We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| Name | Symbol | Market | Type |
|---|---|---|---|
| Bank Mont. 45 | LSE:58KM | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
Hot Features
Premium
TIDM58KM
RNS Number : 0177R
AT & T Inc.
12 August 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 | |
| | | June 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 July 31, 2010, there were 5,909 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 | | | Six months ended | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | June 30, | | | June 30, | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Wireless | | $ | 13,186 | | | $ | 11,960 | | | $ | 26,036 | | | $ | 23,606 | |
| service | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Voice | | | 7,219 | | | | 8,255 | | | | 14,698 | | | | 16,758 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Data | | | 6,848 | | | | 6,323 | | | | 13,479 | | | | 12,605 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Directory | | | 1,007 | | | | 1,211 | | | | 2,048 | | | | 2,460 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 2,548 | | | | 2,865 | | | | 5,077 | | | | 5,642 | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 30,808 | | | | 30,614 | | | | 61,338 | | | | 61,071 | |
| operating | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cost | | | 12,381 | | | | 12,557 | | | | 24,716 | | | | 24,758 | |
| of | | | | | | | | | | | | | | | | |
| services | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| sales | | | | | | | | | | | | | | | | |
| (exclusive | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| depreciation | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | |
| shown | | | | | | | | | | | | | | | | |
| separately | | | | | | | | | | | | | | | | |
| below) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Selling, | | | 7,475 | | | | 7,682 | | | | 14,863 | | | | 15,340 | |
| general | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| administrative | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,838 | | | | 4,875 | | | | 9,638 | | | | 9,733 | |
| and | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 24,694 | | | | 25,114 | | | | 49,217 | | | | 49,831 | |
| operating | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 6,114 | | | | 5,500 | | | | 12,121 | | | | 11,240 | |
| Income | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| (Expense) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (754 | ) | | | (876 | ) | | | (1,519 | ) | | | (1,722 | ) |
| expense | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 195 | | | | 231 | | | | 412 | | | | 368 | |
| in net | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 723 | | | | 30 | | | | 700 | | | | 15 | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 164 | | | | (615 | ) | | | (407 | ) | | | (1,339 | ) |
| other | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 6,278 | | | | 4,885 | | | | 11,714 | | | | 9,901 | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Before | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| Taxes | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 2,173 | | | | 1,612 | | | | 5,048 | | | | 3,423 | |
| taxes | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 4,105 | | | | 3,273 | | | | 6,666 | | | | 6,478 | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | (4 | ) | | | 3 | | | | (3 | ) | | | (1 | ) |
| (Loss) | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations, | | | | | | | | | | | | | | | | |
| net of tax | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 4,101 | | | | 3,276 | | | | 6,663 | | | | 6,477 | |
| Income | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Less: | | | (78 | ) | | | (78 | ) | | | (165 | ) | | | (153 | ) |
| Net | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| Noncontrolling | | | | | | | | | | | | | | | | |
| Interest | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 4,023 | | | $ | 3,198 | | | $ | 6,498 | | | $ | 6,324 | |
| Income | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | | - | | | | - | | | | - | | | | - | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Continuing | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | | - | | | | - | | | | - | | | | - | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| Discontinued | | | | | | | | | | | | | | | | |
| Operations | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| Earnings | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted | | | 5,909 | | | | 5,900 | | | | 5,907 | | | | 5,898 | |
| Average | | | | | | | | | | | | | | | | |
| Number | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Shares | | | | | | | | | | | | | | | | |
| Outstanding | | | | | | | | | | | | | | | | |
| - Basic (in | | | | | | | | | | | | | | | | |
| millions) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted | | | 5,937 | | | | 5,923 | | | | 5,936 | | | | 5,923 | |
| Average | | | | | | | | | | | | | | | | |
| Number | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Shares | | | | | | | | | | | | | | | | |
| Outstanding | | | | | | | | | | | | | | | | |
| - with | | | | | | | | | | | | | | | | |
| Dilution | | | | | | | | | | | | | | | | |
| (in | | | | | | | | | | | | | | | | |
| millions) | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dividends | | $ | 0.42 | | | $ | 0.41 | | | $ | 0.84 | | | $ | 0.82 | |
| Declared | | | | | | | | | | | | | | | | |
| Per | | | | | | | | | | | | | | | | |
| Common | | | | | | | | | | | | | | | | |
| Share | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
See Notes to Consolidated Financial Statements.
2
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| AT&T INC. | |
+-----------------------------------------------------------------------------------------+--------+
| CONSOLIDATED BALANCE SHEETS | |
+-----------------------------------------------------------------------------------------+--------+
| Dollars | | | | | | |
| in | | | | | | |
| millions | | | | | | |
| except | | | | | | |
| per | | | | | | |
| share | | | | | | |
| amounts | | | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Assets | | (Unaudited) | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Current | | | | | | |
| Assets | | | | | | |
+----------------------+--------+-------------------+--------+--------+-------------------+--------+
| Cash | | $ | 1,377 | | | $ | 3,741 | |
| and | | | | | | | | |
| cash | | | | | | | | |
| equivalents | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accounts | | | 13,780 | | | | 14,845 | |
| receivable | | | | | | | | |
| - net of | | | | | | | | |
| allowances | | | | | | | | |
| for | | | | | | | | |
| doubtful | | | | | | | | |
| accounts | | | | | | | | |
| of $1,084 | | | | | | | | |
| and $1,202 | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Prepaid | | | 1,666 | | | | 1,562 | |
| expenses | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | 1,225 | | | | 1,247 | |
| income | | | | | | | | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 3,344 | | | | 3,792 | |
| current | | | | | | | | |
| assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 21,392 | | | | 25,187 | |
| current | | | | | | | | |
| assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Property, | | | 236,187 | | | | 230,295 | |
| plant and | | | | | | | | |
| equipment | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Less: | | | (135,885 | ) | | | (130,242 | ) |
| accumulated | | | | | | | | |
| depreciation | | | | | | | | |
| and | | | | | | | | |
| amortization | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Property, | | | 100,302 | | | | 100,053 | |
| Plant and | | | | | | | | |
| Equipment | | | | | | | | |
| - Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Goodwill | | | 73,484 | | | | 72,782 | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Licenses | | | 49,957 | | | | 48,741 | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Customer | | | 6,047 | | | | 7,393 | |
| Lists | | | | | | | | |
| and | | | | | | | | |
| Relationships | | | | | | | | |
| - Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 5,539 | | | | 5,494 | |
| Intangible | | | | | | | | |
| Assets - | | | | | | | | |
| Net | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Investments | | | 4,346 | | | | 2,921 | |
| in Equity | | | | | | | | |
| Affiliates | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 6,489 | | | | 6,275 | |
| Assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | $ | 267,556 | | | $ | 268,846 | |
| Assets | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Liabilities | | | | | | | | |
| and | | | | | | | | |
| Stockholders' | | | | | | | | |
| Equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Current | | | | | | | | |
| Liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Debt | | $ | 9,721 | | | $ | 7,361 | |
| maturing | | | | | | | | |
| within | | | | | | | | |
| one year | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accounts | | | 18,157 | | | | 21,260 | |
| payable | | | | | | | | |
| and | | | | | | | | |
| accrued | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Advanced | | | 3,943 | | | | 4,170 | |
| billing | | | | | | | | |
| and | | | | | | | | |
| customer | | | | | | | | |
| deposits | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accrued | | | 1,879 | | | | 1,681 | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Dividends | | | 2,482 | | | | 2,479 | |
