TIDM58KM
RNS Number : 2810W
AT & T Inc.
16 November 2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
+--------+--------+--------+--------+
| | (Mark | | |
| | One) | | |
+--------+--------+--------+--------+
+--------+--------+------------+--------+
| | x | QUARTERLY | |
| | | REPORT | |
| | | PURSUANT | |
| | | TO | |
| | | SECTION | |
| | | 13 OR | |
| | | 15(d) | |
| | | OF THE | |
| | |SECURITIES | |
| | | EXCHANGE | |
| | | ACT OF | |
| | | 1934 | |
+--------+--------+------------+--------+
| | | | |
+--------+--------+------------+--------+
| | | For | |
| | | the | |
| | | quarterly | |
| | | period | |
| | | ended | |
| | | September | |
| | | 30, 2010 | |
+--------+--------+------------+--------+
| | | | |
+--------+--------+------------+--------+
| | | or | |
+--------+--------+------------+--------+
| | | | |
+--------+--------+------------+--------+
| | o |TRANSITION | |
| | | REPORT | |
| | | PURSUANT | |
| | |TO SECTION | |
| | | 13 OR | |
| | | 15(d) | |
| | | OF THE | |
| | |SECURITIES | |
| | | EXCHANGE | |
| | | ACT OF | |
| | | 1934 | |
+--------+--------+------------+--------+
| | | | |
+--------+--------+------------+--------+
For the transition period from to
Commission File Number 1-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
+-----------------+--------+-----------+-------------+--------+
| Large | [X] | | Accelerated | [ ] |
| accelerated | | | filer | |
| filer | | | | |
+-----------------+--------+-----------+-------------+--------+
| Non-accelerated | [ ] | (Do | Smaller | [ ] |
| filer | | not | reporting | |
| | | check | company | |
| | | if a | | |
| | | smaller | | |
| | | reporting | | |
| | | company) | | |
+-----------------+--------+-----------+-------------+--------+
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
At October 31, 2010, there were 5,910 million common shares outstanding.
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| PART I - FINANCIAL INFORMATION | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| Item 1. Financial Statements | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| AT&T INC. | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| CONSOLIDATED STATEMENTS OF INCOME | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| Dollars in millions except per share amounts | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| (Unaudited) | |
+-------------------------------------------------------------------------------------------------------------------------------------------------------------+--------+
| | | Three months ended | | | Nine months ended | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | September 30, | | | September 30, | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Wireless | | $ | 13,675 | | | $ | 12,372 | | | $ | 39,711 | | | $ | 35,978 | |
| service | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Voice | | | 6,973 | | | | 7,943 | | | | 21,671 | | | | 24,701 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Data | | | 6,928 | | | | 6,448 | | | | 20,407 | | | | 19,053 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Directory | | | 961 | | | | 1,162 | | | | 3,009 | | | | 3,622 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 3,044 | | | | 2,809 | | | | 8,121 | | | | 8,451 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 31,581 | | | | 30,734 | | | | 92,919 | | | | 91,805 | |
| operating | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cost | | | 13,519 | | | | 12,907 | | | | 38,235 | | | | 37,665 | |
| of | | | | | | | | | | | | | | | | |
| services | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| sales | | | | | | | | | | | | | | | | |
| (exclusive | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| depreciation | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | |
| shown | | | | | | | | | | | | | | | | |
| separately | | | | | | | | | | | | | | | | |
| below) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Selling, | | | 7,707 | | | | 7,574 | | | | 22,570 | | | | 22,914 | |
| general | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| administrative | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,891 | | | | 4,881 | | | | 14,529 | | | | 14,614 | |
| and | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 26,117 | | | | 25,362 | | | | 75,334 | | | | 75,193 | |
| operating | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 5,464 | | | | 5,372 | | | | 17,585 | | | | 16,612 | |
| Income | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| (Expense) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (729 | ) | | | (851 | ) | | | (2,248 | ) | | | (2,573 | ) |
| expense | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 217 | | | | 181 | | | | 629 | | | | 549 | |
| in net | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 125 | | | | 29 | | | | 825 | | | | 44 | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | (387 | ) | | | (641 | ) | | | (794 | ) | | | (1,980 | ) |
| other | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 5,077 | | | | 4,731 | | | | 16,791 | | | | 14,632 | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Before | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| Taxes | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | (6,560 | ) | | | 1,463 | | | | (1,512 | ) | | | 4,886 | |
| tax | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
| expense | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 11,637 | | | | 3,268 | | | | 18,303 | | | | 9,746 | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 780 | | | | 7 | | | | 777 | | | | 6 | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations, | | | | | | | | | | | | | | | | |
| net of tax | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 12,417 | | | | 3,275 | | | | 19,080 | | | | 9,752 | |
| Income | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Less: | | | (78 | ) | | | (83 | ) | | | (243 | ) | | | (236 | ) |
| Net | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| Noncontrolling | | | | | | | | | | | | | | | | |
| Interest | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 12,339 | | | $ | 3,192 | | | $ | 18,837 | | | $ | 9,516 | |
| Income | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 1.96 | | | $ | 0.54 | | | $ | 3.06 | | | $ | 1.61 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | | 0.13 | | | | - | | | | 0.13 | | | | - | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 2.09 | | | $ | 0.54 | | | $ | 3.19 | | | $ | 1.61 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 1.95 | | | $ | 0.54 | | | $ | 3.04 | | | $ | 1.61 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | | 0.13 | | | | - | | | | 0.13 | | | | - | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 2.08 | | | $ | 0.54 | | | $ | 3.17 | | | $ | 1.61 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted | | | 5,909 | | | | 5,901 | | | | 5,908 | | | | 5,899 | |
| Average | | | | | | | | | | | | | | | | |
| Number | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Shares | | | | | | | | | | | | | | | | |
| Outstanding | | | | | | | | | | | | | | | | |
| - Basic (in | | | | | | | | | | | | | | | | |
| millions) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted | | | 5,938 | | | | 5,922 | | | | 5,937 | | | | 5,922 | |
| Average | | | | | | | | | | | | | | | | |
| Number | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Shares | | | | | | | | | | | | | | | | |
| Outstanding | | | | | | | | | | | | | | | | |
| - with | | | | | | | | | | | | | | | | |
| Dilution | | | | | | | | | | | | | | | | |
| (in | | | | | | | | | | | | | | | | |
| millions) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dividends | | $ | 0.42 | | | $ | 0.41 | | | $ | 1.26 | | | $ | 1.23 | |
| Declared | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
See Notes to Consolidated Financial Statements.
2
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| AT&T INC. | |
+-----------------------------------------------------------------------------------------+--------+
| CONSOLIDATED BALANCE SHEETS | |
+-----------------------------------------------------------------------------------------+--------+
| Dollars | | | | | | |
| in | | | | | | |
| millions | | | | | | |
| except | | | | | | |
| per | | | | | | |
| share | | | | | | |
| amounts | | | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| | | September 30, | | | December 31, | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| | | 2010 | | | 2009 | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Assets | | (Unaudited) | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Current | | | | | | |
| Assets | | | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Cash | | $ | 3,246 | | | $ | 3,741 | |
| and | | | | | | | | |
| cash | | | | | | | | |
| equivalents | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accounts | | | 13,606 | | | | 14,845 | |
| receivable | | | | | | | | |
| - net of | | | | | | | | |
| allowances | | | | | | | | |
| for | | | | | | | | |
| doubtful | | | | | | | | |
| accounts | | | | | | | | |
| of $978 | | | | | | | | |
| and $1,202 | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Prepaid | | | 1,686 | | | | 1,562 | |
| expenses | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | 1,059 | | | | 1,247 | |
| income | | | | | | | | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 2,380 | | | | 3,792 | |
| current | | | | | | | | |
| assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 21,977 | | | | 25,187 | |
| current | | | | | | | | |
| assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Property, | | | 240,466 | | | | 230,295 | |
| plant and | | | | | | | | |
| equipment | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Less: | | | (138,991 | ) | | | (130,242 | ) |
| accumulated | | | | | | | | |
| depreciation | | | | | | | | |
| and | | | | | | | | |
| amortization | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Property, | | | 101,475 | | | | 100,053 | |
| Plant and | | | | | | | | |
| Equipment | | | | | | | | |
| - Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Goodwill | | | 73,447 | | | | 72,782 | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Licenses | | | 50,113 | | | | 48,741 | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Customer | | | 5,369 | | | | 7,393 | |
| Lists | | | | | | | | |
| and | | | | | | | | |
| Relationships | | | | | | | | |
| - Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 5,525 | | | | 5,494 | |
| Intangible | | | | | | | | |
| Assets - | | | | | | | | |
| Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Investments | | | 4,544 | | | | 2,921 | |
| in Equity | | | | | | | | |
| Affiliates | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 6,802 | | | | 6,275 | |
| Assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | $ | 269,252 | | | $ | 268,846 | |
| Assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Liabilities | | | | | | | | |
| and | | | | | | | | |
| Stockholders' | | | | | | | | |
| Equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Current | | | | | | | | |
| Liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Debt | | $ | 6,426 | | | $ | 7,361 | |
| maturing | | | | | | | | |
| within | | | | | | | | |
| one year | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accounts | | | 18,417 | | | | 21,260 | |
| payable | | | | | | | | |
| and | | | | | | | | |
| accrued | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Advanced | | | 3,933 | | | | 4,170 | |
| billing | | | | | | | | |
| and | | | | | | | | |
| customer | | | | | | | | |
| deposits | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accrued | | | 1,416 | | | | 1,681 | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Dividends | | | 2,482 | | | | 2,479 | |
| payable | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 32,674 | | | | 36,951 | |
| current | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Long-Term | | | 62,540 | | | | 64,720 | |
| Debt | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | | | | | | |
| Credits | | | | | | | | |
| and | | | | | | | | |
| Other | | | | | | | | |
| Noncurrent | | | | | | | | |
| Liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | 20,651 | | | | 23,781 | |
| income | | | | | | | | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Postemployment | | | 27,071 | | | | 27,847 | |
| benefit | | | | | | | | |
| obligation | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 13,023 | | | | 13,226 | |
| noncurrent | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 60,745 | | | | 64,854 | |
| deferred | | | | | | | | |
| credits | | | | | | | | |
| and | | | | | | | | |
| other | | | | | | | | |
| noncurrent | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Stockholders' | | | | | | | | |
| Equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Common | | | 6,495 | | | | 6,495 | |
| stock | | | | | | | | |
| ($1 | | | | | | | | |
| par | | | | | | | | |
| value, | | | | | | | | |
| 14,000,000,000 | | | | | | | | |
| authorized at | | | | | | | | |
| September 30, | | | | | | | | |
| 2010 and | | | | | | | | |
| December 31, | | | | | | | | |
| 2009: issued | | | | | | | | |
| 6,495,231,088 | | | | | | | | |
| at September | | | | | | | | |
| 30, 2010 and | | | | | | | | |
| December 31, | | | | | | | | |
| 2009) | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Additional | | | 91,748 | | | | 91,707 | |
| paid-in | | | | | | | | |
| capital | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Retained | | | 50,751 | | | | 39,366 | |
| earnings | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Treasury | | | (21,112 | ) | | | (21,260 | ) |
| stock | | | | | | | | |
| (585,370,749 | | | | | | | | |
| at September | | | | | | | | |
| 30, 2010 and | | | | | | | | |
| 593,300,187 | | | | | | | | |
| at December | | | | | | | | |
| 31, 2009, at | | | | | | | | |
| cost) | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accumulated | | | (14,888 | ) | | | (14,412 | ) |
| other | | | | | | | | |
| comprehensive | | | | | | | | |
| loss | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Noncontrolling | | | 299 | | | | 425 | |
| interest | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 113,293 | | | | 102,321 | |
| stockholders' | | | | | | | | |
| equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | $ | 269,252 | | | $ | 268,846 | |
| Liabilities | | | | | | | | |
| and | | | | | | | | |
| Stockholders' | | | | | | | | |
| Equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
See Notes to Consolidated Financial Statements.
3
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| AT&T INC. | |
+------------------------------------------------------------------------------------------------------+--------+
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
+------------------------------------------------------------------------------------------------------+--------+
| Dollars in millions, increase (decrease) in cash and cash equivalents | |
+------------------------------------------------------------------------------------------------------+--------+
| (Unaudited) | |
+------------------------------------------------------------------------------------------------------+--------+
| | | Nine months ended | |
+-------------------------------------+--------+-------------------------------------------------------+--------+
| | | September 30, | |
+-------------------------------------+--------+-------------------------------------------------------+--------+
| | | 2010 | | | 2009 | |
+-------------------------------------+--------+------------------+--------+--------+------------------+--------+
| Operating | | | | | | |
| Activities | | | | | | |
+-------------------------------------+--------+------------------+--------+--------+------------------+--------+
| Net | | $ | 19,080 | | | $ | 9,752 | |
| income | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Adjustments | | | | | | | | |
| to | | | | | | | | |
| reconcile | | | | | | | | |
| net income | | | | | | | | |
| to | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| net | | | | | | | | |
| cash | | | | | | | | |
| provided | | | | | | | | |
| by | | | | | | | | |
| operating | | | | | | | | |
| activities: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Depreciation | | | 14,529 | | | | 14,614 | |
| and | | | | | | | | |
| amortization | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Undistributed | | | (531 | ) | | | (430 | ) |
| earnings from | | | | | | | | |
| investments | | | | | | | | |
| in equity | | | | | | | | |
| affiliates | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Bad | | | 973 | | | | 1,383 | |
| debt | | | | | | | | |
| expense | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Deferred | | | (4,146 | ) | | | 2,476 | |
| income | | | | | | | | |
| tax | | | | | | | | |
| expense | | | | | | | | |
| and | | | | | | | | |
| noncurrent | | | | | | | | |
| unrecognized | | | | | | | | |
| tax benefits | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (746 | ) | | | 98 | |
| (gain) | | | | | | | | |
| loss | | | | | | | | |
| from | | | | | | | | |
| impairment | | | | | | | | |
| and sale | | | | | | | | |
| of | | | | | | | | |
| investments | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Income | | | (777 | ) | | | (6 | ) |
| from | | | | | | | | |
| discontinued | | | | | | | | |
| operations | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Changes | | | | | | | | |
| in | | | | | | | | |
| operating | | | | | | | | |
| assets | | | | | | | | |
| and | | | | | | | | |
| liabilities: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Accounts | | | 266 | | | | (270 | ) |
| receivable | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Other | | | 495 | | | | (269 | ) |
| current | | | | | | | | |
| assets | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Accounts | | | (2,861 | ) | | | (1,551 | ) |
| payable | | | | | | | | |
| and | | | | | | | | |
| accrued | | | | | | | | |
| liabilities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (243 | ) | | | (236 | ) |
| income | | | | | | | | |
| attributable | | | | | | | | |
| to | | | | | | | | |
| noncontrolling | | | | | | | | |
| interest | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Other | | | (689 | ) | | | (117 | ) |
| - net | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Total | | | 6,270 | | | | 15,692 | |
| adjustments | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | 25,350 | | | | 25,444 | |
| Cash | | | | | | | | |
| Provided | | | | | | | | |
| by | | | | | | | | |
| Operating | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Investing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Construction | | | | | | | | |
| and capital | | | | | | | | |
| expenditures | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Capital | | | (13,170 | ) | | | (11,034 | ) |
| expenditures | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Interest | | | (577 | ) | | | (553 | ) |
| during | | | | | | | | |
| construction | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Acquisitions, | | | (2,615 | ) | | | (184 | ) |
| net of cash | | | | | | | | |
| acquired | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Dispositions | | | 1,821 | | | | 205 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| (Purchases) | | | (437 | ) | | | 11 | |
| and sales | | | | | | | | |
| of | | | | | | | | |
| securities, | | | | | | | | |
| net | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Other | | | 22 | | | | 19 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (14,956 | ) | | | (11,536 | ) |
| Cash | | | | | | | | |
| Used | | | | | | | | |
| in | | | | | | | | |
| Investing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Financing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (33 | ) | | | (3,918 | ) |
| change | | | | | | | | |
| in | | | | | | | | |
| short-term | | | | | | | | |
| borrowings | | | | | | | | |
| with | | | | | | | | |
| original | | | | | | | | |
| maturities | | | | | | | | |
| of three | | | | | | | | |
| months or | | | | | | | | |
| less | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Issuance | | | 2,235 | | | | 8,161 | |
| of | | | | | | | | |
| long-term | | | | | | | | |
| debt | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Repayment | | | (5,280 | ) | | | (6,169 | ) |
| of | | | | | | | | |
| long-term | | | | | | | | |
| debt | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Issuance | | | 24 | | | | 8 | |
| of | | | | | | | | |
| treasury | | | | | | | | |
| stock | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Dividends | | | (7,436 | ) | | | (7,252 | ) |
| paid | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Other | | | (399 | ) | | | (367 | ) |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (10,889 | ) | | | (9,537 | ) |
| Cash | | | | | | | | |
| Used | | | | | | | | |
| in | | | | | | | | |
| Financing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Net | | | (495 | ) | | | 4,371 | |
| increase | | | | | | | | |
| (decrease) | | | | | | | | |
| in cash | | | | | | | | |
| and cash | | | | | | | | |
| equivalents | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Cash | | | 3,741 | | | | 1,727 | |
| and | | | | | | | | |
| cash | | | | | | | | |
| equivalents | | | | | | | | |
| beginning | | | | | | | | |
| of year | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Cash | | $ | 3,246 | | | $ | 6,098 | |
| and | | | | | | | | |
| Cash | | | | | | | | |
| Equivalents | | | | | | | | |
| End of | | | | | | | | |
| Period | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Cash | | | | | | | | |
| paid | | | | | | | | |
| during | | | | | | | | |
| the | | | | | | | | |
| nine | | | | | | | | |
| months | | | | | | | | |
| ended | | | | | | | | |
| September | | | | | | | | |
| 30 for: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Interest | | $ | 3,322 | | | $ | 3,307 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Income | | $ | 3,013 | | | $ | 2,535 | |
| taxes, | | | | | | | | |
| net of | | | | | | | | |
| refunds | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+---------+--------+
See Notes to Consolidated Financial Statements.
