SecProbe.io

CORRESP
1
filename1.htm

    corresp6-09.htm

    [AT&T
Inc. Letterhead]

    AT&T
Inc.

    208 S.
Akard

    Dallas,
Texas 75202

    June  8,
2009

    Securities
and Exchange Commission

         100
F Street NE

    Washington,
D.C. 20549

    Re:  AT&T
Inc.

            Form
10-K for the Year Ended December 31, 2008

            Filed
February 25, 2009

                                        Form 10-Q for the
Quarterly Period Ended March 31, 2009

                                        File
No.  1-8610

    Ladies
and Gentlemen:

    We are in receipt of the letter from
the Staff (the “Staff”) of the Securities and Exchange Commission (the
“Commission”), dated May 18, 2009, to Mr. Richard G. Lindner, of AT&T Inc.
(the “Company” or “we”).  For your convenience, we have included the
Staff’s comments herein and keyed our responses accordingly. We appreciate the
Staff granting an extension until June 12, 2009.

    We acknowledge that the adequacy and
accuracy of the disclosure in the filing is our responsibility.  We
acknowledge the Staff’s position that comment or changes in response to the
Staff comments in the proposed disclosure in the Forms 10-K and 10-Q do not
foreclose the Commission from taking any action with respect to the
filing.  We also understand the Staff’s position that the Staff
comments may not be asserted as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.

    The Company’s responses to the Staff’s
comments are set forth below and revised disclosure has been written in bold
type.

    Item 3. Legal Proceeding,
page 10

              1.

              We
      note your disclosure regarding material pending legal
      proceedings.  We also note news reports regarding other
      litigation to which you are a party, including Engers v. AT&T
      Management Pension Plan, filed in federal district court in New
      Jersey, and AT&T v.
      Hulteen, before the U.S. Supreme Court.  Please provide
      an analysis as to why you have not discussed these cases in Item 3 of your
      Form 10-K.  See Item 103 of Regulation
  S-K.

    Response:

    We did not include the two cases
mentioned above because we believe the potential liabilities do not exceed the
threshold set forth in Instruction 2 to Item 103 of Regulation
S-K.  With respect to the Hulteen case, the
U.S. Supreme Court decided that case in our favor on May 18, 2009.

    Management’s
Discussion and Analysis of Financial Condition and Results of
Operations

    General

              2.

              Your
      ability to raise capital may be impacted by current credit
      ratings.  With a realistic evaluation of your current financial
      situation, please discuss how the following items may impact current and
      future results:

              ·

              changes
      in credit lines and credit
availability;

              ·

              parties
      with which you have credit lines;

              ·

              whether
      backup credit lines remain available;
and,

              ·

              goodwill
      and license impairments

    Please
provide us with your proposed disclosures.

    Response:

    We
understand the Staff’s focus on disclosure concerning capital markets access in
the current economic environment.   We are and expect to continue
to be able to access both the short-term and long-term debt
markets.   As discussed in the liquidity section of our 2008
Annual Report and first quarter 2009 Form 10-Q, we have issued $7 billion in
total of long-term debt during the fourth quarter of 2008 and the first quarter
of 2009 as well as an issuance of over $2.5 billion that closed on April 30,
2009.  Also as discussed in these filings, our existing credit
facility remains available until July 2011 and has remained
undrawn.  We have not had a goodwill or license impairment subsequent
to the initial adoption of FAS 142 in January 2002 at which time we recorded a
cumulative effect related to the change in accounting standards for
impairment.  Additionally, an impairment of goodwill or licenses would
not affect the debt/EBITDA ratio in the backup credit facility covenant.
Accordingly, we believe that our existing disclosure adequately addresses our
financial condition.  While we believe our financial liquidity and
ability to borrow have remained, and we expect to remain, stable during this
time period, we monitor these trends.  Should these trends turn
unfavorable we would address them in an upcoming filing as may be
required.  We have addressed the potential impact of an unfavorable
change in the financial markets on our operations in a Risk Factor addressing
capital market access in our 2008 Annual Report.

    Liquidity and Capital
Resources, page 23

              3.

              Please
      provide a range for your capital expenditures for 2009 by project
      including those that you may decide to delay to a future
      period.  Disclose the nature and amounts of your discretionary
      and non-discretionary capital expenditures. Please provide us with your
      proposed disclosures.