| payable | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 36,182 | | | | 36,951 | |
| current | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Long-Term | | | 60,277 | | | | 64,720 | |
| Debt | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | | | | | | |
| Credits | | | | | | | | |
| and | | | | | | | | |
| Other | | | | | | | | |
| Noncurrent | | | | | | | | |
| Liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Deferred | | | 25,615 | | | | 23,781 | |
| income | | | | | | | | |
| taxes | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Postemployment | | | 27,421 | | | | 27,847 | |
| benefit | | | | | | | | |
| obligation | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Other | | | 14,578 | | | | 13,226 | |
| noncurrent | | | | | | | | |
| liabilities | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 67,614 | | | | 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 | | | | | | | | |
| June 30, 2010 | | | | | | | | |
| and December | | | | | | | | |
| 31, 2009: | | | | | | | | |
| issued | | | | | | | | |
| 6,495,231,088 | | | | | | | | |
| at June 30, | | | | | | | | |
| 2010 and | | | | | | | | |
| December 31, | | | | | | | | |
| 2009) | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Additional | | | 91,628 | | | | 91,707 | |
| paid-in | | | | | | | | |
| capital | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Retained | | | 40,909 | | | | 39,366 | |
| earnings | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Treasury | | | (21,134 | ) | | | (21,260 | ) |
| stock | | | | | | | | |
| (586,184,637 | | | | | | | | |
| at June 30, | | | | | | | | |
| 2010 and | | | | | | | | |
| 593,300,187 | | | | | | | | |
| at December | | | | | | | | |
| 31, 2009, at | | | | | | | | |
| cost) | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Accumulated | | | (14,852 | ) | | | (14,412 | ) |
| other | | | | | | | | |
| comprehensive | | | | | | | | |
| loss | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Noncontrolling | | | 437 | | | | 425 | |
| interest | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | | 103,483 | | | | 102,321 | |
| stockholders' | | | | | | | | |
| equity | | | | | | | | |
+----------------------+--------+--------+----------+--------+--------+--------+----------+--------+
| Total | | $ | 267,556 | | | $ | 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) | |
+-----------------------------------------------------------------------------------------------------+--------+
| | | Six months ended | |
+-------------------------------------+--------+------------------------------------------------------+--------+
| | | June 30, | |
+-------------------------------------+--------+------------------------------------------------------+--------+
| | | 2010 | | | 2009 | |
+-------------------------------------+--------+------------------+--------+--------+-----------------+--------+
| Operating | | | | | | |
| Activities | | | | | | |
+-------------------------------------+--------+------------------+--------+--------+-----------------+--------+
| Net | | $ | 6,663 | | | $ | 6,477 | |
| income | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Adjustments | | | | | | | | |
| to | | | | | | | | |
| reconcile | | | | | | | | |
| net income | | | | | | | | |
| to | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| net | | | | | | | | |
| cash | | | | | | | | |
| provided | | | | | | | | |
| by | | | | | | | | |
| operating | | | | | | | | |
| activities: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Depreciation | | | 9,638 | | | | 9,733 | |
| and | | | | | | | | |
| amortization | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Undistributed | | | (378 | ) | | | (339 | ) |
| earnings from | | | | | | | | |
| investments | | | | | | | | |
| in equity | | | | | | | | |
| affiliates | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Bad | | | 671 | | | | 975 | |
| debt | | | | | | | | |
| expense | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Deferred | | | 2,076 | | | | 746 | |
| income | | | | | | | | |
| tax | | | | | | | | |
| expense | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | (641 | ) | | | 92 | |
| (gain) | | | | | | | | |
| loss | | | | | | | | |
| from | | | | | | | | |
| impairment | | | | | | | | |
| and sale | | | | | | | | |
| of | | | | | | | | |
| investments | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Changes | | | | | | | | |
| in | | | | | | | | |
| operating | | | | | | | | |
| assets | | | | | | | | |
| and | | | | | | | | |
| liabilities: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Accounts | | | 394 | | | | 169 | |
| receivable | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Other | | | 389 | | | | (58 | ) |
| current | | | | | | | | |
| assets | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Accounts | | | (3,063 | ) | | | (2,054 | ) |
| payable | | | | | | | | |
| and | | | | | | | | |
| accrued | | | | | | | | |
| liabilities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | (165 | ) | | | (153 | ) |
| income | | | | | | | | |
| attributable | | | | | | | | |
| to | | | | | | | | |
| noncontrolling | | | | | | | | |
| interest | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Other | | | 226 | | | | 184 | |
| - net | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Total | | | 9,147 | | | | 9,295 | |
| adjustments | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | 15,810 | | | | 15,772 | |
| Cash | | | | | | | | |
| Provided | | | | | | | | |
| by | | | | | | | | |
| Operating | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Investing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Construction | | | | | | | | |
| and capital | | | | | | | | |
| expenditures | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Capital | | | (7,856 | ) | | | (7,017 | ) |
| expenditures | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Interest | | | (379 | ) | | | (368 | ) |
| during | | | | | | | | |
| construction | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Acquisitions, | | | (2,554 | ) | | | (55 | ) |
| net of cash | | | | | | | | |
| acquired | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Dispositions | | | 14 | | | | 199 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| (Purchases) | | | (545 | ) | | | 4 | |
| and sales | | | | | | | | |
| of | | | | | | | | |
| securities, | | | | | | | | |
| net | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Other | | | 17 | | | | 14 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | (11,303 | ) | | | (7,223 | ) |
| Cash | | | | | | | | |
| Used | | | | | | | | |
| in | | | | | | | | |
| Investing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Financing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | 3,280 | | | | (3,915 | ) |
| change | | | | | | | | |
| in | | | | | | | | |
| short-term | | | | | | | | |
| borrowings | | | | | | | | |
| with | | | | | | | | |
| original | | | | | | | | |
| maturities | | | | | | | | |
| of three | | | | | | | | |
| months or | | | | | | | | |
| less | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Issuance | | | - | | | | 8,161 | |
| of | | | | | | | | |
| long-term | | | | | | | | |
| debt | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Repayment | | | (4,661 | ) | | | (2,036 | ) |
| of | | | | | | | | |
| long-term | | | | | | | | |
| debt | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Issuance | | | 5 | | | | 4 | |
| of | | | | | | | | |
| treasury | | | | | | | | |
| stock | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Dividends | | | (4,960 | ) | | | (4,834 | ) |
| paid | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Other | | | (535 | ) | | | (381 | ) |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | (6,871 | ) | | | (3,001 | ) |
| Cash | | | | | | | | |
| Used | | | | | | | | |
| in | | | | | | | | |
| Financing | | | | | | | | |
| Activities | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Net | | | (2,364 | ) | | | 5,548 | |
| increase | | | | | | | | |
| (decrease) | | | | | | | | |
| in cash | | | | | | | | |
| and cash | | | | | | | | |
| equivalents | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Cash | | | 3,741 | | | | 1,727 | |
| and | | | | | | | | |
| cash | | | | | | | | |
| equivalents | | | | | | | | |
| beginning | | | | | | | | |
| of year | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Cash | | $ | 1,377 | | | $ | 7,275 | |
| and | | | | | | | | |
| Cash | | | | | | | | |
| Equivalents | | | | | | | | |
| End of | | | | | | | | |
| Period | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Cash | | | | | | | | |
| paid | | | | | | | | |
| during | | | | | | | | |
| the | | | | | | | | |
| six | | | | | | | | |
| months | | | | | | | | |
| ended | | | | | | | | |
| June | | | | | | | | |
| 30 | | | | | | | | |
| for: | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Interest | | $ | 2,390 | | | $ | 2,219 | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
| Income | | $ | 2,449 | | | $ | 2,295 | |
| taxes, | | | | | | | | |
| net of | | | | | | | | |
| refunds | | | | | | | | |
+-------------------------------------+--------+--------+---------+--------+--------+--------+--------+--------+
See Notes to Consolidated Financial Statements.
