REG - AT & T Inc. - 2015 10-K <Origin Href="QuoteRef">T.N</Origin> - Part 11
01/04/2016 16:03
- Part 11: For the preceding part double click ID:nRSZ3512Qj
their respective grant date,
which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets
associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be
sufficient 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 on our consolidated balance sheets.
However, to the extent we generate excess tax benefits (i.e., that additional tax benefits in excess of the deferred taxes
associated with compensation expense previously recognized) the potential future impact on income would be reduced.
The compensation cost recognized for those plans was included in operating expenses in our consolidated statements of
income, as reflected in the table below. The total income tax benefit recognized in the consolidated statements of income
for share-based payment arrangements was $172 for 2015, compared to $122 for 2014 and $175 for 2013.
2015 2014 2013
Performance stock units $ 299 $ 226 $ 381
Restricted stock and stock units 147 93 80
Other nonvested stock units 5 (1) (3)
Total $ 451 $ 318 $ 458
A summary of the status of our nonvested stock units as of December 31, 2015, 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, 2015 26 $ 33.52
Granted 14 33.98
Issued in DIRECTV acquisition 11 34.29
Vested (13) 33.86
Forfeited (2) 34.07
Nonvested at December 31, 2015 36 $ 33.78
As of December 31, 2015, there was $563 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 2.15 years. The total fair
value of shares vested during the year was $450 for 2015, compared to $327 for 2014 and $336 for 2013.
It is our policy to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was
$46 for 2015, $43 for 2014 and $135 for 2013.
NOTE 14. STOCKHOLDERS' EQUITY
Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee
benefit plans or in connection with certain acquisitions. In July 2012, our Board of Directors authorized the repurchase of
300 million shares and we completed that program in May 2013. In March 2013, our Board of Directors approved a second
authorization to repurchase 300 million shares, under which we repurchased shares during 2014. In March 2014, our Board of
Directors approved a third authorization to repurchase up to 300 million shares of our common stock. For the year ended
December 31, 2015, we had repurchased approximately 8 million shares for distribution through our employee benefit plans
totaling $269 under these authorizations. For the year ended December 31, 2014, we had repurchased approximately 48 million
shares totaling $1,617 under these authorizations.
To implement these authorizations, we used open market repurchase programs, relying on Rule 10b5-1 of the Securities
Exchange Act of 1934 where feasible.
Authorized Shares There are 14 billion authorized common shares of AT&T stock and 10 million authorized preferred shares
of AT&T stock. As of December 31, 2015 and 2014, no preferred shares were outstanding.
Dividend Declarations In December 2015, the Company declared an increase in its quarterly dividend to $0.48 per share of
common stock. In December 2014, the Company declared an increase in its quarterly dividend to $0.47 per share of common
stock.
Treasury Stock As part of the acquisition of DIRECTV, we issued 954,407,524 shares to DIRECTV shareholders, which reduced
our treasury stock balance by $34,328.
Preferred Equity Interest The preferred equity interest discussed in Note 12 is not transferable by the trust except
through its put and call features, and therefore has been eliminated in consolidation. After a period of five years from
the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under GAAP, AT&T
has a right to purchase from the pension plan trust some or all of the preferred equity interest at the greater of their
fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the right
to purchase the preferred equity interest in the event AT&T's ownership of Mobility is less than 50% or there is a
transaction that results in the transfer of 50% or more of the pension plan trust's assets to an entity not under common
control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the
preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative
dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1)
at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T Inc.
is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not
exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T
elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in cash or
shares of AT&T common stock or a combination thereof. Because the preferred equity interest was not considered outstanding
for accounting purposes at year-end, it did not affect the calculation of earnings per share.
NOTE 15. SALES OF EQUIPMENT INSTALLMENT RECEIVABLES
We offer our customers the option to purchase certain wireless devices in installments over a period of up to 30 months,
with the right to trade in the original equipment for a new device within a set period and have the remaining unpaid
balance satisfied. As of December 31, 2015 and December 31, 2014, gross equipment installment receivables of $5,719 and
$4,265 were included on our consolidated balance sheets, of which $3,239 and $2,514 are notes receivable that are included
in "Accounts receivable - net."
In 2014, we entered into the first of a series of uncommitted agreements pertaining to the sale of equipment installment
receivables and related security with Citibank and various other relationship banks as purchasers (collectively, the
Purchasers). Under these agreements, we transferred the receivables to the Purchasers for cash and additional consideration
upon settlement of the receivables, referred to as the deferred purchase price. Under the terms of the arrangements, we
continue to bill and collect on behalf of our customers for the receivables sold. To date, we have collected and remitted
approximately $4,520 (net of fees), of which $580 was returned as deferred purchase price.
The following table sets forth a summary of equipment installment receivables sold during 2015 and 2014:
2015 2014
Gross receivables sold $ 7,436 $ 4,707
Net receivables sold1 6,704 4,126
Cash proceeds received 4,439 2,528
Deferred purchase price recorded 2,266 1,629
1 Receivables net of allowance, imputed interest and trade-in right guarantees.
The deferred purchase price was initially recorded at estimated fair value, which was based on remaining installment
payments expected to be collected, adjusted by the expected timing and value of device trade-ins, and is subsequently
carried at the lower of cost or net realizable value. The estimated value of the device trade-ins considers prices offered
to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value
measurements used are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 10).
