subsequent amendments dated August 1, 1995 and
November 1, 1999.
|
|
10-ee
|
2005
Supplemental Employee Retirement Plan, amended and restated January 1,
2010. (Exhibit 10-a to Form 10-Q filed for June 30,
2009.)
|
|
10-ff
|
AT&T
Corp. 1997 Long Term Incentive Program, dated March 14, 2000. (Exhibit
10-gg to Form 10-K for 2005.)
|
|
10-gg
|
AT&T
Corp. 2004 Long Term Incentive Program. (Exhibit 10-hh to Form 10-K for
2005.)
|
|
10-hh
|
AT&T
Corp. Executive Deferred Compensation Plan (formerly known as AT&T
Corp. Senior Management Incentive Award Deferral Plan), amended and
restated January 1, 2008. (Exhibit 10-hh to Form 10-K for
2008.)
|
|
10-ii
|
2006
Incentive Plan, amended and restated effective through January 28,
2010.
|
|
10-jj
|
Pension
Benefit Makeup Plan #1, amended December 31, 2008. (Exhibit
10-jj to Form 10-K for 2008.)
|
|
10-kk
|
BellSouth
Corporation Executive Incentive Award Deferral Plan, as amended and
restated effective January 1, 2008. (Exhibit 10-kk to Form 10-K for
2007.)
|
|
10-ll
|
BellSouth
Corporation Nonqualified Deferred Compensation Plan, dated January 1,
2005. (Exhibit 10-ll to Form 10-K for
2006.)
|
|
10-mm
|
BellSouth
Officer Compensation Deferral Plan, amended January 1,
2005.
|
|
10-nn
|
BellSouth
Corporation Deferred Compensation Plan for Non-Employee Directors, dated
March 9, 1984. (Exhibit 10-nn to Form 10-K for
2006.)
|
|
10-oo
|
BellSouth
Corporation Director’s Compensation Deferral Plan, as amended and restated
effective as of January 1, 2005. (Exhibit 10-a to Form 10-Q for September
30, 2007.)
|
|
10-pp
|
BellSouth
Corporation Stock Plan, dated April 24, 1995. (Exhibit 10-pp to Form 10-K
for 2006.)
|
|
10-qq
|
BellSouth
Corporation Stock and Incentive Compensation Plan, as amended June 28,
2004.
|
|
10-qq(i)
|
First
Amendment to the BellSouth Corporation Stock and Incentive Compensation
Plan, dated September 26, 2005. (Exhibit 10ii to Form 10-Q for September
30, 2005 of BellSouth Corporation (File No.
1-8607).)
|
|
10-qq(ii)
|
Second
Amendment to BellSouth Corporation Stock and Incentive Compensation Plan,
effective June 26, 2008. (Exhibit 10-qq(ii) to Form 10-K for
2008.)
|
|
10-rr
|
Cingular
Wireless Long Term Compensation Plan, amended and restated effective
November 1, 2007. (Exhibit 10-rr to Form 10-K for
2007.)
|
|
10-ss
|
Master
Trust Agreement for AT&T Corp. Deferred Compensation Plans and Other
Executive Benefit Plans, effective January 13, 1994. (Exhibit 10-ss to
Form 10-K for 2006.)
|
|
10-ss(i)
|
First
Amendment to Master Trust Agreement, effective December 23, 1997. (Exhibit
10-ss(i) to Form 10-K for 2006.)
|
|
10-tt
|
BellSouth
Corporation Non-Employee Director Non-Qualified Stock Option Terms and
Conditions (for options granted under the BellSouth Corporation Stock and
Incentive Compensation Plan).
|
|
10-uu
|
BellSouth
Corporation Amended And Restated Trust Under Board Of Directors Benefit
Plan(s), effective October 11, 2006. (Exhibit 10-u to Form 10-K for
2006.)
|
|
10-vv
|
BellSouth
Non-Employee Directors Charitable Contribution Program, effective February
29, 1992. (Exhibit 10-vv to Form 10-K for
2006.)
|
|
10-vv(i)
|
First
Amendment to the Non-Employee Directors Charitable Contribution Program,
effective January 27, 1997. (Exhibit 10-vv(i) to Form 10-K for
2006.)
|
|
10-vv(ii)
|
Second
Amendment to the Non-Employee Directors Charitable Contribution Program,
effective February 25, 2002. (Exhibit 10-vv(ii) to Form 10-K for
2006.)
|
|
10-ww
|
AT&T
Management Relocation Plan. (Exhibit 10-b to Form 10-Q for June 30,
2007.)
|
|
10-ww(i) Amendment
to AT&T Management Relocation Plan, dated November 20,
2008. (Exhibit 10-ww to Form 10-Q filed for March 31,
2009.)
|
|
10-xx
|
AT&T
Corp, Senior Management Long Term Disability and Survivor Protection Plan,
amended December 31, 2008. (Exhibit 10-xx to Form 10-K for
2008.)
|
|
10-yy
|
Cingular
Wireless Cash Deferral Plan, effective November 1, 2001. (Exhibit 10-yy to
Form 10-K for 2007.)
|
|
10-zz
|
BellSouth
Corporation Supplemental Executive Retirement Plan, amended and
restated effective January 1, 2010. (Exhibit10-gto Form 10-Q filed for
June 30, 2009.)
|
|
10-aaa
|
BellSouth
Supplemental Life Insurance Plan, amended and restated November 1,
2009.
|
|
10-bbb
|
BellSouth
Compensation Deferral Plan, as amended and restated effective January 1,
2005. (Exhibit 10-bbb to Form 10-K for
2007.)
|
|
10-ccc
|
Cingular
Wireless BLS Executive Transition Benefit Plan. (Exhibit 10-ccc to Form
10-K for 2007.)
|
|
10-ddd
|
Cingular
Wireless SBC Executive Transition Benefit Plan. (Exhibit 10-ddd
to Form 10-K for 2007.)
|
|
10-eee
|
BellSouth
Nonqualified Deferred Income Plan, as amended and restated effective
January 1, 2005. (Exhibit 10-eee to Form 10-K for
2008.)
|
|
10-fff
|
AT&T
Mobility 2005 Cash Deferral Plan. (Exhibit 10-fff to Form 10-K for
2007.)
|
|
10-ggg
|
AT&T
Corp. Non-Qualified Pension Plan, as amended and restated effective
December 31, 2008. (Exhibit 10-ggg to Form 10-K for
2008.)
|
|
10-hhh
|
AT&T
Corp. Excess Benefit and Compensation Plan, as amended and restated
effective December 31, 2008. (Exhibit 10-hhh to Form 10-K for
2008.)
|
|
10-iii
|
BellSouth
Split-Dollar Life Insurance Plan, as amended December 31, 2008, and
restated effective January 1, 2005. (Exhibit 10-iii to Form
10-K for 2008.)
|
|
10-jjj
|
Form
of Non-Disclosure and Non-Solicitation
Agreement.
|
|
12
|
Computation
of Ratios of Earnings to Fixed
Charges.
|
|
13
|
Portions
of AT&T’s Annual Report to Stockholders for the fiscal year ended
December 31, 2009. Only the information incorporated by reference into
this Form 10-K is included in the
exhibit.
|
|
21
|
Subsidiaries
of AT&T Inc.
|
|
23
|
Consent
of Ernst & Young LLP, independent registered public
accounting firm for AT&T.
|
31
|
Rule
13a-14(a)/15d-14(a) Certifications
|
31.1
Certification of Principal Executive Officer
31.2
Certification of Principal Financial
Officer
32
|
Section
1350 Certification
|
101 XBRL
Instance Document
We will
furnish to stockholders upon request, and without charge, a copy of the Annual
Report to Stockholders and the Proxy Statement, portions of which are
incorporated by reference in the Form 10-K. We will furnish any other exhibit at
cost.
Schedule
II - Sheet 1
AT&T
INC.
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Allowance
for Doubtful Accounts
Dollars
in Millions
COL.
A
|
|
COL.
B
|
|
|
COL.
C
|
|
|
COL.
D
|
|
|
COL.
E
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
Balance
at Beginning of Period
|
|
|
Charged
to Costs and Expenses (a)
|
|
|
Charged
to Other Accounts (b)
|
|
|
Acquisitions
|
|
|
Deductions
(c)
|
|
Balance
at End of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
2009
|
|
$
|
1,270
|
|
|
|
1,763
|
|
|
|
30
|
|
|
|
2
|
|
|
|
1,860
|
|
|
$
|
1,205
|
|
Year
2008
|
|
$
|
1,364
|
|
|
|
1,796
|
|
|
|
929
|
|
|
|
-
|
|
|
|
2,819
|
|
|
$
|
1,270
|
|
Year
2007
|
|
$
|
1,276
|
|
|
|
1,617
|
|
|
|
366
|
|
|
|
-
|
|
|
|
1,895
|
|
|
$
|
1,364
|
|
___________________
(a)
|
Excludes
direct charges and credits to expense on the consolidated statements of
income and reinvested earnings related to interexchange carrier
receivables.
|
(b)
|
Includes
amounts previously written off which were credited directly to this
account when recovered and amounts related to long-distance carrier
receivables which were billed by
AT&T.
|
(c)
Amounts
written off as uncollectible.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 25
th
day
of February, 2010.
AT&T INC.
/s/
Richard G. Lindner
|
Richard
G. Lindner
Senior
Executive Vice President
and
Chief Financial Officer
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
Principal
Executive Officer:
Randall Stephenson*
Chairman of the Board, Chief
Executive Officer
and President
Principal
Financial and Accounting Officer:
Richard G. Lindner
Senior Executive Vice
President
and Chief Financial
Officer
/s/
Richard G. Lindner
|
Richard
G. Lindner, as attorney-in-fact
and
on his own behalf as Principal
Financial
Officer and Principal
Accounting
Officer
|
February 25, 2010
Directors:
|
|
Randall
L. Stephenson*
|
Jon
C. Madonna*
|
William
F. Aldinger III*
|
Lynn
M. Martin*
|
Gilbert
F. Amelio*
|
John
B. McCoy*
|
Reuben
V. Anderson*
|
Mary
S. Metz*
|
James
H. Blanchard*
|
Joyce
M. Roché*
|
August
A. Busch III*
|
Laura
D’Andrea Tyson*
|
Jaime
Chico Pardo*
|
Patricia
P. Upton*
|
James
P. Kelly*
|
|
|
|
* by
power of attorney
22
ADMINISTRATIVE
PLAN
Effective
November 1, 2009
The
benefits under this Plan are offered by AT&T Inc. (“AT&T”) to persons
who have been identified by AT&T as executive officers under Rule 3b-7 of
the Securities Exchange Act of 1934 (“Executive Officers”).
Administration of
Plan
. The Plan or the benefits hereunder may be modified or
terminated by the Human Resources Committee in its sole discretion at any
time.
Except to
the extent otherwise provided herein, the Vice President responsible for Human
Resources (or the successor to such position) shall be the Administrator of the
Plan and will administer the Plan, interpret, construe and apply its provisions
in accordance with its terms. The Administrator, in his or her sole
discretion, may establish, adopt or revise rules, as he or she may deem
necessary or advisable for the administration of the Plan, including the
allocation or limitation of benefits.
The
Administrator may adopt another plan, not to exceed the benefits included
herein, for the benefit of such other employees or former employees of Employers
as the Administrator may determine in his or her sole discretion, on such terms
and conditions as the Administrator shall determine. The
Administrator may, from time to time, revise the plan solely to increase the
financial limits on benefits, not to exceed the corresponding proportional
increase in the consumer price index from January 1, 2003, through the date
of change.
All
decisions of the Administrator shall be final and binding unless the Board of
Directors or its delegate should determine otherwise.
No Employment
Rights
. Nothing herein shall constitute a contract of
continuing employment or in any manner obligate AT&T or any Executive
Officer to continue the employment relationship of, or obligate an Executive
Officer to continue in the service of AT&T or any Affiliate.
Non-Transferability
. No
recipient of benefits under this Plan nor any other person shall have any right
to sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey any of the benefits hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable.
Notice
. Any
notice required or permitted to be given to the Administrator under the Plan
shall be sufficient if in writing and hand delivered, or sent by certified mail,
to the principal office of AT&T, directed to the attention of the Senior
Executive Vice President-Human Resources. Any notice required or
permitted to be given to any other person shall be sufficient if in writing and
hand delivered, or sent by certified mail, to the person at the person's last
known mailing address as reflected on the records of his or her employing
company. Notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the postmark or on the
receipt for certification.
Validity
. In
the event any provision of this Plan is held invalid, void or unenforceable, the
same shall not affect, in any respect whatsoever, the validity of any other
provision of this plan.
Applicable
Law
. This Plan shall be governed and construed in accordance
with the laws of the State of Texas to the extent not preempted by the Employee
Retirement Income Security Act of 1974, as amended, and regulations thereunder
("ERISA").
Automobile
. Each
Executive Officer may receive the use of a four-door automobile or an automobile
allowance and expenses associated with the operation of the
automobile. The Administrator shall determine the amount of the
allowance for each Executive Officer provided that the allowance shall not
exceed $2,000 per month.
Communications
. Each
Executive Officer may receive reasonable communications services including
local, long distance, DSL, Internet, wireless, satellite television/video and
related equipment.
Financial
Counseling.
Executive Officers may receive income tax
preparation services and financial planning services from a list of designated
providers not to exceed $14,000 per year.
Estate
Planning.
Executive Officers may receive estate planning
documentation services not to exceed $10,000 per year. The Estate
Planning limit restarts in the event of a company-initiated relocation to
another state.
Clubs.
Executive
Officers may receive initiation fees, dues, assessments and other charges for
reasonable memberships as approved by the CEO or the Administrator, in each case
in his or her sole discretion. AT&T does not reimburse for dues, initiation
fees or other expenses incurred in connection with a membership in a club that
discriminates in its membership policies based on race, creed, gender or ethnic
origin. The Administrator shall report annually to the Human
Resources Committee as to the usage of this benefit by the Chief Executive
Officer and to the Chief Executive Officer on the usage by all other Executive
Officers.
Executive
Protection
. Based upon the concern for the security of
Executive Officers, the need to secure their optimum availability for business
purposes and to permit uninterrupted communications between them, the Executive
Officers are authorized to receive home security services, and, whenever
feasible, to use AT&T provided aircraft in connection with business travel
and to use such aircraft for the personal travel of Executive Officers where the
Chief Executive Officer, in his or her sole discretion, deems such use
appropriate because of similar considerations.
Retirement.
Upon
the Retirement of an Executive Officer, he or she may receive up to an
additional amount for financial consulting reasonably in connection with his/her
Retirement, as follows: In any given year, 1. for retirements
occurring from January 1 through June 30 (inclusive), the amount will be $20,000
in the calendar year of retirement; 2. for retirements occurring from July 1
through November 30 (inclusive), the amount will be $10,000 in the calendar year
of retirement and $10,000 in the immediately following calendar year; and 3. For
retirements occurring from December 1 through December 31 (inclusive), the
amount will be $20,000 in the year following retirement. A Retired
Executive Officer shall continue to receive the communications benefits until
death and his or her survivor shall receive the communications benefit for six
(6) billing cycles. After the Retirement of an Executive Officer on
or before December 31, 2009, he or she shall continue to receive the financial
counseling and estate planning benefits until his or her
death. Executive Officers that retire on or after January 1, 2010
shall continue to receive the financial counseling and estate planning benefits
for up to 36 months following retirement or until the end of the year following
the year of death, whichever occurs earlier. After the death of an
Executive Officer or Retired Executive Officer, his or her survivor shall
receive the communications benefit for 6 billing cycles and shall receive the
financial counseling and estate planning benefits for the remainder of the year
of death and the immediately following calendar year. In a Retired
Executive Officer’s final calendar year of eligibility, the Annual Limits shall
be pro-rated on a monthly basis, based on the number of full or partial months
the Retired Executive Officer worked in the calendar year of Retirement divided
by twelve (12).
Loyalty
Conditions.
This
Section applies to Executive Officers who are actively employed on or after
January 1, 2010.
Executive
Officers acknowledge that no coverage and benefits would be provided under this
Plan on and after January 1, 2010 but for the loyalty conditions and covenants
set forth below, and that the conditions and covenants herein are a material
inducement to AT&T’s willingness to sponsor the Plan and to offer Plan
coverage and benefits for the Executive Officers on or after January 1,
2010. Accordingly, as a condition of receiving coverage and any Plan
benefits on or after January 1, 2010, each Executive Officer is deemed to agree
that he shall not, without obtaining the written consent of AT&T in advance,
participate in activities that constitute engaging in competition with AT&T
or engaging in conduct disloyal to AT&T, as those terms are defined in this
Section. Further, notwithstanding any other provision of this Plan,
all coverage and benefits under this Plan on and after January 1, 2010 with
respect to an Executive Officer and his or her Dependents shall be subject in
their entirety to the enforcement provisions below if the Executive Officer,
without the Administrator’s consent participates in an activity that constitutes
engaging in competition with AT&T or engaging in conduct disloyal to
AT&T, as defined below.
Definitions
. For
purposes of this Section and of the Plan generally:
an
“Employer Business” shall mean AT&T, any subsidiary, or any business in
which AT&T or a subsidiary or an affiliated company of AT&T has a
substantial ownership or joint venture interest;
“engaging
in competition with AT&T” shall mean, while employed by an Employer Business
or within two (2) years after the Executive Officer’s termination of
employment, engaging by the Executive Officer in any business or
activity in all or any portion of the same geographical market where the same or
substantially similar business or activity is being carried on by an Employer
Business. “Engaging in competition with AT&T” shall not include
owning a nonsubstantial publicly traded interest as a shareholder in a business
that competes with an Employer Business. “Engaging in competition
with AT&T” shall include representing or providing consulting services to,
or being an employee or director of, any person or entity that is engaged in
competition with any Employer Business or that takes a position adverse to any
Employer Business.
“engaging
in conduct disloyal to AT&T” means, while employed by an Employer Business
or within two (2) years after the Executive Officer’s termination of
employment, (i) soliciting for employment or hire, whether as an employee
or as an independent contractor, for any business in competition with an
Employer Business, any person employed by AT&T or its affiliates during the
one (1) year prior to the termination of the Executive Officer’s
employment, whether or not acceptance of such position would constitute a breach
of such person’s contractual obligations to AT&T and its affiliates;
(ii) soliciting, encouraging, or inducing any vendor or supplier with which
the Executive Officer had business contact on behalf of any Employer Business
during the two (2) years prior to the termination of the Executive
Officer’s employment, for any reason to terminate, discontinue, renegotiate,
reduce, or otherwise cease or modify its relationship with AT&T or its
affiliate; or (iii) soliciting, encouraging, or inducing any customer or
active prospective customer with whom Executive Officer had business contact,
whether in person or by other media, on behalf of any Employer Business during
the two (2) years prior to the termination of Executive Officer’s
employment for any reason (“Customer”), to terminate, discontinue, renegotiate,
reduce, or otherwise cease or modify its relationship with any Employer
Business, or to purchase competing goods or services from a business competing
with any Employer Business, or accepting or servicing business from such
Customer on behalf of himself or any other business. “Engaging in
conduct disloyal to AT&T” also means, disclosing Confidential Information to
any third party or using Confidential Information, other than for an Employer
Business, or failing to return any Confidential Information to the Employer
Business following termination of employment.
“Confidential
Information” shall mean all information belonging to, or otherwise relating to,
an Employer Business, which is not generally known, regardless of the manner in
which it is stored or conveyed to the Executive Officer, and which the Employer
Business has taken reasonable measures under the circumstances to protect from
unauthorized use or disclosure. Confidential Information includes
trade secrets as well as other proprietary knowledge, information, know-how, and
non-public intellectual property rights, including unpublished or pending patent
applications and all related patent rights, formulae, processes, discoveries,
improvements, ideas, conceptions, compilations of data, and data, whether or not
patentable or copyrightable and whether or not it has been conceived,
originated, discovered, or developed in whole or in part by the Executive
Officer. For example, Confidential Information includes, but is not
limited to, information concerning the Employer Business’ business plans,
budgets, operations, products, strategies, marketing, sales, inventions,
designs, costs, legal strategies, finances, employees, customers, prospective
customers, licensees, or licensors; information received from third parties
under confidential conditions; or other valuable financial, commercial,
business, technical or marketing information concerning the Employer Business,
or any of the products or services made, developed or sold by the Employer
Business. Confidential Information does not include information that
(i) was generally known to the public at the time of disclosure; (ii) was
lawfully received by the Executive Officer from a third party; (iii) was known
to the Executive Officer prior to receipt from the Employer Business; or (iv)
was independently developed by the Executive Officer or independent third
parties; in each of the foregoing circumstances, this exception applies only if
such public knowledge or possession by an independent third party was without
breach by the Executive Officer or any third party of any obligation of
confidentiality or non-use, including but not limited to the obligations and
restrictions set forth in this Plan.
Forfeiture of
Benefits.
Coverage and benefits under this Plan shall be
forfeited and shall not be provided under this Plan for any period as to which
the Administrator determines that, within the time period and without the
written consent specified, the Executive Officer has been either engaging in
competition with AT&T or engaging in conduct disloyal to
AT&T.
Equitable
Relief.
The parties recognize that any Executive Officer’s
breach of any of the covenants in this Section will cause irreparable injury to
AT&T, will represent a failure of the consideration under which AT&T (in
its capacity as creator and sponsor of the Plan) agreed to provide the Executive
Officer with the opportunity to receive Plan coverage and benefits, and that
monetary damages would not provide AT&T with an adequate or complete remedy
that would warrant AT&T’s continued sponsorship of the Plan and payment of
Plan benefits for all Executive Officers. Accordingly, in the event
of an Executive Officer’s actual or threatened breach of the covenants herein,
the Administrator, in addition to all other rights and acting as a fiduciary
under ERISA on behalf of all Executive Officers, shall have a fiduciary duty (in
order to assure that AT&T receives fair and promised consideration for its
continued Plan sponsorship and funding) to seek an injunction restraining the
Executive Officer from breaching the covenants in this Section. In
addition, AT&T shall pay for any Plan expenses that the Administrator incurs
hereunder, and shall be entitled to recover from the Executive Officer its
reasonable attorneys’ fees and costs incurred in obtaining such injunctive
remedies. To enforce its repayment rights with respect to an
Executive Officer, the Plan shall have a first priority, equitable lien on all
Plan benefits provided to or for the Executive Officer and his or her
Dependents. In the event the Administrator succeeds in enforcing the
terms of this Article through a written settlement with the Executive Officer or
a court order granting an injunction hereunder, the Executive Officer shall be
entitled to collect Plan benefits prospectively, if the Executive Officer is
otherwise entitled to such benefits, net of any fees and costs assessed pursuant
hereto (which fees and costs shall be paid to AT&T as a repayment on behalf
of the Executive Officer), provided that the Executive Officer complies with
said settlement or injunction.
Uniform
Enforcement.
In recognition of AT&T’s need for nationally
uniform standards for the Plan administration, it is an absolute condition in
consideration of any Executive Officer’s accrual or receipt of benefits under
the Plan after January 1, 2010 that each and all of the following conditions
apply to all Executive Officers and to any benefits that are paid or are payable
under the Plan:
(1)
To the
maximum extent applicable ERISA shall control all issues and controversies
hereunder, and the Administrator shall serve for purposes hereof as a
“fiduciary” of the Plan, and as its “named fiduciary” within the meaning of
ERISA.
(2)
All
litigation between the parties relating to this Article shall occur in federal
court, which shall have exclusive jurisdiction, any such litigation shall be
held in the United States District Court for the Northern District of Texas, and
the only remedies available with respect to the Plan shall be those provided
under ERISA to the extent it is applicable.
(3)
If the
Administrator determines in its sole discretion either (I) that AT&T or its
affiliate that employed the Executive Officer terminated the Executive Officer’s
employment for cause, or (II) that equitable relief enforcing the Executive
Officer’s covenants under this Section is either not reasonably available, not
ordered by a court of competent jurisdiction, or circumvented because the
Executive Officer has sued in state court, or has otherwise sought remedies not
available under ERISA (to the extent applicable), then in any and all of such
instances the Executive Officer shall not be entitled to collect any Plan
benefits, and if any Plan benefits have been paid to the Executive Officer, the
Executive Officer shall immediately repay all Plan benefits to the Plan (which
shall be used to pay Plan administrative expenses or Plan benefits) upon written
demand from the Administrator. Furthermore, the Executive Officer
shall hold AT&T and its affiliates harmless from any loss, expense, or
damage that may arise from any of the conduct described in clauses (I) and (II)
hereof.
Taxes.
Subject
to the foregoing loyalty and enforcement provisions, recipients of benefits
under this Plan who retire on or before December 31, 2009 shall receive an
amount equal to that necessary to offset the Federal, state and local income
taxes, as well as associated employment taxes, of the recipient (including taxes
on tax reimbursements) resulting from the benefits in this Plan, other than (1)
the monthly automobile allowance for Executive Officers; and (2) personal use of
aircraft.
Annual
Limits.
Expenses will be charged against the annual limits for
the calendar year based on the date of the invoice.
Exhibit
10-v
CHANGE
IN CONTROL SEVERANCE PLAN
Effective
January 1, 2007
Amended
through January 1, 2010
AT&T
INC.
CHANGE
IN CONTROL SEVERANCE PLAN
Article
1- Purpose
The
purpose of the AT&T Inc. Change in Control Severance Plan (the “
Plan
”) is to foster the
continuous employment of key management personnel of the Company and its
Subsidiaries and to reinforce and encourage their continued attention and
dedication to their duties in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control (as defined in Section 2) of
the Company, although no such change is now apparent or
contemplated.
Article
2 - Definitions
As used
in this Plan, the following terms shall have the respective meanings set forth
below, and, when the meaning is intended, the initial letter of the word is
capitalized:
“
Base
Salary
” means the Participant’s annual rate of base salary in effect
immediately prior to the occurrence of the circumstance giving rise to the
Participant’s
Termination of Employment
,
or, if greater, the Participant’s annual rate of base salary in effect
immediately prior to the Change in Control.
“
Board
”
means the Board of Directors of the Company and, after a Change in Control, the
“board of directors” of the Ultimate Parent (as defined below under Change in
Control).
“
Bonus
Amount
” means a Participant’s target annual bonus for the fiscal year in
which the
C
hange
in
C
ontrol
occurs or in which Participant’s Date of Termination occurs, whichever is
greater
; provided that, if a target annual bonus
has not been established for the applicable fiscal year, then the target annual
bonus established for the preceding fiscal year shall be substituted in lieu
thereof
.
“
Cause
”
means (i) the willful and continued failure by a Participant to substantially
perform his or her duties with the Company and its Subsidiaries (other than any
such failure resulting from his or her incapacity due to physical or mental
impairment, or any such actual or anticipated failure after the issuance of a
notice of termination by him or her for Good Reason) after a written demand for
substantial performance is delivered to the Participant by the Company which
demand specifically identifies the manner in which the Company believes that he
or she has not substantially performed his or her duties, or (ii) the willful
engaging by a Participant in conduct which is demonstrably and materially
injurious to the Company or any Subsidiary, monetarily or
otherwise. For purposes of this definition, no act, or failure to
act, on a Participant’s part shall be deemed “willful” unless done, or omitted
to be done, by the Participant not in good faith and without reasonable belief
that his or her action or omission was in the best interest of the Company and
its Subsidiaries. Notwithstanding the foregoing, a Participant shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to him or her a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters (3/4) of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice to the Participant and an opportunity for him or her, together
with counsel, to be heard before the Board), finding that in the good faith
opinion of the Board the Participant was guilty of the conduct set forth above
in clauses (i) or (ii) of the first sentence of this definition and specifying
the particulars thereof in detail.
“
Change in
Control
” shall be deemed to have occurred if (i) any “person” (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the shareowners of
the Company in substantially the same proportions as their ownership of stock of
the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the total voting power represented
by the Company’s then outstanding voting securities, or (ii) during any period
of two (2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors and any new Director whose election by the
Board of Directors or nomination for election by the Company’s shareowners was
approved by a vote of at least two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the consummation of a merger
or consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation (such post-merger
surviving entity the
"Ultimate
Parent"
), or the shareowners of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company’s assets.
“
Committee
”
means the Human Resources Committee of the Board.
“
Company
”
means AT&T Inc.
“
Date of
Termination
” means the
date
of
the
Participant's
Termination of Employment
with the Company and
its Subsidiaries as determined under Section 4.1 of the Plan.
“
Disability
”
has the meaning ascribed under the relevant Employer’s long-term disability
plan.
“
Employee”
means any person employed as an employee by an Employer and paid on an
Employer’s employee payroll system, excluding persons hired for a fixed maximum
term and excluding persons who are neither citizens nor permanent residents of
the United States, all as determined by the Employer. For purposes of
this Plan, a person on a Leave of Absence who otherwise would be an Employee
shall be deemed to be an Employee.
“
Employer
”
means the Company or any of its Subsidiaries
provided that, if an entity ceases to be a Subsidiary
during the Termination Period, such entity shall continue to be an Employer and
the Employee shall continue to be a Participant until the second anniversary of
the Change in Control and, notwithstanding any other provision to the contrary,
any benefits under the Plan shall be paid or provided by the
Company.
“
Exchange
Act
” means the Securities Exchange Act of 1934.
“
Executive
Officer
” means a person who has been identified by the Company as an
executive officer under Rule 3b-7 of the Securities Exchange Act of 1934 prior
to a Change in Control.
“
Good
Reason
” means, without the Participant’s express written consent, the
occurrence of any of the following events after a Change in
Control: (i) the assignment to the Participant of any duties
inconsistent with his or her title(s) or status immediately prior to the Change
in Control, or a substantial adverse alteration in the nature or status of his
or her responsibilities from those in effect immediately prior to the Change in
Control; (ii) a reduction in the Participant’s annual base salary, target
short-term or long term incentive award opportunity (including any current
payments that may be made thereunder, such as the payment of dividend
equivalents) as in effect immediately prior to the Change in Control, except for
across-the-board salary reductions similarly affecting all officers of the
Company and its Subsidiaries and all managers in equivalent positions of any
person in control of the Company; (iii) the failure to pay to the Participant
any portion of his or her current compensation or deferred compensation under
any compensation or benefit program within seven (7) days of the date such
payment is due; (iv) the failure to continue to provide the
Participant with benefits substantially similar to those enjoyed by him or her
under the pension, life insurance, medical, health, accident and disability
plans, or any fringe benefit material to the Participant that he or
she was eligible for at the time of the Change in Control; the direct or
indirect material reduction in any of such benefits; or the failure to provide
the Participant with the number of paid vacation days to which he or she is
entitled on the basis of his or her duration of service with the Company and its
Subsidiaries, in accordance with the Employer's normal vacation policy in effect
immediately prior to the Change in Control; (v) the failure to obtain a
satisfactory agreement from any successor to assume and agree to perform this
Plan, as contemplated in Article 7; or (vi) any purported termination of the
Participant’s employment after a Change in Control which is not effected
pursuant to a notice of termination satisfying the requirements of Sections 4.1
and 8.1 (for purposes of this Plan, no such purported termination shall be
effective); provided, however, that a good faith determination within ninety
(90) days of the occurrence of a Change in Control by a Participant who is the
Chief Executive Officer of the Company (the “CEO”) or who was an Executive
Officer on January 1, 1990 that, as a result of such Change in Control, he or
she is not able to discharge his or her duties effectively shall constitute Good
Reason.
An
isolated, insubstantial and inadvertent action taken in good faith implicating
clauses (i), (iv), (v) or (vi) of this definition which is fully corrected by
the Company prior to the Date of Termination specified in the notice of
termination shall not constitute Good Reason. A Participant’s right
to terminate his or her employment for Good Reason shall not be affected by his
or her incapacity due to physical or mental impairment. A
Participant’s continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason
hereunder.
“
Leave of
Absence
”
shall mean when a
Participant is absent from employment with an Employer on a leave of absence
military leave, or sick leave, where
the
leave
is
given
in order to prevent a break in the
continuity of term of employment,
and
permission
for such leave
is granted (and
not revoked) in conformity with the rules of the Employer that employs the
individual, as adopted from time to time
and the
Employee is reasonably expected to return to service. Except as set
forth below, the leave shall not exceed six (6) months for purposes of this
Plan, and the Employee shall incur a Termination of Employment upon cessation of
such leave if the Employee does not return to work prior to that time, unless
the individual retains a right to reemployment under law or by
contract. A twenty-nine (29) month limitation shall apply in lieu of
such six (6) month limitation if the leave is due to the Employee being
"disabled" (within the meaning of Treasury Regulation §1.409A-3(i)(4)), and the
Employee shall incur a Termination of Employment upon cessation of such
leave. A Leave of Absence shall not commence or shall be deemed to
cease under the Plan where the Employee has incurred a Termination of
Employment
. For purposes of this Plan, a Leave of Absence
shall be deemed to also include a transfer by an Employer of a person to, and
continuous employment by, an entity for a rotational work
assignment. To be a rotational work assignment, the Employer must
have indicated in writing to the person that the person was to be rehired by the
Employer upon
the earlier of the
termination of the rotational
work
assignment and the end of the six month period commencing on the first day of
such potential
work assignment.
“
Officer
Level Employee
” means any Executive Officer and any Employee who is an
“officer level” Employee for compensation purposes as shown on the records of
the Company and its Subsidiaries.
“
Participant
”
means the CEO, each Officer Level Employee who ha
d
in effect on September 28, 2006 a Severance Benefits – Change in Control
Agreement with the Company, and each other Officer Level Employee (i) who is
designated from time to time in writing by the CEO and (ii) whose designation is
evidenced in writing by a notification of participation to the Employee signed
by the CEO. A person shall cease to be a Participant upon (a) the
Participant’s Termination of Employment prior to a Potential Change in Control
or (b) the Board, the Committee or the CEO determining, in their sole
discretion, that the person shall cease to qualify for benefits under this Plan
(but any such determination made in respect of a Participant shall be considered
an amendment of the Plan adverse to the interests of the affected Participant
and is subject to the provisions of Section 8.5). Notwithstanding the
foregoing, only the Committee shall have the authority to exclude from
participation or take any other action with respect to Executive
Officers.
“
Potential
Change in Control
” shall be deemed to have occurred if (i) the Company
enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control or (ii) the Board adopts a
resolution to the effect that, for purposes of this Plan, a potential change in
control of the Company has occurred.
“
Qualifying
Termination
” means a Participant’s Termination of Employment during the
Termination Period (i) by the
Employer
other than for Cause or (ii) by the Participant for Good
Reason. Termination of Employment on account of death, Disability or
Retirement shall not be treated as a Qualifying Termination.
“
Retirement
”
means the Participant’s mandatory retirement in accordance with the Employer’s
mandatory retirement age policy, if any, for officers
as in effect immediately
prior to a Change
in Control or in accordance with any retirement arrangement established with the
Participant’s consent with respect to him or her; provided, however, that a
Participant's termination for Good Reason shall not constitute
Retirement.
“
Specified
Employee
” means any Participant who is a
“Key Employee” (as defined in Code Section 416(i) without regard to paragraph
(5) thereof), as determined by the Company in accordance with its uniform policy
with respect to all arrangements subject to Code Section 409A, based upon the
twelve (12) month period ending on each December 31st (such twelve (12) month
period is referred to below as the “identification period”). All
Participants who are determined to be key employees under Code Section 416(i)
(without regard to paragraph (5) thereof) during the identification period shall
be treated as Specified Employees for purposes of the Plan during the twelve
(12) month period that begins on the first day of the 4th month following the
close of such identification period.
“
Subsidiary
”
means any corporation, partnership, venture or other entity in which the Company
holds, directly or indirectly, a fifty percent (50%) or greater ownership
interest. The Committee may, at its sole discretion, designate, on
such terms and conditions as the Committee shall determine, any other
corporation, partnership, limited liability company, venture or other entity a
Subsidiary for purposes of this Plan.
“
Termination
of Employment
” means the event where the
Participant has a “separation from service,” as defined
under Section 409A, with
the Employer.
“
Termination
Period
” means the period of time beginning with a Change in Control and
ending on the second anniversary of such Change in Control.
Article
3 - Effectiveness of the Plan
This Plan
shall be effective as of January 1, 2007. Nothing in this Plan shall
be deemed to entitle any Participant to continued employment with any Employer,
and if a Participant's employment with any Employer terminates prior to a Change
in Control, the Participant shall have no rights under this Plan (except in the
case of a Qualifying Termination).
Article
4 - Payments Upon a Qualifying Termination
4.1
Termination of
Employment
.
(a)
Notice of
Termination.
Any purported termination of a Participant’s
employment during the Termination Period by an Employer or by a Participant
shall be communicated by written notice of termination to the other party in
accordance with this Section 4.1 and Section 8.1 (regarding
notices). For purposes of this Plan, a “notice of termination” shall
mean a notice which shall indicate the specific termination provision in this
Plan relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the Participant’s Termination of
Employment under the provision so indicated. The failure by the
Participant or the Employer to set forth in such notice any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Participant or the Employer hereunder or preclude the Participant or the
Employer from asserting such fact or circumstance in enforcing the Participant’s
or the Employer’s rights hereunder.
(b)
Date of
Termination
. If a Participant has a Qualifying Termination,
the Date of Termination shall be the date specified in the notice of termination
(which, in the case of a termination other than for Cause or a termination for
Good Reason shall not be less than fifteen (15) nor more than sixty (60) days
from the date such notice is given). If a Participant's Termination
of Employment is for Cause, the Date of Termination shall not be less than
thirty (30) days from the date notice is given. In the event of a
dispute arising out of the Participant’s Termination of Employment, the Date of
Termination will be determined in accordance with Section 4.1(c).
(c)
Disputes
Involving Termination.
If within fifteen (15) days after any
notice of termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this provision), the party receiving such
notice of termination notifies the other party that a dispute exists concerning
whether the termination is a Qualifying Termination or for Cause, the Date of
Termination
for purposes of Section 4.2
hereof
shall be the date on which the dispute is finally resolved either
by mutual written agreement of the parties, or by a final judgment, order or
decree of a court of competent jurisdiction (which is not appealable or with
respect to which the time for appeal therefrom has expired and no appeal has
been perfected); provided, however, that if the dispute is not resolved prior to
the end of the Termination Period, the Termination Period shall be extended so
as not to deprive the Participant of the benefits under Section 4.2 in respect
of such termination;
provided
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
During the
pendency of any such dispute
(the “Dispute
Period”), subject to Section 6.1,
the Employer will
(i)
continue to pay the Participant his or her
full
Base Salary in accordance with the Company’s
payroll practice in effect from time to time (provided that the amount paid in
any calendar year shall be equal to the Participant’s annual rate of Base Salary
or a proportionate fraction thereof with respect to portions of calendar years
during the Dispute Period (other than amounts that are required to be paid in a
subsequent calendar year pursuant to Section 6.1)), and (ii)
continue the
Participant as a participant in all
Health
Benefits as described in Section 4.2(c) of the Plan (subject to Section 6.2 of
the Plan) on the same basis as provided under Section 4.2(c).
Amounts
paid under this provision are in addition to all other amounts due under this
Plan and shall not be offset against or reduce any other amounts due under this
Plan.
4.2
Severance
Payments
.
If the
Participant has a Qualifying Termination, then the Company shall
or
shall cause the Employer to provide to the Participant:
(a)
his or
her full base salary through the Date of Termination at the rate in effect at
the time notice of termination is given, plus all other amounts to which he or
she is entitled under any compensation plan in effect immediately prior to the
Change in Control, at the time such payments are due; provided that,
subject to the Participant’s execution of (and not
revoking) a Release in the form attached to this Plan as Schedule A (the
“
Release
”)
for purposes of determining the amount to
which a Participant is entitled under the Financial Counseling Program, he or
she shall be regarded as having retired under the terms of the program;
and
(b)
subject to
the Participant
’s execution
of
(and not revoking) a
Release, a lump sum cash
payment equal to the result of multiplying (i) the sum of (A) the Participant’s
Base Salary, plus (B) the Participant’s Bonus Amount by (ii) 2.99; provided,
however, that if the amount of such payment cannot be finally determined on or
before such day, the Participant shall be paid an estimate, as determined in
good faith by the Company of the minimum amount of such payment and the
remainder of such payment (together with interest at the rate provided in
section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the
“
Code
”)) as soon as the
amount thereof can be determined; provided further that, in the event that the
amount of the estimated payment exceeds the amount subsequently determined to
have been due, such excess shall
be reimbursed
by
the Participant, payable on the fifth (5
th
) day
after demand by the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code); and
(c)
subject to the Participant’s execution of (and not
revoking) a Release,
if the Participant is not otherwise entitled to such
benefits at no cost to him or her pursuant to the terms of such plans,
subject to section 6.2 of the Plan,
for a thirty
six (36) month period from the Date of Termination or until December 31 of the
year in which the Participant reaches age sixty-five (65), whichever is the
shorter period (the “
Benefit
Period
”), life, health and dental benefits (including
spouse and
dependent coverage)
(“Health Benefits”)
substantially similar to
those that he or she was
receiving
immediately prior to the Date of Termination and such benefits shall be provided
at no cost to the Participant
(or spouse and
dependents)
. Notwithstanding the foregoing, the Participant
shall not be provided any
Health Benefit
pursuant to this Section 4(c) if an equivalent benefit is actually received by
the Participant during the Benefit Period
from
another Employer
following his or her Date of Termination and any such
Health Benefit
actually received by the
Participant shall be reported by the Participant to the Company;
and
(d)
subject to the Participant’s execution of (and not
revoking) a Release,
if the Participant is subject to any excise tax
imposed under Section 4999 of the Code (the “
Excise
Tax
”) by reason of the Change in Control and the prior deferral of income
(whether or not the Participant has a Qualifying Termination), then the Company
shall pay to the Participant an amount as specified in Schedule B.
(e)
Except as
otherwise expressly provided pursuant to this Plan, this Plan shall be construed
and administered in a manner which avoids duplication of compensation and
benefits which may be provided under any other plan, program, policy, or other
arrangement or individual contract. In the event a Participant is
covered by any other plan, program, policy, individually negotiated agreement or
other arrangement, in effect as of his or her Date of Termination, that may
duplicate the payments and benefits provided for in this Article 4, the Company
may reduce or eliminate the duplicative benefits provided for under the Plan
but solely to the extent such reduction or
elimination does not cause the Participant to be subject to penalty
taxes under Section 409A.
(f)
This Plan
does not abrogate any of the usual entitlements which a Participant has or will
have, first, while a regular employee, and subsequently, after termination, and
thus a Participant shall be entitled to receive all benefits payable to him or
her under each and every qualified plan, welfare plan and any other plan or
program relating to benefits and deriving from his or her employment with the
Company and it Subsidiaries, but solely in accordance with the terms and
provisions thereof.
Article 5
-
Withholding Taxes
The
Company and its Subsidiaries may withhold from all payments due to the
Participant (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, is required to be
withheld.
Article
6 - Certain Additional Agreements under Section 409A
6.1
Delay of
Payment
.
In the event
that a
payment
to be made pursuant to Sections 4.1(c), 4.2(b) or
Schedule B or any other
amounts under this Plan
that constitutes
non-qualified deferred
compensation under Section 409A of the Code ("
Section 409A
")
is to be made to a “Specified Employee,”
such
payment will be delayed for six (6) months after the Date of Termination if
required in order to avoid additional tax under Section 409A
and paid in a single lump sum on the first business day
of the month following the end of such six (6) month
period
. If a Participant
who is
a Specified Employee
dies within six (6) months following such
T
ermination of
E
mployment, any such delayed payments shall not
be further delayed, and shall be immediately payable
within thirty (30) days
to his or her estate in
accordance with the applicable provisions of this Plan.
6.2
Health
Benefits
. Health Benefits shall
be provided in such a manner that such benefits (and the costs and premiums
thereof) are excluded from the Participant’s income for federal income tax
purposes and, if the Company reasonably determines that providing continued
coverage under one or more of its health care benefit plans contemplated herein
could be taxable to the Participant, the Company shall provide such benefits at
the level required hereby through the purchase of individual insurance
coverage.
6.3
Cash Payments
.
The Company shall use its best efforts to pay, or shall
use its best efforts to cause the Employer to pay, to the Participant the cash
lump sum described in Section 4.2(b) within eight (8) days following
the execution by the Participant of the Release (subject to the Participant not
revoking such Release); provided, however, that in no event shall such payment
be made later than the later of (i) the date provided in Section 6.1, if
applicable, and (ii) the end of the ninety (90) day period commencing with the
Date of Termination
.
6.4
No
Adverse Action
.
No Employer will
take any action that would expose any payment or benefit to a Participant under
this Plan to the additional tax imposed under Section 409A unless (i) the
Employer is obligated to take the action under an agreement, plan or
arrangement, (ii) a Participant requests the action, (iii) the Employer advises
such Participant in writing that the action may result in the imposition of the
additional tax and (iv) such Participant subsequently requests the action in a
writing that acknowledges that he or she will be responsible for any effect of
the action under Section 409A.
Article
7 - Successors; Binding Agreement
7.1
The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to unconditionally assume all of the obligations of
the
Employer
hereunder. Failure
of the Company to obtain such assumption prior to the effectiveness of any such
succession shall constitute Good Reason hereunder and shall entitle the
Participants to compensation and other benefits in the same amount and on the
same terms as the Participants would be entitled hereunder if they had a
Qualifying Termination, except that for purposes of implementing the foregoing,
the date on which any succession becomes effective shall be deemed the Date of
Termination.
7.2
The
benefits provided under this Plan shall inure to the benefit of and be
enforceable by the Participant’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If the Participant shall die while any amounts would be
payable to the Participant hereunder had the Participant continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Plan to such person or persons appointed in writing by the
Participant to receive such amounts or, if no person is so appointed, to the
Participant’s estate.
Article 8 -
Miscellaneous
8.1
Elections and
Notices
.
Notwithstanding
anything to the contrary contained in this Plan, all elections and notices of
every kind under this Plan shall be made on forms prepared by the Company or its
General Counsel, Secretary or Assistant Secretary, or their respective delegates
or shall be made in such other manner as permitted or required by the Company or
its General Counsel, Secretary or Assistant Secretary, or their respective
delegates, including through electronic means, over the Internet or
otherwise. An election shall be deemed made when received by the
Company (or its designated agent, but only in cases where the designated agent
has been appointed for the purpose of receiving such election), which may waive
any defects in form.
If not
otherwise specified by this Plan or the Company, any notice or filing required
or permitted to be given to the Company under the Plan shall be delivered to the
principal office of the Company, directed to the attention of the Senior
Executive Vice President in charge of Human Resources for the Company or his or
her successor. Such notice shall be deemed given on the date of
delivery.
Notice to
the Participant shall be deemed given when mailed (or sent by telecopy) to the
Participant’s work or home address as shown on the records of the Employer or,
at the option of the Company, to the Participant’s e-mail address as shown on
the records of the Employer. It is the Participant’s responsibility
to ensure that the Participant’s addresses are kept up to date on the records of
the Employer. In the case of notices affecting multiple Participants,
the notices may be given by general distribution at the Participants’ work
locations.
8.2
No Mitigation; Resolution of
Disputes and Costs
.
(a)
In no
event shall the Participant be obligated to seek other employment or take other
action by way of mitigation of the amounts payable to the Participant under any
of the provisions of this Plan and, except as provided in Section 4.2(c), such
amounts shall not be reduced whether or not the Participant obtains other
employment.
(b)
Participants
may submit claims for benefits by giving notice to the Company pursuant to
Section 8.1. If a Participant believes that he or she has not
received coverage or benefits to which he or she is entitled under the Plan, the
Participant may notify the Company in writing of a claim for coverage or
benefits. If the claim for coverage or benefits is denied in whole or
in part, the Company shall notify the applicant in writing of such denial within
thirty (30) days (which may be extended to sixty (60) days under special
circumstances), with such notice setting forth: (i) the specific reasons for the
denial; (ii) the Plan provisions upon which the denial is based; (iii) any
additional material or information necessary for the applicant to perfect his or
her claim; and (iv) the procedures for requesting a review of the
denial. Upon a denial of a claim by the Company, the Participant
may: (i) request a review of the denial by the Board or, where review
authority has been so delegated, by such other person or entity as may be
designated by the Board for this purpose; (ii) review any Plan documents
relevant to his or her claim; and (iii) submit issues and comments to the Board
or its delegate that are relevant to the review. Any request for
review must be made in writing and received by the Board or its delegate within
sixty (60) days of the date the applicant received notice of the initial denial,
unless special circumstances require an extension of time for
processing. The Board or its delegate will make a written ruling on
the applicant’s request for review setting forth the reasons for the decision
and the Plan provisions upon which the denial, if appropriate, is
based. This written ruling shall be made within thirty (30) days of
the date the Board or its delegate receives the applicant’s request for review
unless special circumstances require an extension of time for processing, in
which case a decision will be rendered as soon as possible, but not later than
sixty (60) days after receipt of the request for review. All
extensions of time permitted by this Section 18 will be permitted at the sole
discretion of the Board or its delegate. If the Board does not
provide the Participant with written notice of the denial of his or her appeal,
the Participant’s claim shall be deemed denied.
(c)
Notwithstanding
anything in this Plan to the contrary, any court, tribunal or arbitration panel
that adjudicates any dispute, controversy or claim arising between a Participant
and any Employer, or any of their delegates or successors, in respect of a
Participant’s Qualifying Termination, will apply a
de
novo
standard of
review to any determinations made by such person. Such
de
novo
standard shall
apply notwithstanding the grant of full discretion hereunder to any such person
or characterization of any such decision by such person as final, binding or
conclusive on any party.
(d)
If any
contest or dispute shall arise under this Plan involving a Participant’s
Termination of Employment or involving the failure or refusal of any Employer to
perform fully in accordance with the terms hereof, the Company shall or shall
cause the Employer to reimburse the Participant on a current basis for all
reasonable legal fees and related expenses, if any, incurred by the
Participant
at any time from the Effective
Date of this Plan through the Participant’s remaining lifetime (or, if longer,
through the 20th anniversary of the Change in Control)
in connection with such
contest or dispute (regardless of the result thereof), together with interest at
the rate provided in section 1274(b)(2)(B) of the Code, such interest to accrue
thirty (30) days from the date the Company receives the Participant’s statement
for such fees and expenses through the date of payment thereof, regardless of
whether or not the Participant’s claim is upheld by a court of competent
jurisdiction or an arbitration panel;
provided
,
however
, that the
Participant shall be required to repay immediately any such amounts to the
Employer
to the extent that a court or an
arbitration panel issues a final and non-appealable order setting forth the
determination that the position taken by the Participant was frivolous or
advanced by the Participant in bad faith
.
To comply with Section 409A, in no event shall the
payments by the Employer under this Section 8.2(d) be made later than the end of
the calendar year next following the calendar year in which such fees and
expenses were incurred, provided, that the Participant shall have submitted an
invoice for such fees and expenses at least ten (10) days before the end of the
calendar year next following the calendar year in which such fees and expenses
were incurred. The amount of such legal fees and expenses that the
Employer is obligated to pay in any given calendar year shall not affect the
legal fees and expenses that the Employer is obligated to pay in any other
calendar year, and the Participant’s right to have the Employer pay such legal
fees and expenses may not be liquidated or exchanged for any other
benefit.
8.3
Survival
.
The respective
obligations and benefits afforded to the Company and the Participant as provided
in Articles 4 (to the extent that payments or benefits are owed as a result of a
Qualifying Termination that occurs during the term of this Plan), 5, 6, 7 and 8
shall survive the termination of this Plan.
8.4
Governing Law;
Validity.
To the
extent not preempted by Federal law, the Plan, and all benefits and agreements
hereunder, and any and all disputes in connection therewith, shall be governed
by and construed in accordance with the substantive laws of the State of
Delaware, without regard to conflict or choice of law principles which might
otherwise refer the construction, interpretation or enforceability of this Plan
to the substantive law of another jurisdiction.
8.5
Amendment
and Termination
.
The Board or the
Committee may amend (and, by amendment, terminate) this Plan at any time;
provided
,
however
, that (i) no amendment that reduces or
eliminates any benefit or other entitlement of any Participant or that is
otherwise adverse to the interests of a Participant (an “
Adverse Amendment
”) may take
effect prior to the beginning of any calendar year
,
and any such amendment shall be void and of no effect
,
unless the Participant was notified of such amendment by September 30 of the
prior year, (ii) no Adverse Amendment may be adopted during the period of time
beginning on a Potential Change in Control and ending on the earlier of (a) the
termination of the agreement that constituted the Potential Change in Control
and (b) the second
anniversary of the
resulting Change in Control, without the Participant’s written consent, and
(iii) no Adverse Amendment may be adopted during the period commencing on a
Change in Control and ending on the second anniversary of the Change in Control
without the Participant’s written consent.
The
restrictions on amendments set forth in the prior sentence shall not apply to
any amendment adopted within the period specified in clauses (ii) or (iii),
above, if the following three conditions are satisfied: (1) the amendments do
not take effect until the expiration of the periods, as applicable, set forth in
such clauses, (2) each adversely affected Participant receives written notice of
the adoption of such amendments within ten (10) days of such adoption and (3)
such written notice is provided at least ninety (90) days prior to such
amendments taking effect.
8.6
Interpretation
and Administration
.
The Plan shall be
administered by the Board. The Board may delegate any of its powers
under the Plan to a committee thereof or prior to a Change in Control, to the
CEO. Unless otherwise provided in this Plan, actions of the Board or
such committee shall be taken by a majority vote of its members. All
references to the “Board” herein shall be deemed to be references to such
delegate, as appropriate. The Board shall have the authority (i) to
exercise all of the powers granted to it under the Plan, (ii) to construe,
interpret and implement the Plan, (iii) to prescribe, amend and rescind rules
and regulations relating to the Plan, (iv) to make all determinations necessary
or advisable in administration of the Plan and (v) to correct any defect, supply
any omission and reconcile any inconsistency in the Plan.
8.7
Type of
Plan
.
This Plan is
intended to be, and shall be interpreted as an unfunded employee welfare plan
under Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) and Section 2520.104-24 of the Department of Labor
Regulations, maintained primarily for the purpose of providing employee welfare
benefits, to the extent that it provides welfare benefits, and under Sections
201, 301 and 401 of ERISA, as a plan that is unfunded and maintained primarily
for the purpose of providing deferred compensation, to the extent that it
provides such compensation, in each case for a select group of management or
highly compensated employees.
8.8
Nonassignability
.
Benefits under
the Plan may not be sold, assigned, transferred, pledged, anticipated,
mortgaged, or otherwise encumbered, transferred, hypothecated, or conveyed in
advance of actual receipt of the amounts, if any, payable hereunder, or any part
thereof by the Participant.
Schedule
A
RELEASE
AND WAIVER
I,
________________, hereby fully waive and forever release and discharge Company,
AT&T, any and all other subsidiaries of Company and of AT&T, their
officers, directors, agents, servants, employees, successors and assigns and any
and all employee benefit plans maintained by AT&T or any subsidiary thereof
and/or any and all fiduciaries of any such plan from any and all common law
and/or statutory claims, causes of action or suits of any kind whatsoever
arising from or in connection with my past employment by Company (and any
AT&T subsidiary to the extent applicable) and/or my separation therefrom,
including but not limited to claims, actions, causes of action or suits of any
kind allegedly arising under the Employee Retirement Income Security Act
(ERISA), as amended, 29 USC §§ 1001 et seq.; the Rehabilitation Act of 1973, as
amended, 29 USC §§ 701 et seq.; the Civil Rights Acts of 1866 and 1870, as
amended, 42 USC §§ 1981, 1982 and 1988; the Civil Rights Act of 1871, as
amended, 42 USC §§ 1983 and 1985; the Civil Rights Act of 1964, as amended, 42
USC § 2000d et seq.; the Americans With Disabilities Act, as amended, 42 USC §§
12101 et seq., and the Age Discrimination in Employment Act of 1967 (ADEA), as
amended, 29 USC §§ 621 et seq., known and unknown. In addition, I, ___________,
agree not to file any lawsuit or other claim seeking monetary damage or other
relief in any state or federal court or with any administrative agency against
any of the aforementioned parties in connection with or relating to any of the
aforementioned matters. Provided, however, by executing this Release and Waiver,
I, ________________, do not waive rights or claims that may arise after the date
of execution; provided further, however, this Release and Waiver shall not
affect my right to receive or enforce through litigation, any indemnification
rights to which I am entitled as a result of my past employment by the Company
or contract rights pursuant to the Agreement and Release and Waiver of Claims
entered into contemporaneously herewith and, if applicable, any subsidiary of
AT&T; and, provided further, this Release and Waiver shall not affect the
ordinary distribution of benefits/entitlements, if any, to which I am entitled
upon termination from Company; it being understood by me that said
benefits/entitlements, if any, will be subject to and provided in accordance
with the terms and conditions of their respective governing plan and this
Agreement.
Schedule
B
Additional Reimbursement
Payments by the Company
(a) Pursuant
to Section 4.2(d) of the Plan, in the event it shall be determined that any
payment, award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company (or any of its affiliated
entities) or any entity which effectuates a Change in Control (or any of its
affiliated entities) to or for the benefit of the Participant (whether pursuant
to the terms of this Plan or otherwise, but determined without regard to any
additional payments required under this Schedule B) (the “
Payments
”)
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the “
Code
”),
or any interest or penalties are incurred by the Participant with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the “
Excise
Tax
”), then the Company shall
remit to the
Internal Revenue Service or any other applicable taxing authority
an
additional payment (a “
Reimbursement
Payment
”) in an amount such that after payment by the Participant of all
taxes (including any Excise Tax) imposed upon the Reimbursement Payment, the
Participant retains an amount of the Reimbursement Payment equal to the Excise
Tax imposed upon the Payments; provided, however, that the Company shall have
the obligation to make a Reimbursement Payment only to the extent the
Participant is subject to the Excise Tax by virtue of the reduction of his or
her “base amount” (as defined in Section 280G(b)(3) of the Code) by reason of
his or her election to defer a portion of his or her compensation payable during
the applicable period (such Excise Tax, a “
Qualifying Excise
Tax
”). For purposes of determining the amount of the
Reimbursement Payment, the Participant shall be deemed to (i) pay federal income
taxes at the highest marginal rates of federal income taxation for the calendar
year in which the Reimbursement Payment is to be made and (ii) pay applicable
state and local income taxes at the highest marginal rate of taxation for the
calendar year in which the Reimbursement Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes.
(b) Subject
to the provisions of Paragraph (a), all determinations required to be made under
this Schedule B, including whether and when a Reimbursement Payment is required,
the amount of such Reimbursement Payment, the amount of any Option
Redetermination (as defined below), and the assumptions to be utilized in
arriving at such determinations, shall be made by a public accounting firm that
is retained by the Company as of the date immediately prior to the Change in
Control (the “
Accounting
Firm
”) which shall provide detailed supporting calculations both to the
Company and the Participant within fifteen (15) business days of the receipt of
notice from the Company or the Participant that there has been a Payment, or
such earlier time as is requested by the Company (collectively, the “
Determination
”). For
the avoidance of doubt, the Accounting Firm may use the Option Redetermination
amount in determining the reduction of the Payments to the Safe Harbor
Cap. Notwithstanding the foregoing, in the event (i) the Board shall
determine prior to the Change in Control that the Accounting Firm is precluded
from performing such services under applicable auditor independence rules or
(ii) the Audit Committee of the Board determines that it does not want the
Accounting Firm to perform such services because of auditor independence
concerns or (iii) the Accounting Firm is serving as accountant or auditor for
the person(s) effecting the Change in Control, the Board shall appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company, and the Company shall enter into any agreement
reasonably requested by the Accounting Firm in connection with the performance
of the services hereunder. The Reimbursement Payment under this
Schedule B with respect to any Payments shall be made no later than thirty (30)
days following such Payment. If the Accounting Firm determines that
no Qualifying Excise Tax is payable by a Participant, it shall furnish the
Participant with a written opinion to such effect, and to the effect that
failure to report the Qualifying Excise Tax, if any, on the Participant’s
applicable federal income tax return will not result in the imposition of a
negligence or similar penalty. The Determination by the Accounting
Firm shall be binding upon the Company and the Participant.
As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Reimbursement Payments which will
not have been made by the Company should have been made (“
Underpayment
”)
or Reimbursement Payments are made by the Company which should not have been
made (“
Overpayment
”),
consistent with the calculations required to be made hereunder. In
the event the amount of the Reimbursement Payment is less than the amount
necessary to reimburse the Participant for the
Qualifying Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Code) shall be promptly
remitted to the Internal Revenue Service or any other
applicable taxing authority an additional payment (
to or for the benefit
of the Participant. In the event the amount of the Reimbursement
Payment exceeds the amount necessary to reimburse the Participant for the
Qualifying
Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code) shall be promptly paid by the Participant (to the extent
the Participant has received a refund if the applicable Qualifying Excise Tax
has been paid to the Internal Revenue Service) to or for the benefit of the
Company. The Participant shall cooperate, to the extent his or
her
expenses are
reimbursed by the Company, with any reasonable requests by the Company in
connection with any contests or disputes with the Internal Revenue Service in
connection with the Excise Tax. In the event that the Company makes a
Reimbursement Payment to the Participant and subsequently the Company determines
that the value of any accelerated vesting of stock options held by the
Participant shall be redetermined within the context of Treasury Regulation
§1.280G-1 Q/A 33 (the “
Option
Redetermination
”), the Participant shall (i) file with the Internal
Revenue Service an amended federal income tax return that claims a refund of the
overpayment of the Qualifying Excise Tax attributable to such Option
Redetermination and (ii) promptly pay the refunded
Qualifying
Excise Tax to the
Company;
provided
that the
Company shall pay all reasonable professional fees incurred in the preparation
of the Participant’s amended federal income tax return. If the Option
Redetermination occurs in the same year that the Reimbursement Payment is
included in the Participant’s taxable income, then in addition to returning the
refund to the Company, the Participant will also promptly return to the Company
any tax benefit realized by the return of such refund and the return of the
additional tax benefit payment (all determinations pursuant to this sentence
shall be made by the Accounting Firm).
Notwithstanding any other provision to the contrary, a
Reimbursement Payment described in this Schedule B shall be made by the end of
the calendar year next following the calendar year in which the related taxes
are remitted to the taxing authority by the Participant
.
Exhibit
10-y
AT&T
INC. BOARD OF DIRECTORS
COMMUNICATIONS
CONCESSION PROGRAM
Communications
Concession
Applies
to both active and retired non-employee Directors.
1.
|
Primary Residence
Equipment
|
Each
Director will receive equipment that will allow the provision of services
offered by affiliates of AT&T at the Director’s primary residence as
designated by the Director. If the relevant AT&T affiliate does
not service the area of the Director’s residence and it is impractical to obtain
the equipment from an affiliate, then AT&T will reimburse the Director for
equipment provided by another company. Provision of equipment at the
primary residence will not count against the annual communications allowance,
whether the equipment is provided by the AT&T affiliate or another carrier
(where equipment from the affiliate is not available).
2.
|
Concession for
Equipment at Other Residences and for
Services
|
Each
Director will receive communications equipment (other than at the primary
residence) and services each year in an amount not to exceed the following
limits:
·
|
for
active Directors and Directors retiring on or after November 20, 2009, ten
percent of the combined annual basic retainer and annual deferred stock
unit award in effect for such year;
|
·
|
for
Directors retiring before November 20, 2009, seven percent of the combined
annual basic retainer and annual deferred stock unit award in effect for
such year.
|
·
|
All
concession services must be provided by AT&T affiliates, including
AT&T Mobility and AT&T Long Distance. The only
exception is service and equipment to the primary residence where the
residence is not served by an AT&T affiliate. Services and
equipment will only be provided to locations in the continental United
States.
|
·
|
The
concession benefits are for the personal use of the Director and his/her
immediate family sharing the same
household.
|
·
|
In
order to keep you informed, the Secretary’s Office will send you a
semi-annual notice indicating the usage of your concession. If
your usage exceeds the maximum benefit, you will be asked to reimburse
AT&T.
|
·
|
A
Director’s surviving spouse will continue to receive benefits for fourteen
months after the date of the Director’s
death.
|
·
|
This
concession benefit may be amended or terminated at any time by the
AT&T Board of Directors.
|
Amended
November 2009
Effective
July 2004
Exhibit
10-bb
AT&T
INC.
STOCK
PURCHASE AND DEFERRAL PLAN
Adopted
November 19, 2004
As
amended through November 19, 2009
Article
1 - Statement of Purpose
The
purpose of the Stock Purchase and Deferral Plan (“Plan”) is to increase stock
ownership by, and to provide savings opportunities to, a select group of
management employees of AT&T Inc. (“AT&T”) and its
Subsidiaries.
Article
2 - Definitions
For the
purpose of this Plan, the following words and phrases shall have the meanings
indicated, unless the context indicates otherwise:
Annual Bonus
. The
award designated the “Annual Bonus” by AT&T (including but not limited to an
award that may be paid in more frequent installments than annually), together
with any individual discretionary award made in connection therewith, or
comparable awards, if any, determined by AT&T to be used in lieu of these
awards.
Base
Compensation.
The following types of cash-based compensation
paid by an Employer (but not including payments made by a non-Employer, such as
state disability payments), before reduction due to any contribution pursuant to
this Plan or reduction pursuant to any deferral plan of an Employer, including
but not limited to a plan that includes a qualified cash or deferral arrangement
under Section 401(k) of the Code:
(b) lump sum payments in
lieu of a base salary increase; and
(c)
Annual Bonus.
Payments
by an Employer under a disability plan made in lieu of any compensation
described above, shall be deemed to be a part of the respective form of
compensation it replaces for purposes of this definition. Base
Compensation does not include zone allowances or any other geographical
differential and shall not include payments made in lieu of unused vacation or
other paid days off, and such payments shall not be contributed to this
Plan.
Determinations
by AT&T (the Committee with respect to Officer Level Employees) of the items
that make up Base Compensation shall be final. The Committee may,
from time to time, add or subtract types of compensation to or from the
definition of “Base Compensation” provided, however, any such addition or
subtraction shall be effective only with respect to the next period in which a
Participant may make an election to establish a Share Deferral
Account. Base Compensation that was payable in a prior Plan Year but
paid in a later Plan Year shall not be used to determine Employee Contributions
or Matching Contributions in such later Plan Year.
Business Day.
Any
day during regular business hours that AT&T is open for
business.
Change in
Control.
With respect to AT&T’s direct and indirect
ownership of an Employer, a “Change in the effective control of a Corporation,”
as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)(A)(1), regardless
of whether the Employer is a corporation or non corporate entity as permitted by
the regulation, and using “50 percent” in lieu of “30 percent” in such
regulation. A Change in Control will not apply to AT&T
itself.
Chief Executive
Officer.
The Chief Executive Officer of AT&T
Inc.
Code.
References to
the Code shall be to provisions of the Internal Revenue Code of 1986, as
amended, including regulations promulgated thereunder and successor
provisions. Similarly, references to regulations shall include
amendments and successor provisions.
Committee.
The
Human Resources Committee of the Board of Directors of AT&T
Inc.
Disability.
Absence of an
Employee from work with an Employer under the relevant Employer's disability
plan.
Eligible
Employee.
An Employee who:
(a) is a
full or part time, salaried Employee of AT&T or an Employer in which
AT&T has a direct or indirect 100% ownership interest and who is on active
duty or Leave of Absence (but only while such Employee is deemed by the Employer
to be an Employee of such Employer);
(b) is,
as determined by AT&T, a member of Employer's “select group of management or
highly compensated employees” within the meaning of the Employee Retirement
Income Security Act of 1974, as amended, and regulations thereunder (“ERISA”),
which is deemed to include each Officer Level Employee; and
(c) has
an employment status which has been approved by AT&T to be eligible to
participate in this Plan or is an Officer Level Employee.
Notwithstanding
the foregoing, AT&T (the Committee with respect to Officer Level Employees)
may, from time to time, exclude any Employee or group of Employees from being
deemed an “Eligible Employee” under this Plan.
In the
event a court or other governmental authority determines that an individual was
improperly excluded from the class of persons who would be permitted to make
Employee Contributions during a particular time for any reason, that individual
shall not be permitted to make such contributions for purposes of the Plan for
the period of time prior to such determination.
Employee.
Any
person employed by an Employer and paid on an Employer’s payroll system,
excluding persons hired for a fixed maximum term and excluding persons who are
neither citizens nor permanent residents of the United States, all as determined
by AT&T.
For
purposes of this Plan, a person on Leave of Absence who otherwise would be an
Employee shall be deemed to be an Employee.
Employee
Contributions.
Amounts credited to a Share Deferral Account
pursuant to Section 4.1 (Election to Make Contributions) of the
Plan.
Employer.
AT&T
Inc. or any of its Subsidiaries.
Exercise Price.
The
price per share of Stock purchasable under an Option.
Fair Market Value or
FMV.
In valuing Stock or any other item subject to valuation
under this Plan, the Committee may use such index or measurement as the
Committee may reasonably determine from time to time, and such index or
measurement shall be the FMV of such Stock or other item, provided that for
purposes of determining the Exercise Price of Stock Options, the Committee shall
use a value consistent with the requirements of Section 409A. In the
absence of such action by the Committee, FMV means, with respect to Stock, the
closing price on the New York Stock Exchange (“NYSE”) of the Stock on the
relevant date, or if on such date the Stock is not traded on the NYSE, then the
closing price on the immediately preceding date such Stock is so
traded.
Leave of
Absence.
Where a person is absent from employment with an
Employer on a leave of absence, military leave, sick leave, or Disability where
the leave is given in order to prevent a break in the continuity of term of
employment, and permission for such leave is granted (and not revoked) in
conformity with the rules of the Employer that employs the individual, as
adopted from time to time, and the Employee is reasonably expected to return to
service. Except as set forth below, the leave shall not exceed six
(6) months for purposes of this Plan, and the Employee shall Terminate
Employment upon termination of such leave if the Employee does not return to
work prior to or upon expiration of such six (6) month period, unless the
individual retains a right to reemployment under law or by
contract. A twenty-nine (29) month limitation shall apply in lieu of
such six (6) month limitation if the leave is due to the Employee being
"disabled" (within the meaning of Treasury Regulation
§1.409A-3(i)(4)). A Leave of Absence shall not commence or shall be
deemed to cease under the Plan where the Employee has incurred a Termination of
Employment.
Officer Level
Employee.
Any executive officer of AT&T, as that term is
used under the Securities Exchange Act of 1934, as amended, and any Employee
that is an “officer level” Employee for compensation purposes as shown on the
records of AT&T.
Options or Stock
Options.
Options to purchase Stock issued pursuant to this
Plan.
Participant.
An
Employee or former Employee who participates in this Plan.
Plan Year.
Each of
the following shall be a Plan Year: the period January 1, 2005,
through January 15, 2006; the period January 16, 2006, through December 31,
2006; and, for all later Plan Years, it is defined as the period from January 1
through December 31.
Retirement or
Retire.
Termination of Employment on or after the earlier of
the following dates, unless otherwise provided by the Committee: (a)
for Officer Level Employees, the date the Participant is at least age 55 and has
five (5) years of Net Credited Service; or (b) the date the Participant has
attained one of the following combinations of age and Net Credited
Service:
Net Credited
Service
|
Age
|
10 years or
more
|
65 or
older
|
20 years or
more
|
55 or
older
|
25 years or
more
|
50 or
older
|
30 years or
more
|
Any
age
|
For
purposes of this Plan only, Net Credited Service shall be calculated in the same
manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan
– Nonbargained Program (“Pension Plan”), as amended from time to time, except
that service with an Employer shall be counted as though the Employer were a
“Participating Company” under the Pension Plan and the Employee was a
participant in the Pension Plan.
Senior Manager.
Any
Employee who is a “senior manager” for compensation purposes as shown on the
records of AT&T.
Shares or Share
Units.
An accounting entry representing the right to receive
an equivalent number of shares of Stock.
Share Deferral Account
or
Account.
The
Account or Accounts established annually by an election by a Participant to make
Employee Contributions to the Plan, with each Account relating to a Plan
Year. For each Plan Year after 2008, there shall be (1) a separate
Share Deferral Account for Share Units purchased with Employee Contributions of
Base Compensation (excluding Annual Bonus) and related Matching Share Units and
(2) a separate Share Deferral Account for Share Units purchased with Employee
Contributions of Short Term Incentive Award and/or Annual Bonus and any related
Matching Share Units. Earnings on Share Units and Matching Share
Units shall accrue to the respective Share Deferral Accounts where they are
earned.
Short Term Incentive
Award.
A cash award paid by an Employer (and not by a
non-Employer, such as state disability payments) under the Short Term Incentive
Plan or any successor plan, together with any individual discretionary award
made in connection therewith; an award under a similar plan intended by the
Committee to be in lieu of an award under such Short Term Incentive Plan,
including, but not limited to, Performance Units granted under the 2006
Incentive Plan or any successor plan. It shall also include any other
award that the Committee designates as a Short Term Incentive Award specifically
for purposes of this Plan (regardless of the purpose of the award) provided the
deferral election is made in accordance with Section 409A.
Specified
Employee
. Any Participant who is a “Key Employee” (as defined
in Code Section 416(i) without regard to paragraph (5) thereof), as determined
by AT&T in accordance with its uniform policy with respect to all
arrangements subject to Code Section 409A, based upon the 12-month period ending
on each December 31st (such 12-month period is referred to below as the
“identification period”). All Participants who are determined to be
Key Employees under Code Section 416(i) (without regard to paragraph (5)
thereof) during the identification period shall be treated as Key Employees for
purposes of the Plan during the 12-month period that begins on the first day of
the 4th month following the close of such identification period.
Stock.
The common
stock of AT&T Inc.
Subsidiary.
Any
corporation, partnership, venture or other entity or business with which
AT&T would be considered a single employer under Sections 414(a) and (c) of
the Code, using 50% as the ownership threshold as provided under Section 409A of
the Code.
Termination of Employment.
References herein to “Termination of Employment," “Terminate Employment” or a
similar reference, shall mean the event where the Employee has a “separation
from service,” as defined under Section 409A, with all Employers. For purposes
of this Plan, a Termination of Employment with respect to an Employer shall be
deemed to also occur when such Employer incurs a Change in Control.
Article
3 - Administration of the Plan
3.1
The Committee
.
Except as
delegated by this Plan or by the Committee, the Committee shall be the
administrator of the Plan and will administer the Plan, interpret, construe and
apply its provisions and determine all questions of administration,
interpretation and application of the Plan, including, without limitation,
questions and determinations of eligibility, entitlement to benefits and payment
of benefits, all in its sole and absolute discretion. The Committee
may further establish, adopt or revise such rules and regulations and such
additional terms and conditions regarding participation in the Plan as it may
deem necessary or advisable for the administration of the
Plan. References in this Plan to determinations or other actions by
AT&T, herein, shall mean actions authorized by the Committee, the Chief
Executive Officer, the Senior Executive Vice President of AT&T in charge of
Human Resources, or their respective successors or duly authorized delegates, in
each case in the discretion of such person. All decisions by the
Committee, its delegate or AT&T, as applicable, shall be final and
binding.
3.2 Authorized
Shares of Stock.
(a)
Except as provided below, the number of shares of Stock which may be distributed
pursuant to the Plan, exclusive of Article 8 - Options, is
21,000,000. The number of shares of Stock which may be issued
pursuant to the exercise of Stock Options is 34,000,000 (together with an equal
number of Stock Options). Only the actual number of shares of Stock
that are issued (shares issued would not include, for example, any reduction in
shares to be issued as a result of tax withholding in connection with a
distribution of Stock, exercise of options, or otherwise) shall be counted
against the authorized number of shares of Stock. To the extent an Option issued
under this Plan is canceled, terminates, expires, or lapses for any reason, such
Option shall again be available for issuance under the
Plan. Conversions of Stock awards into Share Units and their eventual
distribution (excluding the effects of any dividends on such Share Units) shall
count only against the limits of the plans from which they originated and shall
not be applied against the limits in this Plan. To the extent Share
Units are credited through deferrals of Stock or Employee Contributions where
the distribution of which would be deductible by AT&T under Section 162(m)
of the Code without regard to the size of the distribution, and such deductible
Share Units are available for distribution, such Share Units shall be
distributed first.
(b) In
the event the Committee determines that continuing the issuance of Share Units
under the Plan or Stock Options under the Plan may cause the number of shares of
Stock that are to be distributed under this Plan or the number of Stock Options
(as determined pursuant to subsection (a), above) to exceed the number of
authorized shares of Stock, then in lieu of distributing Stock, the Committee
may provide after such determination and only with respect to Share Units that
have not theretofore been credited to a Share Deferral Account, that such Share
Units may be settled in cash equal to the value of the Stock that would
otherwise be distributed based on the FMV of the Stock on the date of the
distribution of such Share Unit. The Committee may also provide after
such determination and only with respect to Stock Options that have not
theretofore been issued that such Stock Options may only be settled on a
Net-Settled basis in cash equal to the value of the Stock that would otherwise
be distributed based on the FMV of the Stock on the day of
exercise.
(c) In
the event of a merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, stock split, share combination, or
other change in the corporate structure of AT&T affecting the shares of
Stock (including a conversion of Stock into cash or other property), such
adjustment shall be made to the number and class of the shares of Stock which
may be delivered under the Plan (including but not limited to individual
limits), and in the number and class of and/or price of shares of Stock subject
to outstanding Options granted under the Plan, and/or in the number of
outstanding Options and Share Units, or such other adjustment determined by the
Committee, in each case as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights.
3.3
Claims and
Appeals
.
(a) Claims. A
person who believes that he or she is being denied a benefit to which he or she
is entitled under this Plan (hereinafter referred to as a “Claimant”) may file a
written request for such benefit with the Executive Compensation Administration
Department, setting forth his or her claim. The request must be addressed to the
AT&T Executive Compensation Administration Department at its then principal
place of business.
(b) Claim
Decision. Upon receipt of a claim, the AT&T Executive
Compensation Administration Department shall review the claim and provide the
Claimant with a written notice of its decision within a reasonable period of
time, not to exceed ninety (90) days, after the claim is received. If the
AT&T Executive Compensation Administration Department determines that
special circumstances require an extension of time beyond the initial ninety
(90)- day claim review period, the AT&T Executive Compensation
Administration Department shall notify the Claimant in writing within the
initial ninety (90)-day period and explain the special circumstances that
require the extension and state the date by which the AT&T Executive
Compensation Administration Department expects to render its decision on the
claim. If this notice is provided, the AT&T Executive Compensation
Administration Department may take up to an additional ninety (90) days (for a
total of one hundred eighty (180) days after receipt of the claim) to render its
decision on the claim.
If the
claim is denied by the AT&T Executive Compensation Administration
Department, in whole or in part, the AT&T Executive Compensation
Administration Department shall provide a written decision using language
calculated to be understood by the Claimant and setting forth: (i)
the specific reason or reasons for such denial; (ii) specific references to
pertinent provisions of this Plan on which such denial is based; (iii) a
description of any additional material or information necessary for the Claimant
to perfect his or her claim and an explanation of why such material or such
information is necessary; (iv) a description of the Plan’s procedures for review
of denied claims and the steps to be taken if the Claimant wishes to submit the
claim for review; (v) the time limits for requesting a review of a denied claim
under this section and for conducting the review under this section ; and
(vi) a statement of the Claimant’s right to bring a civil action
under Section 502(a) of ERISA if the claim is denied following review under this
section .
(c) Request
for Review. Within sixty (60) days after the receipt by the Claimant of the
written decision on the claim provided for in this section , the Claimant may
request in writing that the Committee review the determination of the AT&T
Executive Compensation Administration Department. Such request must
be addressed to the Committee at the address for giving notice in this
Plan. To assist the Claimant in deciding whether to request a review
of a denied claim or in preparing a request for review of a denied claim, a
Claimant shall be provided, upon written request to the Committee and free of
charge, reasonable access to, and copies of, all documents, records and other
information relevant to the claim. The Claimant or his or her duly
authorized representative may, but need not, submit a statement of the issues
and comments in writing, as well as other documents, records or other
information relating to the claim for consideration by the
Committee. If the Claimant does not request a review by the Committee
of the AT&T Executive Compensation Administration Department’s decision
within such sixty (60)-day period, the Claimant shall be barred and estopped
from challenging the determination of the AT&T Executive Compensation
Administration Department.
(d) Review
of Decision. Within sixty (60) days after the Committee’s receipt of
a request for review, the Administrator will review the decision of the AT&T
Executive Compensation Administration Department. If the Committee
determines that special circumstances require an extension of time beyond the
initial sixty (60)-day review period, the Committee shall notify the Claimant in
writing within the initial sixty (60)-day period and explain the special
circumstances that require the extension and state the date by which the
Committee expects to render its decision on the review of the
claim. If this notice is provided, the Committee may take up to an
additional sixty (60) days (for a total of one hundred twenty (120) days after
receipt of the request for review) to render its decision on the review of the
claim.
During
its review of the claim, the Committee shall:
(1) Take
into account all comments, documents, records, and other information submitted
by the Claimant relating to the claim, without regard to whether such
information was submitted or considered in the initial review of the claim
conducted pursuant to this section;
(2) Follow
reasonable procedures to verify that its benefit determination is made in
accordance with the applicable Plan documents; and
(3) Follow
reasonable procedures to ensure that the applicable Plan provisions are applied
to the Participant to whom the claim relates in a manner consistent with how
such provisions have been applied to other similarly-situated
Participants.
After
considering all materials presented by the Claimant, the Committee will render a
decision, written in a manner designed to be understood by the
Claimant. If the Committee denies the claim on review, the written
decision will include (i) the specific reasons for the decision; (ii) specific
references to the pertinent provisions of this Plan on which the decision is
based; (iii) a statement that the Claimant is entitled to receive, upon request
to the Committee and free of charge, reasonable access to, and copies of, all
documents, records, and other information relevant to the claim; and (iv) a
statement of the Claimant’s right to bring a civil action under Section 502(a)
of ERISA.
The
Committee shall serve as the final review committee under the Plan and shall
have sole and complete discretionary authority to administer, interpret,
construe and apply the Plan provisions, and determine all questions of
administration, interpretation, construction, and application of the Plan,
including questions and determinations of eligibility, entitlement to benefits
and the type, form and amount of any payment of benefits, all in its sole and
absolute discretion. The Committee shall further have the authority
to determine all relevant facts and related issues, and all documents, records
and other information relevant to a claim conclusively for all parties, and in
accordance with the terms of the documents or instruments governing the
Plan. Decisions by the Committee shall be conclusive and binding on
all parties and not subject to further review.
In any
case, a Participant or Beneficiary may have further rights under ERISA. The Plan
provisions require that Participants or Beneficiary pursue all claim and appeal
rights described in this section before they seek any other legal recourse
regarding claims for benefits.
Article
4 - Contributions
4.1
Election to Make
Contributions.
(a)
The
Committee shall establish dates and other conditions for participation in the
Plan and making contributions as it deems appropriate. Except as
otherwise provided by the Committee, each year an Employee who is an Eligible
Employee as of September 30 may thereafter make an election on or prior to the
last Business Day of the immediately following November (such election shall be
cancelled if the Employee is not an Eligible Employee on the last day such an
election may be made) to contribute on a pre-tax basis, through payroll
deductions, any combination of the following:
(1) From
6% to 30% (in whole percentage increments) of the Participant’s monthly Base
Compensation, other than Annual Bonus, during the calendar year (the Plan Year
for such contributions) following the calendar year of such
election. The Employee Contributions shall be used to acquire Share
Units to be credited to the Share Deferral Account for that Plan
Year.
(2) Up
to 95% (in whole percentage increments or limited to the target amount) of a
Short Term Incentive Award, or from 6% to 30% (in whole percentage increments)
of Annual Bonus, in each case such contributions shall be made during the second
calendar year (which is the Plan Year for such contributions) following the year
of such election, except that in 2008 a separate election may be made with
respect to contributions to be made in 2009. An Employee may make such an
election with respect to the type of Award (Short Term Incentive Award or Annual
Bonus) that the Employee is under as of the time the Employee’s eligibility to
make such election is determined. If because of a promotion or
otherwise, the Employee receives a different type of Award instead of, or in
partial or full replacement for, the type of Award subject to the Employee’s
election for the relevant Plan Year, the election will apply to the other Award
as well, including but not limited to any individual discretionary award related
thereto.
(b) The Committee may permit
an Eligible Employee to make an election to purchase Share Units under this Plan
with compensation other than Base Compensation or Short Term Incentive Awards on
such terms and conditions as such Committee may permit from time to time,
provided that any such election is made in accordance with Section 409A of the
Code. In no event shall an acquisition of Share Units pursuant to
this paragraph (b) or pursuant to the conversion of a right to receive Stock
into Share Units (such as through a distribution of Stock under the 2001
Incentive Plan) result in the crediting of an AT&T Matching Contribution or
Options.
(c)
Notwithstanding anything to the contrary in this Plan, no election shall be
effective to the extent it would permit an Employee Contribution or distribution
to be made that is not in compliance with Section 409A of the
Code. To the extent such election related to Employee Contributions
that complied with such statute and regulations thereunder, that portion of the
election shall remain valid, except as otherwise provided under this
Plan.
(d) To
the extent permitted by Section 409A of the Code, AT&T may refuse or
terminate, in whole or in part, any election to purchase Share Units in the Plan
at any time; provided, however, that only the Committee may take such action
with respect to persons who are Officer Level Employees.
(e) In
the event the Participant takes a hardship withdrawal pursuant to Treasury
Regulation §1.401(k)-1 from a benefit plan qualified under the Code and
sponsored by an Employer, any election to make Employee Contributions by such
Participant shall be cancelled on a prospective basis, and the Participant shall
not be permitted to make a new election with respect to Employee Contributions
that would be contributed during the then current and immediately following
calendar year.
4.2 Purchase
of Share Units.
(a)
Employee Contributions (as well as any corresponding AT&T Matching
Contributions) shall be made pursuant to a proper election, only during the
Participant’s lifetime; provided, however, with respect to Employee Contribution
elections made prior to 2007, the Employee must remain an Eligible Employee
while making any such contributions. In the event of a Change in
Control of an Employer, subsequent compensation from the Employer may not be
contributed to the Plan. The Employer may continue the then current
elections of the participants under a subsequent plan in order to comply with
applicable tax laws.
(b) The
number of Share Units purchased by a Participant during a calendar month shall
be found by dividing the Participant's Employee Contributions during the month
by the FMV of a share of Stock on the last day of such month.
(c) A
contribution to the Plan shall be made when the compensation – from which the
contribution is to be deducted – is to be paid (“paid,” as used in this Plan,
includes amounts contributed to the Plan that would have been paid were it not
for an election under this Plan), as determined by the relevant
Employer. The Committee may modify or change this paragraph (c)
from time to time.
4.3
Reinvestment of
Dividends.
In the
month containing a record date for a cash dividend on Stock, each Share Deferral
Account shall be credited with that number of Share Units equal to the declared
dividend per share of Stock, multiplied by the number of Share Units held in
such Share Deferral Account as of such record date, and dividing the product by
the FMV of a share of Stock on the last day of such month.
Article
5 - AT&T Matching Contributions
5.1
AT&T Match.
(a) Each month AT&T shall credit
the Participant's relevant Share Deferral Account with the number of
“Matching Share Units” found by taking eighty percent (80%) of the Participant's
Employee Contributions from Base Compensation made to this Plan and to the Cash
Deferral Plan during the month with respect to the first six percent (6%) of the
Participant’s monthly Match Eligible Compensation (as defined below) and
dividing the resulting figure by the FMV of the Stock on the last day of such
month. The monthly “Match Eligible Compensation” shall be the sum
of:
(1) the
monthly Employee Contributions from Base Compensation to this Plan and the Cash
Deferral Plan (in the aggregate, “Deferred BC”), plus
(2) the
amount of the Participant’s monthly Base Compensation in excess of the Deferred
BC (“Non-Deferred BC”) but only to the extent such monthly Non-Deferred BC, when
aggregated with the Participant’s total Non-Deferred BC for prior months in such
Plan Year, as determined by the relevant Employer, exceeds the limit in effect
under Section 401(a)(17) of the Code applicable with respect to such Plan
Year.
The
foregoing formula shall apply regardless of whether or not the Participant makes
contributions to a 401(k) plan.
A Participant may receive Matching
Share Units in a Share Deferral Account for a particular form of compensation
only if the Participant is then making contributions to the same Share Deferral
Account; provided, however, this condition shall not apply for purposes of
determining under Section 5.1(a)(2) whether the limit described therein has been
reached.
As provided in the definition of Share
Deferral Account, Matching Share Units shall be credited to the respective Share
Deferral Account that is related to the same form of Employee Contributions
(either (1) Base Compensation excluding Annual Bonus or (2) Annual
Bonus).
(b) In the sole discretion of the
Committee, in the event the Committee reduces the number of Options that
AT&T issues for each Share Unit purchased, the Committee may provide for the
contribution of a Bonus Matching Contribution on such terms as the Committee
determines. Such Bonus Matching Contribution may not exceed 20% of
the Participant’s Employee Contributions for the month. The Bonus
Matching Contribution shall be subject to such terms and conditions as required
by the Committee and, unless otherwise provided by the Committee, to the same
vesting and distribution requirements as AT&T Matching
Contributions.
5.2
Distribution of Share Units Acquired
with Matching Contributions
.
A
Participant's Matching Share Units shall be distributed in a lump sum, in
accordance with the Plan's distribution provisions, in the earlier of: (a) the
calendar year following the calendar year of the Termination of Employment of
the Participant, or (b) the calendar year in which the Participant reaches age
55, in each case only with respect to Matching Share Units relating to Share
Deferral Accounts for Plan Years before such distribution calendar
year.
Matching
Share Units acquired as part of a Share Deferral Account that commences in or
after the calendar year the Employee reaches age 55 or after the calendar year
in which the Employee Terminates Employment will be distributed in the same
manner and time as other Share Units in such Share Deferral
Account.
Notwithstanding
anything to the contrary in this section, Matching Share Units acquired in 2008
and later shall be distributed at the same time as other Share Units (including
those acquired with Employee Contributions) in the same Share Deferral
Account.
Article
6 - Distributions
6.1
|
Distributions of Share
Units.
|
(a) Initial
Election with Respect to a Share Deferral Account. At the time the
Participant makes an election to make Employee Contributions with respect to a
Share Deferral Account, the Participant shall also elect the calendar year the
Share Deferral Account shall be distributed, which may be from the first through
fifth calendar years after the Plan Year the Account commenced (except as
otherwise provided in this Plan with respect to Matching Share
Units). For example, if an Account commenced in 2005, the Participant
may elect to commence the distribution in any calendar year from and including
2006 to and including 2010. If no timely distribution election is
made by the Participant, then the Participant will be deemed to have made an
election to have the Share Deferral Account distributed in a single installment
in the first calendar year after the calendar year the Account
commenced. However, for purposes of Initial Elections with respect to
Plan Years prior to 2008 only, in the event the Participant Terminates
Employment, the distribution of the Share Deferral Unit shall occur in the
calendar year following the calendar year of the Participant’s Termination of
Employment unless the Employee has made an irrevocable election under (b),
below.
(b) Election
to Delay a Scheduled Distribution. A Participant may elect to defer a
scheduled distribution of a Share Deferral Account for five (5) additional
calendar years beyond that previously elected (except as otherwise provided in
this Plan with respect to Matching Share Units). Unless otherwise
provided by the Committee, the election to defer the distribution must be made
on or after October 1, and on or before the last Business Day of the next
following December, of the calendar year that is the second calendar year
preceding the calendar year of the relevant scheduled
distribution. To make this election, the Participant must be an
Eligible Employee both on the September 30 immediately preceding such election
and on the last day such an election may be made. For example, an
election to defer a scheduled distribution in 2010 must be made during the
period from October 1, 2008, through the last business day of December 2008, and
the Participant must be an Eligible Employee both on September 30, 2008, and the
last business day of December 2008. An election to defer the
distribution of a Share Deferral Account may not be made in the same calendar
year that the election to establish the Share Deferral Account is
made. Notwithstanding anything to the contrary in this Plan, (1) an
election to defer the distribution of a Share Deferral Account must be made at
least 12 months prior to the date of the first scheduled payment under the prior
distribution election and (2) the election shall not take effect until at least
12 months after the date on which the election is made.
(c) A
Participant’s Share Deferral Account shall be distributed to the Participant on
March 10 (or as soon thereafter as administratively practicable as determined by
AT&T) of the calendar year elected by the Participant for that
Account. In the event the distribution is to be made to a “Specified
Employee” as a result of the Participant’s Termination of Employment (other than
as a result of a Change in Control), the distribution shall not occur until the
later of such March 10 or six (6) months after the Termination of Employment,
except it shall be distributed upon the Participant’s earlier death in
accordance with this Plan.
6.2 Death
of the Participant.
In the
event of the death of a Participant, notwithstanding anything to the contrary in
this Plan, all undistributed Share Deferral Accounts shall be distributed to the
Participant's beneficiary in accordance with the AT&T Rules for Employee
Beneficiary Designations, as the same may be amended from time to time, within
the later of 90 days following such determination or the end of the calendar
year in which determination was made.
6.3
Unforeseeable Emergency
Distribution
.
If a
Participant experiences an “Unforeseeable Emergency,” the Participant may submit
a written petition to AT&T (the Committee in the case of Officer Level
Employees), to receive a partial or full distribution of his Share Deferral
Account(s). In the event that AT&T (the Committee in the case of
Officer Level Employees), upon review of the written petition of the
Participant, determines in its sole discretion that the Participant has suffered
an “Unforeseeable Emergency,” AT&T shall make a distribution to the
Participant from the Participant’s Share Deferral Accounts (other than Matching
Share Units), on a pro-rata basis, within the later of 90 days following such
determination or the end of the calendar year in which determination was made,
subject to the following:
(a) “Unforeseeable
Emergency” shall mean a severe financial hardship to the Participant resulting
from an illness or accident of the Participant, the Participant’s legal spouse,
the Participant’s beneficiary, or the Participant’s dependent (as defined in
Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and
(d)(1)(B)); loss of the Participant’s property due to casualty; or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, all as determined in the sole discretion
of the Committee. Whether a Participant is faced with an
Unforeseeable Emergency permitting a distribution is to be determined based on
the relevant facts and circumstances of each case, but, in any case, a
distribution on account of Unforeseeable Emergency shall not be made to the
extent that such emergency is or may be relieved through reimbursement or
compensation from insurance or otherwise, by liquidation of the Participant’s
assets, to the extent the liquidation of such assets would not cause severe
financial hardship, or by cessation of deferrals under the Plan.
