REG - AT & T Inc. - 2015 10-K <Origin Href="QuoteRef">T.N</Origin> - Part 6
01/04/2016 16:03
- Part 6: For the preceding part double click ID:nRSZ3512Qe
except through its put and call features. After a period of
five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined
under GAAP, AT&T has a right to purchase from the pension plan trust some or all the preferred equity interest at the
greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T
will have the right to purchase the preferred equity interest in the event AT&T's ownership of Mobility is less than 50% or
there is a transaction that results in the transfer of 50% or more of the pension plan trust's assets to an entity not
under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to
purchase the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any
unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of
the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date
on which AT&T is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T
does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the
event AT&T elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in
cash or shares of AT&T common stock or a combination thereof.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Current accounting standards require us to disclose our material obligations and commitments to making future payments
under contracts, such as debt and lease agreements, and under contingent commitments, such as debt guarantees. We
occasionally enter into third-party debt guarantees, but they are not, nor are they reasonably likely to become, material.
We disclose our contractual long-term debt repayment obligations in Note 9 and our operating lease payments in Note 6. Our
contractual obligations do not include contributions associated with our voluntary contribution of the Mobility preferred
equity interest, or expected pension and postretirement payments (we maintain pension funds and Voluntary Employee
Beneficiary Association trusts to fully or partially fund these benefits) (see Note 12). In the ordinary course of
business, we routinely enter into commercial commitments for various aspects of our operations, such as fixed assets,
inventory and office supplies. However, we do not believe that the commitments will have a material effect on our financial
condition, results of operations or cash flows.
Our contractual obligations as of December 31, 2015, 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. Other long-term liabilities are 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 Business Solutions, Entertainment Group, and the Consumer Mobility
segments. The table does not include the fair value of our interest rate swaps. Our capital lease obligations and vendor
financing have been excluded from the table due to the insignificant amounts of such obligations at December 31, 2015. 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. Our other long-term liabilities are: deferred income taxes (see Note 11) of $56,181; postemployment benefit
obligations of $34,262; and other noncurrent liabilities of $22,258.
Payments Due By Period
Total Less than1 Year 1-3Years 3-5Years More than5 Years
Contractual Obligations
Long-term debt obligations1 $ 129,443 $ 7,383 $ 20,847 $ 17,322 $ 83,891
Interest payments on long-term debt 80,171 5,235 10,046 8,761 56,129
Finance obligations2 3,575 234 482 502 2,357
Operating lease obligations 28,845 3,775 6,808 5,774 12,488
Unrecognized tax benefits3 4,918 867 - - 4,051
Purchase obligations4 48,699 22,929 9,437 6,159 10,174
Total Contractual Obligations $ 295,651 $ 40,423 $ 47,620 $ 38,518 $ 169,090
1 Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity.
2 Represents future minimum payments under the Crown Castle and other arrangements (see Note 16).
3 The noncurrent portion of the UTBs 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 11 for additional information.
4 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 $690 in 2016, $925 in the aggregate for 2017 and 2018, $431 in the aggregate for 2019 and 2020, and $241 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 currency exchange contracts and combined interest rate foreign currency
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 9 and 10. 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.
Most of our foreign-denominated long-term debt has been swapped from fixed-rate or floating-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, 2015. 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, 2015.
Maturity
Fair Value
2016 2017 2018 2019 2020 Thereafter Total 12/31/15
Interest Rate Derivatives
Interest Rate Swaps:
Receive Fixed/Pay
Variable Notional
Amount Maturing $ - $ 700 $ 3,000 $ 3,350 $ - $ - $ 7,050 $ 136
Weighted-Average
Variable Rate Payable1 3.4% 4.0% 4.5% 3.8% - -
Weighted-Average
Fixed Rate Receivable 4.5% 4.5% 4.5% 3.5% - -
1 Interest payable based on current and implied forward rates for One, Three, or Six Month LIBOR plus a spread ranging between
approximately 14 and 425 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 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, most of our foreign-denominated debt has been swapped from fixed-rate or floating-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 forward 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% fluctuation of the U.S. dollar
against foreign currencies from the prevailing foreign currency exchange rates, assuming no change in interest rates. We
have foreign exchange forward contracts, maturing on February 25, 2016, held by our GSF Telecom and Nextel Mexico
subsidiaries (AT&T Telecom Holdings S. de R.L. de C.V. & AT&T Comunicaciones Digitales S. de R.L. de C.V.).
