REG - AT & T Inc. - Half-year Report 10-Q <Origin Href="QuoteRef">T.N</Origin> - Part 5
22/08/2016 10:00
- Part 5: For the preceding part double click ID:nRSV7286Hd
commitments of the lenders, or (ii) certain events of default occur. We and lenders representing
more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11,
2020 termination date, under certain circumstances.
Advances under the Revolving Credit Agreement would bear interest, at AT&T's option, either:
· at a variable annual rate equal to (i) the highest of: (a) the base rate of the bank affiliate of Citibank, N.A. which is serving as administrative agent under the Agreement, (b) 0.50% per annum above the Federal Funds Rate, and (c) the London Interbank Offered Rate (LIBOR) applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (ii) an applicable margin, as set forth in the Revolving Credit Agreement ("Applicable Margin for Base Advances"); or
· at a rate equal to: (i) LIBOR for a period of one, two, three or six months, as applicable, plus (ii) the Applicable Margin ("Applicable Margin for Eurocurrency Rate Advances").
The Applicable Margin for Eurocurrency Rate Advances will equal 0.680%, 0.910%, 1.025% or 1.125% per annum, depending on
AT&T's credit rating. The Applicable Margin for Base Rate Advances will be equal to the greater of 0.00% and the relevant
Applicable Margin for Eurocurrency Rate Advances minus 1.00% per annum depending on AT&T's credit rating.
We will pay a facility fee of 0.070%, 0.090%, 0.100% or 0.125% per annum, depending on AT&T's credit rating, of the amount
of lender commitments.
The Revolving Credit Agreement contains covenants that are customary for an issuer with an investment grade senior debt
credit rating, as well as a net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization, and other
modifications described in the Revolving Credit Agreement) financial ratio covenant that AT&T will maintain, as of the last
day of each fiscal quarter of not more than 3.5-to-1.
The events of default contained in the Revolving Credit Agreement are customary for an agreement of this type and such
events would result in the acceleration or permit the lenders to accelerate, as applicable, required payments and would
increase the Applicable Margin by 2.00% per annum.
The Syndicated Credit Agreement
In March 2015, AT&T borrowed all amounts available under the Tranche A Facility and the Tranche B Facility. Amounts
borrowed under the Tranche A Facility will be due on March 2, 2018. Amounts borrowed under the Tranche B Facility will be
subject to amortization from March 2, 2018, with 25 percent of the aggregate principal amount thereof being payable prior
to March 2, 2020, and all remaining principal amount due on March 2, 2020. In June 2016, we repaid $4,000 of the
outstanding debt under the Tranche A Facility and $1,000 of the outstanding debt under the Tranche B Facility. After
repayment, the amortization in the Tranche B Facility has been satisfied.
43
AT&T INC.
JUNE 30, 2016
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars in millions except per share and per subscriber amounts
Advances bear interest at a rate equal to: (i) the LIBOR for deposits in dollars (adjusted upwards to reflect any bank
reserve costs) for a period of three or six months, as applicable, plus (ii) the Applicable Margin (each such Advance, a
Eurodollar Rate Advance). The Applicable Margin under the Tranche A Facility will equal 1.000%, 1.125% or 1.250% per annum
depending on AT&T's credit rating. The Applicable Margin under the Tranche B Facility will equal 1.125%, 1.250% or 1.375%
per annum, depending on AT&T's credit rating.
The Syndicated Credit Agreement contains covenants that are customary for an issuer with an investment grade senior debt
credit rating, as well as a net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization, and other
modifications described in the Syndicated Credit Agreement) financial ratio covenant that AT&T will maintain, as of the
last day of each fiscal quarter of not more than 3.5-to-1.
The events of default contained in the Syndicated Credit Agreement are customary for an agreement of this type and such
events would result in the acceleration or permit the lenders to accelerate, as applicable, required payments and would
increase the Applicable Margin by 2.00% per annum.
Collateral Arrangements
During the first six months of 2016, we posted $928 of additional cash collateral, on a net basis, to banks and other
participants in our derivative arrangements, due mainly to the U.S. dollar strengthening versus the British pound sterling.
Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 6)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method investments. At June 30, 2016, our debt ratio was 50.5%,
compared to 55.5% at June 30, 2015, and 50.5% at December 31, 2015. Our net debt ratio was 47.6% at June 30, 2016, compared
to 45.2% at June 30, 2015, and 48.5% at December 31, 2015. The debt ratio is affected by the same factors that affect total
capital, and reflects our recent debt issuances and repayments.
During the first six months of 2016, we received $2,773 from the monetization of various assets, primarily the sale of
certain equipment installment receivables. We plan to continue to explore similar opportunities.
In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding
company for our U.S. wireless operations, to the trust used to pay pension benefits under our qualified pension plans. The
preferred equity interest had a value of $8,704 as of June 30, 2016, and $8,714 as of December 31, 2015, does not have any
voting rights and has a liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of $560
per annum, which are distributed quarterly in equal amounts. We distributed $280 to the trust during the first six months
of 2016. So long as we make the distributions, the terms of the preferred equity interest will not impose any limitations
on our ability to declare a dividend or repurchase shares. At the time of the contribution of the preferred equity
interest, we agreed to annual cash contributions to the trust of $175 no later than the due date for our federal income tax
return for each of 2015 and 2016.
44
AT&T INC.
JUNE 30, 2016
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At June 30, 2016, we had interest rate swaps with a notional value of $7,050 and a fair value of $202.