(b) The
amount of a distribution to be made because of an Unforeseeable Emergency shall
not exceed the lesser of (i) the FMV of the Participant's vested Share Deferral
Account, calculated as the date on which the amount becomes payable, as
determined by AT&T (the Committee in the case of Officer Level Employees) in
its sole discretion, and (ii) the amount reasonably necessary, as determined by
the AT&T (the Committee in the case of Officer Level Employees) in its sole
discretion, to satisfy the emergency need (which may include amounts necessary
to pay any Federal, state, local, or foreign income taxes or penalties
reasonably anticipated to result from the
distribution). Determinations of the amount reasonably necessary to
satisfy the emergency need shall take into account any additional compensation
that is available if the plan provides for cancellation of a deferral election
upon a payment due to an Unforeseeable Emergency. The determination
of amounts reasonably necessary to satisfy the Unforeseeable Emergency need is
not required to, but may, take into account any additional compensation that,
due to the Unforeseeable Emergency, is available under another nonqualified
deferred compensation plan but has not actually been paid, or that is available
due to the Unforeseeable Emergency under another plan that would provide for
deferred compensation except due to the application of the effective date
provisions under Treasury Regulation §1.409A-6.
(c) Upon
such distribution on account of an Unforeseeable Emergency under this Plan, any
election to make Employee Contributions by such Participant shall be immediately
cancelled, and the Participant shall not be permitted to make a new election
with respect to Employee Contributions that would be contributed during the then
current and immediately following calendar year.
6.4 Ineligible
Participant.
Notwithstanding
any other provisions of this Plan to the contrary, if AT&T receives an
opinion from counsel selected by AT&T, or a final determination is made by a
Federal, state or local government or agency, acting within its scope of
authority, to the effect that an individual’s continued participation in the
Plan would violate applicable law, then such person shall not make further
contributions to the Plan to the extent permitted by Section 409A of the
Code.
6.5
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Distribution
Process.
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A Share
Deferral Account shall be distributed under this Plan by taking the number of
Share Units comprising the Account to be distributed and converting them into an
equal number of shares of Stock. (Once distributed, a Share Unit
shall be canceled.)
Article
7 - Transition Provisions
The Plan
was approved by Stockholders at the 2005 Annual Meeting of
Stockholders.
7.2
2005 Share Deferral
Accounts.
Notwithstanding
Article 4 to the contrary, if an Employee is an Eligible Employee on September
30, 2004, the Employee may make an election under Article 4 on or prior to
December 15, 2004, with respect to the establishment of a Share Deferral Account
for the (i) contribution of Base Compensation and/or Short Term Incentive Awards
paid during the period from January 1, 2005, through January 15, 2006, which
shall be the Plan Year for such Share Deferral Account; and/or (ii) the
conversion of a distribution of Stock that would be made during the same Plan
Year pursuant to the 2001 Incentive Plan into an equal number of Share Units, so
long as such conversion would not cause the recognition of income for Federal
income tax purposes in respect of such distribution of Stock prior to
distribution of Share Units under this Plan.
7.3 2007
Amendments.
(a)
Amendments made to the Plan on November 15, 2007, shall be effective January 1,
2008. except for amendments to this Article 7, which shall be effective upon
adoption. Any Participants electing prior to November 15, 2007, to
make Employee Contributions in 2008 shall have their elections canceled if they
do not consent by December 14, 2007, to all prior amendments to this Plan and to
the Cash Deferral Plan. Subject to the foregoing consent
requirements, all Employee Contribution elections made prior to 2008, including
but not limited to elections to contribute Stock that would be distributed under
the 2001 Incentive Plan or a successor plan, shall remain in force, subject to
all other terms of the amended Plan. In addition, all unvested but not forfeited
Matching Share Units shall vest on November 15, 2007. Matching Shares
that have been forfeited shall not be reinstated, and no amendment to this Plan
shall be interpreted as reinstating such forfeitures.
(b) Not
withstanding anything to the contrary in this Plan, a Participant who as of
December 29, 2006, was eligible for an additional payment pursuant to Section 4A
of the BellSouth Corporation Executive Incentive Award Deferral Plan shall not,
with respect to the 2008 Plan Year, receive Matching Share Units on Base
Compensation that exceeds $230,000.
7.4 2008
Amendments.
For Plan Years prior to 2009,
Participants who, at the time of the determination of their eligibility to
participate in an Account, are paid through a “sales plan” involving the use of
commissions may elect to contribute up to 40% of Base
Compensation. For the 2008 Plan Year, only Salary and Short Term
Incentive Awards paid after Termination of Employment may be contributed to the
Plan.
Article
8 - Options
8.1
Grants.
Options
may be issued in definitive form or recorded on the books and records of
AT&T for the account of the Participant, at the discretion of
AT&T. If AT&T elects not to issue the Options in definitive
form, they shall be deemed issued, and the Participants shall have all rights
incident thereto as if they were issued on the dates provided herein, without
further action on the part of AT&T or the Participant. In
addition to the terms herein, all Options shall be subject to such additional
provisions and limitations as provided in any Administrative Procedures adopted
by the Committee prior to the issuance of such Options. The number of
Options issued to a Participant shall be reflected on the Participant's annual
statement of account.
8.2
Term of Options.
The
Options may only be exercised: (a) after the earlier of (i) the
expiration of one (1) year from date of issue or (ii) the Participant's
Termination of Employment, and (b) no later than the tenth (10
th
)
anniversary of their issue; and Options shall be subject to earlier termination
as provided herein.
8.3
Exercise Price.
The
Exercise Price of an Option shall be the FMV of the Stock on the date of
issuance of the Option, and an Option may not be repriced.
8.4
Issuance of
Options
.
(a) For
each Share Deferral Account established by a Participant:
(1) on
June 15 of the Plan Year for the Share Deferral Account, the Participant shall
receive two (2) Options for each Share Unit acquired by the Participant as part
of such Share Deferral Account during the immediately preceding January through
May period with Employee Contributions of Base Compensation and/or Short Term
Incentive Award. A fractional number of Options shall be rounded up
to the next whole number.
(2) on
the February 15 immediately following the Plan Year for the Share Deferral
Account, a Participant shall receive:
(i)
two (2)
Options for each Share Unit acquired by the Participant as part of such Share
Deferral Account during the immediately preceding June through the remainder of
the relevant Plan Year with Employee Contributions of Base Compensation and/or
Short Term Incentive Award; and
(ii) two
(2) Options for each Share Unit acquired prior to such date by the Participant
with dividend equivalents that were derived, directly or indirectly (such as
dividend equivalents paid on Share Units acquired with dividend equivalents),
from Share Units acquired with Employee Contributions as part of such Share
Deferral Account.
(b) A
fractional number of Options shall be rounded up to the next whole
number.
(c) If
Stock is not traded on the NYSE on any of the foregoing Option issuance dates,
then the Options shall not be issued until the next such day on which Stock is
so traded.
(d) If a
Participant Terminates Employment other than (i) while Retirement eligible or
(ii) because of death or Disability, no further Options shall be issued to or
with respect to such Participant. In the event of re-Employment
following a Termination of Employment, the preceding sentence shall not apply to
those Options resulting from participation in the Plan after such re-Employment
until a subsequent Termination of Employment.
(e) No
more than 400,000 Options shall be issued to any individual under this Plan
during a calendar year. No Share Unit may be counted more than once
for the issuance of Options.
(f) The
Committee may, in its sole discretion, at any time, increase or lower the number
of Options that are to be issued for each Share Unit acquired, not to exceed two
(2) Options per Share Unit purchased. However, if the Committee
lowers the number of Options, then such change shall only be effective with
respect to the next Share Deferral Account a Participant may elect to
establish.
(g) The
Committee may also, at any time and in any manner, limit the number of Options
which may be acquired as a result of the Short Term Incentive Award being
contributed to the Plan. Further, except as otherwise provided by the
Committee, in determining the number of Options to be issued to a Participant
with respect to a Participant's contribution of a Short Term Incentive Award to
the Plan and subsequent crediting of Share Units, Options may be issued only
with respect to an amount which does not exceed the target amount of such award
(or such other portion of the award as may be determined by the
Committee). Where a Participant’s election to contribute a Short Term
Incentive Award to the Plan becomes applicable to Annual Bonus, the above
limitation on options shall apply to the contribution of Annual Bonus as though
it were a Short Term Incentive Award.
(h) No
options shall be issued to or in respect of a Participant for a particular
issuance, unless at least ten (10) Options will be issued to that
Participant.
8.5
Exercise and Payment of
Options
.
Options
shall be exercised by providing notice to the designated agent selected by
AT&T (if no such agent has been designated, then to AT&T), in the manner
and form determined by AT&T, which notice shall be irrevocable, setting
forth the exact number of shares of Stock with respect to which the Option is
being exercised and including with such notice payment of the Exercise
Price. When Options have been transferred, AT&T or its designated
agent may require appropriate documentation that the person or persons
exercising the Option, if other than the Participant, has the right to exercise
the Option. No Option may be exercised with respect to a fraction of
a share of Stock.
Exercises
of Options may be effected only on days and during the hours that the New York
Stock Exchange is open for regular trading or as otherwise provided or limited
by AT&T. If an Option expires on a day or at a time when
exercises are not permitted, then the Options may be exercised no later than the
immediately preceding date and time that the Options were
exercisable.
The
Exercise Price shall be paid in full at the time of exercise. No
Stock shall be issued or transferred until full payment has been received
therefore.
Payment
may be made:
(a) in
cash, or
(b)
unless otherwise provided by the Committee at any time, and subject to such
additional terms and conditions and/or modifications as AT&T may impose from
time to time, and further subject to suspension or termination of this provision
by AT&T at any time, by:
(i) delivery
of Stock owned by the Participant in partial (if in partial payment, then
together with cash) or full payment; provided, however, as a condition to paying
any part of the Exercise Price in Stock, at the time of exercise of the Option,
the Participant must establish to the satisfaction of AT&T that the Stock
tendered to AT&T must have been held by the Participant for a minimum of six
(6) months preceding the tender; or
(ii) if
AT&T has designated a stockbroker to act as AT&T's agent to process
Option exercises, issuance of an exercise notice to such stockbroker together
with instructions irrevocably instructing the stockbroker: (A) to
immediately sell (which shall include an exercise notice that becomes effective
upon execution of a sell order) a sufficient portion of the Stock to pay the
Exercise Price of the Options being exercised and the required tax withholding,
and (B) to deliver on the settlement date the portion of the proceeds of the
sale equal to the Exercise Price and tax withholding to AT&T. In
the event the stockbroker sells any Stock on behalf of a Participant, the
stockbroker shall be acting solely as the agent of the Participant, and AT&T
disclaims any responsibility for the actions of the stockbroker in making any
such sales. No Stock shall be issued until the settlement date and
until the proceeds (equal to the Exercise Price and tax withholding) are paid to
AT&T.
If
payment is made by the delivery of Stock, the value of the Stock delivered shall
be equal to the FMV of the Stock on the day preceding the date of exercise of
the Option.
Restricted
Stock may not be used to pay the Option exercise price.
8.6
Restrictions on Exercise and
Transfer.
No Option
shall be transferable except: (a) upon the death of a Participant in accordance
with AT&T's Rules for Employee Beneficiary Designations, as the same may be
amended from time to time; and (b) in the case of any holder after the
Participant's death, only by will or by the laws of descent and
distribution. During the Participant's lifetime, the Participant's
Options shall be exercisable only by the Participant or by the Participant's
guardian or legal representative. After the death of the Participant,
an Option shall only be exercised by the holder thereof (including but not
limited to an executor or administrator of a decedent's estate) or his or her
guardian or legal representative. In each such case the Option holder
shall be considered a Participant for the limited purpose of exercising such
Options.
8.7
Termination of
Employment
.
(a)
Not Retirement
Eligible.
Unless otherwise provided by the Committee, if a
Participant Terminates Employment while not Retirement eligible, a Participant's
Options may be exercised, to the extent then exercisable:
(i) if
such Termination of Employment is by reason of death or Disability, then for a
period of three (3) years from the date of such Termination of Employment or
until the expiration of the stated term of such Option, whichever period is
shorter; or
(ii) if
such Termination of Employment is for any other reason, then for a period of one
(1) year from the date of such Termination of Employment or until the expiration
of the stated term of such Option, whichever period is shorter.
(b)
Retirement
Eligible.
Unless otherwise provided by the Committee, if a
Participant Terminates Employment while Retirement eligible, the Participant's
Option may be exercised, to the extent then exercisable: (i) for a
period of five (5) years from the date of Retirement or (ii) until the
expiration of the stated term of such Option, whichever period is
shorter.
(c) Re-Employment of a Participant
after a Termination of Employment shall have no effect on the periods during
which Options resulting from the prior Employment may be
exercised. For example, if the Option exercise period has been
shortened because of the prior Termination of Employment, it shall not be
extended because of the re-Employment.
(d) Notwithstanding any
other definition of Termination of Employment under this Plan, for purposes of
this Article 8 – Options only, a Termination of Employment shall mean the
cessation of the Employee being employed by any corporation, partnership,
venture or other entity in which AT&T holds, directly or indirectly, a 50%
or greater ownership interest, including but not limited to where AT&T
ceases to hold such interest in the employing company. In addition,
the definition of Retirement for purposes of this Article 8 shall use the
immediately foregoing definition of Termination of Employment in lieu
of any other definition.
Article 9 - Discontinuation,
Termination, Amendment
.
9.1
AT&T's Right to Discontinue
Offering Share Units.
The
Committee may at any time discontinue offerings of Share Units under the
Plan. Any such discontinuance shall have no effect upon existing
Share Units or the terms or provisions of this Plan as applicable to such Share
Units.
9.2
AT&T's Right to Terminate
Plan.
The
Committee may terminate the Plan at any time. Upon termination of the
Plan, contributions shall no longer be made under the Plan.
After
termination of the Plan, Participants shall continue to earn dividend
equivalents in the form of Share Units on undistributed Share Units and shall
continue to receive all distributions under this Plan at such time as provided
in and pursuant to the terms and conditions of Participant's elections and this
Plan. Notwithstanding the foregoing, the termination of the Plan
shall be made solely in accordance with Section 409A of the Code and in no event
shall cause the accelerated distribution of any Account unless such termination
is effected in accordance with Section 409A of the Code.
The
Committee may at any time amend the Plan in whole or in part including but not
limited to changing the formulas for determining the amount of AT&T Matching
Contributions under Article 5 or decreasing the number of Options to be issued
under Article 8; provided, however, that no amendment, including but not limited
to an amendment to this section, shall be effective, without the consent of a
Participant, to alter, to the material detriment of such Participant, a Share
Deferral Account of the Participant, other than as provided elsewhere in this
section. For purposes of this section, an alteration to the
material detriment of a Participant shall include, but not be limited to, a
material reduction in the period of time over which Stock may be distributed to
a Participant, any reduction in the Participant's number of vested Share Units
or Options, or an increase in the Exercise Price or decrease in the term of an
Option. Any such consent may be in a writing, telecopy, or
e-mail or in another electronic format. An election to acquire Share Units with
Employee Contributions shall be conclusively deemed to be the consent of the
Participant to any and all amendments to the Plan prior to such election, and
such consent shall be a condition to making any election with respect to
Employee Contributions.
Notwithstanding
anything to the contrary contained in this section of the Plan, the Committee
may modify this Plan with respect to any person subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”)
to place additional restrictions on the exercise of any Option or the transfer
of any Stock not yet issued under the Plan.
The Plan
is established in order to provide deferred compensation to a select group of
management and highly compensated employees with in the meaning of Sections
201(2) and 301(a)(3) of ERISA. To the extent legally required, the Code and
ERISA shall govern the Plan, and if any provision hereof is in violation of an
applicable requirement thereof, the Company reserves the right to retroactively
amend the Plan to comply therewith to the extent permitted under the Code and
ERISA. The Company also reserves the right to make such other changes
as may facilitate implementation of Section 409A of the
Code. Provided, however, that in no event shall any such amendments
be made in violation of the requirements of Section 409A of the
Code.
Article
10 – Miscellaneous.
10.1
Tax Withholding
.
Upon
distribution of Stock, including but not limited to, shares of Stock issued upon
the exercise of an Option, AT&T shall withhold shares of Stock sufficient in
value, using the FMV on the date determined by AT&T to be used to value the
Stock for tax purposes, to satisfy the minimum amount of Federal, state, and
local taxes required by law to be withheld as a result of such
distribution.
Any
fractional share of Stock payable to a Participant shall be withheld as
additional Federal withholding, or, at the option of AT&T, paid in cash to
the Participant.
Unless
otherwise determined by the Committee, when the method of payment for the
Exercise Price is from the sale by a stockbroker pursuant to Section 8.5,
hereof, of the Stock acquired through the Option exercise, then the tax
withholding shall be satisfied out of the proceeds. For
administrative purposes in determining the amount of taxes due, the sale price
of such Stock shall be deemed to be the FMV of the Stock.
10.2
Elections and
Notices.
Notwithstanding
anything to the contrary contained in this Plan, all elections and notices of
every kind under this Plan shall be made on forms prepared by AT&T or the
General Counsel, Secretary or Assistant Secretary, or their respective delegates
or shall be made in such other manner as permitted or required by AT&T or
the General Counsel, Secretary or Assistant Secretary, or their respective
delegates, including through electronic means, over the Internet or
otherwise. An election shall be deemed made when received by AT&T
(or its designated agent, but only in cases where the designated agent has been
appointed for the purpose of receiving such election), which may waive any
defects in form. Unless made irrevocable by the electing person, each
election with regard to making Employee Contributions or distributions of Share
Deferral Accounts shall become irrevocable at the close of business on the last
day to make such election. AT&T may limit the time an election may be made
in advance of any deadline.
If not otherwise specified by this Plan
or AT&T, any notice or filing required or permitted to be given to AT&T
under the Plan shall be delivered to the principal office of AT&T, directed
to the attention of the Senior Executive Vice President in charge of Human
Resources for AT&T or his or her successor. Such notice shall be
deemed given on the date of delivery.
Notice to
the Participant shall be deemed given when mailed (or sent by telecopy) to the
Participant's work or home address as shown on the records of AT&T or, at
the option of AT&T, to the Participant's e-mail address as shown on the
records of AT&T. It is the Participant's responsibility to ensure
that the Participant's addresses are kept up to date on the records of
AT&T. In the case of notices affecting multiple Participants, the
notices may be given by general distribution at the Participants' work
locations.
By
participating in the Plan, each Participant agrees that AT&T may provide any
documents required or permitted under the Federal or state securities laws,
including but not limited to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, by e-mail, by e-mail attachment, or
by notice by e-mail of electronic delivery through AT&T's Internet Web site
or by other electronic means.
10.3
Unsecured General
Creditor
.
Participants
and their beneficiaries, heirs, successors, and assigns shall have no legal or
equitable rights, interest, or claims in any property or assets of any
Employer. No assets of any Employer shall be held under any trust for
the benefit of Participants, their beneficiaries, heirs, successors, or assigns,
or held in any way as collateral security for the fulfilling of the obligations
of any Employer under this Plan. Any and all of each Employer's
assets shall be, and remain, the general, unpledged, unrestricted assets of such
Employer. The only obligation of an Employer under the Plan shall be
merely that of an unfunded and unsecured promise of AT&T to distribute
shares of Stock corresponding to Share Units and Options, under the
Plan.
10.4
Non-Assignability
.
Neither a
Participant nor any other person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, shares of Stock
corresponding to Share Units under the Plan, if any, or any part thereof, which
are, and all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the Stock distributable shall, prior to
actual distribution, be subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
10.5
Employment Not
Guaranteed
.
Nothing
contained in this Plan nor any action taken hereunder shall be construed as a
contract of employment or as giving any employee any right to be retained in the
employ of an Employer or to serve as a director.
10.6 Errors.
At any
time AT&T or an Employer may correct any error made under the Plan without
prejudice to AT&T or any Employer. Neither AT&T nor any
Employer shall be liable for any damages resulting from failure to timely allow
any contribution to be made to the Plan or for any damages resulting from the
correction of, or a delay in correcting, any error made under the
Plan. In no event shall AT&T or any Employer be liable for
consequential or incidental damages arising out of a failure to comply with the
terms of the Plan.
The
captions of the articles, sections, and paragraphs of this Plan are for
convenience only and shall not control nor affect the meaning or construction of
any of its provisions.
10.8
Governing Law
.
To the
extent not preempted by Federal law, the Plan, and all benefits and agreements
hereunder, and any and all disputes in connection therewith, shall be governed
by and construed in accordance with the substantive laws of the State of Texas,
without regard to conflict or choice of law principles which might otherwise
refer the construction, interpretation or enforceability of this Plan to the
substantive law of another jurisdiction.
Because
benefits under the Plan are granted in Texas, records relating to the Plan and
benefits thereunder are located in Texas, and the Plan and benefits thereunder
are administered in Texas, AT&T and the Participant under this Plan, for
themselves and their successors and assigns, irrevocably submit to the exclusive
and sole jurisdiction and venue of the state or Federal courts of Texas with
respect to any and all disputes arising out of or relating to this Plan, the
subject matter of this Plan or any benefits under this Plan, including but not
limited to any disputes arising out of or relating to the interpretation and
enforceability of any benefits or the terms and conditions of this
Plan. To achieve certainty regarding the appropriate forum in which
to prosecute and defend actions arising out of or relating to this Plan, and to
ensure consistency in application and interpretation of the Governing Law to the
Plan, the parties agree that (a) sole and exclusive appropriate venue for any
such action shall be an appropriate Federal or state court in Dallas County,
Texas, and no other, (b) all claims with respect to any such action shall be
heard and determined exclusively in such Texas court, and no other, (c) such
Texas court shall have sole and exclusive jurisdiction over the person of such
parties and over the subject matter of any dispute relating hereto and (d) that
the parties waive any and all objections and defenses to bringing any such
action before such Texas court, including but not limited to those relating to
lack of personal jurisdiction, improper venue or
forum non
conveniens
.
10.9
Plan to Comply with Section
409A.
In the
event any provision of this Plan is held invalid, void, or unenforceable, the
same shall not affect, in any respect whatsoever, the validity of any other
provision of this Plan. Notwithstanding any provision to the contrary
in this Plan, each provision in this Plan shall be interpreted to permit the
deferral of compensation in accordance with Section 409A of the Code and any
provision that would conflict with such requirements shall not be valid or
enforceable.
10.10
Successors and
Assigns
.
This Plan
shall be binding upon AT&T and its successors and assigns.
10.11
Loyalty Conditions
for Officer Level Employees and Senior
Managers
Each Officer Level Employee or a Senior
Manager who elects to make Employee Contributions under Section 4.1 of this Plan
shall be subject to the agreements and conditions of this section.
(a)
By making
an Employee Contribution election under Section 4.1 of this Plan after September
1, 2009, a Participant acknowledges that AT&T would be unwilling to provide
for such an election but for the loyalty conditions and covenants set forth in
this section, and that the conditions and covenants herein are a material
inducement to AT&T’s willingness to sponsor the Plan and to offer Plan
benefits for the Participants. Accordingly, as a condition to making
an Employee Contribution election under Section 4.1 of this Plan after September
1, 2009, each such electing Participant is deemed to agree that he
shall not, without obtaining the written consent of the Committee in advance,
participate in activities that constitute engaging in competition with AT&T
or engaging in conduct disloyal to AT&T, as those terms are defined in this
section.
(b)
Definitions
. For
purposes of this section and of the Plan generally:
(i)
an
“Employer Business” shall mean AT&T Inc. and any of its Subsidiaries, or any
business in which they or any affiliate of theirs has a substantial ownership or
joint venture interest;
(ii)
“engaging
in competition with AT&T” shall mean, while employed by AT&T or any of
its Subsidiaries, or within two (2) years after Participant’s Termination of
Employment, engaging by the Participant in any business or activity in all or
any portion of the same geographical market where the same or substantially
similar business or activity is being carried on by an Employer
Business. “Engaging in competition with AT&T” shall not include
owning a non-substantial publicly traded interest as a shareholder in a business
that competes with an Employer Business. “Engaging in competition
with AT&T” shall include representing or providing consulting services to,
or being an employee of, any person or entity that is engaged in competition
with any Employer Business or that takes a position adverse to any Employer
Business.
(iii)
“engaging
in conduct disloyal to AT&T” means, while employed by AT&T or any of its
Subsidiaries, or within two (2) years after Participant’s Termination of
Employment, (i) soliciting for employment or hire, whether as an employee or as
an independent contractor, for any business in competition with an Employer
Business, any person employed by AT&T or any of its Subsidiaries during the
one (1) year prior to the Participant’s Termination of Employment, whether or
not acceptance of such position would constitute a breach of such person’s
contractual obligations to AT&T or any of its Subsidiaries; (ii) soliciting,
encouraging, or inducing any vendor or supplier with which Participant had
business contact on behalf of any Employer Business during the two (2) years
prior to the Participant’s Termination of Employment (regardless of the reason
for that termination) to terminate, discontinue, renegotiate, reduce, or
otherwise cease or modify its relationship with AT&T or any of its
Subsidiaries; or (iii) soliciting, encouraging, or inducing any customer or
active prospective customer with whom Participant had business contact, whether
in person or by other media (“Customer”), on behalf of any Employer Business
during the two (2) years prior to the Participant’s Termination of Employment
(regardless of the reason for that termination), to terminate, discontinue,
renegotiate, reduce, or otherwise cease or modify its relationship with any
Employer Business, or to purchase competing goods or services from a business
competing with any Employer Business, or accepting or servicing business from
such Customer on behalf of himself or any other business. “Engaging
in conduct disloyal to AT&T” shall also mean, disclosing Confidential
Information to any third party or using Confidential Information, other than for
an Employer Business, or failing to return any Confidential Information to the
Employer Business following termination of employment.
(iv)
“Confidential
Information” shall mean all information belonging to, or otherwise relating to,
an Employer Business, which is not generally known, regardless of the manner in
which it is stored or conveyed to Participant, and which the Employer Business
has taken reasonable measures under the circumstances to protect from
unauthorized use or disclosure. Confidential Information includes
trade secrets as well as other proprietary knowledge, information, know-how, and
non-public intellectual property rights, including unpublished or pending patent
applications and all related patent rights, formulae, processes, discoveries,
improvements, ideas, conceptions, compilations of data, and data, whether or not
patentable or copyrightable and whether or not it has been conceived,
originated, discovered, or developed in whole or in part by
Participant. For example, Confidential Information includes, but is
not limited to, information concerning the Employer Business’ business plans,
budgets, operations, products, strategies, marketing, sales, inventions,
designs, costs, legal strategies, finances, employees, customers, prospective
customers, licensees, or licensors; information received from third parties
under confidential conditions; or other valuable financial, commercial,
business, technical or marketing information concerning the Employer Business,
or any of the products or services made, developed or sold by the Employer
Business. Confidential Information does not include information that
(i) was generally known to the public at the time of disclosure; (ii) was
lawfully received by Participant from a third party; (iii) was known to
Participant prior to receipt from the Employer Business; or (iv) was
independently developed by Participant or independent third parties; in each of
the foregoing circumstances, this exception applies only if such public
knowledge or possession by an independent third party was without breach by
Participant or any third party of any obligation of confidentiality or non-use,
including but not limited to the obligations and restrictions set forth in this
Plan.
(c)
Equitable
Relief
.
The
parties recognize that any Participant’s breach of any of the covenants in this
section will cause irreparable injury to the AT&T, will represent a failure
of the consideration under which AT&T (in its capacity as creator and
sponsor of the Plan) agreed to provide the Participant with the opportunity to
receive Plan benefits, and that monetary damages would not provide AT&T with
an adequate or complete remedy that would warrant AT&T’s continued
sponsorship of the Plan (including the accrual or granting of Share Units,
Matching Share Units and Options) for all Participants. Accordingly,
in the event of a Participant’s actual or threatened breach of the covenants in
this section, the Committee, in addition to all other rights and acting as a
fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty
(in order to assure that AT&T receives fair and promised consideration for
its continued Plan sponsorship and funding) to seek an injunction restraining
the Participant from breaching the covenants in this
Section. AT&T shall pay for any Plan expenses that the Committee
incurs hereunder, and shall be entitled to recover from the Participant its
reasonable attorneys’ fees and costs incurred in obtaining such injunctive
remedies.
(d)
Uniform
Enforcement. In recognition of AT&T’s need for nationally uniform
standards for the Plan administration, it is an absolute condition in
consideration of any Participant’s ability to make Employee Contribution
elections under Section 4.1 of this Plan after September 1, 2009, that each and
all of the following conditions apply to all such electing
Participants:
(i)
ERISA
shall control all issues and controversies hereunder, and the Committee shall
serve for purposes hereof as a “fiduciary” of the Plan and its “named fiduciary”
within the meaning of ERISA.
(ii)
All
litigation between the parties relating to this section shall occur in federal
court, which shall have exclusive jurisdiction; any such litigation shall be
held in the United States District Court for the Northern District of Texas, and
the only remedies available with respect to the Plan shall be those provided
under ERISA.
Exhibit
10-cc
AT&T
INC.
CASH
DEFERRAL PLAN
ADOPTED
NOVEMBER 19, 2004
AS
AMENDED THROUGH NOVEMBER 19, 2009
Article 1
− Statement of Purpose
The
purpose of the Cash Deferral Plan (“Plan”) is to provide savings opportunities
to a select group of management employees of AT&T Inc. (“AT&T”) and its
Subsidiaries.
Article 2
− Definitions
For the
purpose of this Plan, the following words and phrases shall have the meanings
indicated, unless the context indicates otherwise:
Annual
Bonus. The award designated the “Annual Bonus” by AT&T (including
but not limited to an award that may be paid in more frequent installments than
annually), together with any individual discretionary award made in connection
therewith, or comparable awards, if any, determined by AT&T to be used in
lieu of these awards.
Base
Compensation. The following types of cash-based compensation paid by
an Employer (but not including payments made by a non-Employer, such as state
disability payments), before reduction due to any contribution pursuant to this
Plan or reduction pursuant to any deferral plan of an Employer, including but
not limited to a plan that includes a qualified cash or deferral arrangement
under Section 401(k) of the Code:
(a) base
salary;
(b) lump
sum payments in lieu of a base salary increase; and
(c)
Annual Bonus.
Payments
by an Employer under a disability plan made in lieu of any compensation
described above, shall be deemed to be a part of the respective form of
compensation it replaces for purposes of this definition. Base
Compensation does not include zone allowances or any other geographical
differential and shall not include payments made in lieu of unused vacation or
other paid days off, and such payments shall not be contributed to this
Plan.
Determinations
by AT&T (the Committee with respect to Officer Level Employees) of the items
that make up Base Compensation shall be final. The Committee may,
from time to time, add or subtract types of compensation to or from the
definition of “Base Compensation” provided, however, any such
addition or subtraction shall be effective only with respect to the
next period in which a Participant may make an election to establish a Cash
Deferral Account. Base Compensation that was payable in a prior Plan
Year but paid in a later Plan Year shall not be used to determine Employee
Contributions in the later Plan Year.
Business
Day. Any day during regular business hours that AT&T is open for
business.
Cash
Deferral Account or Account. The Account or Accounts established
annually by an election by a Participant to make Employee Contributions to the
Plan with each account relating to a Plan Year. For each Plan Year
after 2008, there shall be a separate Cash Deferral Account for Base
Compensation (excluding Annual Bonus) and a separate Cash Deferral Account for
the Short Term Incentive Award and/or Annual Bonus. Earnings on each
of Employee Contributions shall accrue to the respective Cash Deferral Accounts
where they are earned.
Change in
Control. With respect to AT&T’s direct and indirect ownership of
an Employer, a “Change in the effective control of a Corporation,” as defined in
Treasury Regulation Section 1.409A−3(i)(5)(vi)(A)(1), regardless of whether the
Employer is a corporation or non-corporate entity as permitted by the
regulation, and using “50 percent” in lieu of “30 percent” in such
regulation. A Change in Control will not apply to AT&T
itself.
Chief
Executive Officer. The Chief Executive Officer of AT&T
Inc.
Code. References
to the Code shall be to provisions of the Internal Revenue Code of 1986, as
amended, including regulations promulgated thereunder and successor
provisions. Similarly, references to regulations shall include
amendments and successor provisions.
Committee. The
Human Resources Committee of the Board of Directors of AT&T
Inc.
Disability. Absence
of an Employee from work with an Employer under the relevant Employer’s
disability plan.
Eligible
Employee. An Employee who:
(a) is a
full or part time, salaried Employee of AT&T or an Employer in which
AT&T has a direct or indirect 100% ownership interest and who is on active
duty or Leave of Absence (but only while such Employee is deemed by the Employer
to be an Employee of such Employer);
(b) is,
as determined by AT&T, a member of Employer’s “select group of management or
highly compensated employees” within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, and regulations thereunder
(“ERISA”), which is deemed to include each Officer Level Employee;
and
(c) has
an employment status which has been approved by AT&T to be eligible to
participate in this Plan or is an Officer Level Employee.
Notwithstanding
the foregoing, AT&T (the Committee with respect to Officer Level Employees)
may, from time to time, exclude any Employee or group of Employees from being
deemed an “Eligible Employee” under this Plan.
In the
event a court or other governmental authority determines that an individual was
improperly excluded from the class of persons who would be permitted to make
Employee Contributions during a particular time for any reason, that individual
shall not be permitted to make such contributions for purposes of the Plan for
the period of time prior to such determination.
Employee. Any
person employed by an Employer and paid on an Employer’s payroll system,
excluding persons hired for a fixed maximum term and excluding persons who are
neither citizens nor permanent residents of the United States, all as determined
by AT&T. For purposes of this Plan, a person on Leave of Absence
who otherwise would be an Employee shall be deemed to be an
Employee.
Employee
Contributions. Amounts credited to a Cash Deferral Account pursuant
to Section 4.1 (Election to Make Contributions) of the Plan.
Employer. AT&T
Inc. or any of its Subsidiaries.
Incentive
Award. A cash award paid by an Employer (and not by a non-Employer,
such as state disability payments) under the Short Term Incentive Plan or any
successor plan, the 2006 Incentive Plan or any successor plan, or any other
award that the Committee specifically permits to be contributed to a Cash
Deferral Account under this Plan (regardless of the purpose of the
award).
Leave of
Absence. Where a person is absent from employment with an Employer on
a leave of absence, military leave, sick leave, or Disability, where the leave
is given in order to prevent a break in the continuity of term of employment,
and permission for such leave is granted (and not revoked) in conformity with
the rules of the Employer that employs the individual, as adopted from time to
time, and the Employee is reasonably expected to return to
service. Except as set forth below, the leave shall not exceed six
(6) months for purposes of this Plan, and the Employee shall Terminate
Employment upon termination of such leave if the Employee does not return to
work prior to or upon expiration of such six (6) month period, unless
the individual retains a right to reemployment under law or by
contract. A twenty-nine (29) month limitation shall apply in lieu of
such six (6) month limitation if the leave is due to the Employee being
“disabled” (within the meaning of Treasury Regulation
§1.409A−3(i)(4)). A Leave of Absence shall not commence or shall be
deemed to cease under the Plan where the Employee has incurred a Termination of
Employment.
Officer
Level Employee. Any executive officer of AT&T, as that term is
used under the Securities Exchange Act of 1934, as amended, and any Employee
that is an “officer level” Employee for compensation purposes as shown on the
records of AT&T.
Participant. An
Employee or former Employee who participates in this Plan.
Plan
Interest Rate. An annual rate of interest equal to Moody’s Long-Term
Corporate Bond Yield Average for the September preceding the calendar year
during which the interest rate will apply. The Committee may choose
another method of calculating the Plan Interest Rate, but such other method may
only apply to Cash Deferral Units that Participants have not yet elected to
establish.
Plan
Year. Each of the following shall be a Plan year: the
period from January 1, 2005 through January 15, 2006; the period January 16,
2006 through December 31, 2006; and, for all later Plan Years, it is defined as
the period from January 1 through December 31.
Retirement
or Retire. Termination of Employment on or after the date the
Participant has attained one of the following combinations of age and Net
Credited Service:
Net Credited
Service
|
Age
|
10 years or
more
|
65 or
older
|
20 years or
more
|
55 or
older
|
25 years or
more
|
50 or
older
|
30 years or
more
|
Any
age
|
For
purposes of this Plan only, Net Credited Service shall be calculated in the same
manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan
– Nonbargained Program (“Pension Plan”), as the same existed on October1, 2008,
except that service with an Employer shall be counted as though the Employer
were a “Participating Company” under the Pension Plan and the Employee was a
participant in the Pension Plan.
Senior
Manager. Any Employee who is a “senior manager” for compensation
purposes as shown on the records of AT&T.
Short
Term Incentive Award. A cash award paid by an Employer (and not by a
non-Employer, such as state disability payments) under the Short Term Incentive
Plan or any successor plan, together with any individual discretionary award
made in connection therewith; an award under a similar plan intended by the
Committee to be in lieu of an award under such Short Term Incentive Plan,
including, but not limited to, Performance Units granted under the 2006
Incentive Plan or any successor plan. It shall also include any other
award that the Committee designates as a Short Term Incentive Award specifically
for purposes of this Plan (regardless of the purpose of the award) provided the
deferral election is made in accordance with Section 409A.
Specified
Employee. Any Participant who is a “Key Employee” (as defined in Code
Section 416(i) without regard to paragraph (5) thereof), as determined by
AT&T in accordance with its uniform policy with respect to all arrangements
subject to Code Section 409A, based upon the 12-month period ending on each
December 31st (such 12-month period is referred to below as the “identification
period”). All Participants who are determined to be Key Employees
under Code Section 416(i) (without regard to paragraph (5) thereof) during the
identification period shall be treated as Key Employees for purposes of the Plan
during the 12-month period that begins on the first day of the 4th month
following the close of such identification period.
Subsidiary. Any
corporation, partnership, venture or other entity or business with which
AT&T would be considered a single employer under Sections 414(a) and (c) of
the Code, using 50% as the ownership threshold as provided under Section 409A of
the Code.
Termination
of Employment. References herein to “Termination of Employment,”
“Terminate Employment” or a similar reference, shall mean the event where the
Employee has a “separation from service,” as defined under Section 409A, with
all Employers. For purposes of this Plan, a Termination of Employment
with respect to an Employer also shall be deemed to occur when such Employer
incurs a Change in Control.
Article 3
− Administration of the Plan
3.1 The
Committee.
Except as
delegated by this Plan or by the Committee, the Committee shall be the
administrator of the Plan and will administer the Plan, interpret, construe and
apply its provisions and all questions of administration, interpretation and
application of the Plan, including, without limitation, questions and
determinations of eligibility entitlement to benefits and payment of benefits,
all in its sole and absolute discretion. The Committee may further
establish, adopt or revise such rules and regulations and such additional terms
and conditions regarding participation in the Plan as it may deem necessary or
advisable for the administration of the Plan. References in this Plan
to determinations or other actions by AT&T, herein, shall mean actions
authorized by the Committee, the Chief Executive Officer, the Senior Executive
Vice President of AT&T in charge of Human Resources, or their respective
successors or duly authorized delegates, in each case in the discretion of such
person. All decisions by the Committee, its delegate or AT&T, as
applicable, shall be final and binding.
3.2 Claims
and Appeals.
(a) Claims. A
person who believes that he or she is being denied a benefit to which he or she
is entitled under this Plan (hereinafter referred to as a “Claimant”) may file a
written request for such benefit with the Executive Compensation Administration
Department, setting forth his or her claim. The request must be addressed to the
AT&T Executive Compensation Administration Department at its then principal
place of business.
(b) Claim
Decision. Upon receipt of a claim, the AT&T Executive
Compensation Administration Department shall review the claim and provide the
Claimant with a written notice of its decision within a reasonable period of
time, not to exceed ninety (90) days, after the claim is received. If the
AT&T Executive Compensation Administration Department determines that
special circumstances require an extension of time beyond the initial ninety
(90)-day claim review period, the AT&T Executive Compensation Administration
Department shall notify the Claimant in writing within the initial ninety
(90)-day period and explain the special circumstances that require the extension
and state the date by which the AT&T Executive Compensation Administration
Department expects to render its decision on the claim. If this notice is
provided, the AT&T Executive Compensation Administration Department may take
up to an additional ninety (90) days (for a total of one hundred eighty (180)
days after receipt of the claim) to render its decision on the
claim.
If the
claim is denied by the AT&T Executive Compensation Administration
Department, in whole or in part, the AT&T Executive Compensation
Administration Department shall provide a written decision using language
calculated to be understood by the Claimant and setting forth: (i)
the specific reason or reasons for such denial; (ii) specific references to
pertinent provisions of this Plan on which such denial is based; (iii) a
description of any additional material or information necessary for the Claimant
to perfect his or her claim and an explanation of why such material or such
information is necessary; (iv) a description of the Plan’s procedures for review
of denied claims and the steps to be taken if the Claimant wishes to submit the
claim for review; (v) the time limits for requesting a review of a denied claim
under this section and for conducting the review under this section; and (vi) a
statement of the Claimant’s right to bring a civil action under Section 502(a)
of ERISA if the claim is denied following review under this
section.
(c) Request
for Review. Within sixty (60) days after the receipt by the Claimant of the
written decision on the claim provided for in this section, the Claimant may
request in writing that the Committee review the determination of the AT&T
Executive Compensation Administration Department. Such request must
be addressed to the Committee at the address for giving notice under this
Plan. To assist the Claimant in deciding whether to request a review
of a denied claim or in preparing a request for review of a denied claim, a
Claimant shall be provided, upon written request to the Committee and free of
charge, reasonable access to, and copies of, all documents, records and other
information relevant to the claim. The Claimant or his or her duly
authorized representative may, but need not, submit a statement of the issues
and comments in writing, as well as other documents, records or other
information relating to the claim for consideration by the
Committee. If the Claimant does not request a review of the AT&T
Executive Compensation Administration Department’s decision by the Committee
within such sixty (60)-day period, the Claimant shall be barred and estopped
from challenging the determination of the AT&T Executive Compensation
Administration Department.
(d) Review
of Decision. Within sixty (60) days after the Committee’s receipt of a request
for review, the Administrator will review the decision of the AT&T Executive
Compensation Administration Department. If the Committee determines
that special circumstances require an extension of time beyond the initial sixty
(60)-day review period, the Committee shall notify the Claimant in writing
within the initial sixty (60)-day period and explain the special circumstances
that require the extension and state the date by which the Committee expects to
render its decision on the review of the claim. If this notice is
provided, the Committee may take up to an additional sixty (60) days (for a
total of one hundred twenty (120) days after receipt of the request for review)
to render its decision on the review of the claim.
During
its review of the claim, the Committee shall:
(1) Take
into account all comments, documents, records, and other information submitted
by the Claimant relating to the claim, without regard to whether such
information was submitted or considered in the initial review of the claim
conducted pursuant to this section;
(2) Follow
reasonable procedures to verify that its benefit determination is made in
accordance with the applicable Plan documents; and
(3) Follow
reasonable procedures to ensure that the applicable Plan provisions are applied
to the Participant to whom the claim relates in a manner consistent with how
such provisions have been applied to other similarly-situated
Participants.
After
considering all materials presented by the Claimant, the Committee will render a
decision, written in a manner designed to be understood by the
Claimant. If the Committee denies the claim on review, the written
decision will include (i) the specific reasons for the decision; (ii) specific
references to the pertinent provisions of this Plan on which the decision is
based; (iii) a statement that the Claimant is entitled to receive, upon request
to the Committee and free of charge, reasonable access to, and copies of, all
documents, records, and other information relevant to the claim; and (iv) a
statement of the Claimant’s right to bring a civil action under Section 502(a)
of ERISA.
The
Committee shall serve as the final review committee under the Plan and shall
have sole and complete discretionary authority to administer, interpret,
construe and apply the Plan provisions, and determine all questions of
administration, interpretation, construction, and application of the Plan,
including questions and determinations of eligibility, entitlement to benefits
and the type, form and amount of any payment of benefits, all in its sole and
absolute discretion. The Committee shall further have the authority
to determine all relevant facts and related issues, and all documents, records
and other information relevant to a claim conclusively for all parties, and in
accordance with the terms of the documents or instruments governing the Plan.
Decisions by the Committee shall be conclusive and binding on all parties and
not subject to further review.
In any
case, a Participant or Beneficiary may have further rights under
ERISA. The Plan provisions require that Participants or Beneficiary
pursue all claim and appeal rights described in this section before they seek
any other legal recourse regarding claims for benefits.
Article 4
− Contributions
4.1 Election
to Make Contributions.
(a) The
Committee shall establish dates and other conditions for participation in the
Plan and making contributions as it deems appropriate. Except as
otherwise provided by the Committee, each year an Employee who is an Eligible
Employee as of September 30 may thereafter make an election on or prior to the
last Business Day of the immediately following November (such election shall be
cancelled if the Employee is not an Eligible Employee on the last day such an
election may be made) to contribute on a pre-tax basis, through payroll
deductions, any combination of the following:
(1) From
1% to 50% (in whole percentage increments) of the Participant’s monthly Base
Compensation, other than Annual Bonus, during the calendar year (the Plan Year
for such contributions) following the calendar year of such
election. Employees who are below the level of Senior Manager, as
shown on the records of AT&T at the time of the election, may contribute no
more than 25% or such other amount as determined by AT&T.
(2) Up
to 95% (in whole percentage increments) of a Short Term Incentive Award, or up
to 50% (in whole percentage increments) of Annual Bonus (25% for Employees who
are below the level of Senior Manager), in each case such contributions shall be
made during the second calendar year (which is the Plan Year for such
contributions) following the year of such election, except that in 2008 a
separate election may be made with respect to contributions to be made in
2009. An Employee may make such an election with respect to the type
of Award (Short Term Incentive Award or Annual Bonus) that the Employee is under
as of the time the Employee’s eligibility to make such election is
determined. If because of a promotion or otherwise, the Employee
receives a different type of Award instead of or in partial or full replacement
for the type of Award subject to the Employee’s election for the relevant Plan
Year, the election will apply to the other Award as well, including but not
limited to any individual discretionary award related thereto.
(b) The
Committee may permit an Eligible Employee to make an election to make other
contributions under this Plan with compensation other than Base Compensation or
Short Term Incentive Awards on such terms and conditions as such Committee may
permit from time to time provided that any such election is made in accordance
with Section 409A of the Code.)
(c) Notwithstanding
anything to the contrary in this Plan, no election shall be effective to the
extent it would permit an Employee Contribution or distribution to be made that
is not in compliance with Section 409A of the Code. To the extent
such election related to Employee Contributions that complied with such statute
and regulations, thereunder, that portion of the election shall remain valid,
except as otherwise provided under this Plan.
(d) To
the extent permitted by Section 409A of the Code, AT&T may refuse or
terminate, in whole or in part, any election to make contributions to the Plan
at any time; provided, however, only the Committee may take such action with
respect to persons who are Officer Level Employees.
(e) In
the event the Participant takes a hardship withdrawal pursuant to Treasury
Regulation §1.401(k)−1 from a benefit plan qualified under the Code and
sponsored by an Employer, any election to make Employee Contributions by such
Participant shall be cancelled on a prospective basis, and the Participant shall
not be permitted to make a new election with respect to Employee Contributions
that would be contributed during the then current and immediately following
calendar year.
(f) To
the extent a Participant makes contributions to the Plan where the payment of
which would be deductible by AT&T under Section 162(m) of the Code without
regard to the size of the distribution, such contributions and earnings thereon
shall be distributed first.
(g) With
respect to a Plan Year, an Employee may elect to (1) make Employee Contributions
of Base Compensation other than Annual Bonus to this Plan but only if the
Employee elects to contribute at least 15% of Base Compensation other than
Annual Bonus for the same Plan Year to the Stock Purchase and Deferral Plan
and/or (2) make Employee Contributions of Annual Bonus to this Plan but only if
the Employee elects to contribute at least 15% of Annual Bonus for the same Plan
Year to the Stock Purchase and Deferral Plan.
4.2 Contributions
to a Cash Deferral Account.
(a) Employee
Contributions shall be made pursuant to a proper election, only during the
Participant’s lifetime; provided, however, with respect to Employee Contribution
elections made prior to 2007, the Employee must remain an Eligible Employee
while making any such contributions. In the event of a Change in
Control of an Employer, subsequent compensation from the Employer may not be
contributed to the Plan. The Employer may continue the then current
elections of the participants under a subsequent plan in order to comply with
applicable tax laws.
(b) A
Participant’s contributions shall be credited to the Participant’s Cash Deferral
Account on the day the compensation – from which the contribution is to be
deducted – is to be paid (“paid,” as used in this Plan, includes amounts
contributed to the Plan that would have been paid were it not for an election
under this Plan), as determined by the relevant Employer. Earnings on
each Cash Deferral Account shall be recorded on Participant’s statements
quarterly. The Committee may modify or change this paragraph (b) from
time to time.
4.3 Earnings
on Cash Deferral Accounts.
During a
calendar year, the Participant’s Cash Deferral Account shall accrue interest on
amounts held by such Account at the Plan Interest Rate for such year, compounded
quarterly on the last day of each quarter. Interest will accrue on
unpaid amounts in the Cash Deferral Account from the date credited to such
Account.
Article 5
− Distributions
5.1 Distributions
of Cash Deferral Accounts.
(a) Initial
Election with Respect to a Cash Deferred Account. At the time the
Participant makes an election to make Employee Contributions with respect to a
Cash Deferral Account, the Participant shall also elect the calendar year of the
distribution of the Cash Deferral Account and the number of
installments. The Participant may elect either of the
following:
(1) Specified
Date Distribution. That the distribution of the Cash Deferral Account
commence in the calendar year specified by the Participant, but no later than
the 5th calendar year after the Plan Year the Cash Deferral Account commenced,
in up to Ten (10) installments. However, for purposes of Initial
Elections with respect to Plan Years prior to 2009 only, in the event the
Participant Terminates Employment prior to the calendar year of the
distribution, the Cash Deferral Account must commence distribution the calendar
year following the calendar year of the Termination of Employment, with the same
number of installments, unless the Employee has made an irrevocable election
under (b), below. For example, if the Participant elected a 2010
distribution with five (5) installments, but Terminated Employment in 2007, the
Cash Deferral Account would commence distribution in 2008.
(2) Retirement
Distribution. That the distribution of the Cash Deferral Account
commence the calendar year following the calendar year of Retirement in up to
(10) installments. If the Participant Terminates Employment while not
Retirement eligible, the distribution shall commence the calendar year following
the calendar year of Termination of Employment, but shall be limited to five (5)
installments. This distribution alternative will not be available for
Initial Elections made after 2007.
If no
timely distribution election is made by the Participant, then the Participant
will be deemed to have made an election to have the Cash Deferral Account
distributed in a single installment in the first calendar year after the
calendar year Employee Contributions were first made.
(b) If
an Employee elected a Specified Date Distribution for a Cash Deferral Account,
the Employee may elect a new Specified Date Distribution commencement date but
not a new number of installments; provided, however, Termination of Employment
will not accelerate the distribution, unlike the initial deferral
election. Unless otherwise provided by the Committee, the election of
a new commencement date must be made on or after October 1, and on or before the
last Business Day of the next following December, of the calendar year that is
the second calendar year preceding the calendar year of the relevant
commencement date. To make this election, the Participant must be an
Eligible Employee both on the September 30 immediately preceding such election
and on the last day such an election may be made. For example, an
election to defer a scheduled distribution that would otherwise commence in 2010
must be made during the period from October 1, 2008, through the last business
day of December 2008, and the Participant must be an Eligible Employee both on
September 30, 2008, and the last business day of December 2008. The
new distribution election must delay commencement of the distribution by five
(5) years. An election to create a new Specified Date Distribution
and defer the commencement of the distribution of a Cash Deferral Account may
not be made in the same calendar year the election to establish the Cash
Deferral Account is made. Notwithstanding anything to the contrary in
this Plan, (1) such election to create a new Specified Date Distribution must be
made at least 12 months prior to the date of the first scheduled payment under
the prior distribution election and (2) the election shall not take effect until
at least 12 months after the date on which the election is made.
(c) A
Participant’s Cash Deferral Account shall be distributed to the Participant on
March 10 (or as soon thereafter as administratively practicable, as determined
by AT&T) of the calendar year elected by the Participant for the
Account. In the event the distribution is to be made to a “Specified
Employee” as a result of the Participant’s Termination of Employment (other than
as a result of a Change in Control), the distribution shall not occur until the
later of such March 10 or six (6) months after the Termination of Employment,
except it shall be distributed upon the Participant’s earlier death in
accordance with this Plan. The distributions shall continue annually
on each successive March 10 (or such other date as determined by AT&T) until
the number of installments elected by the Participant is reached. In
each installment, AT&T shall distribute to the Participant that portion of
the Participant’s Cash Deferral Account that is equal to the total dollar amount
of the Participant’s Account divided by the number of remaining
installments.
(d) The
Committee may establish other distribution alternatives from time to time, but
such alternatives may be offered no earlier than the next period in which a
Participant may make an election to establish a Cash Deferral
Account.
5.2 Death
of the Participant.
In the
event of the death of a Participant, notwithstanding anything to the contrary in
this Plan, all undistributed Cash Deferral Accounts shall be distributed to the
Participant’s beneficiary in accordance with the AT&T Rules for Employee
Beneficiary Designations, as the same may be amended from time to time, within
the later of 90 days following such determination or the end of the calendar
year in which determination was made.
5.3 Unforeseeable
Emergency Distribution.
If a
Participant experiences an “Unforeseeable Emergency,” the Participant may submit
a written petition to AT&T (the Committee in the case of Officer Level
Employees), to receive a partial or full distribution of his Cash Deferral
Account(s). In the event that AT&T (the Committee in the case of
Officer Level Employees), upon review of the written petition of the
Participant, determines in its sole discretion that the Participant has suffered
an “Unforeseeable Emergency,” AT&T shall make a distribution to the
Participant from the Participant’s Cash Deferral Accounts, on a pro-rata basis,
within the later of 90 days following such determination or the end of the
calendar year in which determination was made, subject to the
following:
(a) “Unforeseeable
Emergency” shall mean a severe financial hardship to the Participant resulting
from an illness or accident of the Participant, the Participant’s legal spouse,
the Participant’s beneficiary, or the Participant’s dependent (as defined in
Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and
(d)(1)(B)); loss of the Participant’s property due to casualty; or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, all as determined in the sole discretion
of the Committee. Whether a Participant is faced with an
Unforeseeable Emergency permitting a distribution is to be determined based on
the relevant facts and circumstances of each case, but, in any case, a
distribution on account of Unforeseeable Emergency shall not be made to the
extent that such emergency is or may be relieved through reimbursement or
compensation from insurance or otherwise, by liquidation of the Participant’s
assets, to the extent the liquidation of such assets would not cause severe
financial hardship, or by cessation of deferrals under the Plan.
(b) The
amount of a distribution to be made because of an Unforeseeable Emergency shall
not exceed the amount reasonably necessary, as determined by AT&T (the
Committee in the case of Officer Level Employees) in its sole discretion, to
satisfy the emergency need (which may include amounts necessary to pay any
Federal, state, local, or foreign income taxes or penalties reasonably
anticipated to result from the distribution). Determinations of the
amount reasonably necessary to satisfy the emergency need shall take into
account any additional compensation that is available if the plan provides for
cancellation of a deferral election upon a payment due to an Unforeseeable
Emergency. The determination of amounts reasonably necessary to
satisfy the Unforeseeable Emergency need is not required to, but may, take into
account any additional compensation that, due to the Unforeseeable Emergency, is
available under another nonqualified deferred compensation plan but has not
actually been paid, or that is available due to the Unforeseeable Emergency
under another plan that would provide for deferred compensation except due to
the application of the effective date provisions under Treasury Regulation §
1.409A−6.
(c) Upon
such distribution on account of an Unforeseeable Emergency under this Plan, any
election to make Employee Contributions by such Participant shall be immediately
cancelled, and the Participant shall not be permitted to make a new election
with respect to Employee Contributions that would be contributed during the then
current and immediately following calendar year.
5.4 Ineligible
Participant.
Notwithstanding
any other provisions of this Plan to the contrary, if AT&T receives an
opinion from counsel selected by AT&T, or a final determination is made by a
Federal, state or local government or agency, acting within its scope of
authority, to the effect that an individual’s continued participation in the
Plan would violate applicable law, then such person shall not make further
contributions to the Plan to the extent permitted by Section 409A of the
Code.
Article 6
− Transition Provisions
6.1 2005
Cash Deferral Accounts.
Notwithstanding
Article 4 to the contrary, if an Employee is an Eligible Employee on September
30, 2004, the Employee may make an election under Article 4 on or prior to
December 15, 2004, with respect to the establishment of a Cash Deferral Account
for the contribution of Base Compensation and/or Incentive Awards that would
otherwise be paid during the period from January 1, 2005, through January 15,
2006, which shall be the Plan Year for such Cash Deferral Account.
6.2 2007
Amendments.
Amendments
made to the Plan on November 15, 2007, shall be effective January 1, 2008,
except for amendments to this Article 7, which shall be effective upon
adoption. Any Participants electing prior to November 15, 2007, to
make Employee Contributions in 2008 shall have their elections canceled if they
do not consent by December 14, 2007, to all prior amendments to this Plan and to
the Stock Purchase and Deferral Plan. Subject to the foregoing
consent requirements, all Employee Contribution elections made prior to 2008,
including but not limited to elections to contribute cash with respect to
Performance Shares granted that would be distributed under the 2001 Incentive
Plan or a successor plan, shall remain in force, subject to all other terms of
the amended Plan.
6.3 2008
Amendments. For the 2008 Plan Year, only Salary and Short Term
Incentive Awards paid after Termination of Employment may be contributed to the
Plan.
Article 7
− Discontinuation, Termination, Amendment.
7.1 AT&T’s
Right to Discontinue Offering Cash Deferral Accounts.
The
Committee may at any time discontinue offerings of Cash Deferral Accounts or
contributions under the Plan. Any such discontinuance shall have no
effect upon existing Cash Deferral Accounts or the terms or provisions of this
Plan as applicable to such Accounts.
7.2 AT&T’s
Right to Terminate Plan.
The
Committee may terminate the Plan at any time. Upon termination of the
Plan, contributions shall no longer be made under the Plan.
After
termination of the Plan, Participants shall continue to earn interest on
undistributed amounts and shall continue to receive all distributions under this
Plan at such time as provided in and pursuant to the terms and conditions of
Participant’s elections and this Plan. Notwithstanding the foregoing,
the termination of the Plan shall be made solely in accordance with Section 409A
of the Code and in no event shall cause the accelerated distribution of any
Account unless such termination is effected in accordance with Section 409A of
the Code.
7.3 Amendment.
The
Committee may at any time amend the Plan in whole or in part; provided, however,
that no amendment, including but not limited to an amendment to this section,
shall be effective, without the consent of a Participant, to alter, to the
material detriment of such Participant, any of the Cash Deferral Accounts of the
Participant, other than as provided elsewhere in this section. For
purposes of this section, an alteration to the material detriment of a
Participant shall include, but not be limited to, a material reduction in the
period of time over which the Participant’s Cash Deferral Account may be
distributed to a Participant, any reduction in the amounts credited to the
Participant’s Cash Deferral Accounts, or any reduction in the Plan Interest Rate
(other than as it may fluctuate in accordance with its terms) for Cash Deferral
Accounts previously elected by the Participant. Any such consent may
be in a writing, telecopy, or e-mail or in another electronic
format. An election to make Employee Contributions shall be
conclusively deemed to be the consent of the Participant to any and all
amendments to the Plan prior to such election, and such consent shall be a
condition to making any election with respect to Employee
Contributions.
The Plan
is established in order to provide deferred compensation to a select group of
management and highly compensated employees with in the meaning of Sections
201(2) and 301(a)(3) of ERISA. To the extent legally required, the
Code and ERISA shall govern the Plan, and if any provision hereof is in
violation of an applicable requirement thereof, the Company reserves the right
to retroactively amend the Plan to comply therewith to the extent permitted
under the Code and ERISA. The Company also reserves the right to make
such other changes as may facilitate implementation of Section 409A of the
Code. Provided, however, that in no event shall any such amendments
be made in violation of the requirements of Section 409A of the
Code.
Article 8
− Miscellaneous
8.1 Tax
Withholding.
Upon a
distribution from a Participant’s Cash Deferral Account, AT&T shall withhold
sufficient amounts to satisfy the minimum amount of Federal, state, and local
taxes required by law to be withheld as a result of such
distribution.
8.2 Loyalty
Conditions for Officer Level Employees and Senior Managers.
Each
Officer Level Employee or a Senior Manager who elects to make Employee
Contributions under Section 4.1 of this Plan shall be subject to the agreements
and conditions of this section.
(a)
By making
an Employee Contribution election under Section 4.1 of this Plan after September
1, 2009, a Participant acknowledges that AT&T would be unwilling to provide
for such an election but for the loyalty conditions and covenants set forth in
this section, and that the conditions and covenants herein are a material
inducement to AT&T’s willingness to sponsor the Plan and to offer Plan
benefits for the Participants. Accordingly, as a condition to making
an Employee Contribution election under Section 4.1 of this Plan after September
1, 2009, each such electing Participant is deemed to agree that he
shall not, without obtaining the written consent of the Committee in advance,
participate in activities that constitute engaging in competition with AT&T
or engaging in conduct disloyal to AT&T, as those terms are defined in this
section.
(b)
Definitions
. For
purposes of this section and of the Plan generally:
(i)
an
“Employer Business” shall mean AT&T Inc. and any of its Subsidiaries, or any
business in which they or any affiliate of theirs has a substantial ownership or
joint venture interest;
(ii)
“engaging
in competition with AT&T” shall mean, while employed by AT&T or any of
its Subsidiaries, or within two (2) years after Participant’s Termination of
Employment, engaging by the Participant in any business or activity in all or
any portion of the same geographical market where the same or substantially
similar business or activity is being carried on by an Employer
Business. “Engaging in competition with AT&T” shall not include
owning a non-substantial publicly traded interest as a shareholder in a business
that competes with an Employer Business. “Engaging in competition
with AT&T” shall include representing or providing consulting services to,
or being an employee of, any person or entity that is engaged in competition
with any Employer Business or that takes a position adverse to any Employer
Business.
(iii)
“engaging
in conduct disloyal to AT&T” means, while employed by AT&T or any of its
Subsidiaries, or within two (2) years after Participant’s Termination of
Employment, (i) soliciting for employment or hire, whether as an employee or as
an independent contractor, for any business in competition with an Employer
Business, any person employed by AT&T or any of its Subsidiaries during the
one (1) year prior to the Participant’s Termination of Employment, whether or
not acceptance of such position would constitute a breach of such person’s
contractual obligations to AT&T or any of its Subsidiaries; (ii) soliciting,
encouraging, or inducing any vendor or supplier with which Participant had
business contact on behalf of any Employer Business during the two (2) years
prior to the Participant’s Termination of Employment (regardless of the reason
for that termination) to terminate, discontinue, renegotiate, reduce, or
otherwise cease or modify its relationship with AT&T or any of its
Subsidiaries; or (iii) soliciting, encouraging, or inducing any customer or
active prospective customer with whom Participant had business contact, whether
in person or by other media (“Customer”), on behalf of any Employer Business
during the two (2) years prior to the Participant’s Termination of Employment
(regardless of the reason for that termination), to terminate, discontinue,
renegotiate, reduce, or otherwise cease or modify its relationship with any
Employer Business, or to purchase competing goods or services from a business
competing with any Employer Business, or accepting or servicing business from
such Customer on behalf of himself or any other business. “Engaging
in conduct disloyal to AT&T” shall also mean, disclosing Confidential
Information to any third party or using Confidential Information, other than for
an Employer Business, or failing to return any Confidential Information to the
Employer Business following termination of employment.
(iv)
“Confidential
Information” shall mean all information belonging to, or otherwise relating to,
an Employer Business, which is not generally known, regardless of the manner in
which it is stored or conveyed to Participant, and which the Employer Business
has taken reasonable measures under the circumstances to protect from
unauthorized use or disclosure. Confidential Information includes
trade secrets as well as other proprietary knowledge, information, know-how, and
non-public intellectual property rights, including unpublished or pending patent
applications and all related patent rights, formulae, processes, discoveries,
improvements, ideas, conceptions, compilations of data, and data, whether or not
patentable or copyrightable and whether or not it has been conceived,
originated, discovered, or developed in whole or in part by
Participant. For example, Confidential Information includes, but is
not limited to, information concerning the Employer Business’ business plans,
budgets, operations, products, strategies, marketing, sales, inventions,
designs, costs, legal strategies, finances, employees, customers, prospective
customers, licensees, or licensors; information received from third parties
under confidential conditions; or other valuable financial, commercial,
business, technical or marketing information concerning the Employer Business,
or any of the products or services made, developed or sold by the Employer
Business. Confidential Information does not include information that
(i) was generally known to the public at the time of disclosure; (ii) was
lawfully received by Participant from a third party; (iii) was known to
Participant prior to receipt from the Employer Business; or (iv) was
independently developed by Participant or independent third parties; in each of
the foregoing circumstances, this exception applies only if such public
knowledge or possession by an independent third party was without breach by
Participant or any third party of any obligation of confidentiality or non-use,
including but not limited to the obligations and restrictions set forth in this
Plan.
(c)
Equitable
Relief
.
The
parties recognize that any Participant’s breach of any of the covenants in this
section will cause irreparable injury to the AT&T, will represent a failure
of the consideration under which AT&T (in its capacity as creator and
sponsor of the Plan) agreed to provide the Participant with the opportunity to
receive Plan benefits, and that monetary damages would not provide AT&T with
an adequate or complete remedy that would warrant AT&T’s continued
sponsorship of the Plan (including the accrual or granting of Share Units,
Matching Share Units and Options) for all Participants. Accordingly,
in the event of a Participant’s actual or threatened breach of the covenants in
this section, the Committee, in addition to all other rights and acting as a
fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty
(in order to assure that AT&T receives fair and promised consideration for
its continued Plan sponsorship and funding) to seek an injunction restraining
the Participant from breaching the covenants in this
Section. AT&T shall pay for any Plan expenses that the Committee
incurs hereunder, and shall be entitled to recover from the Participant its
reasonable attorneys’ fees and costs incurred in obtaining such injunctive
remedies.
(d)
Uniform
Enforcement. In recognition of AT&T’s need for nationally uniform
standards for the Plan administration, it is an absolute condition in
consideration of any Participant’s ability to make Employee Contribution
elections under Section 4.1 of this Plan after September 1, 2009, that each and
all of the following conditions apply to all such electing
Participants:
(i)
ERISA
shall control all issues and controversies hereunder, and the Committee shall
serve for purposes hereof as a “fiduciary” of the Plan and its “named fiduciary”
within the meaning of ERISA.
(ii)
All
litigation between the parties relating to this section shall occur in federal
court, which shall have exclusive jurisdiction; any such litigation shall be
held in the United States District Court for the Northern District of Texas, and
the only remedies available with respect to the Plan shall be those provided
under ERISA.
8.3 Elections
and Notices.
Notwithstanding
anything to the contrary contained in this Plan, all elections and notices of
every kind under this Plan shall be made on forms prepared by AT&T or the
General Counsel, Secretary or Assistant Secretary, or their respective delegates
or shall be made in such other manner as permitted or required by AT&T or
the General Counsel, Secretary or Assistant Secretary, or their respective
delegates, including through electronic means, over the Internet or
otherwise. An election shall be deemed made when received by AT&T
(or its designated agent, but only in cases where the designated agent has been
appointed for the purpose of receiving such election), which may waive any
defects in form. Unless made irrevocable by the electing person, each
election with regard to making Employee Contributions or distributions of Cash
Deferral Accounts shall become irrevocable at the close of business on the last
day to make such election. AT&T may limit the time an election
may be made in advance of any deadline.
If not
otherwise specified by this Plan or AT&T, any notice or filing required or
permitted to be given to AT&T under the Plan shall be delivered to the
principal office of AT&T, directed to the attention of the Senior Executive
Vice President in charge of Human Resources for AT&T or his or her
successor. Such notice shall be deemed given on the date of
delivery.
Notice to
the Participant shall be deemed given when mailed (or sent by telecopy) to the
Participant’s work or home address as shown on the records of AT&T or, at
the option of AT&T, to the Participant’s e-mail address as shown on the
records of AT&T. It is the Participant’s responsibility to
ensure that the Participant’s addresses are kept up to date on the records of
AT&T. In the case of notices affecting multiple Participants, the
notices may be given by general distribution at the Participants’ work
locations.
By
participating in the Plan, each Participant agrees that AT&T may provide any
documents required or permitted under the Federal or state securities laws,
including but not limited to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, by e-mail, by e-mail attachment, or
by notice by e-mail of electronic delivery through AT&T’s Internet Web site
or by other electronic means.
8.4 Unsecured
General Creditor.
Participants
and their beneficiaries, heirs, successors, and assigns shall have no legal or
equitable rights, interest, or claims in any property or assets of any
Employer. No assets of any Employer shall be held under any trust for
the benefit of Participants, their beneficiaries, heirs, successors, or assigns,
or held in any way as collateral security for the fulfilling of the obligations
of any Employer under this Plan. Any and all of each Employer’s
assets shall be, and remain, the general, unpledged, unrestricted assets of such
Employer. The only obligation of an Employer under the Plan shall be
merely that of an unfunded and unsecured promise of AT&T to make
distributions under and in accordance with the terms of the Plan.
8.5 Non-Assignability.
Neither a
Participant nor any other person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, any Cash Deferral Account
under the Plan, if any, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No
part of a distributable Cash Deferral Account shall, prior to actual
distribution, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the event of a
Participant’s or any other person’s bankruptcy or insolvency.
8.6 Employment
Not Guaranteed.
Nothing
contained in this Plan nor any action taken hereunder shall be construed as a
contract of employment or as giving any employee any right to be retained in the
employ of an Employer or to serve as a director.
8.7 Errors.
At any
time AT&T or an Employer may correct any error made under the Plan without
prejudice to AT&T or any Employer. Neither AT&T nor any
Employer shall be liable for any damages resulting from failure to timely allow
any contribution to be made to the Plan or for any damages resulting from the
correction of, or a delay in correcting, any error made under the
Plan. In no event shall AT&T or any Employer be liable for
consequential or incidental damages arising out of a failure to comply with the
terms of the Plan.
8.8 Captions.
The
captions of the articles, sections, and paragraphs of this Plan are for
convenience only and shall not control nor affect the meaning or construction of
any of its provisions.
8.9 Governing
Law.
To the
extent not preempted by Federal law, the Plan, and all benefits and agreements
hereunder, and any and all disputes in connection therewith, shall be governed
by and construed in accordance with the substantive laws of the State of Texas,
without regard to conflict or choice of law principles which might otherwise
refer the construction, interpretation or enforceability of this Plan to the
substantive law of another jurisdiction.
Because
benefits under the Plan are granted in Texas, records relating to the Plan and
benefits thereunder are located in Texas, and the Plan and benefits thereunder
are administered in Texas, AT&T and the Participant under this Plan, for
themselves and their successors and assigns, irrevocably submit to the exclusive
and sole jurisdiction and venue of the state or Federal courts of Texas with
respect to any and all disputes arising out of or relating to this Plan, the
subject matter of this Plan or any benefits under this Plan, including but not
limited to any disputes arising out of or relating to the interpretation and
enforceability of any benefits or the terms and conditions of this
Plan. To achieve certainty regarding the appropriate forum in which
to prosecute and defend actions arising out of or relating to this Plan, and to
ensure consistency in application and interpretation of the Governing Law to the
Plan, the parties agree that (a) sole and exclusive appropriate venue for any
such action shall be an appropriate Federal or state court in Dallas County,
Texas, and no other, (b) all claims with respect to any such action shall be
heard and determined exclusively in such Texas court, and no other, (c) such
Texas court shall have sole and exclusive jurisdiction over the person of such
parties and over the subject matter of any dispute relating hereto and (d) that
the parties waive any and all objections and defenses to bringing any such
action before such Texas court, including but not limited to those relating to
lack of personal jurisdiction, improper venue or forum non
conveniens.
8.10 Plan
to Comply with Section 409A.
In the
event any provision of this Plan is held invalid, void, or unenforceable, the
same shall not affect, in any respect whatsoever, the validity of any other
provision of this Plan. Notwithstanding any provision to the contrary
in this Plan, each provision in this Plan shall be interpreted to permit the
deferral of compensation in accordance with Section 409A of the Code and any
provision that would conflict with such requirements shall not be valid or
enforceable.
8.11 Successors
and Assigns.
This Plan
shall be binding upon AT&T and its successors and assigns.
EXHIBIT
DD
MASTER
TRUST
AGREEMENT FOR
SOUTHWESTERN
BELL CORPORATION
DEFERRED
COMPENSATION PLANS AND OTHER
EXECUTIVE
BENEFIT PLANS
By and
Between
SOUTHWESTERN
BELL CORPORATION,
PARTICIPATING
TRUST TRUSTEES
And
BOATMEN'S
TRUST COMPANY, AS TRUSTEE
MASTER
TRUST AGREEMENT FOR
SOUTHWESTERN
BELL CORPORATION
SENIOR
MANAGEMENT DEFERRED COMPENSATION PLANS AND
OTHER
EXECUTIVE BENEFIT PLANS
This
Trust Agreement is made and entered into by and between SOUTHWESTERN BELL
CORPORATION, a Delaware corporation (the "Company"), BOATMEN'S TRUST COMPANY, a
Missouri corporation (the "Trustee"), and Boatmen's Trust Company as trustee of
each Participating Trust (as such term is hereinafter defined). Boatmen's Trust
Company acting in its capacity as trustee of each Participating Trust is
hereinafter referred to as the "Participating Trust Trustee". The parties agree
as follows:
The
Company and the Participating Trust Trustees hereby establish with the Trustee a
trust to hold all monies and other property, together with the earnings, income,
additions and appreciation thereon and thereto, as shall be paid or transferred
to it hereunder in accordance with the terms and conditions of this Trust
Agreement. The Trustee hereby accepts the trust established under this Trust
Agreement and agrees to hold, IN TRUST, all monies and other property
transferred to it hereunder for the uses and purposes and upon the terms and
conditions set forth herein, and the Trustee further agrees to discharge and
perform fully and faithfully all of the duties and obligations imposed upon it
under this Trust Agreement.
PREAMBLE
The
Company and the Participating Trust Trustees have entered into the following
trust agreements, each of which is incorporated herein by this reference,
thereby establishing eight separate trusts (each of which is referred to herein
as a "Participating Trust"):
·
Trust
Agreement for Southwestern Bell Corporation
Senior
Management Deferred Compensation Plan of 1988
·
Trust
Agreement for Southwestern Bell Corporation
Senior
Management Deferred Compensation Plan of 1988 (Early Payment
Option)
·
Trust
Agreement for Southwestern Bell Corporation
Senior
Management Deferred Compensation Plan
·
Trust
Agreement for Southwestern Bell Corporation
Management
Deferred Compensation Plan of 988
·
Trust
Agreement for Southwestern Bell Corporation
Management
Deferred Compensation Plan
·
Trust
Agreement for Southwestern Bell Corporation
Compensation
Deferral Plan
·
Trust
Agreement for Southwestern Bell Corporation
Senior
Management Supplemental Retirement Income Plan
·
Trust
Agreement for Southwestern Bell Corporation
Management
Pension Plan (Benefits In Excess of Code ss. 415 Limitations)
The
Company and the Participating Trust Trustees wish to establish his trust to
facilitate the administration of the Participating Trusts.
The
Company and/or the respective Participating Trust Trustee shall provide the
Trustee with certified copies of the following items: (i) Participating Trust
Agreement; and (ii) lists and specimen signatures of representatives authorized
to take action in regard to the administration of the Participating Trust and/or
this trust, including any changes of such representatives promptly following any
such change.
The
purpose of this trust is to facilitate the administration of the Participating
Trusts which were themselves each established for the benefit of eligible
participants of the plan to which the Participating Trust relates (each such
plan being hereinafter referred to as a "Plan").
This
trust shall be and hereby is declared to be subject to the provisions of each
Participating Trust.
The
Company and the Participating Trust Trustees and the Trustee agree that the
trust hereby created has been established to facilitate the administration of
the Participating Trusts (which themselves were each established to pay
obligations of the Company pursuant to a Plan) and is subject to the rights of
general creditors of the Company, and accordingly is a grantor trust under the
provisions of Sections 671 through 677 of the Internal Revenue Code of 1986 as
amended (the "Code"). The Company hereby agrees to report all items of income
and deduction of the trust on its own income tax returns; and the Company shall
have no right to any distributions from the trust or any claim against the trust
for funds necessary to pay any income taxes which the Company is required to pay
on account of reporting the income of the trust on its income tax returns. No
contribution to or income of the trust is intended to be taxable to Plan
participants until benefits are distributed to them.
Each Plan
is intended to be "unfunded" and maintained "primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees" for purposes of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and as such is intended not to be covered by
Parts 2 through 4 of subtitle B of Title I of ERISA (relating to participation
and vesting, funding and fiduciary responsibility). The existence of this trust
is not intended to alter this characterization of any Plan.
Any
additional trust may become a Participating Trust hereunder with the consent of
the Company and the Trustee upon adoption of this Agreement and delivery to the
Trustee of assets to purchase units hereunder for such trust in accordance with
2.1 and 3.3 hereof.
ARTICLE
I
Effective
Date; Duration
1.1 Effective
Date and Trust Year
This
trust shall become effective when the Trust Agreement has been executed by the
Company, the Participating Trust Trustees and the Trustee and the Company and/or
a Participating Trust Trustee has made a contribution to the trust. The trust
year shall be the calendar year.
1.2 Duration
1.2.1 This
trust shall continue in effect until all assets of the trust fund are exhausted
through distribution of Participating Trust assets in accordance with the
provisions of the Participating Trusts or return of Participating Trust assets
to the Participating Trust Trustees or to the Company in accordance with
Participating Trust provisions. Notwithstanding the foregoing, this trust shall
terminate on the day before twenty-one years after the death of the last
survivor of all of the present or future participants in any Plan who are now
living and those persons now living who are designated as beneficiaries of any
such participants in accordance with the terms of any Plan.
ARTICLE
II
Trust
Fund
2.1 Contributions
The Company and the Participating
Trust Trustees hereby establish with the Trustee, and the Trustee hereby
accepts, a trust consisting of such cash or other property acceptable to the
Trustee as shall be paid or delivered to the Trustee from time to time by the
Company or any Participating Trust Trustee together with the earnings, income,
additions and appreciation thereon and thereto. All such payments and deliveries
of cash or other property shall be deemed to be made as of the Valuation Date
(as such term is hereinafter defined) coinciding with or next following such
payment or delivery and shall purchase units in accordance with the provisions
of 3.3. With respect to contributions made by the Company, the Company shall
designate the Participating Trust for which such contributions are made;
provided, however, the Company may designate that funds it contributes not be
allocated to any Participating Trust but instead that such contribution be
allocated to the Company's account that shall be maintained hereunder. The
Trustee shall hold the fund in trust and manage and administer it in accordance
with the terms and provisions of this Agreement.
Before a Potential Change in Control
(as such term is defined in the Participating Trusts), subject to 3.2.1, the
Trustee shall transfer from the Company's account hereunder to the account of
any Participating Trust such amount as the Company directs. Upon a Potential
Change in Control, any funds then held in the Company's account hereunder shall
be allocated as of the Valuation Date coinciding with or next following the
Potential Change in Control to the Participating Trusts hereunder. The amount
allocated to each such Participating Trust shall be that portion of the total
amount in the Company's account that is proportional to the ratio of a
Participating Trust's Potential Change in Control Funding Amount (as such term
is defined in the Participating Trusts) to the aggregate of the Potential Change
in Control Funding Amounts of all of the Participating Trusts.
2.2 Investments
2.2.1 The
trust fund may be invested primarily in insurance or annuity contracts
("Contracts"). Such Contracts may be purchased by the Company and transferred to
the Trustee by the Company or a Participating Trust Trustee as in-kind
contributions or may be purchased by the Trustee with the proceeds of cash
contributions (or may be purchased upon direction by the Company pursuant to
2.2.2 or an Investment Manager pursuant to 2.2.4). The Company's contributions
to the trust shall include sufficient cash to make projected premium payments on
such Contracts and payments of interest due on loans secured by the cash value
of such Contracts, unless the Company makes such payments directly. The Trustee
shall have the power to exercise all rights, privileges, options and elections
granted by or permitted under any Contract or under the rules of the issuing
insurance company ("Insurer"), including the right to obtain policy loans
against the cash value of the Contract. The Company or a Participating Trust
Trustee or a Committee (as such term is defined in the Participating Trusts) may
from time to time direct the Trustee in writing as to the designation of the
beneficiary of a Plan participant under a Contract for any part of the death
benefits payable to such beneficiary thereunder, and the Trustee shall file such
designation with the Insurer.
2.2.2 The
trustee shall invest the trust fund in accordance with written directions by the
Company. However, after a Change in Control (as such term is defined in the
Participating Trusts) no investments shall be made in any securities or
instruments issued by the Company or other assets of the Company without the
written Consent of Participants (as such term is defined in the Participating
Trusts). The Trustee shall act only as an administrative agent in carrying out
directed investment transactions and shall not be responsible for the investment
decision. If a directed investment transaction violates any duty to diversify,
to maintain liquidity or to meet any other investment standard under this trust
or applicable law, the entire responsibility shall rest upon the Company. The
Trustee shall be fully protected in acting upon or complying with any investment
objectives, guidelines, restrictions or directions provided in accordance with
this paragraph.
Notwithstanding the foregoing, after
a Change in Control the Company shall no longer be entitled to direct the
Trustee with respect to the investment of the trust fund pursuant to this 2.2.2,
unless the Written Consent of Participants is obtained for the Company to
continue to have this right pursuant to this 2.2.2. If such written Consent of
Participants is not obtained, the trust fund shall be invested by the Trustee
pursuant to 2.2.3 or an Investment Manager pursuant to 2.2.4 and the Trustee or
Investment Manager shall also have the right to invest the trust fund primarily
in insurance or annuity contracts pursuant to 2.2.1.
2.2.3
If the Trustee does not receive instructions from the Company for the investment
of part or all of the trust fund, the Trustee shall invest and reinvest the
assets of the trust as the Trustee, in its sole discretion, may deem
appropriate, including (without limiting the generality of the foregoing)
improved and unimproved real property, whether or not income producing, common
and preferred stocks, shares or certificates of participation issued by
investment companies, investment trusts and mutual funds, common or pooled
investment funds, bonds, debentures, mortgages, deeds of trust, insurance and
annuity contracts, notes secured by real or personal property, leases, ground
leases, limited partnership interests, real or personal property interests
owned, developed or managed by joint ventures or limited partnerships,
obligations of governmental bodies, both domestic and foreign, notes, commercial
paper, certificates of deposit, and other securities or evidences of
indebtedness, secured or unsecured, including variable amount notes, convertible
securities of all types and kinds, interest-bearing savings or deposit accounts
with any federally-insured bank (including the Trustee or an affiliate of the
Trustee) or any savings and loan association, and any other property permitted
as trust investments under applicable law; provided, however, the Trustee is
hereby specifically authorized to sell covered call options but shall not
purchase such options or otherwise deal in options or futures
contracts.
The
Trustee is hereby specifically authorized to invest in any common or pooled
investment fund or mutual fund now or hereafter maintained by the Trustee or an
affiliate of the Trustee and any interest-bearing savings or deposit accounts
with the banking department of the Trustee or an affiliate of the
Trustee.
2.2.4 The
Company may appoint one or more investment managers ("Investment Manager")
subject to the following provisions:
(a) The Company may appoint one or more
Investment Managers to manage (including the power to acquire and dispose of) a
specified portion of the assets of the trust (hereinafter referred to as that
Investment Manager's "Segregated Fund"). Any Investment Manager so appointed
must be either (A) an investment adviser registered as such under the Investment
Advisers Act of 1940, (B) a bank, as defined in that Act, or (C) an insurance
company qualified to perform services in the management, acquisition or
disposition of the assets of trusts under the laws of more than one state; and
any Investment Manager so appointed must acknowledge in writing to the Company
and to the Trustee that it is a fiduciary with respect to the Plans. The
Trustee, until notified in writing to the contrary, shall be fully protected in
relying upon any written notice of the appointment of an Investment Manager
furnished to it by the Company. In the event of any vacancy in the
office of Investment Manager, the Trustee shall be deemed to be the Investment
Manager of that Investment Manager's Segregated Fund until an Investment Manager
thereof shall have been duly appointed; and in such event, until an
Investment Manager shall have been so appointed and qualified,
references herein to the Trustee's acting in respect of that
Segregated Fund pursuant to direction from the Investment Manger shall be deemed
to authorize the Trustee to act in its own
discretion in managing and controlling the assets of that Segregated Fund, and
subparagraph (c) below shall have no effect with respect thereto and shall be
disregarded.
(b) Each Investment Manager appointed
pursuant to subparagraph (a) above shall have exclusive authority and discretion
to manage and control the assets of its Segregated Fund and may invest and
reinvest the assets of the Segregated Fund in any investments in which the
Trustee is authorized to invest under 2.2.3, subject to the limitations of 2.2.3
and subject to the terms and limitations of any written instruments pertaining
to its appointment as Investment Manager. Copies of any such written instruments
shall be furnished to the Trustee. In addition, each Investment Manager from
time to time and at any time may delegate to the Trustee (or in the event of any
vacancy in the office of Investment Manager, the Trustee may exercise in respect
of that Investment Manager's Segregated Fund) discretionary authority to invest
and reinvest otherwise uninvested cash held in its Segregated Fund temporarily
in bonds, notes or other evidences of indebtedness issued or fully guaranteed by
the United States of America or any agency or instrumentality thereof,
or in other obligations of a short-term nature, including prime
commercial obligations or part interests therein.
(c) Unless the Trustee knowingly
participates in, or knowingly undertakes to conceal, an act or omission of an
Investment Manager, knowing such act or omission to be a breach of the fiduciary
responsibility of the Investment Manager with respect to any Plan, the Trustee
shall not be liable for any act or omission of any Investment Manager and shall
not be under any obligation to invest or otherwise manage the assets of any Plan
that are subject to the management of any Investment Manager. Without limiting
the generality of the foregoing, the Trustee shall not be liable by reason of
its taking or refraining from taking at the direction of an Investment Manager
any action in respect of that Investment Manager's Segregated Fund. The Trustee
shall be under no duty to question or to make inquiries as to any direction or
order or failure to give direction or order by any Investment Manager; and the
Trustee shall be under no duty to make any review of investments acquired for
the trust at the direction or order of any Investment Manager and shall be under
no duty at any time to make any recommendation with respect to disposing of or
continuing to retain any such investment.
2.3 Excess
Assets
Excess Assets (as such term is
defined in the Participating Trusts) allocable to any Participating Trust that
are held in this trust may be returned to the Company in accordance with the
provisions of such Participating Trust and 3.2 hereof. Funds not allocated to
any Participating Trust shall not be returned to the Company (payments made out
of the Company's account on behalf of a Participating Trust pursuant to 3.2
shall not constitute a return to the Company of any unallocated
funds).
2.4 Subtrusts
2.4.1 Upon
written direction of the Company, the Trustee shall establish a separate
subtrust ("Subtrust") for each participant in a Plan. The Subtrust shall reflect
an undivided interest in the Participating Trust's assets of the trust fund and
shall not require any segregation of particular assets. In the event the Company
directs the Trustee to establish separate Subtrusts, the Company shall direct
the Trustee with respect to the allocation of assets of the trust fund among
each separate Subtrust. After a Change in Control, any such direction by the
Company with respect to the allocation of assets of the trust fund among
separate Subtrusts may be made only with the Written Consent of Participants
affected thereby. If the Trustee does not receive a valid direction with respect
to the allocation of assets of the trust fund among separate Subtrusts within 90
days after such Subtrusts are established, the assets of the trust fund or
affected portion thereof shall be allocated in accordance with the provisions of
the applicable Participating Trust. With respect to any new contributions to the
trust by the Company after separate Subtrusts have been established, the Company
shall designate each participant for which such contributions are made. The
Trustee shall have no duty to inquire whether any of the foregoing allocations
of assets of the trust fund or contributions to the trust are made in compliance
with the terms of any Plan.
After establishment of separate
Subtrusts, the interest of each Subtrust in this trust shall be accounted for as
a separate fund of the trust and no part of the assets allocable to one
participant and his/her Subtrust shall be utilized to provide any benefits under
any Plan to any other participant.
The Trustee shall allocate investment
earnings and losses of the trust fund among the Subtrusts in proportion to their
account balances. Payments to general creditors during Insolvency
Administration under 5.2 shall be charged against each Subtrust in proportion to
its account balance plus payment therefrom to the beneficiary thereof made
during the previous duration of said Subtrust, except that payment of benefits
to a Plan participant as a general creditor shall be charged against the
Subtrust for that participant.
2.4.2 Upon
direction of a Participating Trust Trustee, the Trustee shall establish a
separate subtrust for each participant (each a "Participant Trust") in a Plan.
The Participant Trust shall reflect an undivided interest in the Participating
Trust's assets of the trust fund and shall not require any segregation of
particular assets. The assets of the trust shall be allocated to such separate
Participant Trusts in accordance with the provisions of the applicable
Participating Trust. After such allocation, the interest of each
Participant Trust in this trust shall be accounted for as a separate fund of the
trust and no part of the assets allocable to one participant and his/her
Participant Trust shall be utilized to provide any benefits under any Plan to
any other participant.
(a) With respect to any new
contributions to the trust by the Company after the Participant Trusts have been
established, the Company shall designate each participant and his/her associated
Participant Trust for which such contributions are made.
(b)Investment earnings and losses of
the trust fund of the Plan shall be allocated among the Participant Trusts in
proportion to their account balances. Payments to general creditors
during Insolvency Administration shall be charged, until each such trust is
exhausted, against each Participant Trust in proportion to its account balance
plus payments therefrom to the beneficiary thereof made during the previous
duration of said Participant Trust, except that payment of benefits to a Plan
participant as a general creditor shall be charged against the appropriate
Participant Trust for that participant.
(c) Following the establishment of
Participant Trusts, a Plan's benefits shall be paid to each participant or
his/her beneficiary(ies) in accordance with the terms of the Plan until all
assets allocable to his/her Participant Trust are
exhausted. Thereafter, a participant shall have no claim against any
of the other assets of this trust. Notwithstanding the foregoing, if at any time
after the establishment of Participant Trusts, the value of a participant's
Participant Trust shall be $100,000 or less, distribution of the value of such
Participant Trust shall be made by the Trustee to such participant at such time
in a lump sum. Thereafter, such participant shall have no claim against any of
the other assets of this trust, but shall retain any rights which he may have
against the Company pursuant to the Plan.
(d) If at any time after the
establishment of Participant Trusts in accordance with this 2.4.2, the Company
shall fund the trust to the level required by the applicable Participating Trust
to avoid the establishment of separate Participant Trusts, then at the Company's
option and upon notice by the Company to the Trustee to such effect, the
requirement of this 2.4.2 for separate Participant Trusts shall cease (and the
provisions related thereto shall have no force or effect) and such requirement
shall thereafter recommence only if the Participating Trust funding level
thereafter falls below the level described in the applicable Participating
Trust as requiring the establishment of separate Participant
Trusts.
2.5 Substitution
of Other Property
2.5.1 The
Company shall have the power to reacquire part or all of the trust fund at any
time, by substituting for it other readily marketable property of equivalent
value, net of any costs of disposition. Such power is exercisable in a
nonfiduciary capacity and may be exercised without the consent of participants
or any other person.
2.5.2 The
value of any insurance Contracts reacquired under 2.5.1 shall be the present
value of future projected cash flow or benefits payable under the Contract, but
not less than the cash surrender value. The projection shall include death
benefits based on reasonable mortality assumptions. The value of all other
assets in the trust fund shall be fair market value. Values shall be determined
by the Trustee and may be based on the determination of Experts (See
2.6.2).