STOCK PERFORMANCE GRAPH
The comparison above assumes $100 invested on December 31, 2010, in AT&T common stock, Standard & Poor's 500 Index (S&P
500), and Standard & Poor's 500 Integrated Telecom Index (S&P 500 Integrated Telecom). Total return equals stock price
appreciation plus reinvestment of dividends.
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.
The current U.S. economy has changed our customers' buying habits and a failure to adequately respond could materially
adversely affect our business.
We provide services and products predominantly to consumers and large and small businesses in the United States. We also
provide services to larger businesses throughout the world. The current uneven economic recovery in the United States
continues to pressure some of our customers' demand for and ability to pay for existing services, especially wired
services, including video, and their interest in purchasing new services. Customers are changing their buying habits in
response to both ongoing economic conditions and technological advances. Should we fail to respond promptly to address
these changes in customer demands, we are likely to experience greater pressure on pricing and margins as we continue to
compete for customers who would have even less discretionary income.
Adverse changes in medical costs and the U.S. securities markets and a decline in interest rates could materially increase
our benefit plan costs.
Our costs to provide current benefits and funding for future benefits are subject to increases, primarily due to continuing
increases in medical and prescription drug costs, and can be affected by lower returns on funds held by our pension and
other benefit plans, which are reflected in our financial statements for that year. Investment returns on these funds
depend largely on trends in the U.S. securities markets and the U.S. economy. We have experienced historically low interest
rates during the last several years. While annual market returns and increased volatility have pressured asset returns in
the short-term, we expect long-term market returns to stabilize. During 2015, the overall bond rates increased, which
results in lower benefit obligations. In calculating the 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.
While we have made some changes to the benefit plans to limit our risk from increasing medical costs, if actual investment
returns, medical costs and interest rates are worse than those previously assumed, our costs will increase.
The Financial Accounting Standards Board 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. We have elected to reflect the annual adjustments to the funded
status in our consolidated statement of income. Therefore, an increase in our costs or adverse market conditions will have
a negative effect on our operating results.
Adverse changes in global financial markets could limit our ability and our larger customers' ability to access capital or
increase the cost of capital needed to fund business operations.
While the global financial markets were generally stable during 2015, a continuing uncertainty surrounding global growth
rates has resulted in increasing volatility in the credit, currency, equity and fixed income markets. Volatility in some
areas, such as in emerging markets, may affect companies' access to the credit markets, leading to higher borrowing costs
for companies or, in some cases, the inability of these companies to fund their ongoing operations. 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. These financial institutions also face stricter capital-related and other regulations in the
United States and Europe, as well as ongoing legal and financial issues concerning their loan portfolios, which may hamper
their ability to provide credit or raise the cost of providing such credit. A company's cost of borrowing is also affected
by evaluations given by various credit rating agencies and these agencies have been applying tighter credit standards when
evaluating a company's debt levels and future growth prospects. While we have been successful in continuing to access the
credit and fixed income markets when needed, adverse changes in the financial markets could render us either unable to
access these markets or able to access these markets only at higher interest costs and with restrictive financial or other
conditions, severely affecting our business operations.
Changes in available technology could increase competition and our capital costs.
The communications and digital entertainment industry has experienced rapid changes in the past several years. The
development of wireless, cable and IP technologies has significantly increased the commercial viability of alternatives to
traditional wired service and enhanced the capabilities of wireless networks. In addition, our customers continue to
increase demand for services that can be accessed on mobile devices, especially video services. While our customers can use
their traditional video subscription to access mobile programming, an increasing number of customers are also using mobile
devices as the sole means of viewing video and an increasing number of non-traditional video providers are developing
content and technologies to satisfy that demand. In order to remain competitive, we continue to deploy the sophisticated
wired and wireless networks, including satellites, 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.
Changes to federal, state and foreign government regulations and decisions in regulatory proceedings could further increase
our operating costs and/or alter customer perceptions of our operations, which could materially adversely affect us.
Our subsidiaries providing wired services are subject to significant federal and state regulation while many of our
competitors are not. In addition, our subsidiaries and affiliates operating outside the United States are also subject to
the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Our wireless
and satellite video subsidiaries are regulated to varying degrees by the FCC and some state and local agencies. Adverse
regulations and rulings by the FCC relating to broadband and satellite video 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 a variety of issues related to our operations, such as privacy issues, government
requests or orders for customer data, and potential global climate changes, have led to proposals at state, federal and
foreign government levels to change or increase regulation on our operations. Should customers decide that our competitors
operate in a more customer-friendly environment, we could be materially adversely affected.
