AT&T Worldnet 2015 Annual Report Download

Download and view the complete annual report

Please find the complete 2015 AT&T Worldnet annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 88

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88

mobilizing your world
AT&T Inc. 2015 Annual Report

Table of contents

  • Page 1
    mobilizing your world AT&T Inc. 2015 Annual Report

  • Page 2

  • Page 3
    ... valuable resource. Combined with our major investments over the past 5 years in our wireless, fiber and Internet Protocol (IP) networks, we have assembled the pieces to claim leadership as the top integrated communications company in the world. We believe it is important for you to understand our...

  • Page 4
    ... technologies to connect them - wireless LTE, Wi-Fi, satellite, IP networks and fiber optics. But our customers should not know or care about any of this. Our job is to simply deliver seamless connectivity to every device and sensor in their office, car, home - you name it - and help ensure it...

  • Page 5
    ... from streamlining installation and customer care. In 2015, we largely eliminated subsidized mobile handsets, letting us turn the corner on our cost trajectory and deliver the best-ever EBITDA service margins in our wireless business. Deliver an effortless customer experience. This underpins...

  • Page 6
    ... to dial bandwidth up or down on their own, as needed, on a near real-time basis. And our AT&T NetBond® service provides a highly secure connection from the mobile handset to a customer's cloud provider of choice, offering end-to-end security. We also offer a global wireless solution that...

  • Page 7
    ... President-External and Legislative Affairs, AT&T Services, Inc. management, helped us keep customer churn low and deliver record EBITDA margins. And in prepaid, where customers are more cost-conscious, our Cricket wireless brand is helping us add customers faster than anyone else in the industry...

  • Page 8
    ... highly secure mobile LTE connectivity to 355 million people and businesses in the United States and Mexico. Meanwhile, our DIRECTV operations in Latin America are good, self-sustaining franchises. Despite operating in a region of the world with challenged economies, our local management teams are...

  • Page 9
    ... pattern that we have repeated time and again. Our integrated provider strategy, combined with growing contributions from DIRECTV and our wireless operations in Mexico, will help us continue the strong momentum we had in 2015. Last year, we grew revenues, expanded margins and increased earnings...

  • Page 10
    ...sets to provide informed counsel on strategic moves in a rapidly changing industry. The board thoroughly reviews and approves our strategic plans in multiple sessions throughout the year. Those sessions encourage extensive board discussion and debate to ensure the management.... I look forward to...

  • Page 11
    ...Results of Operations Consolidated Financial Statements Notes to Consolidated Financial Statements Report of Management Report of Independent Registered Accounting Firm Report of Independent Registered Public Accounting Firm Board of Directors Executive Officers 10 11 41 46 80 81 82 83 84 AT&T INC...

  • Page 12
    ...-average common shares outstanding with dilution (000,000) End of period common shares outstanding (000,000) Operating Data Total wireless customers (000) Video connections (000) In-region network access lines in service (000) Broadband connections (000) Number of employees 1 $146,801 $122,016 $ 24...

  • Page 13
    ... 2015 was primarily due to our acquisition of DIRECTV, our new wireless operations in Mexico, and gains in fixed strategic business services and AT&T U-verse® (U-verse) services. The decrease in 2014 was primarily due to customers choosing to purchase devices through installment payment agreements...

  • Page 14
    ... assets, higher wireless equipment costs resulting from higher device sales and customers choosing higher-priced devices, increased expenses supporting U-verse subscriber growth, and continued declines in our traditional voice and data services. Interest expense increased $507, or 14.0%, in 2015 and...

  • Page 15
    ... traditional data and voice products. We utilize our wireless and wired network and are marketed to provide a complete communications solution to our business customers. The Entertainment Group segment accounted for approximately 24% of our 2015 total segment operating revenues as compared to 17% in...

  • Page 16
    ... national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars Business Solutions Segment Results using official...

  • Page 17
    .... Connected devices, which have lower average revenue per average subscriber (ARPU) and lower churn, increased 26.8% in 2015 compared to 22.2% in 2014 reflecting growth in business customers using tracking, monitoring and other sensor-embedded devices on their equipment. The effective management of...

  • Page 18
    ...Segment Results Percent Change 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Segment operating revenues Video entertainment High-speed Internet Legacy voice and data services Other service and equipment Total Segment Operating Revenues Segment operating expenses Operations and support Depreciation and...

  • Page 19
    ... in U-verse video connections, when compared to 2013. High-speed Internet revenues increased $1,079, or 19.5%, in 2015 and $1,303, or 30.9%, in 2014. When compared to 2014, IP broadband connections increased 8.5%, to 12.4 million connections at December 31, 2015; however, 2015 net additions were...