4
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| AT&T INC. | |
+-----------------------------------------------------------------------------+--------+
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | |
+-----------------------------------------------------------------------------+--------+
| Dollars and shares in millions except per share amounts | |
| (Unaudited) | |
+-----------------------------------------------------------------------------+--------+
| | September 30, 2010 |
+----------------------+---------------------------------------------------------------+
| | Shares | | | Amount | |
+----------------------+-----------------+--------+--------+------------------+--------+
| Common | | | | | |
| Stock | | | | | |
+----------------------+-----------------+--------+--------+------------------+--------+
| Balance | | 6,495 | | | $ | 6,495 | |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | 6,495 | | | $ | 6,495 | |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Additional | | | | | | | |
| Paid-In | | | | | | | |
| Capital | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 91,707 | |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Issuance | | | | | | 184 | |
| of | | | | | | | |
| treasury | | | | | | | |
| shares | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Share-based | | | | | | (161 | ) |
| payments | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Change | | | | | | 18 | |
| related | | | | | | | |
| to | | | | | | | |
| acquisition | | | | | | | |
| of | | | | | | | |
| interests | | | | | | | |
| held by | | | | | | | |
| noncontrolling | | | | | | | |
| owners | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 91,748 | |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Retained | | | | | | | |
| Earnings | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 39,366 | |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Net | | | | | | 18,837 | |
| income | | | | | | | |
| attributable | | | | | | | |
| to AT&T | | | | | | | |
| ($3.17 per | | | | | | | |
| diluted | | | | | | | |
| share) | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Dividends | | | | | | (7,444 | ) |
| to | | | | | | | |
| stockholders | | | | | | | |
| ($1.26 per | | | | | | | |
| share) | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Other | | | | | | (8 | ) |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 50,751 | |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Treasury | | | | | | | |
| Stock | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | (593 | ) | | $ | (21,260 | ) |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Issuance | | 8 | | | | 148 | |
| of | | | | | | | |
| shares | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | (585 | ) | | $ | (21,112 | ) |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Accumulated | | | | | | | |
| Other | | | | | | | |
| Comprehensive | | | | | | | |
| Income (Loss) | | | | | | | |
| Attributable | | | | | | | |
| to AT&T, net | | | | | | | |
| of tax: | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | (14,412 | ) |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Other | | | | | | (476 | ) |
| comprehensive | | | | | | | |
| income | | | | | | | |
| attributable | | | | | | | |
| to AT&T (see | | | | | | | |
| Note 2) | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | (14,888 | ) |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Noncontrolling | | | | | | | |
| Interest: | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 425 | |
| at | | | | | | | |
| beginning | | | | | | | |
| of year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Net | | | | | | 243 | |
| income | | | | | | | |
| attributable | | | | | | | |
| to | | | | | | | |
| noncontrolling | | | | | | | |
| interest | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Distributions | | | | | | (217 | ) |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Acquisition | | | | | | (156 | ) |
| of | | | | | | | |
| interests | | | | | | | |
| held by | | | | | | | |
| noncontrolling | | | | | | | |
| owners | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Translation | | | | | | 4 | |
| adjustments | | | | | | | |
| applicable | | | | | | | |
| to | | | | | | | |
| noncontrolling | | | | | | | |
| interest, net | | | | | | | |
| of taxes | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Balance | | | | | $ | 299 | |
| at end | | | | | | | |
| of | | | | | | | |
| period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Total | | | | | $ | 102,321 | |
| Stockholders' | | | | | | | |
| Equity at | | | | | | | |
| beginning of | | | | | | | |
| year | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| Total | | | | | $ | 113,293 | |
| Stockholders' | | | | | | | |
| Equity at end | | | | | | | |
| of period | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
| See | | | | | | | |
| Notes | | | | | | | |
| to | | | | | | | |
| Consolidated | | | | | | | |
| Financial | | | | | | | |
| Statements. | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+---------+--------+
5
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation Throughout this document, AT&T Inc. is referred to as
"AT&T," "we" or the "Company." The consolidated financial statements have been
prepared pursuant to Regulation S-X and other applicable rules of the Securities
and Exchange Commission that permit reduced disclosures for interim reporting.
We believe that these consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
results for the presented interim periods. The results for the interim periods
are not necessarily indicative of those for the full year. You should read this
document in conjunction with the consolidated financial statements and
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2009.
In preparing the accompanying unaudited consolidated financial statements, we
have reviewed all known events that have occurred after September 30, 2010, and
through the date that our Form 10-Q was available for issuance for possible
inclusion in this Form 10-Q.
The consolidated financial statements include the accounts of the Company and
our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates
operate in the communications services industry both domestically and
internationally, providing wireless and wireline communications services and
equipment, managed networking, wholesale services and advertising solutions.
All significant intercompany transactions are eliminated in the consolidation
process. Investments in partnerships and less than majority-owned subsidiaries
where we have significant influence are accounted for under the equity method.
Earnings from certain foreign equity investments accounted for using the equity
method are included for periods ended within up to one month of our period end.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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. We have reclassified certain amounts
in prior-period financial statements to conform to the current period's
presentation-see Note 4 for a discussion of our change in approach to
intersegment activity, effective January 1, 2010, and see Note 7 for a
discussion of changes in reporting related to discontinued operations.
Recent Accounting Standards
Fair Value Measurements and Disclosures In January 2010, the Financial
Accounting Standards Board issued "Fair Value Measurements and
Disclosures-Improving Disclosures about Fair Value Measurements" (Accounting
Standards Update (ASU) 2010-06), which requires new disclosures and explanations
for transfers of financial assets and liabilities between certain levels in the
fair value hierarchy. ASU 2010-06 also clarifies that fair value measurement
disclosures are required for each class of financial asset and liability, which
may be a subset of a caption in the consolidated balance sheets, and those
disclosures should include a discussion of inputs and valuation techniques. For
financial assets and liabilities subject to lowest-level measurements, ASU
2010-06 further requires that we separately present purchases, sales, issuances
and settlements instead of netting these changes. With respect to matters other
than lowest-level measurements, we adopted ASU 2010-06 beginning with the
quarter ended March 31, 2010, with the remaining disclosure requirements
becoming effective for fiscal years and interim periods beginning on or after
December 15, 2010 (i.e., the quarter ending March 31, 2011, for us). See Note 6
for fair value measurements and disclosures for our investment securities and
derivatives.
6
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Dollars in millions except per share amounts
Valuation and Other Adjustments Included in the current liabilities reported on
our consolidated balance sheets are acquisition-related accruals established
prior to 2009. The liabilities include accruals for severance, lease
terminations and equipment removal costs associated with our acquisitions of
AT&T Corp., BellSouth Corporation (BellSouth) and Dobson Communications
Corporation (Dobson). Following is a summary of the accruals recorded at
December 31, 2009, cash payments made during 2010, and the adjustments thereto:
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | 12/31/09 | | | Cash | | | Adjustments | | | 9/30/10 | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Balance | | | Payments | | | and Accruals | | | Balance | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Severance | | | | | | | | | | | | |
| accruals | | | | | | | | | | | | |
| paid | | | | | | | | | | | | |
| from: | | | | | | | | | | | | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Company | | $ | 6 | | | $ | (3 | ) | | $ | (2 | ) | | $ | 1 | |
| funds | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Pension | | | 98 | | | | (3 | ) | | | - | | | | 95 | |
| and | | | | | | | | | | | | | | | | |
| postemployment | | | | | | | | | | | | | | | | |
| benefit plans | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Lease | | | 212 | | | | (28 | ) | | | (66 | ) | | | 118 | |
| terminations1 | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equipment | | | 23 | | | | (1 | ) | | | (21 | ) | | | 1 | |
| removal | | | | | | | | | | | | | | | | |
| and other | | | | | | | | | | | | | | | | |
| related | | | | | | | | | | | | | | | | |
| costs1 | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 339 | | | $ | (35 | ) | | $ | (89 | ) | | $ | 215 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
1The "Adjustments and Accruals" related to the BellSouth and Dobson acquisitions
and resulted in goodwill reductions.
Employee Separations We establish obligations for expected termination benefits
provided under existing plans to former or inactive employees after employment
but before retirement. These benefits include severance payments, workers'
compensation, disability, medical continuation coverage and other benefits. We
had severance accruals of $195 at September 30, 2010 and $669 at December 31,
2009. The decrease in balance was due to payments during the period.
Income Taxes
Healthcare Legislation In March 2010, the President of the United States signed
into law comprehensive health care reform legislation under the Patient
Protection and Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010, which included a change in the tax treatment related
to Medicare Part D subsidies. We recorded a $995, or $0.17 per diluted share,
charge to income tax expense in our consolidated statement of income during the
first quarter of 2010 and increased our deferred income taxes liability balance
to reflect the impact of this change.
Internal Revenue Service Settlement In September 2010, we reached a settlement
with the Internal Revenue Service (IRS) on tax basis calculations related to a
2008 restructuring of our wireless operations. The IRS settlement resolves the
uncertainty regarding the amount and timing of amortization deductions related
to certain of our wireless assets. The allowed amortization deductions on these
settlement-related assets and the related cash flow impacts are expected to be
recognized over a 15-year period, which began in 2008. Pursuant to the
settlement, we will pay approximately $300 to the IRS during the fourth quarter
of 2010 as a result of the disallowance of a portion of the amortization
deductions taken on our 2008 and 2009 income tax returns. We recorded an $8,300,
or $1.40 per diluted share, reduction to income tax expense in our consolidated
statement of income during the third quarter of 2010 and corresponding decreases
of $6,760 to our net noncurrent deferred income tax liabilities and $1,540 to
other net tax liabilities to reflect the tax benefits of the settlement. The IRS
settlement resulted in a reduction to our unrecognized tax benefits for tax
positions related to the current year of $348 and for tax positions related to
prior years of $1,057, for a total of $1,405, which also reduces the total
amount of unrecognized tax benefits that, if recognized, would impact the
effective tax rate. Our effective tax rates were (129.2)% for the third quarter
and (9.0)% for the first nine months of 2010, compared to 30.9% and 33.4% for
the same periods in 2009. The decrease in our 2010 effective tax rates was
primarily driven by the impacts of the IRS settlement, partially offset by the
effects of the healthcare legislation.
7
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Dollars in millions except per share amounts
NOTE 2. COMPREHENSIVE INCOME
The components of our comprehensive income for the three and nine months ended
September 30, 2010 and 2009 include net income, foreign currency translation
adjustments and net unrealized gains (losses) on available-for-sale securities,
net unrealized gains (losses) on cash flow hedges and defined benefit
postretirement plans.
Following is our comprehensive income with the respective tax impacts for the
three months and nine months periods ended September 30, 2010 and 2009:
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Nine months ended | |
+------------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | September 30, | | | September 30, | |
+------------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Net | | $ | 12,417 | | | $ | 3,275 | | | $ | 19,080 | | | $ | 9,752 | |
| income | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | | | | | | | | | | | | | | |
| comprehensive | | | | | | | | | | | | | | | | |
| income, net | | | | | | | | | | | | | | | | |
| of tax: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | 100 | | | | 2 | | | | 215 | | | | 86 | |
| currency | | | | | | | | | | | | | | | | |
| translation | | | | | | | | | | | | | | | | |
| adjustments | | | | | | | | | | | | | | | | |
| (includes | | | | | | | | | | | | | | | | |
| $6, $6, $4 | | | | | | | | | | | | | | | | |
| and $(2) | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| noncontrolling | | | | | | | | | | | | | | | | |
| interest), net | | | | | | | | | | | | | | | | |
| of taxes of | | | | | | | | | | | | | | | | |
| $54, $1, $116 | | | | | | | | | | | | | | | | |
| and $45 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | | | | | | | | | | | | | | |
| unrealized | | | | | | | | | | | | | | | | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| securities: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Unrealized | | | 58 | | | | 229 | | | | 33 | | | | 258 | |
| gains | | | | | | | | | | | | | | | | |
| (losses), | | | | | | | | | | | | | | | | |
| net of | | | | | | | | | | | | | | | | |
| taxes of | | | | | | | | | | | | | | | | |
| $31, $115, | | | | | | | | | | | | | | | | |
| $17 and | | | | | | | | | | | | | | | | |
| $130 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Reclassification | | | (1 | ) | | | (34 | ) | | | (56 | ) | | | 43 | |
| adjustment | | | | | | | | | | | | | | | | |
| realized in net | | | | | | | | | | | | | | | | |
| income, net of | | | | | | | | | | | | | | | | |
| taxes of $(1), | | | | | | | | | | | | | | | | |
| $(17), $(30) and | | | | | | | | | | | | | | | | |
| $24 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | | | | | | | | | | | | | | |
| unrealized | | | | | | | | | | | | | | | | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| on cash | | | | | | | | | | | | | | | | |
| flow | | | | | | | | | | | | | | | | |
| hedges: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Unrealized | | | (205 | ) | | | (112 | ) | | | (706 | ) | | | 306 | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| net of | | | | | | | | | | | | | | | | |
| taxes of | | | | | | | | | | | | | | | | |
| $(108), | | | | | | | | | | | | | | | | |
| $(56), | | | | | | | | | | | | | | | | |
| $(380) and | | | | | | | | | | | | | | | | |
| $168 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Reclassification | | | 4 | | | | 4 | | | | 9 | | | | 11 | |
| adjustment for | | | | | | | | | | | | | | | | |
| losses included | | | | | | | | | | | | | | | | |
| in net income, | | | | | | | | | | | | | | | | |
| net of taxes of | | | | | | | | | | | | | | | | |
| $5, $2, $11 and | | | | | | | | | | | | | | | | |
| $6 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Defined | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
| plans: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | 14 | | | | 64 | | | | 33 | | | | 190 | |
| of net | | | | | | | | | | | | | | | | |
| actuarial | | | | | | | | | | | | | | | | |
| gain and | | | | | | | | | | | | | | | | |
| prior | | | | | | | | | | | | | | | | |
| service cost | | | | | | | | | | | | | | | | |
| included in | | | | | | | | | | | | | | | | |
| net income, | | | | | | | | | | | | | | | | |
| net of taxes | | | | | | | | | | | | | | | | |
| of $9, $32, | | | | | | | | | | | | | | | | |
| $20 and $99 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | (30 | ) | | | 153 | | | | (472 | ) | | | 894 | |
| comprehensive | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 12,387 | | | | 3,428 | | | | 18,608 | | | | 10,646 | |
| comprehensive | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Less: | | | (84 | ) | | | (89 | ) | | | (247 | ) | | | (234 | ) |
| Total | | | | | | | | | | | | | | | | |
| comprehensive | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| noncontrolling | | | | | | | | | | | | | | | | |
| interest | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 12,303 | | | $ | 3,339 | | | $ | 18,361 | | | $ | 10,412 | |
| Comprehensive | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
8
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Dollars in millions except per share amounts
NOTE 3. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic earnings per share
and diluted earnings per share for net income attributable to AT&T for the three
and nine months ended September 30, 2010 and 2009, are shown in the table below:
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Nine months ended | |
+------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | September 30, | | | September 30, | |
+------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Numerators | | | | | | | | | | | | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Numerator | | | | | | | | | | | | |
| for basic | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | |
| per | | | | | | | | | | | | |
| share: | | | | | | | | | | | | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Income | | $ | 11,637 | | | $ | 3,268 | | | $ | 18,303 | | | $ | 9,746 | |
| from | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | (78 | ) | | | (83 | ) | | | (243 | ) | | | (236 | ) |
| income | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| noncontrolling | | | | | | | | | | | | | | | | |
| interest | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 11,559 | | | | 3,185 | | | | 18,060 | | | | 9,510 | |
| from | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dilutive | | | | | | | | | | | | | | | | |
| potential | | | | | | | | | | | | | | | | |
| common | | | | | | | | | | | | | | | | |
| shares: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 3 | | | | 2 | | | | 8 | | | | 7 | |
| share-based | | | | | | | | | | | | | | | | |
| payment | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Numerator | | $ | 11,562 | | | $ | 3,187 | | | $ | 18,068 | | | $ | 9,517 | |
| for | | | | | | | | | | | | | | | | |
| diluted | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominators | | | | | | | | | | | | | | | | |
| (000,000) | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominator | | | | | | | | | | | | | | | | |
| for basic | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted-average | | | 5,909 | | | | 5,901 | | | | 5,908 | | | | 5,899 | |
| number of common | | | | | | | | | | | | | | | | |
| shares | | | | | | | | | | | | | | | | |
| outstanding | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dilutive | | | | | | | | | | | | | | | | |
| potential | | | | | | | | | | | | | | | | |
| common | | | | | | | | | | | | | | | | |
| shares: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Stock | | | 3 | | | | 3 | | | | 3 | | | | 3 | |
| options | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 26 | | | | 18 | | | | 26 | | | | 20 | |
| share-based | | | | | | | | | | | | | | | | |
| payment | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominator | | | 5,938 | | | | 5,922 | | | | 5,937 | | | | 5,922 | |
| for diluted | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 1.96 | | | $ | 0.54 | | | $ | 3.06 | | | $ | 1.61 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | | 0.13 | | | | - | | | | 0.13 | | | | - | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 2.09 | | | $ | 0.54 | | | $ | 3.19 | | | $ | 1.61 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 1.95 | | | $ | 0.54 | | | $ | 3.04 | | | $ | 1.61 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | | 0.13 | | | | - | | | | 0.13 | | | | - | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 2.08 | | | $ | 0.54 | | | $ | 3.17 | | | $ | 1.61 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
At September 30, 2010, we had issued and outstanding options to purchase
approximately 136 million shares of AT&T common stock. The exercise prices of
109 million shares were above the market price of AT&T stock at September 30,
2010. Accordingly, we did not include these amounts in determining the dilutive
potential common shares for the period. At September 30, 2010, the exercise
prices of 22 million vested stock options were below market price.