During 2015, we repurchased installment receivables previously sold to the Purchasers, with a fair value of $685. These
transactions reduced our current deferred purchase price receivable by $534, resulting in a gain of $151 in 2015. This gain
is included in "Selling, general and administrative" in the consolidated statements of income.
At December 31, 2015, our deferred purchase price receivable was $2,961, of which $1,772 is included in "Other current
assets" on our consolidated balance sheets, with the remainder in "Other Assets." At December 31, 2014, our deferred
purchase price receivable was $1,606, which is included in "Other Assets." Our maximum exposure to loss as a result of
selling these equipment installment receivables is limited to the amount of our deferred purchase price at any point in
time.
The sales of equipment installment receivables did not have a material impact on our consolidated statements of income or
to "Total Assets" reported on our consolidated balance sheets. We reflect the cash flows related to the arrangement as
operating activities in our consolidated statements of cash flows because the cash received from the Purchasers upon both
the sale of the receivables and the collection of the deferred purchase price is not subject to significant interest rate
risk.
NOTE 16. TOWER TRANSACTION
On December 16, 2013, we closed our transaction with Crown Castle International Corp. (Crown Castle) in which Crown Castle
gained the exclusive rights to lease and operate 9,048 wireless towers and purchased 627 of our wireless towers for $4,827
in cash. The leases have various terms with an average length of approximately 28 years. As the leases expire, Crown Castle
will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market
values at the end of the lease terms. We sublease space on the towers from Crown Castle for an initial term of 10 years at
current market rates, subject to optional renewals in the future.
We determined our continuing involvement with the tower assets prevented us from achieving sale-leaseback accounting for
the transaction, and we accounted for the cash proceeds from Crown Castle as a financing obligation on our consolidated
balance sheets. We record interest on the financing obligation using the effective interest method at a rate of
approximately 3.9%. The financing obligation is increased by interest expense and estimated future net cash flows generated
and retained by Crown Castle from operation of the tower sites, and reduced by our contractual payments. We continue to
include the tower assets in Property, plant and equipment in our consolidated balance sheets and depreciate them
accordingly. At December 31, 2015 and 2014, the tower assets had a balance of $960 and $999, respectively. Our depreciation
expense for these assets was $39 for 2015, and $39 for 2014. The impact of the transaction on our operating results for the
year ended December 31, 2013 was not material.
Payments made to Crown Castle under this arrangement were $225 for 2015. At December 31, 2015, the future minimum payments
under the sublease arrangement are $230 for 2016, $234 for 2017, $239 for 2018, $244 for 2019, $248 for 2020, and $2,304
thereafter.
NOTE 17. CONTINGENT LIABILITIES
We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. 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 $22,929 in 2016, $9,437 in total for 2017 and 2018, $6,159 in total for 2019 and 2020 and
$10,174 in total for years thereafter.
See Note 10 for a discussion of collateral and credit-risk contingencies.
NOTE 18. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2015 2014
Customer fulfillment costs (included in Other current assets) $ 2,923 $ 2,720
Accounts payable and accrued liabilities:
Accounts payable $ 21,047 $ 14,984
Accrued payroll and commissions 2,629 1,967
Current portion of employee benefit obligation 1,766 1,842
Accrued interest 1,974 1,597
Other 2,956 3,202
Total accounts payable and accrued liabilities $ 30,372 $ 23,592
Consolidated Statements of Income 2015 2014 2013
Advertising expense $ 3,632 $ 3,272 $ 3,268
Interest expense incurred $ 4,917 $ 3,847 $ 4,224
Capitalized interest (797) (234) (284)
Total interest expense $ 4,120 $ 3,613 $ 3,940
Consolidated Statements of Cash Flows 2015 2014 2013
Cash paid during the year for:
Interest $ 4,822 $ 4,099 $ 4,302
Income taxes, net of refunds 1,851 1,532 1,985
No customer accounted for more than 10% of consolidated revenues in 2015, 2014 or 2013.
Labor Contracts As of January 31, 2016, we employed approximately 281,000 persons. Approximately 45 percent of our
employees are represented by the Communications Workers of America, the International Brotherhood of Electrical Workers or
other unions. Four-year contracts covering approximately 24,000 traditional wireline employees in our Southeast region were
ratified on December 4, 2015. Contracts covering approximately 9,000 mobility employees in the Southwest region and nearly
16,000 traditional wireline employees in our West region will expire in 2016. After expiration of the current agreements,
work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached. A separate
contract covering only benefits with approximately 40,000 employees in our mobility business expires in 2016, though there
is a no strike/no lock-out clause. Contracts covering wages and other non-benefit working terms for these mobility
employees are structured on a regional basis.