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a
U.S. dollar notional value of $29,642 to hedge our exposure to changes in foreign currency exchange rates. These
derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(3,721) at June 30,
2016.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including
its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and
reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The chief executive
officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the
registrant's disclosure controls and procedures as of June 30, 2016. Based on that evaluation, the chief executive officer
and chief financial officer concluded that the registrant's disclosure controls and procedures were effective as of June
30, 2016.
45
AT&T INC.
JUNE 30, 2016
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and
actual results could differ materially. Many of these factors are discussed in more detail in the "Risk Factors" section.
We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking
statements:
· Adverse economic and/or capital access changes in the markets served by us or in countries in which we have significant investments, including the impact on customer demand and our ability and our suppliers' ability to access financial markets 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, state or foreign government 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, 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, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, 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 maintain margins, attract and offer a diverse portfolio of wireless service and devices and device financing plans.
· 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 from major equipment failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; 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.
· 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 decrease in government spending and reluctance of businesses and consumers to spend in general.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially
affect our future earnings.
46
AT&T INC.
JUNE 30, 2016
PART II - OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to
update this discussion to reflect material developments since our Form 10-K was filed. For the second quarter 2016, there
were no such material developments.
Item 2. Unregistered Sales
of Equity Securities and
Use of Proceeds
(c) A summary of our
repurchases of common
stock during the second
quarter of 2016 is as
follows:
Period (a) Total Number ofShares (or Units)Purchased 1, 2, 3 (b) Average Price PaidPer Share (or Unit) (c) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs1 (d) Maximum Number (orApproximate DollarValue) of Shares (orUnits) That May Yet BePurchased Under ThePlans or Programs
April 1, 2016 -April 30, 14,308 $ - - 406,550,000
2016
May 1, 2016 -May 31, 2016 3,001,139 38.43 3,000,000 403,550,000
June 1, 2016 -June 30, 2,658,815 40.87 2,000,000 401,550,000
2016
Total 5,674,262 $ 39.40 5,000,000
1 In March 2014, our Board
of Directors approved an
additional authorization
to repurchase up to 300
million shares of our
common stock. In March
2013, our Board of
Directors authorized the
repurchase of up to an
additional 300 million
shares of our common
stock. The authorizations
have no expiration date.
2 Of the shares
repurchased, 32,522 shares
were acquired through the
withholding of taxes on
the vesting of restricted
stock or through the
payment in stock of taxes
on the exercise price of
options.
3 Of the shares
repurchased, 641,740
shares were acquired
through reimbursements
from AT&T maintained
Voluntary Employee Benefit
Association (VEBA) trusts.
47
AT&T INC.
JUNE 30, 2016
Item 6. Exhibits
Exhibits identified in parentheses below, on file with the Securities and Exchange Commission, are incorporated by
reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610.
12 Computation of Ratios of Earnings to Fixed Charges
31 Rule 13a-14(a)/15d-14(a) Certifications31.1 Certification of Principal Executive Officer31.2 Certification of Principal Financial Officer
32 Section 1350 Certifications
101 XBRL Instance Document
48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
August 4, 2016 AT&T Inc. /s/ John J. StephensJohn J. StephensSenior Executive Vice President and Chief Financial Officer
49
EXHIBIT 12
AT&T INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
Six Months Ended
June 30, Year Ended December 31,
(Unaudited)
2016 2015 2015 2014 2013 2012 2011
Earnings:
Income from continuing operations before income taxes $ 11,428 $ 9,650 $ 20,692 $ 10,355 $ 28,050 $ 10,496 $ 6,998
Equity in net income of affiliates included above (41 ) (33 ) (79 ) (175 ) (642 ) (752 ) (784 )
Fixed charges 3,644 2,924 6,592 5,295 5,452 4,876 4,835
Distributed income of equity affiliates 19 10 30 148 318 137 161
Interest capitalized (437 ) (339 ) (797 ) (234 ) (284 ) (263 ) (162 )
Earnings, as adjusted $ 14,613 $ 12,212 $ 26,438 $ 15,389 $ 32,894 $ 14,494 $ 11,048
Fixed Charges:
Interest expense $ 2,465 $ 1,831 $ 4,120 $ 3,613 $ 3,940 $ 3,444 $ 3,535
Interest capitalized 437 339 797 234 284 263 162
Portion of rental expense representative of interest factor 742 754 1,675 1,448 1,228 1,169 1,138
Fixed Charges $ 3,644 $ 2,924 $ 6,592 $ 5,295 $ 5,452 $ 4,876 $ 4,835
Ratio of Earnings to Fixed Charges 4.01 4.18 4.01 2.91 6.03 2.97 2.29
CERTIFICATION
I, Randall Stephenson, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 4, 2016
/s/ Randall Stephenson
Randall Stephenson
Chairman of the Board,
Chief Executive Officer and President
CERTIFICATION
I, John J. Stephens, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 4, 2016
/s/ John J. Stephens
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
Certification of Periodic Financial Reports
Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc. (the "Company") hereby certifies that the
Company's Quarterly Report on Form 10-Q for the three months ended June 30, 2016 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
August 4, 2016 August 4, 2016
By: /s/ Randall Stephenson Randall Stephenson Chairman of the Board, Chief Executive Officer and President By: /s/ John J. Stephens John J. Stephens Senior Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of
the Report or as a separate disclosure document. This certification shall not be deemed "filed" for purposes of Section 18
of the Securities Exchange Act of 1934 ("Exchange Act") or otherwise subject to liability under that section. This
certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the
Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such
filing.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to AT&T Inc. and will be retained by AT&T Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
This information is provided by RNS
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