  • Page 20
    ... due to customers choosing Mobile Share plans and migrating to our Business Solutions segment, partially offset by higher prepaid service revenues. Our business wireless offerings allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The...

  • Page 21
    ... At December 31, 2015, we had approximately 8.7 million wireless subscribers in Mexico and 12.5 million video connections in Latin America, including 5.4 million in Brazil. Since acquisition, our Mexico wireless business had a net loss of 96,000 subscribers, mainly prepaid customers, and our Latin...

  • Page 22
    ..., we are providing a view of our combined domestic wireless operations (AT&T Mobility). AT&T Mobility Results Percent Change 2015 2014 2013 2015 vs. 2014 2014 vs. 2013 Operating revenues Service Equipment Total Operating Revenues Operating expenses Operations and support EBITDA Depreciation and...

  • Page 23
    ... plans now represent over 79% of our postpaid customer base. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn. During 2015, we offered postpaid wireless...

  • Page 24
    ...not further extended to broadband or wireless services, which are subject to vigorous competition. In February 2015, the FCC released an order reclassifying both fixed and mobile consumer broadband Internet access services as telecommunications services, subject to comprehensive regulation under the...

  • Page 25
    ...then international video and mobility. Integration of Data/Broadband and Entertainment Services As the communications industry continues to move toward Internet-based technologies that are capable of blending wireline, satellite and wireless services, we plan to offer services that take advantage of...

  • Page 26
    ...Mexico and enable our customers to use wireless services without roaming on other companies' networks. We believe this seamless access will prove attractive to customers and provide a significant growth opportunity. We also announced in 2015 our plan to invest $3,000 to upgrade the network in Mexico...

  • Page 27
    ... our or competitors' wireless, satellite and Internet-based services. In most markets, we compete for customers, often on pricing of bundled services, with large cable companies, such as Comcast Corporation, Cox Communications Inc. and Time Warner Cable Inc., for high-speed Internet, video and voice...

  • Page 28
    ... at least annually for impairment. We conduct our impairment tests as of October 1. We test goodwill on a reporting unit basis, and some reporting units coincide with our segments, while others are one level below our segments. If, due to changes in how we manage the business, we move 26 | AT...

  • Page 29
    ...book values of the reporting units, and additional testing would still have not been necessary. Wireless licenses (spectrum) in the U.S. are tested for impairment on an aggregate basis, consistent with use of the licenses to support the Business Solutions and Consumer Mobility segments on a national...

  • Page 30
    ...-fiber Internet access service to at least 12.5 million customer locations such as residences, home offices and very small businesses. Combined with our existing high-speed broadband network, at least 25.7 million customer locations will have access to broadband speeds of 45Mbps or higher by the end...

  • Page 31
    ...reduces the download speeds of a small portion of our legacy Unlimited Data Plan customers each month. MBR is an industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media posts, Internet browsing and...

  • Page 32
    ...the completion of our LTE build and other Project Velocity IP initiatives in 2014. In connection with capital improvements to our wireless network in Mexico, we also negotiated in 2015 favorable payment terms (referred to as vendor financing). In 2015, we deferred $684 of vendor financing related to...

  • Page 33
    ...various senior notes in connection with the January 2015 GSF Telecom acquisition and April 2015 Nextel Mexico acquisition. • April 2015 redemption of â,¬1,250...of debt, the payment of dividends, which is subject to approval by our Board of Directors, and the repayment of debt. We plan to fund our ...

  • Page 34
    ... of this nature and result in the acceleration or permit the lenders to accelerate, as applicable, required payment and which would increase the Applicable Margin by 2.00% per annum. The 18-Month Credit Agreement In March 2015, AT&T borrowed all amounts available under the 18-Month Credit Agreement...

  • Page 35
    ... 2015, we posted ...installment receivables and real estate holdings. We plan to continue to explore monetization opportunities in 2016. In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our wireless business...

  • Page 36
    ...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...

  • Page 37
    ..., 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...

  • Page 38
    ... 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 36 these changes in customer demands, we are likely to experience greater pressure on pricing and margins...

  • Page 39
    ... 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...

  • Page 40
    ... 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...

  • Page 41
    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 ...

  • Page 42
    Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Dollars in millions except per share amounts CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS Information set forth in this report contains forward-looking statements that are subject to risks...

  • Page 43
    ... Statements of Income Dollars in millions except per share amounts 2015 2014 As Adjusted 2013 Operating Revenues Service Equipment Total operating revenues Operating Expenses Cost of services and sales Equipment Broadcast, programming and operations Other cost of services (exclusive of depreciation...