    Response:

    We
provided a range of our expected 2009 capital expenditures ($17-$18 billion) in
the liquidity section of our first quarter 2009 Form 10-Q, and we discussed in
the liquidity section of our 2008 Annual Report the allocation between segments
of our capital expenditures during 2008.  As noted in the Expected
Growth Areas section of  our Annual Report and the liquidity section
of our first quarter 2009 Form 10-Q, we expect our growth areas to remain the
same for 2009 and to continue to focus our capital expenditures in those
areas.  We do not manage our business in terms of discretionary and
non-discretionary expenditures and our guidance is based on amounts that we
fully expect to spend.  (To the extent an expenditure would be
mandated by regulatory requirements, we would comply with such an
order.)  We expect to remain within our targeted range for 2009 and we
currently anticipate we will be including our expected range for 2010 in our
2009 Annual Report to Shareowners.

              4.

              Please
      provide a detailed analysis of how you anticipate meeting your cash flow
      requirements in the next two years.

    Response:

    As
discussed in the liquidity section of our Annual Report and first quarter 2009
Form 10-Q, we expect to meet our cash flow requirements from funds from
operations and incremental borrowings.  As shown in our first quarter
2009 Form 10-Q, we have significant positive cash flow and have had ready access
to the capital markets.  We do not expect difficulties in sustaining a
positive cash flow during the next two years.  Accordingly, we believe
our current disclosure does address our short term cash flow
requirements.

    Contractual Obligations,
Commitments and Contingencies, page 26

    5.           Please
provide us with your estimated range of the items not included in the
table.

    Response:

    In this
section of our 2008 Annual Report, the items we excluded in accordance with
Regulation S-K generally fell into one or more of following
categories:  excluded because of immateriality; excluded because of
uncertainty of timing of payment; excluded as postemployment benefit obligation;
and excluded because they do not require the use of cash.

    Cash
items not included in the table but mentioned elsewhere in the Annual Report
include capital leases with a present value of $167 million (noted in Note 8)
and non-qualified retirement plans of $2.1 billion (noted in Note
11).

    Minority
interest (disclosed in our Form 10-Q as $403 million as of the end of 2008 and
now included in equity) was one of the items excluded due to uncertain
timing.  Other excluded items which may require cash but whose timing
is uncertain were insurance losses, asset retirement obligations, and other
miscellaneous contingencies totaling between $400 and $500 million.

    Excluded
items not requiring cash included deferred compensation that will be paid in
stock of $1 billion (noted in Note 11).

    Most of
the remaining liabilities not requiring cash related to deferred revenue and
gains including the non-current portions of activation revenues deferred under
SAB 104 and also included purchase accounting acquisition adjustments related to
unfavorable lease obligations of $134 million.  Collectively these
totaled between $3.5 and $3.8 billion.

    6.          Expand your discussion to
disclose in detail your debt covenants here and in Note 8.

    Response:

    Because
of our strong credit ratings, we have relatively limited debt
covenants.  We believe our only significant debt covenant is a
debt-to-EBITDA limitation contained in our backup credit facility, a facility
that we have never drawn on.  This covenant is discussed in the
Liquidity section of our Annual Report and first quarter 2009 Form 10-Q as well
as in Note 8 of the notes to the financial statements in the Annual Report. We
do not believe that the other few covenants in our debt instruments which are
incorporated as exhibits to our 2008 Form 10-K are material.  In
addition, all significant debt instruments are publicly available in filings
under the issuing company and a listing of our individual debt issuances is
posted on our website.   Considering all of these factors, we
believe our current disclosures are adequate.

    Accounting Policies and
Standards

    Significant Accounting
Policies and Estimates, page 20

    Pension and Postretirement
Benefits page 20

              7.

              Please
      discuss in detail the development of the discount rates used for employee
      benefit plans and the methodology for developing the hypothetical yield
      curves, including the actual high-quality, fixed income corporate bonds
      used.  Please provide us with the proposed
      disclosures.  Please expand your disclosure in Note
      11.

    Response:

    As
discussed in Note 11 to our Annual Report, we determine our discount
rate for U.S. pension and postretirement welfare plans primarily based on a
December 31, 2008 hypothetical high-quality corporate bond yield curve. This
yield curve is determined by the plan’s actuaries at J.P. Morgan. The J.P.
Morgan Aa above median yield curve is developed from more than 300
corporate bonds, all in Barclay’s Point database, with a market value in excess
of $200 billion.  All of the bonds share these
characteristics:

    • US
dollar denominated

    • rated
Aa1, Aa2 or Aa3 by Moody’s or rated AA+, AA or AA- by
Fitch or S&P

    • fixed
coupon

    • noncallable

    • nonconvertible

    • not
index linked

    • coupon
frequency not “issued at a discount”

    We did
not include any bonds with yields ranging from 13% to 23.5% that would have
increased the aggregate value of the bonds we were looking at by more than $6
billion.