4
+----------------------+--------+--------+--------+--------+---------+--------+
| AT&T Inc. | |
+--------------------------------------------------------------------+--------+
| Consolidated Statements of Changes in Stockholders' | |
| Equity (Unaudited) | |
+--------------------------------------------------------------------+--------+
| Dollars and shares in millions except per share | |
| amounts | |
+--------------------------------------------------------------------+--------+
| | June 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 | | | | | 68 | |
| of | | | | | | |
| treasury | | | | | | |
| shares | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Share-based | | | | | (147 | ) |
| payments | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | 91,628 | |
| at end | | | | | | |
| of | | | | | | |
| period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Retained | | | | | | |
| Earnings | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | 39,366 | |
| at | | | | | | |
| beginning | | | | | | |
| of year | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Net | | | | | 6,498 | |
| income | | | | | | |
| attributable | | | | | | |
| to AT&T | | | | | | |
| ($1.10 per | | | | | | |
| share) | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Dividends | | | | | (4,963 | ) |
| to | | | | | | |
| stockholders | | | | | | |
| ($0.84 per | | | | | | |
| share) | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Other | | | | | 8 | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | 40,909 | |
| at end | | | | | | |
| of | | | | | | |
| period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Treasury | | | | | | |
| Stock | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | (593 | ) | $ | (21,260 | ) |
| at | | | | | | |
| beginning | | | | | | |
| of year | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Issuance | | 7 | | | 126 | |
| of | | | | | | |
| shares | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | (586 | ) | $ | (21,134 | ) |
| at end | | | | | | |
| of | | | | | | |
| period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Accumulated | | | | | | |
| Other | | | | | | |
| Comprehensive | | | | | | |
| Income (Loss) | | | | | | |
| Attributable | | | | | | |
| to AT&T, net | | | | | | |
| of tax: | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | (14,412 | ) |
| at | | | | | | |
| beginning | | | | | | |
| of year | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Other | | | | | (440 | ) |
| comprehensive | | | | | | |
| income | | | | | | |
| attributable | | | | | | |
| to AT&T (see | | | | | | |
| Note 2) | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | (14,852 | ) |
| at end | | | | | | |
| of | | | | | | |
| period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Noncontrolling | | | | | | |
| Interest: | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | 425 | |
| at | | | | | | |
| beginning | | | | | | |
| of year | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Net | | | | | 165 | |
| income | | | | | | |
| attributable | | | | | | |
| to | | | | | | |
| noncontrolling | | | | | | |
| interest | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Distributions | | | | | (151 | ) |
+----------------------+--------+--------+--------+--------+---------+--------+
| Translation | | | | | (2 | ) |
| adjustments | | | | | | |
| applicable | | | | | | |
| to | | | | | | |
| noncontrolling | | | | | | |
| interest, net | | | | | | |
| of taxes | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Balance | | | | $ | 437 | |
| at end | | | | | | |
| of | | | | | | |
| period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Total | | | | $ | 102,321 | |
| Stockholders' | | | | | | |
| Equity at | | | | | | |
| beginning of | | | | | | |
| year | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| Total | | | | $ | 103,483 | |
| Stockholders' | | | | | | |
| Equity at end | | | | | | |
| of period | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
| See | | | | | | |
| Notes | | | | | | |
| to | | | | | | |
| Consolidated | | | | | | |
| Financial | | | | | | |
| Statements. | | | | | | |
+----------------------+--------+--------+--------+--------+---------+--------+
5
AT&T INC.
JUNE 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 June 30, 2010, and
through the date that our Form 10-Q was available for issuance for possible
inclusion in this Form 10-Q (see Note 8).
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 FASB 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.
JUNE 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 | | | 6/30/10 | |
+----------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Balance | | | Payments | | | and Accruals | | | Balance | |
+----------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Severance | | | | | | | | | | | | |
| accruals | | | | | | | | | | | | |
| paid | | | | | | | | | | | | |
| from: | | | | | | | | | | | | |
+----------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Company | | $ | 6 | | | $ | (2 | ) | | $ | (2 | ) | | $ | 2 | |
| funds | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Pension | | | 98 | | | | (2 | ) | | | - | | | | 96 | |
| and | | | | | | | | | | | | | | | | |
| postemployment | | | | | | | | | | | | | | | | |
| benefit plans | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Lease | | | 212 | | | | (19 | ) | | | (61 | ) | | | 132 | |
| terminations1 | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equipment | | | 23 | | | | (1 | ) | | | (20 | ) | | | 2 | |
| removal | | | | | | | | | | | | | | | | |
| and other | | | | | | | | | | | | | | | | |
| related | | | | | | | | | | | | | | | | |
| costs1 | | | | | | | | | | | | | | | | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 339 | | | $ | (24 | ) | | $ | (83 | ) | | $ | 232 | |
+----------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
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 $290 at June 30, 2010 and $676 at December 31, 2009.
