REG - AT & T Inc. - 2015 10-K <Origin Href="QuoteRef">T.N</Origin> - Part 7
01/04/2016 16:03
- Part 7: For the preceding part double click ID:nRSZ3512Qf
9,645
Total current assets 35,992 33,606
Property, Plant and Equipment - Net 124,450 112,898
Goodwill 104,568 69,692
Licenses 93,093 60,824
Customer Lists and Relationships - Net 18,208 812
Other Intangible Assets - Net 9,409 5,327
Investments in Equity Affiliates 1,606 250
Other Assets 15,346 13,425
Total Assets $ 402,672 $ 296,834
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 7,636 $ 6,056
Accounts payable and accrued liabilities 30,372 23,592
Advanced billings and customer deposits 4,682 4,105
Accrued taxes 2,176 1,091
Dividends payable 2,950 2,438
Total current liabilities 47,816 37,282
Long-Term Debt 118,515 75,778
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 56,181 38,436
Postemployment benefit obligation 34,262 37,079
Other noncurrent liabilities 22,258 17,989
Total deferred credits and other noncurrent liabilities 112,701 93,504
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2015
and 2014: issued 6,495,231,088 at December 31, 2015 and 2014) 6,495 6,495
Additional paid-in capital 89,763 91,108
Retained earnings 33,671 31,081
Treasury stock (350,291,239 at December 31, 2015 and 1,308,318,131
at December 31, 2014, at cost) (12,592) (47,029)
Accumulated other comprehensive income 5,334 8,061
Noncontrolling interest 969 554
Total stockholders' equity 123,640 90,270
Total Liabilities and Stockholders' Equity $ 402,672 $ 296,834
The accompanying notes are an integral part of the consolidated financial statements.
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
2015 2014 2013
Operating Activities As Adjusted
Net income $ 13,687 $ 6,736 $ 18,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 22,016 18,273 18,395
Undistributed earnings from investments in equity affiliates (49) (27) (324)
Provision for uncollectible accounts 1,416 1,032 954
Deferred income tax expense 4,117 1,948 6,345
Net loss (gain) from sale of investments, net of impairments 91 (1,461) (492)
Actuarial (gain) loss on pension and postretirement benefits (2,152) 7,869 (7,584)
Abandonment of network assets - 2,120 -
Changes in operating assets and liabilities:
Accounts receivable (535) (2,651) (1,329)
Other current assets (1,789) (974) 445
Accounts payable and accrued liabilities 1,291 2,412 (152)
Retirement benefit funding (735) (560) (209)
Other - net (1,478) (3,379) 25
Total adjustments 22,193 24,602 16,074
Net Cash Provided by Operating Activities 35,880 31,338 34,796
Investing Activities
Construction and capital expenditures:
Capital expenditures (19,218) (21,199) (20,944)
Interest during construction (797) (234) (284)
Acquisitions, net of cash acquired (30,759) (3,141) (4,113)
Dispositions 83 8,123 1,923
Sales (purchases) of securities, net 1,545 (1,890) -
Return of advances to and investments in equity affiliates 1 4 301
Other 1 - (7)
Net Cash Used in Investing Activities (49,144) (18,337) (23,124)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less (1) (16) 20
Issuance of other short-term borrowings - - 1,476
Repayment of other short-term borrowings - - (1,476)
Issuance of long-term debt 33,969 15,926 12,040
Repayment of long-term debt (10,042) (10,400) (7,698)
Issuance of other long-term financing obligations - 107 4,796
Purchase of treasury stock (269) (1,617) (13,028)
Issuance of treasury stock 143 39 114
Dividends paid (10,200) (9,552) (9,696)
Other (3,818) (2,224) 251
Net Cash Provided by (Used in) Financing Activities 9,782 (7,737) (13,201)
Net (decrease) increase in cash and cash equivalents (3,482) 5,264 (1,529)
Cash and cash equivalents beginning of year 8,603 3,339 4,868
Cash and Cash Equivalents End of Year $ 5,121 $ 8,603 $ 3,339
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
2015 2014 2013
Shares Amount Shares Amount Shares Amount
As Adjusted
Common Stock
Balance at beginning of year 6,495 $ 6,495 6,495 $ 6,495 6,495 $ 6,495
Issuance of stock - - - - - -
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 $ 91,108 $ 91,091 $ 91,038
Issuance of treasury stock (1,597) 4 (8)
Share-based payments 252 47 62
Change related to acquisition of interests held by noncontrolling owners - (34) (1)
Balance at end of year $ 89,763 $ 91,108 $ 91,091
Retained Earnings
Balance at beginning of year $ 31,081 $ 34,269 $ 25,440