At September 30, 2009, we had issued and outstanding options to purchase
approximately 180 million shares of AT&T common stock. The exercise prices of
158 million shares were above the market price of AT&T stock at September 30,
2009. Accordingly, we did not include these amounts in determining the dilutive
potential common shares for the period. At September 30, 2009, the exercise
prices of 19 million vested stock options were below market price.
9
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
Dollars in millions except per share amounts
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer different products and
services over various technology platforms and are managed accordingly. We
analyze our various operating segments based on segment income before income
taxes. Interest expense and other income (expense) - net are managed only on a
total company basis and are, accordingly, reflected only in consolidated
results. Therefore, these items are not included in the calculation of each
segment's percentage of our consolidated results. The customers and long-lived
assets of our reportable segments are predominantly in the United States. We
have four reportable segments: (1) Wireless, (2) Wireline, (3) Advertising
Solutions and (4) Other.
The Wireless segment uses our nationwide network to provide consumer and
business customers with wireless voice and advanced data communications
services.
The Wireline segment uses our regional, national and global network to provide
consumer and business customers with landline voice and data communications
services, AT&T U-verseSM TV, high-speed broadband and voice services (U-verse)
and managed networking to business customers. Additionally, we receive
commissions on sales of satellite television services offered through our agency
arrangements.
The Advertising Solutions segment includes our directory operations, which
publish Yellow and White Pages directories and sell directory advertising and
Internet-based advertising and local search.
The Other segment includes results from customer information services and all
corporate and other operations. This segment also includes our portion of the
results from our international equity investments. Also included in the Other
segment are impacts of corporate-wide decisions for which the individual
operating segments are not being evaluated.
Historically, intersegment activity had been reported as revenue in the billing
segment and offsetting operating expense in the purchasing segment. Upon
consolidation, the intersegment revenue and expense were eliminated with the
consolidated results reflecting the cash operating and depreciation expense of
providing the intersegment service. As part of AT&T's ongoing initiatives to
manage its business from an external customer perspective, we no longer report
intersegment revenue and instead report the cash operating and depreciation
expense related to intersegment activity in the purchasing segment, which
provided services to the external customer. While this change did not impact
AT&T's total consolidated results, the impact to each operating segment varied.
In particular, the Wireless segment, as a purchaser of network, IT and other
services from the Wireline segment, experienced a reduction in cash operating
expense partially offset by increased depreciation expense with the net result
being increased operating margins. This change was effective with the reporting
of operating results for the quarter ended March 31, 2010. We have restated
prior-period segment information to conform to the current period's
presentation.
In May 2010, we announced the sale of Sterling Commerce Inc. (Sterling) which we
closed in August 2010. The Other segment results for all periods shown have been
restated to exclude the results of Sterling, which are now reflected in
discontinued operations (see Note 7).
In the following tables, we show how our segment results are reconciled to our
consolidated results reported. The Wireless, Wireline, Advertising Solutions and
Other columns represent the segment results of each such operating segment. The
consolidation column adds in those line items that we manage on a consolidated
basis only: interest expense and other income (expense) - net.
10
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the three months ended | | | | | | | | | | | | | | | | |
| September 30, 2010 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 15,180 | | | $ | 15,275 | | | $ | 961 | | | $ | 165 | | | $ | - | | | $ | 31,581 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 10,040 | | | | 10,318 | | | | 640 | | | | 228 | | | | - | | | | 21,226 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,640 | | | | 3,118 | | | | 123 | | | | 10 | | | | - | | | | 4,891 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 11,680 | | | | 13,436 | | | | 763 | | | | 238 | | | | - | | | | 26,117 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 3,500 | | | | 1,839 | | | | 198 | | | | (73 | ) | | | - | | | | 5,464 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 729 | | | | 729 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | (6 | ) | | | 2 | | | | - | | | | 221 | | | | - | | | | 217 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 125 | | | | 125 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 3,494 | | | $ | 1,841 | | | $ | 198 | | | $ | 148 | | | $ | (604 | ) | | $ | 5,077 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the nine months ended | | | | | | | | | | | | | | | | |
| September 30, 2010 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 43,319 | | | $ | 46,092 | | | $ | 3,009 | | | $ | 499 | | | $ | - | | | $ | 92,919 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 26,785 | | | | 31,324 | | | | 1,988 | | | | 708 | | | | - | | | | 60,805 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,776 | | | | 9,337 | | | | 393 | | | | 23 | | | | - | | | | 14,529 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 31,561 | | | | 40,661 | | | | 2,381 | | | | 731 | | | | - | | | | 75,334 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 11,758 | | | | 5,431 | | | | 628 | | | | (232 | ) | | | - | | | | 17,585 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 2,248 | | | | 2,248 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 14 | | | | 7 | | | | - | | | | 608 | | | | - | | | | 629 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 825 | | | | 825 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 11,772 | | | $ | 5,438 | | | $ | 628 | | | $ | 376 | | | $ | (1,423 | ) | | $ | 16,791 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the three months ended | | | | | | | | | | | | | | | | |
| September 30, 2009 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 13,627 | | | $ | 15,749 | | | $ | 1,162 | | | $ | 196 | | | $ | - | | | $ | 30,734 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 8,645 | | | | 10,762 | | | | 686 | | | | 388 | | | | - | | | | 20,481 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,490 | | | | 3,226 | | | | 159 | | | | 6 | | | | - | | | | 4,881 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 10,135 | | | | 13,988 | | | | 845 | | | | 394 | | | | - | | | | 25,362 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 3,492 | | | | 1,761 | | | | 317 | | | | (198 | ) | | | - | | | | 5,372 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 851 | | | | 851 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | - | | | | 9 | | | | - | | | | 172 | | | | - | | | | 181 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 29 | | | | 29 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 3,492 | | | $ | 1,770 | | | $ | 317 | | | $ | (26 | ) | | $ | (822 | ) | | $ | 4,731 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the nine months ended | | | | | | | | | | | | | | | | |
| September 30, 2009 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 39,687 | | | $ | 47,900 | | | $ | 3,622 | | | $ | 596 | | | $ | - | | | $ | 91,805 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 24,959 | | | | 32,618 | | | | 2,113 | | | | 889 | | | | - | | | | 60,579 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,493 | | | | 9,594 | | | | 501 | | | | 26 | | | | - | | | | 14,614 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 29,452 | | | | 42,212 | | | | 2,614 | | | | 915 | | | | - | | | | 75,193 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 10,235 | | | | 5,688 | | | | 1,008 | | | | (319 | ) | | | - | | | | 16,612 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 2,573 | | | | 2,573 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | - | | | | 16 | | | | - | | | | 532 | | | | 1 | | | | 549 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 44 | | | | 44 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 10,235 | | | $ | 5,704 | | | $ | 1,008 | | | $ | 213 | | | $ | (2,528 | ) | | $ | 14,632 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
11
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. PENSION AND POSTRETIREMENT BENEFITS
Substantially all of our employees are covered by one of various noncontributory
pension and death benefit plans. We also provide certain medical, dental and
life insurance benefits to substantially all retired employees under various
plans and accrue actuarially determined postretirement benefit costs as active
employees earn these benefits. Our objective in funding these plans, in
combination with the standards of the Employee Retirement Income Security Act of
1974, as amended (ERISA), is to accumulate assets sufficient to meet the plans'
obligations to provide benefits to employees upon their retirement. No
significant cash contributions are required under ERISA regulations during 2010.
The following details pension and postretirement benefit costs included in
operating expenses (in cost of sales and selling, general and administrative
expenses) in the accompanying Consolidated Statements of Income. In the
following table, gains are denoted with parentheses. A portion of these expenses
is capitalized as part of the benefit load on internal construction and capital
expenditures, historically averaging approximately 10%.
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Nine months ended | |
+----------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | September 30, | | | September 30, | |
+----------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+----------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Pension | | | | | | | | | | | | |
| cost: | | | | | | | | | | | | |
+----------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Service | | $ | 269 | | | $ | 264 | | | $ | 807 | | | $ | 808 | |
| cost - | | | | | | | | | | | | | | | | |
| benefits | | | | | | | | | | | | | | | | |
| earned | | | | | | | | | | | | | | | | |
| during | | | | | | | | | | | | | | | | |
| the | | | | | | | | | | | | | | | | |
| period | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | 787 | | | | 835 | | | | 2,362 | | | | 2,525 | |
| cost on | | | | | | | | | | | | | | | | |
| projected | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
| obligation | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Expected | | | (1,143 | ) | | | (1,140 | ) | | | (3,429 | ) | | | (3,421 | ) |
| return | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| assets | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | (4 | ) | | | 7 | | | | (12 | ) | | | 62 | |
| of prior | | | | | | | | | | | | | | | | |
| service | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Recognized | | | 171 | | | | 163 | | | | 513 | | | | 495 | |
| actuarial | | | | | | | | | | | | | | | | |
| loss | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 80 | | | $ | 129 | | | $ | 241 | | | $ | 469 | |
| pension | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postretirement | | | | | | | | | | | | | | | | |
| cost: | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Service | | $ | 87 | | | $ | 81 | | | $ | 261 | | | $ | 257 | |
| cost - | | | | | | | | | | | | | | | | |
| benefits | | | | | | | | | | | | | | | | |
| earned | | | | | | | | | | | | | | | | |
| during | | | | | | | | | | | | | | | | |
| the | | | | | | | | | | | | | | | | |
| period | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | 564 | | | | 595 | | | | 1,693 | | | | 1,856 | |
| cost on | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
| obligation | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Expected | | | (284 | ) | | | (238 | ) | | | (853 | ) | | | (716 | ) |
| return | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| assets | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | (156 | ) | | | (134 | ) | | | (469 | ) | | | (313 | ) |
| of prior | | | | | | | | | | | | | | | | |
| service | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Recognized | | | (2 | ) | | | (1 | ) | | | (5 | ) | | | (1 | ) |
| actuarial | | | | | | | | | | | | | | | | |
| gain | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 209 | | | $ | 303 | | | $ | 627 | | | $ | 1,083 | |
| postretirement | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Combined | | $ | 289 | | | $ | 432 | | | $ | 868 | | | $ | 1,552 | |
| net | | | | | | | | | | | | | | | | |
| pension | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Our combined net pension and postretirement cost decreased $143 in the third
quarter and $684 for the first nine months of 2010. The decrease was primarily
related to lower interest costs due to a lower net obligation, as a result of
retiree medical and drug coverage changes, partially offset by a change in the
discount rate from 7% to 6.5%. An increase in amortization of prior service
benefit, driven by the utilization of market interest rates for lump sum pension
distributions, under the Pension Protection Act and changes in future retiree
benefits, also contributed to the decrease in combined net pension and
postretirement cost. When calculating the expected return on plan assets, we use
a method in which gains and losses are amortized only when the net gains or
losses exceed 10% of the greater of the projected benefit obligation or the
market-related value of assets (MRVA). Actual gains and losses on pension and
postretirement plan assets are generally recognized in the MRVA equally over a
period of up to five years. However, we use a methodology under which we hold
the MRVA to within 20% of the actual fair value of plan assets, which can have
the effect of accelerating the recognition of excess actual gains and losses in
the MRVA in less than five years. Due to investment losses on plan assets
experienced in 2008, this methodology contributed $1,577 to our combined net
pension and postretirement costs in 2009. This methodology did not have a
material impact on our combined net pension and postretirement cost in 2010.
We have varying types of pension programs providing benefits for substantially
all of certain non-U.S. operations. In addition to the pension and
postretirement costs above, we recorded net pension cost for non-U.S. plans of
less than $1 in the third quarter and $1 for the first nine months of 2010 and
$(1) in the third quarter and $(4) for the first nine months of 2009.
12
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We also provide senior- and middle-management employees with nonqualified,
unfunded supplemental retirement and savings plans. Net supplemental retirement
pension benefits cost, which is not included in the table above, was $41 in the
third quarter, of which $34 was interest cost and $125 for the first nine months
of 2010, of which $101 was interest cost. In 2009, net supplemental retirement
pension benefits cost was $42 in the third quarter, of which $35 was interest
cost and $125 for the first nine months, of which $105 was interest cost.
NOTE 6. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework provides a three-tiered fair
value hierarchy that gives highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are described below:
+-------------------+---------------------------------+
| Level | Inputs |
| 1 | to the |
| | valuation |
| | methodology |
| | are |
| | unadjusted |
| | quoted |
| | prices for |
| | identical |
| | assets or |
| | liabilities |
| | in active |
| | markets |
| | that AT&T |
| | has the |
| | ability to |
| | access. |
+-------------------+---------------------------------+
| | |
+-------------------+---------------------------------+
| Level | Inputs |
| 2 | to the |
| | valuation |
| | methodology |
| | include: |
| | · Quoted |
| | prices for |
| | similar |
| | assets and |
| | liabilities |
| | in active |
| | markets. |
| | · Quoted |
| | prices for |
| | identical |
| | or similar |
| | assets or |
| | liabilities |
| | in inactive |
| | markets. |
| | · Inputs |
| | other than |
| | quoted |
| | market |
| | prices that |
| | are |
| | observable |
| | for the |
| | asset or |
| | liability. |
| | · Inputs |
| | that are |
| | derived |
| | principally |
| | from or |
| | corroborated |
| | by |
| | observable |
| | market data |
| | by |
| | correlation |
| | or other |
| | means. |
+-------------------+---------------------------------+
| | |
+-------------------+---------------------------------+
| | If |
| | the |
| | asset |
| | or |
| | liability |
| | has a |
| | specified |
| | (contractual) |
| | term, the |
| | Level 2 input |
| | must be |
| | observable |
| | for |
| | substantially |
| | the full term |
| | of the asset |
| | or liability. |
+-------------------+---------------------------------+
| | |
+-------------------+---------------------------------+
| Level | Inputs |
| 3 | to the |
| | valuation |
| | methodology |
| | are |
| | unobservable |
| | and |
| | significant |
| | to the fair |
| | value |
| | measurement. |
| | · Fair value |
| | is often |
| | based on |
| | internally |
| | developed |
| | models in |
| | which there |
| | are few, if |
| | any, |
| | external |
| | observations. |
+-------------------+---------------------------------+
The asset's or liability's fair value measurement level within the fair value
hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. Valuation techniques used should maximize the use of
observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation
that may not be indicative of future net realizable value or reflective of
future fair values. AT&T believes its valuation methods are appropriate and
consistent with other market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date. There have
been no changes in the methodologies used at September 30, 2010 and December 31,
2009.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including
current maturities and other financial instruments, are summarized as follows:
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | September 30, 2010 | | December 31, 2009 | |
+------------+--------------------------------------------------------------+--------+--------------------------------------------------------------+--------+
| | Carrying | | Fair | | Carrying | | Fair | |
+------------+--------------------------+--------+--------------------------+--------+--------------------------+--------+--------------------------+--------+
| | Amount | | Value | | Amount | | Value | |
+------------+--------------------------+--------+--------------------------+--------+--------------------------+--------+--------------------------+--------+
| Notes | | $ | 68,680 | | | $ | 76,366 | | | $ | 71,811 | | | $ | 75,212 | |
| and | | | | | | | | | | | | | | | | |
| debentures | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Bank | | | 32 | | | | 32 | | | | 33 | | | | 33 | |
| borrowings | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Investment | | | 2,233 | | | | 2,233 | | | | 1,885 | | | | 1,885 | |
| securities | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
13
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The fair values of our notes and debentures were estimated based on quoted
market prices, where available. The carrying value of debt with an original
maturity of less than one year approximates market value.
Investment Securities
Our investment securities consist of primarily available-for-sale instruments,
which include equities, fixed income bonds and other securities. Substantially
all the fair values of our available-for-sale securities were estimated based on
quoted market prices. Investments in securities not traded on a national
securities exchange are valued using pricing models, quoted prices of securities
with similar characteristics or discounted cash flows. Realized gains and losses
on securities are included in "Other income (expense) - net" in the consolidated
statements of income using the specific identification method. Unrealized gains
and losses, net of tax, on available-for-sale securities are recorded in
accumulated other comprehensive income (accumulated OCI). Unrealized losses that
are considered other than temporary are recorded in other income (expense) -
net. Fixed income investments have maturities of $85 in 2010, $302 in 2011 and
2012, $83 in 2013 and 2014, and $224 for years thereafter.
Our short-term investments, other short- and long-term held-to-maturity
investments (including money market securities) and customer deposits are
recorded at amortized cost, and the respective carrying amounts approximate fair
values.
Our investment securities maturing within one year are recorded in "Other
current assets," and instruments with maturities of more than one year are
recorded in "Other Assets" on the consolidated balance sheets.