The decrease in balance was due to payments during the period.
Income Taxes 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. The charge also contributed to an increase in our effective tax
rate to 43.1% for the six months ended June 30, 2010, compared to 34.6% for the
same period in 2009.
7
AT&T INC.
JUNE 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 six months ended
June 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. The foreign currency translation adjustment was due to
exchange rate fluctuations in our foreign affiliates' local currencies and the
reclassification adjustment on cash flow hedges was due to the amortization of
losses from our interest rate locks.
Following is our comprehensive income with the respective tax impacts for the
three months and six months periods ended June 30, 2010 and 2009:
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Six months ended | |
+------------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | June 30, | | | June 30, | |
+------------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Net | | $ | 4,101 | | | $ | 3,276 | | | $ | 6,663 | | | $ | 6,477 | |
| income | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | | | | | | | | | | | | | | |
| comprehensive | | | | | | | | | | | | | | | | |
| income, net | | | | | | | | | | | | | | | | |
| of tax: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | 22 | | | | 119 | | | | 115 | | | | 82 | |
| currency | | | | | | | | | | | | | | | | |
| translation | | | | | | | | | | | | | | | | |
| adjustments | | | | | | | | | | | | | | | | |
| (includes | | | | | | | | | | | | | | | | |
| $(1), $(1), | | | | | | | | | | | | | | | | |
| $(2) and | | | | | | | | | | | | | | | | |
| $(8) | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| noncontrolling | | | | | | | | | | | | | | | | |
| interest), net | | | | | | | | | | | | | | | | |
| of taxes of | | | | | | | | | | | | | | | | |
| $12, $63, $62 | | | | | | | | | | | | | | | | |
| and $43 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | | | | | | | | | | | | | | |
| unrealized | | | | | | | | | | | | | | | | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| securities: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Unrealized | | | (115 | ) | | | 119 | | | | (25 | ) | | | 29 | |
| gains | | | | | | | | | | | | | | | | |
| (losses), | | | | | | | | | | | | | | | | |
| net of | | | | | | | | | | | | | | | | |
| taxes of | | | | | | | | | | | | | | | | |
| $(62), | | | | | | | | | | | | | | | | |
| $63, $(14) | | | | | | | | | | | | | | | | |
| and $15 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Less | | | (30 | ) | | | - | | | | (55 | ) | | | 77 | |
| reclassification | | | | | | | | | | | | | | | | |
| adjustment | | | | | | | | | | | | | | | | |
| realized in net | | | | | | | | | | | | | | | | |
| income, net of | | | | | | | | | | | | | | | | |
| taxes of $(16), | | | | | | | | | | | | | | | | |
| $0, $(29) and | | | | | | | | | | | | | | | | |
| $41 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | | | | | | | | | | | | | | |
| unrealized | | | | | | | | | | | | | | | | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| on cash | | | | | | | | | | | | | | | | |
| flow | | | | | | | | | | | | | | | | |
| hedges: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Unrealized | | | (472 | ) | | | 234 | | | | (502 | ) | | | 418 | |
| gains | | | | | | | | | | | | | | | | |
| (losses) | | | | | | | | | | | | | | | | |
| on rate | | | | | | | | | | | | | | | | |
| locks and | | | | | | | | | | | | | | | | |
| cross | | | | | | | | | | | | | | | | |
| currency | | | | | | | | | | | | | | | | |
| swaps net | | | | | | | | | | | | | | | | |
| of taxes | | | | | | | | | | | | | | | | |
| of $(257), | | | | | | | | | | | | | | | | |
| $128, | | | | | | | | | | | | | | | | |
| $(273) and | | | | | | | | | | | | | | | | |
| $224 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Reclassification | | | 3 | | | | 4 | | | | 6 | | | | 7 | |
| adjustment for | | | | | | | | | | | | | | | | |
| losses on cash | | | | | | | | | | | | | | | | |
| flow hedges | | | | | | | | | | | | | | | | |
| included in net | | | | | | | | | | | | | | | | |
| income, net of | | | | | | | | | | | | | | | | |
| taxes of $2, $1, | | | | | | | | | | | | | | | | |
| $4 and $4 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Defined | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
| plans: | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | 8 | | | | 69 | | | | 19 | | | | 126 | |
| of net | | | | | | | | | | | | | | | | |
| actuarial | | | | | | | | | | | | | | | | |
| gain and | | | | | | | | | | | | | | | | |
| prior | | | | | | | | | | | | | | | | |
| service cost | | | | | | | | | | | | | | | | |
| included in | | | | | | | | | | | | | | | | |
| net income, | | | | | | | | | | | | | | | | |
| net of taxes | | | | | | | | | | | | | | | | |
| of $5, $37, | | | | | | | | | | | | | | | | |
| $11 and $67 | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | 1 | | | | - | | | | - | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | (584 | ) | | | 546 | | | | (442 | ) | | | 739 | |
| comprehensive | | | | | | | | | | | | | | | | |
| income (loss) | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 3,517 | | | | 3,822 | | | | 6,221 | | | | 7,216 | |
| comprehensive | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Less: | | | (77 | ) | | | (77 | ) | | | (163 | ) | | | (145 | ) |
| Total | | | | | | | | | | | | | | | | |
| comprehensive | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to | | | | | | | | | | | | | | | | |
| noncontrolling | | | | | | | | | | | | | | | | |
| interest | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 3,440 | | | $ | 3,745 | | | $ | 6,058 | | | $ | 7,071 | |
| Comprehensive | | | | | | | | | | | | | | | | |
| IncomeAttributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
8
AT&T INC.