2.6 Administrative
Powers of Trustee
2.6.1 Subject
in all respects to applicable provisions of this Trust Agreement, the
Participating Trust Agreements and the Plans, including limitations on
investment of the trust fund, the Trustee shall have the rights, powers and
privileges of an absolute owner when dealing with property of the trust,
including (without limiting the generality of the foregoing) the powers listed
below:
(a) To
sell, convey, transfer, exchange, partition, lease, and otherwise dispose of any
of the assets of the trust at any time held by the Trustee under this Trust
Agreement;
(b) To
exercise any option, conversion privilege or subscription right given the
Trustee as the owner of any security held in the trust; to vote any corporate
stock either in person or by proxy, with or without power of substitution; to
consent to or oppose any reorganization, consolidation, merger, readjustment of
financial structure, sale, lease or other disposition of the assets of any
corporation or other organization, the securities of which may be an asset of
the trust; and to take any action in connection therewith and receive and retain
any securities resulting therefrom;
(c) To
deposit any security with any protective or reorganization committee, and to
delegate to such committee such power and authority with respect thereto as the
Trustee may deem proper, and to agree to payout of the trust such portion of the
expenses and compensation of such committee as the Trustee, in its discretion,
shall deem appropriate;
(d) To
cause any property of the trust to be issued, held or registered in the name of
the Trustee as trustee, or in the name of one or more of its nominees, or one or
more nominees of any system for the central handling of securities, or in such
form that title will pass by delivery, provided that the records of the Trustee
shall in all events indicate the true ownership of such property;
(e) To
renew or extend the time of payment of any obligation due or to become
due;
(f) To
commence or defend lawsuits or legal or administrative proceedings; to
compromise, arbitrate or settle claims, debts or damages in favor of or against
the trust; to deliver or accept, in either total or partial satisfaction of any
indebtedness or other obligation, any property; to continue to hold for such
period of time as the Trustee may deem appropriate any property so received; and
to pay all costs and reasonable attorneys' fees in connection therewith out of
the assets of the trust;
(g) To
grant options to purchase or to acquire options to purchase any real
property;
(h) To
foreclose any obligation by judicial proceeding or otherwise;
(i) To
manage any real property in the trust in the same manner as if the Trustee were
the absolute owner thereof, including the power to lease the same for such term
or terms within or beyond the existence of the trust and upon such conditions,
including (but not by way of limitation) agreements for the purchase or disposal
of buildings thereon and options to the tenant to renew such lease from time to
time, or to purchase such property, as the Trustee may deem proper;
(j) To
borrow money from any person in such amounts, upon such terms and for such
purposes as the Trustee, in its discretion, may deem appropriate; and in
connection therewith, to execute promissory notes, mortgages or other
obligations and to pledge or mortgage any trust assets as security; and to lend
money on a secured or unsecured basis to any person other than a party in
interest;
(k) To
appoint one or more persons or entities as ancillary trustee or sub-trustee for
the purpose of investing in and holding title to real or personal property or
any interest therein located outside the State of Missouri; provided that any
such ancillary trustee or sub-trustee shall act with such power, authority,
discretion, duties, and functions of the Trustee as shall be specified in the
instrument establishing such ancillary or subtrust, including (without
limitation) the power to receive, hold and manage property, real or personal, or
undivided interests therein; and the Trustee may pay the reasonable expenses and
compensation of such ancillary trustees or sub-trustees out of the
trust;
(l) To
deposit any securities held in the trust with a securities
depository;
(m) To
hold such part of the assets of the trust uninvested for such limited periods of
time as may be necessary for purposes of orderly account administration or
pending required directions, without liability for payment of
interest;
(n) To
determine how all receipts and disbursements shall be credited, charged or
apportioned as between income and principal, and the decision of the Trustee
shall be final and not subject to question by any participant or beneficiary of
the trust; and
(o)
Generally to do all acts, whether or not expressly authorized, which the Trustee
may deem necessary or desirable for the orderly administration or protection of
the trust fund.
2.6.2 The
Trustee may engage one or more independent attorneys, accountants, actuaries,
appraisers or other experts (each an "Expert") for any purpose, including the
determination of Excess Assets (as such term is defined in the Participating
Trusts). The determination of an Expert shall be final and binding on the
Company, the Participating Trust Trustees, the Trustee, and all of the Plans'
participants unless within 30 days after receiving a determination deemed by any
participant to be adverse, any participant initiates suit in a court of
competent jurisdiction seeking appropriate relief. The Trustee shall have no
duty to oversee or independently evaluate the determination of the Expert. The
Trustee shall be authorized to pay the fees and expenses of any Expert out of
the assets of the trust fund.
2.6.3 The
Company shall from time to time pay taxes (references in this Trust Agreement to
the payment of taxes shall include interest and applicable penalties) of any and
all kinds whatsoever which at any time are lawfully levied or assessed upon or
become payable in respect of the trust fund, the income or any property forming
a part thereof, or any security transaction pertaining thereto. To the extent
that any taxes levied or assessed upon the trust fund are not paid by the
Company or contested by the Company pursuant to the last sentence of this
paragraph, the Trustee shall pay such taxes out of the trust fund, and the
Company shall upon demand by the Trustee deposit into the trust fund an amount
equal to the amount paid from the trust fund to satisfy such tax liability. If
requested by the Company, the Trustee shall, at the company's expense, contest
the validity of such taxes in any manner deemed appropriate by the Company or
its counsel, but only if it has received an indemnity bond or other security
satisfactory to it to pay any expenses of such
contest. Alternatively, the Company may itself contest the validity
of any such taxes, but any such contest shall not affect the Company's
obligation to reimburse the trust fund for taxes paid from the trust
fund.
2.6.4 In
the event a Plan's participant's beneficiary designation results in a
participant or the participant's spouse being deemed to have made a
"generation-skipping transfer" as defined in Section 2611 of the Code, then to
the extent that the participant or participant's "executor", as said term is
defined in the Code (or the spouse of the participant or said spouse's statutory
executor in the case of a generation-skipping transfer deemed to have been made
by a participant's spouse), have not previously used the total
generation-skipping transfer exemption that is available under Section 2631 of
the Code to such transferor, such unused exemption shall be allocated in the
manner prescribed by Section 2632 of the Code, except that (a) any
generation-skipping transfer resulting from said beneficiary designation shall
be excluded from the allocation; and (b) the method of allocation under Section
2632 shall be reversed so that such unused portion of said transferor's
exemption shall be applied first to trusts or trust equivalents of which
transferor is the deemed transferor and from which taxable distributions occur
and, second, to direct skips occurring at said transferor's death. Any portion
of said transferor's total generation-skipping transfer exemption not used
pursuant to the provisions of the previous sentence shall be allocated to the
transfer resulting from the beneficiary designation that gives rise to the
generation-skipping transfer hereunder.
Notwithstanding any provisions in a
Plan or this Trust Agreement to the contrary, the Company and Trustee may
withhold any benefits payable to a beneficiary as a result of the death of the
participant or any other beneficiary until such time as (a) the Company or
Trustee is able to determine whether a generation-skipping transfer tax, as
defined in Chapter 13 of the Code, or any substitute provision therefor, is
payable by the Company or Trustee; and (b) the Company or Trustee has determined
the amount of generation-skipping transfer tax that is due, including interest
thereon. If any such tax is payable, the Company or Trustee shall reduce the
benefits otherwise payable hereunder to such beneficiary by the amount necessary
to provide said beneficiary with a benefit equal to the amounts that would have
been payable if the original benefits had been calculated on the basis of a
present value at the time of the generation-skipping transfer equal to the then
present value of the originally contemplated benefit less an amount equal to the
generation-skipping transfer tax and any interest thereon that is payable as a
result of the death in question. The Company or Trustee may also withhold from
distribution by further reduction of the then net present value of benefits
calculated in accordance with the terms of the previous sentence such amounts as
the Company or Trustee feels are reasonably necessary to pay additional
generation-skipping transfer tax and interest thereon from amounts initially
calculated to be due. Any amounts so withheld shall be payable as
soon as there is a final determination of the applicable generation-skipping tax
and interest thereon. No interest shall be payable by the Company or Trustee to
any beneficiary for the period of time that is required from the date of death
to the time when the aforementioned generation-skipping transfer tax
determinations are made and the amount of benefits payable to a beneficiary can
be fully determined.
ARTICLE
III
Administration
3.1 Committees;
Company Representatives
3.1.1 Each
Plan is administered by a Committee appointed by the Company. A Committee has
general responsibility to interpret its Plan and determine the rights of
participants and beneficiaries.
3.1.2 The
Trustee shall be given the names and specimen signatures of the members of each
Committee and any other Company and Participating Trust Trustee's
representatives authorized to take action in regard to the administration of a
Plan and/or this trust. The Trustee shall accept and rely upon the names and
signatures until notified of any change. Instructions to the Trustee shall be
signed for the Committee by such person as the Committee may designate and for
the Company by such representative as the Company may designate.
3.2 Payments
From Trust Fund
3.2.1 From
time to time, upon receipt of written directions from the Company or a
Participating Trust Trustee, delivered before a Valuation Date, the Trustee
shall make payments on behalf of a Participating Trust from the Company's
account or the beneficial interest of a Participating Trust to such persons, in
such manner and in such amounts as the Company or Participating Trust Trustee,
as applicable, shall direct, and amounts paid out of the trust pursuant to such
direction shall cease to constitute a part of this trust. All such payments
shall be made as of the Valuation Date next following receipt of such written
direction.
3.2.2 The
Trustee, as directed by the Company, shall make any required income tax
withholding and shall pay amounts withheld to taxing authorities on the
Company's behalf or determine that such amounts have been paid by the
Company.
3.2.3 The
Company or a Participating Trust Trustee, by written direction delivered to the
Trustee not less than 10 days before a Valuation Date, may direct the withdrawal
and transfer to a Participating Trust as of that Valuation Date of part or all
of a Participating Trust's entire beneficial interest in the fund. The Trustee
shall determine the value of such beneficial interest as of that Valuation Date
and transfer the amount of such value to that Participating Trust as soon as
practicable after such Valuation Date, either in cash, or, in the discretion of
the Trustee, in other property or partly in cash and partly in other property.
This trust shall terminate upon the complete withdrawal therefrom of the entire
beneficial interests of all Participating Trusts.
3.2.4 The
Trustee shall use the assets of the trust or any Subtrust or any Participant
Trust to make benefit payments or other payments in the following order of
priority;
(a) All
assets of the trust or any Subtrust or any Participant Trust other than
Contracts with Insurers, in such order as the Trustee may
determine;
(b) Cash
contributions from the Company; and the Company hereby agrees to make cash
contributions to the trust to enable the Trustee to make all benefit payments
and other payments when due, unless the Company makes such payments directly,
whenever the Trustee or a Participating Trust Trustee advises the Company that
the assets of the trust or any Subtrust or any Participant Trust, other than
Contracts with Insurers, are insufficient to make such payments;
and
(c)
Contracts with Insurers held in the trust or any Subtrust or any Participant
Trust; and in using any such Contracts, the Trustee shall first borrow 50% of
the cash surrender value of each such Contract, proceeding in order of Contracts
from the Contracts which have been in force for the longest times (and in
alphabetical order based on the last name of the insured for Contracts placed in
force on the same date) to the Contracts which have most recently been placed in
force; and thereafter the Trustee shall surrender Contracts in the same order of
priority as set forth above.
Notwithstanding the foregoing, the
Trustee may use the assets of the trust or any Subtrust or any Participant Trust
in any other order of priority directed by the Company with the Written Consent
of Participants affected thereby.
3.2.5 The
Trustee and each Participating Trust Trustee hereby appoint Company as paying
agent of each Participating Trust and this trust. Company shall advise each
Participating Trust Trustee and the Trustee monthly by the 20th of each month
regarding amounts required to be paid during the following month to each Plan's
participants and beneficiaries. The Trustee and Participating Trust Trustees
shall advise the Company as to cash available to pay such benefits. At the end
of each month, this trust on behalf of each Participating Trust, to the extent
directed by the Company, shall deposit with the Company as paying agent for this
trust and the Participating Trust, from such Participating Trust's portion of
the fund, an amount up to that necessary for the Company to pay benefits to
participants and beneficiaries during the following month on behalf of such
Participating Trust. Deposit of any such trust/Participating Trust monies with
the Company shall not constitute a return to the Company of any assets of any
Participating Trust. Company shall make payments to participants and
beneficiaries on behalf of the applicable Participating Trust. Amounts necessary
to pay benefits to participants and beneficiaries that are not provided by the
Participating Trust shall be paid by the Company. Rather than charge a payment
made pursuant to this 3.2.5 to a particular Participating Trust, the Company may
direct the Trustee to charge such payment against the Company's account
maintained hereunder.
3.3 Valuations
3.3.1 As
of the last day of November, 1989 and as of the last day of each month
thereafter or more frequently as agreed upon by the Company, the Participating
Trust Trustees and the Trustee (hereinafter called "Valuation Dates"), the
Trustee shall determine the fair market value of the fund in such manner as the
Trustee in its discretion shall prescribe and the Company shall approve, but in
accordance with a method consistently followed and uniformly applied. In
determining fair market value, the Trustee shall utilize and shall be entitled
to rely upon the Company, published quotations or pricing services that the
Trustee deems reliable, or in the absence thereof, upon estimates or appraisals
of value obtained from sources that the Trustee deems qualified, including
bankers, brokers, dealers or others, who are familiar with the type of
investment involved and who may be employees of the Trustee. The Trustee's
reasonable valuations shall be binding on the Participating Trusts and all
persons interested therein.
3.3.2 (a)
For purposes of valuing the beneficial interests of Participating Trusts and of
the Company's account maintained hereunder, the fund shall be divided into units
without distinction between principal and income. Each unit shall represent a
proportionate undivided beneficial interest in the fund as a whole, but shall
not represent any right, title, or interest in or to any specific asset of the
fund, title to which shall be in the Trustee. All units of the fund shall be of
equal value. No unit shall have any priority or preference over any other. No
participating Trust may assign any part of its equity or interest in the
fund.
(b) Upon any payment by the Company
on behalf of the Company account or by the company on behalf of a participating
Trust or by a fiduciary of a Participating Trust of the Trustee pursuant to 2.1,
the Company account or Participating Trust, as applicable, shall be deemed to
have bought, at a unit price equal to the unit value on that date, one or more
full and/or fractional units having an aggregate value equal to the amount of
the payment. The Trustee may accept property at its fair market value in lieu of
cash in payment of the purchase price of units. There shall be no limit on the
number of units the Company account or any one Participating Trust may
buy.
(c) When directed by the Company or a
Plan's Committee or a Participating Trust Trustee to make a payment out of the
beneficial interest of the Participating Trust as provided in 3.2, the Trustee
shall cancel a number of full and/or fractional units having an aggregate value
equal to the amount of the payment. Any payment made out of the beneficial
interest of the Company account shall cancel a number of full and/or fractional
units having an aggregate value equal to the amount of the payment. Neither the
Company account nor any Participating Trust shall have claims to any part of the
fund in excess of the value of such account's or Participating Trust's
units.
(d) At
the inception of the fund, the value of each unit shall be $10.00. Thereafter,
the Trustee shall revalue each unit as of each Valuation Date. Revaluation shall
be made by establishing as provided in 3.3.1 the fair market value of the fund
as of the close of business on the Valuation Date and dividing that value by the
total number of units of the fund outstanding on that date. Such revaluation
shall be made in accordance with a method consistently followed and uniformly
applied and shall be completed as soon as practicable after the Valuation Date.
On any Valuation Date, the Trustee may either increase or decrease the number of
outstanding units in the fund.
3. Records
The Trustee shall keep complete
records on the trust fund open to the inspection by the Company and each Plan's
Committee and Participating Trust Trustees at all reasonable times. In addition
to accountings required below, the Trustee shall furnish to the Company and each
Plan's Committee and Participating Trust Trustees any information requested
about the trust fund in whatever format as the Company/Committees/Participating
Trust Trustees may reasonably request.
3.5 Accountings
3.5.1 The
Trustee shall furnish the Company and each Participating Trust Trustee with a
complete statement of accounts annually within 60 days after the end of the
trust year showing assets and liabilities and income and expense for the year of
the trust and each Participating Trust and each Subtrust and each Participant
Trust and shall furnish the Company and each Participating Trust Trustee with
such complete statements at such other times as the Company and/or each
Participating Trust Trustee may reasonably request. The form and content of the
statement of account shall be sufficient for the Company to include in computing
its taxable income and credits the income, deductions and credits against tax
that are attributable to the trust fund and shall be in whatever format as the
Company may reasonably request.
3.5.2 The
Company and/or each Participating Trust Trustee may object to an accounting
within 180 days after it is furnished and require that it be settled by audit by
a qualified, independent certified public accountant. The auditor shall be
chosen by the Trustee from a list of at least five such accountants furnished by
the Company or Participating Trust Trustee at the time the audit is requested.
Either the Company or Participating Trust Trustee or the Trustee may require
that the account be settled by a court of competent jurisdiction, in lieu of or
in conjunction with the audit. All expenses of any audit or court proceedings,
including reasonable attorneys' fees, shall be allowed as administrative
expenses of the trust.
3.5.3 If
neither the Company nor Participating Trust Trustees object to an accounting
within the time provided, the account shall be settled for the period covered by
it.
3.5.4 When
an account is settled, it shall be final and binding on all parties, including
all participants and persons claiming through them.
3.6 Expenses
and Fees
3.6.1 The
trustee shall be reimbursed for all expenses and shall be paid a reasonable fee
fixed by agreement with the Company from time to time. No increase in the fee
shall be effective before 60 days after the Trustee gives notice to the Company
of the increase. The trustee shall notify the Company periodically of expenses
and fees.
3.6.2 The
Company shall pay administrative fees and expenses. If not so paid, the fees and
expenses shall be paid from the trust fund. The Company shall reimburse the
trust fund for any fees and expenses paid out of it.
ARTICLE
IV
Liability
4.1 Indemnity
Subject to such limitations as may be
imposed by applicable law, the Company shall indemnify and hold harmless the
trustee from any claim, loss, liability or expense arising from any action or
inaction in administration of this trust based on direction or information from
either the Company, any Committee, any Participating Trust Trustee, any
Investment Manager or any Expert, absent willful misconduct or bad faith on the
part of the Trustee or Participating Trust Trustee.
4.2 Bonding
The Trustee need not give any bond or
other security for performance of its duties under this trust.
ARTICLE
V
Insolvency
5.1 Determination
of Insolvency
5.1.1 The
Company is "Insolvent" for purposes of this trust if:
(a) The Company is unable to pay its
debts as they come due; or
(b) The Company is the subject of a
pending proceeding as a debtor under the federal Bankruptcy Code (or any
successor federal statute).
5.1.2 The
Company shall promptly give notice to the Trustee upon becoming Insolvent. The
Chief Executive officer of the Company and the Board (as such term is defined in
the Participating Trusts) shall be obligated to give such notice. If the Trustee
receives such notice or receives from any other person claiming to be a creditor
of the Company a written allegation that the Company is Insolvent, the Trustee
shall independently determine whether such Insolvency exists. The expenses of
such determination shall be allowed as administrative expenses of the
trust.
5.1.3 The
Trustee shall continue making payments from the trust fund to participants under
any Plan while it is determining the existence of Insolvency. Such
payments shall cease and the Trustee shall commence Insolvency
Administration
under 5.2 upon the earlier of:
(a) A
determination by the Trustee or a court of competent jurisdiction that the
Company is Insolvent; or
(b) 30
days after the notice or allegation of Insolvency is received under 5.1.2,
unless the Trustee or a court of competent jurisdiction has determined that the
Company is not Insolvent since receipt of such notice or
allegation.
5.1.4 The
Trustee shall have no obligation to investigate the financial condition of the
Company prior to receiving a notice or allegation of Insolvency under
5.1.2.
5.2 Insolvency
Administration
5.2.1 During
"Insolvency Administration", the Trustee shall hold the trust fund for the
benefit of the general creditors of the Company and make payments only in
accordance with 5.2.2. The Trustee shall continue the investment of the trust
fund in accordance with 2.2.
5.2.2 The
Trustee shall make payments out of the trust fund in one or more of the
following ways:
(a) To
general creditors in accordance with instructions from a court, or a person
appointed by a court, having jurisdiction over the Company's condition of
Insolvency;
(b) To
any Plan's participants and beneficiaries in accordance with such instructions;
or
(c) in
payment of its own fees or expenses.
5.2.3 The
Trustee shall have a priority claim against the trust fund with respect to its
own fees and expenses.
5.3 Termination
of Insolvency Administration
5.3.1 Insolvency
Administration shall terminate when the Trustee determines that the
Company:
(a) Is
not Insolvent, in response to a notice or allegation of Insolvency under 5.1.2;
or
(b) Has
ceased to be Insolvent; or
(c) Has
been determined by a court of competent jurisdiction not to be Insolvent or to
have ceased to be Insolvent.
5.3.2 Upon
termination of Insolvency Administration under 5.3.1, the trust fund shall
continue to be held for the benefit of the participants in the
Plans. Benefit payments due during the period of Insolvency
Administration shall be made as soon as practicable, together with interest from
the due dates at the following rates:
(a) if a
Plan is deferred compensation plan or other defined contribution plan, at the
rate credited on the participant's account under such plan.
(b) if a
Plan is a supplemental executive retirement plan or other defined benefits plan
or any other plan (other than a plan referred to in (a) immediately above), at a
rate equal to the interest rate fixed by the Pension Benefit Guaranty
Corporation for valuing immediate annuities in the preceding month.
5.4
Creditors' Claims During Solvency
5.4.1 During
periods of Solvency the Trustee shall hold the trust fund exclusively to pay the
Plans' benefits and fees and expenses of the trust until all Plan benefits have
been paid. Creditors of the Company shall not be paid during Solvency from the
trust fund, which may not be seized by or subjected to the claims of such
creditors in any way.
5.4.2 A
period of "Solvency" is any period not covered by 5.2.
ARTICLE
VI
Successor
Trustees
6.1 Resignation
and Removal
6.1.1 The
Trustee may resign at any time by notice to the Company and the Participating
Trust Trustees, which shall be effective in 60 days unless the Company and the
Participating Trust Trustees and the Trustee agree otherwise.
6.1.2The
Trustees may be removed by the Company on 60 days' notice or shorter notice
accepted by the Trustee. After a Change in Control the Trustee may be removed
only with the Written Consent of Participants.
6.1.3 When
resignation or removal is effective, the Trustee shall begin transfer of assets
to the successor Trustee immediately. The transfer shall be completed within 60
days, unless the Company extends the time limit.
6.1.4 If
the Trustee resigns or is removed, the Company shall appoint a successor by the
effective date of resignation or removal under 6.1.1 or 6.1.2. After a Change in
Control a successor Trustee may be appointed only with the Written Consent of
Participants. If no such appointment has been made, the Trustee may apply to a
court of competent jurisdiction for appointment of a successor or for
instructions. All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the trust.
6.2 Appoint
of Successor
6.2.1 The
Company may appoint any national or state bank or trust company that is
unrelated to the Company as a successor to replace the Trustee upon resignation
or removal. The appointment shall be effective when accepted in writing by the
new Trustee, which shall have all of the rights and powers of the former
Trustee, including ownership rights in the trust assets. The former trustee
shall execute any instruments necessary or reasonably requested by the Company
or the successor trustee to evidence the transfer. After a Change in Control a
successor trustee may be appointed only with the Written Consent of
Participants.
6.2.2 The
successor Trustee need not examine the records and acts of any prior Trustee and
may retain or dispose of existing trust assets, subject to Article
II. The successor Trustee shall not be responsible for, and the
Company shall indemnify and hold harmless the successor Trustee from any claim
or liability because of, any action or inaction of any prior Trustee or any
other past event, any existing condition or any existing assets.
6.3 Accountings;
Continuity
6.3.1 A
Trustee who resigns or is removed shall submit a final accounting to the Company
and Participating Trust Trustees as soon as practicable. The accounting shall be
received and settled as provided in 3.5 for regular accountings.
6.3.2 No
resignation or removal of the Trustee or change in identity of the Trustee for
any reason shall cause a termination of any Plan or this trust.
ARTICLE
VII
General
Provisions
7.1 Interests
Not Assignable
7.1.1 The
interest of a participant in the trust fund may not be assigned, pledged or
otherwise encumbered, seized by legal process, transferred or subjected to the
claims of the participant's creditors in any way.
7.1.2 The
Company may not create a security interest in the trust fund in favor of any of
its creditors. The Trustee shall not make payments from the trust fund of any
amounts to creditors of the Company who are not Plan participants, except as
provided in 5.2.
7.1.3 The
participants shall have no interests in the assets of the trust fund beyond the
right to receive payment of Plan benefits from such assets outside periods of
Insolvency Administration under 5.2. During Insolvency Administration the
participants' rights to trust assets shall not be superior to those of any other
general creditors of the Company.
7.2 Amendments
The Company and the Participating
Trust Trustees and the Trustee may amend this trust at any time by a written
instrument executed by all parties; provided however, this Trust Agreement may
not be amended to remove the requirement that this Trust Agreement is subject to
the provisions of each Participating Trust.
7.3 Applicable
Law
This trust shall be governed,
construed and administered according to the laws of Missouri, except as
preempted by ERISA.
7.4 Agreement
Binding on All Parties
This Trust Agreement shall be binding
upon the heirs, personal representatives, successors and assigns of any and all
present and future parties.
7.5 Notices
and Directions
Any notice or direction under this
trust shall be in writing and shall be effective when actually delivered or, if
mailed, upon receipt. Mail to a party shall be directed to the address stated
below or to such other address as the party may specify by notice to the other
parties. Notices to any Committee shall be sent to the address of the Company.
Until notice is given to the contrary, notices to the Company and Participating
Trust Trustees and the Trustee shall be addressed as follows:
Company: Southwestern
Bell Corporation
One Bell Center
St. Louis, Missouri
63101-3099
Attention: Senior Vice
President-Finance
and Treasurer
Trustee: Boatmen's
Trust Company
510 Locust Street, P.O. Box
14737
St. Louis, Missouri
63178
Attention: Pension
Administration
Participating
Trust Boatmen's
Trust Company
Trustees: 510
Locust Street, P.O. Box 14737
St.
Louis, Missouri 63178
Attention: Pension Administration
7.6 No
Implied Duties
The duties of the Trustee shall be
those stated in this trust, and no other duties shall be implied.
7.7 Beneficiary
(ies); Beneficiary's Benefits
For purposes of this Trust Agreement,
(1) any person to whom payment under a Plan is made or is to be made in the
event of a participant's death shall be such participant's "beneficiary," (2)
Benefits under a Plan paid or to be paid to a participant's beneficiary shall be
considered a benefit paid or to be paid to the participant, as applicable, and
(3) after the death of the participant, a participant's beneficiary (ies),
collectively, shall stand in the place and stead of the participant and shall be
considered the Plan participant and treated as such, except such beneficiary
(ies) shall have no vote and shall not be counted as a participant for purposes
of determining the Written Consent of Participants pursuant to 1.2.6 of any
participating Trust.
7.8 Gender,
Singular and Plural
All pronouns and any variations
thereof shall be deemed to refer to the masculine or feminine, as the identity
of the person or persons may require. As the context may require, the singular
may be read as the plural and
the
plural as the singular.
ARTICLE
VIII
INSURER
8.1 Insurer
Not a Party
An Insurer shall not be deemed to be
a party to this trust, and its obligation shall be measured and determined
solely by the terms of its Contracts and other agreements executed by
it.
8.2 Authority
of Trustee
An Insurer shall accept the signature
of the Trustee to any documents or papers executed in connection with its
Contracts. The signature of the Trustee shall be conclusive proof to the Insurer
that the person on whose life an application is being made is eligible to have
such Contract issued on his life and is eligible for a Contract of the type and
amount requested.
8.3 Contract
Ownership
An Insurer shall deal with the
Trustee as the sole and absolute owner of the trust's interests in its Contracts
and shall have not obligation to inquire whether any action or failure to act on
the part of the Trustee is in accordance with our authorized by the terms of a
Plan or a Participating Trust or this trust.
8.4 Limitation
of Liability
An Insurer shall be fully discharged
from any and all liability for any action taken or any amount paid in accordance
with the direction of the Trustee and shall have no obligation to see to the
proper application of the amounts so paid. The Insurer shall have no liability
for the operation of this trust or a Plan, whether or not in accordance with
their terms and provisions.
8.5 Change
of Trustee
An Insurer shall be fully discharged
from any and all liability for dealing with a party or parties indicated on its
records to be the Trustee until such time as it shall receive at its home office
written notice of the appointment and qualification of a successor
Trustee.
IN WITNESS WHEREOF, the Company and
participating Trust Trustees and the Trustee have caused this Agreement to be
executed by their respective duly authorized officers on the date set forth
below.
Company: SOUTHWESTERN BELL
CORPORATION
Attest: By: /s/
C.C. Carr
Cassandra C. Carr
Ann
Goddard Its
Senior Vice President-Finance
Vice
President And
Treasurer
And
Secretary
Executed: 11-3,
1989
Trustee: BOATMEN'S TRUST
COMPANY
Attest: By: /s/
Lyle Brizendine
Lyle W. Brizendine
Assistant
Secretary Its
Senior Vice President
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Senior Management
Deferred
Compensation Plan of 1988
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Senior Management
Deferred
Compensation Plan of 1988 (Early
Payment Option)
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's
Trust Company as Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Senior Management
Deferred
Compensation Plan
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's
Trust Company as Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Management Deferred
Compensation
Plan of 1988
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Management Deferred
Compensation Plan
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Compensation Deferral
Plan
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Senior Management
Supplemental
Retirement Income Plan
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Boatmen's Trust Company as
Participating Trust
Trustee pursuant to Trust Agreement for
Southwestern
Bell Corporation Management Pension
Plan (Benefits
In Excess of Code ss. 415
Limitations)
Attest: By: /s/
Lyle Brizendine
Assistant
Secretary Lyle
W. Brizendine
Executed: 11-6,
1989
Acknowledgments
State of
Missouri)
ss.
County of
St. Louis)
On this 3rd day of November, in the
year 1989, before me personally came Cassandra C. Carr, to me known, who, being
by me duly sworn, did depose and say that she resides at 1700 Mason Knoll Road,
St. Louis, Missouri 63131: that she is Senior Vice President-Finance and
Treasurer of Southwestern Bell Corporation, the corporation described in and
which executed the above instrument; that she knows the corporate seal of said
corporation; that the seal was affixed by authority of the Board of Directors of
said corporation, and that she signed her name thereto by like
authority.
/s/ Barbara J. Salen
BARBARA J. SALEN
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS COUNTY
MY COMMISSION EXP AUG. 19,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 3rd day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Trustee; that he knows the corporate seal of said corporation;
that the seal was affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Senior Management Deferred Compensation Plan of
1988; that he knows the corporate seal of said corporation; that the seal was
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Senior Management Deferred Compensation Plan of
1988 (Early Payment Option); that he knows the corporate seal of said
corporation; that the seal was affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like
authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Senior Management Deferred Compensation Plan; that
he knows the corporate seal of said corporation; that the seal was affixed by
authority of the Board of Directors of said corporation, and that he signed his
name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Management Deferred Compensation Plan of 1988;
that he knows the corporate seal of said corporation; that the seal was affixed
by authority of the Board of Directors of said corporation, and that he signed
his name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Management Deferred Compensation Plan; that he
knows the corporate seal of said corporation; that the seal was affixed by
authority of the Board of Directors of said corporation, and that he signed his
name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Compensation Deferral Plan; that he knows the
corporate seal of said corporation; that the seal was affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Senior Management Supplemental Retirement Income
Plan; that he knows the corporate seal of said corporation; that the seal was
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
Acknowledgments
State of
Missouri)
ss.
City of
St. Louis)
On this 6th day of November, in the
year 1989, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he resides at 1710 Connemara, St.
Louis, Missouri 63021: that he is Senior Vice President of Boatmen's Trust
Company, the corporation described in and which executed the above instrument in
the capacity as Participating Trust Trustee pursuant to Trust Agreement for
Southwestern Bell Corporation Management Pension Plan (benefits In Excess of
Code ss. 415 Limitations); that he knows the corporate seal of said corporation;
that the seal was affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/Susan M. McIntosh
SUSAN M. MCINTOCH
NOTARY PUBLIC STATE OF
MISSOURI
ST. LOUIS CITY
MY COMMISSION EXP APR. 13,
1993
FIRST
AMENDMENT TO TRUST AGREEMENT
Effective
August 1, 1995
This Amendment (the "First
Amendment"), amends the MASTER TRUST AGREEMENT FOR SOUTHWESTERN BELL CORPORATION
DEFERRED COMPENSATION PLANS AND OTHER EXECUTIVE BENEFIT PLANS (the "Trust
Agreement"), previously made and entered into by and between SBC COMMUNICATIONS
INC., a Delaware corporation (the "Company"), formerly known as Southwestern
Bell Corporation, BOATMEN'S TRUST COMPANY, a Missouri corporation (the
"Trustee"), and BOATMEN'S TRUST COMPANY as trustee of each Participating Trust
in the Trust Agreement (BOATMEN'S TRUST COMPANY acting in its capacity as
trustee of each Participating Trust is hereinafter referred to as the respective
Participating Trust's "Participating Trust Trustee"), which Trust Agreement is
incorporated herein by this reference.
WHEREAS, the Company and the
Participating Trust Trustees have established with the Trustee a trust in
accordance with the terms and conditions of the Trust Agreement,
and
WHEREAS, the Trustee has accepted the
trust established under the Trust Agreement and has agreed to hold, IN TRUST,
all monies and other property transferred to it thereunder for the uses and
purposes and upon the terms and conditions set forth therein, and
WHEREAS, the Trustee has further
agreed to discharge and perform fully and faithfully all of the duties and
obligations imposed upon it under the Trust Agreement, and
WHEREAS, the Company wishes to amend
the Trust Agreement consistent with the Amendment provision thereof, to reflect
the recent name change of the Company from Southwestern Bell Corporation to SBC
Communications Inc., and
WHEREAS, the Participating
Trust Trustees and the Trustee agree to
the Amendment contained herein:
NOW, THEREFORE, the Company and the
Participating Trust Trustees and the Trustee hereby agree as
follows:
(1) Effective August 1, 1995, the
Trust Agreement shall be and hereby is renamed the "MASTER TRUST AGREEMENT FOR
SBC COMMUNICATIONS INC. DEFERRED COMPENSATION PLANS AND OTHER EXECUTIVE BENEFIT
PLANS"; and, coincident with such change, the words "Southwestern Bell
Corporation" wherever found in the Trust Agreement shall be and hereby are
replaced with the words "SBC Communications Inc." and all references in the
Trust Agreement to Southwestern Bell Corporation shall mean and shall be
construed as references to SBC Communications Inc.
(2) Except as modified by this First
Amendment, all other terms and provisions of the Trust Agreement remain in full
force and effect.
IN WITNESS WHEREOF, the Company and
the Participating Trust Trustees and the Trustee have caused this First
Amendment to be executed by their respective duly authorized officers on the
date set forth below.
Company: SBC
COMMUNICATIONS INC.
Atttest: By: /s/
D. E Kiernan
Its Senior Vice
President,
/s/
Judith M.
Sahm
Treasurer & Chief Financial
Secretary Officer
Executed: 9/22, 1995
Trustee: BOATMAN'S TRUST
COMPANY
Attest: By:
/s/ Lyle W. Brizendine
Its Executive Vice
President
/s/ Paul
J. Skyle
Assistant
Secretary Executed: 9/27,
1995
BOATMEN'S TRUST COMPANY
as
Participating Trust Trustee pursuant
to the
Trust Agreement for each of the
following:
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
OF 1988
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
OF 1988 (EARLY PAYMENT
OPTION)
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
·
SBC
COMMUNICATIONS INC. MANAGEMENT
DEFERRED COMPENSATION PLAN OF
1988
·
SBC
COMMUNICATIONS INC. MANAGEMENT
DEFERRED COMPENSATION
PLAN
·
SBC
COMMUNICATIONS INC. COMPENSATION
DEFERRAL PLAN
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT SUPPLEMENTAL
RETIREMENT
INCOME PLAN
·
SBC
COMMUNICATIONS INC. PENSION BENEFIT
PLAN - NONBARGAINED PROGRAM
(BENEFITS
IN EXCESS OF CODE SECTION
415
LIMITATIONS)
·
SBC
COMMUNICATIONS INC. PENSION MAKE-UP
DUE TO DEFERRED
COMPENSATION
PARTICIPATION
Attest: By:
/s/ Lyle W. Brizendine
Its Executive Vice
President
/s/ Paul
J. Skyle
Assistant
Secretary Executed: 9/27,
1995
ACKNOWLEDGEMENTS
State of
Texas)
ss
City of
San Antonio)
On this 22nd day of September, in the
year 1995, before me personally came Donald E. Kiernan, to me known, who, being
by me duly sworn, did depose and say that he is Senior Vice President, Treasurer
& Chief Financial Officer of SBC Communications Inc., the corporation
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal was affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
Vicki
Brehm /s/
Vicki Brehm
Notary
Public
State of
Texas
My Comm.
Exp. Aug. 9 1997
State of
Missouri)
ss
City of
St. Louis)
On this 27th day of September, in the
year 1995, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he is Executive Vice President of
Boatmen's Trust Company, the corporation described in and which executed the
above instrument in the capacity as Trustee; that he knows the corporate seal of
said corporation; that the seal was affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Susan L. Sehrt
Susan L. Sehrt
Notary Public-State of
Missouri
St. Louis County
My Commission Expires March 31,
1996
ACKNOWLEDGMENTS
State of
Missouri)
ss
City of
St. Louis)
On this 27th day of September, in the
year 1995, before me personally came Lyle W. Brizendine, to me known, who, being
by me duly sworn, did depose and say that he is Executive Vice President of
Boatmen's Trust Company, the corporation described in and which executed the
above instrument in the capacity as Participating Trust Trustee pursuant to each
Participating Trust Trust Agreement; that he knows the corporate seal of said
corporation; that the seal was affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like
authority.
/s/ Susan L. Sehrt
Susan L. Sehrt
Notary Public-State of
Missouri
St. Louis County
My Commission Expires March 31,
1996
SECOND
AMENDMENT TO TRUST AGREEMENT
Effective
November 1, 1999
This Amendment (the "Second
Amendment"), amends the MASTER TRUST AGREEMENT FOR SBC COMMUNICATIONS INC.
DEFERRED COMPENSATION PLANS AND OTHER EXECUTIVE BENEFIT PLANS (the "Trust
Agreement"), between SBC COMMUNICATIONS INC., a Delaware corporation (the
"Company"), formerly known as Southwestern Bell Corporation, BOSTON SAFE DEPOSIT
AND TRUST COMPANY, successor Trustee, a Massachusetts trust company and
wholly-owned indirect subsidiary of Mellon Bank Corporation (the "Trustee"), and
BOSTON SAFE DEPOSIT AND TRUST COMPANY as successor trustee of each Participating
Trust in the Trust Agreement (BOSTON SAFE DEPOSIT AND TRUST COMPANY acting in
its capacity as the successor trustee of each Participating Trust is hereinafter
referred to as the respective Participating Trust's "Participating Trust
Trustee"), which Trust Agreement is incorporated herein by this
reference.
WHEREAS, the Company and the
Participating Trust Trustees are parties to a trust with the Trustee in
accordance with the terms and conditions of the Trust Agreement,
and
WHEREAS, the Trustee has accepted the
trust established under the Trust Agreement and has agreed to hold, IN TRUST,
all monies and other property transferred to it thereunder for the uses and
purposes and upon the terms and conditions set forth therein, and
WHEREAS, the Trustee has further
agreed to discharge and perform fully and faithfully all of the duties and
obligations imposed upon it under the Trust Agreement, and
WHEREAS, the Company wishes to amend
the Trust Agreement consistent with the Amendment provision thereof, to permit
the payment of trustee, actuary and investment manager fees and expenses from
funds allocated to the Company's account maintained under the Trust Agreement,
i.e., from funds not allocated to any Participating Trust, and
WHEREAS, the Participating Trust
Trustees and the Trustee agree to the
Amendment contained
herein:
NOW, THEREFORE, the Company and the
Participating Trust Trustees and the Trustee hereby agree as
follows:
(1) Effective November 1, 1999, 3.6.2
of the Trust Agreement shall be and hereby is replaced by the
following:
3.6.2 The
Company shall be responsible for the payment of the fees and expenses of this
trust, including but not limited trustee fees, actuary fees and investment
manager fees. The Company shall pay such fees and expenses or may direct
the Trustee to pay such fees out of funds allocated to the Company's
account maintained under this trust, i.e., from funds not allocated to any
Participating Trust.
(2) Except as modified by this Second
Amendment, all other terms and provisions of the Trust Agreement remain in full
force and effect.
IN WITNESS WHEREOF, the Company and
Participating Trust Trustees and the Trustee have caused this Second Amendment
to be executed by their respective duly authorized officers on the date set
forth below.
Company: SBC COMMUNICATIONS
INC.
Attest:
By: /s/ D.E.
Kiernan
Its Senior Executive
Vice President and
Chief Financial Officer
/s/
Judith M. Sahm
Secretary
Executed: November 2,
1999
Trustee: BOSTON SAFE
DEPOSIT AND TRUST
COMPANY
By: /s/ Douglas M.
Cook
Attest: Its
First Vice President
/s/
Kimberly A. Carr
Assistant
Secretary Executed: November
19, 1999
BOSTON
SAFE DEPOSIT AND TRUST COMPANY as
Participating
Trust Trustee pursuant to the
Trust
Agreement for each of the following:
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
OF 1988
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
OF 1988 (EARLY PAYMENT
OPTION)
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT DEFERRED COMPENSATION
PLAN
·
SBC
COMMUNICATIONS INC. MANAGEMENT
DEFERRED COMPENSATION PLAN OF
1988
·
SBC
COMMUNICATIONS INC. MANAGEMENT
DEFERRED COMPENSATION
PLAN
·
SBC
COMMUNICATIONS INC. COMPENSATION
DEFERRAL PLAN
·
SBC
COMMUNICATIONS INC. SENIOR
MANAGEMENT SUPPLEMENTAL
RETIREMENT
INCOME PLAN
·
SBC
COMMUNICATIONS INC. PENSION BENEFIT
PLAN-NONBARGAINED PROGRAM (BENEFITS
IN
EXCESS OF CODE SECTION 415
LIMITATIONS)
·
SBC
COMMUNICATIONS INC. PENSION MAKE-UP
DUE TO DEFERRED
COMPENSATION
PARTICIPATION
·
RESTATED
TRUST NO. 3 FOR PACIFIC TELESIS
GROUP EXECUTIVE SUPPLEMENTAL
PENSION
BENEFITS
By: /s/ Douglas M. Cook
Its First vice President
Attest:
/s/
Kimberly A.
Carr Executed: November
19, 1999
Assistant
Secretary
ACKNOWLEDGEMENTS
State of
Texas)
ss
County of
Bexar)
On this 1st day of November, in the
year 1999, before me personally came Donald E. Kiernan, to me known, who being
by me duly sworn, did depose and say that he is Senior Executive Vice President
and Chief Financial Officer of SBC Communications Inc., the corporation
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal was affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
/s/ Linda J. Snoga
Notary Public, State of
Texas
My Commission Expires
January 21, 2002
ACKNOWLEDGEMENTS
Commonwealth
of Massachusetts)
ss
County of
Middlesex)
On this 19th day of November, in the
year 1999, before me personally came Douglas M. Cook, to me known, who being by
me duly sworn, did depose and say that he is First Vice President of Boston Safe
Deposit and Trust Company, the corporation described in and which executed the
above instrument in the capacity as Trustee; that he knows the corporate seal of
said corporation; that the seal was affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
/s/ Patricia S. Smith
My Commission Expires
May 10, 2002
ACKNOWLEDGEMENTS
Commonwealth
of Massachusetts)
ss
County of
Middlesex)
On this 19th day of November, in the
year 1999, before me personally came Douglas M. Cook, to me known, who, being by
me duly sworn, did depose and say that he is First Vice President of Boston Safe
Deposit and Trust Company, the corporation described in and which executed the
above instrument in the capacity as Participating Trust Trustee pursuant to each
Participating Trust Trustee Agreement; that he knows the corporate seal of said
corporation; that the seal was affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like
authority.
/s/ Patricia S. Smith
My Commission Expires
May 10, 2002
Exhibit
10-ii
AT&T
INC.
2006
INCENTIVE PLAN
Plan
Effective: May 1, 2006
Amended
Through: January 28, 2010
AT&T
INC.
2006
Incentive Plan
Article
1.
|
Establishment and
Purpose
.
|
1.1
|
Establishment of the
Plan
. AT&T Inc., a Delaware corporation (the
“Company” or “AT&T”), hereby establishes an incentive compensation
plan (the “Plan”), as set forth in this
document.
|
1.2
|
Purpose of the
Plan
. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of the Company’s shareowners, and by providing
Participants with an incentive for outstanding
performance.
|
1.3
|
Effective Date of the
Plan
. The Plan was originally effective on May 1, 2006,
and is being hereby amended and restated effective January 28,
2010.
|
Article
2.
|
Definitions
. Whenever
used in the Plan, the following terms shall have the meanings set forth
below and, when the meaning is intended, the initial letter of the word is
capitalized:
|
(a)
“Applicable
Law” means the legal requirements relating to the administration of options and
share-based or performance-based awards under any applicable laws of the United
States, any other country, and any provincial, state, or local subdivision, any
applicable stock exchange or automated quotation system rules or regulations, as
such laws, rules, regulations and requirements shall be in place from time to
time.
(b)
“Award”
means, individually or collectively, a grant or award under this Plan of Stock
Options, Restricted Stock (including unrestricted Stock), Restricted Stock
Units, Performance Units, or Performance Shares.
(c)
“Award
Agreement” means an agreement which may be entered into by each Participant and
the Company, setting forth the terms and provisions applicable to Awards granted
to Participants under this Plan.
(d)
“Board”
or “Board of Directors” means the AT&T Board of Directors.
(e)
“Cause”
shall mean willful and gross misconduct on the part of an Employee that is
materially and demonstrably detrimental to the Company or any Subsidiary as
determined by the Company in its sole discretion.
(f)
“Change
in Control” shall be deemed to have occurred if (i) any “person” (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the shareowners of the
Company in substantially the same proportions as their ownership of stock of the
Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total voting power represented by the
Company’s then outstanding voting securities, or (ii) during any period of two
(2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new Director whose
election by the Board of Directors or nomination for election by the Company’s
shareowners was approved by a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof, or (iii) the consummation of a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareowners
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company’s assets.
(g)
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
(h)
“Committee”
means the committee or committees of the Board of Directors given authority to
administer the Plan as provided in Article 3.
(i)
“Director”
means any individual who is a member of the AT&T Board of
Directors.
(j)
“Disability”
shall mean absence of an Employee from work under the relevant Company or
Subsidiary long term disability plan.
(k)
“Employee”
means any employee of the Company or of one of the Company’s
Subsidiaries. “Employment” means the employment of an Employee by the
Company or one of its Subsidiaries. Directors who are not otherwise
employed by the Company shall not be considered Employees under this
Plan.
(l)
“Exchange
Act” means the Securities Exchange Act of 1934, as amended from time to time, or
any successor Act thereto.
(m)
“Exercise
Price” means the price at which a Share may be purchased by a Participant
pursuant to an Option, as determined by the Committee.
(n)
“Fair
Market Value” shall mean the closing price on the New York Stock Exchange
(“NYSE”) for a Share on the relevant date, or if such date was not a trading
day, the next preceding trading date, all as determined by the
Company. A trading day is any day that the Shares are traded on the
NYSE. In lieu of the foregoing, the Committee may, from time to time,
select any other index or measurement to determine the Fair Market Value of
Shares under the Plan, including but not limited to an average determined over a
period of trading days.
(o)
“Insider”
shall mean an Employee who is, on the relevant date, an officer, director, or
ten percent (10%) beneficial owner of the Company, as those terms are defined
under Section 16 of the Exchange Act.
(p)
“Officer
Level Employee” shall mean a Participant who is an officer level Employee for
compensation purposes as indicated on the records of AT&T.
(q)
“Option”
means an option to purchase Shares from AT&T.
(r)
“Participant”
means an Employee or former Employee who holds an outstanding Award granted
under the Plan.
(s)
“Performance
Unit” and “Performance Share” shall each mean an Award granted to an Employee
pursuant to Article 8 herein.
(t)
“Plan”
means this 2006 Incentive Plan. The Plan may also be referred to as
the “AT&T 2006 Incentive Plan” or as the “AT&T Inc. 2006
Incentive Plan.”
(u)
“Retirement”
or to “Retire” shall mean the Participant’s Termination of Employment for any
reason other than death, Disability or for Cause, on or after the earlier of the
following dates, or as otherwise provided by the Committee: (1) for Officer
Level Employees , the date the Participant is at least age 55 and has five (5)
years of net credited service); or (2) the date the Participant has attained one
of the following combinations of age and service, except as otherwise indicated
below:
Net Credited
Service
|
Age
|
10 years or
more
|
65 or
older
|
20 years or
more
|
55 or
older
|
25 years or
more
|
50 or
older
|
30 years or
more
|
Any
age
|
For
purposes of this Plan only, Net Credited Service shall be calculated in the same
manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan
– Nonbargained Program (“Pension Plan”), as that may be amended from time to
time, except that service with an Employer shall be counted as though the
Employer were a “Participating Company” under the Pension Plan and the Employee
was a participant in the Pension Plan.
(v)
“Rotational
Work Assignment Company” (“RWAC”) shall mean any entity with which AT&T Inc.
or any of its Subsidiaries may enter into an agreement to provide an employee
for a rotational work assignment.
(w)
“Senior
Manager” shall mean a Participant who is a senior manager for compensation
purposes as indicated on the records of AT&T.
(x)
“Shares”
or “Stock” means the shares of common stock of the Company.
(y)
“Subsidiary”
shall mean any corporation, partnership, venture or other entity in which
AT&T holds, directly or indirectly, a fifty percent (50%) or greater
ownership interest. The Committee may, at its sole discretion,
designate, on such terms and conditions as the Committee shall determine, any
other corporation, partnership, limited liability company, venture other entity
a Subsidiary for purposes of this Plan. Unless otherwise provided by
the Committee, Cingular and its direct or indirect majority-owned subsidiaries
shall each be deemed a Subsidiary so long as AT&T holds a direct or indirect
twenty five percent (25%) or greater ownership interest in Cingular Wireless LLC
or its successor.
(z)
“Termination
of Employment” or a similar reference shall mean the event where the Employee is
no longer an Employee of the Company or of any Subsidiary, including but not
limited to where the employing company ceases to be a
Subsidiary. With respect to any Award that constitutes a
“nonqualified deferred compensation plan” within the meaning of Section 409A of
the Code, “Termination of Employment” shall mean a “separation from service” as
defined under Section 409A of the Code.
Article
3.
|
Administration
.
|
3.1
|
The
Committee
. Administration of the Plan shall be as
follows:
|
(a)
With
respect to Insiders, the Plan and Awards hereunder shall be administered by the
Human Resources Committee of the Board or such other committee as may be
appointed by the Board for this purpose (each of the Human Resources Committee
and such other committee is the “Disinterested Committee”), where each Director
on such Disinterested Committee is a “Non-Employee Director,” as that term is
used in Rule 16b-3 under the Exchange Act (or any successor designation for
determining the committee that may administer plans, transactions or awards
exempt under Section 16(b) of the Exchange Act), as that rule may be modified
from time to time.
(b)
With
respect to persons who are not Insiders, the Plan and Awards hereunder shall be
administered by each of the Disinterested Committee and such other committee, if
any, to which the Board may delegate such authority (such other Committee shall
be the “Non-Insider Committee”), and each such Committee shall have full
authority to administer the Plan and all Awards hereunder, except as otherwise
provided herein or by the Board. The Disinterested Committee may,
from time to time, limit the authority of the Non-Insider Committee in any
way. Any Committee may be replaced by the Board at any
time.
(c)
Except as
otherwise indicated from the context, references to the “Committee” in this Plan
shall be to either of the Disinterested Committee or the Non-Insider
Committee.
3.2
|
Authority of the
Committee
. The Committee shall have complete control
over the administration of the Plan and shall have the authority in its
sole discretion to (a) exercise all of the powers granted to it under the
Plan, (b) construe, interpret and implement the Plan, grant terms and
grant notices, and all Award Agreements, (c) prescribe, amend and rescind
rules and regulations relating to the Plan, including rules governing its
own operations, (d) make all determinations necessary or advisable in
administering the Plan, (e) correct any defect, supply any omission and
reconcile any inconsistency in the Plan, (f) amend the Plan to reflect
changes in applicable law (whether or not the rights of the holder of any
Award are adversely affected, unless otherwise provided by the Committee),
(g) grant Awards and determine who shall receive Awards, when such Awards
shall be granted and the terms and conditions of such Awards, including,
but not limited to, conditioning the exercise, vesting, payout or other
term of condition of an Award on the achievement of Performance Goals
(defined below), (h) unless otherwise provided by the Committee, amend any
outstanding Award in any respect, not materially adverse to the
Participant, including, without limitation, to (1) accelerate the time or
times at which the Award becomes vested, unrestricted or may be exercised
(and, in connection with such acceleration, the Committee may provide that
any Shares acquired pursuant to such Award shall be Restricted Shares,
which are subject to vesting, transfer, forfeiture or repayment provisions
similar to those in the Participant’s underlying Award), (2) accelerate
the time or times at which shares of Common Stock are delivered under the
Award (and, without limitation on the Committee’s rights, in connection
with such acceleration, the Committee may provide that any shares of
Common Stock delivered pursuant to such Award shall be Restricted Shares,
which are subject to vesting, transfer, forfeiture or repayment provisions
similar to those in the Grantee’s underlying Award), or (3) waive or amend
any goals, restrictions or conditions applicable such Award, or impose new
goals, restrictions and (i) determine at any time whether, to what extent
and under what circumstances and method or methods (1) Awards may be (A)
settled in cash, shares of Stock, other securities, other Awards or other
property (in which event, the Committee may specify what other
effects such settlement will have on the Participant’s Award), (B)
exercised or (C) canceled, forfeited or suspended, (2) Shares, other
securities, cash, other Awards or other property and other amounts payable
with respect to an Award may be deferred either automatically or at the
election of the Participant or of the Committee, or (3) Awards may be
settled by the Company or any of its Subsidiaries or any of its or their
designees.
|
No Award
may be made under the Plan more than ten years after April 30,
2016.
References
to determinations or other actions by AT&T or the Company, herein, shall
mean actions authorized by the Committee, the Chairman of the Board of AT&T,
the Senior Executive Vice President of AT&T in charge of Human Resources or
their respective successors or duly authorized delegates, in each case in the
discretion of such person, provided, however, only the Disinterested Committee
may take action with respect to Insiders with regard to granting or determining
the terms of Awards or other matters that would require the Disinterested
Committee to act in order to comply with Rule 16b-3 promulgated under the
Exchange Act.
All
determinations and decisions made by AT&T pursuant to the provisions of the
Plan and all related orders or resolutions of the Board shall be final,
conclusive, and binding on all persons, including but not limited to the
Company, its stockholders, Employees, Participants, and their estates and
beneficiaries.
Article
4.
|
Shares Subject to the
Plan
.
|
4.1
|
Number of
Shares
. Subject to adjustment as provided in
Section 4.3 herein, the number of Shares available for issuance under
the Plan shall not exceed 90 million Shares. The Shares granted
under this Plan may be either authorized but unissued or reacquired
Shares. The Disinterested Committee shall have full discretion
to determine the manner in which Shares available for grant are counted in
this Plan.
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4.2
|
Share
Accounting
. Without limiting the discretion of the
Committee under this section, unless otherwise provided by the
Disinterested Committee, the following rules will apply for purposes of
the determination of the number of Shares available for grant under the
Plan or compliance with the foregoing
limits:
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(a)
If an
outstanding Award for any reason expires or is terminated or canceled without
having been exercised or settled in full, or if Shares acquired pursuant to an
Award subject to forfeiture or repurchase are forfeited or repurchased by the
Company for an amount not greater than the Participant’s original purchase
price, the Shares allocable to the terminated portion of such Award or such
forfeited or repurchased Shares shall again be available for issuance under the
Plan.
(b)
Shares
shall not be deemed to have been issued pursuant to the Plan with respect to any
portion of an Award that is settled in cash, other than an Option.
(c)
Shares
withheld or reacquired by the Company in satisfaction of tax withholding
obligations under a Restricted Stock Award shall not again be available for
issuance under the Plan; however Shares withheld for tax withholding from other
awards shall be available for issuance again.
(d)
If the
exercise price of an Option is paid by tender to the Company, or attestation to
the ownership, of Shares owned by the Participant, or an Option is settled
without the payment of the exercise price, the number of shares available for
issuance under the Plan shall be reduced by the gross number of shares for which
the Option is exercised.
4.3
|
Adjustments in
Authorized Plan Shares
. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
Stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, an adjustment
shall be made in the number and class of Shares which may be delivered
under the Plan (including but not limited to individual limits), and in
the number and class of and/or price of Shares subject to outstanding
Awards granted under the Plan, and/or the number of outstanding Options,
Shares of Restricted Stock, and Performance Shares (and Performance Units
and other Awards whose value is based on a number of Shares) constituting
outstanding Awards, as may be determined to be appropriate and equitable
by the Disinterested Committee, in its sole discretion, to prevent
dilution or enlargement of rights.
|
Article
5.
|
Eligibility and
Participation
.
|
5.1
|
Eligibility
. All
management Employees are eligible to receive Awards under this
Plan.
|
5.2
|
Actual
Participation
. Subject to the provisions of the Plan,
the Committee may, from time to time, select from all eligible Employees,
those to whom Awards shall be granted and shall determine the nature and
amount of each Award. No Employee is entitled to receive an
Award unless selected by the
Committee.
|
Article
6.
|
Stock
Options
.
|
6.1
|
Grant of
Options
. Subject to the terms and provisions of the
Plan, Options may be granted to eligible Employees at any time and from
time to time, and under such terms and conditions, as shall be determined
by the Committee. In addition, the Committee may, from time to
time, provide for the payment of dividend equivalents on Options,
prospectively and/or retroactively, on such terms and conditions as the
Committee may require. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each
Employee; provided, however, that no single Employee may receive Options
under this Plan for more than one percent (1%) of the Shares approved for
issuance under this Plan during any calendar year. The
Committee may not grant Incentive Stock Options, as described in Section
422 of the Code, under this Plan.
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6.2
|
Form of
Issuance
. Each Option grant may be issued in the form of
an Award Agreement and/or may be recorded on the books and records of the
Company for the account of the Participant. If an Option is not
issued in the form of an Award Agreement, then the Option shall be deemed
granted as determined by the Committee. The terms and
conditions of an Option shall be set forth in the Award Agreement, in the
notice of the issuance of the grant, or in such other documents as the
Committee shall determine. Such terms and conditions shall
include the Exercise Price, the duration of the Option, the number of
Shares to which an Option pertains (unless otherwise provided by the
Committee, each Option may be exercised to purchase one Share), and such
other provisions as the Committee shall
determine.
|
6.3
|
Exercise
Price
. Unless a greater Exercise Price is determined by
the Committee, the Exercise Price for each Option Awarded under this Plan
shall be equal to one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is
granted.
|
6.4
|
Duration of
Options
. Each Option shall expire at such time as the
Committee shall determine at the time of grant (which duration may be
extended by the Committee); provided, however, that no Option shall be
exercisable later than the tenth (10th) anniversary date of its
grant. In the event the Committee does not specify the
expiration date of an Option, then such Option will expire on the tenth
(10th) anniversary date of its grant, except as otherwise provided
herein.
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6.5
|
Vesting of
Options
. Options shall vest at such times and under such
terms and conditions as determined by the Committee; provided, however,
unless another vesting period is provided by the Committee at or before
the grant of an Option, one-third of the Options will vest on each of the
first three anniversaries of the grant; if one Option remains after
equally dividing the grant by three, it will vest on the first anniversary
of the grant, if two Options remain, then one will vest on each of the
first two anniversaries. The Committee shall have the right to
accelerate the vesting of any Option; however, the Chairman of the Board
or the Senior Executive Vice President-Human Resources, or their
respective successors, or such other persons designated by the Committee,
shall have the authority to accelerate the vesting of Options for any
Participant who is not an Insider.
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6.6
|
Exercise of
Options
. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and
conditions as the Committee shall in each instance approve, which need not
be the same for each grant or for each Participant. Exercises
of Options may be effect only on days and during the hours that the New
York Stock Exchange is open for regular trading. The Company
may change or limit the times or days Options may be
exercised. If an Option expires on a day or at a time when
exercises are not permitted, then the Options may be exercised no later
than the immediately preceding date and time that the Options were
exercisable.
|
Options
shall be exercised by providing notice to the designated agent selected by the
Company (if no such agent has been designated, then to the Company), in the
manner and form determined by the Company, which notice shall be irrevocable,
setting forth the exact number of Shares with respect to which the Option is
being exercised and including with such notice payment of the Exercise
Price. When Options have been transferred, the Company or its
designated agent may require appropriate documentation that the person or
persons exercising the Option, if other than the Participant, has the right to
exercise the Option. No Option may be exercised with respect to a
fraction of a Share.
6.7
|
Payment
. Unless
otherwise determined by the Committee, the Exercise Price shall be paid in
full at the time of exercise. No Shares shall be issued or
transferred until full payment has been
received.
|
Payment
may be made:
(a)
in cash,
or
(b)
unless
otherwise provided by the Committee at any time, and subject to such additional
terms and conditions and/or modifications as the Committee or the Company may
impose from time to time, and further subject to suspension or termination of
this provision by the Committee or Company at any time, by:
(i)
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delivery
of Shares owned by the Participant in partial (if in partial payment, then
together with cash) or full payment; provided, however, as a condition to
paying any part of the Exercise Price in Shares, at the time of exercise
of the Option, the Participant must establish to the satisfaction of the
Company that the Stock tendered to the Company has been held by the
Participant for a minimum of six (6) months preceding the tender;
or
|
(ii)
|
if
the Company has designated a stockbroker to act as the Company’s agent to
process Option exercises, issuance of an exercise notice together with
instructions to such stockbroker irrevocably instructing the stockbroker:
(A) to immediately sell (which shall include an exercise notice that
becomes effective upon execution of a sale order) a sufficient portion of
the Shares to be received from the Option exercise to pay the Exercise
Price of the Options being exercised and the required tax withholding, and
(B) to deliver on the settlement date the portion of the proceeds of the
sale equal to the Exercise Price and tax withholding to the
Company. In the event the stockbroker sells any Shares on
behalf of a Participant, the stockbroker shall be acting solely as the
agent of the Participant, and the Company disclaims any responsibility for
the actions of the stockbroker in making any such sales. No
Shares shall be issued until the settlement date and until the proceeds
(equal to the Option Price and tax withholding) are paid to the
Company.
|
If
payment is made by the delivery of Shares, the value of the Shares delivered
shall be equal to the then most recent Fair Market Value of the Shares
established before the exercise of the Option.
Restricted
Stock may not be used to pay the Exercise Price.
6.8
|
Termination of
Employment
. Unless otherwise provided by the Committee,
the following limitations on exercise of Options shall apply upon
Termination of Employment:
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(a)
Termination by Death or
Disability
. In the event of the Participant’s Termination of
Employment by reason of death or Disability, all outstanding Options granted to
that Participant shall immediately vest as of the date of Termination of
Employment and may be exercised, if at all, no more than three (3) years from
the date of the Termination of Employment, unless the Options, by their terms,
expire earlier. However, in the event the Participant was eligible to
Retire at the time of Termination of Employment, notwithstanding the foregoing,
the Options may be exercised, if at all, no more than five (5) years from the
date of the Termination of Employment, unless the Options, by their terms,
expire earlier.
(b)
Termination for
Cause
. In the event of the Participant’s Termination of
Employment by the Company for Cause, all outstanding Options held by the
Participant shall immediately be forfeited to the Company and no additional
exercise period shall be allowed, regardless of the vested status of the
Options.
(c)
Retirement or Other
Termination of Employment
. In the event of the Participant’s
Termination of Employment for any reason other than the reasons set forth in (a)
or (b), above:
(i)
|
If
upon the Participant’s Termination of Employment, the Participant is
eligible to Retire (and if the Participant is an Officer Level Employee ,
the employee must also be age 55 or older at Termination of Employment),
then all outstanding unvested Options granted to that Participant shall
immediately vest as of the date of the Participant’s Termination of
Employment;
|
(ii)
|
All
outstanding Options which are vested as of the effective date of
Termination of Employment may be exercised, if at all, no more than five
(5) years from the date of Termination of Employment if the Participant is
eligible to Retire, or three (3) months from the date of the Termination
of Employment if the Participant is not eligible to Retire, as the case
may be, unless in either case the Options, by their terms, expire earlier;
and
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(iii)
|
In
the event of the death of the Participant after Termination of Employment,
this paragraph (c) shall still apply and not paragraph (a),
above.
|
(d)
Options not Vested at
Termination
. Except as provided in paragraphs (a) and (c)(i),
above, all Options held by the Participant which are not vested on or before the
effective date of Termination of Employment shall immediately be forfeited to
the Company (and the Shares subject to such forfeited Options shall once again
become available for issuance under the Plan).
(e)
Notwithstanding
the foregoing, the Committee may, in its sole discretion, establish different,
or waive, terms and conditions pertaining to the effect of Termination of
Employment on Options, whether or not the Options are outstanding, but no such
modification shall shorten the terms of Options issued prior to such
modification or otherwise be materially adverse to the Participant.
6.9
|
Employee
Transfers
. For purposes of the Plan, transfer of
employment of a Participant between the Company and any one of its
Subsidiaries (or between Subsidiaries) or between the Company or a
Subsidiary and a RWAC, to the extent the period of employment at a RWAC is
equal to or less than five (5) years, shall not be deemed a Termination of
Employment. Provided, however, for purposes of this Article 6,
termination of employment with a RWAC without a concurrent transfer to the
Company or any of its Subsidiaries shall be deemed a Termination of
Employment as that term is used herein. Similarly, termination
of an entity’s status as a Subsidiary or as a RWAC shall be deemed a
Termination of Employment of any Participants employed by such Subsidiary
or RWAC.
|
6.10
|
Restrictions
on Exercise and Transfer of Options. Unless otherwise provided
by the Committee:
|
(a)
During
the Participant’s lifetime, the Participant’s Options shall be exercisable only
by the Participant or by the Participant’s guardian or legal
representative. After the death of the Participant, except as
otherwise provided by AT&T’s Rules for Employee Beneficiary Designations, an
Option shall only be exercised by the holder thereof (including, but not limited
to, an executor or administrator of a decedent’s estate) or his or her guardian
or legal representative.
(b)
No Option
shall be transferable except: (i) in the case of the Participant, only upon the
Participant’s death and in accordance with the AT&T Rules for Employee
Beneficiary Designations; and (ii) in the case of any holder after the
Participant’s death, only by will or by the laws of descent and
distribution.
6.11
|
Competition and
Solicitation
. In the event a Participant directly or
indirectly, engages in competitive activity, or has become associated
with, employed by, controls, or renders service to any business that is
engaged in competitive activity, with (i) the Company, (ii) any
Subsidiary, or (iii) any business in which any of the foregoing have a
substantial interest, or if the Participant attempts, directly or
indirectly, to induce any employee of the Company or a Subsidiary to be
employed or perform services elsewhere without the permission of the
Company, then the Company may (i) cancel any Option granted to such
Participant, whether or not vested, in whole or in part; and/or (ii)
rescind any exercise of the Participant’s Options that occurred on or
after that date six months prior to engaging in such activity, in which
case the Participant shall pay the Company the gain realized or received
upon such exercise of Options. “Has become associated with”
shall include, among other things, beneficial ownership of 1/10 of 1% or
more of a business engaged in competitive activity. The
determination of whether a Participant has engaged in any such activity
and whether to cancel Options and/or rescind the exercise of Options shall
be made by AT&T, and in each case such determination shall be final,
conclusive and binding on all
persons.
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Article
7.
|
Restricted
Stock
.
|
7.1
|
Grant of Restricted
Stock
. Subject to the terms and provisions of the Plan,
the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to eligible Employees in such amounts and upon such terms
and conditions as the Committee shall determine. In addition to
any other terms and conditions imposed by the Committee, vesting of
Restricted Stock may be conditioned upon the achievement of Performance
Goals in the same manner as provided in Section 8.4, herein, with respect
to Performance Shares. No Employee may be awarded, in any
calendar year, a number of Shares in the form of Restricted Stock (or
Restricted Stock Units) exceeding one percent (1%) of the Shares approved
for issuance under this Plan.
|
7.2
|
Restricted Stock
Agreement
. The Committee may require, as a condition to
receiving a Restricted Stock Award, that the Participant enter into a
Restricted Stock Award Agreement, setting forth the terms and conditions
of the Award. In lieu of a Restricted Stock Award Agreement,
the Committee may provide the terms and conditions of an Award in a notice
to the Participant of the Award, on the Stock certificate representing the
Restricted Stock, in the resolution approving the Award, or in such other
manner as it deems appropriate.
|
7.3
|
Transferability
. Except
as otherwise provided in this Article 7, and subject to any additional
terms in the grant thereof, Shares of Restricted Stock granted herein may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until fully vested.
|
7.4
|
Restrictions
. The
Restricted Stock shall be subject to such vesting terms, including the
achievement of Performance Goals (as described in Section 8.4), as may be
determined by the Committee. Unless otherwise provided by the
Committee, to the extent Restricted Stock is subject to any condition to
vesting, if such condition or conditions are not satisfied by the time the
period for achieving such condition has expired, such Restricted Stock
shall be forfeited. The Committee may impose such other
conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including but not limited to
a requirement that Participants pay a stipulated purchase price for each
Share of Restricted Stock and/or restrictions under applicable Federal or
state securities laws; and may legend the certificates representing
Restricted Stock to give appropriate notice of such
restrictions. The Committee may also grant Restricted Stock
without any terms or conditions in the form of vested Stock
Awards.
|
The
Company shall also have the right to retain the certificates representing Shares
of Restricted Stock in the Company’s possession until such time as the Shares
are fully vested and all conditions and/or restrictions applicable to such
Shares have been satisfied.
7.5
|
Removal of
Restrictions
. Except as otherwise provided in this
Article 7 or otherwise provided in the grant thereof, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall
become freely transferable by the Participant after completion of all
conditions to vesting, if any. However, the Committee, in its
sole discretion, shall have the right to immediately vest the shares and
waive all or part of the restrictions and conditions with regard to all or
part of the Shares held by any Participant at any
time.
|
7.6
|
Voting Rights,
Dividends and Other Distributions
. Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting
rights and shall receive all regular cash dividends paid with respect to
such Shares. Except as provided in the following sentence, in
the sole discretion of the Committee, other cash dividends and other
distributions paid to Participants with respect to Shares of Restricted
Stock may be subject to the same restrictions and conditions as the Shares
of Restricted Stock with respect to which they were paid. If
any such dividends or distributions are paid in Shares, the Shares shall
be subject to the same restrictions and conditions as the Shares of
Restricted Stock with respect to which they were
paid.
|
7.7
|
Termination of
Employment Due to Death or Disability
. In the event of
the Participant’s Termination of Employment by reason of death or
Disability, all restrictions imposed on outstanding Shares of Restricted
Stock held by the Participant shall immediately lapse and the Restricted
Stock shall immediately become fully vested as of the date of Termination
of Employment.
|
7.8
|
Termination of
Employment for Other Reasons
. Unless otherwise provided
by the Committee, in the event of the Participant’s Termination of
Employment for any reason other than those specifically set forth in
Section 7.7 herein, all Shares of Restricted Stock held by the Participant
which are not vested as of the effective date of Termination of Employment
immediately shall be forfeited and returned to the
Company.
|
7.9
|
Employee
Transfers
. For purposes of the Plan, transfer of
employment of a Participant between the Company and any one of its
Subsidiaries (or between Subsidiaries) or between the Company or a
Subsidiary and a RWAC, to the extent the period of employment at a RWAC is
equal to or less than five (5) years, shall not be deemed a Termination of
Employment. Provided, however, for purposes of this Article,
termination of employment with a RWAC without a concurrent transfer to the
Company or any of its Subsidiaries shall be deemed a Termination of
Employment as that term is used herein. Similarly, termination
of an entity’s status as a Subsidiary or as a RWAC shall be deemed a
Termination of Employment of any Participants employed by such Subsidiary
or RWAC.
|
7.10
|
Restricted Stock
Units
. In lieu of or in addition to Restricted Stock,
the Committee may grant Restricted Stock Units under such terms and
conditions as shall be determined by the Committee. Restricted
Stock Units shall be subject to the same terms and conditions under this
Plan as Restricted Stock except as otherwise provided in this Plan or as
otherwise provided by the Committee. Except as otherwise
provided by the Committee, the award shall be settled and pay out promptly
upon vesting (to the extent permitted by Section 409A of the Code), and
the Participant holding such Restricted Stock Units shall receive, as
determined by the Committee, Shares (or cash equal to the Fair Market
Value of the number of Shares as of the date the award becomes payable)
equal to the number of such Restricted Stock Units. Restricted Stock Units
shall not be transferable, shall have no voting rights, and shall not
receive dividends, but shall, unless otherwise provided by the Committee,
receive dividend equivalents at the time and at the same rate as dividends
are paid on Shares with the same record and pay dates. Upon a
Participant’s Termination of Employment due to Death or Disability, his or
her Restricted Stock Units will vest, and in the case of Death, will pay
out promptly, and in the case of Disability, will only pay out in
accordance with the terms of the grant (without regard to the Termination
due to Disability). If the Participant dies after Termination
of Employment, vested Restricted Stock Units will be promptly paid
out.
|
Article
8.
|
Performance Units and
Performance Shares
.
|
8.1
|
Grants of Performance
Units and Performance Shares
. Subject to the terms of
the Plan, Performance Shares and Performance Units may be granted to
eligible Employees at any time and from time to time, as determined by the
Committee. The Committee shall have complete discretion in
determining the number of Performance Units and/or Performance Shares
Awarded to each Participant and the terms and conditions of each such
Award.
|
8.2
|
Value of Performance
Shares and Units
.
|
(a)
A
Performance Share is equivalent in value to a Share. In any calendar
year, no individual may be awarded Performance Shares having a potential payout
of Shares exceeding one percent (1%) of the Shares approved for issuance under
this Plan.
(b)
A
Performance Unit shall be equal in value to a fixed dollar amount determined by
the Committee. In any calendar year, no individual may be Awarded
Performance Units having a potential payout equivalent exceeding the Fair Market
Value, as of the date of granting the Award, of one percent (1%) of the Shares
approved for issuance under this Plan. The number of Shares
equivalent to the potential payout of a Performance Unit shall be determined by
dividing the maximum cash payout of the Award by the Fair Market Value per Share
on the effective date of the grant. The Committee may denominate a
Performance Unit Award in dollars instead of Performance Units. A
Performance Unit Award may be referred to as a “Key Executive Officer Short Term
Award.”
8.3
|
Performance
Period
. The Performance Period for Performance Shares
and Performance Units is the period over which the Performance Goals are
measured. The Performance Period is set by the Committee for
each Award; however, in no event shall an Award have a Performance Period
of less than one year.
|
8.4
|
Performance
Goals
. For each Award of Performance Shares or
Performance Units, the Committee shall establish (and may establish for
other Awards) performance objectives (“Performance Goals”) for the
Company, its Subsidiaries, and/or divisions of any of foregoing, using the
Performance Criteria and other factors set forth in (a) and (b),
below. It may also use other criteria or factors in
establishing Performance Goals in addition to or in lieu of the
foregoing. A Performance Goal may be stated as an absolute
value or as a value determined relative to an index, budget, prior period,
similar measures of a peer group of other companies or other standard
selected by the Committee. Performance Goals shall include
payout tables, formulas or other standards to be used in determining the
extent to which the Performance Goals are met, and, if met, the number of
Performance Shares and/or Performance Units which would be converted into
Stock and/or cash (or the rate of such conversion) and distributed to
Participants in accordance with Section 8.6. Unless previously
canceled or reduced, Performance Shares and Performance Units which may
not be converted because of failure in whole or in part to satisfy the
relevant Performance Goals or for any other reason shall be canceled at
the time they would otherwise be distributable. When the
Committee desires an Award of Performance Shares, Performance Units,
Restricted Stock or Restricted Stock Units to qualify under Section 162(m)
of the Code, as amended, the Committee shall establish the Performance
Goals for the respective Award prior to or within 90 days of the beginning
of the Performance Period relating to such Performance Goal, and not later
than after 25% of such period has elapsed. For all other
Awards, the Performance Goals must be established before the end of the
respective Performance Period.
|
(a)
The
Performance Criteria which the Committee is authorized to use, in its sole
discretion, are any of the following criteria or any combination thereof,
including but not limited to the offset against each other of any combination of
the following criteria:
(1)
|
Financial
performance of the Company (on a consolidated basis), of one or more of
its Subsidiaries, and/or a division of any of the
foregoing. Such financial performance may be based on net
income, Value Added (after- tax cash operating profit less depreciation
and less a capital charge), EBITDA (earnings before interest, taxes,
depreciation and amortization), revenues, sales, expenses, costs, gross
margin, operating margin, profit margin, pre-tax profit, market share,
volumes of a particular product or service or category thereof, including
but not limited to the product’s life cycle (for example, products
introduced in the last 2 years), number of customers or subscribers,
number of items in service, including but not limited to every category of
access or other telecommunication or television lines, return on net
assets, return on assets, return on capital, return on invested capital,
cash flow, free cash flow, operating cash flow, operating revenues,
operating expenses, and/or operating
income.
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(2)
|
Service
performance of the Company (on a consolidated basis), of one or more of
its Subsidiaries, and/or of a division of any of the
foregoing. Such service performance may be based upon measured
customer perceptions of service quality. Employee satisfaction,
employee retention, product development, completion of a joint venture or
other corporate transaction, completion of an identified special project,
and effectiveness of management.
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(3)
|
The
Company’s Stock price, return on stockholders’ equity, total stockholder
return (Stock price appreciation plus dividends, assuming the reinvestment
of dividends), and/or earnings per
Share.
|
(4)
|
Impacts
of acquisitions, dispositions, or restructurings, on any of the
foregoing.
|
(b)
Except to
the extent otherwise provided by the Committee in full or in part, if any of the
following events occur during a Performance Period and would directly affect the
determination of whether or the extent to which Performance Goals are met, the
effects of such events shall be disregarded in any such computation: changes in
accounting principles; extraordinary items; changes in tax laws affecting net
income and/or Value Added; natural disasters, including but not limited to
floods, hurricanes, and earthquakes; and intentionally inflicted damage to
property which directly or indirectly damages the property of the Company or its
Subsidiaries. No such adjustment shall be made to the extent such
adjustment would cause the Award to fail to satisfy the performance based
exemption of Section 162(m) of the Code.
8.5
|
Dividend Equivalents
on Performance Shares
. For each Award of Performance
Shares, the Committee may establish a cash payment (“Dividend Equivalent”)
in an amount equal to the dividend payable on one Share to each
Participant for each Performance Share held by a Participant on the record
date for the dividend. Such Dividend Equivalent, if any, will
be payable at the time the relevant AT&T common stock dividend is
payable or at such other time as determined by the Committee, and may be
modified or terminated by the Committee at any
time.
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8.6
|
Form and Timing of
Payment of Performance Units and Performance Shares
. As
soon as practicable (but in no event more than ninety (90) days) after the
applicable Performance Period has ended and all other conditions (other
than Committee actions) to conversion and distribution of a Performance
Share and/or Performance Unit Award have been satisfied (or, if
applicable, at such other time determined by the Committee at or before
the establishment of the Performance Goal), the Committee shall determine
whether and the extent to which the Performance Goals were met for the
applicable Performance Units and Performance Shares. If
Performance Goals have been met, then the number of Performance Units and
Performance Shares to be converted into Stock and/or cash and distributed
to the Participants shall be determined in accordance with the Performance
Goals for such Awards, subject to any limits imposed by the
Committee. Unless the Participant has elected to defer all or
part of his Performance Units or Performance Shares as provided in Article
10, herein, payment of Performance Units and Performance Shares shall be
made in a single lump sum, as soon as reasonably administratively possible
following the determination of the number of Shares or amount of cash to
which the Participant is entitled. Performance Units will be
distributed to Participants in the form of cash. Performance
Shares will be distributed to Participants in the form of 50% Stock and
50% Cash, or at the Participant’s election, 100% Stock or 100%
Cash. In the event the Participant is no longer an Employee at
the time of the distribution, then the distribution shall be 100% in cash,
provided the Participant may elect to take 50% or 100% in
Stock. At any time prior to the distribution of the Performance
Shares and/or Performance Units (or if distribution has been deferred,
then prior to the time the Awards would have been distributed), unless
otherwise provided by the Committee or prohibited by this Plan (such as in
the case of a Change in Control), the Committee shall have the authority
to reduce or eliminate the number of Performance Units or Performance
Shares to be converted and distributed, or to cancel any part or all of a
grant or award of Performance Units or Performance Shares, or to mandate
the form in which the Award shall be paid (i.e., in cash, in Stock or
both, in any proportions determined by the
Committee).
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Unless
otherwise provided by the Committee, any election to take a greater amount of
cash or Stock with respect to Performance Shares must be made in the calendar
year prior to the calendar year in which the Performance Shares are distributed
(or if distribution has been deferred, then in the year prior to the year the
Performance Shares would have been distributed absent such
deferral).
For the
purpose of converting Performance Shares into cash and distributing the same to
the holders thereof (or for determining the amount of cash to be deferred), the
value of a Performance Share shall be the Fair Market Value of a Share on the
date the Committee authorizes the payout of Awards. Performance
Shares to be distributed in the form of Stock will be converted at the rate of
one (1) Share per Performance Share.
8.7
|
Termination of
Employment Due to Death or Disability
. In the event of
the Participant’s Termination of Employment by reason of death or
Disability during a Performance Period, the Participant shall receive a
lump sum payout of the related outstanding Performance Units and
Performance Shares calculated as if all unfinished Performance Periods had
ended with 100% of the Performance Goals achieved, valued as of
the first business day of the calendar year following the date of
Termination of Employment and payable as soon thereafter as reasonably
possible. Where the amount or part of Dividend Equivalents is
determined by the number of Performance Shares that are paid out or is
otherwise determined by a performance measure, and the related Performance
Period for the Dividend Equivalents was not completed at Termination of
Employment, or in the event of the Termination of Employment by reason of
death or Disability, then the Dividend Equivalents will be calculated as
though 100% of the goals were achieved and paid as soon reasonably
possible following the first business day of the calendar
year.
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8.8
|
Termination of
Employment for Other Reasons
. Unless the Committee
determines otherwise, in the event of the Participant’s Termination of
Employment for other than a reason set forth in Section 8.7 (and other
than for Cause), if the Participant is not Retirement eligible at
Termination of Employment, then upon Termination, the number of the
Participant’s Performance Units and/or Performance Shares shall be reduced
at the time of the Termination of Employment so that the Participant may
receive no more than a prorated payout of all Performance Units and
Performance Shares granted, based on the number of months the Participant
worked at least one day during the respective Performance Period divided
by the number of months in the Performance Period, to be paid, if at all,
at the same time and under the same terms that such outstanding
Performance Units and Performance Shares would otherwise be
paid.
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8.9
|
Termination of
Employment for Cause
. In the event of the Termination of
Employment of a Participant by the Company for Cause, all Performance
Units and Performance Shares shall be forfeited by the Participant to the
Company.
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8.10
|
Nontransferability
. Performance
Units and Performance Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than in accordance
with the AT&T Rules for Employee Beneficiary
Designations.
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Article
9.
|
Beneficiary
Designation
. In the event of the death of a Participant,
distributions or Awards under this Plan, other than Restricted Stock,
shall pass in accordance with the AT&T Rules for Employee Beneficiary
Designations, as the same may be amended from time to
time. Beneficiary Designations of a Participant received by
AT&T prior to November 16, 2001, that were applicable to awards under
the 1996 Stock and Incentive Plan will also apply to awards under this
Plan unless and until the Participant provides to the contrary in
accordance with the procedures set forth in such
Rules.
|
Article
10.
|
Deferrals
. Unless
otherwise provided by the Committee, a Participant may, as permitted by
the Company, defer all or part of Awards made under this Plan in
accordance with and subject to the terms of such plans so long as such
deferral is determined by the Company to be consistent in all respects
with Section 409A of the Code.
|
Article
11.
|
Employee
Matters
.
|
11.1
|
Employment Not
Guaranteed
. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate
any Participant’s Employment at any time, nor confer upon any Participant
any right to continue in the employ of the Company or one of its
Subsidiaries.
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11.2
|
Participation
. No
Employee shall have the right to be selected to receive an Award under
this Plan, or, having been so selected, to be selected to receive a future
Award.
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11.3
|
Loyalty
Conditions and Enforcement. This section relates solely to
Awards granted on or after January 1, 2010 to a Participant who is an
Officer Level Employee or a Senior Manager as of the date the Award is
made.
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(a)
Each
Award under the Plan is intended to closely align the Participant’s long-term
interests with those of the Company and its shareholders, and the conditions set
forth in subsections (b) or (d) hereof (collectively, the “Loyalty Conditions”)
are intended to protect the Company’s critical need for each Participant’s
loyalty to the Company and its shareholders. If any Participant does
not comply with a Loyalty Condition, either during employment or within the
periods described below following Termination of Employment for any reason, then
the Participant is acting contrary to the long-term interests of the Company,
and there will be a failure of the consideration on which the Participant
received any Award or Awards pursuant to the Plan. Accordingly,
unless otherwise provided in the Award, as a condition of such Award granted on
or after January 1, 2010, the Participant is deemed to agree that he shall not,
without obtaining the written consent of AT&T in advance, violate the
Loyalty Provisions of this Section 11.3. Unless otherwise expressly
provided in an Award Agreement, if the Participant violates a Loyalty Condition,
then the Company may terminate any outstanding, unexercised, unexpired, unpaid,
or deferred Awards granted on or after January 1, 2010 (“Award Termination”),
rescind any exercise, payment or delivery pursuant to any Award or Awards
(“Rescission”), or recapture any cash or Shares (whether restricted or
unrestricted) issued pursuant to any Award or Awards, or proceeds from the
Participant’s sale of such Shares (“Recapture”).
(b)
During
the Participant’s employment with the Company and any of its Subsidiaries and
for a period of two years after a Termination of Employment for any reason, a
Participant shall not, without the Company’s prior written authorization, (i)
disclose to anyone outside the Company or use, other than in the Company’s
business, any Confidential Information, or (ii) disclose any trade secrets of
the Company, as that term is defined under Applicable Law, for as long as such
information is not generally known to the Company’s competitors through no fault
or negligence of the Participant.
“
Confidential
Information
” means all information belonging to, or otherwise relating to
the business of the Company, which is not generally known, regardless of the
manner in which it is stored or conveyed to Participant, and which the Company
has taken reasonable measures under the circumstances to protect from
unauthorized use or disclosure. Confidential Information includes
trade secrets as well as other proprietary knowledge, information, know-how, and
non-public intellectual property rights, including unpublished or pending patent
applications and all related patent rights, formulae, processes, discoveries,
improvements, ideas, conceptions, compilations of data, and data, whether or not
patentable or copyrightable and whether or not it has been conceived,
originated, discovered, or developed in whole or in part by
Participant. For example, Confidential Information includes, but is
not limited to, information concerning the Company’s business plans, budgets,
operations, products, strategies, marketing, sales, inventions, designs, costs,
legal strategies, finances, employees, customers, prospective customers,
licensees, or licensors; information received from third parties under
confidential conditions; or other valuable financial, commercial, business,
technical or marketing information concerning the Company, or any of the
products or services made, developed or sold by the
Company. Confidential Information does not include information that
(i) was generally known to the public at the time of disclosure; (ii) was
lawfully received by Participant from a third party; (iii) was known to
Participant prior to receipt from the Company; or (iv) was independently
developed by Participant or independent third parties; in each of the foregoing
circumstances, this exception applies only if such public knowledge or
possession by an independent third party was without breach by Participant or
any third party of any obligation of confidentiality or non-use, including but
not limited to the obligations and restrictions set forth in this
Agreement.
(c)
Coincidentally
with the exercise, receipt of payment, or delivery of cash or Shares pursuant to
an Award granted after January 1, 2010, the Company may require that the
Participant shall give a certification to the Company in writing if the
Participant is not for any reason in full compliance with the terms and
conditions of the Plan, including its Loyalty Conditions. If a
Termination of Employment has occurred for any reason, the Participant’s
certification shall state the name and address of the Participant’s then-current
employer or any entity for which the Participant performs business services and
the Participant’s title, and shall identify any organization or business in
which the Participant owns an equity interest of greater than five
percent.
(d)
If the
Company determines, in its sole and absolute discretion, that (i) a Participant
has violated any of the Loyalty Conditions, or (ii) during his or her employment
by the Company or any of its Subsidiaries, or within two years after the
Termination of Employment for any reason, a Participant has engaged in any of
the following conduct:
(i)
|
owned,
operated or controlled, or participated in the ownership, operation or
control of, any business enterprise (including, without limitation, any
corporation, partnership, proprietorship or other venture) that competes
with the Company in the Restricted Business (defined below) anywhere in
the Restricted Territory (defined
below);
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(ii)
|
become
employed as an officer or executive by any business enterprise (including,
without limitation, any corporation, partnership, proprietorship or other
venture) that competes with the Company in the Restricted Business
anywhere in the Restricted Territory, if such employment or engagement
requires Participant to compete against the Company in the Restricted
Business;
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(iii)
|
solicited
any nonclerical employee of the Company with whom the Participant had
Contact during his or her employment to terminate employment with the
Company; or
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(iv)
|
committed
any breach of Participant’s fiduciary duty or the duty of loyalty, as
determined by Applicable Law, then the Committee may, in its sole and
absolute discretion, impose an Award Termination, Rescission, and/or
Recapture with respect to any or all of the Participant’s Awards granted
after January 1, 2010, including any Shares or cash associated therewith,
or any proceeds thereof. For purposes of this Agreement, the
term “Restricted Business” means the business of providing communications
or connectivity services, including both wireless and wire-lined
telephone, messaging, Internet, data, and related services; the term
“Restricted Territory” shall mean the state in which the Participant
maintained his or her principal office with the Company on the date the
Award was granted; and the term “Contact” means interaction between the
Participant and the nonclerical employee during performance of
Participant’s job responsibilities on behalf of the
Company.
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(e)
Within
ten days after receiving notice from the Company of any such activity described
in subsection (d) above, the Participant shall deliver to the Company the cash
or Shares acquired pursuant to any and all Awards granted on or after January 1.
2009, or, if Participant has sold the Shares, the gain realized, or payment
received as a result of the rescinded exercise, payment, or delivery; provided,
that if the Participant returns Shares that the Participant purchased pursuant
to the exercise of an Option (or the gains realized from the sale of such
Shares), the Company shall promptly refund the exercise price, without earnings
or interest, that the Participant paid for the Shares. Any payment by
the Participant to the Company pursuant to this Section shall be made either in
cash or by returning to the Company the number of Shares that the Participant
received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Award Termination, Rescission
or Recapture if, after a Termination of Employment, the Participant purchases,
as an investment or otherwise, stock or other securities of an organization
engaged in the Restricted Business, so long as (i) such stock or other
securities are listed upon a recognized securities exchange or traded over the
counter, and (ii) such investment does not represent more than a ten percent
(10%) equity interest in the organization or business.
(f)
Notwithstanding
the foregoing provisions of this Section, the Company has sole and absolute
discretion not to require Award Termination, Rescission and/or Recapture, and
its determination not to require Award Termination, Rescission and/or Recapture
with respect to any particular act by a particular Participant or Award shall
not in any way reduce or eliminate the Company’s authority to require Award
Termination, Rescission and/or Recapture with respect to any other act or
Participant or Award. Nothing in this Section shall be construed to
impose obligations on the Participant to refrain from engaging in lawful
competition with the Company after the Participant’s Termination of Employment
that does not violate subsections (b) or (d) of this Section, other than any
obligations that are part of any separate agreement between the Company and the
Participant or that arise under Applicable Law.
(g)
All
administrative and discretionary authority given to the Company under this
Section shall be exercised by the most senior human resources executive of the
Company or such other person or committee (including without limitation the
Committee) as the Committee may designate from time to time.
(h)
If any
provision within this Section is determined to be unenforceable or invalid under
any applicable law, such provision will be applied to the maximum extent
permitted by Applicable Law, and shall automatically be deemed amended in a
manner consistent with its objectives and any limitations required under
Applicable Law.
11.4
|
Reimbursement
of Company for Unearned or Ill-gotten Gains. Unless otherwise
specifically provided in an Award Agreement, and to the extent permitted
by Applicable Law, the Committee may in its sole and absolute discretion,
without obtaining the approval or consent of the Company’s shareholders or
of any Participant, with respect to Awards granted after January 1, 2010,
require that any Participant reimburse the Company for all or any portion
of any Awards granted or settled under this Plan (with each such case
being a “Reimbursement”), or the Committee may require the Termination or
Rescission of, or the Recapture associated with, any Award, if and to the
extent the Committee determines in its discretion that either
—
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(a)
the
Participant personally engaged in one or more material acts of fraud or
misconduct that have caused or partially caused the need for a financial
restatement by the Company and/or any Affiliate; or
(b)
(i) the
granting, vesting, or payment of such Award (or portion thereof) was predicated
upon the achievement of financial results involving statements of earnings,
revenues, gains, or other financial criteria relating to the Company, an
Affiliate or Affiliates of the Company, or any divisions or units of any of
them; (ii) the Participant benefited from a calculation that later proves to be
materially inaccurate; and (iii) a lower granting, vesting, payment, or other
settlement of such Award would have occurred but for the conduct described in
clause (b)(ii) of this Section.
In each
instance described in clause (a) or (b) above, the Committee may, to the extent
practicable and allowable under Applicable Laws, require Reimbursement, Award
Termination or Rescission of, or Recapture relating to, any such Award granted
to a Participant; provided that the Company will not seek Reimbursement, Award
Termination or Rescission of, or Recapture relating to, any such Awards that
were paid or vested more than three years prior to the first date of a financial
period that is subject to a restatement described in clause (a)
above.
Article
12.
|
Change in
Control
.
|
Unless
the Committee provides otherwise prior to the grant of an Award, upon the
occurrence of a Change in Control, the following shall apply to such
Award:
(a)
Any and
all Options granted hereunder to a Participant immediately shall become vested
and exercisable upon the Termination of Employment of the Participant by the
Company or by the Participant for “Good Reason”;
(b)
Unless
otherwise determined by the Committee, the payout of Performance Units and
Performance Shares shall be determined exclusively by the attainment of the
Performance Goals established by the Committee, which may not be modified after
the Change in Control, and AT&T shall not have the right to reduce the
Awards for any other reason;
(c)
For
purposes of this Plan, “Good Reason” means in connection with a termination of
employment by a Participant within two (2) years following a Change in Control,
(a) a material adverse alteration in the Participant’s position or in the nature
or status of the Participant’s responsibilities from those in effect immediately
prior to the Change in Control, or (b) any material reduction in the
Participant’s base salary rate or target annual bonus, in each case as in effect
immediately prior to the Change in Control, or (c) the relocation of the
Participant’s principal place of employment to a location that is more than
fifty (50) miles from the location where the Participant was principally
employed at the time of the Change in Control or materially increases the time
of the Participant’s commute as compared to the Participant’s commute at the
time of the Change in Control (except for required travel on the Company’s
business to an extent substantially consistent with the Participant’s customary
business travel obligations in the ordinary course of business prior to the
Change in Control).