Following is the fair value leveling for available-for-sale securities and
derivatives as of September 30, 2010 and December 31, 2009:
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | September 30, 2010 |
+-------------------------------+--------+--------------------------------------------------------------------------------------------------------------------------------------+
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
+-------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Available-for-Sale | | | | | | | | | | | | |
| Securities | | | | | | | | | | | | |
+-------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Domestic | | $ | 955 | | | $ | - | | | $ | - | | | $ | 955 | |
| equities | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| International | | | 482 | | | | - | | | | - | | | | 482 | |
| equities | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Fixed | | | - | | | | 694 | | | | - | | | | 694 | |
| income | | | | | | | | | | | | | | | | |
| bonds | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Asset | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 681 | | | | - | | | | 681 | |
| rate | | | | | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | 209 | | | | - | | | | 209 | |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | 8 | | | | - | | | | 8 | |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Liability | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | (706 | ) | | | - | | | | (706 | ) |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | (506 | ) | | | - | | | | (506 | ) |
| rate | | | | | | | | | | | | | | | | |
| locks | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | (5 | ) | | | - | | | | (5 | ) |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
14
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | December 31, 2009 |
+-------------------------------+--------+--------------------------------------------------------------------------------------------------------------------------------------+
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
+-------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Available-for-Sale | | | | | | | | | | | | |
| Securities | | | | | | | | | | | | |
+-------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Domestic | | $ | 1,047 | | | $ | - | | | $ | - | | | $ | 1,047 | |
| equities | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| International | | | 412 | | | | - | | | | - | | | | 412 | |
| equities | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Fixed | | | - | | | | 341 | | | | - | | | | 341 | |
| income | | | | | | | | | | | | | | | | |
| bonds | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Asset | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 399 | | | | - | | | | 399 | |
| rate | | | | | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | 635 | | | | - | | | | 635 | |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 150 | | | | - | | | | 150 | |
| rate | | | | | | | | | | | | | | | | |
| locks | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | 2 | | | | - | | | | 2 | |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Liability | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | (390 | ) | | | - | | | | (390 | ) |
| swaps | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | (6 | ) | | | - | | | | (6 | ) |
| rate | | | | | | | | | | | | | | | | |
| locks | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | (7 | ) | | | - | | | | (7 | ) |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+-------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Derivative Financial Instruments
We employ derivatives to manage certain market risks, primarily interest rate
risk and foreign currency exchange risk. This includes the use of interest rate
swaps, interest rate locks, foreign exchange forward contracts and combined
interest rate foreign exchange contracts (cross-currency swaps). We do not use
derivatives for trading or speculative purposes. We record derivatives on our
consolidated balance sheets at fair value that is derived from observable market
data, including yield curves and foreign exchange rates (all of our derivatives
are Level 2). Cash flows associated with derivative instruments are presented in
the same category on the consolidated statements of cash flows as the item being
hedged.
The majority of our derivatives are designated either as a hedge of the fair
value of a recognized asset or liability or of an unrecognized firm commitment
(fair value hedge), or as a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge).
Fair Value Hedging We designate our fixed-to-floating interest rate swaps as
fair value hedges. The purpose of these swaps is to manage interest rate risk by
managing our mix of fixed-rate and floating-rate debt. These swaps involve the
receipt of fixed rate amounts for floating interest rate payments over the life
of the swaps without exchange of the underlying principal amount. Accrued and
realized gains or losses from interest rate swaps impact interest expense on the
consolidated statements of income. Unrealized gains on interest rate swaps are
recorded at fair market value as assets, and unrealized losses on interest rate
swaps are recorded at fair market value as liabilities. Changes in the fair
value of the interest rate swaps offset changes in the fair value of the
fixed-rate notes payable they hedge due to changes in the designated benchmark
interest rate and are recognized in interest expense, though they net to zero.
Gains or losses realized upon early termination of our fair value hedges would
be recognized in interest expense.
Cash Flow Hedging Unrealized gains on derivatives designated as cash flow hedges
are recorded at fair value as assets, and unrealized losses on derivatives
designated as cash flow hedges are recorded at fair value as liabilities, both
for the period they are outstanding. For derivative instruments designated as
cash flow hedges, the effective portion is reported as a component of
accumulated OCI until reclassified into interest expense in the same period the
hedged transaction affects earnings. The gain or loss on the ineffective portion
is recognized in other income - expense in each period.
We designate our cross-currency swaps as cash flow hedges. We have entered into
multiple cross-currency swaps to hedge our exposure to variability in expected
future cash flows that are attributable to foreign currency risk generated from
the issuance of our Euro and British pound sterling denominated debt. These
agreements include initial and final exchanges of principal from fixed foreign
denominations to fixed U.S. denominated amounts, to be exchanged at a specified
rate, which was determined by the market spot rate upon issuance. They also
include an interest rate swap of a fixed foreign-denominated rate to a fixed
U.S. denominated interest rate. We evaluate the effectiveness of our
cross-currency swaps each quarter. In the nine months ended September 30, 2010
and September 30, 2009, no ineffectiveness was measured.
15
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Periodically, we enter into and designate interest rate locks to partially hedge
the risk of changes in interest payments attributable to increases in the
benchmark interest rate during the period leading up to the probable issuance of
fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains
and losses when we settle our interest rate locks are amortized into income over
the life of the related debt, except where a material amount is deemed to be
ineffective, which would be immediately reclassified to income. In the second
quarter, we settled $200 of notional rate locks without utilizing them in a debt
issuance. The total impact to interest expense was $(5). We are confident our
remaining rate locks will be utilized given our probable refinancing needs over
the next two years. No other ineffectiveness was measured in the nine months
ended September 30, 2010. Over the next 12 months, we expect to reclassify $15
from accumulated OCI to interest expense due to the amortization of net losses
on historical interest rate locks. Our unutilized interest rate locks carry
mandatory early terminations, the latest occurring in April 2012.
We hedge a large portion of the exchange risk involved in anticipation of highly
probable foreign currency-denominated transactions. In anticipation of these
transactions, we often enter into foreign exchange contracts to provide currency
at a fixed rate. Some of these instruments are designated as cash flow hedges
while others remain non-designated, largely based on size and duration. Gains
and losses at the time we settle or take delivery on our designated foreign
exchange contracts are amortized into income over the next few months as the
hedged funds are spent by our foreign subsidiaries, except where an amount is
deemed to be ineffective, which would be immediately reclassified to income. In
the nine months ended September 30, 2010, and September 30, 2009, no
ineffectiveness was measured.
Collateral and Credit-Risk Contingency We have entered into agreements with our
derivative counterparties establishing collateral thresholds based on respective
credit ratings and netting agreements. At September 30, 2010, we had posted
collateral of $53 (a deposit asset) and held collateral of $52 (a receipt
liability). Under the agreements, if our credit rating had been simultaneously
downgraded one rating level by Moody's, S&P and Fitch, we would have been
required to post additional collateral of $173. At December 31, 2009, we held
$222 of counterparty collateral. We do not offset the fair value of collateral,
whether the right to reclaim cash collateral (a receivable) or the obligation to
return cash collateral (a payable), against the fair value of the derivative
instruments.
Following is the notional amount of our outstanding derivative positions:
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | September 30, | | | December 31, | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| | | 2010 | | | 2009 | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Interest | | $ | 11,250 | | | $ | 9,000 | |
| rate | | | | | | | | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | 7,502 | | | | 7,502 | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | 3,400 | | | | 3,600 | |
| rate | | | | | | | | |
| locks | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | 233 | | | | 293 | |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 22,385 | | | $ | 20,395 | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
16
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Following are our derivative instruments and their related hedged items
affecting our financial position and performance:
Fair Value of Derivatives in the Consolidated Balance Sheets
Derivatives designated as hedging instruments are reflected as other assets,
other liabilities and, for a portion of interest rate swaps, accounts
receivable.
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | September 30, | | | December 31, | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Asset | | 2010 | | | 2009 | |
| Derivatives | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Interest | | $ | 681 | | | $ | 399 | |
| rate | | | | | | | | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | 209 | | | | 635 | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 150 | |
| rate | | | | | | | | |
| locks | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | 8 | | | | 2 | |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 898 | | | $ | 1,186 | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | September 30, | | | December 31, | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Liability | | 2010 | | | 2009 | |
| Derivatives | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Cross-currency | | $ | (706 | ) | | $ | (390 | ) |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (506 | ) | | | (6 | ) |
| rate | | | | | | | | |
| locks | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | (5 | ) | | | (7 | ) |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | (1,217 | ) | | $ | (403 | ) |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
Effect of Derivatives on the Consolidated Statements of Income
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | Three months ended | | Nine months ended | |
+---------------+--------------------------------------------------------------+--------+--------------------------------------------------------------+--------+
| Fair | September 30, 2010 | | September 30, 2009 | | September 30, 2010 | | September 30, 2009 | |
| Value | | | | | | | | |
| Hedging | | | | | | | | |
| Relationships | | | | | | | | |
+---------------+--------------------------+--------+--------------------------+--------+--------------------------+--------+--------------------------+--------+
| Interest | | | | | | | | | | | | |
| rate | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | |
| (Interest | | | | | | | | | | | | |
| expense): | | | | | | | | | | | | |
+---------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Gain | | $ | 100 | | | $ | 79 | | | $ | 294 | | | $ | (141 | ) |
| (Loss) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| interest | | | | | | | | | | | | | | | | |
| rate | | | | | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | | | | | |
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | (100 | ) | | | (79 | ) | | | (294 | ) | | | 141 | |
| (Loss) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| long-term | | | | | | | | | | | | | | | | |
| debt | | | | | | | | | | | | | | | | |
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
In addition, the net swap settlements that accrued and settled in the quarter
ended September 30 were also reported as reductions of interest expense.
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Nine months ended | |
+--------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| Cash | | September 30, | | | September 30, | | | September 30, | | | September 30, | |
| Flow | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Hedging | | | | | | | | | | | | |
| Relationships | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Cross-currency | | | | | | | | | | | | |
| swaps: | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Gain | | $ | (119 | ) | | $ | (78 | ) | | $ | (443 | ) | | $ | 485 | |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 1 | | | | - | | | | - | | | | - | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | | | | | | | | | | | | | | |
| rate | | | | | | | | | | | | | | | | |
| locks: | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | (217 | ) | | | (90 | ) | | | (650 | ) | | | (11 | ) |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (5 | ) | | | (6 | ) | | | (16 | ) | | | (17 | ) |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | | | | | | | | | | | | | | |
| exchange | | | | | | | | | | | | | | | | |
| contracts: | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | 23 | | | | - | | | | 7 | | | | - | |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | (4 | ) | | | - | | | | (4 | ) | | | - | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
The balance of the unrealized derivative gain (loss) in accumulated OCI was
$(555) at September 30, 2010 and $142 at December 31, 2009.
17
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 7. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Wireless Properties Transaction In June 2010, we acquired certain wireless
properties, including Federal Communications Commission (FCC) licenses and
network assets, from Verizon Wireless for $2,372 in cash and increased goodwill
by $937. The assets primarily represent former Alltel Wireless assets and served
approximately 1.6 million subscribers in 79 service areas across 18 states. The
preliminary fair value of the acquired net assets of $1,435 included $361 of
property plant and equipment, $765 of FCC licenses, and $224 of customer lists
and other intangible assets.
Dispositions
Sale of Sterling Operations In August 2010, we sold our Sterling subsidiary to
International Business Machines Corporation (IBM) for approximately $1,400 in
cash. Sterling provides business applications and integration solutions to
approximately 18,000 customers worldwide. In conjunction with the sale, we
divested of $649 of goodwill and other intangible assets. We also entered into a
transition services agreement with IBM related to short-term support of
Sterling's operations after the sale, and an enterprise license agreement, under
which we would purchase software from Sterling.
During the second quarter of 2010, we accounted for Sterling as a discontinued
operation. We determined that the cash inflows under the transition services
agreement and our cash outflows under the enterprise license agreement will not
constitute significant continuing involvement with Sterling's operations after
the sale. We have reclassified Sterling's operating results, for all historical
periods, to net income from discontinued operations in the accompanying
consolidated statements of income. We also applied held-for-sale treatment to
Sterling's assets and liabilities, and accordingly, included Sterling's assets
in other current assets and the related liabilities in accounts payable and
accrued liabilities in our consolidated balance sheets as of December 31, 2009.
Sterling's assets and liabilities included the following as of December 31,
2009:
+-------------------------+--------+--------+--------+--------+
| | | December 31, | |
| | | 2009 | |
+-------------------------+--------+-----------------+--------+
| Assets | | | |
| held | | | |
| for | | | |
| sale: | | | |
+-------------------------+--------+-----------------+--------+
| Current | | $ | 333 | |
| assets | | | | |
+-------------------------+--------+--------+--------+--------+
| Property, | | | 40 | |
| plant and | | | | |
| equipment | | | | |
+-------------------------+--------+--------+--------+--------+
| Goodwill | | | 672 | |
| and | | | | |
| other | | | | |
| intangible | | | | |
| assets | | | | |
+-------------------------+--------+--------+--------+--------+
| Other | | | 47 | |
| assets | | | | |
+-------------------------+--------+--------+--------+--------+
| Total | | $ | 1,092 | |
| assets | | | | |
+-------------------------+--------+--------+--------+--------+
| | | | | |
+-------------------------+--------+--------+--------+--------+
| Liabilities | | | | |
| related to | | | | |
| assets held | | | | |
| for sale: | | | | |
+-------------------------+--------+--------+--------+--------+
| Current | | $ | 365 | |
| liabilities | | | | |
+-------------------------+--------+--------+--------+--------+
| Other | | | 126 | |
| liabilities | | | | |
+-------------------------+--------+--------+--------+--------+
| Total | | $ | 491 | |
| liabilities | | | | |
+-------------------------+--------+--------+--------+--------+
18
AT&T INC.
SEPTEMBER 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table includes Sterling's operating results, which we historically
included in our Other segment, for the indicated periods:
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three Months Ended | | | Nine Months Ended | |
+--------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | September 30, | | | September 30, | | | September 30, | | | September 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+--------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | $ | 81 | | | $ | 137 | | | $ | 349 | | | $ | 396 | |
| revenues | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 72 | | | | 121 | | | | 327 | | | | 377 | |
| expenses | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 9 | | | | 16 | | | | 22 | | | | 19 | |
| income | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 8 | | | | 12 | | | | 18 | | | | 10 | |
| before | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | (5 | ) | | | 5 | | | | 8 | | | | 4 | |
| taxes | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 13 | | | | 7 | | | | 10 | | | | 6 | |
| from | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
| during | | | | | | | | | | | | | | | | |
| phase-out | | | | | | | | | | | | | | | | |
| period | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | 767 | | | | - | | | | 767 | | | | - | |
| on | | | | | | | | | | | | | | | | |
| disposal | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | $ | 780 | | | $ | 7 | | | $ | 777 | | | $ | 6 | |
| from | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations, | | | | | | | | | | | | | | | | |
| net of tax | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Centennial As a condition of our acquisition of Centennial Communications Corp.
(Centennial), in August 2010, we sold eight service areas in Louisiana and
Mississippi for $273.
Other Adjustments
Centennial As of September 30, 2010, the preliminary fair value measurement of
Centennial's net assets acquired included $1,424 of goodwill, $655 of FCC
licenses, and $449 of customer lists and other intangible assets. During the
nine months ended September 30, 2010, we recorded $191 of Centennial acquisition
accounting adjustments, with an offset to goodwill.
Equity Method Investments
América Móvil Transactions On January 13, 2010, América Móvil, S.A. de C.V.
(América Móvil) announced that its Board of Directors authorized a tender offer
for 100% of the equity of Carso Global Telecom, S.A.B. de C.V. (CGT), a holding
company that owned 59.4% of Telefonos de Mexico, S.A. de C.V., and 60.7% of
Telmex Internacional, S.A.B. de C.V. (Telmex Internacional), in exchange for
América Móvil L Shares; and an offer for Telmex Internacional shares not owned
by CGT, for cash or América Móvil L shares, at the election of the shareholders.
On June 11, 2010, we tendered all of our shares in Telmex Internacional for
América Móvil L shares at the offered exchange rate of 0.373, which resulted in
a pre-tax gain of $647, or $0.07 per diluted share after tax, for the three
months ended June 30, 2010 and nine months ended September 30, 2010. The
exchange was accounted for at fair value, and the América Móvil L shares were
recorded at $1,586. In addition, we paid $202 to purchase additional shares of
América Móvil L stock to retain our ownership percentage that existed before the
exchange. Our investment in América Móvil was $3,614 at September 30, 2010.
19
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
For ease of reading, AT&T Inc. is referred to as "we," "AT&T" or the "Company"
throughout this document, and the names of the particular subsidiaries and
affiliates providing the services generally have been omitted. AT&T is a holding
company whose subsidiaries and affiliates operate in the communications services
industry in both the United States and internationally, providing wireless and
wireline telecommunications services and equipment as well as advertising
services. You should read this discussion in conjunction with the consolidated
financial statements, accompanying notes and management's discussion and
analysis of financial condition and results of operations included in our Annual
Report on Form 10-K for the year ended December 31, 2009. A reference to a
"Note" in this section refers to the accompanying Notes to Consolidated
Financial Statements. In the tables throughout this section, percentage
increases and decreases that are not considered meaningful are denoted with a
dash.