JUNE 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 six months ended June 30, 2010 and 2009, are shown in the table below:
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months ended | | | Six months ended | |
+------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | June 30, | | | June 30, | |
+------------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Numerators | | | | | | | | | | | | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Numerator | | | | | | | | | | | | |
| for basic | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | |
| per | | | | | | | | | | | | |
| share: | | | | | | | | | | | | |
+------------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Net | | $ | 4,023 | | | $ | 3,198 | | | $ | 6,498 | | | $ | 6,324 | |
| income | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dilutive | | | | | | | | | | | | | | | | |
| potential | | | | | | | | | | | | | | | | |
| common | | | | | | | | | | | | | | | | |
| shares: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 2 | | | | 2 | | | | 4 | | | | 5 | |
| share-based | | | | | | | | | | | | | | | | |
| payment | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Numerator | | $ | 4,025 | | | $ | 3,200 | | | $ | 6,502 | | | $ | 6,329 | |
| for | | | | | | | | | | | | | | | | |
| diluted | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominators | | | | | | | | | | | | | | | | |
| (000,000) | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominator | | | | | | | | | | | | | | | | |
| for basic | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Weighted-average | | | 5,909 | | | | 5,900 | | | | 5,907 | | | | 5,898 | |
| number of common | | | | | | | | | | | | | | | | |
| shares | | | | | | | | | | | | | | | | |
| outstanding | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Dilutive | | | | | | | | | | | | | | | | |
| potential | | | | | | | | | | | | | | | | |
| common | | | | | | | | | | | | | | | | |
| shares: | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Stock | | | 3 | | | | 3 | | | | 3 | | | | 3 | |
| options | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 25 | | | | 20 | | | | 26 | | | | 22 | |
| share-based | | | | | | | | | | | | | | | | |
| payment | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Denominator | | | 5,937 | | | | 5,923 | | | | 5,936 | | | | 5,923 | |
| for diluted | | | | | | | | | | | | | | | | |
| earnings | | | | | | | | | | | | | | | | |
| per share | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Basic | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Diluted | | $ | 0.68 | | | $ | 0.54 | | | $ | 1.10 | | | $ | 1.07 | |
| earnings | | | | | | | | | | | | | | | | |
| per | | | | | | | | | | | | | | | | |
| share | | | | | | | | | | | | | | | | |
| attributable | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | |
+------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
At June 30, 2010, we had issued and outstanding options to purchase
approximately 143 million shares of AT&T common stock. The exercise prices of
127 million shares were above the market price of AT&T stock at June 30, 2010.
Accordingly, we did not include these amounts in determining the dilutive
potential common shares for the period. At June 30, 2010, the exercise prices of
12 million stock options were below market price.
At June 30, 2009, we had issued and outstanding options to purchase
approximately 183 million shares of AT&T common stock. The exercise prices of
164 million shares were above the market price of AT&T stock at June 30, 2009.
Accordingly, we did not include these amounts in determining the dilutive
potential common shares for the period. At June 30, 2009, the exercise prices of
16 million stock options were below market price.
9
AT&T INC.
JUNE 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 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. In May 2010, we announced the sale of Sterling
Commerce Inc. (Sterling). 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).
Historically, the 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 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.
Segment assets as of June 30, 2010 are materially unchanged from the year ended
December 31, 2009 with the exception of Wireless segment assets. Our Wireless
segment assets totaled $119,496, which increased $2,969, or 2.5%, primarily due
to increases in goodwill and licenses related to purchase of certain Verizon
Wireless properties (See Note 7).
10
AT&T INC.
JUNE 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the three months ended June | | | | | | | | | | | | | | | | |
| 30, 2010 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 14,242 | | | $ | 15,396 | | | $ | 1,007 | | | $ | 163 | | | $ | - | | | $ | 30,808 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 8,562 | | | | 10,389 | | | | 673 | | | | 232 | | | | - | | | | 19,856 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,578 | | | | 3,123 | | | | 132 | | | | 5 | | | | - | | | | 4,838 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 10,140 | | | | 13,512 | | | | 805 | | | | 237 | | | | - | | | | 24,694 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 4,102 | | | | 1,884 | | | | 202 | | | | (74 | ) | | | - | | | | 6,114 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 754 | | | | 754 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 7 | | | | - | | | | - | | | | 188 | | | | - | | | | 195 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 723 | | | | 723 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 4,109 | | | $ | 1,884 | | | $ | 202 | | | $ | 114 | | | $ | (31 | ) | | $ | 6,278 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the six months ended June 30, | | | | | | | | | | | | | | | | |
| 2010 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 28,139 | | | $ | 30,817 | | | $ | 2,048 | | | $ | 334 | | | $ | - | | | $ | 61,338 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 16,745 | | | | 21,006 | | | | 1,348 | | | | 480 | | | | - | | | | 39,579 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 3,136 | | | | 6,219 | | | | 270 | | | | 13 | | | | - | | | | 9,638 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 19,881 | | | | 27,225 | | | | 1,618 | | | | 493 | | | | - | | | | 49,217 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 8,258 | | | | 3,592 | | | | 430 | | | | (159 | ) | | | - | | | | 12,121 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 1,519 | | | | 1,519 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 20 | | | | 5 | | | | - | | | | 387 | | | | - | | | | 412 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | | | | 700 | | | | 700 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 8,278 | | | $ | 3,597 | | | $ | 430 | | | $ | 228 | | | $ | (819 | ) | | $ | 11,714 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
11
AT&T INC.
JUNE 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the three months ended June | | | | | | | | | | | | | | | | |
| 30, 2009 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 13,222 | | | $ | 15,989 | | | $ | 1,211 | | | $ | 192 | | | $ | - | | | $ | 30,614 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 8,428 | | | | 10,924 | | | | 706 | | | | 181 | | | | - | | | | 20,239 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,504 | | | | 3,194 | | | | 166 | | | | 11 | | | | - | | | | 4,875 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 9,932 | | | | 14,118 | | | | 872 | | | | 192 | | | | - | | | | 25,114 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 3,290 | | | | 1,871 | | | | 339 | | | | - | | | | - | | | | 5,500 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 876 | | | | 876 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | - | | | | 5 | | | | - | | | | 226 | | | | - | | | | 231 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | (1 | ) | | | - | | | | - | | | | 31 | | | | 30 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 3,290 | | | $ | 1,875 | | | $ | 339 | | | $ | 226 | | | $ | (845 | ) | | $ | 4,885 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| For the six months ended June 30, | | | | | | | | | | | | | | | | |
| 2009 | | | | | | | | | | | | | | | | |
+---------------------------------------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | Advertising | | | | | | | | | Consolidated | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | Wireless | | | Wireline | | | Solutions | | | Other | | | Consolidations | | | Results | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 26,060 | | | $ | 32,151 | | | $ | 2,460 | | | $ | 400 | | | $ | - | | | $ | 61,071 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 16,314 | | | | 21,856 | | | | 1,427 | | | | 501 | | | | - | | | | 40,098 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 3,003 | | | | 6,368 | | | | 342 | | | | 20 | | | | - | | | | 9,733 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 19,317 | | | | 28,224 | | | | 1,769 | | | | 521 | | | | - | | | | 49,831 | |
| segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 6,743 | | | | 3,927 | | | | 691 | | | | (121 | ) | | | - | | | | 11,240 | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | - | | | | - | | | | - | | | | 1,722 | | | | 1,722 | |
| expense | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | - | | | | 8 | | | | - | | | | 360 | | | | - | | | | 368 | |
| in net | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | (1 | ) | | | - | | | | - | | | | 16 | | | | 15 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
| - net | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 6,743 | | | $ | 3,934 | | | $ | 691 | | | $ | 239 | | | $ | (1,706 | ) | | $ | 9,901 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
12
AT&T INC.