In order
to invoke a Termination of Employment for Good Reason, a Participant must
provide written notice to AT&T or the Employer with respect to which the
Participant is employed or providing services of the existence of one or more of
the conditions constituting Good Reason within ninety (90) days following the
Participant’s knowledge of the initial existence of such condition or
conditions, specifying in reasonable detail the conditions constituting Good
Reason, and AT&T shall have thirty (30) days following receipt of such
written notice (the “Cure Period”) during which it may remedy the
condition. In the event that AT&T or the Employer fails to remedy
the condition constituting Good Reason during the applicable Cure Period, the
Participant’s “separation from service” (within the meaning of Section 409A of
the Code) must occur, if at all, within two (2) years following such Cure Period
in order for such termination as a result of such condition to constitute a
Termination of Employment for Good Reason.
Article
13.
|
Amendment,
Modification, and
Termination
.
|
13.1
|
Amendment,
Modification, and Termination
. The Board or the
Disinterested Committee may at any time and from time to time, alter or
amend the Plan or any Award in whole or in part or suspend or terminate
the Plan in whole or in part.
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13.2
|
Awards Previously
Granted
. No termination, amendment, or modification of
the Plan or any Award shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award; provided, however, that any such
modification made for the purpose of complying with Section 409A of the
Code may be made by the Company without the consent of any
Participant.
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13.3
|
Delay in
Payment
.
To the
extent required in order to avoid the imposition of any interest and/or
additional tax under Section 409A(a)(1)(B) of the Code, any amount that is
considered deferred compensation under the Plan or Agreement and that is
required to be postponed pursuant to Section 409A of the Code, following
the a Participant’s Termination of Employment shall be delayed for six
months if a Participant is deemed to be a “specified employee” as defined
in Section 409A(a)(2)(i)(B) of the Code; provided that, if the Participant
dies during the postponement period prior to the payment of the postponed
amount, the amounts withheld on account of Section 409A shall be paid to
the executor or administrator of the decedent’s estate within 60 days
following the date of his death. A “Specified Employee”
means any Participant who is a “key employee” (as defined in Code Section
416(i) without regard to paragraph (5) thereof), as determined by AT&T
in accordance with its uniform policy with respect to all arrangements
subject to Code Section 409A, based upon the twelve (12) month period
ending on each December 31st (such twelve (12) month period is referred to
below as the “identification period”). All Participants who are
determined to be key employees under Code Section 416(i) (without regard
to paragraph (5) thereof) during the identification period shall be
treated as Specified Employees for purposes of the Plan during the twelve
(12) month period that begins on the first day of the 4th month following
the close of such identification
period.
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Article
14.
|
Withholding
.
|
14.1
|
Tax
Withholding
. Unless otherwise provided by the Committee,
the Company shall deduct or withhold an amount sufficient to satisfy
Federal, state, and local taxes (including but not limited to the
Participant’s employment tax obligations) required by law to be withheld
with respect to any taxable event arising or as a result of this Plan
(“Withholding Taxes”).
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14.2
|
Share
Withholding
. Unless otherwise provided by the Committee,
upon the exercise of Options, the lapse of restrictions on Restricted
Stock, the distribution of Performance Shares in the form of Stock, or any
other taxable event hereunder involving the transfer of Stock to a
Participant, the Company shall withhold Stock equal in value, using the
Fair Market Value on the date determined by the Company to be used to
value the Stock for tax purposes, to the Withholding Taxes applicable to
such transaction.
|
Any
fractional Share of Stock payable to a Participant shall be withheld as
additional Federal withholding, or, at the option of the Company, paid in cash
to the Participant.
Unless
otherwise determined by the Committee, when the method of payment for the
Exercise Price is from the sale by a stockbroker pursuant to Section 6.7(b)(ii),
herein, of the Stock acquired through the Option exercise, then the tax
withholding shall be satisfied out of the proceeds. For
administrative purposes in determining the amount of taxes due, the sale price
of such Stock shall be deemed to be the Fair Market Value of the
Stock.
If
permitted by the Committee, prior to the end of any Performance Period a
Participant may elect to have a greater amount of Stock withheld from the
distribution of Performance Shares to pay withholding taxes; provided, however,
the Committee may prohibit or limit any individual election or all such
elections at any time.
All
obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
Article
16.
|
Legal
Construction
.
|
16.1
|
Gender and
Number
. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the
plural.
|
16.2
|
Severability
. In
the event any provision of the Plan shall be held illegal or invalid for
any reason, the illegality or invalidity shall not affect the remaining
parts of the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been
included.
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16.3
|
Requirements of
Law
. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be
required.
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16.4
|
Errors
. At
any time AT&T may correct any error made under the Plan without
prejudice to AT&T. Such corrections may include, among
other things, changing or revoking an issuance of an
Award.
|
16.5
|
Elections and
Notices
. Notwithstanding anything to the contrary
contained in this Plan, all elections and notices of every kind shall be
made on forms prepared by AT&T or the General Counsel, Secretary or
Assistant Secretary, or their respective delegates or shall be made in
such other manner as permitted or required by AT&T or the General
Counsel, Secretary or Assistant Secretary, or their respective delegates,
including but not limited to elections or notices through electronic
means, over the Internet or otherwise. An election shall be
deemed made when received by AT&T (or its designated agent, but only
in cases where the designated agent has been appointed for the purpose of
receiving such election), which may waive any defects in
form. AT&T may limit the time an election may be made in
advance of any deadline.
|
Where any
notice or filing required or permitted to be given to AT&T under the Plan,
it shall be delivered to the principal office of AT&T, directed to the
attention of the Senior Executive Vice President-Human Resources of AT&T or
his or her successor. Such notice shall be deemed given on the date
of delivery.
Notice to
the Participant shall be deemed given when mailed (or sent by telecopy) to the
Participant’s work or home address as shown on the records of AT&T or, at
the option of AT&T, to the Participant’s e-mail address as shown on the
records of AT&T.
It is the
Participant’s responsibility to ensure that the Participant’s addresses are kept
up to date on the records of AT&T. In the case of notices
affecting multiple Participants, the notices may be given by general
distribution at the Participants’ work locations.
16.6
|
Governing
Law
. To the extent not preempted by Federal law, the
Plan, and all awards and agreements hereunder, and any and all disputes in
connection therewith, shall be governed by and construed in accordance
with the substantive laws of the State of Texas, without regard to
conflict or choice of law principles which might otherwise refer the
construction, interpretation or enforceability of this Plan to the
substantive law of another
jurisdiction.
|
16.7
|
Venue
.
Because
awards under the Plan are granted in Texas, records relating to the Plan
and awards thereunder are located in Texas, and the Plan and awards
thereunder are administered in Texas, the Company and the Participant to
whom an award under this Plan is granted, for themselves and their
successors and assigns, irrevocably submit to the exclusive and sole
jurisdiction and venue of the state or federal courts of Texas with
respect to any and all disputes arising out of or relating to this Plan,
the subject matter of this Plan or any awards under this Plan, including
but not limited to any disputes arising out of or relating to the
interpretation and enforceability of any awards or the terms and
conditions of this Plan. To achieve certainty regarding the
appropriate forum in which to prosecute and defend actions arising out of
or relating to this Plan, and to ensure consistency in application and
interpretation of the Governing Law to the Plan, the parties agree that
(a) sole and exclusive appropriate venue for any such action shall be an
appropriate federal or state court in Dallas County, Texas, and no other,
(b) all claims with respect to any such action shall be heard and
determined exclusively in such Texas court, and no other, (c) such Texas
court shall have sole and exclusive jurisdiction over the person of such
parties and over the subject matter of any dispute relating hereto and (d)
that the parties waive any and all objections and defenses to bringing any
such action before such Texas court, including but not limited to those
relating to lack of personal jurisdiction, improper venue or
forum non
conveniens
.
|
EXHIBIT
10-mm
BELLSOUTH
OFFICER
COMPENSATION DEFERRAL PLAN
(AS
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2005)
BELLSOUTH
OFFICER COMPENSATION DEFERRAL PLAN
Effective as of the 1st day of
January, 2002, BellSouth Corporation ("BellSouth") established the BellSouth
Officer Compensation Deferral Plan (the "Plan"). The Plan is hereby amended and
restated in its entirety effective as of the 1st day of January,
2005.
BACKGROUND
AND PURPOSE
A. GOAL.
BellSouth desires to provide its executives, and those of its Affiliates that
participate in the Plan, with an opportunity (i) to defer the receipt and income
taxation of a portion of such executives' compensation; and (ii) to receive an
investment return on those deferred amounts based on either (A) the return of
BellSouth stock, an indexed rate of interest, or a combination of the two, or
(B) for executives who satisfy BellSouth's stock ownership guidelines, the
return of a selected group of mutual and other investment funds.
B. PURPOSE.
The purpose of the Plan is to set forth the terms and conditions under which
these deferrals may be made and deemed invested and to describe the nature and
extent of the executives' rights to their deferred amounts.
C. TYPE OF
PLAN. The Plan constitutes an unfunded, nonqualified deferred compensation plan
that benefits certain designated employees who are within a select group of key
management or highly compensated employees. Each Participating Company alone has
the obligation to pay amounts payable under the Plan to Plan Participants, and
such payments are not, and will not be, an obligation of any other Participating
Company.
ARTICLE
I
DEFINITIONS
For purposes of the Plan, each of the
following terms, when used with an initial capital letter, shall have the
meaning set forth below unless a different meaning plainly is required by the
context.
1.1 "ACCOUNT" shall
mean, with respect to a Participant or Beneficiary, the total dollar amount or
value evidenced by the last balance posted in accordance with the terms of the
Plan to the account record established for such Participant or Beneficiary with
respect to the Deferral Contributions of such Participant for any Plan
Year.
1.2 "AFFILIATE"
shall mean at any time any corporation, joint venture or partnership in which
BellSouth owns directly or indirectly, (i) with respect to a corporation, stock
possessing at least ten percent (10%) of the total combined voting power of all
classes of stock in the corporation, or (ii) in the case of a joint venture or
partnership, a ten percent (10%) or greater interest in the capital or profits
of such joint venture or partnership.
1.3 "ANNUAL BONUS"
shall mean, with respect to each Eligible Executive for a specified Plan Year,
such Eligible Executive's actual award amount to be paid under the Short Term
Bonus Plan for such Plan Year (payable in the succeeding year).
1.4 "BASE SALARY"
shall mean, with respect to each Eligible Executive for a specified Plan Year,
the gross regular, periodic base salary paid or payable to the Eligible
Executive for each payroll period during such Plan Year, including any of the
Eligible Executive's own before-tax and after-tax contributions to, or deferrals
under, any Code Section 401(k), Code Section 125, nonqualified deferred
compensation or other employee benefit plan or program, maintained by a
Participating Company from time to time, but excluding any contributions or
benefits paid under any such plan or program by a Participating
Company.
1.5 "BELLSOUTH"
shall mean BellSouth Corporation, a Georgia corporation.
1.6 "BENEFICIARY"
shall mean, with respect to a Participant, the person(s) determined in
accordance with Section 5.4 to receive any death benefits that may be payable
under the Plan upon the death of the Participant.
1.7 "BOARD" shall
mean the Board of Directors of BellSouth.
1.8 "BONUS DEFERRAL
ELECTION" shall mean an election in such form as is provided by the Plan
Administrator on which an Eligible Executive may elect to defer a portion of
such executive's Annual Bonus.
1.9 "BUSINESS DAY"
shall mean each day on which the New York Stock Exchange operates and is open to
the public for trading.
1.10 "CODE" shall mean the
Internal Revenue Code of 1986, as amended.
1.11 "COMPANY STOCK" shall
mean the $1.00 par value per share voting common stock of
BellSouth.
1.12 "COMPENSATION" shall
mean, for any Plan Year, the Participant's annualized Base Salary rate as in
effect on November 15 preceding the beginning of the Plan Year. Provided,
however, that with respect to an Eligible Executive whose eligibility to
actively participate in the Plan commences after November 15 preceding the
beginning of the Plan Year, such amount shall be the Participant's annualized
Base Salary rate as in effect on the first day of the first payroll period after
which the Eligible Executive is eligible to actively participate in the Plan.
Notwithstanding the foregoing, the Plan Administrator, in its sole discretion,
may specify dates other than those described above on which a Participant's
annualized Base Salary rate for a Plan Year is to be determined. For any
Participant employed by a Participating Company whose compensation structure
does not readily fit this definition, "Compensation" shall mean cash
compensation as defined by the Plan Administrator.
1.13 "CREDITED INTEREST
RATE" shall mean, for each Plan Year, the rate of return equal to Moody's
Monthly Average of Yields of Aa Corporate Bonds, as published by Moody's
Investors Service, Inc., for the month of July immediately preceding such Plan
Year. If such rate (or any alternative rate described in this sentence) is at
any time no longer available, the Plan Administrator shall designate an
alternative rate which, in the Plan Administrator's reasonable judgment, is
generally comparable to the rate described in the preceding sentence, and such
alternative rate shall thereafter be the Credited Interest Rate.
1.14 "DEFERRAL
CONTRIBUTIONS" shall mean, as applicable, for each Plan Year that portion of a
Participant's Base Salary and/or Annual Bonus deferred, and for each Performance
Period that portion of a Participant's Performance Share Payment deferred, under
the Plan pursuant to Section 3.2.
1.15 "DEFERRAL ELECTION"
shall mean an election in such form as is provided by the Plan Administrator on
which an Eligible Executive may elect to defer under the Plan a portion of such
Eligible Executive's Base Salary.
1.16 "EFFECTIVE DATE"
shall mean January 1, 2005, the date this restatement of the Plan is effective.
The Plan initially was effective as of January 1, 2002.
1.17 "ELECTION DEADLINE"
shall mean:
(a) With respect to
a Deferral Election and a Bonus Deferral Election, for an individual who is
eligible to participate in the Plan for an entire Plan Year and is employed by a
Participating Company on such date, the November 30 (or if November 30 is not a
Business Day, the last Business Day immediately preceding November 30)
immediately preceding the first day of such Plan Year. Notwithstanding the
foregoing, with the approval of the Plan Administrator, "Election Deadline" may
mean, with respect to such an Eligible Executive for a Plan Year, the December
31 (or if December 31 is not a Business Day, the last Business Day immediately
preceding December 31) immediately preceding the first day of such Plan
Year.
(b) With respect to
a Deferral Election and a Bonus Deferral Election, for an individual who becomes
employed by a Participating Company as an Eligible Executive after the November
30 (or such other date) described in the preceding paragraph and on or before
October 1 of a Plan Year and who is eligible to participate in the Plan during
the remainder of such Plan Year pursuant to Section 2.2, the date which is
thirty (30) days after the date the individual first becomes eligible to
participate in the Plan.
(c) With respect to
a Performance Share Deferral Election, the November 30 (or if November 30 is not
a Business Day, the last Business Day immediately preceding November 30)
immediately preceding the final year of the Performance Period.
1.18 "ELECTION PACKAGE"
shall mean a package consisting of a Deferral Election, a Bonus Deferral
Election, a Performance Share Deferral Election, an Investment Election and such
other forms and documents distributed to an Eligible Executive by the Plan
Administrator for the purpose of allowing such Eligible Executive to elect to
actively participate in the Plan for a Plan Year.
1.19 "ELIGIBLE EXECUTIVE"
shall mean, for each Plan Year, each management employee of a Participating
Company who (i) is a member of a select group of highly compensated or key
management employees, and (ii) is designated by the Plan Administrator as a
member of BellSouth's "executive compensation group," or is otherwise designated
by the Plan Administrator as eligible to participate in the Plan.
1.20 "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended.
1.21 "FINANCIAL HARDSHIP"
shall mean a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of the
Participant's dependent [as defined in Code Section 152(a)], loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant. Financial Hardship shall be determined by the Plan
Administrator on the basis of the facts of each case, including information
supplied by the Participant in accordance with uniform guidelines prescribed
from time to time by the Plan Administrator; provided, the Participant will be
deemed not to have a Financial Hardship to the extent that such hardship is or
may be relieved:
(a) through
reimbursement or compensation by insurance or otherwise;
(b) by liquidation
of the Participant's assets, to the extent the liquidation of assets would not
itself cause severe financial hardship; or
(c) by cessation of
deferrals under the Plan.
Examples
of what are not considered to be unforeseeable emergencies include
the
need to
send a Participant's child to college or the desire to purchase a
home.
1.22 "INTEREST INCOME
OPTION" shall mean the Investment Option described in Section 4.4, pursuant to
which a Participant's deemed investment earnings are determined on the basis of
the Credited Interest Rate.
1.23 "INTEREST INCOME
SUBACCOUNT" shall mean a bookkeeping subaccount reflecting that portion of a
Participant's Account for each Plan Year which is deemed to be invested in the
Interest Income Option.
1.24 "INVESTMENT ELECTION"
shall mean an election in such form as is provided by the Plan Administrator on
which an Eligible Executive may elect to have Deferral Contributions for a Plan
Year (and all investment earnings attributable thereto) deemed invested in the
Stock Unit Option, the Interest Income Option and/or the Mutual Fund Option
(including the underlying Mutual Funds).
1.25 "INVESTMENT OPTIONS"
shall mean the Stock Unit Option, the Interest Income Option and the Mutual Fund
Option (including the underlying Mutual Funds).
1.26 "MUTUAL FUND" shall
mean the investment funds selected from time to time by the Plan Administrator
for purposes of determining the rate of return on amounts deemed invested in the
Mutual Fund Option pursuant to the terms of the Plan.
1.27 "MUTUAL FUND OPTION"
shall mean the Mutual Fund Option described in Section 4.5, pursuant to which a
Participant's deemed investment earnings are determined by the rate of return
applicable to Mutual Funds.
1.28 "MUTUAL FUND
SUBACCOUNT" shall mean a bookkeeping subaccount reflecting that portion of a
Participant's Account for each Plan Year which is deemed to be invested in the
Mutual Fund Option.
1.29 "PARTICIPANT" shall
mean any person participating in the Plan pursuant to the provisions of Article
II.
1.30 "PARTICIPATING
COMPANY" shall mean BellSouth and each Affiliate which, by action of its board
of directors (or equivalent governing body), adopts the Plan as a Participating
Company with the approval of the Plan Administrator. Such entities shall be
listed on Exhibit A hereto, which shall be updated from time to time to reflect
the addition of new Participating Companies and the effective dates of their
participation, and the deletion of any entities which are no longer
Participating Companies.
1.31 "PERFORMANCE PERIOD"
shall mean the three consecutive calendar year period (or other period of time)
specified in a performance share award agreement (or similar document) made
pursuant to the Stock Plan with respect to which a Performance Share Deferral
Election is made.
1.32 "PERFORMANCE SHARE
AWARD" shall mean, with respect to each Eligible Executive for a specified
Performance Period, an award of "Performance Shares" (as such term is defined in
the Stock Plan) made pursuant to the Stock Plan with respect to such Performance
Period.
1.33 "PERFORMANCE SHARE
DEFERRAL ELECTION" shall mean an election in such form as is provided by the
Plan Administrator on which an Eligible Executive may elect to defer a portion
of such executive's Performance Share Payment.
1.34 "PERFORMANCE SHARE
PAYMENT" shall mean the aggregate of any and all amounts to be paid with respect
to a Performance Share Award.
1.35 "PLAN" shall mean the
BellSouth Officer Compensation Deferral Plan, as contained herein and all
amendments hereto.
1.36 "PLAN ADMINISTRATOR"
shall mean the Chief Executive Officer of BellSouth and any individual or
committee the Chief Executive Officer designates to act on his or her behalf
with respect to any or all of the Chief Executive Officer's responsibilities
hereunder; provided, the Board may designate any other person or committee to
serve in lieu of the Chief Executive Officer as the Plan Administrator with
respect to any or all of the administrative responsibilities
hereunder.
1.37 "PLAN YEAR" shall
mean the calendar year.
1.38 "SHORT TERM BONUS
PLAN" shall mean, effective April 26, 2004, the BellSouth Corporation Stock and
Incentive Compensation Plan, or any successor plan. Prior to April 26, 2004,
"Short Term Bonus Plan" referred to the BellSouth Corporation Officer Short Term
Incentive Award Plan.
1.39 "STOCK/INTEREST
OPTION" shall mean the investment option comprised of the Stock Unit Option
and/or the Interest Income Option, as described in Section
4.2(b)(i).
1.40 "STOCK PLAN" shall
mean the BellSouth Corporation Stock and Incentive Compensation Plan, or any
successor plan.
1.41 "STOCK UNIT" shall
mean an accounting entry that represents an unsecured obligation of a
Participating Company to pay to a Participant an amount which is based on the
fair market value of one share of Company Stock as set forth herein. A Stock
Unit shall not carry any voting, dividend or other similar rights and shall not
constitute an option or any other right to acquire any equity securities of
BellSouth.
1.42 "STOCK UNIT OPTION"
shall mean the Investment Option described in Section 4.3, pursuant to which a
Participant's deemed investment earnings are determined by the rate of return
applicable to Stock Units.
1.43 "STOCK UNIT
SUBACCOUNT" shall mean a bookkeeping subaccount reflecting that portion of a
Participant's Account for each Plan Year which is deemed to be invested in the
Stock Unit Option.
1.44 "VALUATION DATE"
shall mean each Business Day. Notwithstanding the foregoing, for any specific
purpose determined in the sole discretion of the Plan Administrator, "Valuation
Date" shall mean any day or days declared by the Plan Administrator, in its sole
discretion, to be a Valuation Date. If the Plan provides for a valuation to be
made on a day that is not a Valuation Date, such valuation shall be made as of
the Valuation Date immediately preceding such day.
ARTICLE
II
ELIGIBILITY
AND PARTICIPATION
2.1 ANNUAL PARTICIPATION. Each
individual who is an Eligible Executive as of the first day of a Plan Year and
is employed by a Participating Company before the beginning of such Plan Year
shall be eligible to defer a portion of such Eligible Executive's Base Salary,
Annual Bonus and Performance Share Payment, if any, and thereby to actively
participate in the Plan for such Plan Year. Such individual's participation
shall become effective as of the first day of such Plan Year, provided that the
Eligible Executive properly and timely completes the election procedures
described in Section 2.3. For purposes of the Plan, references to "Plan Year"
with respect to a Performance Share Deferral Election shall mean the Plan Year
that is the final calendar year of the Performance Period.
2.2 INTERIM PLAN YEAR PARTICIPATION.
Each individual who becomes employed by a Participating Company as an Eligible
Executive on or before October 1 of a Plan Year, and who is not otherwise
eligible to participate in the Plan during such Plan Year in accordance with
Section 2.1, shall be immediately eligible upon commencement of such employment
to make a Deferral Election and/or Bonus Deferral Election, and thereby to
actively participate in the Plan, for the remainder of such Plan Year. Such
individual's participation shall become effective as of the first day of the
calendar month following the calendar month in which such Deferral Election
and/or Bonus Deferral Election is made, provided that the Eligible Executive
properly and timely completes the election procedures described in Section
2.3.
2.3 ELECTION PROCEDURES. Each
Eligible Executive may elect to defer a portion of such Eligible Executive's
Base Salary, Annual Bonus and/or Performance Share Payment, and thereby become
an active Participant for a Plan Year (or, if Section 2.2 is applicable, for the
remainder of such Plan Year), by delivering a completed Deferral Election, Bonus
Deferral Election and/or Performance Share Deferral Election and an Investment
Election to the Plan Administrator by the applicable Election Deadline for such
Plan Year. Such an election shall be effective only if the individual is
actively employed as an Eligible Executive at the time the individual delivers
the completed Deferral Election, Bonus Deferral Election and/or Performance
Share Deferral Election and Investment Election to the Plan Administrator. The
Plan Administrator may also require the Eligible Executive to complete other
forms and provide other data, as a condition of participation in the
Plan.
2.4 CESSATION OF ELIGIBILITY. An
Eligible Executive's active participation in the Plan shall terminate, and the
Eligible Executive shall not be eligible to make any additional Deferral
Contributions, for any portion of a Plan Year following the date the Eligible
Executive's employment with BellSouth and all Participating Companies terminates
(unless such individual is reemployed as an Eligible Executive later in such
Plan Year). In addition, an individual who actively participated in the Plan
during prior Plan Years but who is not an Eligible Executive or does not
complete the election procedures, for a subsequent Plan Year, shall cease active
participation in the Plan for such subsequent Plan Year. If an individual's
active participation in the Plan ends, such individual shall remain an inactive
Participant in the Plan until the earlier of (i) the date the full amount of
such individual's Accounts is distributed from the Plan, or (ii) the date the
individual again becomes an Eligible Executive and recommences active
participation in the Plan. During the period of time that an individual is an
inactive Participant in the Plan, such individual's Accounts shall continue to
be credited with earnings as provided in the Plan.
ARTICLE
III
PARTICIPANTS'
ACCOUNTS; DEFERRAL CONTRIBUTIONS
3.1 PARTICIPANTS'
ACCOUNTS.
(a) ESTABLISHMENT OF ACCOUNTS. The
Plan Administrator shall establish and maintain one or more Accounts on behalf
of each Participant for each Plan Year for which the Participant makes Deferral
Contributions. The Plan Administrator shall credit each Participant's Account
with the Participant's Deferral Contributions for such Plan Year and earnings
attributable thereto, and shall maintain such Account until the value thereof
has been distributed to or on behalf of such Participant or his or her
Beneficiary.
(b) NATURE OF CONTRIBUTIONS AND
ACCOUNTS. The amounts credited to a Participant's Accounts shall be represented
solely by bookkeeping entries. Except as provided in Article VII, no
monies or other assets shall actually be set aside for such Participant, and all
payments to a Participant under the Plan shall be made from the general assets
of the Participating Companies.
(c) SEVERAL LIABILITIES. Each
Participating Company shall be severally (and not jointly) liable for the
payment of benefits under the Plan under Deferral Elections, Bonus Deferral
Elections and Performance Share Deferral Elections executed by Eligible
Executives with, and while employed by, such Participating Company.
(d) GENERAL CREDITORS. Any assets
which may be acquired by a Participating Company in anticipation of its
obligations under the Plan shall be part of the general assets of such
Participating Company. A Participating Company's obligation to pay benefits
under the Plan constitutes a mere promise of such Participating Company to pay
such benefits, and a Participant or Beneficiary shall be and remain no more than
an unsecured, general creditor of such Participating Company.
3.2 DEFERRAL CONTRIBUTIONS. Each
Eligible Executive may irrevocably elect to have Deferral Contributions made on
his or her behalf for a Plan Year (or, if Section 2.2 is applicable, for the
remainder of such Plan Year), by completing in a timely manner a Deferral
Election, Bonus Deferral Election and/or Performance Share Deferral Election and
an Investment Election, and following other election procedures as provided in
Section 2.3. Subject to any modifications, additions or exceptions that the Plan
Administrator, in its sole discretion, deems necessary, appropriate or helpful,
the following terms shall apply to such Deferral Elections, Bonus Deferral
Elections and Performance Share Deferral Elections:
(a) EFFECTIVE DATE.
(i) BASE SALARY DEFERRAL ELECTION.
Subject to Section 3.2(a)(iv), a Deferral Election made by a Participant shall
be effective beginning with the first regular, periodic paycheck earned and paid
(A) with respect to a Participant participating for the entire Plan Year, in
such Plan Year, and (B) with respect to a Participant participating for a
portion of a Plan Year, in accordance with Section 2.2, in the calendar month
following the calendar month in which the Participant makes his or her Deferral
Election.
(ii) BONUS DEFERRAL ELECTION. Subject
to Section 3.2(a)(iv), a Bonus Deferral Election made by a Participant shall be
effective (A) with respect to a Participant participating for the entire Plan
Year, for the Annual Bonus earned during the Plan Year, and (B) with respect to
a Participant participating for a portion of Plan Year in accordance with
Section 2.2, for the Annual Bonus earned during such portion of the Plan
Year.
(iii) PERFORMANCE SHARE DEFERRAL
ELECTION. Subject to Section 3.2(a)(iv), a Performance Share Deferral Election
shall be effective for the Performance Share Payment earned during the
Performance Period with respect to which such election is made.
(iv) OTHER REQUIREMENTS. To be
effective, a Participant's Deferral Election, Bonus Deferral Election and/or
Performance Share Deferral Election, as applicable, must be made by the Election
Deadline. If an Eligible Executive fails to deliver a Deferral Election, a Bonus
Deferral Election or a Performance Share Deferral Election, or to complete any
of the other requisite election procedures for a Plan Year, in a timely manner,
the Eligible Executive shall be deemed to have elected not to participate in the
Plan for that Plan Year.
(b) TERM. Each Deferral Election for
a Plan Year that is made by a Participant shall remain in effect with respect to
the specified portion of all Base Salary earned and paid or payable during such
Plan Year (or, in the case of a Participant participating for a portion of the
Plan Year in accordance with Section 2.2, with respect to the specified portion
of all Base Salary paid or payable during the remainder of such Plan Year) but
shall not apply to any subsequent Plan Year. Each Bonus Deferral Election for a
Plan Year that is made by a Participant shall be effective with respect to the
specified portion of Annual Bonus, if any, earned during such Plan Year (or, in
the case of a Participant participating for a portion of the Plan Year in
accordance with Section 2.2, for the specified portion of the Annual Bonus
earned during the remainder of such Plan Year), but shall not apply to any
subsequent Plan Year. Each Performance Share Deferral Election that
is made by a Participant shall be effective with respect to the specified
portion of Performance Share Payment, if any, under the Performance Share Award
to which it relates, but shall not apply to any subsequent Performance Share
Award.
(c) BASE SALARY DEFERRAL ELECTION
AMOUNT. Each Eligible Executive's Deferral Election for a Plan Year shall
specify a whole percentage of his or her Compensation to be deferred from his or
her Base Salary for such year. Notwithstanding the foregoing, the
Plan Administrator, in its sole discretion, may allow an Eligible Executive to
complete a Deferral Election specifying either (i) a whole dollar amount of his
or her Base Salary to be deferred, with such amount being expressed in
increments of $1,000 (or such other increments as the Plan Administrator may
determine), or (ii) a percentage of his or her Base Salary paid or payable for
each payroll period, with the amount of such deferral to vary as the Eligible
Executive's Base Salary changes. The maximum amount of Base Salary that an
Eligible Executive may defer for any Plan Year shall be fifty-five percent (55%)
of the Eligible Executive's Compensation for such Plan Year rounded up to the
next highest thousand dollars. The total amount elected to be deferred shall be
withheld from such Eligible Executive's regular, periodic paychecks of Base
Salary in substantially equal installments (except as contemplated in clause
(ii) above) throughout the Plan Year. If any election would result in a
fractional dollar amount to be withheld, the Plan Administrator, in its sole
discretion, may determine that such amount will be rounded up to the next
highest whole dollar. Notwithstanding any provision of the Plan or a Deferral
Election to the contrary, however, the amount withheld from any payment of Base
Salary shall be reduced automatically, if necessary, so that it does not exceed
the amount of such payment net of all withholding, allotments and deductions,
other than any reduction pursuant to such Deferral Election. No amounts shall be
withheld during any period an individual ceases to receive Base Salary as an
actively employed Eligible Executive for any reason during the Plan Year except
that, in the case of an individual on an approved paid leave of absence as an
Eligible Executive (including a paid leave of absence under a short term
disability plan of a Participating Company), amounts shall be withheld from such
leave of absence payments and otherwise treated in the same manner as if such
payments constituted Base Salary under the Plan. No adjustment shall be made in
the amount to be withheld from any subsequent payment of Base Salary for a Plan
Year to compensate for any missed or reduced withholding amounts
above.
(d) BONUS DEFERRAL ELECTION AMOUNT.
The Bonus Deferral Election of each Eligible Executive shall specify a whole
percentage of such Eligible Executive's Annual Bonus to be deferred, not to
exceed fifty percent (50%) and not less than five percent (5%). Notwithstanding
any provision of the Plan or a Bonus Deferral Election to the contrary, the
amount withheld from any bonus payment shall be reduced automatically, if
necessary, so that it does not exceed the amount of such payment net of all
withholding, allotments and deductions other than any reduction pursuant to such
Bonus Deferral Election.
(e) PERFORMANCE SHARE DEFERRAL
ELECTION AMOUNT. The Performance Share Deferral Election of each Eligible
Executive shall specify a whole percentage of such Eligible Executive's
Performance Share Payment to be deferred, not less than five percent (5%) and
not to exceed one hundred percent (100%) of the amount actually payable to the
Eligible Executive with respect to the Performance Share Award. Notwithstanding
any provision of the Plan or a Performance Share Deferral Election to the
contrary, the amount withheld from any Performance Share Payment shall be
reduced automatically, if necessary, so that it does not exceed the amount of
such payment net of all withholding, allotments and deductions, other than any
reduction pursuant to such Performance Share Deferral Election.
(f) REVOCATION. Once made, a
Participant may not revoke a Deferral Election or Bonus Deferral Election for a
Plan Year, or a Performance Share Deferral Election with respect to a
Performance Share Award.
(g) CREDITING OF DEFERRED
COMPENSATION.
(i) STOCK UNIT OPTION AND/OR INTEREST
INCOME OPTION. If a Participant elects to have all or any portion of his or her
deferred Base Salary for a Plan Year deemed invested in the Stock/Interest
Option pursuant to Section 4.2(b), the Plan Administrator shall credit to the
Participant's Account for such Plan Year, as of the first day of such Plan Year
(or, as of the effective date of participation of a Participant described in
Section 2.2), the entire amount of the Participant's deferred Base Salary for
such Plan Year. If a Participant elects to have all or any portion of his or her
deferred Annual Bonus for a Plan Year deemed invested in the Stock/Interest
Option pursuant to Section 4.2(b), the Plan Administrator shall credit to the
Participant's Account, as of the first day of the Plan Year in which the
Participant's Annual Bonus for such Plan Year is actually paid under the Short
Term Bonus Plan, the entire amount deferred. If a Participant elects to have all
or any portion of his or her deferred Performance Share Payment for a
Performance Period deemed invested in the Stock/Interest Option pursuant to
Section 4.2(b), the Plan Administrator shall credit to the Participant's
Account, as of the first day of the Plan Year next following the end of the
Performance Period, the entire amount deferred. If for any reason the entire
amount of the Participant's Deferral Contributions so elected are not made, the
Participant's Account shall be automatically adjusted, retroactively to the
first day of such Plan Year (or, if applicable, the effective date of
participation of a Participant described in Section 2.2), to reflect the amount
of Deferral Contributions actually made from Base Salary (or pursuant to Section
3.4, if applicable), Annual Bonus and/or Performance Share Payment during the
Plan Year. Notwithstanding the foregoing, if a Participant described in this
Section 3.2(g)(i) is an "Executive Officer" (as such term is defined in the
Stock Plan), the Plan Administrator shall instead credit to such Participant's
Account for a Plan Year, as of the last day of the applicable Plan Year, the
entire amount of the Participant's Base Salary, Annual Bonus and/or Performance
Share Payment actually deferred, retroactively to the first day of such Plan
Year (or, if applicable, the effective date of participation of a Participant
described in Section 2.2).
(ii) MUTUAL FUND OPTION. If a
Participant elects to have all or any portion of his or her deferred Base Salary
for a Plan Year deemed invested in the Mutual Fund Option pursuant to Section
4.2(b), the Plan Administrator shall credit to the Participant's Account, as of
each Valuation Date that is on (or as soon as administratively practicable
after) a payroll period payment date, the Deferral Contribution made from Base
Salary for such payroll period. If a Participant elects to have all or any
portion of his or her deferred Annual Bonus for a Plan Year deemed invested in
the Mutual Fund Option pursuant to Section 4.2(b), the Plan Administrator shall
credit to the Participant's Account, as of the Valuation Date that is on (or as
soon as administratively practicable after) the date the Participant's Annual
Bonus for the prior Plan Year is actually paid under the Short Term Bonus Plan,
the amount of such Annual Bonus that is deferred. If a Participant elects to
have all or any portion of his or her deferred Performance Share Payment for a
Performance Period deemed invested in the Mutual Fund Option pursuant to Section
4.2(b), the Plan Administrator shall credit to the Participant's Account, as of
each Valuation Date that is on (or as soon as administratively practicable
after) the date that each separate payment to be made to the Participant with
respect to the Performance Share Award is actually payable, the amount of such
Performance Share Award that is deferred.
3.3 DEFERRAL ELECTIONS AND MULTIPLE
PARTICIPATING COMPANIES. Any Deferral Election, Bonus Deferral Election and/or
Performance Share Deferral Election which is timely executed and delivered to
the Plan Administrator shall be effective to defer Base Salary, Annual Bonus
and/or a Performance Share Payment earned by the Participant from the
Participating Company employing such Participant at the time of the
Participant's election or any other Participating Company employing such
Participant during the Plan Year for which the Deferral Election, Bonus Deferral
Election is effective, or during the Performance Period with respect to which a
Performance Share Deferral Election is effective. In particular, a Participant
(i) who timely executes and delivers a Deferral Election, Bonus Deferral
Election and/or Performance Share Deferral Election while employed by one
Participating Company and subsequently transfers to another Participating
Company, or (ii) who terminates employment and subsequently becomes employed by
another Participating Company, shall have the Base Salary, Annual Bonus and/or
Performance Share Payment that is paid or payable to such Participant by both
Participating Companies reduced under the terms of the Deferral Election, Bonus
Deferral Election and/or Performance Share Deferral Election and the Plan as if
the transfer or termination and reemployment had not occurred; provided that, as
provided in Section 3.2(c), no amounts of Base Salary shall be withheld to the
extent they are attributable to any portion of the Plan Year during which such
Participant is not receiving Base Salary as an Eligible Executive of a
Participating Company.
3.4 TERMINATION UNDER SEVERANCE
ARRANGEMENT. Notwithstanding the foregoing, a Participant eligible to
participate in a severance plan or arrangement sponsored by a Participating
Company which provides for a lump-sum severance payment upon termination of
employment may elect, on such form and at such time and in such manner as shall
be prescribed by the Plan Administrator, to reduce the amount of a lump-sum
severance payment to which the Participant may become entitled under such plan
or arrangement. The amount of such reduction shall not exceed the dollar amount
by which the Participant's deferred Base Salary for the Plan Year in which such
termination occurs would not have been made at the time of termination of
employment, and the amount so elected shall for all purposes be treated as
Deferral Contributions made under the Plan.
3.5 VESTING. A Participant shall at
all times be fully vested in the Participant's Deferral Contributions and all
investment earnings attributable thereto.
3.6 DEBITING OF DISTRIBUTIONS. As of
each Valuation Date, the Plan Administrator shall debit each Participant's
Account for any amount distributed from such Account since the immediately
preceding Valuation Date.
ARTICLE
IV
DETERMINATION
AND CREDITING OF INVESTMENT RETURN
4.1 GENERAL INVESTMENT PARAMETERS.
The rate of return credited to each Participant's Account shall be determined on
the basis of the Investment Option(s) selected by the Participant. The terms of
this selection process and the manner in which investment return is credited are
set forth in this Article IV.
4.2 PARTICIPANT DIRECTION OF
DEEMED INVESTMENTS. Each Participant generally may direct that his or her
Deferral Contributions for each Plan Year shall be deemed invested in the
Stock/Interest Option, the Mutual Fund Option or both, and then may select among
the options offered within that selection. The Participant may make a separate
election for his or her deferred Base Salary and deferred Annual Bonus for each
Plan Year and deferred Performance Share Payment for each Performance Period.
Notwithstanding the foregoing, the Mutual Fund Option may be elected only by
Participants who, as of June 30 of the year in which the Investment Election is
made, satisfy the BellSouth stock ownership target then applicable to each such
Participant under BellSouth's executive stock ownership guidelines. Once made, a
Participant may not revoke an election between the Stock/Interest Option and the
Mutual Fund Option.
(a) NATURE OF PARTICIPANT DIRECTION.
A Participant's election of the deemed investments shall be for the sole purpose
of determining the rate of return to be credited to such Participant's Account
for such Plan Year, and shall not be treated or interpreted in any manner
whatsoever as a requirement or direction to actually invest assets in Company
Stock, an interest income fund, a mutual fund or any other investment media. The
Plan, as an unfunded, nonqualified deferred compensation plan, at no time shall
have any actual investment of assets relative to the benefits or Accounts
hereunder.
(b) INVESTMENT OF CONTRIBUTIONS. In
conjunction with completing each of a Deferral Election, Bonus Deferral Election
and/or Performance Share Deferral Election for a Plan Year, an Eligible
Executive shall complete a separate Investment Election in which he or she
elects the whole percentages of the amount deferred under such Deferral
Election, such Bonus Deferral Election or such Performance Share Deferral
Election (as applicable) to be deemed invested in (i) the Stock/Interest Option,
and/or (ii) if available with respect to the executive, the Mutual Fund Option;
provided, the combined percentages allocated to the Stock/Interest Option and
the Mutual Fund Option shall equal one hundred percent (100%). Once a
Participant makes an election between the Stock/Interest Option and the Mutual
Fund Option for a Plan Year, he or she may not change such election. If the
Eligible Executive elects the Stock/Interest Option, he or she must then select
his or her investment mix as described in subsection (i) hereinbelow; and if the
Eligible Executive elects the Mutual Fund Option, he or she must then select his
or her investment mix as described in subsection (ii) hereinbelow.
(i) STOCK UNIT OPTION AND/OR INTEREST
INCOME OPTION. An Eligible Executive who selects the Stock/Interest Option with
respect to eitherhis or her deferred Base Salary, deferred Annual Bonus or
deferred Performance Share Payment shall specify any whole percentage to be
invested in the Stock Unit Option and any whole percentage to be invested in the
Interest Income Option, such that the total of the two percentages equals the
total percentage of his deferred amount allocated to the Stock/Interest
Option.
ii) MUTUAL FUND OPTION. An Eligible
Executive, who as of June 30 of the year during which the Investment Election is
made satisfies BellSouth's stock ownership target applicable to such Executive
under BellSouth's executive stock ownership guidelines, and who selects the
Mutual Fund Option with respect to either his or her deferred Base Salary,
deferred Annual Bonus or deferred Performance Share Payment, shall specify the
whole percentage of such Deferral Contributions that will be deemed invested in
each Mutual Fund. Within the Mutual Fund Option, a Participant may make
subsequent Investment Elections to change the percentage of such Deferral
Contributions that will be deemed invested in each Mutual Fund, and any such
election shall apply to all such Deferral Contributions credited to his or her
Account after the election becomes effective. Any such election shall be
effective on or as soon as administratively practicable after the Plan
Administrator's receipt of the election. All such Investment Elections shall be
(A) made in whole percentages, (B) effected at the 4:00 p.m. Eastern Time
closing price of the applicable Mutual Fund on each applicable Valuation Date,
and (C) subject to such additional rules as the Plan Administrator may
prescribe.
(c) INVESTMENT OF EXISTING ACCOUNT
BALANCES.
(i) STOCK/INTEREST OPTION. A
Participant with all or part of his or her Account deemed invested in the
Stock/Interest Option may not make an Investment Election (i) changing all or
any portion of such deemed investment among investment alternatives within the
Stock/Interest Option, or (ii) transferring all or any portion of such deemed
investments to the Mutual Fund Option. Thus, once an amount is deemed invested
in the Stock/Interest Option, it shall continue to be so invested until such
amount is distributed.
(ii) MUTUAL FUND OPTION. A
Participant with all or part of his or her Account deemed invested in the Mutual
Fund Option may make subsequent Investment Elections changing the percentage of
that portion of his or her existing Account balance that will be deemed invested
in each Mutual Fund. Any such election shall be effected at the 4:00 p.m.
Eastern Time closing price of the applicable Mutual Fund on the Valuation Date
that is coincident with or as soon as administratively practicable after the
Plan Administrator's receipt of such election. All such Investment Elections
shall be made in whole percentages, and subject to such additional rules as the
Plan Administrator may prescribe. No Investment Election may be made changing a
deemed investment from the Mutual Fund Option to the Stock/Interest
Option.
(d) INVESTMENT SUBACCOUNTS. For the
sole purpose of tracking a Participant's Investment Elections and calculating
deemed investment earnings attributable to a Participant's Account for a Plan
Year pursuant to the terms of this Article IV, the Plan Administrator shall
establish and maintain for such Participant for such Plan Year a Stock Unit
Subaccount, an Interest Income Subaccount and a Mutual Fund Subaccount, as
necessary, the total of which shall equal such Participant's Account for such
Plan Year.
4.3 STOCK UNIT OPTION.
a) STOCK UNIT SUBACCOUNT. To the
extent an Eligible Executive makes an Investment Election in accordance with
Section 4.2 to have his or her Deferral Contributions for a Plan Year deemed to
be invested in the Stock Unit Option, the Participant's Stock Unit Subaccount
shall be credited (subject to the adjustment described in subsection 3.2(g), if
applicable) with the applicable portion of each such Deferral Contribution at
the time such Deferral Contribution is credited to the Participant's Account
under Section 3.2(g), with a number of Stock Units equal to the number of full
and fractional shares of Company Stock that could have been purchased with such
portion of the Eligible Executive's Deferral Contribution at the average of the
high and low sales prices of one share of Company Stock on the New York Stock
Exchange for the last Business Day of each of the three (3) calendar months
immediately preceding the first day of such Plan Year.
(b) CASH DIVIDENDS. As of each date
on which BellSouth has paid a cash dividend on Company Stock, the number of
Stock Units credited to a Participant's Stock Unit Subaccount shall be increased
by a number of additional Stock Units equal to the quotient of (i) the amount of
dividends that would have been paid on the number of shares of Company Stock
equivalent to the number of Stock Units credited to such subaccount on such
dividend payment date, divided by (ii) the 4:00 p.m. Eastern Time closing price
of Company Stock on the New York Stock Exchange on such dividend payment
date.
(c) ADJUSTMENTS. In the event of any
change in outstanding shares of Company Stock, by reclassification,
recapitalization, merger, consolidation, spinoff, combination, exchange of
shares, stock split, reverse stock split or otherwise, or in the event of the
payment of a stock dividend on Company Stock, or in the event of any other
increase or decrease in the number of outstanding shares of Company Stock, other
than the issuance of shares for value received by BellSouth or the redemption of
shares for value, the Plan Administrator shall adjust the number and/or form of
Stock Units in the manner it deems appropriate in its reasonable judgment to
reflect such event, including substituting or adding publicly traded shares of
companies other than the Company as a basis for determining Stock Units. The
Plan Administrator similarly shall make such adjustments as it deems are
appropriate in its reasonable judgment in the form, including the basis of
measurement, of Stock Units in the event all shares of Company Stock cease for
any reason to be outstanding or to be actively traded on the New York Stock
Exchange. In the event the Plan Administrator determines in its reasonable
judgment that it would not be possible to appropriately reflect an event under
this paragraph (c) by adjusting the number and/or form of Stock Units, the Plan
Administrator shall establish a special Valuation Date appropriate to such event
for all Stock Unit Subaccounts and shall cause such subaccounts, as so valued,
automatically to be converted into Interest Income Subaccounts, which thereafter
shall be subject to Section 4.4.
4 INTEREST INCOME
OPTION.
(a) INTEREST INCOME SUBACCOUNT. To
the extent that an Eligible Executive makes an Investment Election in accordance
with Section 4.2 to have his or her Deferral Contributions for a Plan Year
deemed to be invested in the Interest Income Option, the Participant's Interest
Income Subaccount shall be credited (subject to the adjustment described in
subsection 3.2(g), if applicable) with the applicable portion of each such
Deferral Contribution at the time such Deferral Contribution is credited to the
Participant's Account under Section 3.2(g).
(b) CREDITING OF DEEMED INTEREST. As
of each Valuation Date, the Plan Administrator shall credit a Participant's
Interest Income Subaccounts with the amount of earnings applicable thereto for
the period since the immediately preceding Valuation Date. Such crediting of
earnings for each Interest Income Subaccount shall be effected, as
follows:
(i)
AMOUNT INVESTED. The Plan Administrator shall determine the amount of (A) in the
case of an Interest Income Subaccount established in connection with a Deferral
Election or Bonus Deferral Election for the Plan Year, or established in
connection with a Performance Share Deferral Election for the Performance
Period, such Participant's Deferral Contributions credited to such Participant's
Interest Income Subaccount as of the immediately preceding Valuation Date, plus
any investment earnings credited to such Participant's Interest Income
Subaccount since the immediately preceding Valuation Date; and (B) in the case
of an Interest Income Subaccount for a prior Plan Year, the balance of such
Participant's Interest Income Subaccount as of the immediately preceding
Valuation Date, plus any investment earnings credited to such Participant's
Interest Income Subaccount since the immediately preceding Valuation Date, minus
the amount distributed from such Participant's Interest Income Subaccount since
the immediately preceding Valuation Date; and
(ii)
DETERMINATION OF AMOUNT. The Plan Administrator then shall apply the Credited
Interest Rate for such Plan Year to such Participant's adjusted Interest Income
Subaccount (as determined in subparagraph (i) hereof), and the total amount of
investment earnings resulting therefrom shall be credited to such Participant's
Interest Income Subaccount as of such Valuation Date.
4.5 MUTUAL FUND OPTION.
(a) MUTUAL FUNDS. From time to time,
the Plan Administrator shall select two (2) or more Mutual Funds for purposes of
determining the rate of return on amounts deemed invested in the Mutual Fund
Option in accordance with the terms of the Plan. The Plan Administrator may
change, add or remove Mutual Funds on a prospective basis at any time and in any
manner it deems appropriate.
(b) MUTUAL FUND SUBACCOUNT. To the
extent that an Eligible Executive makes an Investment Election in accordance
with Section 4.2 to have his or her Deferral Contributions for a Plan Year
deemed to be invested in the Mutual Fund Option, the Participant's Mutual Fund
Subaccount shall be credited with the applicable portion of each such Deferral
Contribution at the time such Deferral Contribution is credited to the
Participant's Account under Section 3.2(g), with the investment in each Mutual
Fund based on the 4:00 p.m. Eastern Time closing price of the Mutual Fund on
such crediting date.
(c) CREDITING OF EARNINGS. As of each
Valuation Date, the Plan Administrator shall determine the value of a
Participant's Mutual Fund Subaccount (as well as the earnings and/or losses
thereof) by valuing the deemed investments in the Mutual Funds as if such
subaccount actually were invested therein.
4.6 GOOD FAITH VALUATION BINDING. In
determining the value of Accounts, the Plan Administrator shall exercise its
best judgment, and all such determinations of value (in the absence of bad
faith) shall be binding upon all Participants and their
Beneficiaries.
4.7 ERRORS AND OMISSIONS IN ACCOUNTS.
If an error or omission is discovered in the Account of a Participant or in the
amount of a Participant's Deferral Contributions, the Plan Administrator, in its
sole discretion, shall cause appropriate, equitable adjustments to be made as
soon as administratively practicable following the discovery of such error or
omission.
ARTICLE
V
PAYMENT
OF ACCOUNT BALANCES
5.1 BENEFIT AMOUNTS.
(a) BENEFIT ENTITLEMENT. As the
benefit under the Plan, each Participant (or Beneficiary) shall be entitled to
receive the total amount of the Participant's Accounts, determined as of the
most recent Valuation Date, and payable at such times and in such forms as
described in this Article V.
(b) VALUATION OF BENEFIT. For
purposes hereof, each Account of a Participant as of any Valuation Date shall be
equal to the total value such Participant's Stock Unit Subaccount, Interest
Income Subaccount and Mutual Fund Subaccount.
(c) CONVERSION OF STOCK UNITS INTO
DOLLARS. For purposes of converting some or all of a Participant's Stock Units
into a dollar amount in valuing the Participant's Accounts as of any Valuation
Date, the value of each Stock Unit shall be equal to the average of the high and
low sales prices of one share of Company Stock on the New York Stock Exchange
for the last Business Day of each of the three (3) months of the calendar
quarter most recently completed on or prior to such Valuation Date.
5.2 ELECTIONS OF TIMING AND FORM. In
conjunction with, and at the time of, completing a Deferral Election and/or
Bonus Deferral Election for each Plan Year, or a Performance Share Deferral
Election for each Performance Share Award, an Eligible Executive shall select
the timing and form of the distribution that will apply to the Account for such
Eligible Executive's Deferral Contributions (and deemed investment earnings
attributable thereto) for such Plan Year. The terms applicable to this selection
process are as follows:
(a) TIMING. For a Participant's
Account for each Plan Year, such Participant may elect that distribution will be
made or commence as of any January 1 following the Plan Year of deferral;
provided, a Participant may not select a benefit payment or commencement date
for such Account that is (i) earlier than (A) in the case of a Deferral
Election, the second January 1 following the end of the Plan Year for which the
deferral is made, or (B) in the case of a Bonus Deferral Election or a
Performance Share Deferral Election, the third January 1 following the end of
the Plan Year for which the deferral is made; or (ii) later than the twentieth
(20th) January 1 following the end of the Plan Year of deferral.
(b) FORM OF DISTRIBUTION. For a
Participant's Account for each Plan Year, such Participant may elect that
distribution will be paid in one of the following forms:
(i) a single lump-sum cash payment;
or
(ii) substantially equal annual
installments (adjusted for investment earnings between payments in the manner
described in Article IV) over a period of two (2) to ten (10)
years.
(c) MULTIPLE SELECTIONS. An Eligible
Executive may select a different benefit payment or commencement date and/or a
different form of distribution with respect to his or her Account for each Plan
Year. For ease of administration, the Plan Administrator may combine Accounts
and subaccounts of a Participant to which the same benefit payment/commencement
date and the same form of distribution apply.
5.3 BENEFIT PAYMENTS TO A
PARTICIPANT.
(a) TIMING. A Participant shall
receive or begin receiving a distribution of each of his or her Accounts as of
the earlier of (i) the January 1 selected by such Participant with respect to
each such Account pursuant to the terms of Section 5.2(a); or (ii) the January 1
immediately following the date that such Participant's employment with BellSouth
and all Affiliates ends for any reason, unless the Participant returns to
employment with BellSouth or one of the Affiliates before such January 1;
provided, however, that with respect to a Bonus Deferral Election or Performance
Share Deferral Election of a Participant whose employment has so terminated,
distribution shall be made or begin no sooner than the January 1 immediately
following the date on which the Annual Bonus or Performance Share Payment is
payable. An amount payable "as of" any January 1 shall be made as soon as
practicable after such January 1 and, unless extenuating circumstances arise, no
later than January 31.
(b) FORM OF DISTRIBUTION. A
Participant shall receive or begin receiving a distribution of each of his or
her Accounts in cash in the form selected by such Participant with respect to
such Account pursuant to the terms of Section 5.2(b).
(c) VALUATION OF SINGLE LUMP-SUM
PAYMENTS. The amount of a Participant's single lump-sum distribution of any of
his or her Accounts as of any applicable January 1 shall be equal to the value
of such Account as of the Valuation Date immediately preceding the date on which
such distribution is paid.
(d) VALUATION OF INSTALLMENT
PAYMENTS. For purposes of determining the amount of any installment payment to
be paid as of a January 1 from an Account, the following shall
apply:
(i) for any amount of such Account
attributable to an Interest Income Subaccount as of the immediately preceding
Valuation Date, such amount shall be divided by the number of remaining
installments to be paid from such Account (including the current
installment);
(ii) for any portion of such Account
attributable to a Stock Unit Subaccount as of the immediately preceding
Valuation Date, the total number of Stock Units constituting such portion shall
be divided by the number of remaining installments to be paid from such Account
(including the current installment), and the resulting number of Stock Units
shall be converted into a dollar amount (pursuant to the terms of Section
5.1(c)) as of such Valuation Date; and
(iii) for any amount of such Account
attributable to a Mutual Fund Subaccount as of the immediately preceding
Valuation Date, such amount shall be divided by the number of remaining
installments to be paid from such Account (including the current
installment).
5.4 DEATH BENEFITS.
(a) GENERAL. If a Participant dies
before receiving the entire amount of his or her benefit under the Plan, such
Participant's Beneficiary shall receive distribution of amounts remaining in the
Participant's Accounts in the form, as elected by the Participant on a
Beneficiary designation form described in Section 5.6, of either:
(i) a single lump-sum cash payment of
the entire balance in the Participant's Accounts as of the January 1 immediately
following the date of the Participant's death; or
(ii) (A) for Accounts with respect to
which distribution has not commenced under Section 5.2 at the time of the
Participant's death, substantially equal annual installments (adjusted for
investment earnings between payments in the manner described in Article IV) over
a period of two (2) to ten (10) years, commencing as of the January 1
immediately following the Participant's death; and (B) for Accounts with respect
to which distribution has commenced in the form of installments described in
Section 5.2(b)(ii) at the time of the Participant's death, continuation of such
installment payment schedule.
An amount
payable "as of" any January 1 shall be made as soon as practicable after such
January 1 and, unless extenuating circumstances arise, no later than January
31.
(b) VALUATION. The valuation rules
described in subsections 5.3(c) and 5.3(d) shall apply to payments described in
this Section 5.4.
5.5 WITHDRAWALS.
(a) HARDSHIP WITHDRAWALS. Upon
receipt of an application for a hardship withdrawal and the Plan Administrator's
decision, made in its sole discretion, that a Participant has suffered a
Financial Hardship, the Plan Administrator shall cause the payment of a
distribution to such Participant. Such distribution shall be paid in a
single-sum payment in cash as soon as administratively feasible after the Plan
Administrator determines that the Participant has incurred a Financial Hardship.
The amount of such single-sum payment shall be limited to the amount reasonably
necessary to meet the Participant's requirements resulting from the Financial
Hardship. The amount of such distribution shall reduce the Participant's Account
balance as provided in Section 3.6.
(b) WITHDRAWALS WITH FORFEITURE.
Notwithstanding any other provisions of this Article V to the contrary, a
Participant may elect, at any time prior to the distribution of his or her
entire benefit hereunder, to withdraw all or a portion of (i) the remaining
amount credited to one or more of his or her Accounts, determined as
of the Valuation Date on which such distribution is processed, in twenty-five
percent (25%) increments; plus (ii) the amount of Deferral Contributions made
since such Valuation Date. Such distribution shall be made in the form of a
single-sum payment in cash, as prescribed in Section 5.2(b)(i), as soon as
administratively feasible after the date of the Participant's election under
this subsection (b). At the time such distribution is made, an amount equal to
ten percent (10%) of the amount distributed shall be permanently and irrevocably
forfeited (and, if the distribution request is more than ninety percent (90%) of
such Participant's Account, the forfeiture amount shall be deducted from his or
her distribution amount to the extent there otherwise will be an insufficient
remaining Account balance from which to deduct this forfeiture). In addition,
the Participant receiving such distribution shall immediately cease to make
Deferral Contributions with respect to a Deferral Election for the Plan Year in
which such withdrawal occurs, and any Bonus Deferral Election and/or Performance
Share Deferral Election with respect to such Plan Year shall be disregarded, and
such Participant shall not be eligible to resume Deferral Contributions until
the first day of the Plan Year coinciding with or immediately following the one
year anniversary of such distribution.
5.6 BENEFICIARY
DESIGNATION.
(a) GENERAL. A Participant shall
designate a Beneficiary or Beneficiaries for all of his or her Accounts by
completing the form prescribed for this purpose for the Plan by the Plan
Administrator and submitting such form as instructed by the Plan Administrator.
Once a Beneficiary designation is made, it shall continue to apply until and
unless such Participant makes and submits a new Beneficiary designation form for
this Plan.
(b) NO DESIGNATION OR DESIGNEE DEAD
OR MISSING. In the event that:
(i) a Participant dies without
designating a Beneficiary;
(ii) the Beneficiary designated by a
Participant is not surviving or in existence when payments are to be made or
commence to such designee under the Plan, and no contingent Beneficiary,
surviving or in existence, has been designated; or
(iii) the Beneficiary designated by a
Participant cannot be located by the Plan Administrator within 1 year from the
date benefit payments are to be made or commence to such designee; then, in any
of such events, the Beneficiary of such Participant shall be the Participant's
surviving spouse, if any can then be located, and if not, the estate of the
Participant, and the entire balance in the Participant's Accounts shall be paid
to such Beneficiary in the form of a single lump-sum cash payment described in
Section 5.4(a)(i).
(c) DEATH OF BENEFICIARY. If a
Beneficiary who survives the Participant, and to whom payment of Plan benefits
commences, dies before complete distribution of the Participant's Accounts, the
entire balance in such Accounts shall be paid to the estate of such Beneficiary
in the form of a single lump-sum cash payment as of the January 1 immediately
following such Beneficiary's death. An amount payable "as of" any January 1
shall be made as soon as practicable after such January 1 and, unless
extenuating circumstances arise, no later than January 31. The valuation rules
described in subsection 5.3(c) shall apply to any payments described in this
subsection 5.6(c).
5.7 TAXES. If the whole or any part
of any Participant's or Beneficiary's benefit hereunder shall become subject to
any estate, inheritance, income, employment or other tax which a Participating
Company shall be required to pay or withhold, the Participating Company shall
have the full power and authority to withhold and pay such tax out of any monies
or other property in its hand for the account of the Participant or Beneficiary
whose interests hereunder are so affected. Prior to making any payment, the
Participating Company may require such releases or other documents from any
lawful taxing authority as it shall deem necessary.
ARTICLE
VI
CLAIMS
6.1 INITIAL CLAIM. Claims for
benefits under the Plan may be filed with the Plan Administrator on forms or in
such other written documents, as the Plan Administrator may prescribe. The Plan
Administrator shall furnish to the claimant written notice of the disposition of
a claim within 90 days after the application therefor is filed. In the event the
claim is denied, the notice of the disposition of the claim shall provide the
specific reasons for the denial, citations of the pertinent provisions of the
Plan, and, where appropriate, an explanation as to how the claimant can perfect
the claim and/or submit the claim for review.
6.2 APPEAL. Any Participant or
Beneficiary who has been denied a benefit shall be entitled, upon request to the
Plan Administrator, to appeal the denial of his or her claim. The claimant (or
his or her duly authorized representative) may review pertinent documents
related to the Plan and in the Plan Administrator's possession in order to
prepare the appeal. The request for review, together with written statement of
the claimant's position, must be filed with the Plan Administrator no later than
60 days after receipt of the written notification of denial of a claim provided
for in Section 6.1. The Plan Administrator's decision shall be made within 60
days following the filing of the request for review. If unfavorable, the notice
of the decision shall explain the reasons for denial and indicate the provisions
of the Plan or other documents used to arrive at the decision.
6.3 SATISFACTION OF CLAIMS. The
payment of the benefits due under the Plan to a Participant or Beneficiary shall
discharge the Participating Company's obligations under the Plan, and neither
the Participant nor the Beneficiary shall have any further rights under the Plan
upon receipt by the appropriate person of all benefits. In addition, (i) if any
payment is made to a Participant or Beneficiary with respect to benefits
described in the Plan from any source arranged by BellSouth or a Participating
Company including, without limitation, any fund, trust, insurance arrangement,
bond, security device, or any similar arrangement, such payment shall be deemed
to be in full and complete satisfaction of the obligation of the Participating
Company under the Plan to the extent of such payment as if such payment had been
made directly by such Participating Company; and (ii) if any payment from a
source described in clause (i) shall be made, in whole or in part, prior to the
time payment would be made under the terms of the Plan, such payment shall be
deemed to satisfy such Participating Company's obligation to pay Plan benefits
beginning with the benefit which would next become payable under the Plan and
continuing in the order in which benefits are so payable, until the payment from
such other source is fully recovered. The Plan Administrator or such
Participating Company, as a condition to making any payment, may require such
Participant or Beneficiary to execute a receipt and release therefor in such
form as shall be determined by the Plan Administrator or the Participating
Company. If receipt and release is required but the Participant or Beneficiary
(as applicable) does not provide such receipt and release in a timely enough
manner to permit a timely distribution in accordance with the general timing of
distribution provisions in the Plan, the payment of any affected distribution
may be delayed until the Plan Administrator or the Participating Company
receives a proper receipt and release.
ARTICLE
VII
SOURCE OF
FUNDS
Each Participating Company shall
provide the benefits described in the Plan from its general assets. However, to
the extent that funds in one or more trusts, or other funding arrangement(s),
allocable to the benefits payable under the Plan are available, such assets may
be used to pay benefits under the Plan. If such assets are not sufficient or are
not used to pay all benefits due under the Plan, then the appropriate
Participating Company shall have the obligation, and the Participant or
Beneficiary, who is due such benefits, shall look to such Participating Company
to provide such benefits. No Participant or Beneficiary shall have any interest
in the assets of any trust, or other funding arrangement, or in the general
assets of the Participating Companies other than as a general, unsecured
creditor. Accordingly, a Participating Company shall not grant a security
interest in the assets held by the trust in favor of the Participants,
Beneficiaries or any creditor.
ARTICLE
VIII
PLAN
ADMINISTRATION
8.1 ACTION BY THE PLAN
ADMINISTRATOR.
(a) INDIVIDUAL ADMINISTRATOR. If the
Plan Administrator is an individual, such individual shall act and record his or
her actions in writing. Any matter concerning specifically such individual's own
benefit or rights hereunder shall be determined by the Board or its
designee.
(b) ADMINISTRATIVE COMMITTEE. If the
Plan Administrator is a committee, action of the Plan Administrator may be taken
with or without a meeting of committee members; provided, action shall be taken
only upon the vote or other affirmative expression of a majority of the
committee members qualified to vote with respect to such action. If a member of
the committee is a Participant or Beneficiary, such member shall not participate
in any decision which solely affects his or her own benefit under the Plan. For
purposes of administering the Plan, the Plan Administrator shall choose a
secretary who shall keep minutes of the committee's proceedings and all records
and documents pertaining to the administration of the Plan. The secretary may
execute any certificate or any other written direction on behalf of the Plan
Administrator.
8.2 RIGHTS AND DUTIES OF THE PLAN
ADMINISTRATOR. The Plan Administrator shall administer the Plan and shall have
all powers necessary to accomplish that purpose, including (but not limited to)
the following:
(a) to construe, interpret and
administer the Plan;
(b) to make determinations required
by the Plan, and to maintain records regarding Participants' and Beneficiaries'
benefits hereunder;
(c) to compute and certify to
Participating Companies the amount and kinds of benefits payable to Participants
and Beneficiaries, and to determine the time and manner in which such benefits
are to be paid;
(d) to authorize all disbursements by
a Participating Company pursuant to the Plan;
(e) to maintain all the necessary
records of the administration of the Plan;
(f) to make and publish such rules
and procedures for the regulation of the Plan as are not inconsistent with the
terms hereof;
(g) to delegate to other individuals
or entities from time to time the performance of any of its duties or
responsibilities hereunder; and
(h) to hire agents, accountants,
actuaries, consultants and legal counsel to assist in operating and
administering the Plan.
The Plan
Administrator shall have the exclusive right to construe and interpret the Plan,
to decide all questions of eligibility for benefits and to determine the amount
of such benefits, and its decisions on such matters shall be final and
conclusive on all parties.
8.3 BOND; COMPENSATION. The Plan
Administrator and (if applicable) its members shall serve as such without bond
and without compensation for services hereunder. All expenses of the Plan
Administrator shall be paid by the Participating Companies.
ARTICLE
IX
AMENDMENT
AND TERMINATION
9.1 AMENDMENTS. Subject to Section
9.3, the Board shall have the right, in its sole discretion, to amend the Plan
in whole or in part at any time and from time to time. In addition, the Plan
Administrator shall have the right, in its sole discretion, to amend the Plan at
any time and from time to time so long as such amendment is not of a material
nature.
9.2 TERMINATION OF PLAN. Subject to
Section 9.3, BellSouth reserves the right to discontinue and terminate the Plan
at any time, for any reason. Any action to terminate the Plan shall be taken by
the Board and such termination shall be binding on all Participating Companies,
Participants and Beneficiaries.
9.3 LIMITATION ON AUTHORITY. Except
as otherwise provided in this Section 9.3, no contractual right created by and
under any Deferral Election, Bonus Deferral Election or Performance Share
Deferral Election made prior to the effective date of any amendment or
termination shall be abrogated by any amendment or termination of the Plan,
absent the express, written consent of the Participant who made the Deferral
Election, Bonus Deferral Election or Performance Share Deferral
Election.
(a) PLAN AMENDMENTS. The limitation
on authority described in this Section 9.3 shall not apply to any amendment of
the Plan which is reasonably necessary, in the opinion of counsel, (i) to
preserve the intended income tax consequences of the Plan described in Section
10.1, (ii) to preserve the status of the Plan as an unfunded, nonqualified
deferred compensation plan for the benefit of a select group of management or
highly compensated employees and not subject to the requirements of Part 2, Part
3 and Part 4 of Title I of ERISA, or (iii) to guard against other material
adverse impacts on Participants and Beneficiaries, and which, in the opinion of
counsel, is drafted primarily to preserve such intended consequences, or status,
or to guard against such adverse impacts.
(b) PLAN TERMINATION. The limitation
on authority described in this Section 9.3 shall not apply to any termination of
the Plan as the result of a determination that, in the opinion of counsel, (i)
Participants and Beneficiaries generally are subject to federal income taxation
on Deferral Contributions or other amounts in Participant Accounts prior to the
time of distribution of amounts under the Plan, or (ii) the Plan is generally
subject to Part 2, Part 3 or Part 4 of Title I of ERISA, but in either case only
if such termination is reasonably necessary, in the opinion of counsel, to guard
against material adverse impacts on Participants and Beneficiaries, or BellSouth
or Participating Companies. Upon such termination, the entire amount in each
Participant's Accounts shall be distributed in a single lump-sum distribution as
soon as practicable after the date on which the Plan is terminated. In such
event, the Plan Administrator shall declare that the date of termination (or, if
such day is not a Business Day, the last Business Day immediately preceding such
day) shall be a Valuation Date and all distributions shall be made based on the
value of the Accounts as of such Valuation Date.
(c) OPINIONS OF COUNSEL. In each case
in which an opinion of counsel is contemplated in this Section 9.3, such opinion
shall be in writing and delivered to the Board, rendered by a nationally
recognized law firm selected or approved by the Board.
ARTICLE
X
MISCELLANEOUS
10.1 TAXATION. It is the intention of
BellSouth that the benefits payable hereunder shall not be deductible by the
Participating Companies nor taxable for federal income tax purposes to
Participants or Beneficiaries until such benefits are paid by the Participating
Company to such Participants or Beneficiaries. When such benefits are so paid,
it is the intention of the Participating Companies that they shall be deductible
by the Participating Companies under Code Section 162.
10.2 WITHHOLDING. All payments made
to a Participant or Beneficiary hereunder shall be reduced by any applicable
federal, state or local withholding or other taxes or charges as may be required
under applicable law.
10.3 NO EMPLOYMENT CONTRACT. Nothing
herein contained is intended to be nor shall be construed as constituting a
contract or other arrangement between a Participating Company and any
Participant to the effect that the Participant will be employed by the
Participating Company or continue to be an employee for any specific period of
time.
10.4 HEADINGS. The headings of the
various articles and sections in the Plan are solely for convenience and shall
not be relied upon in construing any provisions hereof. Any reference to a
section shall refer to a section of the Plan unless specified
otherwise.
10.5 GENDER AND NUMBER. Use of any
gender in the Plan will be deemed to include all genders when appropriate, and
use of the singular number will be deemed to include the plural when
appropriate, and vice versa in each instance.
10.6 ASSIGNMENT OF BENEFITS. The
right of a Participant or Beneficiary to receive payments under the Plan may not
be anticipated, alienated, sold, assigned, transferred, pledged, encumbered,
attached or garnished by creditors of such Participant or Beneficiary, except by
will or by the laws of descent and distribution and then only to the extent
permitted under the terms of the Plan.
10.7 LEGALLY INCOMPETENT. The Plan
Administrator, in its sole discretion, may direct that payment be made to an
incompetent or disabled person, for whatever reason, to the guardian of such
person or to the person having custody of such person, without further liability
on the part of a Participating Company for the amount of such payment to the
person on whose account such payment is made.
10.8 ENTIRE DOCUMENT. This Plan
document sets forth the entire Plan and all rights and limits. Except for a
formal amendment hereto, no document shall modify the Plan or create any
additional rights or benefits.
10.9 GOVERNING LAW. The Plan shall be
construed, administered and governed in all respects in accordance with
applicable federal law (including ERISA) and, to the extent not preempted by
federal law, in accordance with the laws of the State of Georgia. If
any provisions of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
EXHIBIT
A
Participating
Companies
(as of
January 1, 2005)
Participating Company Names
_________________________Effective Date______________
1.
BellSouth Advertising & Publishing
Corporation January
1, 2002
2.
BellSouth
Corporation January
1, 2002
3.
BellSouth D.C.,
Inc.
January 1, 2002
4.
BellSouth International,
Inc. January
1, 2002
5.
BellSouth Telecommunications,
Inc. January
1, 2002
Exhibit
10-qq
BELLSOUTH
CORPORATION
STOCK AND
INCENTIVE COMPENSATION PLAN
(As
Amended June 28, 2004)
1. Purpose.
The
purpose of the Plan is to strengthen BellSouth Corporation, a Georgia
corporation (the "Company"), by providing an incentive to its and its
Subsidiaries' (as defined herein) employees, officers, consultants and
directors, thereby encouraging them to devote their abilities and industry to
the success of the Company's business enterprise. It is intended that
this purpose be achieved by extending to employees (including future employees
who have received a formal written offer of employment), officers, consultants
and directors of the Company and its Subsidiaries an added incentive for high
levels of performance and unusual efforts through the grant of Restricted Stock,
Restricted Stock Units, Options, Stock Appreciation Rights, Dividend Equivalent
Rights, Performance Awards, Annual Incentive Awards and Share Awards (as each
term is herein defined).
2. Definitions.
For purposes of the
Plan:
2.1 "Administrator"
means the Compensation Committee, the Director Committee or the Company
Administrator, as applicable.
2.2 "Affiliate"
means any entity directly or indirectly controlled by, controlling or under
common control with the Company.
2.3 "Agreement"
means a written or electronic agreement between the Company and a Participant
evidencing the grant of an Option or Award and setting forth the terms and
conditions thereof.
2.4 "Annual
Bonus Pool" has the meaning set forth in Section 10.2.
2.5 "Annual
Incentive Award" has the meaning set forth in Section 10.2.
2.6 "Award"
means a grant of Restricted Stock, a Restricted Stock Unit, a Stock Appreciation
Right, a Performance Award, a Dividend Equivalent Right, a Share Award, an
Annual Incentive Award or any or all of them.
2.7 "Beneficiary"
means an individual designated as a Beneficiary pursuant to Section
21.4.
2.8 "Board"
means the Board of Directors of the Company.
2.9 "Cause"
means: (a) intentional failure to perform reasonably assigned duties,
(b) dishonesty or willful misconduct in the performance of duties, (c)
involvement in a transaction in connection with the performance of duties to the
Company or any of its Subsidiaries which transaction is adverse to the interests
of the Company or any of its Subsidiaries and which is engaged in for personal
profit or (d) willful violation of any law, rule or regulation in connection
with the performance of duties (other than traffic violations or similar
offenses).
2.10 "Change
in Capitalization" means any increase or reduction in the number of Shares, any
change (including, but not limited to, in the case of a spin-off, dividend or
other distribution in respect of Shares, a change in value) in the Shares or any
exchange of Shares for a different number or kind of Shares or other securities
of the Company or another corporation, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants, rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of Shares, repurchase of Shares, change in corporate structure or
otherwise.
2.11 "Change
in Control" means the occurrence of any of the following:
(a) An acquisition (other
than directly from the Company) of any voting securities of the Company (the
"Voting Securities") by any "Person" (as the term "person" is used for purposes
of Section 13(d) or 14(d) of the Exchange Act), immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than twenty percent (20%) of (i) the
then-outstanding Shares or (ii) the combined voting power of the Company's
then-outstanding Voting Securities; provided, however, that in determining
whether a Change in Control has occurred pursuant to this paragraph (a), the
acquisition of Shares or Voting Securities in a Non-Control Acquisition (as
hereinafter defined) shall not constitute a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by (A) the Company or (B) any
corporation or other Person the majority of the voting power, voting equity
securities or equity interest of which is owned, directly or indirectly, by the
Company (for purposes of this definition, a "Related Entity"), (ii) the Company
or any Related Entity, or (iii) any Person in connection with a Non-Control
Transaction (as hereinafter defined);
(b) The individuals who,
as of the effective date of the Plan, are members of the Board (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the members
of the Board or, following a Merger (as hereinafter defined), the
board of directors of (i) the corporation resulting from such Merger (the
"Surviving Corporation"), if fifty percent (50%) or more of the combined voting
power of the then-outstanding voting securities of the Surviving Corporation is
not Beneficially Owned, directly or indirectly, by another Person (a "Parent
Corporation") or (ii) if there is one or more than one Parent Corporation, the
ultimate Parent Corporation; provided, however, that, if the election, or
nomination for election by the Company's common shareholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of the Plan, be considered a member of the
Incumbent Board; and provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of an actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any Proxy
Contest; or
(c) The consummation
of:
(i) A merger,
consolidation or reorganization (x) with or into the Company or (y) in which
securities of the Company are issued (a "Merger"), unless such Merger is a
"Non-Control Transaction." A "Non-Control Transaction" shall mean a
Merger in which:
(A) the shareholders of
the Company immediately before such Merger own directly or indirectly
immediately following such Merger at least sixty percent (60%) of the combined
voting power of the outstanding voting securities of (1) the Surviving
Corporation, if there is no Parent Corporation or (2) if there is one or more
than one Parent Corporation, the ultimate Parent Corporation;
(B) the individuals who
were members of the Incumbent Board immediately prior to the execution of the
agreement providing for such Merger constitute at least a majority of the
members of the board of directors of (1) the Surviving Corporation, if there is
no Parent Corporation, or (2) if there is one or more than one Parent
Corporation, the ultimate Parent Corporation; and
(C) no Person other than
(1) the Company or another corporation that is a party to the agreement of
Merger, (2) any Related Entity, or (3) any employee benefit plan (or any trust
forming a part thereof) that, immediately prior to the Merger, was maintained by
the Company or any Related Entity, or (4) any Person who, immediately prior to
the Merger had Beneficial Ownership of twenty percent (20%) or more of the then
outstanding Shares or Voting Securities, has Beneficial Ownership, directly or
indirectly, of twenty percent (20%) or more of the combined voting power of the
outstanding voting securities or common stock of (x) the Surviving Corporation,
if there is no Parent Corporation, or (y) if there is one or more than one
Parent Corporation, the ultimate Parent Corporation; provided, however, that any
Person described in clause (4) of this subsection (C) may not, immediately
following the Merger, Beneficially Own more than thirty percent (30%) of the
combined voting power of the outstanding voting securities of the Surviving
Corporation or the Parent Corporation, as applicable, for the Merger to
constitute a Non-Control Transaction;
(ii) A complete
liquidation or dissolution of the Company; or
(iii) The sale or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any Person (other than (x) a transfer to a
Related Entity or (y) the distribution to the Company's shareholders of the
stock of a Related Entity or any other assets).
Notwithstanding the foregoing, a
Change in Control shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than the permitted
amount of the then outstanding Shares or Voting Securities as a result of the
acquisition of Shares or Voting Securities by the Company which, by reducing the
number of Shares or Voting Securities then outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Persons;
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Shares or Voting Securities by the
Company and, after such share acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional Shares or Voting Securities and
such Beneficial Ownership increases the percentage of the then outstanding
Shares or Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
If a Participant's employment is
terminated by the Company without Cause prior to the date of a Change in Control
but the Participant reasonably demonstrates that the termination (A) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control or (B) otherwise arose in
connection with, or in anticipation of, a Change in Control which has been
threatened or proposed, such termination shall be deemed to have occurred after
a Change in Control for purposes of the Plan provided a Change in Control shall
actually have occurred.
2.12 "Chief
Executive Officer" means the Chief Executive Officer of the
Company.
2.13 "Code"
means the Internal Revenue Code of 1986, as amended.
2.14 "Company"
means BellSouth Corporation, a Georgia corporation.
2.15 "Company
Administrator" means the Chief Executive Officer, the Company's senior officer
responsible for human resources matters or such other person or persons as are
designated by the Compensation Committee to administer the Plan on behalf of
Participants who are neither Non-Employee Directors nor Covered
Employees.
2.16 "Compensation
Committee" means the Executive Nominating and Compensation Committee of the
Board, or any successor committee of the Board which administers the Plan as
provided in Section 3.
2.17 "Covered
Employee" means, with respect to any grant of an Option or Award, a Participant
who (a) the Compensation Committee deems may be or become a covered employee as
defined in Section 162(m)(3) of the Code for any year that such Option or Award
may result in remuneration to the Participant and for which year such
Participant may receive remuneration over $1 million which would not be
deductible under Section 162(m) of the Code but for the provisions of the Plan
and any other "qualified performance-based compensation" plan (as defined under
Section 162(m) of the Code) of the Company; provided, however, that the
Compensation Committee may determine that a Participant has ceased to be a
Covered Employee prior to settlement of any Option or Award or (b) is designated
as a Covered Employee for purposes of the Plan.
2.18 "Director"
means a member of the Board.
2.19 "Director
Committee" means the Director Nominating and Corporate Governance Committee of
the Board, or any successor committee of the Board which administers the Plan as
provided in Section 3.
2.20 "Disability":
(a) shall have the meaning
set forth in the Company's principal management long-term disability plan under
which the Participant is covered, if any; or
(b) if the Participant is
not covered under the Company's principal management long-term disability plan,
shall have the meaning set forth in any other Company-sponsored long-term
disability plan under which the Participant is covered; or
(c) if Participant is not
covered under any such plan, shall mean disability within the meaning of Section
22(e)(3) of the Code.
2.21 "Division"
means any of the operating units or divisions of the Company designated as a
Division by the Administrator.
2.22 "Dividend
Equivalent Right" means a right to receive cash or Shares based on the value of
dividends that are paid with respect to Shares.
2.23 "Effective
Date" means the date of approval of the Plan by the Company's shareholders`
pursuant to Section 21.5.
2.24 "Eligible
Director" means a Director who is not an employee of the Company or any
Subsidiary.
2.25 "Eligible
Individual" means any of the following individuals who is designated by the
Administrator as eligible to receive Options or Awards subject to the conditions
set forth herein: (a) any Director, officer or employee of the
Company or a Subsidiary, (b) any individual to whom the Company or a Subsidiary
has extended a formal, written offer of employment, and (c) any consultant or
advisor of the Company or a Subsidiary.
2.26 "Eligible
Officer" means an Officer designated by the Compensation Committee under Section
10.1.
2.27 "Exchange
Act" means the Securities Exchange Act of 1934, as amended.
2.28 "Fair
Market Value" on any date means (a) for purposes of Sections 4.2, 5.7, 6.5, 8.2,
9.1(d) and 21.2, and for purposes of Sections 5.2 and 6.3(b) with respect to
Covered Employees and Directors, the average of the high and low sales prices of
the Shares on such date on the New York Stock Exchange, or if there are no sales
on such day, for the most recent prior day in which a Share was sold on the New
York Stock Exchange, and (b) for all other purposes means a price that is based
on the opening, closing, actual, high, low, or average selling prices of a Share
on the applicable date, the preceding trading day, the next succeeding trading
day, or an average of trading days, as determined by the Compensation Committee
in its discretion. Such definition(s) of Fair Market Value shall be
specified in each Agreement and may differ depending on whether Fair Market
Value is in reference to the grant, exercise, vesting, settlement, or payout of
an Award. If, however, the accounting standards used to account for
equity awards granted to Participants are substantially modified subsequent to
the effective date of the Plan, the Compensation Committee shall have the
ability to determine an Award's Fair Market Value based on the relevant facts
and circumstances.
2.29 "Good
Reason" means a reduction in a Participant's annual base salary as in effect
immediately before a Change in Control or the failure to pay abonus award to
which a Participant is otherwise entitled under any of the
short-term
or long-term incentive plans in which the Participant participates (or any
successor incentive compensation plans) at the time such awards are usually
paid.
2.30 "Incentive
Stock Option" means an Option satisfying the requirements of Section 422 of the
Code and designated by the Administrator as an Incentive Stock
Option.
2.31 "Net
Income" for a fiscal year means the amount reported as "income before cumulative
effect of accounting changes" in the Company's Form 10-K filed with the
Securities and Exchange Commission for that fiscal year, as determined in
accordance with generally accepted accounting principles.
2.32 "Nonemployee
Director" means a Director who is a "nonemployee director" within the meaning of
Rule 16b-3 promulgated under the Exchange Act.
2.33 "Nonqualified
Stock Option" means an Option which is not an Incentive Stock
Option.
2.34 "Operating
Cash Flow" for a fiscal year means the amount reported as "net cash provided by
operating activities" in the Company's Form 10-K filed with the Securities and
Exchange Commission for that fiscal year, as determined in accordance with
generally accepted accounting principles.
2.35 "Option"
means a Nonqualified Stock Option and/or an Incentive Stock Option.
2.36 "Outside
Director" means a Director who is an "outside director" within the meaning of
Section 162(m) of the Code and the regulations promulgated
thereunder.
2.37 "Parent"
means any corporation which is a "parent corporation" (within the meaning of
Section 424(e) of the Code) with respect to the Company.
2.38 "Participant"
means a person to whom an Award or Option has been granted under the
Plan.
2.39 "Performance
Awards" means Performance Shares, Performance Units, Performance-Based
Restricted Stock or any or all of them.
2.40 "Performance-Based
Compensation" means any Option or Award that is intended to constitute
"performance based compensation" within the meaning of Section 162(m)(4)(C) of
the Code and the regulations promulgated thereunder.
2.41 "Performance-Based
Restricted Stock" means Shares issued or transferred to an Eligible Individual
under Section 9.2.
2.42 "Performance
Cycle" means the time period specified by the Administrator at the time
Performance Awards are granted during which the performance of the Company, a
Subsidiary or a Division will be measured.
2.43 "Performance
Objectives" means the objectives set forth in Sections 9.3 and 10.2 for the
purpose of determining the degree of payout and/or vesting of Performance Awards
and Annual Incentive Awards, respectively.
2.44 "Performance
Shares" means Performance Shares granted to an Eligible Individual under Section
9.1.
2.45 "Performance
Units" means Performance Units granted to an Eligible Individual under Section
9.1.
2.46 "Plan"
means the BellSouth Corporation Stock and Incentive Compensation Plan, as
amended from time to time.
2.47 "Prior
Plans" means the Amended and Restated BellSouth Corporation Stock Plan, the
BellSouth Corporation Stock Option Plan, the BellSouth Executive Long Term
Incentive Plan, the BellSouth Corporation Non-Employee Director Stock Option
Plan and the BellSouth Corporation Non-Employee Director Stock
Plan.
2.48 "Restricted
Stock" means Shares issued or transferred to an Eligible Individual pursuant to
Section 8.
2.49 "Restricted
Stock Units" means rights granted to an Eligible Individual under Section 8
representing a number of hypothetical Shares.
2.50 "Share
Award" means an Award of Shares granted pursuant to Section 11.
2.51 "Shares"
means the common stock, par value $1 per share, of the Company and any other
securities into which such Shares are changed or for which such Shares are
exchanged.
2.52 "Stock
Appreciation Right" means a right to receive all or some portion of the
increase, if any, in the value of the Shares as provided in Section 6
hereof.
2.53 "Subsidiary"
means (a) except as provided in subsection (b) below, any corporation which is a
subsidiary corporation within the meaning of Section 424(f) of the Code with
respect to the Company, and (b) in relation to the eligibility to receive
Options or Awards other than Incentive Stock Options and continued employment
for purposes of Options and Awards (unless the Administrator determines
otherwise), any entity, whether or not incorporated, in which the Company
directly or indirectly owns at least ten percent (10%) or more of the
outstanding equity or other ownership interests.
2.54 "Ten-Percent
Shareholder" means an Eligible Individual who, at the time an Incentive Stock
Option is to be granted to him or her, owns (within the meaning of Section
422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, a Parent or a
Subsidiary.
2.55 "Termination
Date" means the date that is ten (10) years after the Effective Date, unless the
Plan is earlier terminated by the Board pursuant to Section 17
hereof.
3. Administration.
3.1 Committees;
Procedure. The Plan shall be administered by the Compensation
Committee with respect to Covered Employees, by the Director Committee with
respect to Eligible Directors and, subject to rules, regulations and guidelines
that may be established by the Compensation Committee, by the Company
Administrator with respect to all other Eligible Individuals. The
Compensation Committee or the Director Committee may adopt such rules,
regulations and guidelines as it deems are necessary or appropriate for the
administration of the Plan. Subject to such rules, regulations or
guidelines, the Company Administrator shall have the power to adopt rules,
regulations and guidelines to permit it to administer the Plan with respect to
Eligible Individuals other than Covered Employees. The Compensation
Committee shall consist of at least two (2) Directors, each of whom shall be a
Nonemployee Director and an Outside Director. For purposes of the
preceding sentence, if one or more members of the Compensation Committee is not
a Nonemployee Director and an Outside Director but recuses himself or herself or
abstains from voting with respect to a particular action taken by the
Compensation Committee, then the Compensation Committee, with respect to that
action, shall be deemed to consist only of the members of the Compensation
Committee who have not recused themselves or abstained from voting.
3.2 Administrator
Powers. Subject to the express terms and conditions set forth herein,
the Administrator shall have the power from time to time to:
(a) determine those
Eligible Individuals to whom Options shall be granted under the Plan and the
number of such Options to be granted and prescribe the terms and conditions
(which need not be identical) of each such Option, including the exercise price
per Share, the vesting schedule and the duration of each Option, and make any
amendment or modification to any Option Agreement consistent with the terms of
the Plan;
(b) select those Eligible
Individuals to whom Awards shall be granted under the Plan and determine the
number of Shares or amount of cash in respect of which each Award is granted,
the terms and conditions (which need not be identical) of each such Award, and
make any amendment or modification to any Agreement consistent with the terms of
the Plan;
(c) construe and interpret
the Plan and the Options and Awards granted hereunder and establish, amend and
revoke rules and regulations for the administration of the Plan, including, but
not limited to, correcting any defect or supplying any omission, or reconciling
any inconsistency in the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that the Plan and the
operation of the Plan comply with Rule 16b-3 under the Exchange Act, the Code to
the extent applicable and other applicable law, and otherwise to make the Plan
fully effective;
(d) determine the duration
and purposes for leaves of absence which may be granted to a Participant on an
individual basis without constituting a termination of employment or service for
purposes of the Plan;
(e) exercise its
discretion with respect to the powers and rights granted to it as set forth in
the Plan; and
(f) generally, exercise
such powers and perform such acts as are deemed necessary or advisable to
promote the best interests of the Company with respect to the Plan.
All decisions and determinations by
the Administrator in the exercise of the above powers shall be final, binding
and conclusive upon the Company, its Subsidiaries, the Participants and all
other persons having any interest therein.
3.3 Notwithstanding
anything herein to the contrary, with respect to Participants working outside
the United States, the Administrator may determine the terms and conditions of
Options and Awards and make such adjustments to the terms thereof as are
necessary or advisable to fulfill the purposes of the Plan taking into account
matters of local law or practice, including tax and securities laws of
jurisdictions outside the United States.
3.4 Indemnification. No
member of the Compensation Committee, the Director Committee or the Company
Administrator shall be liable for any action, failure to act, determination or
interpretation made in good faith with respect to the Plan or any transaction
hereunder. The Company hereby agrees to indemnify each member of the
Compensation Committee, the Director Committee and the Company Administrator for
all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering the Plan or in authorizing or denying authorization to any
transaction hereunder.
3.5 No
Repricing of Options or Stock Appreciation Rights. The Administrator
shall have no authority to make any adjustment (other than in connection with a
stock dividend, recapitalization or other transaction where an adjustment is
permitted or required under the terms of the Plan) or amendment, and no such
adjustment or amendment shall be made, that reduces or would have the effect of
reducing the exercise price of an Option or Stock Appreciation Right previously
granted under the Plan, whether through amendment, cancellation or replacement
grants, or other means, unless the Company's shareholders shall have approved
such adjustment or amendment.
4. Stock
Subject to the Plan; Grant Limitations.
4.1 Aggregate
Number of Shares Authorized for Issuance. Subject to any adjustment
as provided in the Plan, the Shares to be issued under the Plan may be, in whole
or in part, authorized but unissued Shares or issued Shares which shall have
been reacquired by the Company and held by it as treasury shares. The aggregate
number of Shares that may be made the subject of Awards or Options granted under
the Plan shall not exceed eighty million (80,000,000), no more than five million
(5,000,000) of which may be granted as Incentive Stock Options.
4.2 Individual
Limit. The aggregate number of Shares that may be the subject of
Options, Stock Appreciation Rights, Performance-Based Restricted Stock and
Performance Shares, together with the Share-Equivalent number of Performance
Units, granted to an Eligible Individual in any calendar year may not exceed two
and one-half million (2,500,000). For purposes of this Section 4, the
Share-Equivalent number of Performance Units shall be equal to the quotient of
(i) the aggregate dollar amount in which the Performance Units are denominated,
divided by (ii) the Fair Market Value of a Share on the date of
grant.
4.3 Calculating
Shares Available.