Net income attributable to AT&T ($2.37, $1.24 and $3.42 per diluted share) 13,345 6,442 18,418
Dividends to stockholders ($1.89, $1.85 and $1.81 per share) (10,755) (9,630) (9,589)
Balance at end of year $ 33,671 $ 31,081 $ 34,269
Treasury Stock
Balance at beginning of year (1,308) $ (47,029) (1,269) $ (45,619) (914) $ (32,888)
Repurchase of common stock (8) (278) (48) (1,617) (366) (13,028)
Issuance of treasury stock 966 34,715 9 207 11 297
Balance at end of year (350) $ (12,592) (1,308) $ (47,029) (1,269) $ (45,619)
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
2015 2014 2013
Amount Amount Amount
As Adjusted
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax:
Balance at beginning of year $ 8,061 $ 7,880 $ 5,235
Other comprehensive income (loss) attributable to AT&T (2,727) 181 2,645
Balance at end of year $ 5,334 $ 8,061 $ 7,880
Noncontrolling Interest:
Balance at beginning of year $ 554 $ 494 $ 333
Net income attributable to noncontrolling interest 342 294 304
Distributions (294) (233) (231)
Contributions - - 51
Acquisitions of noncontrolling interests 383 69 44
Acquisition of interests held by noncontrolling owners - (70) (5)
Translation adjustments attributable to noncontrolling interest, net of taxes (16) - (2)
Balance at end of year $ 969 $ 554 $ 494
Total Stockholders' Equity at beginning of year $ 90,270 $ 94,610 $ 95,653
Total Stockholders' Equity at end of year $ 123,640 $ 90,270 $ 94,610
The accompanying notes are an integral part of the consolidated financial statements.
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 include the accounts of the Company and our majority-owned subsidiaries and affiliates,
including the results of DIRECTV and wireless properties in Mexico for the period from acquisition through December 31,
2015. Our subsidiaries and affiliates operate in the communications and digital entertainment services industry, providing
services and equipment that deliver voice, video and broadband services domestically and internationally.
All significant intercompany transactions are eliminated in the consolidation process. Investments in less than
majority-owned subsidiaries and partnerships where we have significant influence are accounted for under the equity method.
Earnings from certain investments accounted for using the equity method are included for periods ended within up to one
quarter of our period end. We also recorded our proportionate share of our equity method investees' other comprehensive
income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations and
cumulative translation adjustments.
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. Certain
amounts have been reclassified to conform to the current period's presentation, including our presentation of "Equipment"
and "Broadcast, programming and operations" costs separately from other cost of services in the consolidated statements of
income.
Customer Fulfillment Costs In August 2015, with our acquisition of DIRECTV, we announced a change in accounting for
customer set-up and installation costs. Historically we have followed an accounting policy of deferring customer set-up and
installation costs only to the extent of deferred revenues recorded for upfront fees (e.g., activation charges), and to
expense any costs that exceed deferred revenues. After discussing this change with the Securities and Exchange Commission,
we changed our accounting to a preferable method of capitalizing these costs and amortizing them over the expected economic
life of the customer relationship of approximately four years, subject to an assessment of the recoverability of such
costs. This change in accounting principle impacts video, broadband Internet and wireline voice services and is considered
preferable in that it provides an accurate reflection of assets (i.e., the contractual customer relationship obtained
through the set-up and installation) generated by those specific business activities. Our new accounting method is more
comparable with the accounting method used in the cable entertainment industry. With our acquisition of DIRECTV, changing
to this accounting method enhances comparability to other companies in the industry. This change in accounting did not have
an impact on our wireless activities, due to the absence of these types of expenses in those business activities.