JUNE 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 | | | Six months ended | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | June 30, | | | June 30, | |
+----------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Pension | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | |
| cost: | | | | | | | | | | | | |
+----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Service | | $ | 269 | | | $ | 272 | | | $ | 538 | | | $ | 544 | |
| cost - | | | | | | | | | | | | | | | | |
| benefits | | | | | | | | | | | | | | | | |
| earned | | | | | | | | | | | | | | | | |
| during | | | | | | | | | | | | | | | | |
| the | | | | | | | | | | | | | | | | |
| period | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | 788 | | | | 845 | | | | 1,575 | | | | 1,690 | |
| cost on | | | | | | | | | | | | | | | | |
| projected | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
| obligation | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Expected | | | (1,143 | ) | | | (1,141 | ) | | | (2,286 | ) | | | (2,281 | ) |
| return | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| assets | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | (4 | ) | | | 28 | | | | (8 | ) | | | 55 | |
| of prior | | | | | | | | | | | | | | | | |
| service | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Recognized | | | 171 | | | | 166 | | | | 342 | | | | 332 | |
| actuarial | | | | | | | | | | | | | | | | |
| loss | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 81 | | | $ | 170 | | | $ | 161 | | | $ | 340 | |
| pension | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postretirement | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
| cost: | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Service | | $ | 87 | | | $ | 88 | | | $ | 174 | | | $ | 176 | |
| cost - | | | | | | | | | | | | | | | | |
| benefits | | | | | | | | | | | | | | | | |
| earned | | | | | | | | | | | | | | | | |
| during | | | | | | | | | | | | | | | | |
| the | | | | | | | | | | | | | | | | |
| period | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | | | | | | | | | | | | | | |
| cost on | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| benefit | | | 566 | | | | 631 | | | | 1,129 | | | | 1,261 | |
| obligation | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Expected | | | (285 | ) | | | (239 | ) | | | (569 | ) | | | (478 | ) |
| return | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| assets | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Amortization | | | (157 | ) | | | (89 | ) | | | (313 | ) | | | (179 | ) |
| of prior | | | | | | | | | | | | | | | | |
| service | | | | | | | | | | | | | | | | |
| benefit | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Recognized | | | (1 | ) | | | - | | | | (3 | ) | | | - | |
| actuarial | | | | | | | | | | | | | | | | |
| gain | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postretirement | | $ | 210 | | | $ | 391 | | | $ | 418 | | | $ | 780 | |
| cost | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Combined | | $ | 291 | | | $ | 561 | | | $ | 579 | | | $ | 1,120 | |
| net | | | | | | | | | | | | | | | | |
| pension | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | |
| postretirement | | | | | | | | | | | | | | | | |
| cost | | | | | | | | | | | | | | | | |
+----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Our combined net pension and postretirement cost decreased $270 in the second
quarter and $541 for the first six 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. 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). The expected
long-term rate of return is calculated on the 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 will 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
($1) in the second quarter and $1 for the first six months of 2010 and ($4) in
the second quarter and ($3) for the first six months of 2009.
13
AT&T INC.
JUNE 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 $42 in the
second quarter, of which $33 was interest cost, and $84 for the first six months
of 2010, of which $67 was interest cost. In 2009, net supplemental retirement
pension benefits cost was $41 in the second quarter, $35 of which was interest
cost, and $83 for the first six months, $70 of which 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 June 30, 2010 and December 31,
2009.
14
AT&T INC.
JUNE 30, 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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:
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | June 30, | | December 31, | |
+------------+--------------------------------------------------------------+--------+--------------------------------------------------------------+--------+
| | 2010 | | 2009 | |
+------------+--------------------------------------------------------------+--------+--------------------------------------------------------------+--------+
| | Carrying | | Fair | | Carrying | | Fair | |
+------------+--------------------------+--------+--------------------------+--------+--------------------------+--------+--------------------------+--------+
| | Amount | | Value | | Amount | | Value | |
+------------+--------------------------+--------+--------------------------+--------+--------------------------+--------+--------------------------+--------+
| Notes | | $ | 66,448 | | | $ | 72,447 | | | $ | 71,811 | | | $ | 75,212 | |
| and | | | | | | | | | | | | | | | | |
| debentures | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Commercial | | | 3,278 | | | | 3,278 | | | | - | | | | - | |
| paper | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Bank | | | 35 | | | | 35 | | | | 33 | | | | 33 | |
| borrowings | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Investment | | | 2,132 | | | | 2,132 | | | | 1,885 | | | | 1,885 | |
| securities | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
The fair values of our notes and debentures were estimated based on quoted
market prices, where available, or on the net present value method of expected
future cash flows using current interest rates. 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. Realized gains and losses on these 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, with the
corresponding reduction to the carrying basis of the investment.
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 June 30, 2010 and December 31, 2009:
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | June 30, 2010 | |
+--------------------------+--------+-----------------------------------------------------------------------------------------------------------------------------+--------+
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
+--------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Available-for-Sale | | | | | | | | | | | | |
| Securities | | | | | | | | | | | | |
+--------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Domestic | | $ | 942 | | | $ | - | | | $ | - | | | $ | 942 | |
| equities | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| International | | | 395 | | | | - | | | | - | | | | 395 | |
| equities | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Fixed | | | - | | | | 690 | | | | - | | | | 690 | |
| income | | | | | | | | | | | | | | | | |
| bonds | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Asset | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 602 | | | | - | | | | 602 | |
| rate | | | | | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | 108 | | | | - | | | | 108 | |
| swaps | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | 5 | | | | - | | | | 5 | |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Liability | | | | | | | | | | | | | | | | |
| Derivatives | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | - | | | | (1,014 | ) | | | - | | | | (1,014 | ) |
| swaps | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | (290 | ) | | | - | | | | (290 | ) |
| rate | | | | | | | | | | | | | | | | |
| locks | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | - | | | | (21 | ) | | | - | | | | (21 | ) |
| exchange | | | | | | | | | | | | | | | | |
| contracts | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
15
AT&T INC.
JUNE 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 which 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). Only a portion of our foreign exchange forward
contracts is not designated to receive hedge accounting.
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. We record changes in the
fair value of the swaps, along with the changes in the fair value of the hedged
asset or liability that is attributable to the hedged risk. 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.
Realized gains or losses 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 six months ended June 30, 2010 and
June 30, 2009, no ineffectiveness was measured.
16
AT&T INC.
JUNE 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 six months
ended June 30, 2010. Over the next 12 months, we expect to reclassify $16 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 a material
amount is deemed to be ineffective, which would be immediately reclassified to
income. In the six months ended June 30, 2010, no ineffectiveness was measured.
No transactions were designated in the first half of 2009.