Consolidated Results Our financial results in the third quarter and for the
first nine months of 2010 and 2009 are summarized as follows:
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+------------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+------------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | $ | 31,581 | | | $ | 30,734 | | | | 2.8 | % | | $ | 92,919 | | | $ | 91,805 | | | | 1.2 | % |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cost | | | 13,519 | | | | 12,907 | | | | 4.7 | | | | 38,235 | | | | 37,665 | | | | 1.5 | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| services | | | | | | | | | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| sales | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Selling, | | | 7,707 | | | | 7,574 | | | | 1.8 | | | | 22,570 | | | | 22,914 | | | | (1.5 | ) |
| general | | | | | | | | | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| administrative | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,891 | | | | 4,881 | | | | 0.2 | | | | 14,529 | | | | 14,614 | | | | (0.6 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 26,117 | | | | 25,362 | | | | 3.0 | | | | 75,334 | | | | 75,193 | | | | 0.2 | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 5,464 | | | | 5,372 | | | | 1.7 | | | | 17,585 | | | | 16,612 | | | | 5.9 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | 729 | | | | 851 | | | | (14.3 | ) | | | 2,248 | | | | 2,573 | | | | (12.6 | ) |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 217 | | | | 181 | | | | 19.9 | | | | 629 | | | | 549 | | | | 14.6 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 125 | | | | 29 | | | | - | | | | 825 | | | | 44 | | | | - | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 5,077 | | | | 4,731 | | | | 7.3 | | | | 16,791 | | | | 14,632 | | | | 14.8 | |
| from | | | | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 11,637 | | | | 3,268 | | | | - | | | | 18,303 | | | | 9,746 | | | | 87.8 | |
| from | | | | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 12,339 | | | $ | 3,192 | | | | - | | | $ | 18,837 | | | $ | 9,516 | | | | 98.0 | % |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Overview
Operating income Our operating income increased $92, or 1.7%, in the third
quarter and $973, or 5.9%, for the first nine months of 2010. The increase for
both periods was primarily due to the continued growth in wireless service
revenue, driven mostly by our subscriber growth and growth in wireless data
revenue, along with an increase in wireline data revenue resulting from growth
in Internet Protocol (IP) data revenue. These increases were partially offset by
continuing declines in voice and print directory advertising revenues. For the
third quarter, higher revenues were also partially offset by an increase in
operating expenses, driven primarily by higher costs from increased sales of
wireless integrated devices. Our operating income margin decreased from 17.5% to
17.3% in the third quarter and increased from 18.1% to 18.9% for the first nine
months of 2010, as compared to the same periods last year.
Operating revenues Our operating revenues increased $847, or 2.8%, in the third
quarter and $1,114, or 1.2%, for the first nine months of 2010. This increase
was primarily due to the continued growth in wireless service revenue, driven
mostly by our increase in average subscribers along with a significant increase
in wireless data revenue, stemming from higher integrated device sales. Also
contributing to the increase was higher wireline data revenue largely due to IP
data growth, driven by AT&T U-verseSM (U-verse) subscriber growth. These
increases were partially offset by the continuing decline in voice revenues due
to decreasing access lines and a decline in print directory advertising revenue.
The declines in our voice and advertising revenues reflect continuing economic
pressures on our customers as well as increasing competition. Total switched
access lines decreased 11.3%. Customers disconnecting access lines switched to
wireless, Voice over Internet Protocol (VoIP) and cable offerings for voice and
data or terminated service permanently as businesses closed or consumers left
residences. While we lose wireline voice revenues, we have the opportunity to
increase wireless service or wireline data revenues should the customer choose
us as their wireless or VoIP provider. We also continue to expand our VoIP
service for customers who have access to our U-verse video service.
20
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Cost of services and salesexpenses increased $612, or 4.7%, in the third quarter
and $570, or 1.5%, for the first nine months of 2010. The increase for the
quarter was primarily due to higher wireless integrated device costs combined
with higher interconnect and network system costs. These increases were
partially offset by lower traffic compensation along with lower pension and
other postemployment benefits (pension/OPEB) expenses and other employee-related
costs. The increase for the nine months was primarily due to higher wireless
integrated device costs and higher Universal Service Fund (USF) costs, along
with higher interconnect and network system costs. These increases were
partially offset by lower pension/OPEB expenses and other employee-related
costs, along with lower traffic compensation.
Selling, general and administrative expenses increased $133, or 1.8%, in the
third quarter and decreased $344, or 1.5%, for the first nine months of 2010.
The increase for the third quarter was primarily due to higher wireless
commission expense along with higher advertising and sales expense, partially
offset by lower bad debt expense along with lower pension/OPEB expenses and
other employee-related costs. The decrease for the nine months was primarily due
to lower pension/OPEB expenses and other employee-related costs, along with
lower bad debt expense and lower indirect commissions expense, partially offset
by increases in various support expenses.
Depreciation and amortization expense increased $10, or 0.2%, in the third
quarter and decreased $85, or 0.6%, for the first nine months of 2010. The
third-quarter increase was due to capital spending for network upgrades and
expansion, and the year-to-date decrease was due to lower amortization of
intangibles related to customer lists associated with acquisitions.
Interest expense decreased $122, or 14.3%, in the third quarter and $325, or
12.6%, for the first nine months of 2010. The declines in interest expense for
the quarter and the nine months were primarily due to a decrease in our average
debt balances, along with a decrease in our weighted average interest rate.
Equity in net income of affiliatesincreased $36, or 19.9%, in the third quarter
and $80, or 14.6%, for the first nine months of 2010. The third-quarter and
year-to-date results were primarily due to improved results at América Móvil,
S.A. de C.V. (América Móvil) and favorable currency exchange rates at América
Móvil and Telefonos de Mexico, S.A. de C.V. (Telmex).
Other income (expense) - net We had other income of $125 in the third quarter
and $825 for the first nine months of 2010, compared to other income of $29 in
the third quarter and $44 for the first nine months of 2009. Results for the
third quarter of 2010 included a $118 gain on the sale of investments. Results
in the third quarter of 2009 included a $20 gain on a spectrum sale and $23 of
interest and lease income partially offset by a $17 reserve for net investment
losses.
Results for the first nine months of 2010 included a $647 gain on the exchange
of Telmex Internacional, S.A.B. de C.V. (Telmex Internacional) shares for
América Móvil shares and a $159 gain on the sale of investments. Results for the
first nine months of 2009 included $86 in interest, dividend and leveraged lease
income, $42 of gains on sales of securities and a professional services
business, and a $16 gain on the sale of investments partially offset by a loss
of $102 related to a Rabbi Trust asset impairment.
Income taxes decreased $8,023 in the third quarter and $6,398 for the first nine
months of 2010. The decrease in income taxes for the third quarter and the first
nine months was due to a settlement with the Internal Revenue Service (IRS)
related to a 2008 restructuring of our wireless operations, which decreased our
income taxes by $8,300. Partially offsetting this decrease was increased tax
expense due to higher income before income taxes. Additionally, for the first
nine months of 2010, the tax benefit of the IRS settlement was partially offset
by a $995 charge to income tax expense recorded during the first quarter to
reflect the deferred tax impact of enacted U.S. healthcare legislation. (See
Note 1)
Our effective tax rates were (129.2)% for third quarter, compared to 30.9% for
third quarter 2009, and (9.0)% for the first nine months of 2010, compared to
33.4% for the first nine months of 2009. The decrease in our 2010 effective tax
rates was primarily driven by the impacts of the IRS settlement partially offset
by the effects of the healthcare legislation.
21
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Income from discontinued operations, net of tax increased $773 in the third
quarter and $771 in the first nine months of 2010. The increase was primarily
attributable to the gain of $767 on our third quarter 2010 sale of our
subsidiary Sterling Commerce Inc. (Sterling).
Selected Financial and Operating Data
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| | | September 30, | |
+-------------+--------+-------------------------------------------------------+--------+
| | | 2010 | | | 2009 | |
+-------------+--------+------------------+--------+--------+------------------+--------+
| Wireless | | | 92,761 | | | | 81,596 | |
| customers | | | | | | | | |
| (000) | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Postpaid | | | 67,688 | | | | 62,961 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Prepaid | | | 6,209 | | | | 5,386 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Reseller | | | 11,021 | | | | 9,934 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Connected | | | 7,843 | | | | 3,315 | |
| device | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Consumer | | | 43,733 | | | | 45,659 | |
| revenue | | | | | | | | |
| connections | | | | | | | | |
| (000)1,2 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Network | | | 45,108 | | | | 50,833 | |
| access | | | | | | | | |
| lines | | | | | | | | |
| in | | | | | | | | |
| service | | | | | | | | |
| (000)2,9 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Broadband | | | 17,562 | | | | 17,083 | |
| connections | | | | | | | | |
| (000)2,3,7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Video | | | 4,735 | | | | 4,012 | |
| connections | | | | | | | | |
| (000)4 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Debt | | | 37.8 | % | | | 42.1 | % |
| ratio5,7,8 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Ratio | | | 5.41 | | | | 4.55 | |
| of | | | | | | | | |
| earnings | | | | | | | | |
| to fixed | | | | | | | | |
| charges6 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Number | | | 267,720 | | | | 284,970 | |
| of | | | | | | | | |
| AT&T | | | | | | | | |
| employees10 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 1| Consumer revenue connections includes retail access lines, U-verse voice over IP connections, broadband and video. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
2 Represents services by AT&T's local exchange companies (ILECs) and
affiliates.
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 3| Broadband connections include DSL, U-verse High Speed Internet, satellite broadband and 3G LaptopConnect cards. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 4| Video connections include customers that have satellite service under our agency arrangements and U-verse video connections (of 2,741 in 2010 and 1,817 |
| | in 2009). |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
5 See our "Liquidity and Capital Resources" section for discussion.
6 See Exhibit 12.
7 Prior-year amounts restated to conform to current-period reporting
methodology.
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 8| Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital (total debt plus total |
| | stockholders' equity) and does not consider cash on hand available to pay down debt. Cash on hand was $3,246 as of September 30, 2010 and $3,741 as of |
| | December 31, 2009. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 9| At September 30, 2010, total switched access lines were 45,108, retail business switched access lines totaled 19,089 and wholesale and coin switched |
| | access lines totaled 2,605. These include 1,706 retail business and 98 wholesale lines that are used solely by AT&T or our subsidiaries. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
+----------+----------------------------------------------------------------------------------------------------+
| 10 | Number of AT&T employees includes a decrease of 2,500 employees, resulting from the Sterling sale. |
+----------+----------------------------------------------------------------------------------------------------+
Segment Results
Our segments are strategic business units that offer different products and
services over various technology platforms and are managed accordingly. We
analyze our various operating segments based on segment income before income
taxes. Interest expense and other income (expense) - net are managed only on a
total company basis and are, accordingly, reflected only in consolidated
results. We have four reportable segments: (1) Wireless, (2) Wireline, (3)
Advertising Solutions and (4) Other.
The Wireless segment uses our nationwide network to provide consumer and
business customers with wireless voice and advanced data communications
services.
The Wireline segment uses our regional, national and global network to provide
consumer and business customers with landline voice and data communications
services, U-verse TV, high-speed broadband and voice services (U-verse) and
managed networking to business customers. Additionally, we receive commissions
on sales of satellite television services offered through our agency
arrangements.
The Advertising Solutions segment includes our directory operations, which
publish Yellow and White Pages directories and sell directory advertising and
Internet-based advertising and local search.
22
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
The Other segment includes results from customer information services and all
corporate and other operations. This segment also includes our portion of the
results from our international equity investments. Also included in the Other
segment are impacts of corporate-wide decisions for which the individual
operating segments are not being evaluated.
Historically, intersegment activity had been reported as revenue in the billing
segment and operating expense in the purchasing segment. Upon consolidation, the
intersegment revenue and expense were eliminated with the consolidated results
reflecting the cash operating and depreciation expense of providing the
intersegment service. As part of AT&T's ongoing initiatives to manage its
business from an external customer perspective, we no longer report intersegment
revenue and report the cash operating and depreciation expense related to
intersegment activity in the purchasing segment, which provided services to the
external customer. While this change did not impact AT&T's total consolidated
results, the impact to each operating segment varied. In particular, the
Wireless segment, as a purchaser of network, IT and other services from the
Wireline segment, experienced a reduction in cash operating expense partially
offset by increased depreciation expense with the net result being increased
operating margins. This change was effective with the reporting of operating
results for the quarter ended March 31, 2010. We have restated prior-period
segment information to conform to the current period's presentation.
In May 2010, we announced the sale of Sterling, which we closed in August 2010.
The Other segment results for all periods shown have been restated to exclude
the results of Sterling, which are now reflected in discontinued operations (see
Note 7).
The following tables show components of results of operations by segment.
Significant segment results are discussed following each table. Capital
expenditures for each segment are discussed in "Liquidity and Capital
Resources."
Wireless
Segment Results
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Segment | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Service | | $ | 13,675 | | | $ | 12,372 | | | | 10.5 | % | | $ | 39,711 | | | $ | 35,978 | | | | 10.4 | % |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equipment | | | 1,505 | | | | 1,255 | | | | 19.9 | | | | 3,608 | | | | 3,709 | | | | (2.7 | ) |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 15,180 | | | | 13,627 | | | | 11.4 | | | | 43,319 | | | | 39,687 | | | | 9.2 | |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 10,040 | | | | 8,645 | | | | 16.1 | | | | 26,785 | | | | 24,959 | | | | 7.3 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,640 | | | | 1,490 | | | | 10.1 | | | | 4,776 | | | | 4,493 | | | | 6.3 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 11,680 | | | | 10,135 | | | | 15.2 | | | | 31,561 | | | | 29,452 | | | | 7.2 | |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 3,500 | | | | 3,492 | | | | 0.2 | | | | 11,758 | | | | 10,235 | | | | 14.9 | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | (6 | ) | | | - | | | | - | | | | 14 | | | | - | | | | - | |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 3,494 | | | $ | 3,492 | | | | 0.1 | % | | $ | 11,772 | | | $ | 10,235 | | | | 15.0 | % |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Wireless Properties Transactions
In June 2010, we acquired certain wireless properties, including Federal
Communications Commission (FCC) licenses and network assets from Verizon
Wireless for $2,372 in cash and increased goodwill by $937. The assets primarily
represent former Alltel Wireless assets and served approximately 1.6 million
subscribers in 79 service areas across 18 states. We included these customers in
our total customer base as of September 30, 2010, but did not include them in
customer additions at the time of acquisition.
Since the properties we acquired use a different network technology than our
Global System for Mobile Communication (GSM) technology, we expect to incur
additional costs, both in network upgrades and equipment subsidies, to convert
that network and subscriber handsets to our GSM technology.
As a condition of our acquisition of Centennial Communications Corp.
(Centennial), in August 2010, we sold eight service areas in Louisiana and
Mississippi for $273.
23
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
The following table highlights the Wireless segment's key performance metrics
for the indicated periods:
Wireless Supplementary Operating and Financial Data
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+-----------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+-----------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Wireless | | | | | | | | | | | | 92,761 | | | | 81,596 | | | | 13.7 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 2,631 | | | | 2,026 | | | | 29.9 | % | | | 6,050 | | | | 4,617 | | | | 31.0 | % |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 1.32 | % | | | 1.42 | % | | (10) BP | | | 1.30 | % | | | 1.49 | % | | (19) BP |
| Churn | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postpaid | | | | | | | | | | | | | | | 67,688 | | | | 62,961 | | | | 7.5 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 745 | | | | 1,333 | | | | (44.1 | )% | | | 1,753 | | | | 3,358 | | | | (47.8 | )% |
| Postpaid | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postpaid | | | 1.14 | % | | | 1.14 | % | | (0) BP | | | 1.08 | % | | | 1.12 | % | | (4) BP |
| Churn | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Prepaid | | | | | | | | | | | | | | | 6,209 | | | | 5,386 | | | | 15.3 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 321 | | | | (176 | ) | | | - | | | | 645 | | | | (743 | ) | | | - | |
| Prepaid | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Reseller | | | | | | | | | | | | | | | 11,021 | | | | 9,934 | | | | 10.9 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 406 | | | | 634 | | | | (36.0 | )% | | | 545 | | | | 1,319 | | | | (58.7 | ) |
| Reseller | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Connected | | | | | | | | | | | | | | | 7,843 | | | | 3,315 | | | | - | |
| Device | | | | | | | | | | | | | | | | | | | | | | | | |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 1,159 | | | | 235 | | | | - | | | | 3,107 | | | | 683 | | | | - | |
| Connected | | | | | | | | | | | | | | | | | | | | | | | | |
| Device | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Wireless Metrics
Additions As of September 30, 2010, we served 92.8 million wireless customers.
Higher net customer additions (net additions) in the third quarter and for the
first nine months of 2010 were primarily attributable to higher net connected
devices additions in both periods. Lower net postpaid additions reflect slowing
growth in the industry subscriber base and lower postpaid churn throughout the
industry. We expect that net postpaid additions during 2010 will continue to
decrease from prior-year levels. We expect revenue growth to continue to shift
from voice toward data revenues with increasing penetration rates for integrated
devices (which allow Internet access as well as voice) and additional sales of
connected (data-centric) devices. During 2010, we have continued to see an
increase in gross and net additions related to the sale of integrated devices,
including higher activations and upgrades of integrated devices during the third
quarter, and the sale of connected devices, such as eReaders, security systems,
fleet management and global positioning systems, and we expect continued growth
in these product areas.
Average service revenue per user (ARPU) in the third quarter and for the first
nine months of 2010, declined 2.3% and 1.3%, reflecting strong growth in
connected devices subscribers, which have a lower ARPU compared to ARPU
generated by our other customers. Data service ARPU increased 15.3% and 15.5% in
the third quarter and for the first nine months of 2010. We expect continued
revenue growth from data services, as more customers purchase integrated devices
and connected devices, and as we continue to expand our network. Voice and other
service ARPU declined 9.7% and 8.0% in the third quarter and for the first nine
months of 2010, compared to the same periods in 2009.
ARPU from postpaid customers increased 2.0% in the third quarter and 3.1% for
the first nine months of 2010, reflecting usage of more advanced integrated
devices by these customers, evidenced by an increase in postpaid data services
ARPU of 19.5% in the third quarter and 19.9% for the first nine months of 2010.
Of our total postpaid customers, 57.3% now use integrated devices, up from 42.0%
a year earlier. The growth in postpaid data services ARPU in the third quarter
and for the first nine months of 2010 was partially offset by a 5.5% decrease in
the third quarter and a 3.8% decrease for the first nine months of 2010 in
postpaid voice and other service ARPU. Postpaid voice and other service ARPU
declined due to lower access and airtime charges, roaming revenues and
long-distance usage. Continued growth in our family plans (FamilyTalk plans)
customer base, which has lower ARPU than traditional postpaid customers, has
also contributed to these declines. We expect continued pressure on voice and
other service ARPU.