(a) Upon the granting of
an Award or an Option, the number of Shares available under this Section 4 for
the granting of further Awards and Options shall be reduced as
follows:
(i) In connection with the
granting of an Option, Stock Appreciation Right (other than a Stock Appreciation
Right Related to an Option), Restricted Stock Unit, Share Award or Award of
Restricted Stock, Performance-Based Restricted Stock or Performance Shares, the
number of Shares available under this Section 4 for the granting of further
Options and Awards shall be reduced by the number of Shares in respect of which
the Option or Award is granted or denominated; provided, however, that if any
Option is exercised by tendering Shares, either actually or by attestation, to
the Company as full or partial payment of the Option Price, the maximum number
of Shares available under this Section 4 shall be increased by the number of
Shares so tendered.
(ii) In connection with
the granting of a Performance Unit, the number of Shares available under this
Section 4 for the granting of further Options and Awards initially shall be
reduced by Shares Equivalent number of Performance Units granted, with a
corresponding adjustment if the Performance Unit is ultimately settled in whole
or in part with a different number of Shares.
(iii) In connection with
the granting of a Dividend Equivalent Right, the number of Shares available
under this Section 4 shall not be reduced; provided, however, that if Shares are
issued in settlement of a Dividend Equivalent Right, the number of Shares
available for the granting of further Options and Awards under this Section 4
shall be reduced by the number of Shares
so
issued.
(b) Notwithstanding
Section 4.3(a), in the event that an Award is granted that, pursuant to the
terms of the Agreement, cannot be settled in Shares, the aggregate number of
Shares that may be made the subject of Awards or Options granted under the Plan
shall not be reduced. Whenever any outstanding Option or Award or
portion thereof expires, is canceled, is settled in cash (including the
settlement of tax withholding obligations using Shares) or is otherwise
terminated for any reason without having been exercised or payment having been
made in respect of the entire Option or Award, the number of Shares available
under this Section 4 shall be increased by the number of Shares previously
allocable under Section 4.3(a) to the expired, canceled, settled or otherwise
terminated portion of the Option or Award. In addition, upon
settlement of a Stock Appreciation Right in Shares, the excess of the number of
Shares covered by the Stock Appreciation Right over the number of Shares issued
in settlement of the Stock Appreciation Right may again be the subject of
Options or Awards granted hereunder.
5. Stock
Options.
5.1 Authority
of Administrator. Subject to the provisions of the Plan, the
Administrator shall have full and final authority to select those Eligible
Individuals who will receive Options, and the terms and conditions of the grant
to any such Eligible Individual shall be set forth in an
Agreement. Incentive Stock Options may be granted only to Eligible
Individuals who are employees of the Company or any Subsidiary.
5.2 Exercise
Price. The purchase price or the manner in which the exercise price
is to be determined for Shares under each Option shall be determined by the
Administrator and set forth in the Agreement; provided, however, that the
exercise price per Share under each Option shall not be less than the greater of
(i) the par value of a Share and (ii) 100% of the Fair Market Value of a Share
on the date the Option is granted (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Shareholder); provided, further, however, that Fair
Market Value with respect to Options granted to Covered Employees and Directors
shall be determined in accordance with Section 2.28(a).
5.3 Maximum
Duration. Options granted hereunder shall be for such term as the
Administrator shall determine; provided that an Incentive Stock Option shall not
be exercisable after the expiration of ten (10) years from the date it is
granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Shareholder) and a Nonqualified Stock Option shall not be
exercisable after the expiration of ten (10) years from the date it is granted;
provided, further, however, that unless the Administrator provides otherwise an
Option (other than an Incentive Stock Option) may, upon the death of the
Participant prior to the expiration of the Option, be exercised for up to one
(1) year following the date of the Participant's death even if such period
extends beyond ten (10) years from the date the Option is
granted. The Administrator may, subsequent to the granting of any
Option, extend the term thereof, but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
5.4 Vesting. Subject
to Section 5.9, each Option shall become exercisable in such installments (which
need not be equal) and at such times as may be designated by the Administrator
and set forth in the Agreement. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, at any
time after becoming exercisable, but not later than the date the Option
expires. The Administrator may accelerate the exercisability of any
Option or portion thereof at any time.
5.5 Limitations
on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the date of the grant) of Shares
with respect to which Incentive Stock Options granted under the Plan and
"incentive stock options" (within the meaning of Section 422 of the Code)
granted under all other plans of the Company or its Subsidiaries (in either case
determined without regard to this Section 5.5) are exercisable by a Participant
for the first time during any calendar year exceeds $100,000, such Incentive
Stock Options shall be treated as Nonqualified Stock Options. In
applying the limitation in the preceding sentence in the case of multiple Option
grants, unless otherwise required by applicable law, Options which were intended
to be Incentive Stock Options shall be treated as Nonqualified Stock Options
according to the order in which they were granted such that the most recently
granted Options are first treated as Nonqualified Stock Options.
5.6 Transferability.
(a) Except as otherwise
provided in this Section 5.6, no Option shall be transferable by the Participant
otherwise than by will or by the laws of descent and distribution, and an Option
shall be exercisable during the lifetime of such Participant only by the
Participant or his or her guardian or legal representative. The
Administrator may set forth in the Agreement evidencing an Option (other than an
Incentive Stock Option) at the time of grant or thereafter, that the Option, or
a portion thereof, may be transferred to any third party, including but not
limited to, members of the Participant's immediate family, to trusts solely for
the benefit of such immediate family members and to partnerships in which such
family members and/or trusts are the only partners. In addition, for
purposes of the Plan, unless otherwise determined by the Administrator at the
time of grant or thereafter, a transferee of an Option pursuant to this Section
5.6(a) shall be deemed to be the Participant; provided that the rights of any
such transferee thereafter shall be nontransferable except that such transferee,
where applicable under the terms of the transfer by the Participant, shall have
the right previously held by the Participant to designate a
Beneficiary. For this purpose, immediate family means the
Participant's spouse, parents, children, stepchildren and grandchildren and the
spouses of such parents, children, stepchildren and
grandchildren. The terms of an Option shall be final, binding and
conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Participant. Notwithstanding Section 21.2, or the
terms of any Agreement, the Company or any Subsidiary shall not withhold any
amount attributable to the Participant's tax liability from any payment of cash
or Shares to a transferee or transferee's Beneficiary under this Section 5.6(a),
but may require the payment of an amount equal to the Company's or any
Subsidiary's withholding tax obligation as a condition to exercise or as a
condition to the release of cash or Shares upon exercise or upon transfer of the
option.
(b) The approval of this
Plan by the Company's shareholders shall constitute an amendment of each of the
Prior Plans in a manner such that the provisions of Section 5.6(a) above shall
be incorporated into each of the Prior Plans and any inconsistent provisions in
the Prior Plans shall be deleted. Outstanding option grants under the
Prior Plans shall be interpreted in a manner consistent with the amendment to
the Prior Plans described in the preceding sentence. The election by
a Participant or Beneficiary (including for this purpose a participant or
beneficiary under the Prior Plans) to transfer any such options pursuant to this
Section 5.6(b) shall constitute consent by the Participant or Beneficiary to
such amendment if such consent is required.
5.7 Method
of Exercise. The exercise of an Option shall be made only by giving
written notice delivered in person or by mail to the person designated by the
Company, specifying the number of Shares to be exercised and, to the extent
applicable, accompanied by payment therefor and otherwise in accordance with the
Agreement pursuant to which the Option was granted. The exercise
price for any Shares purchased pursuant to the exercise of an Option shall be
paid in any or any combination of the following forms: (a) cash or
its equivalent (e.g., a check) or (b) the transfer, either actually or by
attestation, to the Company of Shares that have been held by the Participant for
at least six (6) months (or such lesser period as may be permitted by the
Administrator) prior to the exercise of the Option, such transfer to be upon
such terms and conditions as determined by the Administrator or (c) in the form
of other property as determined by the Administrator. In addition,
Options may be exercised through a registered broker-dealer pursuant to such
cashless exercise procedures that are, from time to time, deemed acceptable by
the Administrator. Any Shares transferred to the Company as payment
of the exercise price under an Option shall be valued at their Fair Market Value
on the date of exercise of such Option. If requested by the
Administrator, the Participant shall deliver the Agreement evidencing the Option
to the Company, which shall endorse thereon a notation of such exercise and
return such Agreement to the Participant. No fractional Shares (or
cash in lieu thereof) shall be issued upon exercise of an Option and the number
of Shares that may be purchased upon exercise shall be rounded to the nearest
number of whole Shares.
5.8 Rights
of Participants. No Participant shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (a) the Option
shall have been exercised pursuant to the terms thereof, (b) the Company shall
have issued and delivered Shares (whether or not certificated) to the
Participant, a securities broker acting on behalf of the Participant or such
other nominee of the Participant, and (c) the Participant's name, or the name of
his or her broker or other nominee, shall have been entered as a shareholder of
record on the books of the Company. Thereupon, the Participant shall
have full voting, dividend and other ownership rights with respect to such
Shares, subject to such terms and conditions as may be set forth in the
applicable Agreement.
5.9 Effect
of Change in Control. Unless otherwise provided in an Agreement, (a)
in the event of a Change in Control, all Options outstanding on the date of such
Change in Control shall become immediately and fully exercisable and (b) in the
event that a Participant's (other than a Director's) employment with the Company
and its Subsidiaries terminates within two (2) years following a Change in
Control as a result of a termination by the Company without Cause or by the
Participant for Good Reason, each Option held by the Participant that was
exercisable as of the date of termination of the Participant's employment shall
remain exercisable for a period ending not before the earlier of (a) the first
anniversary of the termination of the Participant's employment or service and
(b) the expiration of the stated term of the Option.
6. Stock
Appreciation Rights.
6.1 Grant. The
Administrator may in its discretion, either alone or in connection with the
grant of an Option, grant Stock Appreciation Rights to Eligible Individuals in
accordance with the Plan, the terms and conditions of which shall be set forth
in an Agreement. A Stock Appreciation Right may be granted (a) at any
time if unrelated to an Option or (b) if related to an Option, either at the
time of grant or at any time thereafter during the term of the
Option.
6.2 Stock
Appreciation Right Related to an Option. If granted in connection
with an Option, a Stock Appreciation Right shall cover the same Shares covered
by the Option (or such lesser number of Shares as the Administrator may
determine) and shall, except as provided in this Section 6, be subject to the
same terms and conditions as the related Option.
a) Exercise;
Transferability. A Stock Appreciation Right granted in connection
with an Option (i) shall be exercisable at such time or times and only to the
extent that the related Option is exercisable, (ii) shall be exercisable only if
the Fair Market Value of a Share on the date of exercise exceeds the exercise
price specified in the Agreement evidencing the related Incentive Stock Option
and (iii) shall not be transferable except to the extent the related Option is
transferable.
(b) Amount
Payable. Upon the exercise of a Stock Appreciation Right related to
an Option, the Participant shall be entitled to receive an amount determined by
multiplying (i) the excess of the Fair Market Value of a Share on the date
preceding the date of exercise of such Stock Appreciation Right over the per
Share exercise price under the related Option, by (ii) the number of Shares as
to which such Stock Appreciation Right is being exercised. Notwithstanding the
foregoing, the Administrator may limit in any manner the amount payable with
respect to any Stock Appreciation Right by including such a limit in the
Agreement evidencing the Stock Appreciation Right at the time it is
granted.
(c) Treatment of Related
Options and Stock Appreciation Rights Upon Exercise. Upon the
exercise of a Stock Appreciation Right granted in connection with an Option, the
Option shall be canceled to the extent of the number of Shares as to which the
Stock Appreciation Right is exercised, and upon the exercise of an Option
granted in connection with a Stock Appreciation Right, the Stock Appreciation
Right shall be canceled to the extent of the number of Shares as to which the
Option is exercised or surrendered.
6.3 Stock
Appreciation Right Unrelated to an Option. A Stock Appreciation Right
unrelated to an Option shall cover such number of Shares as the Administrator
shall determine.
(a) Terms;
Duration. Stock Appreciation Rights unrelated to Options shall
contain such terms and conditions as to exercisability, vesting and duration as
the Administrator shall determine, but in no event shall they have a term of
greater than ten (10) years; provided that unless the Administrator provides
otherwise a Stock Appreciation Right may, upon the death of the Participant
prior to the expiration of the Award, be exercised for up to one (1) year
following the date of the Participant's death even if such period extends beyond
ten (10) years from the date the Stock Appreciation Right is
granted.
(b) Amount
Payable. Upon exercise of a Stock Appreciation Right unrelated to an
Option, the Grantee shall be entitled to receive an amount determined by
multiplying (i) the excess of the Fair Market Value of a Share on the date
immediately preceding the date of exercise of such Stock Appreciation Right over
the Fair Market Value of a Share on the date the Stock Appreciation Right was
granted, by (ii) the number of Shares as to which the Stock Appreciation Right
is being exercised; provided, however, that for purposes of this Section 6.3(b),
in respect of Stock Appreciation Rights granted to Covered Employees and
Directors, Fair Market Value shall be determined in accordance with Section
2.28(a). Notwithstanding the foregoing, the Administrator may limit
in any manner the amount payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock Appreciation Right
at the time it is granted.
(c) Transferability. (i)
Except as otherwise provided in this Section 6.3(c), no Stock Appreciation Right
unrelated to an Option shall be transferable by the Participant otherwise than
by will or the laws of descent and distribution, and a Stock Appreciation Right
shall be exercisable during the lifetime of such Participant only by the
Participant or his or her guardian or legal representative. The
Administrator may set forth in the Agreement evidencing a Stock Appreciation
Right at the time of grant or thereafter, that the Award, or a portion thereof,
may be transferred to any third party, including but not limited to, members of
the Participant's immediate family, to trusts solely for the benefit of such
immediate family members and to partnerships in which such family members and/or
trusts are the only partners. In addition, for purposes of the Plan,
unless otherwise determined by the Administrator at the time of grant or
thereafter, a transferee of a Stock Appreciation Right pursuant to this Section
6.3(c) shall be deemed to be the Participant; provided that the rights of any
such transferee thereafter shall be nontransferable except that such transferee,
where applicable under the terms of the transfer by the Participant, shall have
the right previously held by the Participant to designate a
Beneficiary. For this purpose, immediate family means the
Participant's spouse, parents, children, stepchildren and grandchildren and the
spouses of such parents, children, stepchildren and
grandchildren. The terms of a Stock Appreciation Right shall be
final, binding and conclusive upon the beneficiaries, executors, administrators,
heirs and successors of the Participant. Notwithstanding Section
21.2, or the terms of any Agreement, the Company or any Subsidiary shall not
withhold any amount attributable to the Participant's tax liability from any
payment of cash or Shares to a transferee or transferee's Beneficiary under this
Section 6.3(c), but may require the payment of an amount equal to the Company's
or any Subsidiary's withholding tax obligation as a condition to exercise or as
a condition to the release of cash or Shares upon exercise or upon transfer of
the Stock Appreciation Right.
(ii) The approval of this
Plan by the Company's shareholders shall constitute an amendment of each of the
Prior Plans in a manner such that the provisions of Section 6.3(c)(i) above
shall be incorporated into each of the Prior Plans and any inconsistent
provisions in the Prior Plans shall be deleted. Outstanding stock appreciation
rights under the Prior Plans shall be interpreted in a manner consistent with
the amendment to the Prior Plans described in the preceding
sentence. The election by a Participant or Beneficiary (including for
this purpose a participant or beneficiary under the Prior Plans) to transfer any
such stock appreciation rights pursuant to this Section 6.3(c) shall constitute
consent by the Participant or Beneficiary to such amendment if such consent is
required.
6.4 Method
of Exercise. Stock Appreciation Rights shall be exercised by a
Participant only by giving written notice delivered in person or by mail to the
person designated by the Company, specifying the number of Shares with respect
to which the Stock Appreciation Right is being exercised. If
requested by the Administrator, the Participant shall deliver the Agreement
evidencing the Stock Appreciation Right being exercised and the Agreement
evidencing any related Option to the Company, which shall endorse thereon a
notation of such exercise and return such Agreement to the
Participant.
6.5 Form
of Payment. Payment of the amount determined under Section 6.2(b) or
6.3(b) may be made in the discretion of the Administrator solely in whole Shares
in a number determined at their Fair Market Value on the date preceding the date
of exercise of the Stock Appreciation Right, or solely in cash, or in a
combination of cash and Shares. If the Administrator decides to make
full payment in Shares and the amount payable results in a fractional Share,
payment for the fractional Share will be made in cash.
6.6 Effect
of Change in Control. Unless otherwise provided in an
Agreement, (a) in the event of a Change in Control, all Stock Appreciation
Rights shall become immediately and fully exercisable and (b) in the event a
Participant's (other than a Director's) employment with the Company and its
Subsidiaries terminates as a result of a termination within two (2) years
following a Change in Control by the Company without Cause or by the Participant
for Good Reason, each Stock Appreciation Right held by the Participant that was
exercisable as of the date of termination of the Participant's employment shall
remain exercisable for a period ending not before the earlier of the first
anniversary of (a) the termination of the Participant's employment or service
and (b) the expiration of the stated term of the Stock Appreciation
Right.
7. Dividend
Equivalent Rights.
The Administrator may in its
discretion, grant Dividend Equivalent Rights either in tandem with an Option or
Award or as a separate Award, to Eligible Individuals in accordance with the
Plan. The terms and conditions applicable to each Dividend Equivalent
Right shall be specified in the Agreement under which the Dividend Equivalent
Right is granted. Amounts payable in respect of Dividend Equivalent
Rights may be payable currently or, if applicable, deferred until the lapsing of
restrictions on such Dividend Equivalent Rights or until the vesting, exercise,
payment, settlement or other lapse of restrictions on the Option or Award to
which the Dividend Equivalent Rights relate. In the event that the
amount payable in respect of Dividend Equivalent Rights are to be deferred, the
Administrator shall determine whether such amounts are to be held in cash or
reinvested in Shares or deemed (notionally) to be reinvested in
Shares. If amounts payable in respect of Dividend Equivalent Rights
are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Administrator, in its discretion, may determine.
Dividend Equivalent Rights may be settled in cash or Shares or a combination
thereof, in a single installment or multiple installments, as determined by the
Administrator.
8. Restricted
Stock; Restricted Stock Units.
8.1 Restricted
Stock. The Administrator may grant to Eligible Individuals Awards of
Restricted Stock, which shall be evidenced by an Agreement. Each
Agreement shall contain such restrictions, terms and conditions as the
Administrator may, in its discretion, determine and (without limiting the
generality of the foregoing) such Agreements may require that an appropriate
legend be placed on Share certificates. Awards of Restricted Stock
shall be subject to the terms and provisions set forth below in this Section 8.1
and in Section 8.3.
(a) Rights of
Participant. Shares of Restricted Stock granted pursuant to an Award
hereunder shall be issued in the name of the Participant as soon as reasonably
practicable after the Award is granted provided that the Participant has
executed an Agreement evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Administrator, an escrow agreement and any other
documents which the Administrator may require as a condition to the issuance of
such Shares. At the discretion of the Administrator, Shares issued in
connection with an Award of Restricted Stock shall be deposited together with
the stock powers with an escrow agent (which may be the Company) designated by
the Administrator. Unless the Administrator determines otherwise and
as set forth in the Agreement, upon delivery of the Shares to the escrow agent,
the Participant shall have all of the rights of a shareholder with respect to
such Shares, including the right to vote the Shares and to receive all dividends
or other distributions paid or made with respect to the Shares.
(b) Non-transferability. Until
all restrictions upon the Shares of Restricted Stock awarded to a Participant
shall have lapsed in the manner set forth in Section 8.1(c), such Shares shall
not be sold, transferred or otherwise disposed of and shall not be pledged or
otherwise hypothecated.
(c) Lapse of
Restrictions.
(i) Generally. Subject
to the provisions of Section 8.3, restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and
conditions as the Administrator may determine. The Agreement
evidencing the Award shall set forth any such restrictions.
ii) Effect of Change in
Control. Unless otherwise determined by the Administrator at the time
of grant and set forth in the Agreement evidencing the Award of Restricted
Stock, restrictions on Shares of Restricted Stock shall lapse upon termination
of a Participant's employment with, or service as a Director of, the Company and
its Subsidiaries within two (2) years following a Change in Control if such
termination is by the Company without Cause or by the Participant for Good
Reason. The Administrator may determine at the time of the grant or
thereafter and set forth in the Agreement evidencing the Award of Restricted
Stock that terminations of employment under other circumstances within two (2)
years following a Change in Control will result in the lapse of restrictions on
Shares of Restricted Stock.
(d) Treatment of
Dividends. At the time an Award of Restricted Stock is granted, the
Administrator may, in its discretion, determine that the payment to the
Participant of dividends, or a specified portion thereof, declared or paid on
such Shares by the Company shall be (i) deferred until the lapsing of the
restrictions imposed upon such Shares and (ii) held by the Company for the
account of the Participant until such time. In the event that
dividends are to be deferred, the Administrator shall determine whether such
dividends are to be reinvested in Shares (which shall be held as additional
Shares of Restricted Stock) or held in cash. If deferred dividends
are to be held in cash, there may be credited interest on the amount of the
account at such times and at a rate per annum as the Administrator, in its
discretion, may determine. Payment of deferred dividends in respect
of Shares of Restricted Stock (whether held in cash or as additional Shares of
Restricted Stock), together with interest accrued thereon, if any, shall be made
upon the lapsing of restrictions imposed on the Shares in respect of which the
deferred dividends were paid, and any dividends deferred (together with any
interest accrued thereon) in respect of any Shares of Restricted Stock shall be
forfeited upon the forfeiture of such Shares.
(e) Delivery of
Shares. Upon the lapse of the restrictions on Shares of Restricted
Stock, the Administrator shall cause a stock certificate or evidence of book
entry Shares to be delivered to the Participant with respect to such Shares of
Restricted Stock, free of all restrictions hereunder.
8.2 Restricted
Stock Unit Awards. The Administrator may grant to Eligible
Individuals Awards of Restricted Stock Units, which shall be evidenced by an
Agreement. Each such Agreement shall contain such restrictions, terms
and conditions as the Administrator may, in its discretion,
determine. Awards of Restricted Stock Units shall be subject to the
terms and provisions set forth below in this Section 8.2 and in Section
8.3.
(a) Payment of
Awards. Each Restricted Stock Unit shall represent the right of the
Participant to receive a payment upon vesting of the Restricted Stock Unit or on
any later date specified by the Administrator equal to the Fair Market Value of
a Share as of the date the Restricted Stock Unit was granted, the vesting date
or such other date as determined by the Administrator at the time the Restricted
Stock Unit was granted. The Administrator may, at the time a
Restricted Stock Unit is granted, provide a limitation on the amount payable in
respect of each Restricted Stock Unit. The Administrator may provide
for the settlement of Restricted Stock Units in cash or with Shares having a
Fair Market Value equal to the payment to which the Participant has become
entitled.
(b) Effect of Change in
Control. Unless otherwise determined by the Administrator at the time of grant
and set forth in the Agreement evidencing the Award of Restricted Stock Units,
Restricted Stock Units shall become fully vested upon termination of a
Participant's employment with, or service as a Director of, the Company and its
Subsidiaries within two (2) years following a Change in Control if such
termination is by the Company without Cause or by the Participant for Good
Reason. The Administrator may determine at the time of the grant or
thereafter and set forth in the Agreement evidencing the Award of Restricted
Stock Units that terminations of employment under other circumstances within two
(2) years following a Change in Control will result in the full vesting of
Restricted Stock Units.
8.3 Minimum
Vesting for Restricted Stock and Restricted Stock Unit Award. Except
as otherwise provided in Sections 8.1(c)(ii) and 8.2(b), Awards of Restricted
Stock and Restricted Stock Units shall not vest more rapidly than with respect
to one-third of the Shares subject to such Award on each of the first three
anniversaries of the date such Award is granted, other than with respect to up
to four million (4,000,000) Shares, which may be subject to such shorter vesting
schedules as the Administrator shall determine.
9. Performance
Awards.
9.1 Performance
Units and Performance Shares. The Administrator, in its discretion,
may grant Awards of Performance Units and/or Performance Shares to Eligible
Individuals, the terms and conditions of which shall be set forth in an
Agreement.
(a) Performance
Units. Performance Units shall be denominated in a specified dollar
amount and, contingent upon the attainment of specified Performance Objectives
within the Performance Cycle, represent the right to receive payment as provided
in Sections 9.1(c) and (d) of the specified dollar amount or a percentage (which
may be more than 100%) of the specified dollar amount depending on the level of
Performance Objective attained; provided, however, that the Administrator may at
the time a Performance Unit is granted specify a maximum amount payable in
respect of a vested Performance Unit. Each Agreement shall specify
the number of Performance Units to which it relates, the Performance Objectives
which must be satisfied in order for the Performance Units to vest and the
Performance Cycle within which such Performance Objectives must be
satisfied.
(b) Performance
Shares. Performance Shares shall be denominated in Shares and,
contingent upon the attainment of specified Performance Objectives within the
Performance Cycle, each Performance Share represents the right to receive
payment as provided in Sections 9.1(c) and (d) of the Fair Market Value of a
Share on the date the Performance Share was granted, the date the Performance
Share became vested or any other date specified by the Administrator or a
percentage (which may be more than 100%) of such amount depending on the level
of Performance Objective attained; provided, however, that the Administrator may
at the time a Performance Share is granted specify a maximum amount payable in
respect of a vested Performance Share. Each Agreement shall specify
the number of Performance Shares to which it relates, the Performance Objectives
which must be satisfied in order for the Performance Shares to vest and the
Performance Cycle within which such Performance Objectives must be
satisfied.
(c) Vesting and
Forfeiture. Subject to Sections 9.3(c) and 9.4, a Participant shall
become vested with respect to the Performance Shares and Performance Units to
the extent that the Performance Objectives set forth in the Agreement are
satisfied for the Performance Cycle; provided, however, that, except as may be
provided pursuant to Section 9.4, no Performance Cycle for Performance Shares
and Performance Units shall be less than one (1) year.
(d) Payment of
Awards. Subject to Sections 9.3(c) and 9.4, payment to Participants
in respect of vested Performance Shares and Performance Units shall be made as
soon as practicable after the last day of the Performance Cycle to which such
Award relates or at such other time or times as the Administrator may
determine. Subject to Section 9.4, such payments may be made entirely
in Shares valued at their Fair Market Value, entirely in cash, or in such
combination of Shares and cash as the Administrator in its discretion shall
determine at any time prior to such payment; provided, however, that
if the Administrator in its discretion determines to make such payment entirely
or partially in Shares of Restricted Stock, the Administrator must determine the
extent to which such payment will be in Shares of Restricted Stock and the terms
of such Restricted Stock at the time the Award is granted.
9.2 Performance-Based
Restricted Stock. The Administrator, in its discretion, may grant
Awards of Performance-Based Restricted Stock to Eligible Individuals, the terms
and conditions of which shall be set forth in an Agreement. Each
Agreement may require that an appropriate legend be placed on Share
certificates. Awards of Performance-Based Restricted Stock shall be
subject to the following terms and provisions:
(a) Rights of
Participant. Performance-Based Restricted Stock shall be issued in
the name of the Participant as soon as reasonably practicable after the Award is
granted or at such other time or times as the Administrator may determine;
provided, however, that no Performance-Based Restricted Stock shall be issued
until the Participant has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the Administrator, an
escrow agreement and any other documents which the Administrator may require as
a condition to the issuance of such Performance-Based Restricted
Stock. At the discretion of the Administrator, Shares issued in
connection with an Award of Performance-Based Restricted Stock shall be
deposited together with the stock powers with an escrow agent (which may be the
Company) designated by the Administrator. Except as restricted by the
terms of the Agreement, upon delivery of the Shares to the escrow agent, the
Participant shall have, in the discretion of the Administrator, all of the
rights of a shareholder with respect to such Shares, including the right to vote
the Shares and to receive all dividends or other distributions paid or made with
respect to the Shares. Each Agreement shall specify the number of
Shares of Performance-Based Restricted Stock to which it relates, the
Performance Objectives which must be satisfied in order for the
Performance-Based Restricted Stock to vest and the Performance Cycle within
which such Performance Objectives must be satisfied.
(b) Lapse of
Restrictions. Subject to Sections 9.3(c) and 9.4, restrictions upon
Performance-Based Restricted Stock awarded hereunder shall lapse and such
Performance-Based Restricted Stock shall become vested at such time or times and
on such terms, conditions and satisfaction of Performance Objectives as the
Administrator may, in its discretion, determine at the time an Award is granted;
provided, however, that, except as may be provided pursuant to Section 9.4, no
Performance Cycle for Performance-Based Restricted Stock shall be less than one
(1) year.
(c) Treatment of
Dividends. At the time the Award of Performance-Based Restricted
Stock is granted, the Administrator may, in its discretion, determine that the
payment to the Participant of dividends, or a specified portion thereof,
declared or paid on Shares represented by such Award which have been issued by
the Company to the Participant shall be (i) deferred until the lapsing of the
restrictions imposed upon such Performance-Based Restricted Stock and (ii) held
by the Company for the account of the Participant until such time. In
the event that dividends are to be deferred, the Administrator shall determine
whether such dividends are to be reinvested in Shares (which shall be held as
additional Shares of Performance-Based Restricted Stock) or held in
cash. If deferred dividends are to be held in cash, there may be
credited interest on the amount of the account at such times and at a rate per
annum as the Administrator, in its discretion, may determine. Payment
of deferred dividends in respect of Shares of Performance-Based Restricted Stock
(whether held in cash or in additional Shares of Performance-Based Restricted
Stock), together with interest accrued thereon, if any, shall be made upon the
lapsing of restrictions imposed on the Performance-Based Restricted Stock in
respect of which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Performance-Based
Restricted Stock shall be forfeited upon the forfeiture of such
Performance-Based Restricted Stock.
(d) Delivery of
Shares. Upon the lapse of the restrictions on Shares of
Performance-Based Restricted Stock awarded hereunder, the Administrator shall
cause a stock certificate or evidence of book entry Shares to be delivered to
the Participant with respect to such Shares, free of all restrictions
hereunder.
9.3 Performance
Objectives
(a) Establishment. Performance
Objectives for Performance Awards may be expressed in terms of (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization), (ii) net income, (iii) operating income, (iv)
earnings per Share, (v) book value per Share, (vi) return on shareholders'
equity, (vii) expense management, (viii) return on investment, (ix) improvement
in capital structure, (x) profitability of an identifiable business unit or
product, (xi) maintenance or improvement of profit margins, (xii) stock price,
(xiii) market share, (xiv) revenues or sales, (xv) costs, (xvi) cash flow,
(xvii) working capital, (xviii) return on assets, (xix) total shareholder return
or (xx) any combination of the foregoing. Performance Objectives may
be in respect of the performance of the Company, any of its Subsidiaries, any of
its Divisions or any combination thereof. Performance Objectives may
be absolute or relative (to prior performance of the Company or to the
performance of one or more other entities or external indices) and may be
expressed in terms of a progression within a specified range. The
Performance Objectives with respect to a Performance Cycle shall be established
in writing by the Administrator by the earlier of (i) the date on which a
quarter of the Performance Cycle has elapsed and (ii) the date which is ninety
(90) days after the commencement of the Performance Cycle, and in any event
while the performance relating to the Performance Objectives remain
substantially uncertain.
(b) Effect of Certain
Events. Unless otherwise provided by the Administrator at the time
the Performance Objectives in respect of a Performance Award are established,
performance shall be adjusted to omit the effects of extraordinary items, gain
or loss on the disposal of a business segment (other than provisions for
operating losses or income during the phase-out period), unusual or infrequently
occurring events and transactions that have been publicly disclosed and the
cumulative effects of changes in accounting principles, all as determined in
accordance with generally accepted accounting principles (to the extent
applicable). In addition, at the time of the granting of a
Performance Award, or at any time thereafter, the Administrator may provide for
the manner in which performance will be measured against the Performance
Objectives (or may adjust the Performance Objectives) to reflect the impact of
specified corporate transactions (such as a stock split or stock dividend),
special charges, and tax law changes; provided, that in respect of Performance
Awards to Covered Employees, such provisions shall be permitted only to the
extent permitted under Section 162(m) of the Code and the regulations
promulgated thereunder without adversely affecting the treatment of any
Performance Award as Performance-Based Compensation.
(c) Determination of
Performance. Prior to the vesting, payment, settlement or lapsing of
any restrictions with respect to any Performance Award granted to a Covered
Employee, the Administrator shall certify in writing that the applicable
Performance Objectives have been satisfied to the extent necessary for such
Award to qualify as Performance-Based Compensation. In respect of a
Performance Award, the Administrator may, in its sole discretion, reduce the
amount of cash paid or number of Shares issued that become vested or on which
restrictions lapse. The Administrator shall not be entitled to
exercise any discretion otherwise authorized hereunder with respect to such
Awards if the ability to exercise such discretion or the exercise of such
discretion itself would cause the compensation attributable to such Awards to
fail to qualify as Performance-Based Compensation.
9.4 Effect
of Change in Control. In the event of a Change in Control, unless
otherwise determined by the Administrator and set forth in the Agreement
evidencing the Award:
(a) Participants shall (i)
become vested in a portion of all then outstanding Performance Units and
Performance Shares determined by multiplying (x) the number of such Performance
Units and Performance Shares that would have vested based on the greater of
actual levels of achievement attained against the applicable Performance
Objective (determined as if the Performance Cycle ended on the date of the
Change in Control) and the target levels of achievement established for the
Performance Cycle, by (y) a fraction, the numerator of which is the number of
days that have elapsed during the Performance Cycle through the date of the
Change in Control and the denominator of which is the total number of days in
the Performance Cycle and (ii) be entitled to receive in respect of all
Performance Units and Performance Shares which become vested as a result of a
Change in Control a cash payment within ten (10) days after such Change in
Control.
(b) All restrictions shall
lapse immediately on a portion of all then outstanding Shares of
Performance-Based Restricted Stock determined by multiplying (x) the number of
such Shares on which such restrictions would have lapsed based on the greater of
actual levels of achievement attained against the applicable Performance
Objective (determined as if the Performance Cycle ended on the date of the
Change in Control) and the target levels of achievement established for the
Performance Cycle, by (y) a fraction, the numerator of which is the number of
days that have elapsed during the Performance Cycle through the date of the
Change in Control and the denominator of which is the total number of days in
the Performance Cycle.
9.5 Non-transferability. Until
the vesting of Performance Units and Performance Shares or the lapsing of any
restrictions on Performance-Based Restricted Stock, as the case may be, such
Performance Units, Performance Shares or Performance-Based Restricted Stock
shall not be sold, transferred or otherwise disposed of and shall not be pledged
or otherwise hypothecated.
10. Annual
Incentive Awards.
10.1 Eligibility. The
Compensation Committee shall designate which Officers are eligible for Annual
Incentive Awards under the Plan ("Eligible Officers"). An individual shall not
be ineligible by reason of being a Director. The Compensation
Committee may establish such additional rules for eligibility as it determines
are appropriate. The actual payment of an Annual Incentive Award to
any Eligible Officer shall be subject to the provisions of this Section
10.
10.2 Awards. Eligible
Officers are eligible to receive a cash payment in respect of a fiscal year (an
"Annual Incentive Award") determined as a percentage of an incentive pool, which
pool is equal to the greater of: (a) nine-tenths of one percent (0.9%) of the
Operating Cash Flow for the fiscal year; or (b) one and one-half percent (1.5%)
of the Net Income for the fiscal year (the "Annual Bonus Pool"). The
terms and conditions of Annual Incentive Awards shall be as determined by the
Compensation Committee and set forth in an Award Agreement. Such
terms and conditions shall be consistent with the provisions of this Section 10
and shall be consistent with such awards qualifying as Performance-Based
Compensation.
10.3 Performance
Objectives and Performance-Based Limit. Annual Incentive Awards shall
only be payable under the Plan in respect of a fiscal year if the Company has
positive Operating Cash Flow or Net Income for such year. Within the
first ninety (90) days of each fiscal year, the Compensation Committee shall
determine the percentage of the Annual Bonus Pool that represents the potential
Annual Incentive Award for each Eligible Officer for that fiscal
year. In no event may the Annual Bonus Pool percentage for any
Eligible Officer exceed twenty-five percent (25%) of the Annual Bonus
Pool. The sum of the Annual Bonus Pool percentages for all Eligible
Officers cannot exceed one hundred percent (100%) of the Annual Bonus
Pool.
10.4 Determination
of Performance. Prior to the payment of any Annual Incentive Award to
an Eligible Officer and following receipt of a report from the Company's
independent auditor of the Operating Cash Flow and Net Income for the year, the
Compensation Committee shall certify in writing that the applicable Performance
Objective has been satisfied and the amount of the Annual Bonus Pool, in each
case, to the extent necessary so that all Annual Incentive Awards for Eligible
Officers who are Covered Employees qualify as Performance-Based
Compensation.
10.5 Calculation
of Annual Incentive Awards. As soon as practicable after the
determination of the Annual Bonus Pool for a fiscal year, the Compensation
Committee shall calculate the amount of each Eligible Officer's Annual Incentive
Award based on his or her allocated portion of the Annual Bonus Pool; provided,
however, that the Compensation Committee may, in its discretion, reduce the
amount payable in respect of an Annual Incentive Award for any Eligible
Officer. In no event may the portion of the Annual Bonus Pool
allocated to an Eligible Officer be increased in any way, including as a result
of the reduction of any other Eligible Officer's allocated
portion. No portion of the Annual Bonus Pool which is not paid to
Eligible Officers in respect of a particular year shall be carried over to any
subsequent year.
10.6 Payment
of Annual Incentive Awards. All Annual Incentive Awards shall be paid
by the Company and its Subsidiaries in cash as soon as practicable following
certification by the Compensation Committee pursuant to Section 10.4 and the
calculation pursuant to Section 10.5. Such payment, however, may be
subject to deferral under any plan or program the Administrator may establish
for this purpose, provided that any additional amounts credited under any such
deferral plan or program during the period of deferral shall be determined based
either on a reasonable rate of interest or on a specific investment or deemed
investment including Shares, as may be determined by the Compensation Committee
within the limits of the regulations under Section 162(m) of the
Code.
10.7 Effect
of Certain Events. At the time of the granting of an Annual Incentive
Award, or at any time thereafter, the Compensation Committee may provide for the
manner in which performance will be measured against the Performance Objectives
(or may adjust the Performance Objectives) to reflect the impact of specified
corporate transactions (such as a stock split or stock dividend), special
charges, and tax law changes; provided, however, that such provisions shall be
permitted only to the extent permitted under Section 162(m) of the Code and the
regulations promulgated thereunder without adversely affecting the treatment of
any Annual Incentive Award as Performance-Based Compensation.
10.8 Non-transferability. Annual
Incentive Awards shall not be sold, transferred or otherwise disposed of and
shall not be pledged or otherwise hypothecated.
10.9 No
Right to Award. No person shall have any claim to be paid an Annual
Incentive Award under the Plan and there is no obligation for uniformity of
treatment of Eligible Officers under Section 10 of the Plan. The
selection of Eligible Officers to receive Annual Incentive Awards and the amount
of the Annual Incentive Awards rest completely in the absolute and final
discretion of the Compensation Committee. The Compensation
Committee's discretion is limited only by the Annual Bonus Pool and the limits
provided in Sections 10.3 and 10.5. Neither the existence of the Annual Bonus
Pool, nor any prior practice by the Compensation Committee as to the payment or
amount of Annual Incentive Awards, shall be deemed to create an obligation for
the Compensation Committee to pay any Annual Incentive Award for any year or to
pay an Annual Incentive Award equal to the allocated percentage of the Annual
Bonus Pool or any other amount.
11. Share
Awards.
The Administrator may grant a Share
Award to any Eligible Individual on such terms and conditions as the
Administrator may determine in its sole discretion. Share Awards may
be made as additional compensation for services rendered by the Eligible
Individual or may be in lieu of cash or other compensation to which the Eligible
Individual is entitled from the Company.
12. Awards
to Directors.
12.1 Authority
of Director Committee. Subject to the provisions of the Plan, the
Director Committee shall have the full and final authority to award Options and
Awards to Eligible Directors, and the terms and conditions of any grant to any
such Eligible Director shall be set forth in an Agreement. This
Section 12 sets forth special provisions that, unless otherwise provided in an
Agreement, shall be applicable to Options and Awards granted to Eligible
Directors under the Plan.
12.2 Aggregate
Limit. Options or Awards in respect of no more than two and one-half
million (2,500,000) Shares shall be granted to Eligible Directors under the
Plan.
12.3 Individual
Limit. Grants of Options and Awards to any Eligible Director in any
calendar year shall not be made in respect of more than twenty-five thousand
(25,000) Shares.
12.4 Vesting. Unless
otherwise provided in an Agreement, an Option or Award granted to an Eligible
Director under the Plan shall become exercisable and the restrictions on an
Award granted to an Eligible Director shall lapse, as applicable, on the first
anniversary of the date of grant; provided, however, that in the event that,
prior to the first anniversary of the date of grant, (a) the Director terminates
his service on the Board by reason of (i) death, (ii) Disability, or (iii)
retirement (as determined in accordance with the then applicable retirement
policy for Directors), or (b) a Change in Control shall occur, then an Option or
Award shall become immediately exercisable and the restrictions on an Award
shall immediately lapse, as applicable, upon the occurrence of such
event. Subject to the foregoing, an Option or Stock Appreciation
Right granted to a Director shall be exercisable at any time in whole or in part
(but if in part, in an amount equal to at least 100 Shares or, if less, the
number of Shares remaining to be exercised under the Award or Option) on any
business day of the Company before the date such Option or Award expires in
accordance with Section 12.4.
12.5 Duration. Unless
otherwise provided in an Agreement, an Option or Stock Appreciation Right
granted to an Eligible Director shall expire on the earlier of:
(a) the first date on or
after the date of grant and prior to a Change in Control on which the Director
(i) resigns from or is not re-elected to the Board prior to being eligible for
retirement or (ii) resigns as a result of an interest or affiliation which would
prohibit continued service as a director;
(b) the date the Option or
Stock Appreciation Right has been exercised in full; or
c) one day after the
expiration of the ten-year period which begins on the date of grant of the
Option or Stock Appreciation Right or, in the case of a Director who dies within
one (1) year prior to such day, the last day of the one-year period which begins
on the date of the Director's death.
13. Effect
of a Termination of Employment.
The Agreement evidencing the grant of
each Option and each Award shall set forth the terms and conditions applicable
to such Option or Award upon a termination or change in the status of the
employment of the Participant by the Company, a Subsidiary or a Division
(including a termination or change by reason of the sale of a Subsidiary or a
Division), which, except for Director Options, shall be as the Administrator
may, in its discretion, determine at the time the Option or Award is granted or
thereafter.
14. Adjustment
Upon Changes in Capitalization.
14.1 In
the event of a Change in Capitalization, the Administrator shall conclusively
determine the appropriate adjustments, if any, to (a) the maximum number and
class of Shares or other stock or securities with respect to which Options or
Awards may be granted under the Plan, (b) the maximum number and class of Shares
or other stock or securities that may be issued upon exercise of Incentive Stock
Options, (c) the maximum number and class of Shares or other stock or securities
with respect to which Options or Awards may be granted to any Eligible
Individual in any calendar year, (d) the number and class of Shares or other
stock or securities which are subject to outstanding Options or Awards granted
under the Plan and the exercise price therefore, if applicable and (e) the
Performance Objectives.
14.2 Any
such adjustment in the Shares or other stock or securities (a) subject to
outstanding Incentive Stock Options (including any adjustments in the exercise
price) shall be made in such manner as not to constitute a modification as
defined by Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code or (b) subject to outstanding
Options or Awards that are intended to qualify as Performance-Based Compensation
shall be made in such a manner as not to adversely affect the treatment of the
Options or Awards as Performance-Based Compensation.
14.3 If,
by reason of a Change in Capitalization, a Participant shall be entitled to, or
shall be entitled to exercise an Option with respect to, new, additional or
different shares of stock or securities of the Company or any other corporation,
such new, additional or different shares shall thereupon be subject to all of
the conditions, restrictions and performance criteria which were applicable to
the Shares subject to the Award or Option, as the case may be, prior to such
Change in Capitalization.
15. Effect
of Certain Transactions.
Subject to Sections 5.9, 6.6,
8.1(c)(ii), 8.2(c) and 9.4 or as otherwise provided in an Agreement, following
(a) the liquidation or dissolution of the Company or (b) a merger or
consolidation of the Company (a "Transaction"), either (i) each outstanding
Option or Award shall be treated as provided for in the agreement entered into
in connection with the Transaction or (ii) if not so provided in such agreement,
each Optionee and Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Awards, as the case may be, upon exercise
of any Option or payment or transfer in respect of any Award, the same number
and kind of stock, securities, cash, property or other consideration that each
holder of a Share was entitled to receive in the Transaction in respect of a
Share; provided, however, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to the Options and Awards prior to
such Transaction. Without limiting the generality of the foregoing,
the treatment of outstanding Options and Stock Appreciation Rights pursuant to
clause (i) of this Section 15 in connection with a Transaction in which the
consideration paid or distributed to the Company's stockholders is not entirely
shares of common stock of the acquiring or resulting corporation may include the
cancellation of outstanding Options and Stock Appreciation Rights upon
consummation of the Transaction provided either (x) the holders of affected
Options and Stock Appreciation Rights have been given a period of at least
fifteen (15) days prior to the date of the consummation of the Transaction to
exercise the Options or Stock Appreciation Rights (whether or not they were
otherwise exercisable) or (y) the holders of the affected Options and Stock
Appreciation Rights are paid (in cash or cash equivalents) in respect of each
Share covered by the Option or Stock Appreciation Right being cancelled an
amount equal to the excess, if any, of the per share price paid or distributed
to stockholders in the transaction (the value of any non-cash consideration to
be determined by the Administrator in its sole discretion) over the exercise
price of the Option or Stock Appreciation Right. For avoidance of
doubt, (1) the cancellation of Options and Stock Appreciation Rights pursuant to
clause (y) of the preceding sentence may be effected notwithstanding anything to
the contrary contained in this Plan or any Agreement and (2) if the amount
determined pursuant to clause (y) of the preceding sentence is zero or less, the
affected Option or Stock Appreciation Right may be cancelled without any payment
therefor. The treatment of any Option or Award as provided in this
Section 15 shall be conclusively presumed to be appropriate for purposes of
Section 14.
16. Interpretation.
16.1 Section
16 Compliance. The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Administrator shall interpret and
administer the provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
16.2 Section
162(m). Unless otherwise expressly stated in the relevant Agreement,
each Option, Stock Appreciation Right, Annual Incentive Award and Performance
Award granted to a Covered Employee under the Plan is intended to be
Performance-Based Compensation. Accordingly, unless otherwise
determined by the Administrator, if any provision of the Plan or any Agreement
relating to such an Option or Award does not comply or is inconsistent with
Section 162(m) of the Code or the regulations promulgated thereunder (including
IRS Regulation 1.162-27 unless and to the extent it is superseded by an interim
or final regulation), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements, and no provision shall be
deemed to confer upon the Administrator discretion to increase the amount of
compensation otherwise payable to a Covered Employee in connection with any such
Option or Award upon the attainment of the Performance Objectives.
17. Termination
and Amendment of the Plan or Modification of Options and Awards.
17.1 Plan
Amendment or Termination. The Board may at any time terminate
the Plan and the Board may at any time and from time to time amend, modify or
suspend the Plan; provided, however, that:
(a) no such amendment,
modification, suspension or termination shall impair or adversely alter any
Options or Awards theretofore granted under the Plan, except with the consent of
the Participant, nor shall any amendment, modification, suspension or
termination deprive any Participant of any Shares which he or she may have
acquired through or as a result of the Plan; and
(b) no material amendment
and, to the extent necessary under any applicable law, regulation or exchange
requirement, no other amendment shall be effective unless approved by the
shareholders of the Company in accordance with applicable law, regulation or
exchange requirement.
17.2 Modification
of Options and Awards. No modification of an Option or Award shall
adversely alter or impair any rights or obligations under the Option or Award
without the consent of the Participant.
18. Non-Exclusivity
of the Plan.
The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
19. Limitation
of Liability.
As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
(a) give any person any
right to be granted an Option or Award other than at the sole discretion of the
Administrator;
(b) give any person any
rights whatsoever with respect to Shares except as specifically provided in the
Plan;
(c) limit in any way the
right of the Company or any Subsidiary to terminate the employment of any person
at any time; or
(d) be evidence of any
agreement or understanding, express or implied, that the Company will employ any
person at any particular rate of compensation or for any particular period of
time.
20. Regulations
and Other Approvals; Governing Law.
20.1 Except
as to matters of federal law, the Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Georgia without giving effect to conflicts of laws principles
thereof.
20.2 The
obligation of the Company to sell or deliver Shares with respect to Options and
Awards granted under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Administrator.
20.3 The
Board may make such changes as may be necessary or appropriate to comply with
the rules and regulations of any government authority, or to obtain for Eligible
Individuals granted Incentive Stock Options the tax benefits under the
applicable provisions of the Code and regulations promulgated
thereunder.
20.4 Each
Option and Award is subject to the requirement that, if at any time the
Administrator determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or Award or the
issuance of Shares, no Options or Awards shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions as
acceptable to the Administrator.
20.5 Notwithstanding
anything contained in the Plan or any Agreement to the contrary, in the event
that the disposition of Shares acquired pursuant to the Plan is not covered by a
then current registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by the
Securities Act and Rule 144 or other regulations promulgated
thereunder. The Administrator may require any individual receiving
Shares pursuant to an Option or Award granted under the Plan, as a condition
precedent to receipt of such Shares, to represent and warrant to the Company in
writing that the Shares acquired by such individual are acquired without a view
to any distribution thereof and will not be sold or transferred other than
pursuant to an effective registration thereof under the Securities Act or
pursuant to an exemption applicable under the Securities Act or the rules and
regulations promulgated thereunder. The certificates evidencing any
of such Shares shall be appropriately amended or have an appropriate legend
placed thereon to reflect their status as restricted securities as
aforesaid.
21. Miscellaneous.
21.1 Multiple
Agreements. The terms of each Option or Award may differ from other
Options or Awards granted under the Plan at the same time, or at some other
time. The Administrator may also grant more than one Option or Award
to a given Eligible Individual during the term of the Plan, either in addition
to, or subject to Section 3.4, in substitution for, one or more Options or
Awards previously granted to that Eligible Individual.
21.2 Withholding
of Taxes.
(a) The Company or any
Subsidiary shall withhold from any payment of cash or Shares to a Participant or
other person under the Plan an amount sufficient to cover any withholding taxes
which may become required with respect to such payment or shall take any other
action as it deems necessary to satisfy any income or other tax withholding
requirements as a result of the grant or exercise of any Award under the
Plan. The Company or any Subsidiary shall have the right to require
the payment of any such taxes and require that any person furnish information
deemed necessary by the Company or any Subsidiary to meet any tax reporting
obligation as a condition to exercise or before making any payment pursuant to
an Award or Option. Unless otherwise specified in an Agreement at the
time of grant, a Participant may, in satisfaction of his or her obligation to
pay withholding taxes in connection with the exercise, vesting or other
settlement of an Option or Award, elect to have withheld a portion of the Shares
then issuable to him or her having an aggregate Fair Market Value equal to the
withholding taxes.
(b) If a Participant makes
a disposition, within the meaning of Section 424(c) of the Code and regulations
promulgated thereunder, of any Share or Shares issued to such Participant
pursuant to the exercise of an Incentive Stock Option within the two-year period
commencing on the day after the date of the grant or within the one-year period
commencing on the day after the date of transfer of such Share or Shares to the
Participant pursuant to such exercise, the Participant shall, within ten (10)
days of such disposition, notify the Company thereof, by delivery of written
notice to the Company at its principal executive office.
21.3 Plan
Unfunded. The Plan shall be unfunded. Except for reserving
a sufficient number of authorized Shares to the extent required by law to meet
the requirements of the Plan, the Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
payment of any Award or Option granted under the Plan.
21.4 Beneficiary
Designation. Each Participant may, from time to time, name one or
more individuals (each, a "Beneficiary") to whom any benefit under the Plan is
to be paid in case of the Participant's death before he or she receives any or
all of such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
21.5 Effective
Date/Term. The effective date of the Plan shall be the date on which
the Plan is approved by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting of shareholders duly held in accordance with the applicable laws of the
State of Georgia within twelve (12) months of the adoption of the Plan by the
Board (the "Effective Date"). Upon such approval of the Plan by the
shareholders, no further awards shall be granted under the Prior Plans or under
the BellSouth Corporation Officer Short Term Incentive Award Plan.
The Plan shall terminate on the
Termination Date. No Option or Award shall be granted after the
Termination Date. The applicable terms of the Plan, and any terms and
conditions applicable to Options and Awards granted prior to the Termination
Date shall survive the termination of the Plan and continue to apply to such
Options and Awards.
Exhibit
10-tt
BELLSOUTH
CORPORATION
NON-EMPLOYEE
DIRECTOR
NQSO
TERMS AND
CONDITIONS
1.
General. These Terms and Conditions constitute a part of the BellSouth
Corporation Stock and Incentive Compensation Plan Non-Qualified Stock Option
Agreement (this "Agreement") to which they are attached and apply to the NQSO
granted thereunder.
2.
Date Exercisable. The NQSO shall be exercisable at any time in whole or in part
(but if in part, in an amount equal to at least 100 Shares or, if less, the
number of Shares remaining to be exercised under this Agreement) on any business
day of BellSouth before the date such option expires under Section 3 of this
Agreement and after the earlier of
(a) the
first anniversary of the Grant Date; or
(b) in
the event, prior to the date in (a) above, (1) Optionee terminates service on
the Board by reason of (A) death, (B) Disability (as defined in the Plan), or
(C) retirement (as determined in accordance with the then applicable retirement
policy for Directors), or (2) a Change in Control shall occur, the date of the
occurrence of such event.
3.
Expiration. The NQSO shall expire and Optionee shall have no
further
rights
under this Agreement on the earlier of
(a) the
first date on or after the Grant Date and prior to a Change
in Control on which Optionee (i) resigns from or is not re-elected to
the Board prior to being eligible for retirement under clause (1)(C) of Section
2(b); or (ii) resigns as a result of an interest or affiliation which would
prohibit continued service as a director;
(b) the
date the NQSO has been exercised in full; or
(c) one
day after the expiration of the ten-year period which begins on the Grant Date
or, in the event Optionee dies within one year prior to such day, the last day
of the one-year period which begins on the date of Optionee's
death.
4.
Method of Exercise. The NQSO may be exercised by properly completing and
actually delivering the applicable written notice of exercise form (the "Notice
of Exercise Form") to BellSouth, together with payment in full of the purchase
price for the Shares the Optionee desires to purchase through such
exercise. Subject to Section 6 of this Agreement, and as provided in
the Notice of Exercise Form, payment may be made in the form of cash or Shares,
or a combination of cash and Shares.
5.
Effective Date of Exercise. An exercise under Section 4 shall be effective on
the date a properly completed Notice of Exercise Form, together with payment of
the purchase price, is delivered in person or by mail to, and accepted by, the
executive compensation group at BellSouth headquarters, or as otherwise
specified in the Notice of Exercise Form.
6.
Value of Stock. Any Shares which are tendered to BellSouth as payment and any
Shares which are transferred by BellSouth shall be valued at their Fair Market
Value, which for this purpose, is defined as the average of the high and low
sales prices on the New York Stock Exchange ("NYSE") on the date of exercise or,
if there are no sales on the date of exercise, the average of the high and low
sales prices on the NYSE on the most recent prior day on which a Share was sold
on the NYSE.
7.
Transferability. No rights granted under this Agreement shall be transferable by
Optionee during Optionee's lifetime, and such rights shall be exercisable during
Optionee's lifetime only by Optionee. If Optionee dies before the expiration of
the NQSO as described in Section 3 of this Agreement, any rights under this
Agreement that did not expire prior to Optionee's death and any rights which
arise as a result of Optionee's death shall be exercisable by Optionee's
Beneficiary as determined under the Plan and such Beneficiary shall be treated
as the Optionee under this Agreement upon the death of Optionee.
8.
Stockholder Status. Optionee shall have no rights as a stockholder with respect
to any Shares under this Agreement before the date such Shares have been duly
issued to Optionee, and no adjustment shall be made for dividends of any kind or
description whatsoever or for distributions of other rights of any kind or
description whatsoever respecting such Shares except as expressly set
forth
in the
Plan.
9.
Other Laws. BellSouth shall have the right to refuse to issue or transfer any
Shares under this Agreement if BellSouth, acting in its absolute discretion,
determines that the issuance or transfer of such Shares might violate any
applicable law or regulation or entitle BellSouth to recovery under Section
16(b) of the Securities Exchange Act of 1934, and any payment tendered in such
event to exercise the NQSO shall be promptly refunded to Optionee.
10.
Exercise Restrictions. BellSouth shall have the right to restrict or otherwise
delay the issuance of any Shares purchased or paid under this Agreement until
the requirements of any applicable laws or regulations and any stock exchange
requirements have been in BellSouth's judgment satisfied in
full. Furthermore, any Shares which are issued as a result of
purchases or payments made under this Agreement shall be issued subject to such
restrictions and conditions on any resale and on any other disposition as
BellSouth shall deem necessary or desirable under any applicable laws or
regulations or in light of any stock exchange requirements.
11.
Taxes. BellSouth shall withhold from any payment of cash or Shares under this
Agreement or take such other action as is permissible under the Plan which
BellSouth deems necessary to satisfy any income or other tax withholding
requirements as a result of an exercise under this Agreement. BellSouth shall
have the right to require the payment of any such taxes and require that any
person furnish information deemed necessary by BellSouth to meet any tax
reporting obligation before making any payment pursuant to this
Agreement.
12.
Jurisdiction and Venue. Acceptance of this Agreement shall be deemed to
constitute Optionee's consent to the jurisdiction and venue of the Superior
Court of Fulton County, Georgia and the United States District Court for
the Northern District of Georgia for all purposes in connection with
any suit, action, or other proceeding relating to this Agreement, including the
enforcement of any rights under this Agreement and any process or notice of
motion in connection with such situation or other proceeding may be serviced by
certified or registered mail or personal service within or without the State of
Georgia, provided a reasonable time for appearance is allowed.
13.
Miscellaneous.
(a)
Optionee's rights under this Agreement can be modified, suspended or canceled in
accordance with the terms of the Plan.
(b) This
Agreement shall be subject to the provisions, definitions, terms and conditions
set forth in the Plan, all of which are incorporated by this reference in this
Agreement and, unless defined in this Agreement, any capitalized terms in this
Agreement shall have the same meaning assigned to those terms under the
Plan.
(c) The
Plan and this Agreement shall be governed by the laws of the State of
Georgia.
(d) The
exercise of the NQSO shall not be affected by the exercise or non-exercise of
any other option.
BellSouth
Corporation Stock and Incentive Compensation Plan
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Granted
to Optionee Social Security No.
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Grant
Date
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Number
of Shares
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Option
Price $ Per Share
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Expiration
Date
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Non-Employee
Director
Non-Qualified
Stock Option
A G R E E
M E N T
BellSouth
Corporation ("BellSouth"), a Georgia corporation, pursuant to action of its
Board of Directors ("Board") and in accordance with the BellSouth Corporation
Stock and Incentive Compensation Plan ("Plan"), hereby grants a Non-Qualified
Stock Option ("NQSO") to the Optionee named above to purchase from BellSouth the
above stated number of shares of BellSouth common stock, $1.00 par value
("Shares"), at the option price per share ("Option Price") stated
above. The NQSO is subject to the Terms and Conditions which are a
part of and are attached to this Agreement and to the further terms and
conditions set forth in the Plan. The NQSO is granted effective as of the Grant
Date stated above. It shall expire on the Expiration Date stated above, and
accordingly shall not be exercisable on and after that date, subject to its
earlier expiration under Section 3 of the attached Terms and
Conditions.
BellSouth
Corporation
By:
___________________________
Authorized
Officer
Exhibit
10-aaa
BELLSOUTH
SUPPLEMENTAL LIFE INSURANCE PLAN
Amended
and Restated Effective November 1, 2009
The
purpose of the BellSouth Supplemental Life Insurance Plan (the "Plan") is to
provide an insurance arrangement under which BellSouth Corporation and its
subsidiaries and affiliates can assist key employees in acquiring and financing
life insurance coverage.
During
the period from January 1, 2005 through December 31, 2008, the Plan has been
operated in good faith compliance with the provisions of Code Section 409A,
Internal Revenue Service Notice 2005-1, the proposed Treasury Regulations for
Code Section 409A, the Final Treasury Regulations for Code Section 409A,
applicable Internal Revenue Services Notices and Announcements and any other
generally applicable guidance published in the Internal Revenue Service
Bulletin.
For
purposes of this Plan, the following terms have the meanings set forth
below:
2.01
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"
Coverage Amount
" means
the Policy death benefit payable under the Participant's
Policy.
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2.02
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"
Coverage Level
" means
the Single Life Coverage insurance death benefit the Employee is eligible
for under the Plan, determined based on the Employee's job classification,
in accordance with the schedule of Coverage Levels maintained by the Plan
Administrator. Provided ,however, that to determine the amount of
insurance (death benefit for which an Employee is eligible, the applicable
amount from the schedule of Coverage Levels shall be reduced by one
hundred percent (100%) of the amount of any Single Life Coverage insurance
death benefit and by fifty percent (50%) of the amount of any Survivorship
Coverage insurance death benefit provided to the Employee under the
BellSouth Split-Dollar Life Insurance Plan, the BellSouth Corporation
Executive Life Insurance Plan, or the BellSouth Corporation Senior Manager
Life Insurance Plan.
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2.03
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"
Disability
" means that
the Participant is receiving disability benefits under any long-term
disability plan sponsored by the Employer or an affiliated
entity.
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2.04 "
Effective Date
" means the
effective date of the Plan, which is January 1, 1998.
2.05
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"
Employee
" means an
employee or former employee of the Employer who is eligible to participate
in the Plan.
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2.06
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"
Employer
" means
BellSouth Corporation and any subsidiary or affiliate of BellSouth
Corporation which is authorized by the Plan Administrator to participate
in this Plan.
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2.07
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"
Employer Premium
" means,
with respect to a Participant's Policy, the Total Policy Premium payable
for the year, less the portion of the premium to be paid by the
Participant pursuant to Section 5.01 of the
Plan.
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2.08
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"
Enrollment Age
" means
the Participant's age at the time of enrollment in the Plan as to the
Participant's initial Coverage Amount under the Plan, and it means the
Participant's age at a subsequent enrollment for an increased Coverage
Amount as to the increased Coverage
Amount.
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2.09
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"
Insurance Cost
" means,
with respect to a Participant, the annual cost for the Participant's
Coverage Amount determined pursuant to the Insurance Cost schedule
maintained by the Plan Administrator. The Insurance Cost for a Participant
shall be determined at the time of the Participant's enrollment in the
Plan, based on the Participant's Coverage Amount and Enrollment Age, and
shall not change thereafter. A smoker rate shall be used to determine the
Insurance Cost for any Participant who is deemed a smoker by the Insurer;
a nonsmoker rate shall be used for all other Participants. A change in the
Insurance Cost schedule will be effective only as to Plan enrollments
occurring after the effective date of the change; it shall not affect the
Insurance Cost for a Participant with respect to any Coverage Amount in
effect for the Participant prior to the effective date of the change. If a
Participant's coverage is in effect for a period of less than twelve (12)
months during any Policy Year, the Participant's Insurance Cost for that
year shall be determined by multiplying the annual cost as determined from
the Insurance Cost schedule by a fraction, the numerator of which is the
number of full months that the coverage is in effect and the denominator
of which is twelve (12).
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2.10
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"
Insurer
" means, with
respect to a Participant's Policy, the insurance company issuing the
insurance policy on the Participant's life (or on the joint lives of the
Participant and the Participant's spouse, in the case of a Survivorship
Policy) pursuant to the provisions of the
Plan.
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2.11 "
Participant
" means an Employee
who is participating in the Plan.
2.12
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"
Participant Premium
"
means, with respect to each Policy Year (or portion thereof) for a
Participant, the Participant's Insurance
Cost.
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2.13
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"
Permanent Policy
" means
a Participant's Policy having cash values which are projected to be
sufficient to continue to provide death benefit coverage at least equal to
the Participant's Coverage Amount until the policy maturity date specified
in the Participant's Policy (determined without regard to any Policy rider
which extends the maturity date beyond the originally scheduled policy
maturity date), and which is projected to have a cash accumulation value
equal to at least ninety-five percent (95%) of the Policy Coverage Amount
at the maturity date specified in such Policy, with no further premium
payments. The determination of whether a Policy is at a given time a
Permanent Policy shall be made by the Plan Administrator, based on Policy
projections provided by the Insurer or its agent utilizing the Policy's
then current mortality rates and Policy expenses, and the following Policy
interest crediting rates. For the Policy Year in which the determination
is made and for all prior Policy years, if any, the Policy projection
shall be based on the actual interest crediting rates in effect for the
Policy (or, if such rate is not known when the determination is made, the
actual rate in effect for the preceding Policy Year). For each of the ten
(10) succeeding Policy Years, the projections shall reflect that rate
decreased ratably such that the rate for the tenth Policy Year following
the Policy Year in which the determination is made shall be five percent
(5%). For all successive Policy Years, the projection shall reflect a five
percent (5%) Policy interest crediting rate. Notwithstanding the
foregoing, if the interest crediting rate in effect for the Policy Year in
which the determination is made is less than five percent (5%), the
projections shall reflect such lower rate for all Policy Years
thereafter.
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2.14 "
Plan
" means the BellSouth
Supplemental Life Insurance Plan, embodied herein.
2.15
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"
Plan Administrator
"
means the Chief Executive Officer of BellSouth Corporation and any
individual or committee he designates to act on his behalf with respect to
any or all of his responsibilities hereunder; provided, the Board of
Directors of BellSouth Corporation may designate any other person or
committee to serve in lieu of the Chief Executive Officer as the Plan
Administrator with respect to any or all of the administrative
responsibilities hereunder.
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2.16
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"
Policy
" means the life
insurance coverage acquired on the life of the Participant (or on the
joint lives of the Participant and the Participant's spouse, in the case
of a Survivorship Policy) by the Participant or other Policy Owner issued
pursuant to the terms of this Plan. The Plan Administrator shall determine
the specific policies which may be acquired under the Plan, and shall
maintain a list of approved
policies.
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2.17
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"
Policy Owner
" means the
Participant or that person or entity to whom the Participant has assigned
his interest in the Policy.
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2.18
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"
Policy Year
" means the
twelve month period (and each successive twelve month period) beginning on
the issue date of the Policy.
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2.19
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"
Premium Payment Years
"
means, with respect to a Participant's Policy, the number of consecutive
Policy Years, beginning with the first Policy Year, and continuing for the
longer of: (1) all Policy Years ending at the end of the Policy Year
during which the Participant attains age sixty-two (62) (or, if the
Participant dies before such time, the end of the Policy Year during which
the Participant would have attained such age); or (2) five (5) Policy
Years. Notwithstanding the foregoing, if prior to the end of such period
the Policy qualifies as a Permanent Policy, the Premium Payment Years
shall end at such earlier time.
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2.20
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"
Retirement
" means a
termination of the Participant's employment with the Employer under
circumstances where the Participant is immediately eligible to receive
pension benefits under the Supplemental Executive Retirement Plan (SERP)
maintained by the Employer or one of its
subsidiaries.
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2.21
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"
Single Life Coverage
"
means life insurance coverage on the life of the
Participant.
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2.22
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“
Specified Employee
”
shall mean, for periods on or after December 29, 2006, any Participant who
is a “Key Employee” (as defined in Code Section 416(i) without regard to
paragraph (5) thereof), as determined by AT&T in accordance with its
uniform policy with respect to all arrangements subject to Code Section
409A, based upon the 12-month period ending on each December 31
st
(such 12-month period is referred to below as the “identification
period”). All Participants who are determined to be Key
Employees under Code Section 416(i) (without regard to paragraph (5)
thereof) during the identification period shall be treated as Key
Employees for purposes of the Plan during the 12-month period that begins
on the first day of the 4
th
month following the close of such identification period. For
periods prior to December 29, 2006, the term Specified Employee shall mean
a “specified employee” under Code Section
409A.
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2.23
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"
Survivorship Coverage
"
means life insurance coverage on the lives of the Participant and the
Participant's spouse, with the life insurance death benefit to be payable
at the death of the last survivor of the Participant and the Participant's
spouse.
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2.24
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"
TotaI Policy Premium
"
means the level annual premium amount for the Participant's Single Life
Coverage Policy that is projected to result in the Policy qualifying as a
Permanent Policy if the annual premium amount is paid each year for all
scheduled Premium Payment Years, assuming the Participant qualifies for
the Insurer's guaranteed issue nonsmoker rates, or if the Participant is
deemed by the Insurer to be a smoker, the Insurer's guaranteed issue
smoker rates. The determination as to the amount of the Total Policy
Premium shall be based on Single Life Coverage even if the Participant
elects Survivorship Coverage. If more than one type of Single Life
Coverage Policy is available under the Plan, the Plan Administrator shall
determine the Single Life Coverage Policy to be used to determine the
Total Policy Premium. The Total Policy Premium for a Participant shall be
determined when the Participant enrolls for coverage under the Plan, and
shall not be changed thereafter; it shall be based on the Participant's
Coverage Level, or, if less, the actual Coverage Amount elected by the
Participant.
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3. ELIGIBILITY
3.01
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General
. Each
Employee who is designated by the Plan Administrator as a member of the
Employer's "executive compensation group” or as a "senior manager" shall
be eligible to participate in the Plan, provided that the Employee (and
any other appropriate party, such as the Employee's spouse or a Policy
Owner other than the Employee as determined by the Plan Administrator)
relinquishes any rights to or interests in any policies providing interim
coverage during the rehabilitation of Confederation Life Insurance Company
under the BellSouth Corporation Executive Life Insurance Plan or the
BellSouth Corporation Senior Manager Life Insurance Plan and completes
such other forms as the Plan Administrator may require. Each such Employee
on the Effective Date shall be eligible to participate in the Plan as of
the Effective Date. Each Employee subsequently satisfying such eligibility
requirements shall be eligible to participate in the Plan effective as of
the first day of the calendar quarter (i.e., January 1, April 1, July 1,
and October 1) following the date on which such standards are
satisfied.
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3.02
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Type of
Coverage
. If an Employee is married at the time the
Employee enrolls in the Plan, the Employee can elect to participate in
either Single Life Coverage or Survivorship Coverage. An Employee who is
unmarried at the time the Employee enrolls in the Plan shall be eligible
for Single Life Coverage only. The election of one type of coverage shall
not preclude the Participant from electing the other type of coverage as
to any increased Coverage Level the Participant becomes eligible for
pursuant to Section 4.02 of the
Plan.
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3.03
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Conversion of
Coverage
. Subject to any proof of insurability required
by the Insurer, a Participant (or other Policy Owner) can elect to convert
Survivorship Coverage to Single Life Coverage, and with respect to a
married Participant, the Participant (or other Policy Owner) can elect to
convert Single Life Coverage to Survivorship Coverage. Provided, however,
that the number of Premium Payment Years for a Participant shall not be
redetermined in connection with a conversion from one type of coverage to
another. Upon a conversion, the cash values of the replaced Policy shall
be transferred to the new Policy in accordance with the Insurer's
practices. Any Insurer charges or tax liability resulting from a
conversion shall be borne by the Participant or other Policy
Owner.
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4. AMOUNT
OF COVERAGE
4.01
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General
. An
Employee who is eligible to participate in the Plan under Section 3.01 of
the Plan shall be eligible for the full Coverage Level as specified in the
Plan under Section 2.02. However, within sixty (60) days of becoming
eligible to participate, a Participant can elect a Coverage Amount which
is less than the applicable Coverage Level; provided, however, that the
Coverage Amount elected must be an even multiple of $100,000. If a
Participant elects a Coverage Amount less than the Participant's Coverage
Level (or fails to elect any Coverage), the Participant cannot later
increase the Coverage Amount except in connection with a promotion under
Section 4.02 of the Plan.
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4.02
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Promotions
. Employees
promoted to a job classification or position eligible for an increased
Coverage Level shall be eligible for the increased Coverage Level
effective as of the first day of the calendar quarter (i.e., January 1,
April 1, July 1, and October 1) following the promotion. The additional
Coverage Amount available to the Participant under this Section shall be
equal to the applicable Coverage Level after the promotion reduced by any
Coverage Amounts already in effect for a Participant. In order to be
effective, any election for an increase in the Coverage Amount must be
made within the time period prescribed by the Plan Administrator in
enrollment materials provided to the
Employee.
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4.03
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Survivorship
Coverage
. If a Participant elects Survivorship Coverage,
the amount of Survivorship Coverage will be determined by the Plan
Administrator based on the Participant's age and smoker or nonsmoker
status, the age and insurability of the Participant's spouse, and based on
the Participant's Total Policy Premium. The Coverage Amount shall be the
highest amount such that the Policy will qualify as a Permanent Policy if
the Total Policy Premium is paid for each year that is a scheduled Premium
Payment Year.
|
5. PAYMENT
OF PREMIUMS
5.01
|
Participant Premium
Payments
. A Participant shall pay the Participant
Premium for each Policy Year which is a Premium Payment Year for the
Participant. The amount shall be paid by the Participant to the Employer
by payroll (or retirement income) deductions of equal installments during
the Policy Year, or in such other manner as may be determined by the Plan
Administrator. The Employer shall pay the Participant Premium amount to
the Insurer, and can do so as collected from the Participant or can
advance payments to the Insurer for a Policy Year at any time during the
Policy Year or up to thirty (30) days in advance of the Policy Year. If a
Participant terminates employment with the Employer, and the Employer has
made such an advance payment of the Participant Premium to the Insurer,
the Employer may withhold any uncollected portion of the advanced
Participant Premium from any amount payable to the Participant by the
Employer to the extent permitted by law. Notwithstanding the other
provisions of this paragraph, no Participant Premium shall be required
with respect to Survivorship Coverage after the death of the
Participant.
|
5.02
|
Employer Premium
Payments
. The Employer shall pay the Employer Premium
for a Participant's Policy within thirty (30) days of the beginning of
each Policy Year which is a Premium Payment
Year.
|
Notwithstanding
any other Plan provision to the contrary, if a Participant (who was not earned
and vested in all deferred compensation under the plan as of December 31, 2004
and thus was not grandfathered from the requirements of Code Section 409A)
incurs a “separation from service” (within the meaning of Code Section 409A) on
or after January 1, 2005, and at the time of such separation from service, the
Participant is a Specified Employee who is eligible to continue participation
due to his Retirement or Disability, then payment of any Employer Premium shall
be delayed until the date that is six months after the Participant’s separation
from service.
5.03
|
Additional Employer Premium
Payments
. For each of the last three (3) scheduled
Premium Payment Years for a Participant, the Plan Administrator shall
determine whether there will be any increased Employer premium payment
with respect to a Participant's Policy. The Plan Administrator shall first
determine whether the Participant's Policy is then projected to qualify as
a Permanent Policy if the Total Policy Premium is paid each year for the
remaining scheduled Premium Payment Years. If the Policy is projected to
qualify as a Permanent Policy, no increased Employer Premium payment shall
be required for such Premium Payment Year. If the projections indicate
that the Policy will not qualify as a Permanent Policy, then the amount
payable by the Employer under Section 5.02 shall be increased by an amount
which will result in the Policy qualifying as a Permanent Policy if such
increased amount is paid for each remaining Premium Payment Year, but any
such increase in Employer Premium shall be limited by the maximum premium
amounts permissible for such Policy under Internal Revenue Code Sections
7702 and 7702A (or comparable successor sections) without forfeiting any
of the favorable tax attributes associated with life insurance policies.
The determination as to whether any increased amount is payable shall be
made separately for each of the last three (3) Premium Payment Years.
However, the Employer Premium payable under Section 5.02 shall not be
reduced to an amount that is less than the amount which would have been
payable by the Employer for a Premium Payment Year without regard to this
Section 5.03. Regardless of the type of coverage actually provided to a
Participant, and notwithstanding any changes in the type of coverage
provided to the Participant under Section 3.03, the increased Employer
Premium payable under this Section 5.03 shall be the amount that would be
payable if the Participant had elected Single Life Coverage and maintained
such coverage for all Policy Years; also, if more than one type of Single
Life Coverage Policy is available under the Plan, the Single Life Coverage
Policy used to determine Total Policy Premium under Section 2.24 shall be
used to make the determination under this Section 5.03. In the event tax
law limits preclude the Employer from qualifying a Policy as a Permanent
Policy by the end of the last scheduled Premium Payment Year, then the
Employer's obligation to pay premiums under Section 5.02 and 5.03 (and
make additional Employer payments under Section 5.04) shall be extended
until projections indicate that the Policy qualifies as a Permanent
Policy.
|
5.04
Additional Employer
Payments
.
a. If
the payment of an Employer Premium under Section 5.02 (or any increased amount
under Section 5.03) results in the recognition of income for tax purposes by the
Participant in any year, the Employer shall pay to the Participant an amount
determined by the Plan Administrator which is designed to approximate (1) the
sum of the total federal and state income taxes and applicable payroll taxes
which would be payable by the Participant at the highest marginal rate provided
for under applicable federal income tax laws, and at the highest marginal rate
provided for under applicable state income tax laws for the state of the
Participant's tax domicile, on the income so recognized, plus (2) the total
federal and state income taxes and applicable payroll taxes which would be
payable by the Participant on the payment described in clause (1).
b.
If the
payment of any Employer Premium under Section 5.02 (or any increased amount
under Section 5.03) on Survivorship Coverage after the death of the Employee
results in the recognition of income for tax purposes by the Participant's
spouse or other Policy Owner, the Employer shall pay to the Participant's spouse
or other Policy Owner an amount determined by the Plan Administrator which is
designed to approximate the total federal and state income taxes which would be
payable by the Participant's spouse or other Policy Owner at the highest
marginal rate provided for under applicable federal income tax laws, and at the
highest marginal rate provided for under applicable state income tax laws for
the state of the tax domicile of the Participant's spouse or other Policy Owner,
attributable to such premium payment.
c.
For
purposes of this Section 5.04, a tax shall be deemed payable or income shall be
deemed recognized if either (i) it is finally determined by the Internal Revenue
Service, or (ii) an opinion is given by the Employer's counsel, that the tax is
payable.
d. Any
payment made to a Participant or a Participant's spouse under this Section shall
be made no later than April 1 of the year following the year to which the
payment relates.
e. Any
amount to be paid to a Participant, a Participant's spouse, or other Policy
Owner under this Section, and the amounts payable, shall be conclusively
determined by the Plan Administrator based on generally applicable tax rates and
not based upon the unique tax situation of each Participant, Participant's
spouse, or other Policy Owner.
f. Notwithstanding
any other provisions of Section 5.04, effective November 1, 2009, any
Participant who AT&T Inc. has determined in its sole discretion to be an
executive officer of AT&T Inc. under Rule 3b-7 of the Securities Exchange
Act of 1934 shall not be eligible to receive Additional Employer Payments
described in Sections 5.04(a) or 5.04(b) (i.e., in general, no tax gross-up
benefits).
5.05
Termination of Obligation to Pay
Premiums
. Notwithstanding anything herein to the contrary, the
Employer's obligation to pay premiums (including any increased amounts under
Section 5.03) with respect to the Participant's Policy, shall terminate upon the
first to occur of any of the following events:
|
a.
|
Termination
of employment of the Participant with the Employer prior to the
Participant's death for reasons other than Retirement or
Disability.
|
|
b.
|
The
written notice by the Employer to the Participant following a resolution
by the Board of Directors of BellSouth Corporation to terminate this
Plan.
|
|
c.
|
As
to Single Life Coverage only, the death of the
Participant.
|
d.
|
As
to Survivorship Coverage only, the death of the last survivor of the
Participant and the Participant's
spouse.
|
e.
|
The
surrender or cancellation of the Participant's Policy, except that a
Policy will not be considered surrendered or canceled if the surrender or
cancellation is in connection with the replacement of the Policy with
another Policy pursuant to the provisions of the
Plan.
|
|
f.
|
The
withdrawal of any Policy cash values, or borrowing against the Policy cash
values, by the Participant or other Policy
Owner.
|
|
g.
|
The
reduction of the Participant's Policy death benefit to a level that is
less than the initial Policy Coverage Amount, except that a conversion
from Survivorship Coverage to Single Life Coverage shall not be considered
a reduction in Policy death benefit for the purpose of this
Section.
|
|
h.
|
The
determination by the Plan Administrator that the Policy will qualify as a
Permanent Policy with no further Employer Premium
payments.
|
6. POLICY
OWNERSHIP
6.01
|
Ownership
. The
Policy Owner shall be the sole and exclusive owner of a Participant's
Policy and shall be entitled to exercise all of the rights of
ownership.
|
6.02
|
Possession of
Policy
. The Policy Owner shall keep possession of the
Policy.
|
7. GOVERNING
LAWS & NOTICES
7.01
|
Governing
Law
. This Plan shall be governed by and construed in
accordance with the laws of the State of
Georgia.
|
7.02
|
Notices
. All
notices hereunder shall be in writing and sent by first class mail with
postage prepaid. Any notice to the Employer shall be addressed to
BellSouth Corporation at its office at 1155 Peachtree Street, N.E.
,Atlanta. GA 30367-6000, ATIENTION: Human Resources – Director Executive
Benefits. Any notice to the Employee shall be addressed to the Employee at
the address for the Employee maintained in the Employer's records. Any
party may change the address for such party herein set forth by giving
notice of such change to the other parties pursuant to this
Section.
|
8. NOT
A CONTRACT OF EMPLOYMENT
This Plan
shall not be deemed to constitute a contract of employment between an Employee
and the Employer or a Participant and the Employer, nor shall any provision
restrict the right of the Employer to discharge an Employee or Participant, or
restrict the right of an Employee or Participant to terminate
employment.
9. AMENDMENT,
TERMINATION, ADMINISTRATION, CONSTRUCTION
AND
SUCCESSORS
9.01
|
Amendment
. The
Board of Directors of BellSouth Corporation, or its delegate, shall have
the right in its sole discretion, to amend the Plan in whole or in part at
any time and from time to time. In addition, the Plan Administrator shall
have the right, in its sole discretion, to amend the Plan at any time and
from time to time so long as such amendment is not of a material nature.
Notwithstanding the foregoing, no modification or amendment shall be
effective so as to decrease any benefits of a Participant unless the
Participant consents in writing to such modification or amendment. Written
notice of any material modification or amendment shall be given promptly
to each Participant.
|
9.02
|
Termination
. The
Board of Directors of BellSouth Corporation may terminate the Plan without
the consent of the Participants or
Employees.
|
The Plan
shall be terminated effective December 31, 2008 for employees who are actively
employed by the Company on December 31, 2008. The Plan shall continue with its
current terms for Participants who are former employees as of December 31,
2008.
9.03
|
Successors
. The
terms and conditions of this Plan shall enure to the benefit of and bind
the Employer, the Participant, their successors, assignees, and
representatives. If, subsequent to the Effective Date of the Plan,
substantially all of the stock or assets of the Employer are acquired by
another corporation or entity or if the Employer is merged into, or
consolidated with, another corporation or entity, then the obligations
created hereunder shall be obligations of the acquirer or successor
corporation or entity.
|
10. PLAN
ADMINISTRATION
10.01
|
Individual
Administrator
. If the Plan Administrator is an
individual, he shall act and record his actions in writing. Any matter
concerning specifically such individual's own benefit or rights hereunder
shall be determined by the Board of Directors of BellSouth Corporation or
its delegate.
|
10.02
|
Administrative
Committee
. If the Plan Administrator is a committee, or
if any of the duties or responsibilities of the Plan Administrator are
vested in a committee, action of the Plan Administrator may be taken with
or without a meeting of committee members; provided, action shall be taken
only upon the vote or other affirmative expression of a majority of the
committee members qualified to vote with respect to such action. If a
member of the committee is a Participant, he or she shall not participate
in any decision which solely affects his or her own benefit under the
Plan. For purposes of administering the Plan, the Plan
Administrator shall choose a secretary who shall keep minutes of the
committee's proceedings and all records and documents pertaining to the
administration of the Plan. The secretary may execute any certificate or
other written direction on behalf of the Plan
Administrator.
|
10.03
|
Rights and Duties of the Plan
Administrator
. The Plan Administrator shall administer
the Plan and shall have all powers necessary to accomplish that purpose,
including (but not limited to) the
following:
|
a. to
construe, interpret and administer the Plan;
|
b.
|
to
make determinations required by the Plan, and to maintain records
regarding Participants' benefits
hereunder;
|
|
c.
|
to
compute and certify the amount and kinds of benefits payable to
Participants, and to determine the time and manner in which such benefits
are to be paid;
|
d.
to authorize all disbursements pursuant to the Plan;
e.
to maintain all the necessary records of the administration of the
Plan;
|
f.
|
to
make and publish such rules and procedures for the regulation of the Plan
as are not inconsistent with the terms
hereof;
|
|
g.
|
to
designate to other individuals or entities from time to time the
performance of any of its duties or responsibilities hereunder;
and
|
|
h.
|
to
hire agents, accountants, actuaries, consultants and legal counsel to
assist in operating and administering the
Plan.
|
The Plan
Administrator shall have the exclusive right to construe and interpret the Plan,
to decide all questions of eligibility for benefits and to determine the amount
of benefits, and its decisions on such matters shall be final and conclusive on
all parties.
10.04
|
Bond;
Compensation
. The Plan Administrator and (if applicable)
its members shall serve as such without bond and without compensation for
services hereunder.
|
11. CLAIMS
PROCEDURE
11.01
|
Named
Fiduciary
. The Plan Administrator is hereby designated
as the named fiduciary under this
Plan.
|
11
.02
|
Claims
Procedures
. Any controversy or claim arising out of or
relating to this Plan shall be filed with the Plan Administrator which
shall make all determinations concerning such claim. Any decision by the
Plan Administrator denying such claim shall be in writing and shall be
delivered to all parties in interest in accordance with the notice
provisions of Section 7.02 hereof. Such decision shall set forth the
reasons for denial in plain language. Pertinent provisions of the Plan
shall be cited and, where appropriate, an explanation as to how the
Employee can perfect the claim will be provided. This notice of denial of
benefits will be provided within 90 days of the Plan Administrator's
receipt of the Employee's claim for benefits. If the Plan Administrator
fails to notify the Employee of its decision regarding the claim, the
claim shall be considered denied, and the Employee shall then be permitted
to proceed with the appeal as provided in this
Section.
|
An
Employee who has been completely or partially denied a benefit shall be entitled
to appeal this denial of his/her claim by filing a written statement of his/her
position with the Plan Administrator no later than sixty (60) days after receipt
of the written notification of such claim denial. The Plan Administrator shall
schedule an opportunity for a full and fair review of the issue within thirty
(30) days of receipt of the appeal. The decision on review shall set forth
specific reasons for the decision, and shall cite specific references to the
pertinent Plan provisions on which the decision is based.
Following
the review of any additional information submitted by the Employee, either
through the hearing process or otherwise, the Plan Administrator shall render a
decision on the review of the denied claim in the following manner:
a.
|
The
Plan Administrator shall make its decision regarding the merits of the
denied claim within sixty (60) days following receipt of the request for
review (or within 120 days after such receipt, in a case where there are
special circumstances requiring extension of time for reviewing the
appealed claim). The Plan Administrator shall deliver the decision to the
claimant in writing. If an extension of time for reviewing the appealed
claim is required because of special circumstances, written notice of the
extension shall be furnished to the Employee prior to the commencement of
the extension. If the decision on review is not furnished within the
prescribed time, the claim shall be deemed denied on
review.
|
b.
|
The
decision on review shall set forth specific reasons for the decision, and
shall cite specific references to the pertinent Plan provisions on which
the decision is based.
|
Exhibit
10-jjj
FORM
OF
NON-DISCLOSURE
AND NON-SOLICITATION AGREEMENT
This
Agreement is effective as of ________________, 200__, between AT&T Inc., a
Delaware corporation, (collectively with its direct and indirect subsidiaries
and affiliates referred to herein as the “
Company
”) and
[Name of Executive]
(“
Executive
”). Executive
is employed by
[Name of
Executive’s Employer]
, which is a direct or indirect affiliate or
subsidiary of AT&T Inc.
In
consideration of Executive’s (i) original or continued employment with the
Company, (ii) current and continued specialized training in the Company’s
business, (iii) current and continued access to the Company’s proprietary and
confidential information during Executive’s employment, (iv) the compensation
that will be paid to Executive during Executive’s employment, (v) the award of
____________________ shares of AT&T Inc. Restricted Stock, and (vi) future
eligibility to participate in the Company’s executive compensation and benefit
plans that include loyalty-related covenants effective January 1, 2010, the
Company and Executive agree to the terms set forth below. The
Restricted Stock will be granted under the 2006 Incentive Plan effective with
the execution of this agreement and will have a vesting date of November 19,
2012.
1.
ACKNOWLEDGMENTS
1.1
The
Company and the Executive acknowledge and agree as follows:
(a)
The
Executive has performed and will continue to perform significant functions with
respect to the development of the Company’s “Confidential Information” (defined
below), which Confidential Information is shared only with a very limited number
of Company executives who have an absolute need to know the
information.
(b)
Executive
has a need to know such Confidential Information for purposes of successfully
performing the Executive’s assigned employment related
responsibilities. The Company is willing to make such Confidential
Information available to Executive on the terms and conditions described in this
Agreement.
(c)
The
Confidential Information developed, received, and to be developed or received by
Executive is highly valuable, and, if disclosed to another person or entity, the
Company would be harmed.
2.
EXECUTIVE
COVENANTS
2.1
Covenant
not to Disclose
(a)
During
Executive’s employment with the Company and for a period of twenty-four (24)
months following the termination of that employment (whether such termination is
voluntary or involuntary), Executive will not use, disclose or reveal to any
person any Confidential Information except when acting within the scope of
Executive’s duties or with prior written authorization from the
Company.
(b)
Following
termination of employment, Executive shall return to Company, and shall not take
or retain, any Confidential Information, including, without limitation, any
Confidential Information in electronic form, or any computer or data storage
device belonging to the Company, without prior written authorization from the
Company, and Executive will continue to faithfully perform all of Executive’s
contractual, legal and ethical obligations to the Company to the extent such
obligations continue in effect.
(c)
As used
in this Agreement, the term “
Confidential
Information
” means all information belonging to, or otherwise relating to
the business of the Company, which is not generally known, regardless of the
manner in which it is stored or conveyed to Executive, and which the Company has
taken reasonable measures under the circumstances to protect from unauthorized
use or disclosure. Confidential Information includes trade secrets as
well as other proprietary knowledge, information, know-how, and non-public
intellectual property rights, including unpublished or pending patent
applications and all related patent rights, formulae, processes, discoveries,
improvements, ideas, conceptions, compilations of data, and data, whether or not
patentable or copyrightable and whether or not it has been conceived,
originated, discovered, or developed in whole or in part by
Executive. For example, Confidential Information includes, but is not
limited to, information concerning the Company’s business plans, budgets,
operations, products, strategies, marketing, sales, inventions, designs, costs,
legal strategies, finances, supervisory employees, employee costs, customers,
prospective customers, licensees, or licensors; information received from third
parties under confidential conditions; or other valuable financial, commercial,
business, technical or marketing information concerning the Company, or any of
the products or services made, developed or sold by the
Company. Confidential Information does not include information that
(i) was generally known to the public at the time of disclosure; (ii) was
lawfully received by Executive from a third party; (iii) was known to Executive
prior to receipt from the Company; or (iv) was independently developed by
Executive or independent third parties; in each of the foregoing circumstances,
this exception applies only if such public knowledge or possession by an
independent third party was without breach by Executive or any third party of
any obligation of confidentiality or non-use, including, but not limited to, the
obligations and restrictions set forth in this Agreement.
(d)
Nothing
in this Section 2.1 shall be deemed to limit Executive’s non-disclosure
obligations under any applicable rule, statute, or
regulation. Executive’s obligations under this Section 2 shall
continue in perpetuity with respect to any and all information that constitutes
a trade secret under applicable law.
2.2
Covenants
not to Solicit or Hire
(a)
During
Executive’s employment with the Company and for a period of twenty-four (24)
months following the termination of that employment (whether such termination is
voluntary or involuntary), Executive will not hire for another employer, recruit
or solicit to work for another employer as an employee or contractor, or assist
or participate in any way in such hiring, recruitment or solicitation of, any
non-clerical employee of the Company who was employed by the Company as of the
date that Executive’s employment terminates and with whom Executive had Contact
(as defined below) during Executive’s employment with the Company.
(b)
As used
in this Agreement, “
Contact
” means
interaction between Executive and the non-clerical employee during performance
of Executive’s job duties on behalf of the Company.
(c)
Nothing
in this Section 2.2 shall be deemed to prohibit communications other than those
whose purpose is to encourage or entice a non-clerical employee to terminate or
limit his or her employment with the Company.
(d)
Nothing
in this Section 2.2 shall be deemed to prohibit any conduct as to which
Executive obtains the express prior written consent of the Company.
2.3
Remedies
for Breach
The
parties recognize that Executive’s breach of this Agreement will cause
irreparable injury to the Company, such that monetary damages would not provide
an adequate or complete remedy. Accordingly, in the event of
Employee’s actual or threatened breach of the provisions of this Agreement, the
Company, in addition to all other rights, shall be entitled to an injunction
restraining Executive from breaching this Agreement, and to recover from
Executive its reasonable attorneys’ fees and costs incurred in obtaining such
remedies.
3.