Non-designated and Discontinued Hedging Instruments Changes in the fair value of
non-designated derivatives are recorded in other income (expense) - net, along
with the change in fair value of the underlying asset or liability, as
applicable. When hedge accounting is discontinued, the derivative is adjusted
for changes in fair value through other income (expense) - net. For fair value
hedges, the swap asset or liability and the underlying hedged liability or asset
will no longer be adjusted for changes in fair value, and the net adjustment to
the hedged item at that time will be amortized into earnings over the remaining
life of the hedged item. For cash flow hedges, gains and losses that were in
accumulated OCI as a component of stockholders' equity in connection with hedged
assets or liabilities or forecasted transactions will be recognized in other
income (expense) - net, in the same period the hedged item affects earnings.
Collateral and Credit-Risk Contingency We have entered into agreements with
most of our derivative counterparties, establishing collateral thresholds based
on respective credit ratings and netting agreements. At June 30, 2010, we had
posted collateral of $168 (a deposit asset). Under the agreements, if our credit
rating had been downgraded one rating level, we would have been required to post
additional collateral of $232. 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:
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | June 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 | | | 229 | | | | 293 | |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 22,381 | | | $ | 20,395 | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
17
AT&T INC.
JUNE 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.
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | June 30, | | | December 31, | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Asset | | 2010 | | | 2009 | |
| Derivatives | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Interest | | $ | 602 | | | $ | 399 | |
| rate | | | | | | | | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cross-currency | | | 108 | | | | 635 | |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | - | | | | 150 | |
| rate | | | | | | | | |
| locks | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | 5 | | | | 2 | |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 715 | | | $ | 1,186 | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | June 30, | | | December 31, | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Liability | | 2010 | | | 2009 | |
| Derivatives | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | |
+----------------+--------+-----------------+--------+--------+-----------------+--------+
| Cross-currency | | $ | (1,014 | ) | | $ | (390 | ) |
| swaps | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (290 | ) | | | (6 | ) |
| rate | | | | | | | | |
| locks | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | (21 | ) | | | (7 | ) |
| exchange | | | | | | | | |
| contracts | | | | | | | | |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | (1,325 | ) | | $ | (403 | ) |
+----------------+--------+--------+--------+--------+--------+--------+--------+--------+
Effect of Derivatives on the Consolidated Statements of Income
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months | | | Three months | | | Six months | | | Six months | |
| | | ended | | | ended | | | ended | | | ended | |
+---------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Fair | | June 30, 2010 | | | June 30, 2009 | | | June 30, 2010 | | | June 30, 2009 | |
| Value | | | | | | | | | | | | |
| Hedging | | | | | | | | | | | | |
| Relationships | | | | | | | | | | | | |
+---------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | | | | | |
+---------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Interest | | | | | | | | | | | | |
| rate | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | |
| (Interest | | | | | | | | | | | | |
| expense): | | | | | | | | | | | | |
+---------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Gain | | $ | 142 | | | $ | (169 | ) | | $ | 194 | | | $ | (220 | ) |
| (Loss) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| interest | | | | | | | | | | | | | | | | |
| rate | | | | | | | | | | | | | | | | |
| swaps | | | | | | | | | | | | | | | | |
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | (142 | ) | | | 169 | | | | (194 | ) | | | 220 | |
| (Loss) | | | | | | | | | | | | | | | | |
| on | | | | | | | | | | | | | | | | |
| long-term | | | | | | | | | | | | | | | | |
| debt | | | | | | | | | | | | | | | | |
+---------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
In addition, the net swap settlements that accrued and settled in the quarter
ended June 30 were also reported as reductions of interest expense.
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Three months | | | Three months | | | Six months | | | Six months | |
| | | ended | | | ended | | | ended | | | ended | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Cash | | June 30, 2010 | | | June 30, 2009 | | | June 30, 2010 | | | June 30, 2009 | |
| Flow | | | | | | | | | | | | |
| Hedging | | | | | | | | | | | | |
| Relationships | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Cross-currency | | | | | | | | | | | | |
| swaps: | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Gain | | $ | (345 | ) | | $ | 343 | | | $ | (324 | ) | | $ | 563 | |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | | | | | | | | | | | | | | |
| rate | | | | | | | | | | | | | | | | |
| locks: | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | (379 | ) | | | 19 | | | | (433 | ) | | | 79 | |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Interest | | | (6 | ) | | | (5 | ) | | | (11 | ) | | | (11 | ) |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Foreign | | | | | | | | | | | | | | | | |
| exchange | | | | | | | | | | | | | | | | |
| contracts: | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Gain | | | (3 | ) | | | - | | | | (16 | ) | | | - | |
| (Loss) | | | | | | | | | | | | | | | | |
| recognized | | | | | | | | | | | | | | | | |
| in | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | - | | | | - | |
| income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
| reclassified | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| accumulated | | | | | | | | | | | | | | | | |
| OCI into | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
+--------------------------------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+
| Non-designated Hedging | Three months ended | | Three months ended | | Six months ended | | Six months ended | |
| Instruments | | | | | | | | |
+--------------------------------+----------------------------+----------+----------------------------+----------+----------------------------+----------+----------------------------+----------+
| | June 30, 2010 | | June 30, 2009 | | June 30, 2010 | | June 30, 2009 | |
+--------------------------------+----------------------------+----------+----------------------------+----------+----------------------------+----------+----------------------------+----------+
| | | | | | | | | | | | | |
+--------------------------------+----------+-----------------+----------+----------+-----------------+----------+----------+-----------------+----------+----------+-----------------+----------+
| Foreign exchange | | $ | - | | | $ | 8 | | | $ | - | | | $ | (2 | ) |
| contracts Other income | | | | | | | | | | | | | | | | |
| (expense) | | | | | | | | | | | | | | | | |
+--------------------------------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+
| | | | | | | | | | | | | | | | | |
+--------------------------------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+----------+--------+--------+----------+
The balance of the unrealized derivative gain (loss) in accumulated OCI was
$(354) at June 30, 2010 and $142 at December 31, 2009.
18
AT&T INC.
JUNE 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 May 2009, we announced a definitive
agreement to acquire certain wireless properties, including Federal
Communications Commission (FCC) licenses and network assets, from Verizon
Wireless. On June 22, 2010, we acquired these assets for $2,372 in cash and
increased goodwill by $972. The assets primarily represent former Alltel
Wireless assets and serve approximately 1.6 million subscribers in 79 service
areas across 18 states. The preliminary fair value of the acquired net assets of
$1,400 included $364 of property plant and equipment, $776 of FCC licenses, and
$194 of customer lists and other intangible assets.
Dispositions
Sale of Sterling Operations In May 2010, we announced a definitive agreement to
sell our Sterling subsidiary to International Business Machines Corporation
(IBM), an unrelated party, for $1,400 in cash. Sterling provides business
applications and integration solutions to approximately 18,000 customers
worldwide. The sale is subject to regulatory approvals and the satisfaction of
customary closing conditions. 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.