24
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Churn The effective management of customer churn (churn rate) is critical to
our ability to maximize revenue growth and to maintain and improve margins.
Churn rate is calculated by dividing the aggregate number of wireless customers
who cancel service during a period by the total number of wireless customers at
the beginning of that period. The churn rate for a quarterly period is equal to
the average of the churn rate for each month of that period. Ongoing improvement
in our total and postpaid churn rates (at our lowest recorded third-quarter
level for total churn and matching our lowest ever third-quarter rate for
postpaid) contributed to our net additions in the third quarter and for the
first nine months of 2010. These churn rate declines reflect network
enhancements and broader coverage, more affordable rate plans and exclusive
devices, continued growth in FamilyTalk plans, and free mobile-to-mobile
calling among our wireless customers. Connected devices, which have a generally
lower churn rate than that of our other wireless customer categories, also
contributed to overall churn improvement due to their increased share of net
additions in the third quarter and first nine months of 2010, compared to the
same periods in 2009.
Wireless Customer Relationships
The wireless industry continues to mature. Accordingly, we believe that future
wireless growth will increasingly depend on our ability to offer innovative
services and devices. To attract and retain customers, we offer a wide variety
of service plans in addition to offering a broad handset line. Our postpaid
customers typically sign a two-year contract, which includes discounted handsets
and early termination fees. We also offer data plans at different price levels,
beginning as low as 15 dollars per month, to attract a wide variety of customers
and to differentiate us from our competitors. Many of our customers are on
FamilyTalk plans or business plans, which provide for service on multiple
handsets at discounted rates, and such subscribers tend to have higher retention
and lower churn rates. As of September 30, 2010, more than 80% of our postpaid
subscribers are on FamilyTalk and/or business discount plans. Such offerings are
intended to encourage existing customers to upgrade their current services
and/or add connected devices, attract customers from other providers and
minimize customer churn. In fact, for the first nine months of 2010, over 60% of
our smartphone handsets were purchased by existing AT&T customers.
We offer a large variety of handsets, including at least 18 smartphones
(including Apple iPhones, our most popular models) with advanced operating
systems from at least 7 manufacturers. As technology evolves, rapid changes are
occurring in the handset and device industry, with the continual introduction of
new models or significant revisions of existing models. We believe offering a
wide variety of handsets reduces dependence on any single product as these
products evolve. In addition, offering a number of attractive handsets on an
exclusive basis distinguishes us from our competitors. As these exclusivity
arrangements end, we expect to continue to offer such handsets (based on
historical industry practice), and we believe our service plan offerings will
help to retain our customers by providing incentives not to move to a new
carrier. As noted above, more than 80% of our postpaid subscribers are on
FamilyTalk Plans and business discount plans that would involve moving the
whole group to a new carrier. Moreover, the vast majority of postpaid
subscribers (including FamilyTalk Plan users) are allowed to accumulate unused
minutes (known as rollover minutes), a feature that is currently not offered by
other major postpaid carriers in the United States, and users would lose these
minutes if they switched carriers. As is common in the industry, most of our
phones are designed to work only with our wireless technology, requiring
customers who desire to move to a new carrier with a different technology to
purchase a new device. In addition, many of our handsets would not work or would
lose some functionality if they were used on another carrier's network that also
used GSM technology, requiring the customer to acquire another handset. Although
exclusivity arrangements are important to us, such arrangements may not provide
a competitive advantage over time, as the industry continues to introduce new
devices and services. Also, while the expiration of any of our current
exclusivity arrangements could increase churn and reduce postpaid customer
additions, we do not expect any such termination to have a material impact on
our Wireless segment income, consolidated operating margin or our cash from
operations.
Wireless Operating Results
Our Wireless segment operating income margin was 23.1% in the third quarter of
2010, compared to 25.6% for the same period in 2009, but increased to 27.1% for
the nine months ended September 30, 2010, compared to 25.8% for the same period
in 2009. The lower margin in the third quarter was primarily due to increased
equipment costs and commissions related to our increased activations of and
upgrades to integrated devices during the period, including a record 5.2 million
Apple iPhone activations and upgrades. The higher margin for the nine months
ended September 30, 2010, was primarily due to higher data revenues generated by
our customers during the year, partially offset by the higher selling costs
associated with our integrated device activations and upgrades during the third
quarter. While we subsidize the sales prices of various integrated devices, we
expect to recover that cost over time from increased usage of the device
(especially data usage by the customer).
25
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Service revenues are comprised of local voice and data services, roaming,
long-distance and other revenue. Service revenues increased $1,303, or 10.5%, in
the third quarter and $3,733, or 10.4%, for the first nine months of 2010. The
increases for these periods consisted of the following:
+--------+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Data service revenues increased $1,110, or 30.5%, in the third quarter and $2,993, or 29.2%, for the first nine months of 2010. The increases were primarily due to the increased number of subscribers and heavier text and multimedia messaging and Internet access by subscribers using integrated devices, tablets and other data-centric connected devices, such as eReaders and mobile navigation devices. Data service revenues represented 34.8% of our Wireless segment service revenues in the third quarter of 2010, an increase from 29.5% for the same period in 2009. |
+--------+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Voice and other service revenues increased $193, or 2.2%, in the third quarter and $740, or 2.9%, for the nine months of 2010. The increases were due to a 13.2% and 11.9% increase in the average number of wireless customers in the third quarter and for the first nine months of 2010, compared to the same periods in 2009, partially offset by declining ARPU for these services. |
+--------+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
Equipment revenues increased $250, or 19.9%, in the third quarter and decreased
$101, or 2.7%, for the first nine months of 2010. The increase for the quarter
was primarily due to sales and upgrades of postpaid integrated devices during
the quarter. The year-to-date decrease was due to lower traditional handset
sales and increased sales of lower priced integrated devices, substantially
offset by third-quarter postpaid integrated device sales and upgrades.
Operations and support expenses increased $1,395, or 16.1%, in the third quarter
of 2010 primarily due to the following:
+--------+----------------------------------------------------------------------------------------------------------------------------------+
| · | Equipment cost increases of $658 and commission expense increases of $210 driven by record integrated device sales and upgrades. |
+--------+----------------------------------------------------------------------------------------------------------------------------------+
+--------+----------------------------------------------------------------------------------------------------------+
| · | Interconnect and network system cost increases of $310 due to higher network traffic and revenue growth. |
+--------+----------------------------------------------------------------------------------------------------------+
+--------+-----------------------------------------------------------------------------------------------------+
| · | Selling expense increases (other than commissions) of $187, primarily due to increased advertising. |
+--------+-----------------------------------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Administrative expense increases of $131. |
+--------+------------------------------------------------------------------------+
These increases were partially offset by bad debt expense, reseller services and
customer service cost decreases, totaling $134.
Operations and support expenses increased $1,826, or 7.3%, for the first nine
months of 2010, primarily due to the following:
+--------+------------------------------------------------------------------------------------------------------------------------------------+
| · | Interconnect, USF and network system cost increases of $822 due to higher network traffic, revenue growth and a USF rate increase. |
+--------+------------------------------------------------------------------------------------------------------------------------------------+
+--------+-----------------------------------------------------------------------------------------------------------+
| · | Equipment cost increases of $686 driven by integrated device sales and upgrades during the third quarter. |
+--------+-----------------------------------------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Administrative expense increases of $392. |
+--------+------------------------------------------------------------------------+
+--------+-----------------------------------------------------------------------------------------------------+
| · | Selling expense increases (other than commissions) of $344, primarily due to increased advertising. |
+--------+-----------------------------------------------------------------------------------------------------+
These increases were partially offset by bad debt expense and customer service
cost decreases, totaling $314; and long distance and reseller services cost
decreases of $132.
Depreciation and amortization expenses increased $150, or 10.1%, in the third
quarter and $283, or 6.3%, for the first nine months of 2010. Depreciation
expense increased $210, or 19.1%, in the third quarter and $520, or 16.0%, for
the first nine months ended September 30, 2010, primarily due to increased
capital spending for network upgrades and expansion and depreciation for assets
acquired with the Centennial acquisition, partially offset by certain network
assets becoming fully depreciated.
Amortization expense decreased $60, or 15.5%, in the third quarter and $237, or
19.0%, for the first nine months primarily due to lower amortization of
intangibles for customer lists related to acquisitions, partially offset by an
increase in customer lists amortization related to acquisitions.
26
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Wireline
Segment Results
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Segment | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Voice | | $ | 6,973 | | | $ | 7,943 | | | | (12.2 | )% | | $ | 21,671 | | | $ | 24,701 | | | | (12.3 | )% |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Data | | | 6,928 | | | | 6,448 | | | | 7.4 | | | | 20,407 | | | | 19,053 | | | | 7.1 | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 1,374 | | | | 1,358 | | | | 1.2 | | | | 4,014 | | | | 4,146 | | | | (3.2 | ) |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 15,275 | | | | 15,749 | | | | (3.0 | ) | | | 46,092 | | | | 47,900 | | | | (3.8 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 10,318 | | | | 10,762 | | | | (4.1 | ) | | | 31,324 | | | | 32,618 | | | | (4.0 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 3,118 | | | | 3,226 | | | | (3.3 | ) | | | 9,337 | | | | 9,594 | | | | (2.7 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 13,436 | | | | 13,988 | | | | (3.9 | ) | | | 40,661 | | | | 42,212 | | | | (3.7 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 1,839 | | | | 1,761 | | | | 4.4 | | | | 5,431 | | | | 5,688 | | | | (4.5 | ) |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 2 | | | | 9 | | | | (77.8 | ) | | | 7 | | | | 16 | | | | (56.3 | ) |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 1,841 | | | $ | 1,770 | | | | 4.0 | % | | $ | 5,438 | | | $ | 5,704 | | | | (4.7 | )% |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Operating Income and Margin Trends
Our Wireline segment operating income increased $78, or 4.4%, in the third
quarter of 2010 and decreased $257, or 4.5%, for the first nine months of 2010.
For the third quarter, our Wireline segment operating income margin increased
from 11.2% in 2009 to 12.0% in 2010, and for the first nine months decreased
from 11.9% in 2009 to 11.8% in 2010. Our operating income continued to be
pressured by access line declines as customers either reduced usage or
disconnected traditional landline services and switched to alternative
technologies, such as wireless and VoIP. Our strategy is to offset these line
losses by increasing non-access-line-related revenues from customer connections
for data, video, and voice. Additionally, we have the opportunity to increase
Wireless segment revenues if customers choose AT&T Mobility as an alternative
provider. For the third quarter, the increase in income and margin was due to a
combination of continued growth in data revenue driven by U-verse growth along
with operating expense reductions, which offset voice revenue declines. For the
first nine months of 2010, revenue declines exceeded expense declines due to
continued lower voice revenue.
Decreases in wireline operating expenses reflect reduced pension/OPEB and other
employee-related costs and impacts of continuing cost initiatives.
Operating Results
Voice revenues decreased $970, or 12.2%, in the third quarter and $3,030, or
12.3%, for the first nine months of 2010 primarily due to economic pressures and
declining demand for traditional voice services by our consumer and business
customers. Included in voice revenues are revenues from local voice,
long-distance (including international) and local wholesale services. Voice
revenues do not include VoIP revenues, which are included in data revenues.
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Local voice revenues decreased $546, or 11.3%, in the third quarter and $1,748, or 11.6%, for the first nine months of 2010. The decrease was driven primarily by an 11.3% decline in total switched access lines and a decrease in average local voice revenue per user. We expect our local voice revenue to continue to be negatively affected by increased competition from alternative technologies and the disconnection of additional lines. |
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Long-distance revenues decreased $390, or 14.0%, in the third quarter and $1,164, or 13.5%, for the first nine months of 2010. Lower demand for long-distance service from global businesses and consumer customers decreased revenues $316 in the third quarter and $917 for the first nine months of 2010, and declines in the number of our national mass-market customers decreased revenues $77 in the third quarter and $256 for the first nine months of 2010. |
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
27
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Data revenues increased $480, or 7.4%, in the third quarter and $1,354, or 7.1%,
for the first nine months of 2010. Data revenues accounted for approximately 44%
of wireline operating revenues in 2010 and 40% in 2009. Data revenues include
transport, IP and packet-switched data services.
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | IP data revenues increased $633, or 18.9%, in the third quarter and $1,831, or 19.1%, for the first nine months of 2010 primarily driven by U-verse expansion and growth in IP-based strategic business services that include virtual private networks (VPN), and application services. U-verse video revenues increased $290 in the third quarter and $918 for the first nine months of 2010, and strategic business service revenues increased $161 in the third quarter and $462 for the first nine months of 2010. Broadband high speed Internet access increased IP data revenues $129 in the third quarter and $325 for the first nine months of 2010. The increase in IP data revenues reflects continued growth in the customer base and migration from other traditional circuit-based services. |
+-----+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Packet switched data services revenue, which include frame relay and asynchronous transfer mode services, decreased $105, or 21.6%, in the third quarter and $331, or 21.4%, for the first nine months of 2010. This decrease is primarily due to lower demand as customers continue to shift to IP-based technology such as VPN, DSL and managed Internet services. We expect these traditional services to continue to decline as a percentage of our overall data revenues. |
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
Other operating revenues increased $16, or 1.2%, in the third quarter and
decreased $132, or 3.2%, for the first nine months of 2010, reflecting current
economic conditions. Integration services and customer premises equipment,
government-related services and outsourcing account for more than 60% of total
other revenue for all periods. Revenues from outsourcing and government-related
services increased by $68 in the third quarter and $90 for the first nine months
of 2010. Partially offsetting the increases were declines in revenues from
customer premises equipment and satellite television services, which decreased
$44 in the third quarter and $202 for the first nine months of 2010.
Operations and support decreased $444, or 4.1%, in the third quarter and $1,294,
or 4.0%, for the first nine months of 2010. Operations and support expenses
consist of costs incurred to provide our products and services, including costs
of operating and maintaining our networks and personnel costs, such as salary,
wage and bonus accruals. Costs in this category include our repair technicians
and repair services, certain network planning and engineering expenses,
information technology and property taxes. Operations and support expenses also
include bad debt expense; advertising costs; sales and marketing functions,
including customer service centers; real estate costs, including maintenance and
utilities on all buildings; credit and collection functions; and corporate
support costs, such as finance, legal, human resources and external affairs.
Pension and postretirement costs, net of amounts capitalized as part of
construction labor, are also included to the extent that they are associated
with these employees.
The third quarter decrease was primarily due to the following:
+--------+------------------------------------------------------------------------+
| · | Pension/OPEB and other employee-related expense of $319. |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Traffic compensation of $125. |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Contract services of $52. |
+--------+------------------------------------------------------------------------+
+--------+----------------------------------------------------------------------------------------------+
| · | Bad debt expense of $42, due to lower business revenue and improvements in cash collections. |
+--------+----------------------------------------------------------------------------------------------+
These decreases were partially offset by increased cost of sales, primarily
U-verse related expenses of $73.
The year-to-date decrease was primarily due to the following:
+--------+------------------------------------------------------------------------+
| · | Pension/OPEB and other employee-related expense of $1,049. |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Traffic compensation of $275. |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Contract services of $225. |
+--------+------------------------------------------------------------------------+
+--------+-----------------------------------------------------------------------------------------------+
| · | Bad debt expense of $198, due to lower business revenue and improvements in cash collections. |
+--------+-----------------------------------------------------------------------------------------------+
These decreases were partially offset by increased cost of sales, primarily
U-verse related expenses of $250.
Depreciation and amortization expenses decreased $108, or 3.3%, in the third
quarter and $257, or 2.7%, for the first nine months. The third-quarter and
year-to-date decrease was primarily related to lower amortization of intangibles
for customer lists associated with acquisitions.
28
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Supplemental Information
Telephone, Wireline Broadband and Video Connections Summary
Our switched access lines and other services provided by our local exchange
telephone subsidiaries at September 30, 2010 and 2009 are shown below, and
trends are addressed throughout this segment discussion.
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| (in | | | | | | | | | |
| 000s) | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | September 30, | | | September 30, | | | Percent | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | 2010 | | | 2009 | | | Change | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Switched | | | | | | | | | |
| Access | | | | | | | | | |
| Lines1 | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Retail | | | 23,414 | | | | 27,363 | | | | (14.4 | )% |
| Consumer | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Retail | | | 19,089 | | | | 20,675 | | | | (7.7 | ) |
| Business2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Retail | | | 42,503 | | | | 48,038 | | | | (11.5 | ) |
| Subtotal2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 94.2 | % | | | 94.5 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Wholesale | | | 2,538 | | | | 2,703 | | | | (6.1 | ) |
| Subtotal2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 5.6 | % | | | 5.3 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Payphone | | | 67 | | | | 92 | | | | (27.2 | ) |
| (Retail | | | | | | | | | | | | |
| and | | | | | | | | | | | | |
| Wholesale)3 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 0.2 | % | | | 0.2 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 45,108 | | | | 50,833 | | | | (11.3 | )% |
| Switched | | | | | | | | | | | | |
| Access | | | | | | | | | | | | |
| Lines7 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 24,908 | | | | 28,098 | | | | (11.4 | )% |
| Retail | | | | | | | | | | | | |
| Consumer | | | | | | | | | | | | |
| Voice | | | | | | | | | | | | |
| Connections6 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 16,100 | | | | 15,638 | | | | 3.0 | % |
| Wireline | | | | | | | | | | | | |
| Broadband | | | | | | | | | | | | |
| Connections4 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Satellite | | | 1,994 | | | | 2,195 | | | | (9.2 | )% |
| service5 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| U-verse | | | 2,741 | | | | 1,817 | | | | 50.9 | |
| video | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Video | | | 4,735 | | | | 4,012 | | | | 18.0 | % |
| Connections | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
1 Represents access lines served by AT&T's ILECs and affiliates.
2 Prior-period amounts restated to conform to current-period reporting
methodology.