    Prior to
feeding bond data into the model, the actuaries added any accrued interest
to the “clean price” used to quote prices in the market. Accrued interest is
calculated by taking the fraction of the coupon period that has elapsed, using a
30/360 US (NASD) day basis, times the coupon payment.  These bonds
were fed into the J.P. Morgan yield curve model which is very similar to a
Cairns model.

    We
reviewed the curves produced by the actuaries’ testing, including the forward
curves that were implicit in the overall curve.  As a check, we also
looked at another commonly used publicly published curve (the Citigroup Pension
Discount Curve – Above Median) including that curve’s implicit forward
rates.  We believe that the J.P. Morgan curve produced the more
reasonable “curve shape” as well as the most reasonable view of forward
rates.  The other curve implied forward rates that were very low,
including some that were actually negative, for years in the 20 to 30 year
range.

    Accordingly,
we determined that the curve developed by J.P. Morgan was an appropriate basis
for measuring U.S. pension and postretirement benefit obligations at December
31, 2008. Applying this curve to projected cash flows under the plans produced a
weighted average effective discount rate of 7.11% for U.S. pension obligations
and 7.08% for U.S. postretirement benefit obligations. As we have consistently
used discount rates rounded to the quarter percent, we selected a rate of 7.00%
to measure U.S. pension and postretirement benefit obligations as of December
31, 2008.

    In future
filings, we will expand the discussion in the footnotes to provide some more
information on the composition of the yield curve and then repeat that
information in the MD&A section.  The proposed disclosure is as
follows:

    Discount Rate  Our
assumed discount rate of x.xx% at December 31, 200x, reflects the hypothetical
rate at which the projected benefit obligations could be effectively settled or
paid out to participants on that date. We determined our discount rate based on
a range of factors, including a yield curve comprised of the rates of return on
[several hundred] high-quality, fixed-income corporate bonds available at the
measurement date and the related expected duration for the obligations. These
bonds were all rated at least Aa3 or AA- by one of the nationally recognized
statistical rating organizations, denominated in U. S. dollars, and neither
callable, convertible nor index linked.   For the year ended
December 31, 200x, we in/de/creased our discount rate by x.xx%, resulting in a
de/in/crease in our pension plan benefit obligation of $x,xxx and a de/in/crease
in our postretirement benefit obligation of $x,xxx. For the year ended December
31, 200x (the prior year), we in/de/creased our discount rate by x.xx%,
resulting in a de/in/crease in our pension plan benefit obligation of $x,xxx and
a de/increase in our postretirement benefit obligation of $x,xxx. Should actual
experience differ from actuarial assumptions, the projected pension benefit
obligation and net pension cost and accumulated postretirement benefit
obligation and postretirement benefit cost would be affected in future
years.

    Asset Valuation and
Impairments, page 20

              8.

              We
      note that goodwill accounted for 27% of total assets as of December 31,
      2008.  Tell us and disclose when you performed your impairment
      tests.

    In light
of the significance of your goodwill balance, we expect robust and comprehensive
disclosure in your critical accounting policies regarding your impairment
testing policy.  This disclosure should provide investors with
sufficient information about management’s insights and assumptions with regard
to the recoverability of goodwill.  Specifically, we believe you
should provide the following information:

              ·

              Provide
      a more detailed description of the steps you perform to review goodwill
      for recoverability.

              ·

              Disclose
      a breakdown of your goodwill balance as of December 31, 2008 by reporting
      unit.

              ·

              Disclose
      any changes to your reporting units or allocations of goodwill by
      reporting unit and the reasons for such
changes.

              ·

              Describe
      the significant estimates and assumptions you employed under the
      discounted cash flows methodology to determine the fair value of your
      reporting units in your impairment analysis.  For example, you
      should disclose the discount rates for each reporting unit and how those
      discount rates were determined, including your consideration of any market
      risk premiums. In addition, we believe your disclosure should address your
      estimates of future cash flows, as
follows:

              1)

              Provide
      a discussion of your historical cash flow growth rates and explain how
      your historical gr