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, video 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. To this end, we have participated in spectrum auctions, at increasing financial cost,
and continue to deploy technology advancements in order to further improve network quality and the efficient use of our
spectrum.
Network service enhancements and product launches 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, increases in network equipment
and handset component costs, regulatory permitting delays for tower sites or enhancements 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 fairly allocate sufficient spectrum to allow the wireless industry in general, and the Company in particular, to
increase its capacity or if we cannot acquire needed spectrum or deploy the services customers desire on a timely basis
without burdensome conditions 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.
Increasing competition for wireless customers could materially adversely affect our operating results.
We have multiple wireless competitors in each of our service areas and compete for customers based principally on
service/device offerings, price, call quality, coverage area and customer service. In addition, we are facing growing
competition from providers offering services using alternative wireless technologies and IP-based networks as well as
traditional wireline networks. We expect market saturation to continue to cause the wireless industry's customer growth
rate to moderate in comparison with historical growth rates, leading to increased competition for customers. We also expect
that our customers' growing demand for data services will place constraints on our network capacity. This competition and
our capacity issues 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, network deployment
and management, and service offerings.
Increasing costs to provide services could adversely affect operating margins.
Our operating costs, including customer acquisition and retention costs could continue to put pressure on margins and
customer retention levels. In addition, virtually all our video programming is provided by other companies and historically
the rates they charge us for programming have often increased more than the rate of inflation. We are attempting to use our
increased scale and access to wireless customers to change this trend but such negotiations are difficult and also may
result in programming disruption. If we are unable to restrain these costs or provide programming desired by our customers
it could impact margins and our ability to attract and retain customers.
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 subsidiaries and therefore are able
to operate with lower costs. In addition, these competitors generally can focus on discrete customer segments since they do
not have regulatory obligations to provide universal service. These competitors also have cost advantages compared to us,
due in part to operating on newer, more technically advanced and lower-cost networks and a nonunionized workforce, lower
employee benefits and fewer retirees (as most of the competitors are relatively new companies). To this end, we have begun
initiatives at both the state and federal levels to obtain regulatory approvals, where needed, to transition services from
our older copper-based network to an advanced IP-based network. If we do not obtain regulatory approvals for our network
transition or obtain approvals with onerous conditions attached we could experience significant cost and competitive
disadvantages.
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 United States and in foreign countries, including, at any particular
time, claims relating to antitrust; patent infringement; wage and hour; personal injury; customer privacy violations;
regulatory proceedings, and our advertising, sales and billing and collection practices. We also spend substantial
resources complying with various government standards, which may entail related investigations and litigation. 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 devices. 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.
Cyber attacks, equipment failures, natural disasters and terrorist acts may materially adversely affect our operations.
Cyber attacks, 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, our video
satellites, our customer account support and information systems, or employee and business records could have a material
adverse effect on our operations. While we have been subject to security breaches or cyber attacks, these did not result in
a material adverse effect on our operations. However, as such attacks continue to increase in scope and frequency, we may
be unable to prevent a significant attack in the future. Our ability to maintain and upgrade our video programming also
depends on our ability to successfully deploy and operate video satellites. Our inability to deploy or operate our
wireline, wireless, satellite or customer or employee-related support systems as a result of such events, even for a
limited time period, could result in significant expenses, potential legal liability or a loss of customers or impair our
ability to attract new customers, and damage our reputation, any of which could have a material adverse effect on our
business, results of operations and financial condition.
Our failure to successfully integrate our July 2015 acquisition of DIRECTV, including our failure to achieve the cost
savings and any other synergies from the acquisition either on schedule or in the amounts expected; the potential adverse
effects on our dividend amount due to the issuance of additional shares and the addition of acquisition-related debt to our
balance sheet; disruption from the acquisition making it more difficult to maintain relationships with customers, employees
or suppliers; and competition and its effect on pricing, spending, third-party relationships and revenues, all may
materially adversely affect our operating results.