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 3| Revenue from retail payphone lines is reported in the Other segment. We are in the process of ending our retail payphone operations. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 4| Total wireline broadband connections include DSL, U-verse High Speed Internet and satellite broadband. |
+-+----------------------------------------------------------------------------------------------------------------------------------------------------------+
5 Satellite service includes connections under our agency and resale
agreements.
6 Includes consumer U-verse Voice over IP connections of 1,494 at September 30,
2010.
+----------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
| 7 | At September 30, 2010, total switched access lines include 1,706 retail business and 98 wholesale lines that are used solely by AT&T or our |
| | subsidiaries. |
+----------+----------------------------------------------------------------------------------------------------------------------------------------------------------+
29
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Advertising Solutions
Segment Results
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 961 | | | $ | 1,162 | | | | (17.3 | )% | | $ | 3,009 | | | $ | 3,622 | | | | (16.9 | )% |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 640 | | | | 686 | | | | (6.7 | ) | | | 1,988 | | | | 2,113 | | | | (5.9 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 123 | | | | 159 | | | | (22.6 | ) | | | 393 | | | | 501 | | | | (21.6 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 763 | | | | 845 | | | | (9.7 | ) | | | 2,381 | | | | 2,614 | | | | (8.9 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 198 | | | $ | 317 | | | | (37.5 | )% | | $ | 628 | | | $ | 1,008 | | | | (37.7 | )% |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Operating Results
Our advertising solutions operating income margin was 20.6% in the third quarter
of 2010, compared to 27.3% in the third quarter of 2009, and 20.9% for the first
nine months of 2010, compared to 27.8% for the first nine months of 2009. The
declines are primarily attributable to decreased print advertising revenues.
Operating revenues decreased $201, or 17.3%, in the third quarter and $613, or
16.9%, for the first nine months of 2010, largely driven by continued declines
in print revenue of $207 in the third quarter and $663 for the first nine months
as customers reduced or eliminated print ad purchases due to the slow economy.
These decreases were partially offset by increased interactive revenue of $13 in
the third quarter and $59 for the first nine months as customers purchased more
electronic advertising.
Operating expenses decreased $82, or 9.7%, in the third quarter and $233, or
8.9%, for the first nine months of 2010, largely driven by decreased
amortization of $34 in the third quarter and $102 for the first nine months,
resulting from use of an accelerated method of amortization for the customer
lists. Further contributing to the decline were decreases in print product
related expenses of $50 in the third quarter and $114 in the first nine months.
Other
Segment Results
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | Third Quarter | | Nine-Month Period | |
+------------+--------------------------------------------------------------------------------------------------+--------+--------------------------------------------------------------------------------------------------+--------+
| | 2010 | | 2009 | | | Percent Change | | 2010 | | 2009 | | | Percent Change | |
+------------+ + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | |
+------------+--------------------------+--------+--------------------------+--------+--------+-----------------+--------+--------------------------+--------+--------------------------+--------+--------+-----------------+--------+
| Total | | $ | 165 | | | $ | 196 | | | | (15.8 | )% | | $ | 499 | | | $ | 596 | | | | (16.3 | )% |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 238 | | | | 394 | | | | (39.6 | ) | | | 731 | | | | 915 | | | | (20.1 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | (73 | ) | | | (198 | ) | | | 63.1 | | | | (232 | ) | | | (319 | ) | | | 27.3 | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 221 | | | | 172 | | | | 28.5 | | | | 608 | | | | 532 | | | | 14.3 | |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 148 | | | $ | (26 | ) | | | - | | | $ | 376 | | | $ | 213 | | | | 76.5 | % |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Our Other segment consists primarily of customer information services (primarily
operator services), corporate and other operations. In the second quarter of
2010, Sterling was moved to discontinued operations. The Other segment results
for all periods shown have been restated to exclude the results of Sterling.
Segment operating revenuesdecreased $31, or 15.8%, in the third quarter and $97,
or 16.3%, for the first nine months of 2010 primarily due to reduced revenues
from our operator services.
Segment operating expensesdecreased $156, or 39.6%, in the third quarter and
$184, or 20.1%, for the first nine months of 2010. The third-quarter and
year-to-date change was primarily due to decreased operator services expense and
2009 severance charges.
30
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
Our Other segment also includes our equity investments in international
companies, the income from which we report as equity in net income of
affiliates. Our earnings from foreign affiliates are sensitive to exchange-rate
changes in the value of the respective local currencies. Our foreign investments
are recorded using the equity method of accounting and exclude certain
adjustments required for local reporting in specific countries. Our equity in
net income of affiliates by major investment is listed below:
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Third Quarter | | | Nine-Month Period | |
+------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| América | | $ | 171 | | | $ | 125 | | | $ | 454 | | | $ | 383 | |
| Móvil | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Telmex | | | 50 | | | | 34 | | | | 121 | | | | 100 | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Telmex | | | - | | | | 14 | | | | 34 | | | | 51 | |
| Internacional | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | (1 | ) | | | (1 | ) | | | (2 | ) |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | $ | 221 | | | $ | 172 | | | $ | 608 | | | $ | 532 | |
| Segment | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | | | | | |
| in Net | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Equity in net income of affiliatesincreased $49, or 28.5%, in the third quarter
and $76, or 14.3%, for the first nine months of 2010. The third-quarter and
year-to-date results were primarily due to improved results at América Móvil,
and favorable currency exchange rates at América Móvil and Telmex. In January
2010, América Móvil announced a tender offer for 100% of the equity of Carso
Global Telecom, S.A.B. de C.V. (CGT), a holding company that owned 59.4% of
Telmex and 60.7% of Telmex Internacional, in exchange for América Móvil L
Shares; and an offer for Telmex Internacional shares not owned by CGT, for cash
or América Móvil L shares, at the election of the shareholders. In June 2010, we
tendered all of our shares in Telmex Internacional for América Móvil L shares at
the offered exchange rate of 0.373, which resulted in a pre-tax gain of $647.
The exchange was accounted for at fair value, and the América Móvil shares were
recorded at $1,586. In addition, we paid $202 to purchase additional shares of
América Móvil L stock to retain our ownership percentage that existed before the
exchange.
OTHER BUSINESS MATTERS
U-verse Services We are continuing to expand our deployment of U-verse High
Speed Internet and TV services. As of September 30, 2010, we have passed more
than 26 million living units (constructed housing units as well as platted
housing lots) and are marketing the services to almost 74 percent of those
units. Our rate of expansion will be slowed if we cannot obtain all required
local building permits in a timely fashion. We also continue to work with our
vendors on improving, in a timely manner, the requisite hardware and software
technology. Our deployment plans could be delayed if we do not receive required
equipment and software on schedule.
We believe that our U-verse TV service is subject to federal oversight as a
"video service" under the Federal Communications Act. However, some cable
providers and municipalities have claimed that certain IP services should be
treated as a traditional cable service and therefore subject to the applicable
state and local cable regulation. Certain municipalities have delayed our
request or have refused us permission to use our existing right-of-ways to
deploy or activate our U-verse-related services and products, resulting in
litigation. Pending negotiations and current or threatened litigation involving
municipalities could delay our deployment plans in those areas. Petitions have
been filed at the FCC alleging that the manner in which AT&T provisions "public,
educational and governmental" (PEG) programming over its U-verse TV service
conflicts with federal law, and a lawsuit has been filed in a California state
superior court raising similar allegations under California law. If courts
having jurisdiction where we have significant deployments of our U-verse
services were to decide that federal, state and/or local cable regulation were
applicable to our U-verse services, or if the FCC, state agencies or the courts
were to rule that AT&T must deliver PEG programming in a manner substantially
different from the way it does today or in ways that are inconsistent with
AT&T's current network architecture, it could have a material adverse effect on
the cost, timing and extent of our deployment plans.
Retiree Phone Concession Litigation In May 2005, we were served with a
purported class action in U.S. District Court, Western District of Texas
(Stoffels v. SBC Communications Inc.), in which the plaintiffs, who are retirees
of Pacific Bell Telephone Company, Southwestern Bell and Ameritech, contend that
the telephone concession provided by the company is, in essence, a "defined
benefit plan" within the meaning of the Employee Retirement Income Security Act
of 1974, as amended (ERISA). In October 2006, the Court certified two classes.
The issue of whether the concession is an ERISA pension plan was tried before
the judge in November 2007. In May 2008, the court ruled that the concession was
an ERISA pension plan. We asked the court to certify this ruling for
interlocutory appeal, and in August 2008, the court denied our request. In May
2009, we filed a motion for reconsideration with the trial court. That motion is
pending. We believe that an adverse outcome having a material effect on our
financial statements in this case is unlikely, but we will continue to evaluate
the potential impact of this suit on our financial results as it progresses.
31
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
NSA Litigation Twenty-four lawsuits were filed alleging that we and other
telecommunications carriers unlawfully provided assistance to the National
Security Agency in connection with intelligence activities that were initiated
following the events of September 11, 2001. In the first filed case, Hepting et
al v. AT&T Corp., AT&T Inc. and Does 1-20, a purported class action filed in
U.S. District Court in the Northern District of California, plaintiffs alleged
that the defendants disclosed and are currently disclosing to the U.S.
Government content and call records concerning communications to which
Plaintiffs were a party. Plaintiffs sought damages, a declaratory judgment and
injunctive relief for violations of the First and Fourth Amendments to the
United States Constitution, the Foreign Intelligence Surveillance Act (FISA),
the Electronic Communications Privacy Act and other federal and California
statutes. We filed a motion to dismiss the complaint. The United States asserted
the "state secrets privilege" and related statutory privileges and also filed a
motion asking the court to dismiss the complaint. The Court denied the motions,
and we and the United States appealed. In August 2008, the U.S. Court of Appeals
for the Ninth Circuit remanded the case to the district court without deciding
the issue in light of the passage of the FISA Amendments Act, a provision of
which addresses the allegations in these pending lawsuits (immunity provision).
The immunity provision requires the pending lawsuits to be dismissed if the
Attorney General certifies to the court either that the alleged assistance was
undertaken by court order, certification, directive or written request or that
the telecom entity did not provide the alleged assistance. In September 2008,
the Attorney General filed his certification and asked the district court to
dismiss all of the lawsuits pending against the AT&T Inc. telecommunications
companies. The court granted the Government's motion to dismiss and entered
final judgments in July 2009. In addition, a lawsuit seeking to enjoin the
immunity provision's application on grounds that it is unconstitutional was
filed. In March 2009, we and the Government filed motions to dismiss this
lawsuit. The court granted the motion to dismiss and entered final judgment in
July 2009. All cases brought against the AT&T entities have been dismissed. In
August 2009, plaintiffs in all cases filed an appeal with the Ninth Circuit
Court of Appeals, and this appeal remains pending.
Management believes this appeal is without merit and intends to continue to
defend these matters vigorously.
Universal Service Fees Litigation On October 22, 2010, our wireless subsidiary
was served with a purported class action in Circuit Court, Cole County, Missouri
(MBA Surety Agency, Inc. v. AT&T Mobility, LLC), in which the plaintiffs contend
that we violated the FCC's rules by collecting universal service fees on certain
services not subject to such fees, including internet access service provided
over wireless handsets commonly called "smartphones" and wireless data cards, as
well as collecting certain other state and local fees. Plaintiffs define the
class as all persons who from April 1, 2003 until the present had a contractual
relationship with us for internet access through a smartphone or a wireless data
card. Plaintiffs seek an unspecified amount of damages as well as injunctive
relief. We believe that an adverse outcome having a material effect on our
financial statements in this case is unlikely.
Labor Contracts On August 19, 2010, we and the Communications Workers of
America announced a tentative agreement covering approximately 4,000 core
wireline employees in Connecticut, subject to ratification by covered employees.
This agreement was ratified on September 7, 2010, and all core wireline
employees are now covered by new labor contracts. The agreement provides for a
three-year term (retroactive to April 2009) and, for a vast majority of those
covered employees, a 3% base salary increase in years one and two, a wage
increase in year three of 2.75% and resulting pension increases for most
employees. For the wage increase there is a potential cost-of-living increase
based on the consumer price index for the third year. This agreement also
provides for continued health care coverage with reasonable increases in cost
sharing.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the U.S. are subject to federal and
state regulatory authorities. AT&T subsidiaries operating outside the U.S. are
subject to the jurisdiction of national and supranational regulatory authorities
in the markets where service is provided, and regulation is generally limited to
operational licensing authority for the provision of services to enterprise
customers.
In the Telecommunications Act of 1996 (Telecom Act), Congress established a
national policy framework intended to bring the benefits of competition and
investment in advanced telecommunications facilities and services to all
Americans by opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare. However, since the
Telecom Act was passed, the FCC and some state regulatory commissions have
maintained certain regulatory requirements that were imposed decades ago on our
traditional wireline subsidiaries when they operated as legal monopolies. Where
appropriate, we are pursuing additional legislative and regulatory measures to
reduce regulatory burdens that inhibit our ability to compete more effectively
and offer services wanted and needed by our customers. For example, we are
supporting efforts to update and improve regulatory treatments for retail
services. Passage of legislation is uncertain and depends on many factors.
32
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
The current Commission appears to be more open than the prior Commission to
maintaining or expanding regulatory requirements on entities subject to its
jurisdiction. In addition, Congress, the President and the FCC all have declared
a national policy objective of ensuring that all Americans have access to
broadband technologies and services. In 2009, Congress charged the FCC with
developing a National Broadband Plan, which the FCC delivered to Congress in
March 2010. The Plan is broad in scope and proposes a detailed strategy for
expanding deployment and adoption of broadband facilities and services. It
contains a series of recommendations for future action by the FCC, Congress and
other governmental agencies, including dozens of rulemaking proceedings at the
FCC. The proceedings will affect all segments of the communications industry and
may encompass proposed rules and policies relating to universal service support,
intercarrier compensation, unbundling of broadband facilities/services, data
roaming and regulation of special access services and other high capacity
services as well as a variety of other areas that could have an impact on AT&T's
operations and revenues. The FCC has yet to implement most of the
recommendations of the National Broadband Plan, and we cannot at this point
quantify the impact, if any, the Plan will have on our business.
Our wireless operations are subject to robust competition but are likewise
subject to significant governmental regulation. Wireless communications
providers must be licensed by the FCC to provide communications services at
specified spectrum frequencies within specified geographic areas and must comply
with the rules and policies governing the use of the spectrum as adopted by the
FCC. The FCC has recognized the importance of providing carriers with access to
adequate spectrum to permit continued wireless growth and has begun
investigating how to develop policies to promote that goal. While wireless
communications providers' prices and service offerings are generally not subject
to state regulation, an increasing number of states are attempting to regulate
or legislate various aspects of wireless services, such as in the area of
consumer protection. The FCC, as well, is increasingly focusing on consumer
protection. For example, on October 14, 2010, the FCC adopted a Notice of
Proposed Rulemaking (NPRM) proposing that wireless providers give customers
notice when customers are approaching usage limits in their service plan or when
they are about to incur international roaming charges.
Net Neutrality In 2009, the FCC adopted a NPRM seeking comment on six proposed
"net neutrality" rules that are intended to preserve the "free and open
Internet." The proposed rules apply to providers of "broadband Internet access
service" and state that, subject to "reasonable network management," such a
provider:
+-----+-----------------------------------------------------------------------------------------------------------------------+
| · | May not prevent any of its users from sending or receiving the lawful content of the user's choice over the Internet. |
+-----+-----------------------------------------------------------------------------------------------------------------------+
+-----+--------------------------------------------------------------------------------------------------------------------------+
| · | May not prevent any of its users from running the lawful applications or using the lawful services of the user's choice. |
+-----+--------------------------------------------------------------------------------------------------------------------------+
+-----+------------------------------------------------------------------------------------------------------------------------------------------------+
| · | May not prevent any of its users from connecting to and using on its network the user's choice of lawful devices that do not harm the network. |
+-----+------------------------------------------------------------------------------------------------------------------------------------------------+
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | May not deprive any of its users of the user's entitlement to competition among network providers, application providers, service providers and content providers. |
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+-----+-------------------------------------------------------------------------------------+
| · | Must treat lawful content, applications and services in a nondiscriminatory manner. |
+-----+-------------------------------------------------------------------------------------+
+-----+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Must disclose such information concerning network management and other practices as is reasonably required for users and content, application and service providers to enjoy the protections specified in these rules. |
+-----+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
The NPRM states that the proposed rules would apply to all platforms over which
broadband Internet access services are provided, including mobile wireless
broadband, while recognizing that different platforms involve significantly
different technologies, market structures, patterns of consumer usage and
regulatory history. The comment cycle on the NPRM concluded in the second
quarter of 2010.
In April 2010, the D.C. Circuit vacated the FCC's 2008 Comcast Order, in which
the FCC concluded that Comcast unlawfully had interfered with its cable modem
customers' use of certain peer-to-peer applications, in violation of the FCC's
net neutrality principles. The court found that the FCC failed to show it had
authority to enforce those principles against Comcast. Following the decision,
the FCC issued the broadband reclassification Notice of Inquiry described in the
following.