The cumulative effect of the change on Retained Earnings as of January 1, 2013, was an increase of approximately $2,959 on
our consolidated balance sheet. This change did not have an impact on cash provided by or used in operations for any period
presented.
New Accounting Standards
Long-Term Debt and Debt Issuance Costs In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2015-03, "Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance
Costs" (ASU 2015-03), which resulted in the reclassification of debt issuance costs from "Other Assets" to inclusion as a
reduction of our reportable "Long-Term Debt" balance on our consolidated balance sheets. Since ASU 2015-03 does not address
deferred issuance costs for line-of-credit arrangements, the FASB issued ASU No. 2015-15, "Interest - Imputation of
Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU
2015-15), in August 2015. ASU 2015-15 allows a company to defer debt issuance costs associated with line-of-credit
arrangements, including arrangements with no outstanding borrowings, classify them as an asset, and amortize them over the
term of the arrangements. We elected to adopt ASU 2015-03 early, with full retrospective application as required by the
guidance, and ASU 2015-15, which was effective immediately. These standards did not have a material impact on our
consolidated balance sheets and had no impact on our cash flows provided by or used in operations for any period
presented.
Business Combinations In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations - Simplifying the
Accounting for Measurement-Period Adjustments" (ASU 2015-16), which results in the ability to recognize, in current period
earnings, any changes in provisional amounts during the measurement period after the closing of an acquisition, instead of
restating prior periods for these changes. We elected to adopt ASU 2015-16 early, which had no impact on our consolidated
balance sheet as of December 31, 2015, or our consolidated operating results and cash flows for the year ended.
Deferred Income Taxes and Liabilities In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740) -
Balance Sheet Classification of Deferred Taxes" (ASU 2015-17), which requires companies report their deferred tax
liabilities and deferred tax assets, together as a single noncurrent item on their classified balance sheets. We elected to
adopt ASU 2015-17 early, and applied it retrospectively as allowed by the standard. Our adoption of ASU 2015-17 did not
have a material impact on our consolidated balance sheets and had no impact on our cash provided by or used in operations
for any period presented.
The following tables present our results under our historical method and as adjusted to reflect these accounting changes:
Historical Accounting Method Effect of Voluntary Change Effect of Adoption of New ASUs As Adjusted