We completed our acquisition of DIRECTV in July 2015. We believe that the acquisition will give us the scale, resources and
ability to deploy video services to more customers than otherwise possible and to provide an integrated bundle of
broadband, video and wireless services enabling us to compete more effectively against cable operators as well as other
technology, media and communications companies. In addition, we believe the acquisition will result in cost savings,
especially in the area of video content costs, and other potential synergies, enabling us to expand and enhance our
broadband deployment and provide more video options across multiple fixed and mobile devices. We must comply with various
regulatory conditions and integrate a large number of video network and other operational systems and administrative
systems. The integration process may also result in significant expenses and charges against earnings, both cash and
noncash. While we have successfully merged large companies into our operations in the past, delays in the process could
have a material adverse effect on our revenues, expenses, operating results and financial condition. This acquisition has
increased the amount of debt on our balance sheet (both from DIRECTV's debt and the indebtedness needed to pay a portion of
the purchase price) leading to additional interest expense and, due to additional shares being issued, will result in
additional cash being required for any dividends declared. Both of these factors could put pressure on our financial
flexibility to continue capital investments, develop new services and declare future dividends. In addition, events outside
of our control, including changes in regulation and laws as well as economic trends, could adversely affect our ability to
realize the expected benefits from this acquisition.
The acquisitions of DIRECTV, GSF Telecom and Nextel Mexico will increase our exposure to both changes in the international
economy and to the level of regulation on our business and these risks could offset our expected growth opportunities from
these acquisitions.
These three acquisitions will increase the magnitude of our international operations, particularly in Mexico and the rest
of Latin America. We will need to comply with a wide variety of new and complex local laws, regulations and treaties and
government involvement in private business activity. We will also be exposed to restrictions on cash repatriation, foreign
exchange controls, fluctuations in currency values, trade restrictions and other regulations that may affect materially our
earnings. While the countries involved represent significant opportunities to sell our advanced services, a number of these
same countries have experienced unstable growth patterns and at times have experienced high inflation, currency
devaluation, foreign exchange controls, instability in the banking sector and high unemployment. Should these conditions
persist, customers in these countries may be unable to purchase the services we offer or pay for services already
provided.
In addition, operating in foreign countries also typically involves participating with local businesses, either to comply
with local laws or, for example, to enhance product marketing. Involvement with foreign firms exposes us to the risk of
being unable to control the actions of those firms and therefore exposes us to violating the Foreign Corrupt Practices Act
(FCPA). Violations of the FCPA could have a material adverse effect on our operating results.
Increases in our debt levels to fund acquisitions, additional spectrum purchases, or other strategic decisions could
adversely affect our ability to finance future debt at attractive rates and reduce our ability to respond to competition
and adverse economic trends.
We have increased the amount of our debt during 2014 and 2015 to fund acquisitions, including spectrum purchases needed to
compete in our business. While we believe such decisions were prudent and necessary to take advantage of both growth
opportunities and respond to industry developments, we experienced a credit-rating downgrade. Banks and potential
purchasers of our publicly-traded debt may decide that these strategic decisions and similar actions we may take in the
future, as well as expected trends in the industry, will continue to increase the risk of investing in our debt and may
demand a higher rate of interest, impose restrictive covenants or otherwise limit the amount of potential borrowing.
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 at favorable rates and terms.
· 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 United States and foreign
securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality
assumptions; adverse medical cost trends, and unfavorable or delayed implementation of healthcare legislation, regulations
or related court decisions.
· The final outcome of FCC and other federal or state agency proceedings (including judicial review, if any, of such
proceedings) involving issues that are important to our business, including, without limitation, intercarrier compensation,
interconnection obligations, pending Notices of Apparent Liability, the transition from legacy technologies to IP-based
infrastructure including the withdrawal of legacy TDM-based services, universal service, broadband deployment, E911
services, competition policy, net neutrality, including the FCC's order reclassifying broadband as Title II services
subject to much more fulsome regulation, unbundled network elements and other wholesale obligations, multi-channel video
programming distributor services and equipment, availability of new spectrum from the FCC on fair and balanced terms, and
wireless and satellite license awards and renewals.
· The final outcome of state and federal legislative efforts involving issues that are important to our business,
including deregulation of IP-based services, relief from Carrier of Last Resort obligations, and elimination of state
commission review of the withdrawal of services.
· 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 or delivery methods (e.g., cable, wireless, VoIP and Over The Top Video service) and our ability to maintain
capital expenditures.
· The extent of competition including from governmental networks and other providers and the resulting pressure on
customer and access line totals and segment operating margins.
· Our ability to develop attractive and profitable product/service offerings to offset increasing competition.
· 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 continued development and delivery of attractive and profitable video offerings through satellite and U-verse;
the extent to which regulatory and build-out requirements apply to our offerings; 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 wireless service and devices, device financing
plans, and maintain margins.
· The availability and cost of additional wireless spectrum and regulations and conditions relating to spectrum use,
licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management
rules.
· Our ability to manage growth in wireless data services, including network quality and acquisition of adequate
spectrum at reasonable costs and terms.