Broadband Reclassification In June 2010, the FCC adopted a Notice of Inquiry
seeking comment on whether it should "reclassify" wired and wireless broadband
Internet access services for regulatory purposes. Currently, broadband Internet
access services are classified as minimally regulated "information services"
under Title I of the Communications Act. To provide itself with additional
regulatory authority following the D.C. Circuit's decision in the Comcast case
(discussed above), the FCC asks whether it should now reclassify broadband
Internet access service as consisting of two separate components: (i) a
transmission component, known as "Internet connectivity service," which would be
classified as a "telecommunications service" subject to traditional telephone
company regulation under Title II of the Act, and (ii) an information processing
component, known as "broadband Internet service," which would be classified as a
minimally regulated Title I information service. The FCC proposes to abstain
from applying numerous provisions of Title II to the Internet connectivity
service, but it also proposes to retain several traditional core regulations
from Title II, including pricing and nondiscrimination requirements. We strongly
oppose any efforts to reclassify this service and have filed comments opposing
this approach by the FCC. Given the uncertainty regarding the definition of
"Internet connectivity service", the types of regulations that would apply to
such a service, and the many arguments against the proposal, including
challenges to the FCC's legal authority to reclassify this service, we are
unable to determine the impact of this proceeding on our operating results and
financial condition at this time.
33
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Continued
Dollars in millions except per share amounts
LIQUIDITY AND CAPITAL RESOURCES
We had $3,246 in cash and cash equivalents available at September 30, 2010. Cash
and cash equivalents included cash of $332 and money market funds and other cash
equivalents of $2,914. In the first nine months of 2010, cash inflows were
primarily provided by cash receipts from operations, the issuance of long-term
debt and the sale of Sterling and other assets. These inflows were offset by
cash used to meet the needs of the business, including, but not limited to,
payment of operating expenses, funding capital expenditures, dividends to
stockholders, acquisitions and the repayment of debt, including a premium on our
September 2010 debt exchange. We discuss many of these factors in detail below.
Cash Provided by or Used in Operating Activities
During the first nine months of 2010, cash provided by operating activities was
$25,350, which is comparable to $25,444 for the first nine months of 2009.
In September 2010, we reached a settlement with the IRS on the calculation of
the tax basis of certain assets relating to a restructuring of our wireless
operations. The allowed amortization deductions on these settlement-related
assets are expected to cover a 15-year period, which began in 2008. As a result
of this settlement, we will pay approximately $300 to the IRS during the fourth
quarter of 2010, representing the tax effect of disallowed deductions taken on
our federal income tax returns in 2008 and 2009. We also decreased our net tax
liabilities approximately $8,300 and expect to recognize the cash flow impacts
of the settlement over a 15-year period, which began in 2008. The effect of the
change to our net tax liabilities was recognized through our income statement in
the third quarter of 2010 as a reduction in income tax expense.
Cash Used in or Provided by Investing Activities
For the first nine months of 2010, cash used in investing activities consisted
primarily of:
+-----+---------------------------------------------------------------------------+
| · | $13,170 for capital expenditures. |
+-----+---------------------------------------------------------------------------+
+-----+---------------------------------------------------------------------------+
| · | $577 for interest during construction. |
+-----+---------------------------------------------------------------------------+
+-----+---------------------------------------------------------------------------+
| · | $2,372 cash paid for the acquisition of wireless assets from Verizon. |
+-----+---------------------------------------------------------------------------+
+-----+---------------------------------------------------------------------------+
| · | $243 for the acquisition of wireless spectrum and other assets. |
+-----+---------------------------------------------------------------------------+
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | $437 of net sales and purchase activity, which includes $350 for purchases of various investments held in our Rabbi Trusts, and $202 for the purchase of América Móvil shares, slightly offset by cash inflows of $115 related to the sale of various investments. |
+-----+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
For the first nine months of 2010, cash provided by investing activities
included $1,410 related to the sale of Sterling, $273 from the sale of certain
wireless assets that was a condition to our acquisition of Centennial and $138
from the sale of other nonstrategic assets.
Our capital expenditures are primarily for our wireless and wireline networks
and support systems for our communications services. Capital spending, excluding
interest during construction in our Wireless segment, represented 41% of our
total spending and increased 62% for the first nine months. Wireless
expenditures were used for network capacity expansion, integration and upgrades
to our Universal Mobile Telecommunications System/High-Speed Packet Access
network and the initial deployment of long-term evolution (4G) equipment for
trials. The Wireline segment represented 59% of the total capital expenditures,
excluding interest during construction. Wireline capital expenditures increased
1% in the first nine months.
34
AT&T INC.
SEPTEMBER 30, 2010
Item 2. Management's Discussion and Analysis of Finacial Condition and Results
of Operation-Continued
Dollars in millions except per share amounts
We continue to expect that our capital expenditures during 2010 will be in the
range of $18,000 to $19,000, assuming that the regulatory environment remains
favorable for investment. We continue to expect to fund 2010 capital
expenditures for our Wireless and Wireline segments, including international
operations, using cash from operations and incremental borrowings, depending on
interest rate levels and overall market conditions. The amount of capital
investment is influenced by demand for services and products, continued growth
and regulatory considerations.
Cash Used in or Provided by Financing Activities
For the first nine months of 2010, we funded our financing activities primarily
through cash from operations and the proceeds of $2,235 from our July issuance
of $2,250 of 2.50% global notes due in 2015. Our financing activities primarily
consisted of the payment of dividends and the repayment of long-term debt.
We paid dividends of $7,436 during the first nine months of 2010, compared with
$7,252 for the first nine months of 2009. The 2.5% increase was primarily due to
the increase in the quarterly dividend approved by our Board of Directors in
December 2009. Dividends declared by our Board of Directors totaled $0.42 per
share in the third quarter of 2010 and $0.41 per share in the third quarter of
2009. Our dividend policy considers the expectations and requirements of
stockholders, internal requirements of AT&T and long-term growth opportunities.
It is our intent to provide the financial flexibility to allow our Board of
Directors to consider dividend growth and to recommend an increase in dividends
to be paid in future periods. All dividends remain subject to declaration by our
Board of Directors.
At September 30, 2010, we had $6,426 of debt maturing within one year, which
included $6,394 of long-term debt maturities and $32 of other short-term
borrowings. Debt maturing within one year includes $1,000 of annual put reset
securities issued by BellSouth Corporation that may be put back to us by the
holders each April until maturity in 2021.
During the first nine months of 2010, we repaid $4,686 of long-term debt with a
weighted-average interest rate of 2.31%. Additionally, during September we
completed a debt exchange in which we settled a private offer to exchange any
and all of the outstanding 8.75% senior notes of New Cingular Wireless Services,
Inc. due 2031 and, subject to pro-ration, the outstanding 8.00% senior notes of
AT&T Corp. due 2031, for a new series of AT&T notes and a cash premium. As a
result of this transaction, $1,362 of the 8.75% notes and $1,537 of the 8.00%
notes were exchanged for $3,500 of new 5.35% AT&T notes due in 2040 and $594 of
cash, plus accrued interest.
At September 30, 2010, our debt ratio was 37.8%, compared to 42.1% at September
30, 2009, and 41.3% at December 31, 2009. The decreased debt ratio at September
30, 2010 is primarily due to increased stockholders' equity resulting from our
recognition of the third-quarter 2010 tax settlement of $8,300, thereby
increasing net income and retained earnings. The decreased debt ratio from a
year ago reflects a decrease of $3,698 in debt and an increase of $13,292 in
stockholders' equity. The decreased debt ratio from December 31, 2009 reflects a
decrease of $3,115 in debt and an increase of $10,972 in stockholders' equity.
We have a $9,465 credit agreement with a syndicate of investment and commercial
banks, which we have the right to increase up to an additional $2,535, provided
no event of default under the credit agreement has occurred. The current
agreement will expire in July 2011. We also have the right to terminate, in
whole or in part, amounts committed by the lenders under this agreement in
excess of any outstanding advances; however, any such terminated commitments may
not be reinstated. Advances under this agreement may be used for general
corporate purposes, including support of commercial paper borrowings and other
short-term borrowings. We must maintain a debt-to-EBITDA (earnings before
interest, income taxes, depreciation and amortization, and other modifications
described in the agreement) financial ratio covenant of not more than
three-to-one as of the last day of each fiscal quarter for the four quarters
then ended. We comply with all covenants under the agreement. At September 30,
2010, we had no borrowings outstanding under this agreement.
35
AT&T INC.
+--------------------------------------------------------------------------------+
| SEPTEMBER 30, 2010 |
+--------------------------------------------------------------------------------+
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At September 30, 2010, we had interest rate swaps with a notional value of
$11,250 and a fair value of $681.
We have fixed-to-fixed cross-currency swaps on foreign-currency-denominated debt
instruments with a U.S. dollar notional value of $7,502 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
$(497) at September 30, 2010. We have rate locks with a notional value of $3,400
and a net fair value of $(506) and foreign exchange contracts with a notional
value of $233 and a net fair value of $3 at September 30, 2010.
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 September 30, 2010. 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 September
30, 2010.
36
AT&T INC.
+--------------------------------------------------------------------------------+
| SEPTEMBER 30, 2010 |
+--------------------------------------------------------------------------------+
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. |
+---+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+------------------------------------------------------------------------------------------------------------------------+
| · | 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 U.S. and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates and adverse medical cost trends and unfavorable health care legislation and regulations. |
+---+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The final outcome of Federal Communications Commission and other federal agency proceedings and reopenings of such proceedings and judicial review, if any, of such proceedings, including issues relating to access charges, broadband deployment, reclassification of broadband as a Title II service, E911 services, competition, net neutrality, unbundled loop and transport elements, wireless license awards and renewals and wireless services. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The final outcome of regulatory proceedings in the states in which we operate and reopenings of such proceedings and judicial review, if any, of such proceedings, including proceedings relating to Interconnection terms, access charges, universal service, unbundled network elements and resale and wholesale rates, broadband deployment including our U-verse services, net neutrality, performance measurement plans, service standards and traffic compensation. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Enactment of additional state, federal and/or foreign regulatory and tax laws and regulations pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs. |
+---+------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies (e.g., cable, wireless and VoIP) and our ability to maintain capital expenditures. |
+---+-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+-------------------------------------------------------------------------------------------------------------------------+
| · | The extent of competition and the resulting pressure on access line totals and wireline and wireless operating margins. |
+---+-------------------------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Our ability to develop attractive and profitable product/service offerings to offset increasing competition in our wireless and wireline markets. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | 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 timing, extent and cost of deployment of our U-verse services; the development of attractive and profitable service offerings; the extent to which regulatory, franchise fees and build-out requirements apply to this initiative; and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+--------------------------------------------------------------------------------------------------------+
| · | Our continued ability to attract and offer a diverse portfolio of devices, some on an exclusive basis. |
+---+--------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The availability and cost of additional wireless spectrum and regulations relating to licensing and technical standards and deployment and usage, including network management rules. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+------------------------------------------------------------------------------------+
| · | Our ability to manage growth in wireless data services, including network quality. |
+---+------------------------------------------------------------------------------------+
+---+--------------------------------------------------------------------------------------------------------------------------+
| · | The outcome of pending or threatened litigation, including patent and product safety claims by or against third parties. |
+---+--------------------------------------------------------------------------------------------------------------------------+
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The impact on our networks and business from major equipment failures, our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers, severe weather conditions, natural disasters, pandemics, energy shortages, wars or terrorist attacks. |
+---+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+-------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards. |
+---+-------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | The issuance by the Internal Revenue Service and/or state tax authorities of new tax regulations or changes to existing standards and actions by federal, state or local tax agencies and judicial authorities with respect to applying applicable tax laws and regulations and the resolution of disputes with any taxing jurisdictions. |
+---+-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+---+-----------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Our ability to adequately fund our wireless operations, including payment for additional spectrum; network upgrades and technological advancements. |
+---+-----------------------------------------------------------------------------------------------------------------------------------------------------+
+---+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Changes in our corporate strategies, such as changing network requirements or acquisitions and dispositions, to respond to competition and regulatory, legislative and technological developments. |
+---+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
Readers are cautioned that other factors discussed in this report, although not
enumerated here, also could materially affect our future earnings.
37
AT&T INC.
+--------------------------------------------------------------------------------+
| SEPTEMBER 30, 2010 |
+--------------------------------------------------------------------------------+
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 third quarter 2010,
there were no such material developments.
38
AT&T INC.
+--------------------------------------------------------------------------------+
| SEPTEMBER 30, 2010 |
+--------------------------------------------------------------------------------+
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.
+--------+---------------------+
| 10a | 2005 |
| | Supplemental |
| | Employee |
| | Retirement |
| | Plan, as |
| | amended and |
| | restated |
| | September |
| | 24, 2010 |
+--------+---------------------+
| 10b | AT&T |
| | Health |
| | Plan, |
| | as |
| | amended |
| | and |
| | restated |
| | September |
| | 23, 2010 |
+--------+---------------------+
| 10c | Administrative |
| | Plan, as |
| | amended and |
| | restated |
| | September 23, |
| | 2010 |
+--------+---------------------+
| 10d | AT&T |
| | Inc. |
| | Change |
| | in |
| | Control |
| | Severance |
| | Plan, as |
| | amended |
| | and |
| | restated |
| | September |
| | 23, 2010 |
+--------+---------------------+
| 12 | Computation |
| | of Ratios |
| | of Earnings |
| | to Fixed |
| | Charges |
+--------+---------------------+
| 31 | Rule |
| | 13a-14(a)/15d-14(a) |
| | Certifications |
| | |
| | 31.1 Certification |
| | of Principal |
| | Executive Officer |
| | |
| | 31.2 Certification |
| | of Principal |
| | Financial Officer |
+--------+---------------------+
| 32 | Section |
| | 1350 |
| | Certifications |
+--------+---------------------+
| 101 | XBRL |
| | Instance |
| | Document |
+--------+---------------------+
39
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.
AT&T Inc.
November 4, 2010
/s/ Richard G. Linder .
Richard G. Lindner
Senior Executive Vice President
and Chief Financial Officer
40
EXHIBIT 12
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| AT&T INC. |
+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES |
+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| Dollars in Millions |
+----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | Nine Months Ended | | | | | | | | | | | | | | |
+-----------------------------------------------------------+---------------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | September 30, | | Year Ended December 31, |
+-----------------------------------------------------------+--------+---------------------------------------------+--------+------------------------------------------------------------------------------------------------------------------------------+
| | | | 2010 | | | 2009 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Earnings: | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Income | | $ | 16,791 | | $ | 14,632 | | $ | 18,970 | | $ | 20,164 | | $ | 18,458 | | $ | 10,919 | | $ | 5,720 |
| from | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Equity | | | (629) | | | (549) | | | (734) | | | (819) | | | (692) | | | (2,043) | | | (609) |
| in net | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | |
| included | | | | | | | | | | | | | | | | | | | | | |
| above | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | | 3,557 | | | 3,840 | | | 5,071 | | | 4,943 | | | 4,489 | | | 2,166 | | | 1,681 |
| charges | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Distributed | | | 98 | | | 119 | | | 317 | | | 164 | | | 395 | | | 97 | | | 158 |
| income of | | | | | | | | | | | | | | | | | | | | | |
| equity | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | | (577 | ) | | (553) | | | (740) | | | (659) | | | (171) | | | (73) | | | (36) |
| capitalized | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Earnings, | | $ | 19,240 | | $ | 17,489 | | $ | 22,884 | | $ | 23,793 | | $ | 22,479 | | $ | 11,066 | | $ | 6,914 |
| as | | | | | | | | | | | | | | | | | | | | | |
| adjusted | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | | | | | | | | | | | | | | | | | | | | |
| Charges: | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | $ | 2,248 | | $ | 2,573 | | $ | 3,368 | | $ | 3,369 | | $ | 3,460 | | $ | 1,800 | | $ | 1,456 |
| expense | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | | 577 | | | 553 | | | 740 | | | 659 | | | 171 | | | 73 | | | 36 |
| capitalized | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Dividends | | | - | | | - | | | - | | | 4 | | | 3 | | | 3 | | | 31 |
| on | | | | | | | | | | | | | | | | | | | | | |
| preferred | | | | | | | | | | | | | | | | | | | | | |
| securities | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Portion | | | 732 | | | 714 | | | 963 | | | 911 | | | 855 | | | 290 | | | 158 |
| of | | | | | | | | | | | | | | | | | | | | | |
| rental | | | | | | | | | | | | | | | | | | | | | |
| expense | | | | | | | | | | | | | | | | | | | | | |
| representative | | | | | | | | | | | | | | | | | | | | | |
| of interest | | | | | | | | | | | | | | | | | | | | | |
| factor | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | $ | 3,557 | | $ | 3,840 | | $ | 5,071 | | $ | 4,943 | | $ | 4,489 | | $ | 2,166 | | $ | 1,681 |
| Charges | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Ratio | | | 5.41 | | | 4.55 | | | 4.51 | | | 4.81 | | | 5.01 | | | 5.11 | | | 4.11 |
| of | | | | | | | | | | | | | | | | | | | | | |
| Earnings | | | | | | | | | | | | | | | | | | | | | |
| to Fixed | | | | | | | | | | | | | | | | | | | | | |
| Charges | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
Exhibit 31.1
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: November 4, 2010
/s/ Randall Stephenson
Randall Stephenson
Chairman of the Board,
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATION
I, Richard G. Lindner, 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: November 4, 2010
/s/ Richard G. Lindner
Richard G. Lindner
Senior Executive Vice President
and Chief Financial Officer
Exhibit 32
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 September 30, 2010 (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.
+----------+----------+
| November | November |
| 4, 2010 | 4, 2010 |
+----------+----------+
+----------------------+------------------+------------+
| By: /s/ Randall | By: /s/ Richard G. Lindner |
| Stephenson | |
+----------------------+-------------------------------+
| Randall Stephenson | Richard G. Lindner |
+----------------------+-------------------------------+
| Chairman of the | Senior Executive | |
| Board, Chief | Vice President | |
| Executive | and Chief | |
| Officer and | Financial | |
| President | 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
The company news service from the London Stock Exchange
END
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