RIGHTS
IN DEVELOPMENTS
All
writings, artwork, developments, inventions, techniques, methods, improvements,
products, devices, programs, or systems that Executive, either alone or in
concert with other Company employees or contractors, shall conceive, develop, or
make within the scope of Executive’s employment by the Company or that are
related to such employment shall be divulged to the Company and shall be the
sole property of the Company as work-made-for-hire. In the event that
anything Executive, either alone or in concert with other Company employees or
contractors, conceives, develops, or makes within the scope of Executive’s
employment or related to Executive’s employment does not qualify as a
work-made-for-hire under applicable laws, Executive hereby assigns to the
Company all interest and rights therein, including, without limitation,
worldwide copyright in all forms and media, now or hereafter
known. The Company shall own all rights throughout the world to
anything Executive, either alone or in concert with other Company employees or
contractors, conceives, develops, or makes within the scope of Executive’s
employment or related to Executive’s employment, whether or not copyright or
patent applications or other procedures for the establishment of proprietary
rights are pursued. Executive shall cooperate fully in the
establishment and maintenance of all such rights of the Company throughout the
world by executing such documents as may reasonably be requested for such
purposes, such as copyright applications, Letters Patent, and assignments
thereof to the Company.
4.
OBLIGATIONS
TO PREVIOUS EMPLOYERS
Executive
hereby warrants and certifies that Executive’s employment by the Company does
not and will not breach any of Executive’s obligations under any agreement to
which Executive is a party with any of Executive’s previous employers; that
Executive has not taken or retained, and will not take or retain, any documents
or other records, whether in paper, electronic or any other form, or any
computer or electronic storage device, belonging to any previous employer,
including, without authorization from any such employer; that Executive has
faithfully performed, and will continue to faithfully perform, all of
Executive’s contractual, legal and ethical obligations to any previous employer,
to the extent such obligations continue in effect; and that Executive will not
use or disclose any confidential information belonging to any previous employer
in connection with Executive’s employment by the Company.
5.
CHOICE
OF LAW / EXCLUSIVE FORUM SELECTION
This
Agreement shall be construed under, governed by and enforced in accordance with
the laws of the State of ___________. Any action brought to enforce,
invalidate or otherwise affect the terms of this Agreement may be brought only
in the federal or state courts in __________ County in the State of
___________. The parties each hereby consent to personal jurisdiction
in the federal and state courts in ___________ County in the State of
____________ and to service of process in the State of
__________. Nothing in this Agreement, however, shall diminish either
party’s amenability to service of process in other jurisdictions under
applicable “long-arm” jurisdiction provisions.
[use forum specific to
Executive]
6.
ASSIGNMENT
Executive
acknowledges that the services to be rendered are unique and
personal. Accordingly, Executive may not assign any of his or her
rights or delegate any duties or obligations under this
Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company.
7.
SEVERABILITY
If any
provision of this Agreement is held to be unenforceable, such provision will be
distinct and severable from the other provisions of this Agreement, and such
unenforceability will not affect the validity and enforceability of the
remaining provisions.
8.
MISCELLANEOUS
8.1
Executive
acknowledges that this Agreement does not confer the right to be employed by the
Company for any specific period of time and that Executive’s employment
relationship with the Company is at-will and may be terminated by either party
at any time.
8.2
The
waiver or consent by the Company of any provision of this Agreement, or the
waiver or consent by the Company of a breach of any provision of this Agreement
by Executive shall not operate or be construed as a further or continuing waiver
or consent of any subsequent breach by Executive. No waiver or
consent shall be valid or binding on the Company unless made in writing and
signed by an authorized representative of the Company.
8.3
Section
headings in this Agreement are used for convenience or reference only and shall
not affect the meaning of any provision of this Agreement.
8.4
The
language of all parts of this Agreement shall in all cases be construed as a
whole, according to its fair meaning, and not strictly for or against either of
the parties. This Agreement constitutes the sole and entire agreement
between the parties relating to its subject matter, and it supersedes and
cancels all previous agreements or understandings between the parties except
that this Agreement shall not be deemed to supersede or cancel any obligations
of Executive under the
[list
specific plans and agreements that include non-compete, non-solicit, and/or
confidentiality provisions]
AT&T Supplemental Employee Retirement
Plan, any deferred compensation or stock option award plan, or any other
AT&T benefit or welfare plan as to which Executive is a participant or
beneficiary. In executing this Agreement neither party has relied on
any statements, promises, or representations made by the other party except as
specifically stated in this Agreement.
8.5
Executive
and the Company represent and agree that each has reviewed all aspects of this
Agreement, has carefully read and fully understands all provisions of this
Agreement, and is knowingly and voluntarily entering into this
Agreement. Both parties represent and agree that they have had the
opportunity to review any and all aspects of this Agreement with the legal
advisor or advisors of their choice before executing this Agreement, and have in
fact received and considered such legal advice and counsel as they wish to
obtain.
IN
WITNESS WHEREOF, the parties have duly executed this Agreement effective as of
the date written above.
|
AT&T INC.
|
[Name
of Executive]
|
|
|
By:
|
|
Title:
|
Exhibit 12
AT&T, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED
CHARGES
Dollars in millions
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
$
|
18,999
|
|
|
$
|
20,164
|
|
|
$
|
18,399
|
|
|
$
|
10,886
|
|
|
$
|
5,720
|
|
Equity
in net income of affiliates included above
|
|
|
(734
|
)
|
|
|
(819
|
)
|
|
|
(692
|
)
|
|
|
(2,043
|
)
|
|
|
(609
|
)
|
Fixed
Charges
|
|
|
5,102
|
|
|
|
4,964
|
|
|
|
4,536
|
|
|
|
2,209
|
|
|
|
1,681
|
|
Distributed
income of equity affiliates
|
|
|
317
|
|
|
|
164
|
|
|
|
395
|
|
|
|
97
|
|
|
|
158
|
|
Interest
capitalized
|
|
|
(740
|
)
|
|
|
(659
|
)
|
|
|
(171
|
)
|
|
|
(73
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings,
as adjusted
|
|
$
|
22,944
|
|
|
$
|
23,814
|
|
|
$
|
22,467
|
|
|
$
|
11,076
|
|
|
$
|
6,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
3,379
|
|
|
$
|
3,390
|
|
|
$
|
3,507
|
|
|
$
|
1,843
|
|
|
$
|
1,456
|
|
Interest
capitalized
|
|
|
740
|
|
|
|
659
|
|
|
|
171
|
|
|
|
73
|
|
|
|
36
|
|
Dividends
on preferred securities
|
|
|
-
|
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
31
|
|
Portion
of rental expense representative of interest factor
|
|
|
983
|
|
|
|
911
|
|
|
|
855
|
|
|
|
290
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Charges
|
|
$
|
5,102
|
|
|
$
|
4,964
|
|
|
$
|
4,536
|
|
|
$
|
2,209
|
|
|
$
|
1,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Earnings to Fixed Charges
|
|
|
4.50
|
|
|
|
4.80
|
|
|
|
4.95
|
|
|
|
5.01
|
|
|
|
4.11
|
|
*
|
All periods
presented exclude undistributed earnings on investments accounted for
under the equity method as well as "Income From discountinued Operations,
net of tax" in our Consolidated Statements of Income, which was from the
sale of our interest in the directory advertising business in Illinois and
northwest
Indiana.
|
Selected
Financial and Operating Data
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31 or for the year ended:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
2006
|
2
|
|
|
2005
|
3
|
Financial Data
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
123,018
|
|
|
$
|
124,028
|
|
|
$
|
118,928
|
|
|
$
|
63,055
|
|
|
$
|
43,764
|
|
Operating
expenses
|
|
$
|
101,526
|
|
|
$
|
100,965
|
|
|
$
|
98,524
|
|
|
$
|
52,767
|
|
|
$
|
37,596
|
|
Operating
income
|
|
$
|
21,492
|
|
|
$
|
23,063
|
|
|
$
|
20,404
|
|
|
$
|
10,288
|
|
|
$
|
6,168
|
|
Interest
expense
|
|
$
|
3,379
|
|
|
$
|
3,390
|
|
|
$
|
3,507
|
|
|
$
|
1,843
|
|
|
$
|
1,456
|
|
Equity
in net income of affiliates
|
|
$
|
734
|
|
|
$
|
819
|
|
|
$
|
692
|
|
|
$
|
2,043
|
|
|
$
|
609
|
|
Other
income (expense) – net
|
|
$
|
152
|
|
|
$
|
(328
|
)
|
|
$
|
810
|
|
|
$
|
398
|
|
|
$
|
398
|
|
Income
taxes
|
|
$
|
6,156
|
|
|
$
|
7,036
|
|
|
$
|
6,252
|
|
|
$
|
3,525
|
|
|
$
|
932
|
|
Net
Income
|
|
$
|
12,843
|
|
|
$
|
13,128
|
|
|
$
|
12,147
|
|
|
$
|
7,361
|
|
|
$
|
4,787
|
|
Less:
Net Income Attributable to Noncontrolling Interest
|
|
$
|
(308
|
)
|
|
$
|
(261
|
)
|
|
$
|
(196
|
)
|
|
$
|
(5
|
)
|
|
$
|
(1
|
)
|
Net
Income Attributable to AT&T
|
|
$
|
12,535
|
|
|
$
|
12,867
|
|
|
$
|
11,951
|
|
|
$
|
7,356
|
|
|
$
|
4,786
|
|
Earnings
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to
AT&T
|
|
$
|
2.12
|
|
|
$
|
2.17
|
|
|
$
|
1.95
|
|
|
$
|
1.89
|
|
|
$
|
1.42
|
|
Earnings Per Common Share
–
Assuming
Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to
AT&T
|
|
$
|
2.12
|
|
|
$
|
2.16
|
|
|
$
|
1.94
|
|
|
$
|
1.89
|
|
|
$
|
1.42
|
|
Total
assets
|
|
$
|
268,752
|
|
|
$
|
265,245
|
|
|
$
|
275,644
|
|
|
$
|
270,634
|
|
|
$
|
145,632
|
|
Long-term
debt
|
|
$
|
64,720
|
|
|
$
|
60,872
|
|
|
$
|
57,255
|
|
|
$
|
50,063
|
|
|
$
|
26,115
|
|
Total
debt
|
|
$
|
72,081
|
|
|
$
|
74,991
|
|
|
$
|
64,115
|
|
|
$
|
59,796
|
|
|
$
|
30,570
|
|
Construction
and capital expenditures
|
|
$
|
17,335
|
|
|
$
|
20,335
|
|
|
$
|
17,888
|
|
|
$
|
8,393
|
|
|
$
|
5,612
|
|
Dividends
declared per common share
|
|
$
|
1.65
|
|
|
$
|
1.61
|
|
|
$
|
1.47
|
|
|
$
|
1.35
|
|
|
$
|
1.30
|
|
Book
value per common share
|
|
$
|
17.34
|
|
|
$
|
16.42
|
|
|
$
|
19.15
|
|
|
$
|
18.58
|
|
|
$
|
14.09
|
|
Ratio
of earnings to fixed charges
|
|
|
4.50
|
|
|
|
4.80
|
|
|
|
4.95
|
|
|
|
5.01
|
|
|
|
4.11
|
|
Debt
ratio
7
|
|
|
41.3
|
%
|
|
|
43.7
|
%
|
|
|
35.6
|
%
|
|
|
34.1
|
%
|
|
|
35.9
|
%
|
Weighted-average
common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
(000,000)
|
|
|
5,900
|
|
|
|
5,927
|
|
|
|
6,127
|
|
|
|
3,882
|
|
|
|
3,368
|
|
Weighted-average
common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding with dilution
(000,000)
|
|
|
5,924
|
|
|
|
5,958
|
|
|
|
6,170
|
|
|
|
3,902
|
|
|
|
3,379
|
|
End
of period common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
(000,000)
|
|
|
5,902
|
|
|
|
5,893
|
|
|
|
6,044
|
|
|
|
6,239
|
|
|
|
3,877
|
|
Operating
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless
customers (000)
4
|
|
|
85,120
|
|
|
|
77,009
|
|
|
|
70,052
|
|
|
|
60,962
|
|
|
|
54,144
|
|
In-region
network access lines in service (000)
5
|
|
|
49,392
|
|
|
|
55,610
|
|
|
|
61,582
|
|
|
|
66,469
|
|
|
|
49,413
|
|
In-region
broadband connections (000)
6,7
|
|
|
17,254
|
|
|
|
16,265
|
|
|
|
14,802
|
|
|
|
12,170
|
|
|
|
6,921
|
|
Number
of employees
|
|
|
282,720
|
|
|
|
302,660
|
|
|
|
309,050
|
|
|
|
304,180
|
|
|
|
189,950
|
|
|
Amounts in the above
table have been prepared in accordance with U.S. generally accepted
accounting principles.
|
|
Our 2006 income
statement amounts reflect results from BellSouth Corporation (BellSouth)
and AT&T Mobility LLC (AT&T Mobility), formerly Cingular Wireless
LLC, for the two days following the December 29, 2006 acquisition. Our
2006 balance sheet and end-of-year metrics include 100% of BellSouth and
AT&T Mobility. Prior to the December 29, 2006, BellSouth acquisition,
AT&T Mobility was a joint venture in which we owned 60% and was
accounted for under the equity method.
|
|
Our 2005 income
statement amounts reflect results from AT&T Corp. for the 43 days
following the November 18, 2005, acquisition. Our 2005 balance sheet and
end-of-year metrics include 100% of AT&T Corp.
|
|
The number presented
represents 100% of AT&T Mobility cellular/PCS
customers.
|
|
In-region represents
access lines serviced by our incumbent local exchange companies (in 22
states since the BellSouth acquisition and in 13 states prior to that
acquisition). Beginning in 2006, the number includes BellSouth lines in
service.
|
|
Broadband
connections include in-region DSL lines, in-region U-verse High Speed
Internet access, satellite broadband and 3G LaptopConnect
cards.
|
|
Prior period amounts
restated to conform to current period reporting
methodology.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Dollars
in millions except per share amounts
For ease
of reading, AT&T Inc. is referred to as “we,” “us,” “AT&T” or
the “Company” throughout this document, and the names of the particular
subsidiaries and affiliates providing the services generally have been omitted.
AT&T is a holding company whose subsidiaries and affiliates operate in the
communications services industry both in the United States and internationally,
providing wireless and wireline telecommunications services and equipment as
well as directory advertising and publishing services. You should read this
discussion in conjunction with the consolidated financial statements and
accompanying notes. A reference to a “Note” in this section refers to the
accompanying Notes to Consolidated Financial Statements. In the tables
throughout this section, percentage increases and decreases that equal or exceed
100% are not considered meaningful and are denoted with a dash.
RESULTS
OF OPERATIONS
Consolidated
Results
Our financial results are summarized in the table
below. We then discuss factors affecting our overall results for the past three
years. These factors are discussed in more detail in our “Segment Results”
section. We also discuss our expected revenue and expense trends for 2010 in the
“Operating Environment and Trends of the Business” section.
|
|
|
|
|
|
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
2009
vs.
|
|
|
2008
vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Operating
Revenues
|
|
$
|
123,018
|
|
|
$
|
124,028
|
|
|
$
|
118,928
|
|
|
|
(0.8
|
)%
|
|
|
4.3
|
%
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services and sales
|
|
|
50,405
|
|
|
|
49,556
|
|
|
|
46,801
|
|
|
|
1.7
|
|
|
|
5.9
|
|
Selling,
general and administrative
|
|
|
31,407
|
|
|
|
31,526
|
|
|
|
30,146
|
|
|
|
(0.4
|
)
|
|
|
4.6
|
|
Depreciation
and amortization
|
|
|
19,714
|
|
|
|
19,883
|
|
|
|
21,577
|
|
|
|
(0.8
|
)
|
|
|
(7.9
|
)
|
Total
Operating Expenses
|
|
|
101,526
|
|
|
|
100,965
|
|
|
|
98,524
|
|
|
|
0.6
|
|
|
|
2.5
|
|
Operating
Income
|
|
|
21,492
|
|
|
|
23,063
|
|
|
|
20,404
|
|
|
|
(6.8
|
)
|
|
|
13.0
|
|
Income
Before Income Taxes
|
|
|
18,999
|
|
|
|
20,164
|
|
|
|
18,399
|
|
|
|
(5.8
|
)
|
|
|
9.6
|
|
Net
Income Attributable to AT&T
|
|
|
12,535
|
|
|
|
12,867
|
|
|
|
11,951
|
|
|
|
(2.6
|
)
|
|
|
7.7
|
|
Diluted
Earnings Per Share
|
|
|
2.12
|
|
|
|
2.16
|
|
|
|
1.94
|
|
|
|
(1.9
|
)%
|
|
|
11.3
|
%
|
Overview
Operating income
decreased
$1,571, or 6.8%, in 2009 and increased $2,659, or 13.0%, in 2008. Our operating
income margin increased from 17.2% in 2007 to 18.6% in 2008 and decreased to
17.5% in 2009. Operating income in 2009 decreased primarily due to the decline
in voice revenues and directory print advertising, an increase in pension and
other postemployment benefits (OPEB) expense, and the higher cost of equipment
sales in our Wireless segment attributed to the continued success of Apple
iPhone. These changes were partially offset by lower employee-related costs due
to workforce reductions, along with the continued growth in wireless service and
wireline data revenue. In 2008, operating income increased primarily due to
continued growth in wireless service and data revenues, along with a decrease in
the amortization of merger-related intangibles.
Operating revenues
decreased
$1,010, or 0.8%, in 2009 and increased $5,100, or 4.3%, in 2008. Revenues in
2009 reflect the continuing decline in voice revenues and a decline in directory
revenue driven by lower print revenue. These declines were partially offset by
continued growth in wireless service revenue due to an increase in average
number of customers of 9.4%, driven in part by the continued success of Apple
iPhone and an increase in wireline data revenue largely due to Internet Protocol
(IP) data growth, including AT&T U-verse
SM
and
broadband growth. Increases in 2008 reflect an increase in wireless subscribers
and data revenues, primarily related to IP data, partially offset by the
continued decline in voice revenues.
The
declines in our wireline voice and advertising revenues reflect continuing
economic pressures on our customers as well as competition. Total retail
consumer voice connections decreased 11.4% in 2009. Business customers also
disconnected switched access lines, reduced usage-based services and reduced
print advertising. Customers disconnecting access lines switched to wireless,
Voice over Internet Protocol (VoIP) and cable offerings for voice and data or
terminated service permanently as businesses closed or consumers left
residences. While we lose the voice revenues, we have the opportunity to
increase wireless service or wireline data revenues should the customer choose
us as their wireless or VoIP provider. We also continue to expand our VoIP
service for customers who have access to our U-verse video service.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Cost of services and sales
expenses increased $849, or 1.7%, in 2009 and $2,755, or 5.9%, in 2008.
The increase in 2009 was primarily due to higher upgrade costs and higher
equipment costs related to advanced integrated devices, along with an increase
in pension/OPEB expenses. Pension/OPEB expense increased due to
lower-than-expected return on assets and an increase in amortization of
actuarial losses, both primarily from investment losses in 2008. Partially
offsetting these increases were decreases in employee-related costs primarily
driven by workforce reductions. The increase in 2008 was primarily due to higher
equipment costs related to increased sales of advanced integrated devices. Also
increasing 2008 expenses was severance associated with announced workforce
reductions and hurricane-related expenses affecting both the Wireless and
Wireline segments.
Selling, general and administrative
expenses decreased $119, or 0.4%, in 2009 and increased $1,380, or 4.6%,
in 2008. The decrease in 2009 was primarily due to declines in employee-related
costs (excluding pension/OPEB) due to workforce reductions, decreases in
materials and supplies expense along with decreases in wireless advertising and
promotions expense. These decreases were partially offset by an increase in
pension/OPEB expense, and higher commissions, customer service costs and
IT/Interconnect costs resulting from wireless subscriber growth along with
increased support for data services and integrated devices. The increase in 2008
was primarily due to higher commissions and residuals due to the growth in
wireless subscribers, and higher severance associated with announced workforce
reductions. Partially offsetting these increases in 2008 were merger-integration
costs recognized in 2007 and not in 2008.
Depreciation and amortization
expenses decreased $169, or 0.8%, in 2009 and $1,694, or 7.9%, in 2008.
The decrease in 2009 was primarily due to the declining amortization of
identifiable intangible assets, primarily customer relationships, partially
offset by increased depreciation resulting from capital additions. The decrease
in 2008 was primarily due to lower amortization expense on intangible
assets.
Interest expense
decreased
$11, or 0.3%, in 2009 and $117, or 3.3%, in 2008. Interest expense decreased
slightly during 2009 due to an increase in interest charged during construction,
which is capitalized instead of expensed. In 2008, interest expense declined
primarily due to a decrease in our weighted-average interest rate and an
increase in interest charged during construction, partially offset by an
increase in our average debt balances.
Equity in net income of affiliates
decreased $85, or 10.4%, in 2009, primarily due to foreign currency
translation losses at América Móvil S.A. de C.V. (América Móvil), Télefonos de
México, S.A. de C.V. (Telmex) and Telmex Internacional, S.A.B. de C.V. (Telmex
Internacional), partially offset by improved results at América Móvil. Equity in
net income of affiliates increased $127, or 18.4%, in 2008, primarily due to
improved results from our investments in América Móvil, Telmex and Telmex
Internacional, partially offset by foreign currency translation
losses.
Other income (expense)
–
net
We had other
income of $152 in 2009, other expense of $328 in 2008 and other income of
$810 in 2007. Results for 2009 included a $112 gain on the sale of investments,
$100 of interest and leveraged lease income, and $42 of gains on the sale of a
professional services business, partially offset by $102 of asset
impairments.
Other
expense for 2008 included losses of $467 related to asset impairments, partially
offset by $156 of interest and leveraged lease income. Other income for 2007
included $810 related to a $409 gain on a spectrum license exchange, $215 of
interest and leveraged lease income and a $161 gain on the sale of non-strategic
assets and investments.
Income taxes
decreased $880,
or 12.5%, in 2009 and increased $784, or 12.5%, in 2008. The decrease in 2009
was due to lower income before taxes and the recognition of benefits related to
audit issues and judicial developments, while the increase in 2008 was primarily
due to higher income before taxes. Our effective tax rate in 2009 was 32.4%,
compared to 34.9% in 2008 and 34.0% in 2007. The decrease in our effective tax
rate in 2009 was primarily due to the recognition of benefits related to audit
issues and judicial developments. The increase in our effective tax rate in 2008
was primarily due to higher income before taxes, which resulted in a greater
percentage of our income being taxed at marginal rates.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Segment
Results
Our
segments are strategic business units that offer different products and services
over various technology platforms and are managed accordingly. Our operating
segment results presented in Note 4 and discussed below for each segment follow
our internal management reporting. We analyze our various operating segments
based on segment income before income taxes, reviewing operating revenues,
expenses (depreciation and non-depreciation) and equity income for each segment.
We make our capital allocations decisions primarily based on the network
(wireless or wireline) providing services. Interest expense and other income
(expense) – net are managed only on a total company basis and are, accordingly,
reflected only in consolidated results. Each segment’s percentage of total
segment operating revenue and income calculations is derived from our segment
results table in Note 4 and reflects amounts before eliminations. We have four
reportable segments: (1) Wireless, (2) Wireline, (3) Advertising
Solutions and (4) Other.
The
Wireless
segment
accounted for approximately 43% of our 2009 total segment
operating revenues as compared to 39% in 2008 and 60% of our 2009 total segment
income as compared to 46% in 2008. This segment provides wireless voice and
advanced data communications services across the United States.
The
Wireline
segment
accounted for approximately 52% of our 2009 total segment operating
revenues as compared to 55% in 2008 and 36% of our 2009 total segment income as
compared to 47% in 2008. This segment uses our regional, national and global
network to provide consumer and business customers with landline voice and data
communications services, AT&T U-verse
SM
TV,
high-speed broadband and voice services (U-verse) and managed networking to
business customers. Additionally, we offer satellite television services through
our agency arrangements.
The
Advertising
Solutions segment
accounted for approximately 4% of our 2009 and 2008
total segment operating revenues and 6% of our 2009 total segment income as
compared to 7% in 2008. This segment includes our directory operations, which
publish Yellow and White Pages directories and sell directory advertising,
Internet-based advertising and local search.
The
Other
segment
accounted for approximately 1% of our 2009 total segment
operating revenues as compared to 2% in 2008 and less than 1% of our 2009 and
2008 total segment income. This segment includes results from Sterling Commerce,
Inc. (Sterling), customer information services, payphone, and all corporate and
other operations. Also, included in the Other segment are impacts of
corporate-wide decisions for which the individual operating segments are not
being evaluated. During 2008, we announced our intention to discontinue our
retail payphone operations previously included in this segment. Additionally,
this segment includes our portion of the results from our international equity
investments and charges of $550 and $978 associated with our workforce
reductions in 2009 and 2008.
The
following tables show components of results of operations by segment. We discuss
significant segment results following each table. We discuss capital
expenditures for each segment in “Liquidity and Capital
Resources.”
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Wireless
Segment
Results
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
vs.
|
|
2008
vs.
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
2007
|
Segment
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$
|
48,657
|
|
|
$
|
44,410
|
|
|
$
|
38,678
|
|
|
|
9.6
|
%
|
|
14.8
|
%
|
Equipment
|
|
|
4,940
|
|
|
|
4,925
|
|
|
|
4,006
|
|
|
|
0.3
|
|
|
22.9
|
|
Total
Segment Operating Revenues
|
|
|
53,597
|
|
|
|
49,335
|
|
|
|
42,684
|
|
|
|
8.6
|
|
|
15.6
|
|
Segment
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and support
|
|
|
34,561
|
|
|
|
32,481
|
|
|
|
28,585
|
|
|
|
6.4
|
|
|
13.6
|
|
Depreciation
and amortization
|
|
|
5,765
|
|
|
|
5,770
|
|
|
|
7,079
|
|
|
|
(0.1
|
)
|
|
(18.5
|
)
|
Total
Segment Operating Expenses
|
|
|
40,326
|
|
|
|
38,251
|
|
|
|
35,664
|
|
|
|
5.4
|
|
|
7.3
|
|
Segment
Operating Income
|
|
|
13,271
|
|
|
|
11,084
|
|
|
|
7,020
|
|
|
|
19.7
|
|
|
57.9
|
|
Equity
in Net Income of Affiliates
|
|
|
9
|
|
|
|
6
|
|
|
|
16
|
|
|
|
50.0
|
|
|
(62.5
|
)
|
Segment
Income
|
|
$
|
13,280
|
|
|
$
|
11,090
|
|
|
$
|
7,036
|
|
|
|
19.7
|
%
|
|
57.6
|
%
|
Centennial
Acquisition
In
November 2009, we acquired Centennial Communications, Corp. (Centennial), a
regional provider of wireless and wired communications services with
approximately 865,000 customers as of December 31, 2009, and its operations have
been included in our consolidated results since the acquisition
date.
Wireless
Properties Transactions
In May
2009, we announced a definitive agreement to acquire certain wireless assets
from Verizon Wireless (VZ) for approximately $2,350 in cash. The assets
primarily represent former Alltel Wireless assets. We will acquire wireless
properties, including licenses and network assets, serving approximately 1.5
million subscribers in 79 service areas across 18 states. In October 2009, the
Department of Justice (DOJ) cleared our acquisition of Centennial, subject to
the DOJ’s condition that we divest Centennial’s operations in eight service
areas in Louisiana and Mississippi. We are in the process of finalizing
definitive agreements and seeking regulatory approvals to sell all eight
Centennial service areas ultimately identified in that ruling. We anticipate we
will close the sales during the first half of 2010. As of December 31, 2009, the
fair value of the assets subject to the sale, net of related liabilities, was
$282. Since the properties we will acquire use a different network technology
than our Global System for Mobile Communication (GSM) technology, we expect to
incur additional costs to convert that network and subscriber handsets to our
GSM technology.
Dobson
Acquisition
In
November 2007, we acquired Dobson Communications Corporation (Dobson). Dobson
marketed wireless services under the Cellular One brand and had provided roaming
services to AT&T subsidiaries since 1990. Dobson had 1.7 million subscribers
across 17 states, mostly in rural and suburban areas. Dobson was incorporated
into our wireless operations subsequent to its acquisition.
Wireless
Customer and Operating Trends
As of
December 31, 2009, we served 85.1 million wireless customers, compared to 77.0
million at December 31, 2008, and 70.1 million at December 31, 2007.
Approximately 59% of our wireless customer net additions in 2009 were postpaid
customer additions which were lower than the impact in the prior year, as we saw
a significant increase in gross and net additions in our reseller customer
business in 2009. Sales of emerging devices, such as netbooks and eReaders, are
largely included in our reseller customer base. We expect continued growth in
sales of emerging devices. Improvement in our postpaid churn levels since 2007
contributed to our net additions and retail customer growth in 2009 and 2008.
This improvement was attributable to network enhancements, attractive products
and services offerings, including Apple iPhone, customer service improvements,
and continued high levels of advertising.
Gross
customer additions were 21.4 million in 2009 and 2008. Postpaid customer gross
additions have continued to increase due to attractive plan offerings and
exclusive product offerings, such as Apple iPhone, and unique quick messaging
devices.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
As the
wireless industry continues to mature, we believe that future wireless growth
will become increasingly dependent on our ability to offer innovative services,
which will encourage existing customers to upgrade their current services and
devices and will attract customers from other providers, as well as on our
ability to minimize customer churn. Average service revenue per user (ARPU) in
2009 was flat compared to 2008 after increasing 1% in 2008 compared to 2007
primarily due to increased data services ARPU growth offsetting declining voice
and other service ARPU. ARPU from postpaid customers increased 2.7% in 2009 and
3.7% in 2008, reflecting usage of more advanced handsets, such as Apple iPhone
3GS, by these customers, evidenced by a 23.5% increase in postpaid data services
ARPU in 2009 and a 36.4% increase in postpaid data services ARPU in 2008. The
continued increase in postpaid data services revenue was related to increased
use of text messaging, Internet access, e-mail and other data services. We
expect continued growth from data services, as more customers purchase advanced
integrated devices and other emerging devices, such as netbooks, eReaders, and
mobile navigation devices, and broadband laptop cards, and as we continue to
expand our network. The growth in data services ARPU in 2009 was offset by a
6.7% decline in voice ARPU and the growth in data services ARPU in 2008 was
partially offset by a 6.5% decline in voice and other service ARPU. Voice and
other service ARPU in 2009 and 2008 declined due to lower access charges,
roaming revenues, and long-distance usage. Increases in our FamilyTalk® and
reseller customer base, which have lower ARPU than traditional postpaid
customers, have also contributed to these declines. For 2009, roaming revenues
were lower due to a decline in domestic roaming activity. For 2008, roaming
revenues were lower due to acquisitions and rate negotiations as part of roaming
cost savings initiatives, which slowed international growth, and lower
regulatory cost recovery charges. We expect continued pressure on voice and
other service ARPU.
The
effective management of customer churn is also critical to our ability to
maximize revenue growth and to maintain and improve margins. Customer churn is
calculated by dividing the aggregate number of wireless customers who cancel
service during each month in a period by the total number of wireless customers
at the beginning of each month in that period. Our customer churn rate was 1.48%
for 2009, down from 1.68% for 2008 and 1.67% for 2007. The churn rate for
postpaid customers was 1.16% for 2009 and 1.19% for 2008, down from 1.27% for
2007. The decline in postpaid churn reflects network enhancements and broader
coverage, more affordable rate plans and exclusive devices, and free
mobile-to-mobile calling among our wireless customers.
Wireless
Operating Results
Our
Wireless segment operating income margin was 24.8% in 2009, 22.5% in 2008 and
16.4% in 2007. The higher margin in 2009 was primarily due to revenue growth of
$4,262, while the higher margin in 2008 was primarily due to revenue growth of
$6,651. Each revenue increase exceeded the corresponding operating expense
increase of $2,075 in 2009 and $2,587 in 2008. The expense increase for 2008 is
net of a decrease in depreciation and amortization of $1,309.
Service
revenues are comprised
of local voice and data services, roaming, long-distance and other revenue.
Service revenues increased $4,247, or 9.6%, in 2009 and $5,732, or 14.8%, in
2008. The increases consisted of the following:
·
|
Data
service revenue increases of $3,539, or 33.4%, in 2009 and $3,647, or
52.5%, in 2008. The increases were primarily due to the increased number
of subscribers and heavier usage by subscribers of advanced handsets and
other data-centric emerging devices, such as netbooks, eReaders, and
mobile navigation devices. The increases in data service ARPU of 22.0% in
2009 and 33.8% in 2008 reflect this trend. Our significant data growth
also reflects an increased number of subscribers using our 3G network.
Data service revenues represented approximately 29.0% and 23.9% of our
Wireless segment service revenues in 2009 and
2008.
|
·
|
Voice
and other service revenue increases of $708, or 2.1%, in 2009 and $2,085,
or 6.6%, in 2008. The increase in 2009 was due to a 9.4% increase in the
average number of wireless customers, down from 14.0% in 2008. Voice and
other service ARPU declined 6.7% in 2009 and 6.5% in
2008.
|
Equipment
revenues increased
$15, or 0.3%, in 2009 and increased $919, or 22.9%, in 2008. The lower
incremental increase in 2009 was due to lower traditional handset sales, offset
by sales of more advanced integrated devices. The increase in 2008 was due to
higher handset revenues, reflecting higher gross customer additions, and
customer upgrades to more advanced devices.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Operations and support
expenses
increased
$2,080, or 6.4%, in 2009, compared to an increase of $3,896, or 13.6%, in 2008.
The increase in 2009 was primarily due to the following:
·
|
equipment
cost increases of $1,246, reflecting the higher cost of acquiring more
advanced integrated devices compared to prior
periods;
|
·
|
Interconnect,
universal service fee (USF) and reseller expense increases of $426 due to
higher network traffic and revenue
growth;
|
·
|
upgrade
commissions and residual expense increases of $313 due to sales and
upgrades to more advanced devices;
|
·
|
customer
service cost increases of $214 due to customer growth;
and
|
·
|
Finance,
IT, and other administrative cost increases of
$306.
|
These
increases were partially offset by selling expense decreases of $337,
attributable to lower traditional handset sales exceeding the impact of the sale
of more advanced integrated devices and roaming expense decreases of $165 due to
usage and rate declines. Total equipment costs continue to be higher than
equipment revenues due to the sale of discounted devices in connection with
promotions.
The
increase in 2008 was primarily due to the following:
·
|
equipment
sales expense increase of $2,005;
|
·
|
upgrade
commissions and residual expense increases of
$745;
|
·
|
selling
expense increase of $362 and customer service cost increase of
$159;
|
·
|
USF
increase of $204 and reseller expense increase of $145;
and
|
·
|
Finance,
IT, and other administrative cost increases of
$538.
|
The
increase in equipment sales expense, commission expense, and selling expense
resulted from an increase in sales of higher-cost 3G devices, the introduction
of Apple iPhone 3G handsets in 2008, an increase in the number of handset
accessory sales, lower per-unit accessory costs compared to 2007, and higher
handset upgrade volume. The increase in commission expense is also attributable
to higher commission rates. Interconnect and other costs also increased by $141
due to increased usage and integration costs related to the 2007 acquisition of
Dobson.
The
increase in reseller costs in 2008 was attributable to higher license,
maintenance and other reseller costs, partially offset by cost reductions from
the migration of network usage from the T-Mobile USA (T-Mobile) network in
California and Nevada to our networks in these states.
These
increases were partially offset by incollect roaming cost decreases of $249 and
network system cost decreases of $132. The decrease in network system costs was
the result of benefits from network and systems integration and cost-reduction
initiatives of $218, decreases in data processing and payroll costs of $109,
partially offset by incremental rents related to Dobson and general building
expense increases of $124, and hurricane and other incremental network cost
increases of $99.
Depreciation and amortization
decreased $5, or 0.1%, in 2009 and decreased $1,309, or 18.5%, in 2008.
Amortization expense decreased $450, or 21.8%, in 2009 due to lower amortization
of intangibles attributable to the BellSouth acquisition, partially offset by
amortization of intangible assets attributable to subscribers added in the
November 2009 acquisition of Centennial and the 2007 acquisition of Dobson.
Depreciation expense increased $445, or 12.0%, in 2009 due to ongoing capital
spending for network upgrades and expansion, partially offset by certain network
assets becoming fully depreciated.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Depreciation
expense decreased $539, or 12.7%, in 2008. Depreciation expense decreased $695
in 2008 due to certain network assets becoming fully depreciated and decreased
$612 due to Time Division Multiple Access (TDMA) assets being depreciated on an
accelerated basis through 2007. These decreases were partly offset by
incremental depreciation on capital assets placed in service during 2008.
Amortization expense decreased $770, or 27.2%, in 2008 due to declining
amortization of identified intangible assets, most of which are amortized using
the sum-of-the-months-digits method of amortization, partially offset by Dobson
intangible assets acquired by AT&T Mobility.
Wireless
Supplementary Operating and Financial Data
|
|
|
|
|
Percentage
Change
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
vs.
2008
|
|
|
2008
vs.
2007
|
|
|
Wireless
Customers (000)
|
|
|
85,120
|
|
|
|
77,009
|
|
|
|
70,052
|
|
|
|
10.5
|
%
|
|
|
9.9
|
%
|
Net
Customer Additions (000)
|
|
|
7,278
|
|
|
|
6,699
|
|
|
|
7,315
|
|
|
|
8.6
|
|
|
|
(8.4
|
)
|
Total
Churn
|
|
|
1.48
|
%
|
|
|
1.68
|
%
|
|
|
1.67
|
%
|
|
(
20)
bps
|
|
1
bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid
Customers (000)
|
|
|
65,146
|
|
|
|
60,098
|
|
|
|
55,310
|
|
|
|
8.4
|
%
|
|
|
8.7
|
%
|
Net
Postpaid Customer Additions (000)
|
|
|
4,323
|
|
|
|
4,634
|
|
|
|
3,982
|
|
|
|
(6.7
|
)
|
|
|
16.4
|
|
Postpaid
Churn
|
|
|
1.16
|
%
|
|
|
1.19
|
%
|
|
|
1.27
|
%
|
|
(3)
bps
|
|
(8)
bps
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Wireline
Segment
Results
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
2009
vs.
|
|
|
2008
vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Segment
operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice
|
|
$
|
33,082
|
|
|
$
|
38,198
|
|
|
$
|
41,630
|
|
|
|
(13.4
|
)%
|
|
|
(8.2
|
)%
|
Data
|
|
|
26,723
|
|
|
|
25,353
|
|
|
|
24,075
|
|
|
|
5.4
|
|
|
|
5.3
|
|
Other
|
|
|
5,865
|
|
|
|
6,304
|
|
|
|
5,878
|
|
|
|
(7.0
|
)
|
|
|
7.2
|
|
Total
Segment Operating Revenues
|
|
|
65,670
|
|
|
|
69,855
|
|
|
|
71,583
|
|
|
|
(6.0
|
)
|
|
|
(2.4
|
)
|
Segment
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and support
|
|
|
44,646
|
|
|
|
45,440
|
|
|
|
46,177
|
|
|
|
(1.7
|
)
|
|
|
(1.6
|
)
|
Depreciation
and amortization
|
|
|
13,093
|
|
|
|
13,206
|
|
|
|
13,416
|
|
|
|
(0.9
|
)
|
|
|
(1.6
|
)
|
Total
Segment Operating Expenses
|
|
|
57,739
|
|
|
|
58,646
|
|
|
|
59,593
|
|
|
|
(1.5
|
)
|
|
|
(1.6
|
)
|
Segment
Operating Income
|
|
|
7,931
|
|
|
|
11,209
|
|
|
|
11,990
|
|
|
|
(29.2
|
)
|
|
|
(6.5
|
)
|
Equity
in Net Income of Affiliates
|
|
|
18
|
|
|
|
19
|
|
|
|
31
|
|
|
|
(5.3
|
)
|
|
|
(38.7
|
)
|
Segment
Income
|
|
$
|
7,949
|
|
|
$
|
11,228
|
|
|
$
|
12,021
|
|
|
|
(29.2
|
)%
|
|
|
(6.6
|
)%
|
Operating
Margin Trends
Our
Wireline segment operating income margin was 12.1% in 2009, compared to 16.0% in
2008 and 16.7% in 2007. Results for 2009 and 2008 reflect revenue declines that
exceeded expense declines. Our Wireline segment operating income decreased
$3,278, or 29.2%, in 2009 and decreased $781, or 6.5%, in 2008. Our operating
income continued to be pressured by access line declines due to economic
pressures on our consumer and business wireline customers and competition, as
customers either reduced usage or disconnected traditional landline services and
switched to alternative technologies, such as wireless and VoIP. Our strategy is
to offset these line losses by increasing non-access-line-related revenues from
customer connections for data, video and voice. Additionally, we have the
opportunity to increase Wireless segment revenues if customers choose AT&T
Mobility as an alternative provider. Wireline operating margins are declining
primarily due to reduced voice revenue, partially offset by continued growth in
data revenue. Also contributing to pressure on our operating margins was
increased pension/OPEB expense in 2009.
Voice
revenues decreased
$5,116, or 13.4%, in 2009, and decreased $3,432, or 8.2%, in 2008 primarily due
to continuing economic pressures and declining demand for traditional voice and
other legacy services by our consumer and business customers. Included in voice
revenues are revenues from local voice, long-distance and local wholesale
services. Voice revenues do not include VoIP revenues, which are included in
data revenues.
·
|
Local
voice revenues decreased
$2,763, or 12.2%,
in 2009 and decreased $1,887, or 7.7%, in 2008. The decrease in 2009 was
driven primarily by an 11.2% decline in switched access lines and a
decrease in average local voice revenue per user. The decrease in 2008 was
driven primarily by a loss of revenue of $1,230 from a decline in access
lines and by $422 from a decline in our national mass-market customer base
acquired from AT&T Corp. (ATTC). We expect our local voice revenue to
continue to be negatively affected by increased competition from
alternative technologies, the disconnection of additional lines and
economic pressures.
|
·
|
Long-distance
revenues decreased $2,133, or 15.3%, in 2009 and decreased $1,195, or
7.9%, in 2008 primarily due to decreased demand from business and consumer
customers, which decreased revenues $1,583 in 2009 and $532 in 2008, and a
net decrease in demand for long-distance service, due to expected declines
in the number of national mass-market customers, which decreased revenues
$546 in 2009 and $677 in 2008.
|
Data
revenues increased
$1,370, or 5.4%, in 2009 and increased $1,278, or 5.3%, in 2008. Data revenues
accounted for approximately 41% of wireline operating revenues in 2009, 36% in
2008 and 34% in 2007. Data revenues include transport, IP and packet-switched
data services.
IP data
revenues increased $1,969, or 17.8%, in 2009 and increased $1,537, or 16.1%, in
2008 primarily driven by AT&T U-verse expansion and growth in IP-based
strategic business services, which include Ethernet, virtual private networks
(VPN), application and managed services. Strategic business service revenues
increased $603 in 2009 and $741 in 2008, driven mostly by VPN, and U-verse video
service increased $980 in 2009 and $402 in 2008. Broadband high-speed Internet
access increased IP data revenues $300 in 2009 and $497 in 2008. The increase in
IP data revenues in 2009 and 2008 reflects continued growth in the customer base
and migration from other traditional circuit-based services.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Traditional
packet-switched data services, which include frame relay and asynchronous
transfer mode services, decreased $536, or 20.8%, in 2009 and $423, or 14.1%, in
2008. This decrease is primarily due to lower demand as customers continue to
shift to IP-based technology such as VPN, DSL and managed Internet services, and
the continuing economic recession. We expect these traditional, circuit-based
services to continue to decline as a percentage of our overall data
revenues.
Other
operating revenues
decreased $439, or 7.0%, in 2009 and increased $426, or 7.2%, in 2008. Major
items included are integration services and customer premises equipment,
government-related services and outsourcing, which account for more than 60% of
total revenue for all periods. Equipment sales and related network integration
revenues decreased $405 in 2009 primarily due to economic pressures, and
increased $260 in 2008, driven by an increase in management services partially
offset by reduced equipment sales and related network integration. Governmental
professional services revenue decreased $116 in 2009 driven by the divestiture
of a professional services business in 2009 and increased $100 in 2008 driven by
growth across various contracts.
Operations and support expenses
decreased $794, or 1.7%, in 2009 and $737, or 1.6%, in 2008. Operations
and support expenses consist of costs incurred to provide our products and
services, including costs of operating and maintaining our networks and
personnel costs, such as salary, wage and bonus accruals. Costs in this category
include our repair technicians and repair services, certain network planning and
engineering expenses, operator services, information technology and property
taxes. Operations and support expenses also include bad debt expense;
advertising costs; sales and marketing functions, including customer service
centers; real estate costs, including maintenance and utilities on all
buildings; credit and collection functions; and corporate support costs, such as
finance, legal, human resources and external affairs. Pension and postretirement
costs, net of amounts capitalized are also included to the extent that they are
associated with these employees.
The 2009
decrease was primarily due to lower employee-related costs of $918, primarily
related to workforce reductions. Other cost reductions included decreases in
traffic compensation (related to lower international long-distance revenues and
lower volume of calls from our declining national mass-market customer base),
including portal fees, of $655, nonemployee-related expenses, such as bad debt
expense, materials and supplies costs, of $441 and $134 related to contract
services.
Partially
offsetting these decreases was an increase in pension/OPEB expense of $1,370 due
to a lower-than-expected return on assets and an increase in amortization of
actuarial losses, both primarily from investment losses in 2008. See Note 11 for
more information related to pension/OPEB expense.
The major
decreases in 2008 were $633 in traffic compensation (related to lower
international long-distance revenue, and lower volume of calls from our
declining national mass-market customer base), including portal fees, and $618
of pension/OPEB expense. Other cost reductions included decreases in other
support cost of $616 primarily due to higher advertising costs incurred in 2007
for brand advertising and rebranding related to the BellSouth acquisition and
lower compensation expense of $420 reflecting shifts of workforce levels to
sales organizations.
Partially
offsetting these decreases, operation and support expenses increased by $1,135,
related to higher nonemployee-related expenses, such as contract services, agent
commissions and materials and supplies. Other increases were salary and wages of
$423; and higher cost of equipment sales and related U-verse network integration
of $60.
Depreciation and amortization
expenses decreased $113, or 0.9%, in 2009 and $210, or 1.6%, in 2008. The 2009
decrease was primarily related to lower amortization of intangibles for the
customer lists associated with ATTC, BellSouth and Yahoo! partially offset by
the inclusion of Centennial related depreciation starting in the fourth quarter
of 2009. The 2008 decline was a result of decreasing intangible amortization
partially offsetting increased depreciation resulting from capital
additions.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Supplemental
Information
Telephone,
Wired Broadband and Video Connections Summary
Our
switched access lines and other services provided by our local exchange
telephone subsidiaries at December 31, 2009, 2008 and 2007, are shown below and
trends are addressed throughout this segment discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
2009
vs.
|
|
|
2008
vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Switched
Access Lines
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
consumer
|
|
|
26,378
|
|
|
|
30,614
|
|
|
|
35,009
|
|
|
|
(13.8
|
)%
|
|
|
(12.6
|
)%
|
Retail
business
2
|
|
|
20,106
|
|
|
|
21,810
|
|
|
|
22,795
|
|
|
|
(7.8
|
)
|
|
|
(4.3
|
)
|
Retail Subtotal
2
|
|
|
46,484
|
|
|
|
52,424
|
|
|
|
57,804
|
|
|
|
(11.3
|
)
|
|
|
(9.3
|
)
|
Percent
of total switched access lines
|
|
|
94.1
|
%
|
|
|
94.3
|
%
|
|
|
93.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
Subtotal
2
|
|
|
2,826
|
|
|
|
3,068
|
|
|
|
3,527
|
|
|
|
(7.9
|
)
|
|
|
(13.0
|
)
|
Percent
of total switched access lines
|
|
|
5.7
|
%
|
|
|
5.5
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payphone
(Retail and Wholesale)
3
|
|
|
82
|
|
|
|
118
|
|
|
|
251
|
|
|
|
(30.5
|
)
|
|
|
(53.0
|
)
|
Percent
of total switched access lines
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Switched Access Lines
|
|
|
49,392
|
|
|
|
55,610
|
|
|
|
61,582
|
|
|
|
(11.2
|
)
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Retail Consumer Voice Connections
6
|
|
|
27,332
|
|
|
|
30,838
|
|
|
|
35,009
|
|
|
|
(11.4
|
)
|
|
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Wired Broadband Connections
4
|
|
|
15,789
|
|
|
|
15,077
|
|
|
|
14,156
|
|
|
|
4.7
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite
service
5
|
|
|
2,174
|
|
|
|
2,190
|
|
|
|
2,116
|
|
|
|
(0.7
|
)
|
|
|
3.5
|
|
U-verse
video
|
|
|
2,065
|
|
|
|
1,045
|
|
|
|
231
|
|
|
|
97.6
|
|
|
|
-
|
|
Video
Connections
|
|
|
4,239
|
|
|
|
3,235
|
|
|
|
2,347
|
|
|
|
31.0
|
%
|
|
|
37.8
|
%
|
|
Represents access
lines served by AT&T’s Incumbent Local Exchange Carriers (ILECs) and
affiliates.
|
|
Prior period amounts
restated to conform to current period reporting
methodology
|
|
Revenue from retail
payphone lines is reported in the Other segment. We are in the process of
ending our retail payphone operations.
|
|
Total wired
broadband connections include DSL, U-verse High Speed Internet access and
satellite broadband.
|
|
Satellite service
includes connections under our agency and resale
agreements.
|
|
Includes consumer
U-verse Voice over IP connections.
|
Advertising
Solutions
Segment
Results
|
|
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
|
|
|
2009
vs.
|
|
|
2008
vs.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Total
Segment Operating Revenues
|
|
$
|
4,809
|
|
|
$
|
5,502
|
|
|
$
|
5,851
|
|
|
|
(12.6
|
)%
|
|
|
(6.0
|
)%
|
Segment
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and support
|
|
|
2,922
|
|
|
|
2,998
|
|
|
|
3,066
|
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
Depreciation
and amortization
|
|
|
649
|
|
|
|
789
|
|
|
|
924
|
|
|
|
(17.7
|
)
|
|
|
(14.6
|
)
|
Total
Segment Operating Expenses
|
|
|
3,571
|
|
|
|
3,787
|
|
|
|
3,990
|
|
|
|
(5.7
|
)
|
|
|
(5.1
|
)
|
Segment
Income
|
|
$
|
1,238
|
|
|
$
|
1,715
|
|
|
$
|
1,861
|
|
|
|
(27.8
|
)%
|
|
|
(7.8
|
)%
|
Operating
Results
Our
Advertising Solutions segment operating income margin was 25.7% in 2009,
31.2% in 2008 and 31.8% in 2007. The decrease in the segment operating income
margin in both 2009 and 2008 was primarily the result of decreased operating
revenues.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Operating revenues
decreased
$693, or 12.6%, in 2009 largely driven by continuing declines in print revenue
of $774 and lower sales agency revenue of $34 due to the sale of the independent
line of business segment of the L.M. Berry Company. This decrease was partially
offset by Internet advertising revenue growth of $132. The ongoing economic
recession has reduced demand for advertising and customers have continued to
shift to Internet-based search services, although the recession has also curbed
search usage by consumers. Operating revenues decreased $349, or 6%, in 2008
largely driven by continuing declines in print revenue of $453 and lower sales
agency revenue of approximately $113 due to the sale of the independent line of
business segment of the L.M. Berry Company. This decrease was partially offset
by increased Internet advertising revenue of $196.
Operating expenses
decreased
$216, or 5.7%, in 2009 largely driven by decreases in depreciation and
amortization expense of $140, product related costs of $74, advertising costs of
$44, and professional and contracted expense of $17. These expense decreases
were partially offset by an increase in pension/OPEB and other benefit costs of
$66. Operating expenses
decreased $203, or 5.1%,
in 2008 largely driven by decreased depreciation and amortization of $135
resulting from use of an accelerated method of amortization for the customer
list acquired as part of the BellSouth acquisition, and lower employee,
professional and contract related expenses. These expense decreases were
partially offset by increased YELLOWPAGES.COM, LLC (YPC) expansion
costs.
Other
Segment
Results
|
|
|
Percent
Change
|
|
|
|
|
|
|
|
|
2009 vs.
|
|
2008 vs.
|
|
|
2009
|
|
2008
|
|
|
2007
|
|
2008
|
|
2007
|
|
Total
Segment Operating Revenues
|
|
$
|
1,731
|
|
|
$
|
2,042
|
|
|
$
|
2,229
|
|
|
|
(15.2
|
)%
|
|
|
(8.4
|
)%
|
Total
Segment Operating Expenses
|
|
|
2,678
|
|
|
|
2,986
|
|
|
|
2,040
|
|
|
|
(10.3
|
)
|
|
|
46.4
|
|
Segment
Operating Income (Loss)
|
|
|
(947
|
)
|
|
|
(944
|
)
|
|
|
189
|
|
|
|
(0.3
|
)
|
|
|
-
|
|
Equity
in Net Income of Affiliates
|
|
|
706
|
|
|
|
794
|
|
|
|
645
|
|
|
|
(11.1
|
)
|
|
|
23.1
|
|
Segment
Income (Loss)
|
|
$
|
(241
|
)
|
|
$
|
(150
|
)
|
|
$
|
834
|
|
|
|
(60.7
|
)%
|
|
|
-
|
|
Our Other
segment operating results consist primarily of Sterling, customer information
services (primarily operator services and payphone), corporate and other
operations. Sterling provides business-integration software and
services.
Operating revenues
decreased
$311, or 15.2%, in 2009 and $187, or 8.4%, in 2008. The decrease in 2009 is
primarily due to reduced revenues from our operator services, retail payphone
operations and Sterling. The 2008 decline is primarily related to lower revenues
from operator services and retail payphone operations.
Operating expenses
decreased
$308, or 10.3%, in 2009 and increased $946, or 46.4%, in 2008.
The
changes were primarily due to charges of $550 and $978 associated with our
workforce reductions in 2009 and 2008 as a result of the restructure of our
operations from a collection of regional companies to a single national
approach.
Our Other
segment also includes our equity investments in international companies, the
income from which we report as equity in net income of affiliates. Our earnings
from foreign affiliates are sensitive to exchange-rate changes in the value of
the respective local currencies. Our foreign investments are recorded under
generally accepted accounting principles (GAAP), which include adjustments for
the equity method of accounting and exclude certain adjustments required for
local reporting in specific countries. Our equity in net income of affiliates by
major investment is listed below:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
América
Móvil
|
|
$
|
505
|
|
|
$
|
469
|
|
|
$
|
381
|
|
Telmex
|
|
|
133
|
|
|
|
252
|
|
|
|
265
|
|
Telmex
Internacional
|
|
|
72
|
|
|
|
72
|
|
|
|
-
|
|
Other
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
Other
Segment Equity in
Net Income of
Affiliates
|
|
$
|
706
|
|
|
$
|
794
|
|
|
$
|
645
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Equity in net income of
affiliates
decreased $88 in 2009. Our investment in Telmex and Telmex
Internacional decreased $119, reflecting lower operating results and currency
translation losses, partially offset by $36 of improved operating
results at América Móvil. The $149 increase in 2008 reflects improved operating
results at América Móvil, as well as lower depreciation and tax expenses, and
improved results at Telmex and Telmex Internacional. On January 13, 2010,
América Móvil announced that its Board of Directors had authorized it to submit
an offer for 100% of the equity of Carso Global Telecom, S.A. de C.V. (CGT), a
holding company that owns 59.4% of Telmex and 60.7% of Telmex Internacional, in
exchange for América Móvil shares; and an offer for Telmex Internacional shares
not owned by CGT, to be purchased for cash or to be exchanged for América Móvil
shares, at the election of the shareholders.
OPERATING
ENVIRONMENT AND TRENDS OF THE BUSINESS
2010 Revenue
Trends
We expect our operating environment in 2010 to remain
challenging as the economic recession continues, competition remains strong and
the federal regulatory framework may or may not remain receptive to investment.
Despite this environment, we expect our operating revenues in 2010 to remain
stable, reflecting continuing growth in our wireless and broadband/data
services. We expect our primary driver of growth to be wireless, especially in
sales and increased use of advanced handsets and emerging devices (such as
netbooks, eReaders and mobile navigation devices) and that all our major
customer categories will continue to increase their use of Internet-based
broadband/data services. We expect continuing declines in traditional access
lines and in advertising from our print directories. Where available, our
U-verse services are proving effective in stemming access line losses, and we
expect to continue to expand our U-verse service offerings in 2010.
2010 Expense Trends
We expect
a challenging operating environment for 2010. We will continue to focus sharply
on cost-control measures, including areas such as organizational and systems
integration. We will continue our ongoing initiatives to improve customer
service and billing so we can realize our strategy of bundling services and
providing a simple customer experience. We expect our 2010 operating income
margin to be stable with the opportunity to improve margins, in the event the
U.S. economy improves. We do not expect significant pension funding requirements
in 2010. Expenses related to growth areas of our business, especially in the
wireless area, will apply some pressure to our operating income
margin.
Market
Conditions
During 2009, the securities and mortgage markets
and the banking system in general experienced some stabilization compared with
2008 as the year progressed, although bank lending and the housing industry
remained weak. The ongoing weakness in the general economy has also affected our
customer and supplier bases. We saw lower demand from our residential customers
as well as our business customers at all organizational sizes. Some of our
suppliers continue to experience increased financial and operating costs. To a
large extent, these negative trends were offset by continued growth in our
wireless and IP-related services. While the economy appears to have stabilized
at a weakened level at year-end, we do not expect a quick return to growth
during 2010. Should the economy instead deteriorate further, we likely will
experience further pressure on pricing and margins as we compete for both
wireline and wireless customers who have less discretionary income. We also may
experience difficulty purchasing equipment in a timely manner or maintaining and
replacing warranteed equipment from our suppliers.
Included
on our consolidated balance sheets are assets held by benefit plans for the
payment of future benefits. The losses associated with the securities markets
declines during 2008 are not expected to have an impact on the ability of our
benefit plans to pay benefits. We do not expect to make significant funding
contributions to our pension plans in 2010. However, because our pension plans
are subject to funding requirements of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), a continued weakness in the markets could
require us to make contributions to the pension plans in order to maintain
minimum funding requirements as established by ERISA. In addition, our policy on
recognizing losses on investments in the pension and other postretirement plans
accelerated the recognition of losses in 2009 earnings (see “Significant
Accounting Policies and Estimates”).
OPERATING
ENVIRONMENT OVERVIEW
AT&T
subsidiaries operating within the U.S. are subject to federal and state
regulatory authorities. AT&T subsidiaries operating outside the U.S. are
subject to the jurisdiction of national and supranational regulatory authorities
in the markets where service is provided, and regulation is generally limited to
operational licensing authority for the provision of services to enterprise
customers.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
In the
Telecommunications Act of 1996 (Telecom Act), Congress established a national
policy framework intended to bring the benefits of competition and investment in
advanced telecommunications facilities and services to all Americans by opening
all telecommunications markets to competition and reducing or eliminating
regulatory burdens that harm consumer welfare. However, since the Telecom Act
was passed, the Federal Communications Commission (FCC) and some state
regulatory commissions have maintained certain regulatory requirements that were
imposed decades ago on our traditional wireline subsidiaries when they operated
as legal monopolies. Where appropriate, we are pursuing additional legislative
and regulatory measures to reduce regulatory burdens that inhibit our ability to
compete more effectively and offer services wanted and needed by our customers.
For example, we are supporting regulatory and legislative efforts that would
offer new video entrants a streamlined process for bringing new video services
to market and for offering more timely competition to traditional cable
television providers. With the advent of the Obama Administration, the
composition of the FCC has changed, and the new Commission appears to be more
open than the prior Commission to maintaining or expanding regulatory
requirements on entities subject to its jurisdiction. In addition, Congress, the
President and the FCC all have declared a national policy objective of ensuring
that all Americans have access to broadband technologies and services. To that
end, Congress has charged the FCC with developing a National Broadband Plan and
delivering that plan to Congress in early 2010. The Commission has issued dozens
of notices seeking comment on whether and how it should modify its rules and
policies on a host of issues, which would affect all segments of the
communications industry, to achieve universal access to broadband. These issues
include rules and policies relating to universal service support, intercarrier
compensation and regulation of special access services, as well as a variety of
others that could have an impact on AT&T’s operations and revenues. However,
at this stage, it is too early to assess what, if any, impact such changes could
have on us.
In
addition, states representing a majority of our local service access lines have
adopted legislation that enables new video entrants to acquire a single
statewide or state-approved franchise (as opposed to the need to acquire
hundreds or even thousands of municipal-approved franchises) to offer
competitive video services. We also are supporting efforts to update and improve
regulatory treatment for retail services. Passage of legislation is uncertain
and depends on many factors.
Our
wireless operations operate in robust competitive markets but are likewise
subject to substantial governmental regulation. Wireless communications
providers must be licensed by the FCC to provide communications services at
specified spectrum frequencies within specified geographic areas and must comply
with the rules and policies governing the use of the spectrum as adopted by the
FCC. The FCC has recognized the importance of providing carriers with access to
adequate spectrum to permit continued wireless growth and has begun
investigating how to develop policies to promote that goal. While wireless
communications providers’ prices and service offerings are generally not subject
to state regulation, an increasing number of states are attempting to regulate
or legislate various aspects of wireless services, such as in the area of
consumer protection.
AT&T
has previously noted that the broadband marketplace is robustly competitive and
that we do not block consumers from accessing the lawful Internet sites of their
choice. We therefore believe that prescriptive “net neutrality” rules are not
only unnecessary but also counterproductive to the extent they would restrict
broadband Internet access providers from developing innovative new services for
consumers and/or content and application providers. Nor do we believe that
wireless providers should be prohibited from entering into exclusive
arrangements with handset manufacturers or that government should regulate
wireless early termination fees as is currently being proposed. It is widely
recognized that the wireless industry in the United States is characterized by
innovation, differentiation, declining prices and extensive competition among
handset manufacturers, service providers and applications. For this reason,
additional broadband regulation and new wireless requirements are
unwarranted.
Expected
Growth Areas
We expect
our wireless services and data wireline products to remain the most significant
portion of our business and have also discussed trends affecting the segments in
which we report results for these products (see “Wireless Segment Results” and
“Wireline Segment Results”). Over the next few years, we expect an increasing
percentage of our growth to come from: (1) our wireless service and (2)
data/broadband, through existing and new services. We expect that our previous
acquisitions will enable us to strengthen the reach and sophistication of our
network facilities, increase our large-business customer base and enhance the
opportunity to market wireless services to that customer base. Whether, or the
extent to which, growth in these areas will offset declines in other areas of
our business is not known.
Wireless
Wireless
is our fastest-growing revenue stream and we expect to deliver continued revenue
growth in the coming years. We believe that we are in a growth period of
wireless data usage and that there are substantial opportunities available for
next-generation converged services that combine wireless, broadband, voice and
video.
Our
Universal Mobile Telecommunications System/High-Speed Downlink Packet Access 3G
network technology covers most major metropolitan areas of the U.S. This
technology provides superior speeds for data and video services, and it offers
operating efficiencies by using the same spectrum and infrastructure for voice
and data on an IP-based platform. Our wireless networks also rely on digital
transmission technologies known as GSM, General Packet Radio Services and
Enhanced Data Rates for GSM Evolution for data communications. As of December
31, 2009, we served 85.1 million customers. We have also announced plans to
transition from 3G network technology to a higher transmission speed technology
called Long-Term Evolution. We expect to test this technology this year and then
deploy it beginning in 2011, as we expect network equipment and handsets to
become more widely available.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
As the
wireless industry continues to mature, we believe that future wireless growth
will become increasingly dependent on our ability to offer innovative services
that will encourage existing customers to upgrade their services, either by
adding new types of services, such as data enhancements, or through increased
use of existing services, such as through equipment upgrades. These innovative
services should attract customers from other providers, as well as minimize
customer churn. We intend to accomplish these goals by continuing to expand our
network coverage, improve our network quality and offer a broad array of
products and services, including exclusive devices such as Apple iPhone 3G and
free mobile-to-mobile calling among our wireless customers. Minimizing customer
churn is critical to our ability to maximize revenue growth and to maintain and
improve our operating margins.
U-verse Services
We
are continuing to expand our deployment of U-verse high-speed broadband and TV
services. As of December 31, 2009, we have passed 22.8 million living units
(constructed housing units as well as platted housing lots) and are marketing
the services to almost 72 percent of those units. Our deployment strategy is to
enter each new area on a limited basis in order to ensure that all operating and
back-office systems are functioning successfully and then expand within each as
we continue to monitor these systems. Our rate of expansion will be slowed if we
cannot obtain all required local building permits in a timely fashion. We also
continue to work with our vendors on improving, in a timely manner, the
requisite hardware and software technology. Our deployment plans could be
delayed if we do not receive required equipment and software on
schedule.
We
believe that our U-verse TV service is subject to federal oversight as a “video
service” under the Federal Communications Act. However, some cable providers and
municipalities have claimed that certain IP services should be treated as a
traditional cable service and therefore subject to the applicable state and
local cable regulation. Certain municipalities have delayed our request or have
refused us permission to use our existing right-of-ways to deploy or activate
our U-verse-related services and products, resulting in litigation. Pending
negotiations and current or threatened litigation involving municipalities could
delay our deployment plans in those areas. In July 2008, the U.S. District Court
for Connecticut affirmed its October 2007 ruling that AT&T’s U-verse TV
service is a cable service in Connecticut. We have appealed that decision on the
basis that state legislation rendered the case moot. Petitions have been filed
at the FCC alleging that the manner in which AT&T provisions “public,
educational, and governmental” (PEG) programming over its U-verse TV service
conflicts with federal law, and a lawsuit has been filed in a California state
superior court raising similar allegations under California law. If courts
having jurisdiction where we have significant deployments of our U-verse
services were to decide that federal, state and/or local cable regulation were
applicable to our U-verse services, or if the FCC, state agencies or the courts
were to rule that AT&T must deliver PEG programming in a manner
substantially different from the way it does today or in ways that are
inconsistent with AT&T’s current network architecture, it could have a
material adverse effect on the cost, timing and extent of our deployment
plans.
REGULATORY
DEVELOPMENTS
Set forth
below is a summary of the most significant developments in our regulatory
environment during 2009. While these issues, for the most part, apply only to
certain subsidiaries in our Wireline segment, the words “we,” “AT&T” and
“our” are used to simplify the discussion. The following discussions are
intended as a condensed summary of the issues rather than as a precise legal
description of all of these specific issues.
International
Regulation
Our subsidiaries operating outside the U.S. are subject
to the jurisdiction of regulatory authorities in the market where service is
provided. Our licensing, compliance and advocacy initiatives in foreign
countries primarily enable the provision of enterprise (i.e., large business)
services. AT&T is engaged in multiple efforts with foreign regulators to
open markets to competition, reduce network costs and increase our scope of
fully authorized network services and products.
Federal
Regulation
A summary of
significant 2009 federal regulatory developments follows.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Net Neutrality
On
October 22, 2009, the FCC adopted a Notice of Proposed Rulemaking (NPRM) seeking
comment on six proposed “net neutrality” rules that are intended to preserve the
“free and open Internet.” The proposed rules apply to providers of “broadband
Internet access service” and state that, subject to “reasonable network
management,” such a provider:
·
|
May
not prevent any of its users from sending or receiving the lawful content
of the user’s choice over the
Internet.
|
·
|
May
not prevent any of its users from running the lawful applications or using
the lawful services of the user’s
choice.
|
·
|
May
not prevent any of its users from connecting to and using on its network
the user’s choice of lawful devices that do not harm the
network.
|
·
|
May
not deprive any of its users of the user’s entitlement to competition
among network providers, application providers, service providers and
content providers.
|
·
|
Must
treat lawful content, applications and services in a nondiscriminatory
manner.
|
·
|
Must
disclose such information concerning network management and other
practices as is reasonably required for users and content, application and
service providers to enjoy the protections specified in these
rules.
|
The NPRM
states that the proposed rules would apply to all platforms over which broadband
Internet access services are provided, including mobile wireless broadband,
while recognizing that different platforms involve significantly different
technologies, market structures, patterns of consumer usage and regulatory
history. The comment cycle on the NPRM concludes in the first quarter of 2010.
We are unable to determine the impact of this proceeding on our operating
results and financial condition at this time.
COMPETITION
Competition
continues to increase for telecommunications and information services.
Technological advances have expanded the types and uses of services and products
available. In addition, lack of or a reduced level of regulation of comparable
alternatives (e.g., cable, wireless and VoIP providers) has lowered costs for
these alternative communications service providers. As a result, we face
heightened competition as well as some new opportunities in significant portions
of our business.
Wireless
We face
substantial and increasing competition in all aspects of our wireless business.
Under current FCC rules, six or more PCS licensees, two cellular licensees and
one or more enhanced specialized mobile radio licensees may operate in each of
our service areas, which results in the potential presence of multiple
competitors. Our competitors are principally three national (Verizon Wireless,
Sprint Nextel Corp. and T-Mobile) and a larger number of regional providers of
cellular, PCS and other wireless communications services. More than 95% of the
U.S. population lives in areas with three mobile telephone operators and more
than half the population lives in areas with at least five competing
carriers.
We may
experience significant competition from companies that provide similar services
using other communications technologies and services. While some of these
technologies and services are now operational, others are being developed or may
be developed in the future. We compete for customers based principally on price,
service offerings, call quality, coverage area and customer
service.
Wireline
Our
wireline subsidiaries expect continued competitive pressure in 2010 from
multiple providers, including wireless, cable and other VoIP providers,
interexchange carriers and resellers. In addition, economic pressures are
forcing customers to terminate their traditional local wireline service and
substitute wireless and Internet-based services, intensifying a pre-existing
trend toward wireless and Internet use. At this time, we are unable to quantify
the effect of competition on the industry as a whole or financially on this
segment. However, we expect both losses of revenue share in local service and
gains resulting from business initiatives, especially in the area of bundling of
products and services, including wireless and video, large-business data
services and broadband. In most markets, we compete with large cable companies,
such as Comcast Corporation, Cox Communications, Inc. and Time Warner Cable
Inc., for local, high-speed Internet and video services customers and other
smaller telecommunications companies for both long-distance and local services
customers.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Our
wireline subsidiaries generally remain subject to regulation by state regulatory
commissions for intrastate services and by the FCC for interstate services. In
contrast, our competitors are often subject to less or no regulation in
providing comparable voice and data services or the extent of regulation is in
dispute. Under the Telecom Act, companies seeking to interconnect to our
wireline subsidiaries’ networks and exchange local calls enter into
interconnection agreements with us. Any unresolved issues in negotiating those
agreements are subject to arbitration before the appropriate state commission.
These agreements (whether fully agreed-upon or arbitrated) are then subject to
review and approval by the appropriate state commission.
In a
number of the states in which we operate as an ILEC, state legislatures or the
state public utility commissions have concluded that the voice
telecommunications market is competitive and have allowed for greater pricing
flexibility for nonbasic residential retail services, including bundles,
promotions and new products and services. While it has been a number of years
since we have been allowed to raise local service rates in certain states, some
of these state actions have been challenged by certain parties and are pending
court review.
In
addition to these rates and service regulations noted above, our wireline
subsidiaries (excluding rural carrier affiliates) operate under state-specific
elective “price-cap regulation” for retail services (also referred to as
“alternative regulation”) that was either legislatively enacted or authorized by
the appropriate state regulatory commission. Under price-cap regulation, price
caps are set for regulated services and are not tied to the cost of providing
the services or to rate-of-return requirements. Price-cap rates may be subject
to or eligible for annual decreases or increases and also may be eligible for
deregulation or greater pricing flexibility if the associated service is deemed
competitive under some state regulatory commission rules. Minimum customer
service standards may also be imposed and payments required if we fail to meet
the standards.
We
continue to lose access lines due to competitors (e.g., wireless, cable and VoIP
providers) who can provide comparable services at lower prices because they are
not subject to traditional telephone industry regulation (or the extent of
regulation is in dispute), utilize different technologies, or promote a
different business model (such as advertising based) and consequently have lower
cost structures. In response to these competitive pressures, for several years
we have utilized a bundling strategy that rewards customers who consolidate
their services (e.g., local and long-distance telephone, high-speed Internet,
wireless and video) with us. We continue to focus on bundling wireline and
wireless services, including combined packages of minutes and video service
through our U-verse service and our relationships with satellite television
providers. We will continue to develop innovative products that capitalize on
our expanding fiber network.
Additionally,
we provide local, domestic intrastate and interstate, international wholesale
networking capacity and switched services to other service providers, primarily
large Internet Service Providers using the largest class of nationwide Internet
networks (Internet backbone), wireless carriers, Competitive Local Exchange
Carriers, regional phone ILECs, cable companies and systems integrators. These
services are subject to additional competitive pressures from the development of
new technologies and the increased availability of domestic and international
transmission capacity. The introduction of new products and service offerings
and increasing satellite, wireless, fiber-optic and cable transmission capacity
for services similar to those provided by us continues to provide competitive
pressures. We face a number of international competitors, including Equant,
British Telecom and SingTel as well as competition from a number of large
systems integrators, such as Electronic Data Systems.
Advertising
Solutions
Our
Advertising Solutions subsidiaries face competition from approximately 100
publishers of printed directories in their operating areas. Competition also
exists from other advertising media, including newspapers, radio, television and
direct-mail providers, as well as from directories offered over the Internet.
Through our wholly-owned subsidiary, YPC, we compete with other providers of
Internet-based advertising and local search.
ACCOUNTING
POLICIES AND STANDARDS
Critical Accounting Policies and
Estimates
Because of the size of the financial statement line
items they relate to, some of our accounting policies and estimates have a more
significant impact on our financial statements than others. The following
policies are presented in the order in which the topics appear in our
consolidated statements of income.
Allowance for Doubtful
Accounts
We maintain an allowance for doubtful accounts for
estimated losses that result from the failure of our customers to make required
payments. When determining the allowance, we consider the probability of
recoverability based on past experience, taking into account current collection
trends as well as general economic factors, including bankruptcy rates. Credit
risks are assessed based on historical write-offs, net of recoveries, and an
analysis of the aged accounts receivable balances with reserves generally
increasing as the receivable ages. Accounts receivable may be fully reserved for
when specific collection issues are known to exist, such as pending bankruptcy
or catastrophes. The analysis of receivables is performed monthly, and the
bad-debt allowances are adjusted accordingly. A 10% change in the amounts
estimated to be uncollectible would result in a change in uncollectible expense
of approximately $120.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Pension and Postretirement
Benefits
Our actuarial estimates of retiree benefit expense
and the associated significant weighted-average assumptions are discussed in
Note 11. One of the most significant of these assumptions is the return on
assets assumption, which was 8.50% for the year ended December 31, 2009. In
setting the long-term assumed rate of return, management considers capital
markets’ future expectations and the asset mix of the plans’ investments. The
actual long-term return can, in relatively stable markets, also serve as a
factor in determining future expectations. However, the dramatic adverse market
conditions in 2008 have skewed the calculation of the long-term actual return;
the actual 10-year return was 3.67% through 2009 and 4.21% through 2008,
compared with 9.18% through 2007. The severity of the 2008 losses will make the
10-year actual return less of a relevant factor in management’s evaluation of
future expectations. In 2009, we experienced actual returns on investments much
greater than what was expected, creating a reduction in pension and
postretirement expense for 2010. Based on future expectations and the plans’
asset mix, management has left unchanged the long-term assumed rate of return
for 2010. If all other factors were to remain unchanged, we expect that a 1.0%
decrease in the assumed long-term rate of return would cause 2010 combined
pension and postretirement cost to increase $639. Under GAAP, the expected
long-term rate of return is calculated on the market-related value of assets
(MRVA). GAAP requires that actual gains and losses on pension and postretirement
plan assets be recognized in the MRVA equally over a period of up to five years.
We use a methodology, allowed under GAAP, under which we hold the MRVA to within
20% of the actual fair value of plan assets, which can have the effect of
accelerating the recognition of excess actual gains and losses into the MRVA in
less than five years. This methodology did not have a material impact on our
2008 or 2007 combined net pension and postretirement costs.
Our
assumed discount rate of 6.50% at December 31, 2009, reflects the hypothetical
rate at which the projected benefit obligations could be effectively settled or
paid out to participants. We determined our discount rate based on a range of
factors, including a yield curve comprised of the rates of return on several
hundred high-quality, fixed-income corporate bonds available at the measurement
date and the related expected duration for the obligations. These bonds were all
rated at least Aa3 or AA- by one of the nationally recognized statistical rating
organizations, denominated in U.S. dollars, and neither callable, convertible
nor index linked. For the year ended December 31, 2009, we decreased our
discount rate by 0.50%, resulting in an increase in our pension plan benefit
obligation of $2,065 and an increase in our postretirement benefit
obligation of $1,847. For the year ended December 31, 2008, we increased our
discount rate by 0.50%, resulting in a decrease in our pension plan benefit
obligation of $2,176 and a decrease in our postretirement benefit obligation of
$2,154. Should actual experience differ from actuarial assumptions, the
projected pension benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost would be
affected in future years. Note 11 also discusses the effects of certain changes
in assumptions related to medical trend rates on retiree health care
costs.
Depreciation
Our
depreciation of assets, including use of composite group depreciation and
estimates of useful lives, is described in Notes 1 and 5. We assign useful lives
based on periodic studies of actual asset lives. Changes in those lives with
significant impact on the financial statements must be disclosed, but no such
changes have occurred in the three years ended December 31, 2009. However, if
all other factors were to remain unchanged, we expect that a one-year increase
in the useful lives of the largest categories of our plant in service (which
accounts for more than three-fourths of our total plant in service) would result
in a decrease of approximately $2,420 in our 2010 depreciation expense and that
a one-year decrease would result in an increase of approximately $3,480 in our
2010 depreciation expense.
Asset Valuations and
Impairments
We account for acquisitions using the acquisition
method as required by GAAP. Under GAAP, we allocate the purchase price to the
assets acquired and liabilities assumed based on their estimated fair values.
The estimated fair values of intangible assets acquired are based on the
expected discounted cash flows of the identified customer relationships,
patents, tradenames and FCC licenses. In determining the future cash flows, we
consider demand, competition and other economic factors.
Customer
relationships, which are finite-lived intangible assets, are primarily amortized
using the sum-of-the-months-digits method of amortization over the period in
which those relationships are expected to contribute to our future cash flows.
The sum-of-the-months-digits method is a process of allocation, and reflects our
belief that we expect greater revenue generation from these customer
relationships during the earlier years of their lives. Alternatively, we could
have chosen to amortize customer relationships using the straight-line method,
which would allocate the cost equally over the amortization period. Amortization
of other intangibles, including patents and amortizable tradenames, is
determined using the straight-line method of amortization over the expected
remaining useful lives. We do not amortize indefinite-lived intangibles, such as
wireless FCC licenses or certain tradenames (see Note 6).
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Goodwill
and wireless FCC licenses are not amortized but tested annually for impairment,
as required by GAAP. We conduct our impairment tests as of October 1. Goodwill
is tested on a reporting unit basis, and our reporting units generally coincide
with our segments, except for certain operations in the Other segment. The
carrying amounts of goodwill, by segment (which is the same as reporting unit
for Wireless, Wireline and Advertising Solutions), at December 31, 2009 were:
Wireless $35,037; Wireline $31,608; Advertising Solutions $5,731; and Other
$883. At December 31, 2008, the carrying amounts of goodwill by segment were:
Wireless $33,851; Wireline $31,381; Advertising Solutions $5,694; and Other
$903. Within the Other segment, goodwill associated with our Sterling operations
was $477 for 2009 and 2008. Additionally, FCC licenses are tested for impairment
on an aggregate basis, consistent with the management of the business on a
national scope. These annual impairment tests resulted in no material impairment
of indefinite-lived goodwill or FCC licenses. If there are indications of
significant decreases in fair value of these assets, testing may also be done
more frequently than the annual test. There were no indications of a significant
decrease in fair value in 2009. We review other long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount may not be
recoverable over the remaining life of the asset or asset group.
Goodwill
impairment testing is a two step process. The first step involves determining
the fair value of the reporting unit and comparing that to the book value. If
the fair value exceeds the book value, then no further testing is required. If
the fair value is less than the book value, then a second step is
performed.
In the
second step, the fair values of all of the assets and liabilities of the
reporting unit, including those that may not be currently recorded, are
determined. The difference between the sum of all of those fair values and the
overall reporting unit’s fair value is a new implied goodwill amount that is
compared to the recorded goodwill. If implied goodwill is less than the recorded
goodwill, then an impairment to the recorded goodwill is recorded. The amount of
this impairment may be more or less than the difference between the overall fair
value and book value of the reporting unit. It may even be zero if the fair
values of other assets are less than their book values. Goodwill is the only
asset that may be impaired when testing goodwill.
As shown
in Note 6, more than 98% of our goodwill resides in the Wireline, Wireless and
Advertising Solutions segments. For each of those segments, publicly traded
companies whose services are consistent with those primarily offered by the
segment exist, giving a market indication of enterprise value. Enterprise value
is the sum of a company’s equity and debt values. One standard valuation
technique is to determine enterprise value as a multiple of a company’s
operating income before depreciation and amortization. We determined the
multiples of the public companies and then calculated a weighted-average of
those multiples. Using those weighted-averages, we then calculated fair values
for each of those segments to determine if additional testing was required and,
in all circumstances, no additional testing was required. In the event of a 10%
drop in the fair values of the reporting units, the fair values would have still
exceeded the book values of the reporting units and additional testing would
still have not been required.
Consistent
with prior years, we performed our test of the fair values of FCC licenses using
a discounted cash flow model (the Greenfield Approach). The Greenfield Approach
assumes a company is started, owning only the wireless FCC licenses, and then
makes investments required to build an operation comparable to the one in which
the licenses are presently utilized. We utilized a 17-year discrete period to
isolate cash flows attributable to the licenses including modeling the
hypothetical build out. The projected cash flows are based on certain financial
factors including revenue growth rates, Operating Income Before Depreciation and
Amortization (OIBDA) margins, and churn rates. Wireless revenue growth is
expected to trend down from our 2008 growth rate of 15.6% to a long-term growth
rate that reflects expected long-term inflation trends. Our churn rates are
expected to continue declining from 1.68% in 2008, in line with expected trends
in the industry but at a rate comparable with industry-leading churn. OIBDA
margins should continue to increase from the 2008 level of 38.0% to more than
40.0%.
This
model then incorporates cash flow assumptions regarding investment in the
network, development of distribution channels and the subscriber base, and other
inputs for making the business operational. The assumptions which underlie the
development of the network, subscriber base and other critical inputs of the
discounted cash flow model were based on a combination of average marketplace
participant data and our historical results, trends and business plans.
Operating metrics such as capital investment per subscriber, acquisition costs
per subscriber, minutes of use per subscriber, etc. were also used to develop
the projected cash flows. Since the cash flows associated with these other
inputs were included in the annual cash flow projections, the present value of
the unlevered free cash flows of the segment, after investment in the network,
subscribers, etc., is attributable to the wireless FCC licenses. The terminal
value of the segment, which incorporates an assumed sustainable growth rate, is
also discounted and is likewise attributed to the licenses. The discount rate of
9.0% used to calculate the present value of the projected cash flows is based on
the optimal long-term capital structure of a market participant and its
associated cost of debt and equity. The discount rate utilized in the analysis
is also consistent with rates we use to calculate the present value of the
projected cash flows of licenses acquired from third parties.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
If either
the projected rate of growth of cash flows or revenues were to decline by 1%, or
if the discount rate were to increase by 1%, the fair values of the wireless FCC
licenses, while less than currently projected, would still be higher than the
book value of the licenses. The fair value of the licenses exceeded the book
value by more than one-fourth.
We review
other long-lived assets for impairment under GAAP whenever events or
circumstances indicate that the carrying amount may not be recoverable over the
remaining life of the asset or asset group. In order to determine that the asset
is recoverable, we verify that the expected future cash flows directly related
to that asset exceed its fair value, which is based on the undiscounted cash
flows. The discounted cash flow calculation uses various assumptions and
estimates regarding future revenue, expense and cash flows projections over the
estimated remaining useful life of the asset.
Cost
investments are evaluated to determine whether mark-to-market declines are
temporary and reflected in other comprehensive income, or other than temporary
and recorded as an expense in the income statement. This evaluation is based on
the length of time and the severity of decline in the investment’s value. At the
end of the first quarter of 2009 and at the end of 2008, we concluded the
severity of decline had led to an other-than-temporary decline in the value of
assets contained in an independently managed trust for certain BellSouth
employee benefits.
Income Taxes
Our
estimates of income taxes and the significant items giving rise to the deferred
assets and liabilities are shown in Note 10 and reflect our assessment of actual
future taxes to be paid on items reflected in the financial statements, giving
consideration to both timing and probability of these estimates. Actual income
taxes could vary from these estimates due to future changes in income tax law or
the final review of our tax returns by federal, state or foreign tax
authorities.
In 2007,
we adopted new GAAP rules and began accounting for uncertain tax positions under
those provisions. As required, we use our judgment to determine whether it is
more likely than not that we will sustain positions that we have taken on tax
returns and, if so, the amount of benefit to initially recognize within our
financial statements. We regularly review our uncertain tax positions and adjust
our unrecognized tax benefits in light of changes in facts and circumstances,
such as changes in tax law, interactions with taxing authorities and
developments in case law. These adjustments to our unrecognized tax benefits may
affect our income tax expense. Settlement of uncertain tax positions may require
use of our cash.
New
Accounting Standards
Revenue Arrangements with Multiple
Deliverables
In October 2009, the Financial Accounting
Standards Board (FASB) issued “Multiple-Deliverable Revenue Arrangements”
(Accounting Standards Update (ASU) 2009-13), which addresses how revenues should
be allocated among all products and services included in our sales arrangements.
It establishes a selling price hierarchy for determining the selling price of
each product or service, with vendor-specific objective evidence (VSOE) at the
highest level, third-party evidence of VSOE at the intermediate level, and a
best estimate at the lowest level. It replaces “fair value” with “selling price”
in revenue allocation guidance, eliminates the residual method as an acceptable
allocation method, and requires the use of the relative selling price method as
the basis for allocation. It also significantly expands the disclosure
requirements for such arrangements, including, potentially, certain qualitative
disclosures. ASU 2009-13 will be effective prospectively for sales entered into
or materially modified in fiscal years beginning on or after June 15, 2010
(i.e., the year beginning January 1, 2011, for us). The FASB permits early
adoption of ASU 2009-13, applied retrospectively, to the beginning of the year
of adoption. We are currently evaluating the impact on our financial position
and results of operations.
Software
In
October 2009, the FASB issued “Certain Revenue Arrangements That Include
Software Elements” (ASU 2009-14), which clarifies the guidance for allocating
and measuring revenue, including how to identify software that is out of the
scope. ASU 2009-14 amends accounting and reporting guidance for revenue
arrangements involving both tangible products and software that is “more than
incidental to the tangible product as a whole.” That type of software
and hardware will be outside of the scope of software revenue guidance, and the
hardware components will also be outside of the scope of software revenue
guidance and may result in more revenue recognized at the time of the hardware
sale. Additional disclosures will discuss allocation of revenue to products and
services in our sales arrangements and the significant judgments applied in the
revenue allocation method, including impacts on the timing and amount of revenue
recognition. ASU 2009-14 will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 (i.e., the year beginning January 1, 2011, for us). ASU
2009-14 has the same effective date, including early adoption provisions, as ASU
2009-13. Companies must adopt ASU 2009-14 and ASU 2009-13 at the same time. We
are currently evaluating the impact on our financial position and results of
operations.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
See Note
1 for a discussion of recently issued or adopted accounting
standards.
OTHER
BUSINESS MATTERS
Retiree Phone Concession
Litigation
In May 2005, we were served with a purported class
action in U.S. District Court, Western District of Texas (
Stoffels v. SBC
Communications Inc.
), in which the plaintiffs, who are retirees of
Pacific Bell Telephone Company, Southwestern Bell and Ameritech, contend that
the telephone concession provided by the company is, in essence, a “defined
benefit plan” within the meaning of ERISA, as amended. In October 2006, the
Court certified two classes. The issue of whether the concession is an ERISA
pension plan was tried before the judge in November 2007. In May 2008, the court
ruled that the concession was an ERISA pension plan. We asked the court to
certify this ruling for interlocutory appeal, and in August 2008, the court
denied our request. In May 2009, we filed a motion for reconsideration with the
trial court. That motion is pending. A trial on the appropriate remedy has been
set for June 1, 2010. We believe that an adverse outcome having a material
effect on our financial statements in this case is unlikely, but we will
continue to evaluate the potential impact of this suit on our financial results
as it progresses.
NSA
Litigation
Twenty-four lawsuits were filed alleging that we
and other telecommunications carriers unlawfully provided assistance to the
National Security Agency (NSA) in connection with intelligence activities that
were initiated following the events of September 11, 2001. In the first filed
case,
Hepting et al v.
AT&T Corp., AT&T Inc. and Does 1-20
, a purported class action
filed in U.S. District Court in the Northern District of California, plaintiffs
alleged that the defendants disclosed and are currently disclosing to the U.S.
Government content and call records concerning communications to which
Plaintiffs were a party. Plaintiffs sought damages, a declaratory judgment, and
injunctive relief for violations of the First and Fourth Amendments to the
United States Constitution, the Foreign Intelligence Surveillance Act (FISA),
the Electronic Communications Privacy Act, and other federal and California
statutes. We filed a motion to dismiss the complaint. The United States asserted
the “state secrets privilege” and related statutory privileges and also filed a
motion asking the court to dismiss the complaint. The Court denied the motions,
and we and the United States appealed. In August 2008, the U.S. Court of Appeals
for the Ninth Circuit remanded the case to the district court without deciding
the issue in light of the passage of the FISA Amendments Act, a provision of
which addresses the allegations in these pending lawsuits (immunity provision).
The immunity provision requires the pending lawsuits to be dismissed if the
Attorney General certifies to the court either that the alleged assistance was
undertaken by court order, certification, directive, or written request or that
the telecom entity did not provide the alleged assistance. In September 2008,
the Attorney General filed his certification and asked the district court to
dismiss all of the lawsuits pending against the AT&T Inc. telecommunications
companies. The court granted the Government's motion to dismiss and entered
final judgments in July 2009. In addition, a lawsuit seeking to enjoin the
immunity provision’s application on grounds that it is unconstitutional was
filed. In March 2009, we and the Government filed motions to dismiss this
lawsuit. The court granted the motion to dismiss and entered final judgment in
July 2009. All cases brought against the AT&T entities have been dismissed.
In August 2009, plaintiffs in all cases filed an appeal with the Ninth Circuit
Court of Appeals.
Management
believes these actions are without merit and intends to continue to defend these
matters vigorously.
Labor Contracts
As
of January 31, 2010, we employed approximately 281,000 persons.
Approximately 58 percent of our employees are represented by the Communications
Workers of America (CWA), the International Brotherhood of Electrical Workers
(IBEW) or other unions. Contracts covering approximately 120,000 collectively
bargained wireline employees expired during 2009. As of January 31, 2010, the
Company and approximately 86,000 employees, covered by these expired
collectively bargained wireline contracts, have ratified new labor agreements.
In the absence of an effective contract, the union is entitled to call a work
stoppage.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
For
approximately 60,000 employees covered by ratified agreements, the
agreements provide for a three-year term and, for the vast majority of those
covered employees, a 3 percent wage increase in years one and two, a wage
increase in year three of 2.75 percent, and pension band increases of 2 percent
for each year of the agreement. For both wage and pension band increases, there
is a potential cost-of-living increase based on the consumer price index for the
third year. These agreements also provide for continued health care coverage
with reasonable cost sharing.
For the
remaining approximately 26,000 employees covered by ratified agreements, the
agreement provides for a four-year term. The provisions of the tentative
agreement are substantially similar to the provisions of the ratified agreements
discussed above, with a wage increase in year four of 2.75 percent and a
potential cost-of-living increase in year four instead of in year
three.
On
February 8, 2010, the Company and the CWA announced a tentative agreement
covering approximately 30,000 core wireline employees in the nine-state former
BellSouth region, subject to ratification by those covered employees. The
tentative agreement provides for a three-year term and, for the vast majority of
those covered employees, a 3 percent wage increase in years one and two, a wage
increase in year three of 2.75 percent, and pension band increases of 2 percent
for each year of the agreement. These agreements also provide for continued
health care coverage with reasonable cost sharing.
Health Care
Legislation
We provide a variety of medical and prescription
drug benefits to certain active and retired employees under various plans. In
2009, the U.S. Senate and House of Representatives each passed comprehensive
health care reform legislation. It is unclear if differences between these bills
can be reconciled and a final bill passed in 2010. Among the major provisions of
the bills are the taxation of the Medicare Part D subsidy, Medicare payment
reforms, an excise tax on “Cadillac” plans as well as mandates for providing
coverage and other requirements for delivery of health care to employees and
retirees. The final outcome of the legislation could cause negative impacts to
our results and bring uncertainty to our future costs.
Environmental
We
are subject from time to time to judicial and administrative proceedings
brought by various governmental authorities under federal, state or
local environmental laws. Although we are required to
reference in our Forms 10-Q and 10-K any of these proceedings that could
result in monetary sanctions (exclusive of interest and costs) of one hundred
thousand dollars or more, we do not believe that any of them currently
pending will have a material adverse effect on our results of
operations.
LIQUIDITY
AND CAPITAL RESOURCES
We had
$3,802 in cash and cash equivalents available at December 31, 2009. Cash and
cash equivalents included cash of $437 and money market funds and other cash
equivalents of $3,365. Cash and cash equivalents increased $2,010 since December
31, 2008. During 2009, cash inflows were primarily provided by cash receipts
from operations and the issuance of long-term debt. These inflows were partially
offset by cash used to meet the needs of the business including, but not limited
to, payment of operating expenses, funding capital expenditures, dividends to
stockholders, repayment of debt and payment of interest on debt. We discuss many
of these factors in detail below.
Cash
Provided by or Used in Operating Activities
During
2009, cash provided by operating activities was $34,445 compared to $33,656 in
2008. Our higher operating cash flow reflects decreased tax payments of $836,
partially offset by reduced net income and increased interest payments of $146.