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables represent our quarterly financial results:
2015 Calendar Quarter
First1 Second1 Third Fourth2 Annual
Total Operating Revenues $ 32,576 $ 33,015 $ 39,091 $ 42,119 $ 146,801
Operating Income 5,557 5,773 5,923 7,532 24,785
Net Income 3,339 3,184 3,078 4,086 13,687
Net Income Attributable to AT&T 3,263 3,082 2,994 4,006 13,345
Basic Earnings Per Share
Attributable to AT&T3 $ 0.63 $ 0.59 $ 0.50 $ 0.65 $ 2.37
Diluted Earnings Per Share
Attributable to AT&T3 $ 0.63 $ 0.59 $ 0.50 $ 0.65 $ 2.37
Stock Price
High $ 35.07 $ 36.45 $ 35.93 $ 34.99
Low 32.41 32.37 30.97 32.17
Close 32.65 35.52 32.58 34.41
1 Amounts have been adjusted for the voluntary change in accounting policy (Note 1).
2 Includes an actuarial gain on pension and postretirement benefit plans (Note 12).
3 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.
2014 Calendar Quarter
First1 Second1 Third1 Fourth1,2 Annual
Total Operating Revenues $ 32,476 $ 32,575 $ 32,957 $ 34,439 $ 132,447
Operating Income (Loss) 6,335 5,739 5,607 (5,469) 12,212
Net Income (Loss) 3,770 3,697 3,187 (3,918) 6,736
Net Income (Loss) Attributable to AT&T 3,688 3,623 3,130 (3,999) 6,442
Basic Earnings (Loss) Per Share
Attributable to AT&T3 $ 0.71 $ 0.70 $ 0.60 $ (0.77) $ 1.24
Diluted Earnings (Loss) Per Share
Attributable to AT&T3 $ 0.70 $ 0.69 $ 0.60 $ (0.77) $ 1.24
Stock Price
High $ 35.50 $ 36.86 $ 37.48 $ 36.16
Low 31.74 34.32 34.17 32.07
Close 35.07 35.36 35.24 33.59
1 Amounts have been adjusted for the voluntary change in accounting policy (Note 1).
2 Includes an actuarial loss on pension and postretirement benefit plans (Note 12) and asset abandonment charges (Note 6).
3 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,
2015. 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 (2013 framework). We have excluded from the scope of
our assessment of internal control over financial reporting the operations and related assets of DIRECTV and Mexico
wireless operations (Mexico), which we acquired in 2015. At December 31, 2015 and for the period from acquisition through
December 31, 2015, total assets and operating revenues subject to DIRECTV's internal control over financial reporting
represented 20.3% and 9.9% of AT&T's consolidated total assets and total revenues as of and for the year ended December 31,
2015. At December 31, 2015 and for the period from acquisition through December 31, 2015, total assets and operating
revenues subject to Mexico's internal control over financial reporting represented 1.6% and 1.3% of AT&T's consolidated
total assets and total revenues as of and for the year ended December 31, 2015. Based on its assessment, AT&T management
believes that, as of December 31, 2015, 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/ John J. Stephens
Randall Stephenson John J. Stephens
Chairman of the Board, Senior Executive Vice
President and
Chief Executive Officer and President Chief Financial Officer
Report of Independent Registered Accounting Firm
The Board of Directors and Stockholders of AT&T Inc.
We have audited the accompanying consolidated balance sheets of AT&T Inc. (the Company) as of December 31, 2015 and 2014,
and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2015. 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, 2015 and 2014, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles.
As described in Note 1 to the consolidated financial statements, the Company has elected to change its method of accounting
for customer set-up and installation costs for its video, broadband Internet and wireline voice services in 2015.
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, 2015, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 18, 2016 expressed an unqualified opinion thereon.
/s/ Ernst and Young LLP
Dallas, Texas
February 18, 2016
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AT&T Inc.
We have audited AT&T Inc.'s (the Company) internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (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.
As indicated in the accompanying Report of Management, management's assessment of and conclusion on the effectiveness of
internal control over financial reporting did not include the internal controls of its DIRECTV and Mexico wireless
businesses, which are included in the December 31, 2015 consolidated financial statements of the Company. DIRECTV
constituted 20.3% of total assets and 9.9% of total revenues for the year then ended. The Mexico wireless businesses
constituted 1.6% of total assets and 1.3% of total revenues for the year then ended. Our audit of internal control over
financial reporting of the Company did not include an evaluation of the internal control over financial reporting of
DIRECTV or the Mexico wireless businesses.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, 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, 2015 and 2014, and the related consolidated statements of
income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2015 and our report dated February 18, 2016 expressed an unqualified opinion thereon.
/s/ Ernst and Young LLP
Dallas, Texas
February 18, 2016
This information is provided by RNS
The company news service from the London Stock ExchangeRecent news on AT&T
See all newsREG - AT & T Inc. - Annual Financial Report
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT+T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Societe Generale SA - Stabilisation Notice - AT&T
AnnouncementREG - Nestle SA Nestle Holdings Inc - Nestlé appoints Lisa Gibby as CCO
Announcement