· The outcome of pending, threatened or potential litigation, including, without limitation, patent and product safety
claims by or against third parties.
· The impact on our networks, including satellites operated by DIRECTV, and business from major equipment failures;
security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or
have handsets, equipment/software serviced, and in the case of satellites launched, in a timely and cost-effective manner
from suppliers; or severe weather conditions, natural disasters, pandemics, energy shortages, wars or terrorist attacks.
· 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 or foreign tax authorities of new tax regulations or
changes to existing standards and actions by federal, state, local or foreign 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 integrate our acquisition of DIRECTV.
· Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades
and technological advancements.
· Our increased exposure to video competition and foreign economies due to our recent acquisitions of DIRECTV and
Mexican wireless properties, including foreign exchange fluctuations, as well as regulatory and political uncertainty in
Latin America.
· Changes in our corporate strategies, such as changing network requirements or acquisitions and dispositions, which
may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological
developments.
· The uncertainty surrounding further congressional action to address spending reductions, which may result in a
significant reduction in government spending and reluctance of businesses and consumers to spend in general and on our
products and services specifically, due to this fiscal uncertainty.
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
2015 2014 2013
As Adjusted
Operating Revenues
Service $ 131,677 $ 118,437 $ 119,252
Equipment 15,124 14,010 9,500
Total operating revenues 146,801 132,447 128,752
Operating Expenses
Cost of services and sales
Equipment 19,268 18,946 16,644
Broadcast, programming and operations 11,996 4,075 3,308
Other cost of services (exclusive of depreciation
and amortization shown separately below) 35,782 37,124 31,239
Selling, general and administrative 32,954 39,697 28,414
Abandonment of network assets - 2,120 -
Depreciation and amortization 22,016 18,273 18,395
Total operating expenses 122,016 120,235 98,000
Operating Income 24,785 12,212 30,752
Other Income (Expense)
Interest expense (4,120) (3,613) (3,940)
Equity in net income of affiliates 79 175 642
Other income (expense) - net (52) 1,581 596
Total other income (expense) (4,093) (1,857) (2,702)
Income Before Income Taxes 20,692 10,355 28,050
Income tax expense 7,005 3,619 9,328
Net Income 13,687 6,736 18,722
Less: Net Income Attributable to Noncontrolling Interest (342) (294) (304)
Net Income Attributable to AT&T $ 13,345 $ 6,442 $ 18,418
Basic Earnings Per Share Attributable to AT&T $ 2.37 $ 1.24 $ 3.42
Diluted Earnings Per Share Attributable to AT&T $ 2.37 $ 1.24 $ 3.42
The accompanying notes are an integral part of the consolidated financial statements.
AT&T Inc.
Consolidated Statements of Comprehensive Income
Dollars in millions
2015 2014 2013
As Adjusted
Net income $ 13,687 $ 6,736 $ 18,722
Other comprehensive income, net of tax:
Foreign Currency:
Translation adjustments (includes $(16), $0 and $(2) attributable to noncontrolling interest), net of taxes of $(595), $(45) and $(78) (1,188) (75) (140)
Reclassification adjustment included in net income, net of taxes of $0, $224 and $30 - 416 55
Available-for-sale securities:
Net unrealized gains, net of taxes of $0, $40, and $137 - 65 258
Reclassification adjustment included in net income, net of taxes of $(9), $(10) and $(42) (15) (16) (79)
Cash flow hedges:
Net unrealized (losses) gains, net of taxes of $(411), $140 and $286 (763) 260 525
Reclassification adjustment included in net income, net of taxes of $20, $18 and $16 38 36 30
Defined benefit postretirement plans:
Amortization of net prior service credit included in net income, net of taxes of $(523), $(588) and $(480) (860) (959) (782)
Net prior service credit arising during period, net of taxes of $27, $262 and $1,695 45 428 2,765
Reclassification adjustment included in net income, net of taxes of $0, $11 and $7 - 26 11
Other comprehensive income (loss) (2,743) 181 2,643
Total comprehensive income 10,944 6,917 21,365
Less: Total comprehensive income attributable to noncontrolling interest (326) (294) (302)
Total Comprehensive Income Attributable to AT&T $ 10,618 $ 6,623 $ 21,063
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,
2015 2014
Assets As Adjusted
Current Assets
Cash and cash equivalents $ 5,121 $ 8,603
Accounts receivable - net of allowances for doubtful accounts of $704 and $454 16,532 14,527
Prepaid expenses 1,072 831
Other current assets 13,267
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