During 2009, our payments for current income taxes were lower than 2008 due
primarily to changes in law impacting the timing of payments. The timing of cash
payments for income taxes is governed by the IRS and other taxing authorities
and differs from the timing of recording tax expense, which is reported in
accordance with GAAP. The decrease in current tax payments was partially offset
by an increase in audit-related payments in 2009. We anticipate using
approximately $2,350 of cash in 2010 to complete the acquisition of various
assets from Verizon that it was required to divest as part of its acquisition of
Alltel.
During
2008, our primary source of funds was cash from operating activities of $33,656
compared to $34,242 in 2007. Operating cash flows decreased primarily due
to
increased tax
payments of $1,294 partially offset by improvement in operating income excluding
depreciation. During 2008, tax payments were higher primarily due to increased
income.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Cash
Used in or Provided by Investing Activities
During
2009, cash used in investing activities consisted of:
·
|
$16,595
in capital expenditures, excluding interest during
construction.
|
·
|
$740
in interest during construction.
|
·
|
$787,
net of cash acquired, related to the acquisition of
Centennial.
|
·
|
$111
related to spectrum and licenses.
|
·
|
$85
related to other acquisitions.
|
During
2009, cash provided by investing activities consisted of:
·
|
$287
from dispositions of non-strategic
assets.
|
·
|
$55
from the sale of securities, net of
investments.
|
·
|
$51
related to other activities.
|
Our
capital expenditures are primarily for our wireless and wireline subsidiaries’
networks, our U-verse services, and support systems for our communications
services. Total capital spending in 2009 was $16,595, which was a $3,081
decrease from 2008. Capital spending in our Wireless segment, excluding interest
during construction, only increased
1% for 2009; the modest
increase in capital spending reflected a 6% increase in network expenditures,
tempered by reductions in non-network spending. Expenditures were used for
network capacity growth, integration and upgrades to our Universal Mobile
Telecommunications System/High-Speed Packet Access network, as well as for IT
and other support systems for our wireless service. Capital expenditures in our
Wireline segment, excluding interest during construction, which represented
64.3%
of our
capital expenditures, decreased 21% for 2009, reflecting decreased spending on
U-verse services as the upgrades to our existing network become more mature. In
addition, capital expenditures decreased due to less spending on wireline voice
services, and lower DSL and High Capacity volumes. The Other segment capital
expenditures were less than 2% of total capital expenditures for 2009. Included
in the Other segment are equity investments, which should be self funding as
they are not direct AT&T operations; as well as corporate, diversified
business and Sterling operations, which we expect to fund using cash from
operations. We expect to fund any Advertising Solutions segment capital
expenditures using cash from operations. We expect total 2010 capital investment
to be in the $18 billion to $19 billion range. This level of investment is
framed by the expectation that regulatory and legislative decisions relating to
the telecom sector will continue to be sensitive to investment.
Cash
Used in or Provided by Financing Activities
We paid
dividends of $9,670 in 2009, $9,507 in 2008 and $8,743 in 2007, reflecting
dividend rate increases. In December 2009, our Board of Directors approved a
2.4% increase in the quarterly dividend from $0.41 to $0.42 per share. This
follows a 2.5% dividend increase approved by AT&T's Board in December 2008.
Dividends declared by our Board of Directors totaled $1.65 per share in 2009,
$1.61 per share in 2008 and $1.47 per share in 2007. Our dividend policy
considers both the expectations and requirements of stockholders, internal
requirements of AT&T and long-term growth opportunities. It is our intent to
provide the financial flexibility to allow our Board of Directors to consider
dividend growth and to recommend an increase in dividends to be paid in future
periods. All dividends remain subject to approval by our Board of
Directors.
During
2009, we received net proceeds of $8,161 from the issuance of $8,228 in
long-term debt. Debt proceeds were used for general corporate purposes,
including the repayment of maturing debt. Long-term debt issuances consisted
of:
·
|
$1,000
of 4.85% global notes due in 2014.
|
·
|
$2,250
of 5.80% global notes due in 2019.
|
·
|
$2,250
of 6.55% global notes due in 2039.
|
·
|
£750
of 5.875% global notes due in 2017 (equivalent to $1,107 when
issued).
|
·
|
£1,100
of 7.0% global notes due in 2040 (equivalent to $1,621 when
issued).
|
We
entered into cross-currency swaps to exchange the above foreign currency
proceeds and the future principal and interest payments to U.S.
dollars.
During
2009, debt repayments totaled $13,236 and consisted of:
·
|
$8,633
in repayments of long-term debt (includes repayment of $1,957 for
Centennial debt).
|
·
|
$4,583
in repayments of commercial paper and short-term bank
borrowings.
|
·
|
$20
in repayments of other debt.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
At
December 31, 2009, we had $7,361 of debt maturing within one year, which
included $7,328 of long-term debt maturities and $33 of other borrowings. Debt
maturing within one year includes the following notes that may be put back to us
by the holders:
·
|
$1,000
of annual put reset securities issued by BellSouth Corporation can be put
each April until maturity in 2021.
|
·
|
An
accreting zero-coupon note may be redeemed each May, excluding May 2011,
until maturity in 2022. If the zero-coupon note (issued for principal of
$500 in 2007) is held to maturity, the redemption amount will be
$1,030.
|
We have a
five-year credit agreement with a syndicate of investment and commercial banks.
In June 2009, one of the participating banks, Lehman Brothers Bank, Inc., which
had declared bankruptcy, terminated its lending commitment of $535 and withdrew
from the agreement. As a result of this termination, the outstanding commitments
under the agreement were reduced from a total of $10,000 to $9,465. We still
have the right to increase commitments up to an additional $2,535 provided no
event of default under the credit agreement has occurred. 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 pledges
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. At December 31, 2009, we had no borrowings outstanding under this
agreement.
During
2009, the following other financing activities occurred:
·
|
We
received $483 related to derivative collateral; $261 was a return of
collateral we posted to derivative counterparties in 2008 and $222 was
collateral we collected from counterparties in
2009.
|
·
|
We
paid $275 to minority interest
holders.
|
·
|
We
received proceeds of $28 from the issuance of treasury shares related to
the settlement of share-based
awards.
|
We plan
to fund our 2010 financing activities through a combination of cash from
operations and debt issuances. The timing and mix of debt issuance will be
guided by credit market conditions and interest rate trends. The emphasis of our
financing activities will be the payment of dividends, subject to approval by
our Board of Directors, and the repayment of debt.
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 41.3%, 43.7% and 35.6% at
December 31, 2009, 2008 and 2007. The debt ratio is affected by the same factors
that affect total capital. Total capital increased $2,665 in 2009 compared to a
decrease of $8,121 in 2008. The 2009 total capital increase was due to increased
retained earnings and an increase in other comprehensive income, partially
offset by a $2,910 decrease in debt, all factors which lowered the debt ratio in
2009.
The
primary factor contributing to the increase in our 2008 debt ratio was the
$16,677 increase in accumulated other comprehensive loss that reflected a
decrease in retirement plans funded status and an increase in debt of $10,876
related to our financing activities. Our stockholders’ equity balance was down
$19,020 primarily due to the decrease in retirement plan funded
status.
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.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Our
contractual obligations as of December 31, 2009, 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 value at December 31, 2009. 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 which 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 $23,803; postemployment
benefit obligations (see Note 11) of $27,849; and other noncurrent liabilities
of $13,350, which included deferred lease revenue from our agreement with
American Tower of $509 (see Note 5).
|
|
Payments
Due By Period
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 Year
|
|
|
1 -
3 Years
|
|
|
3 -
5 Years
|
|
|
More
than 5 Years
|
|
Long-term
debt obligations
1
|
|
$
|
70,021
|
|
|
$
|
7,328
|
|
|
$
|
12,372
|
|
|
$
|
10,614
|
|
|
$
|
39,707
|
|
Interest
payments on long-term debt
|
|
|
66,233
|
|
|
|
4,178
|
|
|
|
7,318
|
|
|
|
5,990
|
|
|
|
48,747
|
|
Operating
lease obligations
|
|
|
20,534
|
|
|
|
2,429
|
|
|
|
4,322
|
|
|
|
3,560
|
|
|
|
10,223
|
|
Unrecognized
tax benefits
2
|
|
|
5,181
|
|
|
|
299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,882
|
|
Purchase
obligations
3
|
|
|
10,228
|
|
|
|
2,890
|
|
|
|
4,095
|
|
|
|
2,549
|
|
|
|
694
|
|
Total
Contractual Obligations
|
|
$
|
172,197
|
|
|
$
|
17,124
|
|
|
$
|
28,107
|
|
|
$
|
22,713
|
|
|
$
|
104,253
|
|
1
|
Represents
principal or payoff amounts of notes and debentures at maturity or, for
putable debt, the next put
opportunity.
|
2
|
The
non-current portion of the unrecognized tax benefits is included in the
“More than 5 Years” column, as we cannot reasonably estimate the timing or
amounts of additional cash payments, if any, at this time. See Note 10 for
additional information.
|
3
|
We
calculated the minimum obligation for certain agreements to purchase goods
or services based on termination fees that can be paid to exit the
contract. If we elect to exit these contracts, termination fees for all
such contracts in the year of termination could be approximately $404 in
2010, $469 in the aggregate for 2011 and 2012, $113 in the aggregate for
2013 and 2014 and $3 in the aggregate, thereafter. Certain termination
fees are excluded from the above table, as the fees would not be paid
every year and the timing of such payments, if any, is
uncertain.
|
MARKET
RISK
We are
exposed to market risks primarily from changes in interest rates and foreign
currency exchange rates. These risks, along with other business risks, impact
our cost of capital. It is our policy to manage our debt structure and foreign
exchange exposure in order to manage capital costs, control financial risks and
maintain financial flexibility over the long term. In managing market risks, we
employ derivatives according to documented policies and procedures, including
interest rate swaps, interest rate locks, foreign exchange contracts, and
combined interest rate foreign exchange contracts (cross-currency swaps). We do
not use derivatives for trading or speculative purposes. We do not foresee
significant changes in the strategies we use to manage market risk in the near
future.
Interest
Rate Risk
The
majority of our financial instruments are medium- and long-term fixed rate notes
and debentures. Changes in interest rates can lead to significant fluctuations
in the fair value of these instruments. The principal amounts by expected
maturity, average interest rate and fair value of our liabilities that are
exposed to interest rate risk are described in Notes 8 and 9. In managing
interest expense, we control our mix of fixed and floating rate debt,
principally through the use of interest rate swaps. We have established interest
rate risk limits that we closely monitor by measuring interest rate
sensitivities in our debt and interest rate derivatives portfolios.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
All our
foreign-denominated debt has been swapped from fixed-rate foreign currencies to
fixed-rate U.S. dollars at issuance through cross-currency swaps, removing
interest rate risk and foreign currency exchange risk associated with the
underlying interest and principal payments. Likewise, periodically we enter into
interest rate locks to partially hedge the risk of increases in the benchmark
interest rate during the period leading up to the probable issuance of
fixed-rate debt. We expect gains or losses in our cross-currency swaps and
interest rate locks to offset the losses and gains in the financial instruments
they hedge.
Following
are our interest rate derivatives subject to material interest rate risk as of
December 31, 2009. The interest rates illustrated below refer to the average
rates we expect to pay based on current and implied forward rates and the
average rates we expect to receive based on derivative contracts. The notional
amount is the principal amount of the debt subject to the interest rate swap
contracts. The fair value asset (liability) represents the amount we would
receive (pay) if we had exited the contracts as of December 31,
2009.
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
12/31/09
|
|
Interest
Rate Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive
Fixed/Pay Variable
Notional
Amount Maturing
|
|
|
-
|
|
|
$
|
3,200
|
|
|
$
|
3,050
|
|
|
$
|
1,750
|
|
|
|
-
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
399
|
|
Weighted-Average
Variable Rate Payable
1
|
|
|
3.1
|
%
|
|
|
4.4
|
%
|
|
|
4.8
|
%
|
|
|
5.6
|
%
|
|
|
6.1
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
|
|
Weighted-Average
Fixed
Rate
Receivable
|
|
|
5.8
|
%
|
|
|
5.7
|
%
|
|
|
5.3
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
1
|
Interest payable based on current
and implied forward rates for One, Three or Six Month London Interbank
Offered Rate (LIBOR) plus a spread ranging between approximately 36 and
654 basis points.
|
Foreign
Exchange Risk
We are
exposed to foreign currency exchange risk through our foreign affiliates and
equity investments in foreign companies. We do not hedge foreign currency
translation risk in the net assets and income we report from these sources.
However, we do hedge a large portion of the exchange risk involved in
anticipation of highly probable foreign currency-denominated transactions and
cash flow streams, such as those related to issuing foreign-denominated debt,
receiving dividends from foreign investments, and other receipts and
disbursements.
Through
cross-currency swaps, all of our foreign-denominated debt has been swapped from
fixed-rate foreign currencies to fixed-rate U.S. dollars at issuance, removing
interest rate risk and foreign currency exchange risk associated with the
underlying interest and principal payments. We expect gains or losses in our
cross-currency swaps to offset the losses and gains in the financial instruments
they hedge.
In
anticipation of other foreign currency-denominated transactions, we often enter
into foreign exchange contracts to provide currency at a fixed rate. Our policy
is to measure the risk of adverse currency fluctuations by calculating the
potential dollar losses resulting from changes in exchange rates that have a
reasonable probability of occurring. We cover the exposure that results from
changes that exceed acceptable amounts.
For the
purpose of assessing specific risks, we use a sensitivity analysis to determine
the effects that market risk exposures may have on the fair value of our
financial instruments and results of operations. To perform the sensitivity
analysis, we assess the risk of loss in fair values from the effect of a
hypothetical 10% depreciation of the U.S. dollar against foreign currencies from
the prevailing foreign currency exchange rates, assuming no change in interest
rates. For foreign exchange contracts outstanding at December 31, 2009, the
change in fair value was immaterial. Furthermore, because our foreign exchange
contracts are entered into for hedging purposes, we believe that these losses
would be largely offset by gains on the underlying transactions.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Issuer
Equity Repurchases
On
December 10, 2007, our Board of Directors authorized a share repurchase plan of
400 million shares that expired at December 31, 2009. During 2009, we
repurchased 133 thousand shares at a cost of $3. We anticipate concentrating on
reducing debt levels in 2010.
Purchase
Period
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
1
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|
February
1, 2009 – February 28, 2009
|
|
|
133,334
|
|
|
$
|
25.16
|
|
|
|
133,334
|
|
|
|
0
|
|
Total
|
|
|
133,334
|
|
|
$
|
25.16
|
|
|
|
133,334
|
|
|
|
0
|
|
1
Average Price Paid per Share excludes transaction costs.
Stock
Performance Graph
The
comparison above assumes $100 invested on December 31, 2004, in AT&T
common stock, Standard & Poor’s 500 Index (S&P 500), and Standard
& Poor's 500 Integrated Telecom Index (Telecom Index). Total return equals
stock price appreciation plus reinvestment of dividends.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
RISK
FACTORS
In
addition to the other information set forth in this document, including the
matters contained under the caption “Cautionary Language Concerning
Forward-Looking Statements,” you should carefully read the matters described
below. We believe that each of these matters could materially affect our
business. We recognize that most of these factors are beyond our ability to
control and therefore we cannot predict an outcome. Accordingly, we have
organized them by first addressing general factors, then industry factors and,
finally, items specifically applicable to us.
A
worsening U.S. economy would magnify our customers’ and suppliers’ current
financial difficulties and could materially adversely affect our
business.
We
provide services and products to consumers and large and small businesses in the
United States and to larger businesses throughout the world. The current
economic recession in the U.S. has adversely affected our customers’ demand for
and ability to pay for existing services, especially local landline service, and
their interest in purchasing new services. Our suppliers are also facing higher
financing and operating costs. Should these current economic conditions worsen,
we likely would experience both a further decrease in revenues and an increase
in certain expenses, including expenses relating to bad debt and equipment and
software maintenance. We also may incur difficulties locating financially stable
equipment and other suppliers, thereby affecting our ability to offer attractive
new services. We are also likely to experience greater pressure on pricing and
margins as we continue to compete for customers who would have even less
discretionary income. While our largest business customers have been less
affected by these adverse changes in the U.S. economy, if the continued adverse
economic conditions in the U.S., Europe and other foreign markets persist or
worsen, those customers would likely be affected in a similar
manner.
Adverse
changes in medical costs and the U.S. securities markets and interest rates
could materially increase our benefit plan costs.
Our
pension and postretirement costs are subject to increases, primarily due to
continuing increases in medical and prescription drug costs, and can be affected
by lower returns in prior years on funds held by our pension and other benefit
plans, which are reflected in our financial statements over several years.
Investment returns on these funds depend largely on trends in the U.S.
securities markets and the U.S. economy. In calculating the annual costs
included on our financial statements of providing benefits under our plans, we
have made certain assumptions regarding future investment returns, medical costs
and interest rates. If actual investment returns, medical costs and interest
rates are worse than those previously assumed, our annual costs will
increase.
The FASB
requires companies to recognize the funded status of defined benefit pension and
postretirement plans as an asset or liability in our statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income. Therefore, an increase in our costs
will have a negative effect on our balance sheet.
The
ongoing uncertainty in global financial markets could materially adversely
affect our ability and our larger customers' ability to access capital needed to
fund business operations.
The
recent instability in the global financial markets and ongoing uncertainty
affecting these markets have resulted in extreme volatility in the credit,
equity and fixed income markets. This volatility has limited, in some cases
severely, most companies’ access to the credit markets, leading to significantly
higher borrowing costs for companies or, in many cases, the inability of these
companies to fund their ongoing operations. As a result, our larger customers,
who tend to be heavy users of our data and wireless services, may be forced to
delay or reduce or be unable to finance purchases of our products and services
and may delay payment or default on outstanding bills to us. In addition, we
contract with large financial institutions to support our own treasury
operations, including contracts to hedge our exposure on interest rates and
foreign exchange and the funding of credit lines and other short-term debt
obligations, including commercial paper. While we have been successful in
continuing to access the credit and fixed income markets when needed, a
financial crisis could render us unable to access these markets, severely
affecting our business operations.
Changes
in available technology could increase competition and our capital
costs.
The
telecommunications industry has experienced rapid changes in the last several
years. The development of wireless, cable and IP technologies has significantly
increased the commercial viability of alternatives to traditional wireline
telephone service and enhanced the capabilities of wireless networks. In order
to remain competitive, we have begun to deploy a more sophisticated wireline
network and continue to deploy a more sophisticated wireless network, as well as
research other new technologies. If the new technologies we have adopted or on
which we have focused our research efforts fail to be cost-effective and
accepted by customers, our ability to remain competitive could be materially
adversely affected.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
Changes
to federal, state and foreign government regulations and decisions in regulatory
proceedings could materially adversely affect us.
Our
wireline subsidiaries are subject to significant federal and state regulation
while many of our competitors are not. In addition, our subsidiaries and
affiliates operating outside the U.S. are also subject to the jurisdiction of
national and supranational regulatory authorities in the market where service is
provided. Our wireless subsidiaries are regulated to varying degrees by the FCC
and some state and local agencies. Adverse rulings by the FCC relating to
broadband issues could impede our ability to manage our networks and recover
costs and lessen incentives to invest in our networks. The development of new
technologies, such as IP-based services, also has created or potentially could
create conflicting regulation between the FCC and various state and local
authorities, which may involve lengthy litigation to resolve and may result in
outcomes unfavorable to us. In addition, increased public focus on alleged
changes in the global climate has led to proposals at state, federal and foreign
government levels to increase regulation on various types of emissions,
including those generated by vehicles and facilities consuming large amounts of
electricity.
Increasing
competition in our wireline markets could adversely affect wireline operating
margins.
We expect
competition in the telecommunications industry to continue to intensify. We
expect this competition will continue to put pressure on pricing, margins and
customer retention. A number of our competitors that rely on alternative
technologies (e.g., wireless, cable and VoIP) and business models (e.g.,
advertising-supported) are typically subject to less (or no) regulation than our
wireline and ATTC subsidiaries and therefore are able to operate with lower
costs. These competitors also have cost advantages compared to us, due in part
to a nonunionized workforce, lower employee benefits and fewer retirees (as most
of the competitors are relatively new companies). We believe such advantages can
be offset by continuing to increase the efficiency of our operating systems and
by improving employee training and productivity; however, there can be no
guarantee that our efforts in these areas will be successful.
Increasing
competition in the wireless industry could adversely affect our operating
results.
On
average, we have three to four other wireless competitors in each of our service
areas and compete for customers based principally on price, service/device
offerings, call quality, coverage area and customer service. In addition, we are
likely to experience growing competition from providers offering services using
alternative wireless technologies and IP-based networks as well as traditional
wireline networks. We expect market saturation may cause the wireless industry’s
customer growth rate to moderate in comparison with historical growth rates,
leading to increased competition for customers. We expect that the availability
of additional 700 MHz spectrum could increase competition and the effectiveness
of existing competition. This competition will continue to put pressure on
pricing and margins as companies compete for potential customers. Our ability to
respond will depend, among other things, on continued improvement in network
quality and customer service and effective marketing of attractive products and
services, and cost management. These efforts will involve significant expenses
and require strategic management decisions on, and timely implementation of,
equipment choices, marketing plans and financial budgets.
Equipment failures, natural disasters
and terrorist attacks may materially adversely affect our operations
.
Major
equipment failures or natural disasters, including severe weather, terrorist
acts or other breaches of network or IT security that affect our wireline and
wireless networks, including telephone switching offices, microwave links,
third-party owned local and long-distance networks on which we rely, our cell
sites or other equipment, could have a material adverse effect on our
operations. While we have insurance coverage for some of these events, our
inability to operate our wireline or wireless systems, even for a limited time
period, may result in significant expenses, a loss of customers or impair our
ability to attract new customers, which could have a material adverse effect on
our business, results of operations and financial condition.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Dollars
in millions except per share amounts
The
success of our U-verse services initiative will depend on the timing, extent and
cost of deployment; the development of attractive and profitable service
offerings; the extent to which regulatory, franchise fees and build-out
requirements apply to this initiative; and the availability and reliability of
the various technologies required to provide such offerings.
The trend
in telecommunications technology is to shift from the traditional circuit- and
wire-based technology to IP-based technology. IP-based technology can transport
voice and data, as well as video, from both wired and wireless networks.
IP-based networks also potentially cost less to operate than traditional
networks. Our competitors, many of which are newer companies, are deploying this
IP-based technology. In order to continue to offer attractive and competitively
priced services, we are deploying a new broadband network to offer IP-based
voice, data and video services. Using a new and sophisticated technology on a
very large scale entails risks but also presents opportunities to expand service
offerings to customers. Should deployment of our network be delayed or costs
exceed expected amounts, our margins would be adversely affected and such
effects could be material. Should regulatory requirements be different than we
anticipated, our deployment could be delayed, perhaps significantly, or limited
to only those geographical areas where regulation is not burdensome. In
addition, should the delivery of services expected to be deployed on our network
be delayed due to technological or regulatory constraints, performance of
suppliers, or other reasons, or the cost of providing such services becomes
higher than expected, customers may decide to purchase services from our
competitors, which would adversely affect our revenues and margins, and such
effects could be material.
Continuing
growth in our wireless services will depend on continuing access to adequate
spectrum, deployment of new technology and offering attractive services to
customers.
The
wireless industry is undergoing rapid and significant technological changes and
a dramatic increase in usage, in particular demand for and usage of data and
other non-voice services. We must continually invest in our wireless network in
order to continually improve our wireless service to meet this increasing demand
and remain competitive. Improvements in our service depend on many factors,
including continued access to and deployment of adequate spectrum. We must
maintain and expand our network capacity and coverage as well as the associated
wireline network needed to transport voice and data between cell sites. Network
service enhancements may not occur as scheduled or at the cost expected due to
many factors, including delays in determining equipment and handset operating
standards, supplier delays, regulatory permitting delays or
labor-related delays. Deployment of new technology also may adversely affect the
performance of the network for existing services. If the FCC does not allocate
sufficient spectrum to allow the wireless industry in general, and the company
in particular, to increase its capacity or if we cannot deploy the services
customers desire on a timely basis or at adequate cost while maintaining network
quality levels, then our ability to attract and retain customers, and therefore
maintain and improve our operating margins, could be materially adversely
affected.
Unfavorable
litigation or governmental investigation results could require us to pay
significant amounts or lead to onerous operating procedures.
We are
subject to a number of lawsuits both in the U.S. and in foreign countries,
including, at any particular time, claims relating to antitrust, patent
infringement, wage and hour, personal injury, and our advertising, sales and
billing and collection practices. We also spend substantial resources complying
with various government standards, which may entail related investigations. As
we deploy newer technologies, especially in the wireless area, we also face
current and potential litigation relating to alleged adverse health effects on
customers or employees who use such technologies including, for example,
wireless handsets. We may incur significant expenses defending such suits or
government charges and may be required to pay amounts or otherwise change our
operations in ways that could materially adversely affect our operations or
financial results.
A
majority of our workforce is represented by labor unions. Absent the successful
negotiation of certain agreements that expired during 2009, we could experience
lengthy work stoppages.
A
majority of our employees are represented by labor unions as of year-end 2009.
Labor contracts covering many of the employees expired during 2009.
Approximately 75 percent of employees covered by expired contracts have ratified
new agreements. We experienced a work stoppage in 2004 when the contracts
involving our wireline employees expired, and we may experience additional work
stoppages in 2010. A work stoppage could adversely affect our business
operations, including a loss of revenue and strained relationships with
customers, and we cannot predict the length of any such strike. We cannot
predict what will be the provisions for a new contract nor the impact of a new
contract on our financial condition.
CAUTIONARY
LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information
set forth in this report contains forward-looking statements that are subject to
risks and uncertainties, and actual results could differ materially. Many of
these factors are discussed in more detail in the “Risk Factors” section. We
claim the protection of the safe harbor for forward-looking statements provided
by the Private Securities Litigation Reform Act of 1995.
The
following factors could cause our future results to differ materially from those
expressed in the forward-looking statements:
·
|
Adverse
economic and/or capital access changes in the markets served by us or in
countries in which we have significant investments, including the impact
on customer demand and our ability and our suppliers’ ability to access
financial markets.
|
·
|
Changes
in available technology and the effects of such changes, including product
substitutions and deployment costs.
|
·
|
Increases
in our benefit plans’ costs, including increases due to adverse changes in
the U.S. and foreign securities markets, resulting in worse-than-assumed
investment returns and discount rates, and adverse medical cost trends and
unfavorable health care legislation and
regulations.
|
·
|
The
final outcome of Federal Communications Commission and other federal
agency proceedings and reopenings of such proceedings and judicial review,
if any, of such proceedings, including issues relating to access charges,
broadband deployment, E911 services, competition, net neutrality,
unbundled loop and transport elements, wireless license awards and
renewals and wireless services.
|
·
|
The
final outcome of regulatory proceedings in the states in which we operate
and reopenings of such proceedings and judicial review, if any, of such
proceedings, including proceedings relating to Interconnection terms,
access charges, universal service, unbundled network elements and resale
and wholesale rates, broadband deployment including our U-verse services,
net neutrality, performance measurement plans, service standards and
traffic compensation.
|
·
|
Enactment
of additional state, federal and/or foreign regulatory and tax laws and
regulations pertaining to our subsidiaries and foreign investments,
including laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
|
·
|
Our
ability to absorb revenue losses caused by increasing competition,
including offerings that use alternative technologies (e.g., cable,
wireless and VoIP) and our ability to maintain capital
expenditures.
|
·
|
The
extent of competition and the resulting pressure on access line totals and
wireline and wireless operating
margins.
|
·
|
Our
ability to develop attractive and profitable product/service offerings to
offset increasing competition in our wireless and wireline
markets.
|
·
|
The
ability of our competitors to offer product/service offerings at lower
prices due to lower cost structures and regulatory and legislative actions
adverse to us, including state regulatory proceedings relating to
unbundled network elements and nonregulation of comparable alternative
technologies (e.g., VoIP).
|
·
|
The
timing, extent and cost of deployment of our U-verse services; the
development of attractive and profitable service offerings; the extent to
which regulatory, franchise fees and build-out requirements apply to this
initiative; and the availability, cost and/or reliability of the various
technologies and/or content required to provide such
offerings.
|
·
|
Our
continued ability to attract and offer a diverse portfolio of devices,
some on an exclusive basis.
|
·
|
The
availability and cost of additional wireless spectrum and regulations
relating to licensing and technical standards and deployment and usage,
including network management rules.
|
·
|
Our
ability to manage growth in wireless data services, including network
quality.
|
·
|
The
outcome of pending or threatened litigation, including patent and product
safety claims by or against third
parties.
|
·
|
The
impact on our networks and business of major equipment failures, our
inability to obtain equipment/software or have equipment/software serviced
in a timely and cost-effective manner from suppliers, severe weather
conditions, natural disasters, pandemics or terrorist
attacks.
|
·
|
Our
ability to successfully negotiate new collective bargaining contracts and
the terms of those contracts.
|
·
|
The
issuance by the Financial Accounting Standards Board or other accounting
oversight bodies of new accounting standards or changes to existing
standards.
|
·
|
The
issuance by the Internal Revenue Service and/or state tax authorities of
new tax regulations or changes to existing standards and actions by
federal, state or local tax agencies and judicial authorities with respect
to applying applicable tax laws and regulations and the resolution of
disputes with any taxing
jurisdictions.
|
·
|
Our
ability to adequately fund our wireless operations, including payment for
additional spectrum; network upgrades and technological
advancements.
|
·
|
Changes
in our corporate strategies, such as changing network requirements or
acquisitions and dispositions, to respond to competition and regulatory,
legislative and technological
developments.
|
Readers
are cautioned that other factors discussed in this report, although not
enumerated here, also could materially affect our future
earnings.
AT&T
Inc.
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
|
|
|
|
|
|
|
|
Dollars
in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
Revenues
|
|
|
|
|
|
|
|
|
|
Wireless
service
|
|
$
|
48,563
|
|
|
$
|
44,249
|
|
|
$
|
38,568
|
|
Voice
|
|
|
32,314
|
|
|
|
37,321
|
|
|
|
40,798
|
|
Data
|
|
|
25,454
|
|
|
|
24,373
|
|
|
|
23,206
|
|
Directory
|
|
|
4,724
|
|
|
|
5,416
|
|
|
|
4,806
|
|
Other
|
|
|
11,963
|
|
|
|
12,669
|
|
|
|
11,550
|
|
Total
operating revenues
|
|
|
123,018
|
|
|
|
124,028
|
|
|
|
118,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services and sales (exclusive of depreciation and
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization
shown
separately
below)
|
|
|
50,405
|
|
|
|
49,556
|
|
|
|
46,801
|
|
Selling,
general and administrative
|
|
|
31,407
|
|
|
|
31,526
|
|
|
|
30,146
|
|
Depreciation
and amortization
|
|
|
19,714
|
|
|
|
19,883
|
|
|
|
21,577
|
|
Total
operating expenses
|
|
|
101,526
|
|
|
|
100,965
|
|
|
|
98,524
|
|
Operating
Income
|
|
|
21,492
|
|
|
|
23,063
|
|
|
|
20,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,379
|
)
|
|
|
(3,390
|
)
|
|
|
(3,507
|
)
|
Equity
in net income of affiliates
|
|
|
734
|
|
|
|
819
|
|
|
|
692
|
|
Other
income (expense) – net
|
|
|
152
|
|
|
|
(328
|
)
|
|
|
810
|
|
Total
other income (expense)
|
|
|
(2,493
|
)
|
|
|
(2,899
|
)
|
|
|
(2,005
|
)
|
Income
Before Income Taxes
|
|
|
18,999
|
|
|
|
20,164
|
|
|
|
18,399
|
|
Income
taxes
|
|
|
6,156
|
|
|
|
7,036
|
|
|
|
6,252
|
|
Net
Income
|
|
|
12,843
|
|
|
|
13,128
|
|
|
|
12,147
|
|
Less:
Net Income Attributable to Noncontrolling Interest
|
|
|
(308
|
)
|
|
|
(261
|
)
|
|
|
(196
|
)
|
Net
Income Attributable to AT&T
|
|
$
|
12,535
|
|
|
$
|
12,867
|
|
|
$
|
11,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share
|
|
$
|
2.12
|
|
|
$
|
2.17
|
|
|
$
|
1.95
|
|
Diluted
Earnings Per Share
|
|
$
|
2.12
|
|
|
$
|
2.16
|
|
|
$
|
1.94
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
AT&T
Inc.
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
Dollars
in millions except per share amounts
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,802
|
|
|
$
|
1,792
|
|
Accounts
receivable – net of allowances for doubtful accounts of $1,205 and
$1,270
|
|
|
14,978
|
|
|
|
16,047
|
|
Prepaid
expenses
|
|
|
1,572
|
|
|
|
1,538
|
|
Deferred
income taxes
|
|
|
1,274
|
|
|
|
1,014
|
|
Other
current assets
|
|
2,708
|
|
|
|
2,165
|
|
Total
current assets
|
|
|
24,334
|
|
|
|
22,556
|
|
Property,
Plant and Equipment – Net
|
|
|
100,093
|
|
|
|
99,088
|
|
Goodwill
|
|
|
73,259
|
|
|
|
71,829
|
|
Licenses
|
|
|
48,759
|
|
|
|
47,306
|
|
Customer
Lists and Relationships – Net
|
|
|
7,420
|
|
|
|
10,582
|
|
Other
Intangible Assets – Net
|
|
|
5,644
|
|
|
|
5,824
|
|
Investments
in Equity Affiliates
|
|
|
2,921
|
|
|
|
2,332
|
|
Other
Assets
|
|
|
6,322
|
|
|
|
5,728
|
|
Total
Assets
|
|
$
|
268,752
|
|
|
$
|
265,245
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
Debt
maturing within one year
|
|
$
|
7,361
|
|
|
$
|
14,119
|
|
Accounts
payable and accrued liabilities
|
|
|
20,999
|
|
|
|
20,032
|
|
Advanced
billing and customer deposits
|
|
|
4,170
|
|
|
|
3,849
|
|
Accrued
taxes
|
|
|
1,696
|
|
|
|
1,874
|
|
Dividends
payable
|
|
|
2,479
|
|
|
|
2,416
|
|
Total
current liabilities
|
|
|
36,705
|
|
|
|
42,290
|
|
Long-Term
Debt
|
|
|
64,720
|
|
|
|
60,872
|
|
Deferred
Credits and Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
23,803
|
|
|
|
19,196
|
|
Postemployment
benefit obligation
|
|
|
27,849
|
|
|
|
31,930
|
|
Other
noncurrent liabilities
|
|
|
13,350
|
|
|
|
14,207
|
|
Total
deferred credits and other noncurrent liabilities
|
|
|
65,002
|
|
|
|
65,333
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
Common
stock ($1 par value, 14,000,000,000 authorized at December 31, 2009
and
7,000,000,000
authorized at December 31, 2008: issued 6,495,231,088 at
December
31, 2009 and 2008)
|
|
|
6,495
|
|
|
|
6,495
|
|
Additional
paid-in capital
|
|
|
91,707
|
|
|
|
91,728
|
|
Retained
earnings
|
|
|
39,366
|
|
|
|
36,591
|
|
Treasury
shares (593,300,187 at December 31, 2009,
and
602,221,825 at December 31, 2008, at cost)
|
|
|
(21,260
|
)
|
|
|
(21,410
|
)
|
Accumulated
other comprehensive loss
|
|
|
(14,408
|
)
|
|
|
(17,057
|
)
|
Noncontrolling
interest
|
|
|
425
|
|
|
|
403
|
|
Total
stockholders’ equity
|
|
|
102,325
|
|
|
|
96,750
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
268,752
|
|
|
$
|
265,245
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
AT&T
Inc.
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
Dollars
in millions, increase (decrease) in cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,843
|
|
|
$
|
13,128
|
|
|
$
|
12,147
|
|
Adjustments
to reconcile net income to net cash provided
by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,714
|
|
|
|
19,883
|
|
|
|
21,577
|
|
Undistributed
earnings from investments in equity affiliates
|
|
|
(419
|
)
|
|
|
(654
|
)
|
|
|
(297
|
)
|
Provision
for uncollectible accounts
|
|
|
1,763
|
|
|
|
1,796
|
|
|
|
1,617
|
|
Deferred
income tax expense (benefit)
|
|
|
2,104
|
|
|
|
5,889
|
|
|
|
(240
|
)
|
Net
(gain) loss from impairment and sale of investments
|
|
|
-
|
|
|
|
517
|
|
|
|
(11
|
)
|
Gain
on license exchange
|
|
|
-
|
|
|
|
-
|
|
|
|
(409
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(454
|
)
|
|
|
(1,421
|
)
|
|
|
(1,491
|
)
|
Other
current assets
|
|
|
(355
|
)
|
|
|
827
|
|
|
|
(1,020
|
)
|
Accounts
payable and accrued liabilities
|
|
|
2,372
|
|
|
|
(5,563
|
)
|
|
|
672
|
|
Share-based
payment excess tax benefit
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
(173
|
)
|
Net
income attributable to noncontrolling interest
|
|
|
(308
|
)
|
|
|
(261
|
)
|
|
|
(196
|
)
|
Other
– net
|
|
|
(2,815
|
)
|
|
|
(470
|
)
|
|
|
2,066
|
|
Total
adjustments
|
|
|
21,602
|
|
|
|
20,528
|
|
|
|
22,095
|
|
Net
Cash Provided by Operating Activities
|
|
|
34,445
|
|
|
|
33,656
|
|
|
|
34,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
and capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(16,595
|
)
|
|
|
(19,676
|
)
|
|
|
(17,717
|
)
|
Interest
during construction
|
|
|
(740
|
)
|
|
|
(659
|
)
|
|
|
(171
|
)
|
Acquisitions,
net of cash acquired
|
|
|
(983
|
)
|
|
|
(10,972
|
)
|
|
|
(2,873
|
)
|
Dispositions
|
|
|
287
|
|
|
|
1,615
|
|
|
|
1,594
|
|
Sales
of securities, net of investments
|
|
|
55
|
|
|
|
68
|
|
|
|
455
|
|
Sale
of other investments
|
|
|
-
|
|
|
|
436
|
|
|
|
-
|
|
Other
|
|
|
51
|
|
|
|
45
|
|
|
|
36
|
|
Net
Cash Used in Investing Activities
|
|
|
(17,925
|
)
|
|
|
(29,143
|
)
|
|
|
(18,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in short-term borrowings with original
maturities
of three months or less
|
|
|
(3,910
|
)
|
|
|
2,017
|
|
|
|
(3,411
|
)
|
Issuance
of long-term debt
|
|
|
8,161
|
|
|
|
12,416
|
|
|
|
11,367
|
|
Repayment
of long-term debt
|
|
|
(8,654
|
)
|
|
|
(4,010
|
)
|
|
|
(6,772
|
)
|
Purchase
of treasury shares
|
|
|
-
|
|
|
|
(6,077
|
)
|
|
|
(10,390
|
)
|
Issuance
of treasury shares
|
|
|
28
|
|
|
|
319
|
|
|
|
1,986
|
|
Dividends
paid
|
|
|
(9,670
|
)
|
|
|
(9,507
|
)
|
|
|
(8,743
|
)
|
Share-based
payment excess tax benefit
|
|
|
-
|
|
|
|
15
|
|
|
|
173
|
|
Other
|
|
|
(465
|
)
|
|
|
136
|
|
|
|
(224
|
)
|
Net
Cash Used in Financing Activities
|
|
|
(14,510
|
)
|
|
|
(4,691
|
)
|
|
|
(16,014
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,010
|
|
|
|
(178
|
)
|
|
|
(448
|
)
|
Cash
and cash equivalents beginning of year
|
|
|
1,792
|
|
|
|
1,970
|
|
|
|
2,418
|
|
Cash
and Cash Equivalents End of Year
|
|
$
|
3,802
|
|
|
$
|
1,792
|
|
|
$
|
1,970
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
AT&T
Inc.
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
|
Dollars
and shares in millions except per share amounts
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
6,495
|
|
|
$
|
6,495
|
|
|
|
6,495
|
|
|
$
|
6,495
|
|
|
|
6,495
|
|
|
$
|
6,495
|
|
Issuance
of shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance
at end of year
|
|
|
6,495
|
|
|
$
|
6,495
|
|
|
|
6,495
|
|
|
$
|
6,495
|
|
|
|
6,495
|
|
|
$
|
6,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
|
|
|
$
|
91,728
|
|
|
|
|
|
|
$
|
91,638
|
|
|
|
|
|
|
$
|
91,352
|
|
Issuance
of treasury shares
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
225
|
|
Share-based
payments
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
61
|
|
Balance
at end of year
|
|
|
|
|
|
$
|
91,707
|
|
|
|
|
|
|
$
|
91,728
|
|
|
|
|
|
|
$
|
91,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
|
|
|
$
|
36,591
|
|
|
|
|
|
|
$
|
33,297
|
|
|
|
|
|
|
$
|
30,375
|
|
Net
income attributable to AT&T ($2.12, $2.16, and $1.94 per
share)
|
|
|
|
|
|
|
12,535
|
|
|
|
|
|
|
|
12,867
|
|
|
|
|
|
|
|
11,951
|
|
Dividends
to stockholders ($1.65, $1.61, and $1.47 per share)
|
|
|
|
|
|
|
(9,733
|
)
|
|
|
|
|
|
|
(9,506
|
)
|
|
|
|
|
|
|
(8,945
|
)
|
Adoption
of FASB guidance related to unrecognized tax benefits
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
(50
|
)
|
Other
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
(34
|
)
|
Balance
at end of year
|
|
|
|
|
|
$
|
39,366
|
|
|
|
|
|
|
$
|
36,591
|
|
|
|
|
|
|
$
|
33,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
(602
|
)
|
|
$
|
(21,410
|
)
|
|
|
(451
|
)
|
|
$
|
(15,683
|
)
|
|
|
(256
|
)
|
|
$
|
(7,368
|
)
|
Purchase
of shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(164
|
)
|
|
|
(6,077
|
)
|
|
|
(267
|
)
|
|
|
(10,390
|
)
|
Issuance
of shares
|
|
|
9
|
|
|
|
150
|
|
|
|
13
|
|
|
|
350
|
|
|
|
72
|
|
|
|
2,075
|
|
Balance
at end of year
|
|
|
(593
|
)
|
|
$
|
(21,260
|
)
|
|
|
(602
|
)
|
|
$
|
(21,410
|
)
|
|
|
(451
|
)
|
|
$
|
(15,683
|
)
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT&T
Inc.
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (continued)
|
|
Dollars
and shares in millions except per share amounts
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
Accumulated
Other Comprehensive Income (Loss) Attributable to AT&T, net of
tax:
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
(17,057
|
)
|
|
$
|
(380
|
)
|
|
$
|
(5,314
|
)
|
Foreign
currency translation adjustments,
net
of taxes of $72, $(239), and $10
|
|
|
151
|
|
|
|
(443
|
)
|
|
|
19
|
|
Net
unrealized gains (losses) on available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses), net of taxes of $84, $(139), and $35
|
|
|
176
|
|
|
|
(259
|
)
|
|
|
65
|
|
Less
reclassification adjustment realized in net income,
net
of taxes of $23, $(9), and $(19)
|
|
|
48
|
|
|
|
(16
|
)
|
|
|
(35
|
)
|
Net
unrealized gains (losses) on cash flow hedges:`
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains (losses), net of taxes of $329, $(148), and $(38)
|
|
|
610
|
|
|
|
(274
|
)
|
|
|
(71
|
)
|
Less
reclassification adjustment realized in net income,
net
of taxes of $8, $9, and $9
|
|
|
15
|
|
|
|
17
|
|
|
|
17
|
|
Defined
benefit postretirement plans (see Note 11):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial gains (losses) and prior service benefit (cost) arising
during period,
net
of taxes of $1,044, $(9,298), and $3,411
|
|
|
1,397
|
|
|
|
(15,582
|
)
|
|
|
4,734
|
|
Amortization
of net actuarial loss and prior service benefit
included
in net income, net of taxes of $157, $(74), and $125
|
|
|
252
|
|
|
|
(120
|
)
|
|
|
206
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
Other
comprehensive income (loss) attributable to AT&T
|
|
|
2,649
|
|
|
|
(16,677
|
)
|
|
|
4,934
|
|
Balance
at end of year
|
|
$
|
(14,408
|
)
|
|
$
|
(17,057
|
)
|
|
$
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
403
|
|
|
$
|
380
|
|
|
$
|
386
|
|
Net
income attributable to noncontrolling interest
|
|
|
308
|
|
|
|
261
|
|
|
|
196
|
|
Distributions
|
|
|
(285
|
)
|
|
|
(260
|
)
|
|
|
(205
|
)
|
Translation
adjustments applicable to noncontrolling interest, net of
tax
|
|
|
(1
|
)
|
|
|
22
|
|
|
|
3
|
|
Balance
at end of year
|
|
$
|
425
|
|
|
$
|
403
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity at beginning of year
|
|
$
|
96,750
|
|
|
$
|
115,747
|
|
|
$
|
115,926
|
|
Total
Stockholders’ Equity at end of year
|
|
$
|
102,325
|
|
|
$
|
96,750
|
|
|
$
|
115,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Income (Loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to AT&T
|
|
$
|
12,535
|
|
|
$
|
12,867
|
|
|
$
|
11,951
|
|
Other
comprehensive income (loss) attributable to AT&T per
above
|
|
|
2,649
|
|
|
|
(16,677
|
)
|
|
|
4,934
|
|
Comprehensive
income (loss) attributable to AT&T
|
|
$
|
15,184
|
|
|
$
|
(3,810
|
)
|
|
$
|
16,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
$
|
308
|
|
|
$
|
261
|
|
|
$
|
196
|
|
Other
comprehensive income (loss) attributable to noncontrolling interest per
above
|
|
|
(1
|
)
|
|
|
22
|
|
|
|
3
|
|
Comprehensive
income attributable to noncontrolling interest
|
|
$
|
307
|
|
|
$
|
283
|
|
|
$
|
199
|
|
Total
Comprehensive Income (Loss)
|
|
$
|
15,491
|
|
|
$
|
(3,527
|
)
|
|
$
|
17,084
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
Dollars
in millions except per share amounts
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of
Presentation
Throughout this document, AT&T Inc. is
referred to as “AT&T,” “we” or the “Company.” The consolidated financial
statements have been prepared pursuant to Regulation S-X and other applicable
rules of the Securities and Exchange Commission. The consolidated financial
statements include the accounts of the Company and our majority-owned
subsidiaries and affiliates. Our subsidiaries and affiliates operate in the
communications services industry both domestically and internationally,
providing wireless and wireline communications services and equipment, managed
networking, wholesale services, and advertising solutions.
All
significant intercompany transactions are eliminated in the consolidation
process. Investments in partnerships and less-than-majority-owned subsidiaries
where we have significant influence are accounted for under the equity method.
Earnings from certain foreign equity investments accounted for using the equity
method are included for periods ended within up to one month of our year-end
(see Note 7).
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, including estimates of probable losses and expenses. Actual
results could differ from those estimates. We have reclassified certain amounts
in prior-period financial statements to conform to the current period’s
presentation.
Recent
Accounting Standards
Accounting Standards
Codification
In June 2009, the
Financial Accounting Standards Board (FASB) issued standards that established
the FASB Accounting Standards Codification (ASC or Codification) as the source
of authoritative GAAP by the FASB for nongovernmental entities. The ASC
supersedes all non-SEC accounting and reporting standards that existed at the
ASC’s effective date. The FASB uses Accounting Standards Updates (ASU) to amend
the ASC. We refer to ASUs throughout our interim and annual reports where deemed
relevant and make general references to pre-Codification standards (e.g., GAAP
standards for acquisitions). These standards were effective for interim and
annual periods ending after September 15, 2009 (i.e., the quarterly period ended
September 30, 2009, for us).
Subsequent
Events
In May 2009, the FASB issued a standard that
established general standards of accounting for and disclosing events that occur
after the balance sheet date but before financial statements are issued or are
available for issuance. They were effective for interim and annual periods
ending after June 15, 2009 (i.e., the quarterly period ended June 30, 2009, for
us). In preparing the accompanying audited consolidated financial statements, we
have reviewed all known events that have occurred after December 31, 2009, and
through February 25, 2010, the filing date of our Annual Report on Form 10-K,
for inclusion in the financial statements and footnotes.
Noncontrolling Interests
Reporting
In
December 2007, the FASB issued a standard that requires noncontrolling interests
held by parties other than the parent in subsidiaries to be clearly identified,
labeled, and presented in the consolidated balance sheets within stockholders’
equity, but separate from the parent’s equity. For us, the new standard became
effective January 1, 2009, with restatement of prior financial statements.
Instead of including noncontrolling interest in Other income (expense) – net in
our consolidated statements of income, we disclose three measures of net
income: net income, net income attributable to noncontrolling
interest, and net income attributable to AT&T, and our operating cash flows
in our consolidated statements of cash flows reflect net income. Furthermore, we
continue to base our basic and diluted earnings per share calculations on net
income attributable to AT&T.
In
January 2010, the FASB issued guidance that amends accounting and disclosure
requirements for a decrease in ownership in a business under existing GAAP
standards for consolidations. It also clarifies the types of businesses that are
in the scope of these consolidations. As required by this guidance, we
retroactively applied the amendments as of January 1, 2009, which did not have a
material impact on our financial statements or footnote
disclosures.
Fair Value Measurements and
Disclosures
In April 2009, the FASB issued staff positions
that require enhanced disclosures, including interim disclosures, on financial
instruments, determination of fair value in turbulent markets, and recognition
and presentation of other-than-temporary impairments. These staff positions were
effective for interim and annual reporting periods beginning in our second
quarter of 2009. They increased our interim disclosures but have not had a
material impact on our financial position or results of operations.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
In August
2009, the FASB issued “Measuring Liabilities at Fair Value” (ASU 2009-05), which
amends existing GAAP for fair value measurement guidance by clarifying the fair
value measurement requirements for liabilities that lack a quoted price in an
active market. Per the Codification, a valuation technique based on a quoted
market price for the identical or similar liability when traded as an asset or
another valuation technique (e.g., an income or market approach) that is
consistent with the underlying principles of GAAP for fair value measurements
would be appropriate. ASU 2009-05 also clarifies that a reporting entity is not
required to add or adjust valuation inputs to compensate for transfer
restrictions on in-scope liabilities. ASU 2009-05 was effective August 2009, the
issuance date, and has not had a material impact on our financial position or
results of operations.
In
September 2009, the FASB issued “Investments in Certain Entities That Calculate
Net Asset Value per Share (or Its Equivalent)” (ASU 2009-12), which provides
guidance for an investor on using the net asset value per share provided by an
investee to estimate the fair value of an alternative investment when the fair
value for the primary investment is not readily determinable. It affects certain
investments that are required or permitted by GAAP to be measured or disclosed
at fair value on a recurring or nonrecurring basis. It requires disclosures by
major category of investment about certain attributes (e.g., applicable
redemption restrictions, unfunded commitments to the issuer of the investments,
and the investment strategies of that issuer). ASU 2009-12 was effective for
interim and annual periods ending on or after December 15, 2009 (i.e., the year
ended December 31, 2009, for us). See Note 11 for the impact of our adoption of
ASU 2009-12.
In
January 2010, the FASB issued “Fair Value Measurements and Disclosures—Improving
Disclosures about Fair Value Measurements” (ASU 2010-06), which requires new
disclosures and reasons for transfers of financial assets and liabilities
between Levels 1 and 2. ASU 2010-06 also clarifies that fair value measurement
disclosures are required for each class of financial asset and liability, which
may be a subset of a caption in the consolidated balance sheets, and those
disclosures should include a discussion of inputs and valuation techniques. It
further clarifies that the reconciliation of Level 3 measurements should
separately present purchases, sales, issuances, and settlements instead of
netting these changes. With respect to matters other than Level 3 measurements,
ASU 2010-06 is effective for fiscal years and interim periods beginning on or
after December 15, 2009 (i.e., the quarter ending March 31, 2010, for us). New
guidance related to Level 3 measurements is effective for fiscal years and
interim periods beginning on or after December 15, 2010 (i.e., the quarter
ending March 31, 2011, for us). We are currently evaluating the impact of ASU
2010-06 on our disclosures.
See Note
9 for fair value measurements and disclosures for our investment securities and
derivatives.
Derivative Instruments and Hedging
Activities Disclosures
In March 2008, the FASB
amended the disclosure requirements for derivative instruments and hedging
activities. The new guidance requires enhanced disclosures about an entity’s
derivative and hedging activities to improve the transparency of financial
reporting. We adopted the new guidance as of January 1, 2009, which increased
our quarterly and annual disclosures but did not have an impact on our financial
position and results of operations. See Note 9 for a comprehensive discussion of
our derivatives and hedging activities, including the underlying risks that we
are managing as a company, and the new disclosure requirements under
GAAP.
Pension and Other Postretirement
Benefits
In December 2008, the FASB issued a staff position
that amended an employer’s disclosure requirements for pensions and other
postretirement benefits. The new guidance replaced the requirement to disclose
the percentage of fair value of total plan assets with a requirement to disclose
the fair value of each major asset category. It also amended GAAP standards for
fair value measurements to clarify that defined benefit pension or other
postretirement plan assets were not subject to other prevailing GAAP standards
for fair value disclosures. We adopted the new guidance for the year ended
December 31, 2009. This guidance significantly increased the amount of annual
disclosures for plan assets in our annual report, and it will increase our
future interim disclosures in that regard (see Note 11).
Business Combinations
In December 2007, the
FASB amended GAAP for acquisitions, requiring that costs incurred to effect the
acquisition (i.e., acquisition-related costs) be recognized separately from the
acquisition. Under prior guidance, restructuring costs that the acquirer
expected but was not obligated to incur, which included changes to benefit
plans, were recognized as if they were a liability assumed at the acquisition
date. Amended GAAP for acquisitions requires the acquirer to recognize those
costs separately from the business combination. We adopted the new guidance as
of January 1, 2009, and applied it to acquisitions consummated after 2008,
including the Centennial Communications, Corp. (Centennial) acquisition, as
discussed in Note 2.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Equity Method Investments
Accounting
In November 2008, the
Emerging Issues Task Force (EITF) reached a consensus on new clarification
guidance regarding the application of the equity method. It states equity method
investments should be recognized using a cost accumulation model. It also
requires that equity method investments as a whole be assessed for
other-than-temporary impairment in accordance with existing GAAP for equity
method investments. The new guidance was effective, on a prospective basis, for
initial or additional equity method investments transactions and subsequent
impairments recognized in interim and annual periods that began on or
after December 15, 2008 (i.e., as of January 1, 2009, for us). The new guidance
did not have a material impact on our financial position or results of
operations.
Revenue Arrangements with Multiple
Deliverables
In October 2009, the FASB issued
“Multiple-Deliverable Revenue Arrangements” (ASU 2009-13), which addresses how
revenues should be allocated among all products and services included in our
sales arrangements. It establishes a selling price hierarchy for determining the
selling price of each product or service, with vendor-specific objective
evidence (VSOE) at the highest level, third-party evidence of VSOE at the
intermediate level, and a best estimate at the lowest level. It replaces “fair
value” with “selling price” in revenue allocation guidance, eliminates the
residual method as an acceptable allocation method, and requires the use of the
relative selling price method as the basis for allocation. It also significantly
expands the disclosure requirements for such arrangements, including,
potentially, certain qualitative disclosures. ASU 2009-13 will be effective
prospectively for sales entered into or materially modified in fiscal years
beginning on or after June 15, 2010 (i.e., the year beginning January 1, 2011,
for us). The FASB permits early adoption of ASU 2009-13, applied
retrospectively, to the beginning of the year of adoption. We are currently
evaluating the impact on our financial position and results of
operations.
Software
In
October 2009, the FASB issued “Certain Revenue Arrangements That Include
Software Elements” (ASU 2009-14), which clarifies the guidance for allocating
and measuring revenue, including how to identify software that is out of the
scope. ASU 2009-14 amends accounting and reporting guidance for revenue
arrangements involving both tangible products and software that is “more than
incidental to the tangible product as a whole.” That type of software and
hardware will be outside of the scope of software revenue guidance, and the
hardware components will also be outside of the scope of software revenue
guidance and may result in more revenue recognized at the time of the hardware
sale. Additional disclosures will discuss allocation of revenue to products and
services in our sales arrangements and the significant judgments applied in the
revenue allocation method, including impacts on the timing and amount of revenue
recognition. ASU 2009-14 will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 (i.e., the year beginning January 1, 2011, for us). ASU
2009-14 has the same effective date, including early adoption provisions, as ASU
2009-13. Companies must adopt ASU 2009-14 and ASU 2009-13 at the same time. We
are currently evaluating the impact on our financial position and results of
operations.
Valuation and Other
Adjustments
Included in the current liabilities reported on our
consolidated balance sheets are acquisition-related accruals established prior
to 2009. The liabilities include accruals for severance, lease terminations and
equipment removal costs associated with our acquisitions of AT&T Corp.
(ATTC), BellSouth Corporation (BellSouth), and Dobson Communications Corporation
(Dobson). Following is a summary of the accruals recorded at December 31, 2008,
cash payments made during 2009, and the adjustments thereto:
|
|
12/31/08
|
|
|
Cash
|
|
|
Adjustments
|
|
|
12/31/09
|
|
|
|
Balance
|
|
|
Payments
|
|
|
and
Accruals
|
|
|
Balance
|
|
Severance
accruals paid from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
funds
|
|
$
|
140
|
|
|
$
|
(108
|
)
|
|
$
|
(26
|
)
|
|
$
|
6
|
|
Pension
and postemployment
benefit
plans
|
|
|
103
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
98
|
|
Lease
terminations
1
|
|
|
387
|
|
|
|
(53
|
)
|
|
|
(122
|
)
|
|
|
212
|
|
Equipment
removal and other related costs
|
|
|
88
|
|
|
|
(38
|
)
|
|
|
(27
|
)
|
|
|
23
|
|
Total
|
|
$
|
718
|
|
|
$
|
(204
|
)
|
|
$
|
(175
|
)
|
|
$
|
339
|
|
1
Adjustments and accruals include a $106 reversal of BellSouth lease
termination costs, with an offset to goodwill.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Employee
Separations
In accordance with GAAP, we established
obligations for expected termination benefits provided under existing plans to
former or inactive employees after employment but before retirement. These
benefits include severance payments, workers’ compensation, disability, medical
continuation coverage, and other benefits. At December 31, 2009, we had
severance accruals of $676 and at December 31, 2008, we had severance accruals
of $752.
Split-Dollar Life
Insurance
In 2007, the EITF ratified the consensus on new
guidance related to the accounting for endorsement split-dollar life insurance
arrangements and collateral assignment split-dollar life insurance arrangements.
The new guidance covers split-dollar life insurance arrangements (where the
company owns and controls the policy) and provides that an employer should
recognize a liability for future benefits in accordance with GAAP standards for
an employer’s accounting for postretirement benefits other than pensions. The
new guidance became effective for fiscal years that began after December 15,
2007 (i.e., as of January 1, 2008, for us), and we recorded additional
postretirement liabilities of $101 and a decrease, net of taxes, to retained
earnings of $63.
Income Taxes
We
adopted GAAP standards for income taxes, as amended, as of January 1, 2007. With
our adoption of those amended standards, we provide deferred income taxes for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the computed tax basis of those
assets and liabilities (per the amended standards). Under the amended standards,
the tax basis of assets and liabilities are based on amounts that meet the
recognition threshold and are measured pursuant to the measurement requirement
in those standards. To the extent allowed by GAAP, we provide valuation
allowances against the deferred tax assets for which the realization is
uncertain. We review these items regularly in light of changes in federal and
state tax laws and changes in our business.
We
report, on a net basis, taxes imposed by governmental authorities on
revenue-producing transactions between us and our customers in our consolidated
statements of income.
Cash
Equivalents
Cash and cash equivalents include all
highly-liquid investments with original maturities of three months or less, and
the carrying amounts approximate fair value. At December 31, 2009, we held $437
in cash and $3,365 in money market funds and other cash
equivalents.
Investment
Securities
See Note 9 for disclosures related to our
investment securities, including available-for-sale securities.
Revenue
Recognition
Revenues derived from wireless, local telephone,
long-distance, data and video services are recognized when services are
provided. This is based upon either usage (e.g., minutes of traffic processed),
period of time (e.g., monthly service fees) or other established fee schedules.
Our wireless service revenues are billed either in advance, arrears or are
prepaid. Our wireless Rollover
®
rate
plans include a feature whereby unused anytime minutes do not expire each month
but rather are available, under certain conditions, for future use for a period
not to exceed one year from the date of purchase. Using historical subscriber
usage patterns, we defer these revenues based on an estimate of the portion of
unused minutes expected to be utilized prior to expiration.
We record
an estimated revenue reduction for future adjustments to customer accounts,
other than a provision for doubtful accounts, at the time revenue is recognized
based on historical experience. Service revenues also include billings to our
customers for various regulatory fees imposed on us by governmental authorities.
Cash incentives given to customers are recorded as a reduction of revenue. When
required as part of providing service, revenues and associated expenses related
to nonrefundable, upfront service activation and setup fees are deferred and
recognized over the associated service contract period or customer life (for
wireless). If no service contract exists, those fees are recognized over the
average customer relationship period. Associated expenses are deferred only to
the extent of such deferred revenue. For contracts that involve the bundling of
services, revenue is allocated to the services based on their relative fair
value. We record the sale of equipment to customers as gross revenue when we are
the primary obligor in the arrangement, when title is passed and when the
products are accepted by customers. For agreements involving the resale of
third-party services in which we are not considered the primary obligor of the
arrangement, we record the revenue net of the associated costs incurred. For
contracts in which we provide customers with an indefeasible right to use
network capacity, we recognize revenue ratably over the stated life of the
agreement.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
We
recognize revenues and expenses related to publishing directories on the
amortization method, which recognizes revenues and expenses ratably over the
life of the directory title, typically 12 months.
Traffic Compensation
Expense
We use various estimates and assumptions to determine
the amount of traffic compensation expenses recognized during any reporting
period. Switched traffic compensation costs are accrued utilizing estimated
rates by product, formulated from historical data and adjusted for known rate
changes and volume levels. Such estimates are adjusted monthly to reflect
newly-available information, such as rate changes and new contractual
agreements. Bills reflecting actual incurred information are generally not
received until three to nine months subsequent to the end of the reporting
period, at which point a final adjustment is made to the accrued switched
traffic compensation expense. Dedicated traffic compensation costs are estimated
based on the number of circuits and the average projected circuit costs. These
costs are adjusted to reflect actual expenses over the three months following
the end of the reporting period as bills are received.
Allowance for Doubtful
Accounts
We maintain an allowance for doubtful accounts for
estimated losses that result from the failure or inability of our customers to
make required payments. When determining the allowance, we consider the
probability of recoverability of accounts receivable based on past experience,
taking into account current collection trends as well as general economic
factors, including bankruptcy rates. Credit risks are assessed based on
historical write-offs, net of recoveries, as well as an analysis of the aged
accounts receivable balances with allowances generally increasing as the
receivable ages. Accounts receivable may be fully reserved for when specific
collection issues are known to exist, such as pending bankruptcy or
catastrophes. The analysis of receivables is performed monthly, and the
allowances are adjusted accordingly.
Inventory
Inventories,
which are included in “Other current assets” on our consolidated balance sheets,
were $885 at December 31, 2009, and $862 at December 31, 2008. Wireless handsets
and accessories, which are valued at the lower of cost or market value
(determined using current replacement cost) were $790 as of December 31, 2009,
and $749 as of December 31, 2008. The remainder of our inventory includes new
and reusable supplies and network equipment of our local telephone operations,
which are stated principally at average original cost, except that specific
costs are used in the case of large individual items. Inventories of our other
subsidiaries are stated at the lower of cost or market.
Property, Plant and
Equipment
Property, plant and equipment is stated at cost,
except for assets acquired using acquisition accounting, which are recorded at
fair value (see Note 2). The cost of additions and substantial improvements to
property, plant and equipment is capitalized. The cost of maintenance and
repairs of property, plant and equipment is charged to operating expenses.
Property, plant and equipment is depreciated using straight-line methods over
their estimated economic lives. Certain subsidiaries follow composite group
depreciation methodology; accordingly, when a portion of their depreciable
property, plant and equipment is retired in the ordinary course of business, the
gross book value is reclassified to accumulated depreciation — no gain or loss
is recognized on the disposition of this plant.
Property,
plant and equipment is reviewed for recoverability whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss shall be recognized only if the carrying
amount of a long-lived
asset is not recoverable and exceeds its fair value. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset.
The fair
value of a liability for an asset retirement obligation is recorded in the
period in which it is incurred if a reasonable estimate of fair value can be
made. In periods subsequent to initial measurement, period-to-period changes in
the liability for an asset retirement obligation resulting from the passage of
time and revisions to either the timing or the amount of the original estimate
of undiscounted cash flows are recognized. The increase in the carrying value of
the associated long-lived asset is depreciated over the corresponding estimated
economic life.
Software Costs
It
is our policy to capitalize certain costs incurred in connection with developing
or obtaining internal-use software. Capitalized software costs are included in
“Property, Plant and Equipment” on our consolidated balance sheets and are
primarily amortized over a three-year period. Software costs that do not meet
capitalization criteria are expensed immediately.
Goodwill and Other Intangible
Assets
Goodwill represents the excess of consideration paid
over the fair value of net assets acquired in business combinations. Goodwill
and other indefinite-lived intangible assets are not amortized but are tested at
least annually for impairment. We have completed our annual goodwill impairment
testing for 2009, which did not result in an impairment.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Intangible
assets that have finite useful lives are amortized over their useful lives, a
weighted-average of 8.1 years. Customer relationships are amortized using
primarily the sum-of-the-months-digits method of amortization over the expected
period in which those relationships are expected to contribute to our future
cash flows based in such a way as to allocate it as equitably as possible to
periods during which we expect to benefit from those relationships.
A
significant portion of intangible assets in our Wireless segment are Federal
Communications Commission (FCC) licenses that provide us with the exclusive
right to utilize certain radio frequency spectrum to provide wireless
communications services. While FCC licenses are issued for a fixed time
(generally 10 years), renewals of FCC licenses have occurred routinely and at
nominal cost. Moreover, we have determined that there are currently no legal,
regulatory, contractual, competitive, economic or other factors that limit the
useful lives of our FCC licenses, and therefore the FCC licenses are
indefinite-lived intangible assets under the GAAP standards for goodwill and
other intangible assets.
In
accordance with GAAP,
we test wireless FCC
licenses for impairment on an aggregate basis, consistent with the management of
the business on a national scope. During the fourth quarter of 2009, we
completed the annual impairment tests for indefinite-lived wireless FCC
licenses. These annual impairment tests resulted in no material impairment of
indefinite-lived wireless FCC licenses. We recorded an immaterial $18 impairment
to wireline licenses we no longer plan to use.
Advertising
Costs
Advertising costs for advertising products and services
or for promoting our corporate image are expensed as incurred.
Foreign Currency
Translation
We are exposed to foreign currency exchange risk
through our foreign affiliates and equity investments in foreign companies. Our
foreign subsidiaries and foreign investments generally report their earnings in
their local currencies. We translate our share of their foreign assets and
liabilities at exchange rates in effect at the balance sheet dates. We translate
our share of their revenues and expenses using average rates during the year.
The resulting foreign currency translation adjustments are recorded as a
separate component of accumulated other comprehensive income in the accompanying
consolidated balance sheets. We do not hedge foreign currency translation risk
in the net assets and income we report from these sources. However, we do hedge
a large portion of the foreign currency exchange risk involved in anticipation
of highly probable foreign currency-denominated transactions, which we explain
further in our discussion of our methods of managing our foreign currency risk
(see Note 9).
NOTE
2. ACQUISITIONS, DISPOSITIONS, AND OTHER ADJUSTMENTS
Acquisitions
Centennial
In
November 2009, we acquired the assets of Centennial, a regional provider of
wireless and wired communications services with approximately 865,000 customers
as of December 31, 2009. Total consideration of $2,961 included $955 in cash for
the redemption of Centennial’s outstanding common stock and liquidation of
outstanding stock options and $2,006 for our acquisition of Centennial’s
outstanding debt (including liabilities related to assets subject to sale, as
discussed below), of which we repaid $1,957 after closing in 2009. The
preliminary fair value measurement of Centennial’s net assets at the acquisition
date resulted in the recognition of $1,276 of goodwill, $647 of spectrum
licenses, and $273 of customer lists and other intangible assets for the
Wireless segment. The Wireline segment added $339 of goodwill and $174 of
customer lists and other intangible assets from the acquisition. The acquisition
of Centennial impacted our Wireless and Wireline segments, and we have included
Centennial’s operations in our consolidated results since the acquisition date.
As the value of certain assets and liabilities are preliminary in nature, they
are subject to adjustment as additional information is obtained about the facts
and circumstances that existed at the acquisition date. When the valuation is
final, any changes to the preliminary valuation of acquired assets and
liabilities could result in adjustments to identified intangibles and goodwill.
See Notes 6 and 8 for additional information regarding the impact of the
Centennial acquisition on our goodwill and other intangibles and our long-term
debt repayment for 2009.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share
amounts
Wireless Properties
Transactions
In May 2009, we announced a definitive agreement
to acquire certain wireless assets from Verizon Wireless (VZ) for approximately
$2,350 in cash. The assets primarily represent former Alltel Wireless assets. We
will acquire wireless properties, including licenses and network assets, serving
approximately 1.5 million subscribers in 79 service areas across 18 states. In
October 2009, the Department of Justice (DOJ) cleared our acquisition of
Centennial, subject to the DOJ’s condition that we divest Centennial’s
operations in eight service areas in Louisiana and Mississippi. We are in the
process of finalizing definitive agreements and seeking regulatory approvals to
sell all eight Centennial service areas ultimately identified in that ruling. We
anticipate we will close the sales during the first half of 2010. As of December
31, 2009, the fair value of the assets subject to the sale, net of related
liabilities, was $282. These net assets include property, plant and equipment,
spectrum licenses, customer lists and other intangible assets, and working
capital, which are not deemed material for isolated presentation as assets held
for sale and liabilities related to assets held for sale in our consolidated
balance sheet as of December 31, 2009, and we included these net assets in our
Other current assets balance.
Dobson
In November
2007, we acquired Dobson for approximately $2,500. Under the purchase method of
accounting, the transaction was valued, for accounting purposes, at $2,580. Our
December 31, 2007 consolidated balance sheet included the preliminary valuation
of the fair value of Dobson’s assets and liabilities, including goodwill of
$2,623, FCC licenses of $2,230, customer lists of $517 and other intangible
assets totaling $8 associated with this transaction. Final adjustments to the
preliminary valuation included an increase to goodwill of $990, a decrease in
licenses of $781 and a decrease in customer lists of $12. The resulting balances
are $3,613 for goodwill, $1,449 for licenses and $505 for customer lists.
Adjustments were primarily related to changes in the valuation of certain
licenses and an increase in the estimate of relative obsolescence of property,
plant and equipment resulting in a decrease in value and shorter average
remaining economic life, and an adjustment to the value of the markets included
in the divestiture order by the FCC. Pursuant to the order, we exchanged certain
properties, spectrum and $355 in cash for other licenses and properties.
Deferred tax adjustments are associated with the above mentioned items. Dobson
marketed wireless services under the Cellular One brand and had provided roaming
services to AT&T subsidiaries since 1990. Dobson had 1.7 million subscribers
across 17 states. Dobson’s operations were incorporated into our wireless
operations following the date of acquisition.
Other
Acquisitions
During 2009, we acquired a provider of mobile
application solutions and a security consulting business for a combined $50
before closing costs. The fair value of the acquired businesses’ net assets
resulted in the recognition of $41 of goodwill and $3 in customer lists and
other intangible assets.
During
2008, we acquired Easterbrooke Cellular Corporation, Windstream Wireless,
Wayport Inc. and the remaining 64% of Edge Wireless for a combined $663,
recording $449 in goodwill. The acquisitions of these companies are designed to
expand our wireless and Wi-Fi coverage area.
During
2007, we acquired Interwise
®
, a
global provider of voice, Web and video conferencing services to businesses, for
$122 and Ingenio
®
, a
provider of Pay Per Call
®
technology for directory and local search business, for $195, net of cash. We
recorded $304 of goodwill related to these acquisitions.
Dispositions
In 2009,
we sold a professional services business for $174 and eliminated $113 of
goodwill.
In April
2008, we sold to Local Insight Regatta Holdings, Inc., the parent company of
Local Insight Yellow Pages, the Independent Line of Business segment of the L.M.
Berry Company for $230.
In May
2007, we sold to Clearwire Corporation (Clearwire), a national provider of
wireless broadband Internet access, education broadband service spectrum and
broadband radio service spectrum valued at $300. Sale of this spectrum was
required as a condition to the approval of our acquisition of
BellSouth.
Other
Adjustments
As ATTC
and BellSouth stock options that were converted at the time of the respective
acquisitions are exercised, the tax effect on those options may further reduce
goodwill. During 2008, we recorded $1 in related goodwill reductions for ATTC
and $9 for BellSouth.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
NOTE
3. EARNINGS PER SHARE
A
reconciliation of the numerators and denominators of basic earnings per share
and diluted earnings per share for income from continuing operations for the
years ended December 31, 2009, 2008 and 2007, are shown in the table
below:
Year
Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Numerators
|
|
|
|
|
|
|
|
|
|
Numerator
for basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income attributable to
AT&T
|
|
$
|
12,535
|
|
|
$
|
12,867
|
|
|
$
|
11,951
|
|
Dilutive potential common
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other share-based
payment
|
|
|
10
|
|
|
|
9
|
|
|
|
8
|
|
Numerator
for diluted earnings per share
|
|
$
|
12,545
|
|
|
$
|
12,876
|
|
|
$
|
11,959
|
|
Denominators
(000,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of
common
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
5,900
|
|
|
|
5,927
|
|
|
|
6,127
|
|
Dilutive potential common
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
3
|
|
|
|
9
|
|
|
|
24
|
|
Other share-based
payment
|
|
|
21
|
|
|
|
22
|
|
|
|
19
|
|
Denominator
for diluted earnings per share
|
|
|
5,924
|
|
|
|
5,958
|
|
|
|
6,170
|
|
Basic
earnings per share
|
|
$
|
2.12
|
|
|
$
|
2.17
|
|
|
$
|
1.95
|
|
Diluted
earnings per share
|
|
$
|
2.12
|
|
|
$
|
2.16
|
|
|
$
|
1.94
|
|
At
December 31, 2009, 2008 and 2007, we had issued and outstanding options to
purchase approximately 178 million, 204 million and 231 million shares of
AT&T common stock. The exercise prices of options to purchase a
weighted-average of 163 million, 144 million and 93 million shares in 2009,
2008, and 2007 were above the average market price of AT&T stock.
Accordingly, we did not include these amounts in determining the dilutive
potential common shares for the respective periods. At December 31, 2009, the
exercise price of 19 million share options was below market price.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
NOTE
4. SEGMENT INFORMATION
Our
segments are strategic business units that offer different products and services
over various technology platforms and are managed accordingly. Our operating
segment results presented in Note 4 and discussed below for each segment follow
our internal management reporting. We analyze our various operating segments
based on segment income before income taxes. Interest expense and other income
(expense) – net are managed only on a total company basis and are, accordingly,
reflected only in consolidated results. Therefore, these items are not included
in the calculation of each segment’s percentage of our consolidated results. The
customers and long-lived assets of our reportable segments are predominantly in
the United States. We have four reportable segments: (1) Wireless,
(2) Wireline, (3) Advertising Solutions and
(4) Other.
The
Wireless segment uses our nationwide network to provide consumer and business
customers with wireless voice and advanced data communications
services.
The
Wireline segment uses our regional, national and global network to provide
consumer and business customers with landline voice and data communications
services, AT&T U-verse
SM
TV,
high-speed broadband and voice services (U-verse) and managed networking to
business customers. Additionally, we offer satellite television services through
our agency arrangements.
The
Advertising Solutions segment includes our directory operations, which publish
Yellow and White Pages directories and sell directory advertising and
Internet-based advertising and local search. This segment includes the results
of YELLOWPAGES.COM, LLC (YPC), which was a joint venture with BellSouth prior to
the December 29, 2006 acquisition and is now a wholly-owned subsidiary of
AT&T. For segment reporting disclosure, we have carried forward the deferred
revenue and deferred cost balances for BellSouth at the acquisition date in
order to reflect how the segment is managed. This is different for consolidated
reporting purposes where BellSouth deferred revenue and expenses from
directories published during the 12-month period ending with the December 29,
2006 acquisition date, are not recognized and therefore were not included in the
opening balance sheet. For management reporting purposes, we continue to
amortize these balances over the life of the directory. Thus, our Advertising
Solutions segment results in 2007 include revenue of $964 and expenses of $308,
related to directories published in the Southeast region during 2006, prior to
our acquisition of BellSouth. These amounts are eliminated in the consolidation
and elimination column in the following reconciliation.
The Other
segment includes results from Sterling Commerce, Inc. (Sterling), customer
information services and all corporate and other operations. This segment
includes our portion of the results from our international equity investments.
Also included in the Other segment are impacts of corporate-wide decisions for
which the individual operating segments are not being evaluated.
In the
following tables, we show how our segment results are reconciled to our
consolidated results reported in accordance with GAAP. The Wireless, Wireline,
Advertising Solutions and Other columns represent the segment results of each
such operating segment. The consolidation and elimination column adds in those
line items that we manage on a consolidated basis only: interest expense and
other income (expense) – net. This column also eliminates any
intercompany transactions included in each segment’s results as well as the
Advertising Solutions revenue and expense in 2007 related to directories
published in the Southeast region during 2006, mentioned previously. In the
Segment assets line item, we have eliminated the value of our investments in our
fully consolidated subsidiaries and the intercompany financing assets as these
have no impact to the segments’ operations.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Segment
results, including a reconciliation to AT&T consolidated results, for 2009,
2008 and 2007 are as follows:
At
December 31, 2009 or for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
Wireless
|
|
|
Wireline
|
|
|
Solutions
|
|
|
Other
|
|
|
and
Elimination
|
|
|
Results
|
|
Revenues
from external customers
|
|
$
|
53,504
|
|
|
$
|
63,331
|
|
|
$
|
4,724
|
|
|
$
|
1,459
|
|
|
$
|
-
|
|
|
$
|
123,018
|
|
Intersegment
revenues
|
|
|
93
|
|
|
|
2,339
|
|
|
|
85
|
|
|
|
272
|
|
|
|
(2,789
|
)
|
|
|
-
|
|
Total
segment operating revenues
|
|
|
53,597
|
|
|
|
65,670
|
|
|
|
4,809
|
|
|
|
1,731
|
|
|
|
(2,789
|
)
|
|
|
123,018
|
|
Operations
and support expenses
|
|
|
34,561
|
|
|
|
44,646
|
|
|
|
2,922
|
|
|
|
2,471
|
|
|
|
(2,788
|
)
|
|
|
81,812
|
|
Depreciation
and amortization expenses
|
|
|
5,765
|
|
|
|
13,093
|
|
|
|
649
|
|
|
|
207
|
|
|
|
-
|
|
|
|
19,714
|
|
Total
segment operating expenses
|
|
|
40,326
|
|
|
|
57,739
|
|
|
|
3,571
|
|
|
|
2,678
|
|
|
|
(2,788
|
)
|
|
|
101,526
|
|
Segment
operating income
|
|
|
13,271
|
|
|
|
7,931
|
|
|
|
1,238
|
|
|
|
(947
|
)
|
|
|
(1
|
)
|
|
|
21,492
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,379
|
|
|
|
3,379
|
|
Equity
in net income of affiliates
|
|
|
9
|
|
|
|
18
|
|
|
|
-
|
|
|
|
706
|
|
|
|
1
|
|
|
|
734
|
|
Other
income (expense) – net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
|
|
152
|
|
Segment
income before income taxes
|
|
$
|
13,280
|
|
|
$
|
7,949
|
|
|
$
|
1,238
|
|
|
$
|
(241
|
)
|
|
$
|
(3,227
|
)
|
|
$
|
18,999
|
|
Segment
assets
|
|
$
|
115,282
|
|
|
$
|
163,028
|
|
|
$
|
9,782
|
|
|
$
|
13,567
|
|
|
$
|
(32,907
|
)
|
|
$
|
268,752
|
|
Investment
in equity method investees
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,917
|
|
|
|
-
|
|
|
|
2,921
|
|
Expenditures
for additions to long-lived assets
|
|
|
5,921
|
|
|
|
11,166
|
|
|
|
22
|
|
|
|
226
|
|
|
|
-
|
|
|
|
17,335
|
|
At
December 31, 2008 or for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
Wireless
|
|
|
Wireline
|
|
|
Solutions
|
|
|
Other
|
|
|
and
Elimination
|
|
|
Results
|
|
Revenues
from external customers
|
|
$
|
49,174
|
|
|
$
|
67,669
|
|
|
$
|
5,417
|
|
|
$
|
1,768
|
|
|
$
|
-
|
|
|
$
|
124,028
|
|
Intersegment
revenues
|
|
|
161
|
|
|
|
2,186
|
|
|
|
85
|
|
|
|
274
|
|
|
|
(2,706
|
)
|
|
|
-
|
|
Total
segment operating revenues
|
|
|
49,335
|
|
|
|
69,855
|
|
|
|
5,502
|
|
|
|
2,042
|
|
|
|
(2,706
|
)
|
|
|
124,028
|
|
Operations
and support expenses
|
|
|
32,481
|
|
|
|
45,440
|
|
|
|
2,998
|
|
|
|
2,868
|
|
|
|
(2,705
|
)
|
|
|
81,082
|
|
Depreciation
and amortization expenses
|
|
|
5,770
|
|
|
|
13,206
|
|
|
|
789
|
|
|
|
118
|
|
|
|
-
|
|
|
|
19,883
|
|
Total
segment operating expenses
|
|
|
38,251
|
|
|
|
58,646
|
|
|
|
3,787
|
|
|
|
2,986
|
|
|
|
(2,705
|
)
|
|
|
100,965
|
|
Segment
operating income
|
|
|
11,084
|
|
|
|
11,209
|
|
|
|
1,715
|
|
|
|
(944
|
)
|
|
|
(1
|
)
|
|
|
23,063
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,390
|
|
|
|
3,390
|
|
Equity
in net income of affiliates
|
|
|
6
|
|
|
|
19
|
|
|
|
-
|
|
|
|
794
|
|
|
|
-
|
|
|
|
819
|
|
Other
income (expense) – net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(328
|
)
|
|
|
(328
|
)
|
Segment
income before income taxes
|
|
$
|
11,090
|
|
|
$
|
11,228
|
|
|
$
|
1,715
|
|
|
$
|
(150
|
)
|
|
$
|
(3,719
|
)
|
|
$
|
20,164
|
|
Segment
assets
|
|
$
|
112,146
|
|
|
$
|
157,501
|
|
|
$
|
11,038
|
|
|
$
|
8,769
|
|
|
$
|
(24,209
|
)
|
|
$
|
265,245
|
|
Investment
in equity method investees
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,330
|
|
|
|
-
|
|
|
|
2,332
|
|
Expenditures
for additions to long-lived assets
|
|
|
5,869
|
|
|
|
14,129
|
|
|
|
20
|
|
|
|
317
|
|
|
|
-
|
|
|
|
20,335
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
At
December 31, 2007 or for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
Wireless
|
|
|
Wireline
|
|
|
Solutions
|
|
|
Other
|
|
|
and
Elimination
|
|
|
Results
|
|
Revenues
from external customers
|
|
$
|
42,574
|
|
|
$
|
69,571
|
|
|
$
|
5,771
|
|
|
$
|
1,976
|
|
|
$
|
(964
|
)
|
|
$
|
118,928
|
|
Intersegment
revenues
|
|
|
110
|
|
|
|
2,012
|
|
|
|
80
|
|
|
|
253
|
|
|
|
(2,455
|
)
|
|
|
-
|
|
Total
segment operating revenues
|
|
|
42,684
|
|
|
|
71,583
|
|
|
|
5,851
|
|
|
|
2,229
|
|
|
|
(3,419
|
)
|
|
|
118,928
|
|
Operations
and support expenses
|
|
|
28,585
|
|
|
|
46,177
|
|
|
|
3,066
|
|
|
|
1,882
|
|
|
|
(2,763
|
)
|
|
|
76,947
|
|
Depreciation
and amortization expenses
|
|
|
7,079
|
|
|
|
13,416
|
|
|
|
924
|
|
|
|
158
|
|
|
|
-
|
|
|
|
21,577
|
|
Total
segment operating expenses
|
|
|
35,664
|
|
|
|
59,593
|
|
|
|
3,990
|
|
|
|
2,040
|
|
|
|
(2,763
|
)
|
|
|
98,524
|
|
Segment
operating income
|
|
|
7,020
|
|
|
|
11,990
|
|
|
|
1,861
|
|
|
|
189
|
|
|
|
(656
|
)
|
|
|
20,404
|
|
Interest
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,507
|
|
|
|
3,507
|
|
Equity
in net income of affiliates
|
|
|
16
|
|
|
|
31
|
|
|
|
-
|
|
|
|
645
|
|
|
|
-
|
|
|
|
692
|
|
Other
income (expense) – net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
810
|
|
|
|
810
|
|
Segment
income before income taxes
|
|
$
|
7,036
|
|
|
$
|
12,021
|
|
|
$
|
1,861
|
|
|
$
|
834
|
|
|
$
|
(3,353
|
)
|
|
$
|
18,399
|
|
Segment
assets
|
|
$
|
103,559
|
|
|
$
|
158,338
|
|
|
$
|
13,103
|
|
|
$
|
2,859
|
|
|
$
|
(2,215
|
)
|
|
$
|
275,644
|
|
Investment
in equity method investees
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,257
|
|
|
|
-
|
|
|
|
2,270
|
|
Expenditures
for additions to long-lived assets
|
|
|
3,840
|
|
|
|
13,767
|
|
|
|
25
|
|
|
|
256
|
|
|
|
-
|
|
|
|
17,888
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
NOTE
5. PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment is summarized as follows at December 31:
|
|
Lives
(years)
|
|
|
2009
|
|
|
2008
|
|
Land
|
|
|
-
|
|
|
$
|
1,724
|
|
|
$
|
1,730
|
|
Buildings
|
|
|
35-45
|
|
|
|
24,271
|
|
|
|
23,372
|
|
Central
office equipment
|
|
|
3-10
|
|
|
|
78,314
|
|
|
|
75,054
|
|
Cable,
wiring and conduit
|
|
|
10-50
|
|
|
|
74,325
|
|
|
|
72,109
|
|
Other
equipment
|
|
|
5-15
|
|
|
|
39,918
|
|
|
|
34,434
|
|
Software
|
|
|
3-5
|
|
|
|
8,841
|
|
|
|
8,348
|
|
Under
construction
|
|
|
-
|
|
|
|
3,159
|
|
|
|
3,532
|
|
|
|
|
|
|
|
|
230,552
|
|
|
|
218,579
|
|
Accumulated
depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation and amortization
|
|
|
|
|
|
|
130,459
|
|
|
|
119,491
|
|
Property,
plant and equipment – net
|
|
|
|
|
|
$
|
100,093
|
|
|
$
|
99,088
|
|
Our
depreciation expense was $15,959 in 2009, $15,313 in 2008 and $15,625 in
2007.
Certain
facilities and equipment used in operations are leased under operating or
capital leases. Rental expenses under operating leases were $2,889 for 2009,
$2,733 for 2008 and $2,566 for 2007. At December 31, 2009, the future
minimum rental payments under non-cancelable operating leases for the years 2010
through 2014 were $2,429, $2,276, $2,057, $1,859 and $1,707, with $10,230 due
thereafter. Certain real estate operating leases contain renewal options that
may be exercised. Capital leases are not significant.
American
Tower Corp. Agreement
In August
2000, we reached an agreement with American Tower Corp. (American Tower) under
which we granted American Tower the exclusive rights to lease space on a number
of our communications towers. In exchange, we received a combination of cash and
equity instruments as complete prepayment of rent with the closing of each
leasing agreement. The value of the prepayments was recorded as deferred revenue
and recognized in income as revenue over the life of the leases. The balance of
deferred revenue was $509 in 2009, $539 in 2008 and $569 in 2007.
NOTE
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes
in the carrying amounts of goodwill, by segment, for the years ended December
31, 2009 and 2008, are as follows:
|
|
Wireless
|
|
|
Wireline
|
|
|
Advertising
Solutions
|
|
|
Other
|
|
|
Total
|
|
Balance
as of January 1, 2008
|
|
$
|
32,713
|
|
|
$
|
31,301
|
|
|
$
|
5,788
|
|
|
$
|
911
|
|
|
$
|
70,713
|
|
Goodwill
acquired
|
|
|
264
|
|
|
|
185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
449
|
|
Goodwill
adjustments for prior-year acquisitions and tax
adjustments
|
|
|
990
|
|
|
|
(95
|
)
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
869
|
|
Other
|
|
|
(116
|
)
|
|
|
(10
|
)
|
|
|
(68
|
)
|
|
|
(8
|
)
|
|
|
(202
|
)
|
Balance
as of December 31, 2008
|
|
|
33,851
|
|
|
|
31,381
|
|
|
|
5,694
|
|
|
|
903
|
|
|
|
71,829
|
|
Goodwill
acquired
|
|
|
1,276
|
|
|
|
344
|
|
|
|
36
|
|
|
|
-
|
|
|
|
1,656
|
|
Other
|
|
|
(90
|
)
|
|
|
(117
|
)
|
|
|
1
|
|
|
|
(20
|
)
|
|
|
(226
|
)
|
Balance
as of December 31, 2009
|
|
$
|
35,037
|
|
|
$
|
31,608
|
|
|
$
|
5,731
|
|
|
$
|
883
|
|
|
$
|
73,259
|
|
Goodwill
and wireless FCC licenses are not amortized but tested annually as of October 1
for impairment as required by GAAP. The carrying amounts of goodwill, by segment
(which is the same as reporting unit for Wireless, Wireline and Advertising
Solutions), at December 31, 2009 were Wireless $35,037; Wireline $31,608;
Advertising Solutions $5,731; and Other $883 and at December 31, 2008 were
Wireless $33,851; Wireline $31,381; Advertising Solutions $5,694; and Other
$903. Within the Other segment, goodwill associated with our Sterling operations
was $477 for 2009 and 2008. Additionally, FCC licenses are tested for impairment
on an aggregate basis, consistent with the management of the business on a
national scope. These annual impairment tests resulted in no impairment of
indefinite-lived goodwill or wireless FCC licenses in 2009 and 2008. Goodwill in
the Other segment as of January 1, 2008, is net of a $1,791 impairment that was
recognized in a prior period. We review other long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount may not be
recoverable over the remaining life of the asset or asset group.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share
amounts
Goodwill
acquired relates primarily to the acquisition of Centennial and a provider of
mobile application solutions (see Note 2). Changes to goodwill include
adjustments totaling $90 related to wireless liabilities in connection with a
business combination and disposition of a wireline entity for $117 in
2009.
Our other
intangible assets are summarized as follows:
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
Other
Intangible Assets
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
Amortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
lists and relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
AT&T
Mobility
|
|
$
|
5,804
|
|
|
$
|
3,097
|
|
|
$
|
10,429
|
|
|
$
|
6,409
|
|
BellSouth
|
|
|
9,215
|
|
|
|
5,597
|
|
|
|
9,215
|
|
|
|
4,062
|
|
ATTC
|
|
|
3,134
|
|
|
|
2,377
|
|
|
|
3,100
|
|
|
|
2,038
|
|
Other
|
|
|
926
|
|
|
|
588
|
|
|
|
788
|
|
|
|
441
|
|
Subtotal
|
|
|
19,079
|
|
|
|
11,659
|
|
|
|
23,532
|
|
|
|
12,950
|
|
Other
|
|
|
1,176
|
|
|
|
767
|
|
|
|
1,724
|
|
|
|
1,130
|
|
Total
|
|
$
|
20,255
|
|
|
$
|
12,426
|
|
|
$
|
25,256
|
|
|
$
|
14,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-life
intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
48,759
|
|
|
|
|
|
|
$
|
47,306
|
|
|
|
|
|
Trade
name
|
|
|
5,235
|
|
|
|
|
|
|
|
5,230
|
|
|
|
|
|
Total
|
|
$
|
53,994
|
|
|
|
|
|
|
$
|
52,536
|
|
|
|
|
|
Amortized
intangible assets are definite-life assets, and as such, we record amortization
expense based on a method that most appropriately reflects our expected cash
flows from these assets with a weighted-average amortization period of 8.1 years
(8.0 years for customer lists and relationships and 9.6 years for other).
Amortization expense for definite-life intangible assets was $3,755 for the year
ended December 31, 2009, $4,570 for the year ended December 31, 2008, and $5,952
for the year ended December 31, 2007. Amortization expense is estimated to be
$2,977 in 2010, $1,994 in 2011, $1,315 in 2012, $730 in 2013 and $346 in 2014.
In 2009, Mobility wrote off $4,889 in fully amortized intangible assets
(primarily customer lists).
Licenses
include wireless FCC licenses of $48,650 at December 31, 2009, and $47,267 at
December 31, 2008, that provide us with the exclusive right to utilize certain
radio frequency spectrum to provide wireless communications services. While FCC
licenses are issued for a fixed time, renewals of FCC licenses have occurred
routinely and at nominal cost. Moreover, we have determined that there are
currently no legal, regulatory, contractual, competitive, economic or other
factors that limit the useful lives of our FCC licenses and therefore we treat
the FCC licenses as indefinite-lived intangible assets. In 2009, we recorded an
immaterial $18 impairment to wireline licenses we no longer plan to
use.
NOTE
7. EQUITY METHOD INVESTMENTS
Investments
in partnerships, joint ventures and less-than-majority-owned subsidiaries in
which we have significant influence are accounted for under the equity
method.