  • Page 44
    ...Comprehensive Income Dollars in millions 2015 2014 As... net income, net of taxes of $0, $224 and $30 Available-for-sale securities: Net unrealized gains, net of taxes of ... plans: Amortization of net prior service credit included in net income, net of taxes of $(523), $(588) and $(480) Net prior service...

  • Page 45
    ...Dollars in millions except per share amounts December 31, 2015 2014 As Adjusted Assets Current Assets Cash and cash equivalents Accounts receivable - net of allowances for doubtful accounts...within one year Accounts payable and accrued liabilities Advanced billings and customer deposits Accrued taxes...

  • Page 46
    ...Dollars in millions 2015 2014 As Adjusted 2013 Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Undistributed earnings from investments in equity affiliates Provision for uncollectible accounts... change ...End...

  • Page 47
    ...share amounts 2015 Shares Amount Shares 2014 Amount Shares As Adjusted 2013 Amount Common Stock Balance at beginning of year Issuance of stock Balance at end of year Additional Paid-In Capital Balance at beginning of year Issuance of treasury stock Share-based payments Change related to acquisition...

  • Page 48
    ... 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...

  • Page 49
    ... 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 Income tax expense Net Income Net Income Attributable to...

  • Page 50
    ... 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...

  • Page 51
    ...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... were $4,033 at December 31, 2015, and $1,933 at December 31, 2014. Wireless devices and accessories, which are valued ...

  • Page 52
    ... 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...

  • Page 53
    ...agreements. Bills reflecting actual incurred information are generally not received within three months subsequent to the end of the reporting period... per share: Weighted-average number of common shares outstanding Dilutive potential common shares: Share-based payment (in shares) Denominator for...

  • Page 54
    ... reflect available funds for distributions, reinvestment or other discretionary uses. The Business Solutions segment provides services to business, governmental and wholesale customers and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP...

  • Page 55
    ... and national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates. In reconciling...

  • Page 56
    ... table is a reconciliation of operating income (loss) to "Income Before Income Taxes" reported on our consolidated statements of income: 2015 2014 2013 Business Solutions Entertainment Group Consumer Mobility International Segment Operating Income Reconciling Items: Corporate and Other Merger and...

  • Page 57
    ... a unique and complementary set of assets and achieve substantial cost synergies over time, as well as generate revenue from pay television in Latin America. Our distribution scale will enable us to offer consumers bundles including video, high-speed broadband and mobile services, using all the...

  • Page 58
    ...our International segment. AWS-3 Auction In January 2015, we submitted winning bids for 251 Advanced Wireless Service (AWS) spectrum licenses in the AWS-3 Auction (FCC Auction 97) for $18,189. We provided the Federal Communications Commission (FCC) an initial down payment of $921 in October 2014 and...

  • Page 59
    ... on the relative fair value of the portions of the previous Wireless and Wireline segments which were moved into the new Business Solutions, Entertainment Group and Consumer Mobility segments. The following table sets forth the changes in the carrying amounts of goodwill by segment, which is the...

  • Page 60
    ... to utilize certain radio frequency spectrum to provide wireless communications services, similar licenses in Mexico and orbital slots representing the space in which we operate the broadcast satellites that support our digital video entertainment service offerings. Amortized intangible assets are...

  • Page 61
    ...,050, which had a carrying amount of $17,787 at December 31, 2015. Included in the table above at December 31, 2015, was approximately $738, representing the remaining excess of the fair value over the recorded value of debt in connection with the acquisition of DIRECTV, all of which was included in...

  • Page 62
    ... May, until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030. Debt maturing within one year consisted of the following at December 31: 2015 2014 As of December 31, 2015 and 2014, we were in compliance with...

  • Page 63
    ... of this nature and result in the acceleration or permit the lenders to accelerate, as applicable, required payment and which would increase the Applicable Margin by 2.00% per annum. The 18-Month Credit Agreement In March 2015, AT&T borrowed all amounts available under the 18-Month Credit Agreement...

  • Page 64
    ...-for-sale securities and derivatives as of December 31, 2015, and December 31, 2014: December 31, 2015 Level 1 Level 2 Level 3 Total Available-for-Sale Securities Domestic equities International equities Fixed income bonds Asset Derivatives1 Interest rate swaps Cross-currency swaps Foreign exchange...

  • Page 65
    ...sheets. Investment Securities Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not traded on a national securities...

  • Page 66
    ...Dollars... portion is reported as a ...changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed...income. In the years ended December 31, 2015, and December 31,... provide currency at a fixed ... 2015, we had posted ...

  • Page 67
    ...it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws, our experience in managing tax audits and relevant GAAP, to determine the...