At December 31, 2015 or for the year ended
Other cost of services $ 36,038 $ (256) $ - $ 35,782
Income tax expense 6,908 97 - 7,005
Net Income 13,528 159 - 13,687
Net Income Attributable to AT&T 13,186 159 - 13,345
Basic Earnings per Share Attributable to AT&T $ 2.34 $ 0.03 $ - $ 2.37
Diluted Earnings per Share Attributable to AT&T 2.34 0.03 - 2.37
Other current assets $ 12,225 $ 1,588 $ (546) 2 $ 13,267
Other Assets 12,605 3,064 (323) 1 15,346
Long-term debt 118,838 - (323) 1 118,515
Deferred income taxes 55,580 1,147 (546) 2 56,181
Total Assets 398,889 4,652 (869)1,2 402,672
Total Liabilities 278,754 1,147 (869)1,2 279,032
Retained earnings $ 30,166 $ 3,505 $ - $ 33,671
1 Impact of ASU 2015-03.
2 Impact of ASU 2015-17.
Historical Accounting Method Effect of Voluntary Change Effect of Adoption of New ASUs As Adjusted
At December 31, 2014 or for the year ended
Other cost of services $ 37,590 $ (466) $ - $ 37,124
Other income (expense) - net 1,652 (71) - 1,581
Income tax expense 3,442 177 - 3,619
Net Income 6,518 218 - 6,736
Net Income Attributable to AT&T 6,224 218 - 6,442
Basic Earnings per Share Attributable to AT&T $ 1.19 $ 0.05 $ - $ 1.24
Diluted Earnings per Share Attributable to AT&T 1.19 0.05 - 1.24
Other current assets $ 8,067 $ 1,735 $ (157) 2 $ 9,645
Other Assets 10,998 2,661 (234) 1 13,425
Long-term debt 76,011 - (233) 1 75,778
Deferred income taxes 37,544 1,005 (113) 2 38,436
Total Assets 292,829 4,396 (391)1,2 296,834
Total Liabilities 205,905 1,050 (391)1,2 206,564
Retained earnings $ 27,736 $ 3,345 $ - $ 31,081
1 Impact of ASU 2015-03.
2 Impact of ASU 2015-17.
Historical Accounting Method Effect of Voluntary Change Effect of Adoption of New ASUs As Adjusted
At December 31, 2013 or for the year ended
Other cost of services $ 31,512 $ (273) $ - $ 31,239
Income tax expense 9,224 104 - 9,328
Net Income 18,553 169 - 18,722
Net Income Attributable to AT&T 18,249 169 - 18,418
Basic Earnings per Share Attributable to AT&T $ 3.39 $ 0.03 $ - $ 3.42
Diluted Earnings per Share Attributable to AT&T 3.39 0.03 - 3.42
Other current assets $ 5,979 $ 1,725 $ (159) 2 $ 7,545
Other Assets 8,278 2,269 (199) 1 10,348
Long-term debt 69,290 - (199) 1 69,091
Deferred income taxes 36,308 859 (152) 2 37,015
Total Assets 277,787 3,994 (358)1,2 281,423
Total Liabilities 186,305 866 (358)1,2 186,813
Retained earnings $ 31,141 $ 3,128 $ - $ 34,269
1 Impact of ASU 2015-03.
2 Impact of ASU 2015-17.
Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASU
2014-09) and has since modified the standard with ASU 2015-14, "Deferral of the Effective Date." These standards replace
existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded
disclosure requirements. ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, 2017, at
which point we plan to adopt the standard. Upon initial evaluation, we believe the key changes in the standard that impact
our revenue recognition relate to the allocation of contract revenues between various services and equipment, and the
timing in which those revenues are recognized. We are still in the process of determining the impact on the timing of
revenue recognition and the allocation of revenue to products and segments.
ASU 2014-09 also specifies that all incremental costs of obtaining and direct costs of fulfilling our contracts with
customers should be deferred and recognized over the contract period or expected customer life. In the third quarter of
2015, we changed our accounting policy for the costs of fulfilling contracts with customers to defer all recoverable costs
while not changing our approach to acquisition costs. We believe, as a result of our accounting policy change for
fulfillment costs, that the requirement to defer such costs in the new standard will not result in a significant change to
our results. The requirement to defer contract acquisition costs however, will result in the recognition of a deferred
charge on our balance sheets, but as the industry continues to undergo changes in how devices and services are sold to
customers with impacts on the resulting commissions paid to our internal and external salesforces, we cannot currently
estimate impact of this change.
The FASB allows two adoption methods under ASU 2014-09. Under one method, a company will apply the rules to contracts in
all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the
rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the
cumulative effect of the change and provide additional disclosures comparing results to previous rules. While we continue
to evaluate the impact of the new standard and available adoption methods, we believe the standard will require us to
implement new revenue accounting systems and processes, which will significantly change our internal controls over revenue
recognition. In addition, the implementation of the new systems and processes will impact our considerations of which
adoption methods we intend to use.
Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" (ASU 2016-01), which will require us
to record changes in the fair value of our equity investments, except for those accounted for under the equity method, in
net income instead of in accumulated other comprehensive income. ASU 2016-01 will become effective for fiscal years and
interim periods beginning after December 15, 2017, and with the exception of certain disclosure requirements, is not
subject to early adoption.
Income Taxes 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. We provide
valuation allowances against the deferred tax assets (included, together with our deferred income tax assets, as part of
our reportable net deferred income tax liabilities on our consolidated balance sheets), 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.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of
three months or less. The carrying amounts approximate fair value. At December 31, 2015, we held $2,117 in cash and $3,004
in money market funds and other cash equivalents.
Revenue Recognition Revenues derived from wireless, fixed telephone, data and video services are recognized when services
are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g.,
monthly service fees) or other established fee schedules. Our service revenues are billed either in advance, arrears or are
prepaid.
We record revenue reductions for estimated future adjustments to customer accounts, other than bad debt expense, at the
time revenue is recognized based on historical experience. Service revenues include billings to our customers for various
regulatory fees imposed on us by governmental authorities. We report revenues from transactions between us and our
customers net of taxes the government authorities require us to collect from our customers in our consolidated statements
of income. Cash incentives given to customers are recorded as a reduction of revenue. Revenues related to nonrefundable,
upfront service activation and setup fees are deferred and recognized over the associated service contract period or
customer life. Revenue recognized from contracts that bundle services and equipment is limited to the lesser of the amount
allocated based on the relative selling price of the equipment and service already delivered or the amount paid and owed by
the customer for the equipment and service already delivered. We record the sale of equipment to customers when we no
longer have any requirements to perform, when title is passed and when the products are accepted by customers. We record
the sale of equipment and services to customers as gross revenue when we are the principal in the arrangement and net of
the associated costs incurred when we are not considered the principal in the arrangement.
We offer to 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, after having paid a specified number of installments,
and have the remaining unpaid balance satisfied. For customers that elect these installment payment programs, we recognize
revenue for the entire amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed
interest. See Note 15 for additional information, including the sales of our equipment installment receivables.
Allowance for Doubtful Accounts We record expense to maintain an allowance for doubtful accounts for estimated losses that
result from the failure or inability of our customers to make required payments deemed collectable from the customer when
the service was provided or product was delivered. 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.
Inventory Inventories, which are included in "Other current assets" on our consolidated balance sheets, were $4,033 at
December 31, 2015, and $1,933 at December 31, 2014. Wireless devices and accessories, which are valued at the lower of cost
or market (determined using current replacement cost), were $3,733 at December 31, 2015, and $1,858 at December 31, 2014.
Property, Plant and Equipment Property, plant and equipment is stated at cost, except for assets acquired using
acquisition accounting, which are initially recorded at fair value (see Note 6). The cost of additions and substantial
improvements to property, plant and equipment is capitalized, and includes internal compensation costs for these projects;
however, noncash actuarial gains or losses included in compensation costs are excluded from amounts reported as "capital
expenditures." The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses.
Property, plant and equipment costs are 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, and no gain or loss is recognized on the disposition of these assets.
Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. We recognize an impairment loss when the carrying amount of a long-lived asset is
not recoverable. 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 liability for the fair value of 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, we recognize period-to-period
changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the
original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the
corresponding estimated economic life.
Software Costs We 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. In addition,
there is certain network software that allows the equipment to provide the features and functions unique to the AT&T
network, which we include in the cost of the equipment categories for financial reporting purposes.
We amortize our capitalized software costs over a three-year to five-year period, reflecting the estimated period during
which these assets will remain in service, which also aligns with the estimated useful lives used in the industry.
Goodwill and Other Intangible Assets AT&T has five major classes of intangible assets: goodwill, licenses, which include
Federal Communications Commission (FCC), other wireless licenses and orbital slots, other indefinite-lived intangible
assets, primarily made up of the AT&T and DIRECTV International trade names including SKY, customer lists and various other
finite-lived intangible assets (see Note 7).