Our
investments in equity affiliates include primarily international investments. As
of December 31, 2009, our investments in equity affiliates included a 9.8%
interest in Télefonos de México, S.A. de C.V. (Telmex), Mexico’s national
telecommunications company, and an 8.8% interest in América Móvil S.A. de C.V.
(América Móvil), primarily a wireless provider in Mexico with telecommunications
investments in the United States and Latin America. In 2007, Telmex’s Board of
Directors and shareholders approved a strategic initiative to split off its
Latin American businesses and its Mexican yellow pages business to a new holding
company, Telmex Internacional, S.A.B. de C.V. (Telmex Internacional). Our
investment in Telmex Internacional is 9.9%. We are a member of a consortium that
holds all of the class AA shares of Telmex stock, representing voting control of
the company. Another member of the consortium, Carso Global Telecom, S.A. de
C.V. (CGT), has the right to appoint a majority of the directors of Telmex. We
also are a member of a consortium that holds all of the class AA shares of
América Móvil stock, representing voting control of the company. Another member
of the consortium has the right to appoint a majority of the directors of
América Móvil. On January 13, 2010, América Móvil announced that its Board of
Directors had authorized it to submit an offer for 100% of the equity of CGT, a
holding company that owns 59.4% of Telmex and 60.7% of Telmex Internacional, in
exchange for América Móvil shares; and an offer for Telmex Internacional shares
not owned by CGT, to be purchased for cash or to be exchanged for América Móvil
shares, at the election of the shareholders.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
following table is a reconciliation of our investments in equity affiliates as
presented on our consolidated balance sheets:
|
|
2009
|
|
|
2008
|
|
Beginning
of year
|
|
$
|
2,332
|
|
|
$
|
2,270
|
|
Additional
investments
|
|
|
44
|
|
|
|
-
|
|
Equity
in net income of affiliates
|
|
|
734
|
|
|
|
819
|
|
Dividends
received
|
|
|
(317
|
)
|
|
|
(164
|
)
|
Currency
translation adjustments
|
|
|
125
|
|
|
|
(574
|
)
|
Other
adjustments
|
|
|
3
|
|
|
|
(19
|
)
|
End
of year
|
|
$
|
2,921
|
|
|
$
|
2,332
|
|
Undistributed
earnings from equity affiliates were $3,408 and $2,989 at December 31, 2009
and 2008. The currency translation adjustment for 2009 and 2008 reflects the
effect of exchange rate fluctuations on our investments in Telmex, Telmex
Internacional and América Móvil.
The fair
value of our investment in Telmex, based on the equivalent value of Telmex L
shares at December 31, 2009, was $1,492. The fair value of our investment in
América Móvil, based on the equivalent value of América Móvil L shares at
December 31, 2009, was $6,741. The fair value of our investment in Telmex
Internacional, based on the equivalent value of Telmex Internacional L shares at
December 31, 2009, was $1,597.
NOTE
8. DEBT
Long-term
debt of AT&T and its subsidiaries, including interest rates and maturities,
is summarized as follows at December 31:
|
|
2009
|
|
|
2008
|
|
Notes
and debentures
|
|
|
|
|
|
|
|
Interest
Rates
|
|
|
Maturities
1
|
|
|
|
|
|
|
|
|
|
0.35%
– 2.99
|
%
|
|
|
2009
– 2010
|
|
|
$
|
3,500
|
|
|
$
|
1,500
|
|
|
|
3.00%
– 4.99
|
%
|
|
|
2009
– 2014
|
|
|
|
5,853
|
|
|
|
10,577
|
|
|
|
5.00%
– 6.99
|
%
|
|
|
2009
– 2095
|
|
|
|
41,331
|
|
|
|
37,613
|
|
|
|
7.00%
– 9.10
|
%
|
|
|
2009
– 2097
|
|
|
|
19,069
|
|
|
|
18,007
|
|
Other
|
|
|
136
|
|
|
|
138
|
|
Fair
value of interest rate swaps recorded in debt
|
|
|
310
|
|
|
|
527
|
|
|
|
|
70,199
|
|
|
|
68,362
|
|
Unamortized
premium, net of discount
|
|
|
1,612
|
|
|
|
1,846
|
|
Total
notes and debentures
|
|
|
71,811
|
|
|
|
70,208
|
|
Capitalized
leases
|
|
|
237
|
|
|
|
167
|
|
Total
long-term debt, including current maturities
|
|
|
72,048
|
|
|
|
70,375
|
|
Current
maturities of long-term debt
|
|
|
(7,328
|
)
|
|
|
(9,503
|
)
|
Total
long-term debt
|
|
$
|
64,720
|
|
|
$
|
60,872
|
|
1
Maturities assume
putable debt is redeemed by the holders at the next opportunity.
Current
maturities of long-term debt include debt that may be put back to us by the
holders in 2010.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
We have
$1,000 of annual put reset securities issued by BellSouth that can be put each
April until maturity in 2021. If the holders do not require us to repurchase the
securities, the interest rate will be reset based on current market conditions.
Likewise, we have an accreting zero-coupon note that may be redeemed each May,
excluding May 2011, until maturity in 2022. If the zero-coupon note (issued for
principal of $500 in 2007) is held to maturity, the redemption amount will be
$1,030.
Debt
maturing within one year consists of the following at December 31:
|
|
2009
|
|
|
2008
|
|
Commercial
paper
|
|
$
|
-
|
|
|
$
|
4,575
|
|
Current
maturities of long-term debt
|
|
|
7,328
|
|
|
|
9,503
|
|
Bank
borrowings
1
|
|
|
33
|
|
|
|
41
|
|
Total
|
|
$
|
7,361
|
|
|
$
|
14,119
|
|
1
Outstanding balance of
short-term credit facility of a foreign subsidiary.
During
2009, we received net proceeds of $8,161 from the issuance of $8,228 in
long-term debt. Debt proceeds were used for general corporate purposes,
including the repayment of maturing debt. Long-term debt issuances consisted
of:
·
|
$1,000
of 4.85% global notes due in 2014.
|
·
|
$2,250
of 5.80% global notes due in 2019.
|
·
|
$2,250
of 6.55% global notes due in 2039.
|
·
|
£750
of 5.875% global notes due in 2017 (equivalent to $1,107 when
issued).
|
·
|
£1,100
of 7.0% global notes due in 2040 (equivalent to $1,621 when
issued).
|
During
2009, debt repayments totaled $13,236 and consisted of:
·
|
$8,633
in repayments of long-term debt (includes repayment of $1,957 for
Centennial debt).
|
·
|
$4,583
in repayments of commercial paper and short-term bank
borrowings.
|
·
|
$20
in repayments of other debt.
|
As of
December 31, 2009 and 2008, we were in compliance with all covenants and
conditions of instruments governing our debt. Substantially all of our
outstanding long-term debt is unsecured. Excluding capitalized leases, the
aggregate principal amounts of long-term debt and the corresponding
weighted-average interest rate scheduled for repayment are as
follows:
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
Debt
repayments
1
|
|
$
|
7,328
|
|
|
$
|
7,536
|
|
|
$
|
4,836
|
|
|
$
|
5,825
|
|
|
$
|
4,789
|
|
|
$
|
39,707
|
|
Weighted-average
interest rate
|
|
|
3.4
|
%
|
|
|
7.1
|
%
|
|
|
6.6
|
%
|
|
|
5.6
|
%
|
|
|
5.1
|
%
|
|
|
6.6
|
%
|
1
Debt repayments assume
putable debt is redeemed by the holders at the next opportunity.
Credit Facility
We
have a five-year credit agreement with a syndicate of investment and commercial
banks. In June 2009, one of the participating banks, Lehman Brothers Bank, Inc.,
which had declared bankruptcy, terminated its lending commitment of $535 and
withdrew from the agreement. As a result of this termination, the outstanding
commitments under the agreement were reduced from a total of $10,000 to $9,465.
We still have the right to increase commitments up to an additional $2,535
provided no event of default under the credit agreement has occurred. 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
pledges 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. At December 31, 2009, we had no borrowings outstanding under this
agreement.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share
amounts
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 monetary 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-in-control”);
material breaches of representations 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. FAIR VALUE MEASUREMENTS AND DISCLOSURE
GAAP
standards require disclosures for financial assets and liabilities that are
remeasured at fair value at least annually. GAAP standards establish a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. The Fair Value Measurement and Disclosure framework provides a fair
value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under Fair Value
Measurement and Disclosure are described below:
Level
1
|
Inputs
to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets that AT&T has the ability to
access.
|
|
|
Level
2
|
Inputs
to the valuation methodology include:
·
Quoted
prices for similar assets and liabilities in active markets;
·
Quoted
prices for identical or similar assets or liabilities in inactive
markets;
·
Inputs
other than quoted market prices that are observable for the asset or
liability;
·
Inputs
that are derived principally from or corroborated by observable market
data by correlation or other means.
|
|
|
|
If
the asset or liability has a specified (contractual) term, the Level 2
input must be observable for substantially the full term of the asset or
liability.
|
|
|
Level
3
|
Inputs
to the valuation methodology are unobservable and significant to the fair
value measurement.
·
Fair
value is often based on internally developed models in which there are
few, if any, external observations.
|
The
asset’s or liability’s fair value measurement level with the fair value
hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used need to maximize the use of
observable inputs and minimize the use of unobservable inputs.
The
valuation methodologies described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair
values. AT&T believes its valuation methods are appropriate and consistent
with other market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date. There have
been no changes in the methodologies used at December 31, 2009 and 2008. See
Note 11 for disclosures relating to pension and other postemployment
benefits.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Long-Term
Debt and Other 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:
|
2009
|
|
2008
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Notes
and debentures
|
|
$
|
71,811
|
|
|
$
|
75,212
|
|
|
$
|
70,208
|
|
|
$
|
70,955
|
|
Commercial
paper
|
|
|
-
|
|
|
|
-
|
|
|
|
4,575
|
|
|
|
4,575
|
|
Bank
borrowings
|
|
|
33
|
|
|
|
33
|
|
|
|
41
|
|
|
|
41
|
|
Available-for-sale
securities
|
|
|
1,885
|
|
|
|
1,885
|
|
|
|
1,632
|
|
|
|
1,632
|
|
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.
Investment
Securities
Our
investment securities consist of available-for-sale instruments which include
$1,574 of equities, $226 in government fixed income bonds and $85 of other
securities. Substantially all of our available-for-sale securities are Level 1
and Level 2. Realized gains and losses on these securities are included in
“Other income (expense) – net” in the consolidated statements of income using
the specific identification method. Unrealized gains and losses, net of tax, on
available-for-sale securities are recorded in accumulated other comprehensive
income (accumulated OCI). Unrealized losses that are considered other than
temporary are recorded in other income (expense) – net, with the corresponding
reduction to the carrying basis of the investment.
At the
end of the first quarter of 2009 and at the end of 2008, we concluded that the
severity in the decline in market values of these assets had led to an
other-than-temporary impairment, writing them down $102 in 2009 and $332 in
2008, and recording the amount in Other Income (Expense).
Our
short-term investments, other short-term and long-term held-to-maturity
investments (including money market securities) and customer deposits are
recorded at amortized cost, and the respective carrying amounts approximate fair
values.
Our
investment securities maturing within one year are recorded in “Other current
assets,” and instruments with maturities of more than one year are recorded in
“Other Assets” on the consolidated balance sheets.
Derivative
Financial Instruments
We employ
derivatives to manage certain market risks, primarily interest rate risk and
foreign currency exchange risk. This includes the use of interest rate swaps,
interest rate locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not use
derivatives for trading or speculative purposes. We record derivatives on our
consolidated balance sheets at fair value (all of our derivatives are Level 2).
Cash flows associated with derivative instruments are presented in the same
category on the consolidated statements of cash flows as the item being
hedged.
The
majority of our derivatives are designated as either a hedge of the fair value
of a recognized asset or liability or of an unrecognized firm commitment (fair
value hedge), or a hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset or liability
(cash flow hedge). Only a portion of our foreign exchange forward contracts are
not designated to receive hedge accounting.
Fair Value Hedging
We
designate our fixed-to-floating interest rate swaps as fair value hedges. The
purpose of these swaps is to manage interest rate risk by managing our mix of
fixed-rate and floating-rate debt. These swaps involve the receipt of fixed rate
amounts for floating interest rate payments over the life of the swaps without
exchange of the underlying principal amount. Accrued and realized gains or
losses from interest rate swaps impact interest expense on the consolidated
statements of income. Unrealized gains on interest rate swaps are recorded at
fair market value as assets, and unrealized losses on interest rate swaps are
recorded at fair market value as liabilities. We record changes in the fair
value of the swaps, along with the changes in the fair value of the hedged asset
or liability that is attributable to the hedged risk. Changes in the fair value
of the interest rate swaps offset changes in the fair value of the fixed-rate
notes payable they hedge due to changes in the designated benchmark interest
rate and are recognized in interest expense, though they net to zero. Realized
gains or losses upon early termination of our fair value hedges would be
recognized in interest expense.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share
amounts
Cash Flow Hedging
Unrealized
gains on derivatives designated as cash flow hedges are recorded at fair value
as assets, and unrealized losses on derivatives designated as cash flow hedges
are recorded at fair value as liabilities, both for the period they are
outstanding. For derivative instruments designated as cash flow hedges, the
effective portion is reported as a component of accumulated OCI until
reclassified into interest expense in the same period the hedged transaction
affects earnings. The gain or loss on the ineffective portion is recognized in
income from continuing operations in each current period.
We
designate our cross-currency swaps as cash flow hedges. We have entered into
multiple cross-currency swaps to hedge our exposure to variability in expected
future cash flows that are attributable to foreign currency risk generated from
the issuance of our Euro- and British pound sterling-denominated debt. These
agreements 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. We evaluate the effectiveness of our
cross-currency swaps each quarter. In the year ended December 31, 2009, no
material ineffectiveness was measured.
Periodically,
we enter into and designate interest rate locks to partially hedge the risk of
changes in interest payments attributable to increases in the benchmark interest
rate during the period leading up to the probable issuance of fixed-rate debt.
We designate our interest rate locks as cash flow hedges. Gains and losses when
we settle our interest rate locks are amortized into income over the life of the
related debt, except where a material amount is deemed to be ineffective, which
would be immediately reclassified to income. In the year ended December 31,
2009, no material ineffectiveness was measured. Over the next 12 months, we
expect to reclassify $21 from accumulated OCI to interest expense due to the
amortization of net losses on historical interest rate locks. Our unutilized
interest rate locks carry mandatory early terminations, the latest occurring in
April 2012.
We hedge
a large portion of the exchange risk involved in anticipation of highly probable
foreign currency-denominated transactions. In anticipation of these
transactions, we often enter into foreign exchange contracts to provide currency
at a fixed rate. Some of these instruments are designated as cash flow hedges
while others remain non-designated, largely based on size and duration. Gains
and losses at the time we settle or take delivery on our designated foreign
exchange contracts are amortized into income over the next few months as the
hedged funds are spent by our foreign subsidiaries, except where a material
amount is deemed to be ineffective, which would be immediately reclassified to
income. In the year ended December 31, 2009, no material ineffectiveness was
measured.
Non-designated and Discontinued
Hedging Instruments
Changes in the fair value of non-designated
derivatives are recorded in other income (expense) – net, along with the change
in fair value of the underlying asset or liability, as applicable. When hedge
accounting is discontinued, the derivative is adjusted for changes in fair value
through other income (expense) – net. For fair value hedges, the swap asset or
liability and the underlying hedged liability or asset will no longer be
adjusted for changes in fair value, and the net adjustment to the hedged item at
that time will be amortized into earnings over the remaining life of the hedged
item. For cash flow hedges, gains and losses that were in accumulated OCI as a
component of stockholders' equity in connection with hedged assets or
liabilities or forecasted transactions will be recognized in other income
(expense) - net, in the same period the hedged item affects
earnings.
Collateral and Credit-Risk
Contingency
We have entered into agreements with most of our
derivative counterparties, establishing collateral thresholds based on
respective credit ratings and netting agreements. At December 31, 2009, we held
$222 of counterparty collateral (a receipt liability). Under the agreements, if
our credit rating had been downgraded one rating level, we still would not have
been required to post collateral (a deposit asset). We do not offset the fair
value of collateral, whether the right to reclaim cash collateral (a receivable)
or the obligation to return cash collateral (a payable), against the fair value
of the derivative instruments.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Following
is the notional amount of our outstanding derivative positions:
|
|
December
31,
|
|
|
|
2009
|
|
Interest
rate swaps
|
|
$
|
9,000
|
|
Cross-currency
swaps
|
|
|
7,502
|
|
Interest
rate locks
|
|
|
3,600
|
|
Foreign
exchange contracts
|
|
|
293
|
|
Total
|
|
$
|
20,395
|
|
Following
are our derivative instruments and their related hedged items affecting our
financial position and performance:
Fair
Value of Derivatives in the Consolidated Balance Sheet
Derivatives
designated as hedging instruments and reflected as other assets, other
liabilities and, for a portion of interest rate swaps, accounts
receivable.
|
|
December
31,
|
|
Asset
Derivatives
|
|
2009
|
|
Interest
rate swaps
|
|
$
|
399
|
|
Cross-currency
swaps
|
|
|
635
|
|
Interest
rate locks
|
|
|
150
|
|
Foreign
exchange contracts
|
|
|
2
|
|
Total
|
|
$
|
1,186
|
|
|
|
December
31,
|
|
Liability
Derivatives
|
|
2009
|
|
Cross-currency
swaps
|
|
$
|
(390
|
)
|
Interest
rate locks
|
|
|
(6
|
)
|
Foreign
exchange contracts
|
|
|
(7
|
)
|
Total
|
|
$
|
(403
|
)
|
The
balance of the unrealized derivative gain (loss) in accumulated OCI was $142 at
December 31, 2009, and $(483) at December 31, 2008.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Effect
of Derivatives on the Consolidated Statement of Income
|
Year
ended
|
|
Fair
Value Hedging Relationships
|
December
31, 2009
|
|
Interest
rate swaps (Interest expense):
|
|
|
|
Gain
(Loss) on interest rate swaps
|
|
$
|
(216
|
)
|
Gain
(Loss) on long-term debt
|
|
|
216
|
|
In
addition, the net swap settlements that accrued and settled in the year
ended December 31, 2009, were also reported as reductions of interest
expense.
|
|
|
Year
ended
|
|
Cash
Flow Hedging Relationships
|
December
31, 2009
|
|
Cross-currency
swaps:
|
|
|
|
|
Gain
(Loss) recognized in accumulated OCI
|
|
$
|
738
|
|
Other
income (expense) reclassified from accumulated OCI into
income
|
|
|
-
|
|
|
|
|
|
|
Interest
rate locks:
|
|
|
|
|
Gain
(Loss) recognized in accumulated OCI
|
|
|
203
|
|
Interest
income (expense) reclassified from accumulated OCI into
income
|
|
|
(23
|
)
|
|
|
|
|
|
Foreign
exchange contracts:
|
|
|
|
|
Gain
(Loss) recognized in accumulated OCI
|
|
|
(2
|
)
|
Other
income (expense) reclassified from accumulated OCI into
income
|
|
|
-
|
|
|
|
|
|
|
Non-designated
Hedging Instruments
|
|
|
|
|
Foreign
exchange contracts (Other income)
|
|
$
|
(1
|
)
|
Significant
components of our deferred tax liabilities (assets) are as follows at December
31:
|
|
2009
|
|
|
2008
|
|
Depreciation
and amortization
|
|
$
|
18,796
|
|
|
$
|
18,269
|
|
Intangibles
(nonamortizable)
|
|
|
1,990
|
|
|
|
1,990
|
|
Employee
benefits
|
|
|
(14,220
|
)
|
|
|
(14,825
|
)
|
Net
operating loss and other carryforwards
|
|
|
(1,846
|
)
|
|
|
(2,220
|
)
|
Investment
in wireless partnership
|
|
|
18,646
|
|
|
|
16,028
|
|
Other
– net
|
|
|
(2,019
|
)
|
|
|
(2,250
|
)
|
Subtotal
|
|
|
21,347
|
|
|
|
16,992
|
|
Deferred
tax assets valuation allowance
|
|
|
1,182
|
|
|
|
1,190
|
|
Net
deferred tax liabilities
|
|
$
|
22,529
|
|
|
$
|
18,182
|
|
|
|
|
|
|
|
|
|
|
Net
long-term deferred tax liabilities
|
|
$
|
23,803
|
|
|
$
|
19,196
|
|
Less:
Net current deferred tax assets
|
|
|
(1,274
|
)
|
|
|
(1,014
|
)
|
Net
deferred tax liabilities
|
|
$
|
22,529
|
|
|
$
|
18,182
|
|
At
December 31, 2009, we had combined net operating and capital loss carryforwards
(tax effected) for federal income tax purposes of $362 and for state and foreign
income tax purposes of $1,125, expiring through 2028. Additionally, we had
federal credit carryforwards of $66 and state credit carryforwards of $293,
expiring primarily through 2026.
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, 2008 and 2009,
relate primarily to state net operating loss carryforwards.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
As
required by GAAP, we recognize the financial statement effects of a tax return
position when it is more likely than not, based on the technical merits, that
the position will ultimately be sustained. For tax positions that meet this
recognition threshold, we apply our judgment, taking into account applicable tax
laws, our experience in managing tax audits and relevant GAAP, to determine the
amount of tax benefits to recognize in our financial statements. For each
position, the difference between the benefit realized on our tax return and the
benefit reflected in our financial statements is recorded on our balance sheet
as an unrecognized tax benefit (UTB). We update our unrecognized tax benefits at
each financial statement date to reflect the impacts of audit settlements and
other resolution of audit issues, expiration of statutes of limitation,
developments in tax law and ongoing discussions with taxing authorities. A
reconciliation of the change in our UTB balance from January 1, 2009 to December
31, 2009, and January 1, 2008 to December 31, 2008, is as follows:
Federal,
State and Foreign Tax
|
|
2009
|
|
|
2008
|
|
Balance
at beginning of year
|
|
$
|
6,190
|
|
|
$
|
5,901
|
|
Increases
for tax positions related to the current year
|
|
|
982
|
|
|
|
811
|
|
Increases
for tax positions related to prior years
|
|
|
877
|
|
|
|
715
|
|
Decreases
for tax positions related to prior years
|
|
|
(1,984
|
)
|
|
|
(1,237
|
)
|
Settlements
|
|
|
(81
|
)
|
|
|
-
|
|
Balance
at end of year
|
|
|
5,984
|
|
|
|
6,190
|
|
Accrued
interest and penalties
|
|
|
1,539
|
|
|
|
1,802
|
|
Gross
unrecognized income tax benefits
|
|
|
7,523
|
|
|
|
7,992
|
|
Less:
Deferred federal and state income tax benefits
|
|
|
(892
|
)
|
|
|
(998
|
)
|
Less:
Tax attributable to timing items included above
|
|
|
(2,542
|
)
|
|
|
(3,371
|
)
|
Total
UTB that, if recognized, would impact the effective income tax rate as of
the end of the year
|
|
$
|
4,089
|
|
|
$
|
3,623
|
|
During
2009 and 2008, we made net deposits totaling $1,151 and $191 to several taxing
jurisdictions. These deposits are not included in the reconciliation above but
reduce our unrecognized tax benefits balance. Net of these deposits and a $1,000
deposit made in 2007, our unrecognized tax benefits balance at December 31,
2009, was $5,181, of which $4,882 was included in “Other noncurrent liabilities”
and $299 was included in “Accrued taxes” on our consolidated balance sheets. Our
unrecognized tax benefits balance at December 31, 2008, was $6,801, of which
$5,042 was included in “Other noncurrent liabilities” and $1,759 was included in
“Accrued taxes” on our consolidated balance sheets.
We record
interest and penalties related to federal, state and foreign unrecognized tax
benefits in income tax expense. Accrued interest and penalties included in
unrecognized tax benefits were $1,539 as of December 31, 2009, and $1,802 as of
December 31, 2008. Interest and penalties included in our consolidated
statements of income were $(215) for 2009, $152 for 2008, and $303 for
2007.
The
Company and our subsidiaries file income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. Our income tax returns
are regularly audited and reviewed by the IRS as well as by state and foreign
taxing authorities.
The IRS
has completed field examinations of AT&T’s tax returns through 2005, and all
audit periods prior to 1998 are closed for federal purposes. We were unable to
reach agreement with the IRS regarding treatment of Universal Service Fund
receipts on our 1998 and 1999 tax returns and, as a result, we filed a refund
suit in U.S. District Court (District Court). In July 2009, the District Court
granted the Government’s motion for summary judgment and entered final judgment
for the Government. We appealed the final judgment to the U.S. Court of Appeals
for the Fifth Circuit. We are engaged with the IRS Appeals Division (Appeals) in
settling our 2000 – 2002 returns and expect to reach a resolution of most issues
in early 2010. We do not expect the resolution to have a material impact on our
unrecognized tax benefits. In early 2009, the IRS completed its field
examination of our 2003 – 2005 income tax returns and issued its final Revenue
Agent’s Report (RAR). This RAR assessed additional taxes related primarily to
the timing of certain deductions related to our network assets. We made a
deposit of $650 to reduce the accrual of interest while we continue to work with
Appeals to resolve the contested issues. The IRS began its examination of our
2006 – 2008 income tax returns in 2009. During 2010, we expect to reach an
accelerated resolution with the IRS for depreciation and amortization deductions
claimed on our 2008 return related to a restructuring of our wireless
operations. At this time, we are unable to estimate the impact of a resolution
on our unrecognized tax benefits. The IRS has completed the examination of all
acquired entity tax returns through 2003 (ATTC and AT&T Mobility through
2005) and, with the exception of BellSouth, all years through 2001 are closed.
We expect the IRS to complete its examination of the BellSouth 2004 – 2005
income tax returns during 2010.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
components of income tax expense are as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
2,852
|
|
|
$
|
1,160
|
|
|
$
|
5,872
|
|
Deferred – net
|
|
|
2,194
|
|
|
|
5,163
|
|
|
|
(413
|
)
|
|
|
|
5,046
|
|
|
|
6,323
|
|
|
|
5,459
|
|
State,
local and foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,200
|
|
|
|
(13
|
)
|
|
|
621
|
|
Deferred – net
|
|
|
(90
|
)
|
|
|
726
|
|
|
|
173
|
|
|
|
|
1,110
|
|
|
|
713
|
|
|
|
794
|
|
Total
|
|
$
|
6,156
|
|
|
$
|
7,036
|
|
|
$
|
6,253
|
|
A
reconciliation of income tax expense and the amount computed by applying the
statutory federal income tax rate (35%) to income before income taxes, income
from discontinued operations, extraordinary items and cumulative effect of
accounting changes is as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Taxes
computed at federal statutory rate
|
|
$
|
6,649
|
|
|
$
|
7,057
|
|
|
$
|
6,440
|
|
Increases
(decreases) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and local income taxes – net of federal income tax benefit
|
|
|
559
|
|
|
|
497
|
|
|
|
549
|
|
Other
– net
|
|
|
(1,052
|
)
|
|
|
(518
|
)
|
|
|
(737
|
)
|
Total
|
|
$
|
6,156
|
|
|
$
|
7,036
|
|
|
$
|
6,252
|
|
Effective
Tax Rate
|
|
|
32.4
|
%
|
|
|
34.9
|
%
|
|
|
34.0
|
%
|
NOTE
11. PENSION AND POSTRETIREMENT BENEFITS
Pension
Benefits and Postretirement Benefits
Substantially
all of our U.S. employees are covered by one of our noncontributory pension and
death benefit plans. Many of our management employees participate in pension
plans that have a traditional pension formula (i.e., a stated percentage of
employees’ adjusted career income) and a frozen cash balance or defined lump sum
formula. In 2005, the management pension plan for those employees was amended to
freeze benefit accruals previously earned under a cash balance formula. Each
employee’s existing cash balance continues to earn interest at a variable annual
rate. After this change, those management employees, at retirement, may elect to
receive the portion of their pension benefit derived under the cash balance or
defined lump sum as a lump sum or an annuity. The remaining pension benefit, if
any, will be paid as an annuity if its value exceeds a stated monthly amount.
Management employees of former ATTC, BellSouth, AT&T Mobility and new hires
after 2006 participate in cash balance pension plans. Nonmanagement employees’
pension benefits are generally calculated using one of two formulas: benefits
are based on a flat dollar amount per year according to job classification or
are calculated under a cash balance plan that is based on an initial cash
balance amount and a negotiated annual pension band and interest credits. Most
nonmanagement employees can elect to receive their pension benefits in either a
lump sum payment or an annuity.
We also
provide a variety of medical, dental and life insurance benefits to certain
retired employees under various plans and accrue actuarially determined
postretirement benefit costs as active employees earn these
benefits.
On
December 31, 2009, the AT&T Pension Plan and the Cingular Wireless Pension
Plan were merged into the AT&T Puerto Rico Pension Benefit Plan. At
November 1, 2008, BellSouth pension plans and U.S. Domestic ATTC bargained
employees were merged in the AT&T Pension Benefit Plan. At December 31,
2007, defined benefit pension plans formerly sponsored by Ameritech Publishing
Ventures and AT&T Mobility were merged in the AT&T Pension Benefit
Plan.
During
2009, union contracts covering 120,000 collectively bargained wireline employees
expired. As of January 31, 2010, 86,000 employees covered by these expired
collectively bargained wireline contracts have ratified new labor contracts. In
the absence of an effective contract, the union is entitled to call a work
stoppage.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
For
approximately 60,000 employees covered by these ratified agreements, the
agreements provide for a three-year term and, for the vast majority of those
covered employees, a 3 percent wage increase in years one and two, a wage
increase in year three of 2.75 percent, and pension band increases of 2 percent
for each year of the agreement. For both wage and pension band increases, there
is a potential cost-of-living increase based on the Consumer Price Index for the
third year. These agreements also provide for continued health care coverage
with reasonable cost sharing.
For the
remaining approximately 26,000 employees, the agreement provides for a four-year
term with provisions substantially similar to the provisions of the ratified
agreements discussed above, with a wage increase in year four of 2.75 percent
and a potential cost-of-living increase in year four instead of in year
three.
On
February 8, 2010, the Company and the CWA announced a tentative agreement
covering approximately 30,000 core wireline employees in the nine-state former
BellSouth region, subject to ratification by those covered employees. The
tentative agreement provides for a three-year term and, for the vast majority of
those covered employees, a 3 percent wage increase in years one and two, a wage
increase in year three of 2.75 percent, and pension band increases of 2 percent
for each year of the agreement. These agreements also provide for continued
health care coverage with reasonable cost sharing.
In August
2009, retirees were informed of medical and drug coverage changes. In addition,
we adopted changes to our pension plans consistent with the Pension Protection
Act of 2006 (PPA). Because of these modifications, our amortization of prior
service (benefit) cost also changed, reducing costs by $128 in the third quarter
of 2009. In the fourth quarter of 2009, our pension and postretirement costs
have decreased, which is consistent with reductions that began in August 2009.
These modifications will decrease costs in 2010.
Obligations
and Funded Status
For
defined benefit pension plans, the benefit obligation is the “projected benefit
obligation,” the actuarial present value, as of our December 31 measurement
date, of all benefits attributed by the pension benefit formula to employee
service rendered to that date. The amount of benefit to be paid depends on a
number of future events incorporated into the pension benefit formula, including
estimates of the average life of employees/survivors and average years of
service rendered. It is measured based on assumptions concerning future interest
rates and future employee compensation levels.
For
postretirement benefit plans, the benefit obligation is the “accumulated
postretirement benefit obligation,” the actuarial present value as of a date of
all future benefits attributed under the terms of the postretirement benefit
plan to employee service rendered to the valuations date.
The
following table presents this reconciliation and shows the change in the
projected benefit obligation for the years ended December 31:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Benefit
obligation at beginning of year
|
|
$
|
50,822
|
|
|
$
|
53,522
|
|
|
$
|
37,531
|
|
|
$
|
40,385
|
|
Service
cost - benefits earned during the period
|
|
|
1,070
|
|
|
|
1,173
|
|
|
|
334
|
|
|
|
429
|
|
Interest
cost on projected benefit obligation
|
|
|
3,355
|
|
|
|
3,319
|
|
|
|
2,434
|
|
|
|
2,550
|
|
Amendments
|
|
|
(685
|
)
|
|
|
(15
|
)
|
|
|
(3,115
|
)
|
|
|
(4
|
)
|
Actuarial
loss (gain)
|
|
|
2,439
|
|
|
|
(1,450
|
)
|
|
|
1,402
|
|
|
|
(3,406
|
)
|
Special
termination benefits
|
|
|
118
|
|
|
|
70
|
|
|
|
9
|
|
|
|
5
|
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Benefits
paid
|
|
|
(6,269
|
)
|
|
|
(5,795
|
)
|
|
|
(2,370
|
)
|
|
|
(2,548
|
)
|
Other
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
120
|
|
Benefit
obligation at end of year
|
|
$
|
50,850
|
|
|
$
|
50,822
|
|
|
$
|
36,225
|
|
|
$
|
37,531
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
following table presents the change in the value of plan assets for the years
ended December 31 and the plans’ funded status at December 31:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Fair
value of plan assets at beginning of year
|
|
$
|
46,828
|
|
|
$
|
70,810
|
|
|
$
|
10,175
|
|
|
$
|
16,999
|
|
Actual
return on plan assets
|
|
|
6,312
|
|
|
|
(18,190
|
)
|
|
|
1,991
|
|
|
|
(4,688
|
)
|
Benefits
paid
1
|
|
|
(6,269
|
)
|
|
|
(5,795
|
)
|
|
|
(823
|
)
|
|
|
(2,301
|
)
|
Contributions
|
|
|
2
|
|
|
|
-
|
|
|
|
195
|
|
|
|
165
|
|
Other
|
|
|
-
|
|
|
|
3
|
|
|
|
(25
|
)
|
|
|
-
|
|
Fair
value of plan assets at end of year
|
|
|
46,873
|
|
|
|
46,828
|
|
|
|
11,513
|
|
|
|
10,175
|
|
Funded
(unfunded) status at end of year
2
|
|
$
|
(3,977
|
)
|
|
$
|
(3,994
|
)
|
|
$
|
(24,712
|
)
|
|
$
|
(27,356
|
)
|
|
At our discretion,
certain postretirement benefits are paid from AT&T cash accounts and
do not reduce Voluntary Employee Beneficiary Association (VEBA) assets.
Future benefit payments may be made from VEBA trusts and thus reduce those
asset balances.
|
|
Funded status is not
indicative of our ability to pay ongoing pension benefits or of our
obligation to fund retirement trusts. Required pension funding is
determined in accordance with Employee Retirement Income Security Act
(ERISA) regulations.
|
Amounts
recognized on our consolidated balance sheets at December 31 are listed
below:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Current
portion of employee benefit obligation
1
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,021
|
)
|
|
$
|
(729
|
)
|
Employee
benefit obligation
2
|
|
|
(3,977
|
)
|
|
|
(3,994
|
)
|
|
|
(22,691
|
)
|
|
|
(26,627
|
)
|
Net
amount recognized
|
|
$
|
(3,977
|
)
|
|
$
|
(3,994
|
)
|
|
$
|
(24,712
|
)
|
|
$
|
(27,356
|
)
|
1
Included in “Accounts payable and accrued liabilities.”
2
Included in “Postemployment benefit obligation.”
Amounts
included in our accumulated other comprehensive income that have not yet been
recognized in net periodic benefit cost at December 31 are listed
below:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
loss
|
|
$
|
23,041
|
|
|
$
|
23,004
|
|
|
$
|
3,991
|
|
|
$
|
3,695
|
|
Prior
service cost (credit)
|
|
|
(181
|
)
|
|
|
562
|
|
|
|
(4,644
|
)
|
|
|
(1,999
|
)
|
Total
|
|
$
|
22,860
|
|
|
$
|
23,566
|
|
|
$
|
(653
|
)
|
|
$
|
1,696
|
|
The
accumulated benefit obligation for our pension plans represents the actuarial
present value of benefits based on employee service and compensation as of a
certain date and does not include an assumption about future compensation
levels. The accumulated benefit obligation for our pension plans was $49,122 at
December 31, 2009, and $48,618 at December 31, 2008.
Net
Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive
Income
Our
combined net pension and postretirement cost recognized in our consolidated
statements of income was $1,921, $324 and $1,078 for the years ended December
31, 2009, 2008 and 2007.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
following tables present the components of net periodic benefit obligation cost
and other changes in plan assets and benefit obligations recognized in other
comprehensive income:
Net
Periodic Benefit Cost
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Service
cost - benefits earned during the period
|
|
$
|
1,070
|
|
|
$
|
1,173
|
|
|
$
|
1,257
|
|
|
$
|
334
|
|
|
$
|
429
|
|
|
$
|
511
|
|
Interest
cost on projected benefit obligation
|
|
|
3,355
|
|
|
|
3,319
|
|
|
|
3,220
|
|
|
|
2,434
|
|
|
|
2,550
|
|
|
|
2,588
|
|
Expected
return on plan assets
|
|
|
(4,561
|
)
|
|
|
(5,602
|
)
|
|
|
(5,468
|
)
|
|
|
(955
|
)
|
|
|
(1,327
|
)
|
|
|
(1,348
|
)
|
Amortization
of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(credit)
and transition asset
|
|
|
58
|
|
|
|
133
|
|
|
|
142
|
|
|
|
(469
|
)
|
|
|
(360
|
)
|
|
|
(359
|
)
|
Recognized
actuarial (gain) loss
|
|
|
656
|
|
|
|
10
|
|
|
|
241
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
294
|
|
Net
pension and postretirement cost (benefit)
1
|
|
$
|
578
|
|
|
$
|
(967
|
)
|
|
$
|
(608
|
)
|
|
$
|
1,343
|
|
|
$
|
1,291
|
|
|
$
|
1,686
|
|
1
|
During 2009, 2008
and 2007, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 reduced postretirement benefit cost by $255, $263 and $342.
This effect is included in several line items
above.
|
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive
Income
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
loss (gain)
|
|
$
|
435
|
|
|
$
|
13,857
|
|
|
$
|
(2,131
|
)
|
|
$
|
(1,242
|
)
|
|
$
|
1,716
|
|
|
$
|
(2,525
|
)
|
Prior
service cost (credit)
|
|
|
(392
|
)
|
|
|
(16
|
)
|
|
|
139
|
|
|
|
(322
|
)
|
|
|
32
|
|
|
|
(28
|
)
|
Amortization
of net loss (gain)
|
|
|
412
|
|
|
|
4
|
|
|
|
154
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
181
|
|
Amortization
of prior service cost (credit)
|
|
|
69
|
|
|
|
83
|
|
|
|
78
|
|
|
|
(223
|
)
|
|
|
(222
|
)
|
|
|
(223
|
)
|
Total
recognized in net pension and postretirement cost and other comprehensive
income
|
|
$
|
524
|
|
|
$
|
13,928
|
|
|
$
|
(1,760
|
)
|
|
$
|
(1,788
|
)
|
|
$
|
1,526
|
|
|
$
|
(2,595
|
)
|
The
estimated net loss for pension benefits that will be amortized from accumulated
other comprehensive income into net periodic benefit cost over the next fiscal
year is $683, and the prior service credit for pension benefits that will be
amortized from accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year is $16. The estimated net gain for postretirement
benefits that will be amortized from accumulated other comprehensive income into
net periodic benefit cost over the next fiscal year is $8, and the prior service
credit for postretirement benefits that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year is
$625.
Assumptions
In
determining the projected benefit obligation and the net pension and
postemployment benefit cost, we used the following significant weighted-average
assumptions:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rate for determining projected benefit obligation at December
31
|
|
|
6.50
|
%
|
|
|
7.00
|
%
|
|
|
6.50
|
%
|
Discount
rate in effect for determining net cost (benefit)
|
|
|
7.00
|
%
|
|
|
6.50
|
%
|
|
|
6.00
|
%
|
Long-term
rate of return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Composite
rate of compensation increase for determining
projected
benefit obligation and net pension cost (benefit)
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Approximately
10% of pension and postretirement costs are capitalized as part of construction
labor, providing a small reduction in the net expense recorded. Uncertainty in
the securities markets and U.S. economy could result in investment returns less
than those assumed. GAAP requires that actual gains and losses on pension and
postretirement plan assets be recognized in the market-related value of assets
(MRVA) equally over a period of not more than five years. We use a methodology,
allowed under GAAP, under which we hold the MRVA to within 20% of the actual
fair value of plan assets, which can have the effect of accelerating the
recognition of excess actual gains and losses into the MRVA to less than five
years. Due to investment losses on plan assets experienced in 2008, this
methodology contributed approximately $1,577 to our combined net pension and
postretirement cost in 2009 as compared with not using this methodology. This
methodology did not have a material impact on 2008 and 2007 combined net pension
and postretirement benefits. Should the securities markets decline or medical
and prescription drug costs increase at a rate greater than assumed, we would
expect increasing annual combined net pension and postretirement costs for the
next several years. Should actual experience differ from actuarial assumptions,
the projected pension benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost would be
affected in future years.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Discount Rate
Our
assumed discount rate of 6.50% at December 31, 2009, reflects the hypothetical
rate at which the projected benefit obligations could be effectively settled or
paid out to participants. We determined our discount rate based on a range of
factors, including a yield curve comprised of the rates of return on several
hundred high-quality, fixed-income corporate bonds available at the measurement
date and the related expected duration for the obligations. These bonds were all
rated at least Aa3 or AA- by one of the nationally recognized statistical rating
organizations, denominated in U.S. dollars, and neither callable, convertible
nor index linked. For the year ended December 31, 2009, we decreased our
discount rate by 0.50%, resulting in an increase in our pension plan benefit
obligation of $2,065 and an increase in our postretirement benefit
obligation of $1,847. For the year ended December 31, 2008, we increased our
discount rate by 0.50%, resulting in a decrease in our pension plan benefit
obligation of $2,176 and a decrease in our postretirement benefit obligation of
$2,154.
Expected Long-Term Rate of
Return
Our expected long-term rate of return on plan assets of
8.50% for 2010 and 2009 reflects the average rate of earnings expected on the
funds invested, or to be invested, to provide for the benefits included in the
projected benefit obligations. In setting the long-term assumed rate of return,
management considers capital markets future expectations and the asset mix of
the plans’ investments. Actual long-term return can, in relatively stable
markets, also serve as a factor in determining future expectations. However, the
dramatic adverse market conditions in 2008 have skewed traditional measures of
long-term return, such as the 10-year return, which was 3.67% through 2009 and
4.21% through 2008, compared with 9.18% through 2007. The severity of the 2008
losses may make the 10-year return less of a relevant factor in future
expectations. In 2009, we experienced actual returns on investments much greater
than what was expected, which will create a reduction in combined pension and
postretirement costs for 2010. Based on the future expectations for the target
asset mix, this assumption will remain unchanged for 2010. We consider many
factors that include, but are not limited to, historical returns on plan assets,
current market information on long-term returns (e.g., long-term bond rates) and
current and target asset allocations between asset categories. The target asset
allocation is determined based on consultations with external investment
advisors. This assumption, which is based on our long-term expectations of
market returns in future years, is one of the most significant of the
weighted-average assumptions used to determine our actuarial estimates of
pension and postretirement benefit expense. If all other factors were to remain
unchanged, we expect that a 1% decrease in the expected long-term rate of return
would cause 2010 combined pension and postretirement cost to increase
$639.
Composite Rate of Compensation
Increase
Our expected composite rate of compensation increase
of 4% reflects the long-term average rate of salary increases.
Health Care Cost
Trend
Our health care cost trend assumptions are developed
based on historical cost data, the near-term outlook and an assessment of likely
long-term trends. In addition to the health care cost trend, we assume an annual
3% growth in administrative expenses and an annual 3% growth in dental claims.
Due to benefit design changes (e.g., increased co-pays and deductibles for
prescription drugs and certain medical services), we have generally
experienced better-than-expected claims cost in recent years. The
following table provides our assumed average health care cost trend based on the
demographics of plan participants:
|
|
2010
|
|
|
2009
|
|
Health
care cost trend rate assumed for current year
|
|
|
|
|
|
|
Retirees
64 and under
|
|
|
5.00
|
%
|
|
|
5.21
|
%
|
Retirees
65 and over
|
|
|
5.00
|
%
|
|
|
5.36
|
%
|
Rate
to which the cost trend is assumed to decline
(the
ultimate trend rate)
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year
that rate reaches the ultimate trend rate
|
|
|
2010
|
|
|
|
2010
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
A one
percentage-point change in the assumed combined medical and dental cost trend
rate would have the following effects:
|
One
Percentage-Point Increase
|
|
One
Percentage-
Point
Decrease
|
|
Increase
(decrease) in total of service and interest cost
components
|
|
$
|
325
|
|
|
$
|
(266
|
)
|
Increase
(decrease) in accumulated postretirement benefit
obligation
|
|
|
3,423
|
|
|
|
(2,842
|
)
|
Prior to
August 2009, a majority of our labor contracts contained an annual dollar cap
for nonmanagement retirees who retire during the term of the labor contract.
However, we waived the cap during the relevant contract periods and thus did not
collect contributions from those retirees. We have similarly waived the cap for
nonmanagement retirees who retired prior to inception of the labor contract. In
accordance with the substantive plan provisions required in accounting for
postretirement benefits under GAAP, we did not account for the cap in the value
of our accumulated postretirement benefit obligation (i.e., for GAAP purposes,
we assumed the cap would be waived for all future contract periods). In August
2009, the company announced that the annual dollar caps would be enforced for
some groups beginning in 2010, with alternative uncapped plans available and
participants assumed to move to the uncapped plans. Consequently, no substantive
assumptions about the annual caps being waived are reflected after August
2009.
We also
changed from a static mortality table to a generational mortality table,
creating an increase in our pension and postretirement benefit obligations as of
December 31, 2009, as well as an increase in net pension and postretirement
costs in 2010. Given full recognition of bargained changes, assumption changes
and recognition of gains/losses, our combined pension and postretirement cost is
expected to decrease for 2010 compared to 2009.
Plan
Assets
Plan
assets consist primarily of private and public equity, government and corporate
bonds, and real assets. The asset allocations of the pension plans are
maintained to meet ERISA requirements. Any plan contributions, as determined by
ERISA regulations, are made to a pension trust for the benefit of plan
participants. We maintain VEBA trusts to partially fund postretirement benefits;
however, there are no ERISA or regulatory requirements that these postretirement
benefit plans be funded annually.
The
principal investment objectives are to ensure the availability of funds to pay
pension and postretirement benefits as they become due under a broad range of
future economic scenarios, to maximize long-term investment return with an
acceptable level of risk based on our pension and postretirement obligations,
and to be broadly diversified across and within the capital markets to insulate
asset values against adverse experience in any one market. Each asset class has
broadly diversified characteristics. Substantial biases toward any particular
investing style or type of security are sought to be avoided by managing the
aggregation of all accounts with portfolio benchmarks. Asset and benefit
obligation forecasting studies are conducted periodically, generally every two
to three years, or when significant changes have occurred in market conditions,
benefits, participant demographics or funded status. Decisions regarding
investment policy are made with an understanding of the effect of asset
allocation on funded status, future contributions and projected expenses. The
current asset allocation policy and risk level for the pension plan and VEBA
assets are based on a study completed and approved during 2009.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
plans’ weighted-average asset target and actual allocations as a percentage of
plan assets, including the notional exposure of future contracts by asset
categories at December 31, are as follows:
|
|
Pension
Assets
|
|
|
Postretirement
(VEBA) Assets
|
|
|
Target
|
|
|
2009
|
|
|
2008
|
|
|
Target
|
|
|
2009
|
|
|
2008
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
26%
–
36
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34%
–
44
|
%
|
|
|
39
|
%
|
|
|
39
|
%
|
International
|
|
|
12%
–
22
|
%
|
|
|
16
|
|
|
|
16
|
|
|
|
22%
–
32
|
%
|
|
|
27
|
|
|
|
21
|
|
Fixed
income securities
|
|
|
27%
- 37
|
%
|
|
|
30
|
|
|
|
30
|
|
|
|
15%
- 25
|
%
|
|
|
20
|
|
|
|
25
|
|
Real
assets
|
|
|
6%
–
16
|
%
|
|
|
8
|
|
|
|
11
|
|
|
|
0%
–
7
|
%
|
|
|
2
|
|
|
|
3
|
|
Private
equity
|
|
|
4%
–
14
|
%
|
|
|
10
|
|
|
|
9
|
|
|
|
0%
–
9
|
%
|
|
|
4
|
|
|
|
6
|
|
Other
|
|
|
0%
- 5
|
%
|
|
|
2
|
|
|
|
-
|
|
|
|
3%
- 13
|
%
|
|
|
8
|
|
|
|
6
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
At
December 31, 2009, AT&T securities represented less than one-half of a
percent of assets held by our pension plans and VEBA trusts.
Investment
Valuation
Investments
are stated at fair value. Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. See “Fair Value Measurement” for
further discussion.
Investments
in securities traded on a national securities exchange are valued at the last
reported sales price on the last business day of the year. If no sale was
reported on that date, they are valued at the last reported bid price.
Investments in securities not traded on a national securities exchange are
valued using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. Over-the-counter (OTC) securities and
government obligations are valued at the bid price or the average of the bid and
asked price on the last business day of the year from published sources where
available and, if not available, from other sources considered reliable.
Depending on the types and contractual terms of OTC derivatives, fair value is
measured using a series of techniques, such as Black-Scholes option pricing
model, simulation models or a combination of various models.
Common/collective
trust funds and 103-12 investment entities are valued at quoted redemption
values that represent the net asset values of units held at year-end which
management has determined approximates fair value.
Alternative
investments, including investments in private equities, private bonds, limited
partnerships, hedge funds, real assets and natural resources, do not have
readily available market values. These estimated fair values may differ
significantly from the values that would have been used had a ready market for
these investments existed, and such differences could be material. Private
equity, private bonds, limited partnership interests, hedge funds and other
investments not having an established market are valued at net asset values as
determined by the investment managers, which management has determined
approximates fair value. Private equity investments are often valued initially
based upon cost; however, valuations are reviewed utilizing available market
data to determine if the carrying value of these investments should be adjusted.
Such market data primarily includes observations of the trading multiples of
public companies considered comparable to the private companies being valued.
Investments in real assets funds are stated at the aggregate net asset value of
the units of these funds, which management has determined approximates fair
value. Real assets and natural resource investments are valued either at amounts
based upon appraisal reports prepared by appraisers or at amounts as determined
by an internal appraisal performed by the investment manager, which management
has determined approximates fair value.
Purchases
and sales of securities are recorded as of the trade date. Realized gains and
losses on sales of securities are determined on the basis of average cost.
Interest income is recognized on the accrual basis. Dividend income is
recognized on the ex-dividend date.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Fair
Value Measurement
GAAP
standards require disclosures for financial assets and liabilities that are
remeasured at fair value at least annually. GAAP standards establish a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. These tiers include: Level 1, defined as observable inputs such as
quoted prices in active markets; Level 2, defined as inputs other than quoted
prices in active markets that are either directly or indirectly observable; and
Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions. See Note 9
“Fair Value Measurement and Disclosure” for a discussion of fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair
value.
The
following tables set forth by level, within the fair value hierarchy, the
pension and postretirement assets and liabilities at fair value as of December
31, 2009:
|
|
Pension
Assets and Liabilities at Fair Value as of December 31,
2009
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Interest
bearing investments
|
|
$
|
134
|
|
|
$
|
2,277
|
|
|
$
|
-
|
|
|
$
|
2,411
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
9,253
|
|
|
|
3,207
|
|
|
|
2
|
|
|
|
12,462
|
|
International
|
|
|
4,928
|
|
|
|
1,766
|
|
|
|
-
|
|
|
|
6,694
|
|
Fixed
income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and governmental agencies
|
|
|
-
|
|
|
|
5,295
|
|
|
|
-
|
|
|
|
5,295
|
|
Corporate
and other bonds and notes
|
|
|
-
|
|
|
|
4,548
|
|
|
|
-
|
|
|
|
4,548
|
|
Private
equity
|
|
|
36
|
|
|
|
10
|
|
|
|
5,312
|
|
|
|
5,358
|
|
Real
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
3,650
|
|
|
|
3,650
|
|
Other
|
|
|
128
|
|
|
|
206
|
|
|
|
-
|
|
|
|
334
|
|
Market
value of securities on loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing investments
|
|
|
-
|
|
|
|
300
|
|
|
|
-
|
|
|
|
300
|
|
Equity
– domestic
|
|
|
1,907
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1,908
|
|
Equity
– international
|
|
|
597
|
|
|
|
15
|
|
|
|
-
|
|
|
|
612
|
|
U.S.
Government and governmental agencies
|
|
|
-
|
|
|
|
2,962
|
|
|
|
-
|
|
|
|
2,962
|
|
Corporate
bonds and notes
|
|
|
-
|
|
|
|
659
|
|
|
|
-
|
|
|
|
659
|
|
Other
|
|
|
22
|
|
|
|
8
|
|
|
|
-
|
|
|
|
30
|
|
Collateral
value of securities lending
|
|
|
-
|
|
|
|
6,039
|
|
|
|
-
|
|
|
|
6,039
|
|
Total
plan net assets at fair value
|
|
$
|
17,005
|
|
|
$
|
27,293
|
|
|
$
|
8,964
|
|
|
$
|
53,262
|
|
Other
assets (liabilities)
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,389
|
)
|
Total
Plan Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,873
|
|
1
Other
assets (liabilities) include accounts receivable, accounts payable and net
adjustment for securities lending payable.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
|
|
Postretirement
Assets and Liabilities at Fair Value as of December 31,
2009
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Interest
bearing investments
|
|
$
|
49
|
|
|
$
|
1,145
|
|
|
$
|
-
|
|
|
$
|
1,194
|
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
2,484
|
|
|
|
1,175
|
|
|
|
-
|
|
|
|
3,659
|
|
International
|
|
|
2,534
|
|
|
|
755
|
|
|
|
-
|
|
|
|
3,289
|
|
Fixed
income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and governmental agencies
|
|
|
-
|
|
|
|
1,507
|
|
|
|
-
|
|
|
|
1,507
|
|
Corporate
and other bonds and notes
|
|
|
-
|
|
|
|
485
|
|
|
|
-
|
|
|
|
485
|
|
Private
equity
|
|
|
-
|
|
|
|
-
|
|
|
|
583
|
|
|
|
583
|
|
Real
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
|
|
117
|
|
Other
|
|
|
33
|
|
|
|
11
|
|
|
|
-
|
|
|
|
44
|
|
Market
value of securities on loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
- domestic
|
|
|
354
|
|
|
|
118
|
|
|
|
-
|
|
|
|
472
|
|
Equities
– international
|
|
|
95
|
|
|
|
82
|
|
|
|
-
|
|
|
|
177
|
|
U.S.
government bonds and notes
|
|
|
-
|
|
|
|
74
|
|
|
|
-
|
|
|
|
74
|
|
Corporate
and other bonds and notes
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
15
|
|
Collateral
value of securities lending
|
|
|
-
|
|
|
|
765
|
|
|
|
-
|
|
|
|
765
|
|
Total
plan net assets at fair value
|
|
$
|
5,549
|
|
|
$
|
6,132
|
|
|
$
|
700
|
|
|
$
|
12,381
|
|
Other
assets (liabilities)
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(868
|
)
|
Total
Plan Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,513
|
|
1
Other
assets (liabilities) include accounts receivable, accounts payable and net
adjustment for securities lending payable.
The
tables below set forth a summary of changes in the fair value of the pension and
postretirement assets Level 3 investment assets for the year ended December 31,
2009:
Pension
Assets
|
|
Equity
- Domestic
|
|
|
Private
equity
|
|
|
Real
assets
|
|
|
Total
|
|
Balance,
beginning of year
|
|
$
|
21
|
|
|
$
|
5,494
|
|
|
$
|
5,281
|
|
|
$
|
10,796
|
|
Actual
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
sold during the period
|
|
|
-
|
|
|
|
130
|
|
|
|
(41
|
)
|
|
|
89
|
|
Assets
still held at reporting date
|
|
|
10
|
|
|
|
(652
|
)
|
|
|
(1,829
|
)
|
|
|
(2,471
|
)
|
Purchases,
sales, issuances and settlements (net)
|
|
|
(29
|
)
|
|
|
340
|
|
|
|
239
|
|
|
|
550
|
|
Balance,
End of Year
|
|
$
|
2
|
|
|
$
|
5,312
|
|
|
$
|
3,650
|
|
|
$
|
8,964
|
|
Postretirement
Assets
|
|
Private
equity
|
|
|
Real
assets
|
|
|
Total
|
|
Balance,
beginning of year
|
|
$
|
669
|
|
|
$
|
210
|
|
|
$
|
879
|
|
Actual
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
sold during the period
|
|
|
23
|
|
|
|
(34
|
)
|
|
|
(11
|
)
|
Assets
still held at reporting date
|
|
|
(76
|
)
|
|
|
(62
|
)
|
|
|
(138
|
)
|
Purchases,
sales, issuances and settlements (net)
|
|
|
(33
|
)
|
|
|
3
|
|
|
|
(30
|
)
|
Balance,
End of Year
|
|
$
|
583
|
|
|
$
|
117
|
|
|
$
|
700
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Estimated
Future Benefit Payments
Expected
benefit payments are estimated using the same assumptions used in determining
our benefit obligation at December 31, 2009. Because benefit payments will
depend on future employment and compensation levels, average years employed and
average life spans, among other factors, changes in any of these factors could
significantly affect these expected amounts. The following table provides
expected benefit payments under our pension and postretirement
plans:
|
|
Pension
Benefits
|
|
|
Postretirement
Benefits
|
|
|
Medicare
Subsidy Receipts
|
|
2010
|
|
$
|
4,897
|
|
|
$
|
2,836
|
|
|
$
|
(113
|
)
|
2011
|
|
|
4,605
|
|
|
|
2,665
|
|
|
|
(121
|
)
|
2012
|
|
|
4,578
|
|
|
|
2,627
|
|
|
|
(132
|
)
|
2013
|
|
|
4,504
|
|
|
|
2,615
|
|
|
|
(143
|
)
|
2014
|
|
|
4,432
|
|
|
|
2,596
|
|
|
|
(154
|
)
|
Years
2015 – 2019
|
|
|
21,449
|
|
|
|
12,729
|
|
|
|
(944
|
)
|
Supplemental Retirement
Plans
We also
provide senior- and middle-management employees with nonqualified, unfunded
supplemental retirement and savings plans. While these plans are unfunded, we
have assets in a designated nonbankruptcy remote trust that are independently
managed and used to provide for these benefits. These plans include supplemental
pension benefits as well as compensation-deferral plans, some of which include a
corresponding match by us based on a percentage of the compensation
deferral.
We use
the same significant assumptions for the discount rate and composite rate of
compensation increase used in determining the projected benefit obligation and
the net pension and postemployment benefit cost. The following tables provide
the plans’ benefit obligations and fair value of assets at December 31 and the
components of the supplemental retirement pension benefit cost. The net amounts
recorded as “Other noncurrent liabilities” on our consolidated balance sheets at
December 31, 2009, was $2,139 and was $2,114 at December 31,
2008.
The
following table provides information for our supplemental retirement plans with
accumulated benefit obligations in excess of plan assets:
|
|
2009
|
|
|
2008
|
|
Projected
benefit obligation
|
|
$
|
(2,139
|
)
|
|
$
|
(2,114
|
)
|
Accumulated
benefit obligation
|
|
|
(2,058
|
)
|
|
|
(2,023
|
)
|
Fair
value of plan assets
|
|
|
-
|
|
|
|
-
|
|
The
following tables present the components of net periodic benefit cost and other
changes in plan assets and benefit obligations recognized in other comprehensive
income:
Net
Periodic Benefit Cost
|
|
2009
|
|
|
2008
|
|
Service
cost - benefits earned during the period
|
|
$
|
11
|
|
|
$
|
13
|
|
Interest
cost on projected benefit obligation
|
|
|
140
|
|
|
|
141
|
|
Amortization
of prior service cost
|
|
|
5
|
|
|
|
6
|
|
Recognized
actuarial loss
|
|
|
10
|
|
|
|
21
|
|
Net
supplemental retirement pension cost
|
|
$
|
166
|
|
|
$
|
181
|
|
Other
Changes Recognized in
Other
Comprehensive Income
|
|
2009
|
|
|
2008
|
|
Net
loss (gain)
|
|
$
|
51
|
|
|
$
|
(66
|
)
|
Prior
service cost (credit)
|
|
|
(5
|
)
|
|
|
-
|
|
Amortization
of net loss (gain)
|
|
|
7
|
|
|
|
11
|
|
Amortization
of prior service cost
|
|
|
3
|
|
|
|
4
|
|
Total
recognized in net supplemental pension cost and other comprehensive
income
|
|
$
|
56
|
|
|
$
|
(51
|
)
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
estimated net loss for our supplemental retirement plan benefits that will be
amortized from accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year is $16, and the prior service cost for our
supplemental retirement plan benefits that will be amortized from accumulated
other comprehensive income into net periodic benefit cost over the next fiscal
year is $2.
Deferred
compensation expense was $95 in 2009, $54 in 2008 and $106 in 2007. Our deferred
compensation liability, included in “Other noncurrent liabilities,” was $1,031
at December 31, 2009, and $1,054 at December 31, 2008.
Non-U.S.
Plans
As part
of our ATTC acquisition, we acquired certain non-U.S. operations that have
varying types of pension programs providing benefits for substantially all of
their employees and, to a limited group, postemployment benefits. The net
amounts recorded as “Postemployment benefit obligation” on our consolidated
balance sheets at December 31, 2009 and 2008, were $(9) and $(7).
|
|
2009
|
|
|
2008
|
|
Benefit
obligations at end of year
|
|
$
|
(1,040
|
)
|
|
$
|
(786
|
)
|
Fair
value of plan assets
|
|
|
1,049
|
|
|
|
793
|
|
Funded
status at end of year
|
|
$
|
9
|
|
|
$
|
7
|
|
The
following table provides information for certain non-U.S. defined-benefit
pension plans with plan assets in excess of accumulated benefit
obligations:
|
|
2009
|
|
|
2008
|
|
Projected
benefit obligation
|
|
$
|
1,040
|
|
|
$
|
786
|
|
Accumulated
benefit obligation
|
|
|
975
|
|
|
|
700
|
|
Fair
value of plan assets
|
|
|
1,049
|
|
|
|
793
|
|
Our
International Pension Assets are composed of Level 1 and Level 2 assets. Level 2
assets are primarily made up of corporate bonds, notes and real assets totaling
$688. The remaining assets at fair value are Level 1 assets totaling $361,
related to equity investments and cash.
In
determining the projected benefit obligation for certain non-U.S.
defined-benefit pension plans, we use assumptions based upon interest rates
relative to each country in which we sponsor a plan. Additionally, the expected
return is based on the investment mix relative to each plan’s assets. Following
are the significant weighted-average assumptions:
|
|
2009
|
|
|
2008
|
|
Discount
rate for determining projected benefit obligation at December
31
|
|
|
5.16
|
%
|
|
|
6.20
|
%
|
Discount
rate in effect for determining net cost (benefit)
|
|
|
6.20
|
%
|
|
|
5.57
|
%
|
Long-term
rate of return on plan assets
|
|
|
6.24
|
%
|
|
|
6.13
|
%
|
Composite
rate of compensation increase for determining
projected
benefit obligation at December 31
|
|
|
3.99
|
%
|
|
|
4.06
|
%
|
Composite
rate of compensation increase for determining
net
pension cost
|
|
|
4.06
|
%
|
|
|
4.25
|
%
|
The
following tables present the components of net periodic benefit cost and other
changes in plan assets and benefit obligations recognized in other comprehensive
income:
Net
Periodic Benefit Cost
|
|
2009
|
|
|
2008
|
|
Service
cost - benefits earned during the period
|
|
$
|
22
|
|
|
$
|
25
|
|
Interest
cost on projected benefit obligation
|
|
|
47
|
|
|
|
54
|
|
Expected
return on assets
|
|
|
(58
|
)
|
|
|
(60
|
)
|
Amortization
of actuarial (gain)
|
|
|
(17
|
)
|
|
|
(5
|
)
|
Net
pension cost
|
|
$
|
(6
|
)
|
|
$
|
14
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
Other
Changes Recognized in
Other
Comprehensive Income
|
|
2009
|
|
|
2008
|
|
Net
loss (gain)
|
|
$
|
75
|
|
|
$
|
70
|
|
Amortization
of net loss (gain)
|
|
|
(8
|
)
|
|
|
(2
|
)
|
Amortization
of prior service cost
|
|
|
-
|
|
|
|
-
|
|
Total
recognized in net pension cost and other comprehensive
income
|
|
$
|
67
|
|
|
$
|
68
|
|
The
estimated net loss that will be amortized from accumulated other comprehensive
income into net periodic benefit cost over the next fiscal year is
$1.
Contributory
Savings Plans
We
maintain contributory savings plans that cover substantially all employees.
Under the savings plans, we match in cash or company stock a stated percentage
of eligible employee contributions, subject to a specified ceiling. There are no
debt-financed shares held by the Employee Stock Ownership Plans, allocated or
unallocated.
Our match
of employee contributions to the savings plans is fulfilled with purchases of
our stock on the open market or company cash. Benefit cost is based on the cost
of shares or units allocated to participating employees’ accounts and was $586,
$664 and $633 for the years ended December 31, 2009, 2008 and
2007.
NOTE
12. SHARE-BASED PAYMENT
We
account for our share-based payment arrangements using GAAP standards for
share-based awards. Our accounting under these standards may affect our ability
to fully realize the value shown on our consolidated balance sheets of deferred
tax assets associated with compensation expense. Full realization of these
deferred tax assets requires stock options to be exercised at a price equaling
or exceeding the sum of the exercise price plus the fair value of the options at
the grant date. The provisions of GAAP standards for share-based awards do not
allow a valuation allowance to be recorded unless our future taxable income is
expected to be insufficient to recover the asset. Accordingly, there can be no
assurance that the current stock price of our common shares will rise to levels
sufficient to realize the entire tax benefit currently reflected in our
consolidated balance sheets. However, to the extent that additional tax benefits
are generated in excess of the deferred taxes associated with compensation
expense previously recognized, the potential future impact on income would be
reduced.
At
December 31, 2009, we had various share-based payment arrangements, which we
describe in the following discussion. The compensation cost recognized for those
plans was $317 for 2009, compared to $166 for 2008 and $720 for 2007, and is
included in “Selling, general and administrative” in our consolidated statements
of income. The total income tax benefit recognized in the consolidated
statements of income for share-based payment arrangements was $121 for 2009,
compared to $63 for 2008 and $275 for 2007.
Under our
various plans, senior and other management and nonmanagement employees and
nonemployee directors have received stock options, performance stock units, and
other nonvested stock units. Stock options issued through December 31, 2009,
carry exercise prices equal to the market price of our stock at the date of
grant. Beginning in 1994 and ending in 1999, certain employees of AT&T
Teleholdings, Inc. (formerly known as Ameritech) were awarded grants of
nonqualified stock options with dividend equivalents. Prior to 2006, depending
on the grant, stock options vesting could occur up to five years from the date
of grant, with most options vesting ratably over three years. Stock options
granted as part of a deferred compensation plan do not have a vesting period;
since 2006, these are the only options issued by AT&T. Performance stock
units, which are nonvested stock units, are granted to key employees based upon
our stock price at the date of grant and are awarded in the form of AT&T
common stock and cash at the end of a two- to three-year period, subject to the
achievement of certain performance goals. Other nonvested stock units are valued
at the market price of our common stock at the date of grant and vest typically
over a two- to five-year period. As of December 31, 2009, we were authorized to
issue up to 110 million shares of common stock (in addition to shares that may
be issued upon exercise of outstanding options or upon vesting of performance
stock units or other nonvested stock units) to officers, employees, and
directors pursuant to these various plans.
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
The
compensation cost that we have charged against income for our share-based
payment arrangements was as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Performance
stock units
|
|
$
|
290
|
|
|
$
|
152
|
|
|
$
|
620
|
|
Stock
options
|
|
|
8
|
|
|
|
11
|
|
|
|
14
|
|
Restricted
stock
|
|
|
21
|
|
|
|
9
|
|
|
|
68
|
|
Other
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
18
|
|
Total
|
|
$
|
317
|
|
|
$
|
166
|
|
|
$
|
720
|
|
The
estimated fair value of the options when granted is amortized to expense over
the options’ vesting or required service period. The fair value for these
options, for the indicated years ended, was estimated at the date of grant based
on the expected life of the option and historical exercise experience, using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Risk-free
interest rate
|
|
|
3.17
|
%
|
|
|
3.96
|
%
|
|
|
5.01
|
%
|
Dividend
yield
|
|
|
6.82
|
%
|
|
|
4.36
|
%
|
|
|
3.65
|
%
|
Expected
volatility factor
|
|
|
19.65
|
%
|
|
|
18.76
|
%
|
|
|
20.75
|
%
|
Expected
option life in years
|
|
|
7.00
|
|
|
|
7.00
|
|
|
|
7.00
|
|
A summary
of option activity as of December 31, 2009, and changes during the year then
ended, is presented below (shares in millions):
Options
|
|
Shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
Weighted-
Average Remaining Contractual Term (Years)
|
|
|
Aggregate
Intrinsic Value
1
|
|
Outstanding
at January 1, 2009
|
|
|
204
|
|
|
$
|
39.41
|
|
|
|
|
|
|
|
Granted
|
|
|
3
|
|
|
|
24.06
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1
|
)
|
|
|
23.41
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(28
|
)
|
|
|
54.86
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
178
|
|
|
|
36.79
|
|
|
|
1.86
|
|
|
$
|
115
|
|
Exercisable
at December 31, 2009
|
|
|
175
|
|
|
$
|
37.01
|
|
|
|
1.73
|
|
|
$
|
103
|
|
|
Aggregate intrinsic
value includes only those options with intrinsic value (options where the
exercise price is below the market
price).
|
The
weighted-average fair value of each option granted during the period was $1.84
for 2009, compared to $5.04 for 2008 and $7.71 for 2007. The total intrinsic
value of options exercised during 2009 was $5, compared to $78 for 2008 and $667
for 2007.
It is our
policy to satisfy share option exercises using our treasury shares. The actual
excess tax benefit realized for the tax deductions from option exercises from
these arrangements was less than $1 in 2009, compared to $10 for 2008 and $77
for 2007.
A summary
of the status of our nonvested stock units, which includes performance stock
units as of December 31, 2009, and changes during the year then ended is
presented as follows (shares in millions):
Nonvested
Stock Units
|
|
Shares
|
|
|
Weighted-Average
Grant-Date
Fair
Value
|
|
Nonvested
at January 1, 2009
|
|
|
24
|
|
|
$
|
35.18
|
|
Granted
|
|
|
16
|
|
|
|
24.80
|
|
Vested
|
|
|
(14
|
)
|
|
|
34.51
|
|
Forfeited
|
|
|
-
|
|
|
|
28.67
|
|
Nonvested
at December 31, 2009
|
|
|
26
|
|
|
$
|
26.48
|
|
Notes
to Consolidated Financial Statements (continued)
Dollars
in millions except per share amounts
As of
December 31, 2009, there was $365 of total unrecognized compensation cost
related to nonvested share-based payment arrangements granted. That cost is
expected to be recognized over a weighted-average period of 1.88 years. The
total fair value of shares vested during the year was $471 for 2009, compared to
$554 for 2008 and $345 for 2007.
NOTE
13. STOCKHOLDERS’ EQUITY
From time
to time, we repurchase shares of common stock for distribution through our
employee benefit plans or in connection with certain acquisitions. In December
2007, the Board of Directors authorized the repurchase of up to 400 million
shares of our common stock. This authorization replaced previous authorizations
and expired on December 31, 2009. As of December 31, 2009, we had repurchased
approximately 164 million shares under this program.
During
the Annual Meeting of Shareholders in April 2009, shareholders approved the
increase of authorized common shares of AT&T stock from 7 billion to 14
billion, with no change to the currently authorized 10 million preferred shares
of AT&T stock. As of December 31, 2009 and 2008, no preferred shares were
outstanding.
In
December 2009, the Company declared its quarterly dividend, which reflected an
increase in the amount per share of common stock from $0.41 to
$0.42.
NOTE
14. ADDITIONAL FINANCIAL INFORMATION
|
|
December
31,
|
Consolidated
Balance Sheets
|
|
2009
|
|
|
2008
|
|
Accounts
payable and accrued liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
7,514
|
|
|
$
|
6,921
|
|
Accrued
rents and other
|
|
|
3,335
|
|
|
|
4,437
|
|
Accrued
payroll and commissions
|
|
|
2,430
|
|
|
|
2,401
|
|
Deferred
directory revenue
|
|
|
1,491
|
|
|
|
1,984
|
|
Accrued
interest
|
|
|
1,717
|
|
|
|
1,471
|
|
Compensated
future absences
|
|
|
563
|
|
|
|
609
|
|
Current
portion of employee benefit obligation
|
|
|
2,021
|
|
|
|
729
|
|
Other
|
|
|
1,928
|
|
|
|
1,480
|
|
Total
accounts payable and accrued liabilities
|
|
$
|
20,999
|
|
|
$
|
20,032
|
|
Deferred
compensation (included in Other noncurrent liabilities)
|
|
$
|
1,633
|
|
|
$
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Income
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Advertising
expense
|
|
$
|
2,797
|
|
|
$
|
3,073
|
|
|
$
|
3,430
|
|
Interest
expense incurred
|
|
$
|
4,119
|
|
|
$
|
4,049
|
|
|
$
|
3,678
|
|
Capitalized
interest
|
|
|
(740
|
)
|
|
|
(659
|
)
|
|
|
(171
|
)
|
Total
interest expense
|
|
$
|
3,379
|
|
|
$
|
3,390
|
|
|
$
|
3,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2007
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,873
|
|
|
$
|
3,727
|
|
|
$
|
3,445
|
|
Income
taxes, net of refunds
|
|
|
4,471
|
|
|
|
5,307
|
|
|
|
4,013
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Changes in
Stockholders’
Equity
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Accumulated
other comprehensive income (loss) is composed of the following components,
net of taxes, at December 31:
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
$
|
(761
|
)
|
|
$
|
(912
|
)
|
|
$
|
(469
|
)
|
Unrealized
gains on securities
|
|
|
324
|
|
|
|
100
|
|
|
|
375
|
|
Unrealized
gains (losses) on cash flow hedges
|
|
|
142
|
|
|
|
(483
|
)
|
|
|
(226
|
)
|
Defined
benefit postretirement plans
|
|
|
(14,112
|
)
|
|
|
(15,761
|
)
|
|
|
(59
|
)
|
Other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Accumulated
other comprehensive (loss)
|
|
$
|
(14,408
|
)
|
|
$
|
(17,057
|
)
|
|
$
|
(380
|
)
|
No
customer accounted for more than 10% of consolidated revenues in 2009, 2008 or
2007.
A
majority of our employees are represented by labor unions as of year-end
2009.
NOTE
15. CONTINGENT LIABILITIES
In
addition to issues specifically discussed elsewhere, we are party to numerous
lawsuits, regulatory proceedings and other matters arising in the ordinary
course of business. In accordance with GAAP standards for contingencies, in
evaluating these matters on an ongoing basis, we take into account amounts
already accrued on the balance sheet. In our opinion, although the outcomes of
these proceedings are uncertain, they should not have a material adverse effect
on our financial position, results of operations or cash flows.
We have
contractual obligations to purchase certain goods or services from various other
parties. Our purchase obligations are expected to be approximately $2,890 in
2010, $4,095 in total for 2011 and 2012, $2,549 in total for 2013 and 2014 and
$694 in total for years thereafter.
See Note
9 for a discussion of collateral and credit-risk contingencies.
NOTE
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The
following table represents our quarterly financial results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Price
|
Calendar
Quarter
|
|
Total
Operating
Revenues
|
|
|
Operating
Income
|
|
|
Net
Income
|
|
|
Net
Income
Attributable to AT&T
|
|
|
Basic
Earnings
Per
Share
1
|
|
|
Diluted
Earnings
Per
Share
1
|
|
|
High
|
|
|
Low
|
|
|
Close
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
30,571
|
|
|
$
|
5,737
|
|
|
$
|
3,201
|
|
|
$
|
3,126
|
|
|
$
|
0.53
|
|
|
$
|
0.53
|
|
|
$
|
29.46
|
|
|
$
|
21.44
|
|
|
$
|
25.20
|
|
Second
|
|
|
30,734
|
|
|
|
5,506
|
|
|
|
3,276
|
|
|
|
3,198
|
|
|
|
0.54
|
|
|
|
0.54
|
|
|
|
27.09
|
|
|
|
23.38
|
|
|
|
24.84
|
|
Third
|
|
|
30,855
|
|
|
|
5,388
|
|
|
|
3,275
|
|
|
|
3,192
|
|
|
|
0.54
|
|
|
|
0.54
|
|
|
|
27.68
|
|
|
|
23.19
|
|
|
|
27.01
|
|
Fourth
|
|
|
30,858
|
|
|
|
4,861
|
|
|
|
3,091
|
|
|
|
3,019
|
|
|
|
0.51
|
|
|
|
0.51
|
|
|
|
28.61
|
|
|
|
25.00
|
|
|
|
28.03
|
|
Annual
|
|
$
|
123,018
|
|
|
$
|
21,492
|
|
|
$
|
12,843
|
|
|
$
|
12,535
|
|
|
|
2.12
|
|
|
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
30,744
|
|
|
$
|
5,980
|
|
|
$
|
3,519
|
|
|
$
|
3,461
|
|
|
$
|
0.58
|
|
|
$
|
0.57
|
|
|
$
|
41.94
|
|
|
$
|
32.95
|
|
|
$
|
38.30
|
|
Second
|
|
|
30,866
|
|
|
|
6,567
|
|
|
|
3,843
|
|
|
|
3,772
|
|
|
|
0.64
|
|
|
|
0.63
|
|
|
|
40.70
|
|
|
|
32.63
|
|
|
|
33.69
|
|
Third
|
|
|
31,342
|
|
|
|
5,618
|
|
|
|
3,289
|
|
|
|
3,230
|
|
|
|
0.55
|
|
|
|
0.55
|
|
|
|
33.58
|
|
|
|
27.51
|
|
|
|
27.92
|
|
Fourth
|
|
|
31,076
|
|
|
|
4,898
|
|
|
|
2,477
|
|
|
|
2,404
|
|
|
|
0.41
|
|
|
|
0.41
|
|
|
|
30.65
|
|
|
|
20.90
|
|
|
|
28.50
|
|
Annual
|
|
$
|
124,028
|
|
|
$
|
23,063
|
|
|
$
|
13,128
|
|
|
$
|
12,867
|
|
|
|
2.17
|
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly earnings
per share impacts may not add to full-year earnings per share impacts due
to the difference in weighted-average common shares for the quarters
versus the weighted-average common shares for the
year.
|
Report
of Management
The
consolidated financial statements have been prepared in conformity with U.S.
generally accepted accounting principles. The integrity and objectivity of the
data in these financial statements, including estimates and judgments relating
to matters not concluded by year-end, are the responsibility of management, as
is all other information included in the Annual Report, unless otherwise
indicated.
The
financial statements of AT&T Inc. (AT&T) have been audited by
Ernst & Young LLP, Independent Registered Public Accounting
Firm. Management has made available to Ernst & Young LLP all
of AT&T’s financial records and related data, as well as the minutes of
stockholders’ and directors’ meetings. Furthermore, management believes that all
representations made to Ernst & Young LLP during its audit
were valid and appropriate.
Management
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed by AT&T is recorded, processed,
summarized, accumulated and communicated to its management, including its
principal executive and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods specified by
the Securities and Exchange Commission’s rules and forms.
Management
also seeks to ensure the objectivity and integrity of its financial data by the
careful selection of its managers, by organizational arrangements that provide
an appropriate division of responsibility and by communication programs aimed at
ensuring that its policies, standards and managerial authorities are understood
throughout the organization.
The Audit
Committee of the Board of Directors meets periodically with management, the
internal auditors and the independent auditors to review the manner in which
they are performing their respective responsibilities and to discuss auditing,
internal accounting controls and financial reporting matters. Both the internal
auditors and the independent auditors periodically meet alone with the Audit
Committee and have access to the Audit Committee at any time.
Assessment
of Internal Control
The
management of AT&T is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rule 13a-15(f) or
15d-15(f) under the Securities Exchange Act of 1934. AT&T’s internal control
system was designed to provide reasonable assurance to the company’s management
and Board of Directors regarding the preparation and fair presentation of
published financial statements.
AT&T
management assessed the effectiveness of the company’s internal control over
financial reporting as of December 31, 2009. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in
Internal Control – Integrated
Framework
. Based on its assessment, AT&T management believes that, as
of December 31, 2009, the Company’s internal control over financial reporting is
effective based on those criteria.
Ernst
& Young LLP, the independent registered public accounting firm that audited
the financial statements included in this Annual Report, has issued an
attestation report on the company’s internal control over financial
reporting.
/s/ Randall
Stephenson.
/s/ Richard G.
Lindner.
Randall
Stephenson
Richard G. Lindner
Chairman
of the
Board,
Senior Executive Vice President and
Chief
Executive Officer and
President Chief
Financial Officer
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
AT&T
Inc.
We have
audited the accompanying consolidated balance sheets of AT&T Inc. (the
Company) as of December 31, 2009 and 2008, and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 1 to the consolidated financial statements, in 2009 the
Company changed its presentation of noncontrolling interests with the adoption
of FASB statement No. 160,
Noncontrolling Interests in
Consolidated Financial Statements, an amendment to ARB No. 51, (
codified
in FASB Accounting Standards Codification (ASC) Topic 810,
Consolidation
)
effective January 1,
2009.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 25, 2010 expressed an
unqualified opinion thereon.
/s/ Ernst & Young,
LLP.
Dallas,
Texas
February
25, 2010
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
The Board
of Directors and Stockholders
AT&T
Inc.
We have
audited AT&T Inc.’s (the Company) internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). The Company’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management. Our responsibility
is to express an opinion on the company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on
the COSO
criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2009 and our report dated February 25, 2010 expressed
an unqualified opinion thereon.
/s/ Ernst & Young,
LLP.
Dallas,
Texas
February
25, 2010
75
Exhibit
21
PRINCIPAL
SUBSIDIARIES OF
AT&T
INC., AS OF DECEMBER 31, 2009
2009
AT&T INC. REPORT TO STOCKHOLDERS
SECURITIES
AND EXCHANGE COMMISSION ("SEC")
FORM
10-K filed February 25, 2010
|
Legal Name
|
State of
Incorporation/Formation
|
Conducts Business Under
|
Illinois
Bell Telephone
Company
|
Illinois
|
AT&T
Illinois;
AT&T
Wholesale
|
|
|
|
Indiana
Bell Telephone
Company,
Incorporated
|
Indiana
|
AT&T
Indiana;
AT&T
Wholesale
|
|
|
|
Michigan
Bell
Telephone
Company
|
Michigan
|
AT&T
Michigan;
AT&T
Wholesale
|
|
|
|
Nevada
Bell
Telephone
Company
|
Nevada
|
AT&T
Nevada;
AT&T
Wholesale
|
|
|
|
Pacific
Bell
Telephone
Company
|
California
|
AT&T
California;
AT&T
Wholesale;
AT&T
DataComm
|
AT&T
International, Inc.
|
Delaware
|
AT&T
International
|
|
|
|
SBC
Internet Services, Inc.
|
California
|
AT&T
Internet Services;
AT&T
Entertainment Services
|
|
|
|
SBC
Long Distance, LLC
|
Delaware
|
AT&T
Long Distance
|
|
|
|
AT&T
Teleholdings, Inc.
|
Delaware
|
AT&T
Midwest;
AT&T
West;
AT&T
East
|
Southwestern
Bell
Telephone
Company
|
Missouri
|
AT&T
Arkansas; AT&T Kansas;
AT&T
Missouri; AT&T Oklahoma;
AT&T
Texas; AT&T Southwest;
AT&T
DataComm; AT&T Wholesale
|
Southwestern
Bell
Yellow
Pages, Inc.
|
Missouri
|
AT&T
Advertising Solutions
|
|
|
|
Sterling
Commerce, Inc.
|
Delaware
|
same
|
|
|
|
The
Ohio Bell
Telephone
Company
|
Ohio
|
AT&T
Ohio;
AT&T
Wholesale
|
|
|
|
The
Southern New
England
Telephone Company
|
Connecticut
|
AT&T
Connecticut;
AT&T
Woodbury
|
|
|
|
Wisconsin
Bell, Inc.
|
Wisconsin
|
AT&T
Wisconsin;
AT&T
Wholesale
|
Exhibit
21
Legal
Name
|
State of
Incorporation/Formation
|
Conducts Business Under
|
AT&T
Corp.
|
New
York
|
AT&T
Corp.; AT&T;
ACC
Business;
AT&T
Wholesale; Lucky
Dog
Phone Co.; SmarTalk;
ConQuest;
CQTalk!;
AT&T
Wholesale; AT&T Business Solutions; AT&T Advanced
Solutions
|
AT&T
Communications of California, Inc.
|
California
|
same
|
|
|
|
AT&T
Communications of the Mountain States, Inc.
|
Colorado
|
Conquest;
SmarTalk;CQTalk!;
www.prepaidserviceguide.com
|
|
|
|
AT&T
Communications of NJ, LP
|
Delaware
|
same
|
AT&T
Communications of New York, Inc.
|
New
York
|
same
|
AT&T
Communications of Illinois,
Inc.
|
Illinois
|
SmarTalk;
ConQuest; Lucky Dog Phone Co.;
ACC
Business
|
|
|
|
AT&T
Communications of the Southern States, LLC
|
Delaware
|
ACC
Business; SmarTalk;
prepaidserviceguide.com;
AT&T;
Conquest; CQTalk!;
Lucky
Dog Phone Co.
|
Teleport
Communications New York
|
New
York
|
same
|
|
|
|
BellSouth
Corporation
|
Georgia
|
AT&T
South
|
|
|
|
BellSouth
Telecommunications, Inc.
|
Georgia
|
AT&T
Southeast
AT&T
Alabama
AT&T
Florida
AT&T
Georgia
AT&T
Kentucky
AT&T
Louisiana
AT&T
Mississippi
AT&T
North Carolina
AT&T
South Carolina
AT&T
Tennessee
|
Exhibit 21
Legal Name
|
State of
Incorporation/Formation
|
Conducts Business Under
|
AT&T
Mobility LLC
|
Delaware
|
AT&T
Mobility
|
|
|
|
AT&T
Mobility II, LLC
|
Delaware
|
AT&T
Mobility
|
|
|
|
New
Cingular Wireless Services, Inc.
|
Delaware
|
AT&T
Mobility
|
|
|
|
|
|
|
|
|
|
Exhibit 23
Consent
of Independent Registered Public Accounting Firm
We
consent to the incorporation by reference in this Annual Report (Form 10-K) of
AT&T Inc. (AT&T) of our reports dated February 25, 2010, with respect to
the consolidated financial statements of AT&T and the effectiveness of
internal control over financial reporting of AT&T, included in the 2009
Annual Report to Stockholders of AT&T.
Our
audits also included the financial statement schedules of AT&T listed in
Item 15(a). These schedules are the responsibility of AT&T's management. Our
responsibility is to express an opinion based on our audits. In our opinion, as
to which the date is February 25, 2010, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We
consent to the incorporation by reference in the following Registration
Statements:
(1)
|
Registration
Statement (Form S-8 No. 333-111026) pertaining to the AT&T Savings
Plan and certain other plans,
|
(2)
|
Registration
Statement (Form S-8 No. 333-34062) pertaining to the Stock Savings
Plan,
|
(3)
|
Registration
Statement (Form S-8 No. 333-95887) pertaining to the 1995 Management Stock
Option Plan,
|
(4)
|
Registration
Statements (Form S-8 No. 333-30669 (1996 Plan only) and 333-54398)
pertaining to the 1996 Stock and Incentive Plan and the 2001 Incentive
Plan,
|
(5)
|
Registration
Statement (Form S-8 No. 333-120894) pertaining to the AT&T Stock
Purchase and Deferral Plan and Cash Deferral
Plan,
|
(6)
|
Registration
Statement (Form S-8 No. 333-129814) pertaining to the AT&T Savings
Plan and certain other plans,
|
(7)
|
Registration
Statement (Form S-3 No. 333-143180) of AT&T and the related
Prospectuses,
|
(8)
|
Registration
Statement (Form S-8 No. 333-135517) pertaining to the 2006 Incentive
Plan,
|
(9)
|
Registration
Statement (Form S-8 No. 333-139749) pertaining to the BellSouth Retirement
Savings Plan and other certain BellSouth
plans,
|
(10)
|
Registration
Statement (Form S-8 No. 333-162472) pertaining to the AT&T Savings
Plan, AT&T Savings and Security Plan, AT&T Long Term Savings and
Security Plan, AT&T Retirement Savings Plan, AT&T Puerto Rico
Savings Plan, AT&T Puerto Rico Retirement Savings Plan, AT&T of
Puerto Rico, Inc. Long Term Savings and Security Plan, and the BellSouth
Savings and Security Plan; and
|
(11)
|
Registration
Statement (Form S-8 No. 333-152822) pertaining to the AT&T
Non-Employee Director Stock Purchase
Plan
|
of our
reports dated February 25, 2010, with respect to the consolidated financial
statements of AT&T and the effectiveness of internal control over financial
reporting of AT&T, incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules of
AT&T included in this Annual Report (Form 10-K) of AT&T for the year
ended December 31, 2009.
/s/ Ernst & Young LLP
Dallas,
Texas
February
25, 2010
Exhibit 24
POWER OF
ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is an officer
and a director of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Wayne Watts, Jon P. Klug, Richard G. Lindner, John J.
Stephens, or any one of them, all of the City of Dallas and
State of Texas, his attorneys for him and in his name, place and stead, and in
each of his offices and capacities in the Corporation, to execute and file such
annual report, and thereafter to execute and file any amendment or amendments
thereto, hereby giving and granting to said attorneys full power and authority
to do and perform each and every act and thing whatsoever requisite and
necessary to be done in and concerning the premises, as fully to all intents and
purposes as the undersigned might or could do if personally present at the doing
thereof, hereby ratifying and confirming all that said attorneys may or shall
lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Randall
Stephenson
Randall
L. Stephenson
Chairman
of the Board,
Chief
Executive Officer and
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Gilbert F. Amelio
Gilbert
F. Amelio
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ William F. Aldinger
III
William
F. Aldinger III
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Reuben V. Anderson
Reuben V.
Anderson
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/
James H.
Blanchard
James H.
Blanchard
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ August A. Busch
III
August A.
Busch III
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Jaime Chico Pardo
Jaime
Chico Pardo
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ James P. Kelly
James P.
Kelly
Director
POWER
OF ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Jon C.
Madonna
Jon C.
Madonna
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ John B. McCoy
John B.
McCoy
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Lynn M. Martin
Lynn M.
Martin
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Mary S. Metz
Mary S.
Metz
Director
POWER
OF ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Joyce M. Roché
Joyce M.
Roché
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Laura D'Andrea Tyson
Laura
D'Andrea Tyson
Director
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS:
THAT, WHEREAS, AT&T INC., a
Delaware corporation, hereinafter referred to as the "Corporation," proposes to
file with the Securities and Exchange Commission, under the provisions of the
Securities Exchange Act of 1934, as amended, an annual report on Form 10-K;
and
WHEREAS, the undersigned is a director
of the Corporation;
NOW, THEREFORE, the undersigned hereby
constitutes and appoints Randall L. Stephenson, Wayne Watts, Jon P. Klug,
Richard G. Lindner, John J. Stephens, or any one of them, all of the City of
Dallas and State of Texas, the attorneys for the undersigned and in the
undersigned’s name, place and stead, and in the undersigned’s office and
capacity in the Corporation, to execute and file such annual report, and
thereafter to execute and file any amendment or amendments thereto, hereby
giving and granting to said attorneys full power and authority to do and perform
each and every act and thing whatsoever requisite and necessary to be done in
and concerning the premises, as fully to all intents and purposes as the
undersigned might or could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall lawfully do, or
cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned
executed this Power of Attorney the 29th day of January 2010.
/s/ Patricia P.
Upton
Patricia
P. Upton
Director
Exhibit
31.1
CERTIFICATION
I,
Randall Stephenson, certify that:
1.
|
I
have reviewed this report on Form 10-K of AT&T
Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February
25, 2010
/s/
Randall Stephenson
Randall
Stephenson
Chairman
of the Board, Chief Executive Officer
and
President
Exhibit 31.2
CERTIFICATION
I,
Richard G. Lindner, certify that:
1.
|
I
have reviewed this report on Form 10-K of AT&T
Inc.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: February
25, 2010
/s/
Richard G. Lindner
Richard
G. Lindner
Senior
Executive Vice President
and
Chief Financial Officer
Exhibit
32
Certification of Periodic
Financial Reports
Pursuant
to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc.
(the “Company”) hereby certifies that the Company’s Annual Report on Form 10-K
for the year ended December 31, 2009 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934 and that information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
February 25,
2009
|
February 25,
2009
|
By:
/s/ Randall
Stephenson.
|
By:
/s/ Richard G.
Lindner.
|
Randall
Stephenson
|
Richard G.
Lindner
|
Chairman of the Board, Chief Executive Officer
|
Senior
Executive Vice President
|
|
|
and Chief Financial Officer
|
|
The
foregoing certification is being furnished solely pursuant to 18 U.S.C. Section
1350 and is not being filed as part of the Report or as a separate disclosure
document. This certification shall not be deemed “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or
otherwise subject to liability under that section. This certification
shall not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32
is expressly and specifically incorporated by reference in any such
filing.
A signed
original of this written statement required by Section 906, or other document
authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required
by Section 906, has been provided to AT&T Inc. and will be retained by
AT&T Inc. and furnished to the Securities and Exchange Commission or its
staff upon request.