  • Page 68
    ... as determined by AT&T. Future changes in support, if any, will be based on a number of factors such as business "Income Before Income Taxes" in the Consolidated Statements of Income included the following components for the years ended December 31: 2015 2014 2013 U.S. income before income taxes...

  • Page 69
    ... - (2,298) - (174) - $30,709 The following table presents the change in the value of plan assets for the years ended December 31 and the plans' funded status at December 31: Pension Benefits 2015 2014 Postretirement Benefits 2015 2014 Fair value of plan assets at beginning of year Actual return on...

  • Page 70
    ... interest in AT&T Mobility II LLC, the primary holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of $9,104 on the contribution date and was valued at $8,714 at December 31, 2015. The trust...

  • Page 71
    ... on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows...

  • Page 72
    ... plan assets is 5.75% for 2016 and 2015. Our long-term rates of return reflect the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In setting the long-term assumed rate of return, management...

  • Page 73
    ...by internal appraisals performed by the investment manager, which are reasonable as determined by the review of an external valuation consultant. Fixed income securities valuation is based upon pricing provided by an external pricing service when such pricing is available. In the event a security is...

  • Page 74
    ...Dollars...tables set forth...fixed...other liabilities at fair value Total plan net assets at fair value Other assets (liabilities)1 Total Plan Net Assets 1 $ 160 ...accounts payable and net adjustment for securities lending payable. Postretirement Assets and Liabilities at Fair Value as of December 31, 2015...

  • Page 75
    ...set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2015: Fixed... gains (losses) Transfers in Transfers out Purchases Sales Balance at end of year $ ... plan net assets at fair value Other assets (liabilities)1 Total Plan...

  • Page 76
    ...include amounts receivable, accounts payable and net adjustment for securities lending payable. The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2014: Pension Assets Equities Fixed Income Funds Private...

  • Page 77
    ... balance sheets. The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets at December 31: 2015 2014 The estimated prior service credit for our supplemental retirement plan benefits that will be amortized from...

  • Page 78
    ... stock units Total $299 147 5 $451 $226 93 (1) $318 $381 80 (3) $458 A summary of the status of our nonvested stock units as of December 31, 2015, and changes during the year then ended is presented as follows (shares in millions): Nonvested Stock Units Shares Weighted-Average Grant-Date Fair...

  • Page 79
    ... We offer our customers the option to purchase certain wireless devices in installments over a period of up to 30 months, with the right to trade in the original equipment for a new device within a set period and have the remaining unpaid balance satisfied. As of December 31, 2015 and December 31...

  • Page 80
    ... and credit-risk contingencies. NOTE 18. ADDITIONAL FINANCIAL INFORMATION December 31, Consolidated Balance Sheets 2015 2014 Customer fulfillment costs (included in Other current assets) Accounts payable and accrued liabilities: Accounts payable Accrued payroll and commissions Current portion of...

  • Page 81
    ...INFORMATION (UNAUDITED) The following tables represent our quarterly financial results: 2015 Calendar Quarter First1 Second1 Third Fourth2 Annual... for the voluntary change in accounting policy (Note 1). Includes an actuarial gain on pension and postretirement benefit plans (Note 12). Quarterly...

  • Page 82
    ... year end, are the responsibility of management, as is all other information included in the Annual Report, unless otherwise indicated. The financial statements of AT&T Inc. (AT&T) have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm. Management has made available to...

  • Page 83
    ... in Note 1 to the consolidated financial statements, the Company has elected to change its method of accounting for customer set-up and installation costs for its video, broadband Internet and wireline voice services in 2015. We also have audited, in accordance with the standards of the Public...

  • Page 84
    ... the accompanying Report of Management, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of its DIRECTV and Mexico wireless businesses, which are included in the December 31, 2015 consolidated financial...

  • Page 85
    ... Director since 2013 Background: Health care Chief Executive Officer KPMG Director since 2005 AT&T Corp. Director 2002-2005 Background: Public accounting Laura D'Andrea Tyson, Ph.D., 68 (1,4,6) Professor of Business Administration and Economics Haas School of Business at the University of California...

  • Page 86
    ... Marketing Officer John Stankey, 53 Chief Executive OfficerAT&T Entertainment Group, AT&T Services, Inc. Bill Blase Jr...Officer Jim Cicconi, 63 Senior Executive Vice PresidentExternal and Legislative Affairs, AT&T Services, Inc. David Huntley, 57 Chief Compliance Officer (Information is provided...

  • Page 87
    ... retirement account. For more information, call 1-800-351-7221. Stock Trading Information AT&T Inc. is listed on the New York Stock Exchange. Ticker symbol: T Information on the Internet Information about AT&T Inc. is available on the Internet at www.att.com Annual Meeting The annual meeting...

  • Page 88