Goodwill represents the excess of consideration paid over the fair value of net assets acquired in business combinations.
FCC and wireless licenses (wireless licenses) provide us with the exclusive right to utilize certain radio frequency
spectrum to provide wireless communications services. While wireless licenses are issued for a fixed period of time
(generally 10 years), renewals of wireless 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 wireless licenses. Orbital slots represent the space in which we operate the broadcast satellites
that support our digital video entertainment service offerings. Similar to our wireless licenses, there are no factors that
limit the useful lives of our orbital slots. We acquired the rights to the AT&T and other brand names in previous
acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.
Goodwill, licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for
impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to
their fair value. Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal
operating segments or one level below them (Business Solutions, Entertainment Group, Consumer Mobility, and Mexico
Wireless, Brazil and PanAmericana in the International segment), to the fair value of those reporting units calculated
using a discounted cash flow approach as well as a market multiple approach. Licenses are tested for impairment on an
aggregate basis, consistent with our use of the licenses on a national scope using a discounted cash flow approach. We also
corroborated the value of wireless licenses with a market approach as the AWS-3 auction provided market price information
for national wireless licenses. Brand names are tested by comparing the book value to a fair value calculated using a
discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name.
Intangible assets that have finite useful lives are amortized over their useful lives (see Note 7). Customer lists and
relationships are amortized using primarily 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 remaining finite-lived intangible assets are
generally amortized using the straight-line method.
Broadcast Programming and Other Costs We recognize the costs of television programming distribution rights when we
distribute the related programming. We recognize the costs of television programming rights to distribute live sporting
events to expense using the straight-line method over the course of the season or tournament, which approximates the
pattern of usage.
Advertising Costs We expense advertising costs for products and services or for promoting our corporate image as we incur
them (see Note 18).
Traffic Compensation Expense We use various estimates and assumptions to determine the amount of traffic compensation
expense recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates
and volumes by product, formulated from historical data and adjusted for known rate changes. 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 within three 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.
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 their foreign assets and liabilities at exchange rates in effect at the balance sheet dates.
We translate 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 (accumulated OCI) in the
accompanying consolidated balance sheets (see Note 3). Operations in countries with highly inflationary economies consider
the U.S. dollar as the functional currency.
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 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 10).
Pension and Other Postretirement Benefits See Note 12 for a comprehensive discussion of our pension and postretirement
benefit expense, including a discussion of the actuarial assumptions, our policy for recognizing the associated gains and
losses and our method used to estimate service and interest cost components.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share is shown in
the table below:
Year Ended December 31, 2015 2014 2013
Numerators
Numerator for basic earnings per share:
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
Dilutive potential common shares:
Share-based payment 13 13 13
Numerator for diluted earnings per share $ 13,358 $ 6,455 $ 18,431
Denominators (000,000)
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding 5,628 5,205 5,368
Dilutive potential common shares:
Share-based payment (in shares) 18 16 17
Denominator for diluted earnings per share 5,646 5,221 5,385
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
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and
exclude noncontrolling interest.
Following our 2015 acquisitions of DIRECTV and wireless businesses in Mexico, we have additional foreign operations that
are exposed to fluctuations in the exchange rates used to convert operations, assets and liabilities into U.S. dollars.
Since the dates of acquisition, when compared to the U.S. dollar, the Brazilian real exchange rate has depreciated 15.2%,
the Argentinian peso exchange rate has depreciated 29.1% and Mexican peso exchange rate has depreciated 13.1%. For the year
ended December 31, 2014, the amounts reclassified from accumulated OCI include amounts realized upon the sale of our
investment in América Móvil, S.A. de C.V. (América Móvil) (see Note 5).
At December 31, 2015, 2014 and 2013 and for the years ended
Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (Losses) on Cash Flow Hedges Defined Benefit
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