We are treating Sterling as a discontinued operation as of May 24, 2010, the
measurement date, as we have 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. As of the measurement date, we have applied
held-for-sale treatment to Sterling's assets and liabilities, as we believe that
the sale is probable and anticipate that it will occur by September 30, 2010.
Accordingly, 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 have 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 June 30, 2010,
and December 31, 2009. While we committed to sell Sterling in 2010, we have
elected to classify Sterling's assets and liabilities as of December 31, 2009,
in the same manner as those as of the measurement date for comparability.
Sterling's assets and liabilities included the following as of the indicated
periods:
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | June 30, 2010 | | | December 31, | |
| | | | | | 2009 | |
+-------------------------+--------+-----------------+--------+--------+-----------------+--------+
| Assets | | | | | | |
| held | | | | | | |
| for | | | | | | |
| sale: | | | | | | |
+-------------------------+--------+-----------------+--------+--------+-----------------+--------+
| Current | | $ | 278 | | | $ | 333 | |
| assets | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Property, | | | 36 | | | | 40 | |
| plant and | | | | | | | | |
| equipment | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Goodwill | | | 649 | | | | 672 | |
| and | | | | | | | | |
| other | | | | | | | | |
| intangible | | | | | | | | |
| assets | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 39 | | | | 47 | |
| assets | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 1,002 | | | $ | 1,092 | |
| assets | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Liabilities | | | | | | | | |
| related to | | | | | | | | |
| assets held | | | | | | | | |
| for sale: | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Current | | $ | 294 | | | $ | 365 | |
| liabilities | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 122 | | | | 126 | |
| liabilities | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | $ | 416 | | | $ | 491 | |
| liabilities | | | | | | | | |
+-------------------------+--------+--------+--------+--------+--------+--------+--------+--------+
19
AT&T INC.
JUNE 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 June 30, | | | Six Months Ended June 30, | |
+--------------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+--------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | $ | 136 | | | $ | 132 | | | $ | 268 | | | $ | 259 | |
| revenues | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 127 | | | | 126 | | | | 255 | | | | 256 | |
| expenses | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 9 | | | | 6 | | | | 13 | | | | 3 | |
| income | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 8 | | | | 4 | | | | 10 | | | | (2 | ) |
| (loss) | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 12 | | | | 1 | | | | 13 | | | | (1 | ) |
| taxes | | | | | | | | | | | | | | | | |
| (benefit) | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | (4 | ) | | | 3 | | | | (3 | ) | | | (1 | ) |
| (loss) | | | | | | | | | | | | | | | | |
| from | | | | | | | | | | | | | | | | |
| discontinued | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | |
+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
We anticipate that we will record a pre-tax gain of $800 in conjunction with the
disposal of Sterling, which we will include as a component of our Income from
discontinued operations in the accompanying consolidated statements of income
upon completion of the sale.
Centennial We entered into definitive agreements to sell eight Centennial
Communications Corp. (Centennial) service areas in Louisiana and Mississippi as
a condition to our acquisition of Centennial in November 2009. As of June 30,
2010, the fair value of the assets subject to the Centennial sales, net of
related liabilities, was $282. On July 26, 2010, the sales received clearance
from the U.S. Department of Justice but remained subject to approval from the
FCC.
Other Adjustments
Centennial As of June 30, 2010, the preliminary fair value measurement of
Centennial's net assets acquired included $1,389 of goodwill, $655 of FCC
licenses, and $449 of customer lists and other intangible assets. During the six
months ended June 30, 2010, we recorded $226 of Centennial acquisition
accounting adjustments, which included a $111 decrease of accounts payable and
accrued liabilities, $42 increase of property, plant and equipment, $45
reduction of deferred tax liabilities, an additional $8 allocation to FCC
licenses, and $20 in other working capital adjustments. These adjustments were
all 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 and
six months ended June 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 restore our
ownership percentage in América Móvil to the level that existed before the
exchange. Our investment in América Móvil was $3,450 at June 30, 2010.
NOTE 8. SUBSEQUENT EVENTS
In July 2010, we issued $2,250 of 2.50% global notes due 2015 for proceeds of
approximately $2,235.
In August 2010, we announced a private offer to exchange any and all of the
outstanding 8.750% 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 Inc. notes due 2040 and cash. The offer is
subject to conditions, including that we receive a minimum principal amount of
$500 in the exchange.
20
AT&T INC.
JUNE 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 second quarter and for the
first six months of 2010 and 2009 are summarized as follows:
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+------------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+------------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+------------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Operating | | $ | 30,808 | | | $ | 30,614 | | | | 0.6 | % | | $ | 61,338 | | | $ | 61,071 | | | | 0.4 | % |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Cost | | | 12,381 | | | | 12,557 | | | | (1.4 | ) | | | 24,716 | | | | 24,758 | | | | (0.2 | ) |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| services | | | | | | | | | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| sales | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Selling, | | | 7,475 | | | | 7,682 | | | | (2.7 | ) | | | 14,863 | | | | 15,340 | | | | (3.1 | ) |
| general | | | | | | | | | | | | | | | | | | | | | | | | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| administrative | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 4,838 | | | | 4,875 | | | | (0.8 | ) | | | 9,638 | | | | 9,733 | | | | (1.0 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 24,694 | | | | 25,114 | | | | (1.7 | ) | | | 49,217 | | | | 49,831 | | | | (1.2 | ) |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operating | | | 6,114 | | | | 5,500 | | | | 11.2 | | | | 12,121 | | | | 11,240 | | | | 7.8 | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 6,278 | | | | 4,885 | | | | 28.5 | | | | 11,714 | | | | 9,901 | | | | 18.3 | |
| from | | | | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Income | | | 4,105 | | | | 3,273 | | | | 25.4 | | | | 6,666 | | | | 6,478 | | | | 2.9 | |
| from | | | | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | $ | 4,023 | | | $ | 3,198 | | | | 25.8 | % | | $ | 6,498 | | | $ | 6,324 | | | | 2.8 | % |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| Attributable | | | | | | | | | | | | | | | | | | | | | | | | |
| to AT&T | | | | | | | | | | | | | | | | | | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Overview
Operating income Our operating income increased $614, or 11.2%, in the second
quarter and $881, or 7.8%, for the first six months of 2010. The increase for
the quarter and the six months was primarily due to the continued growth in
wireless service revenue, driven mostly by our subscriber growth, along with an
increase in wireline data revenue resulting from our growth in Internet Protocol
(IP) data revenue. These increases were partially offset by continuing declines
in voice and directory advertising print revenues. Operating income also
increased in part due to a decrease in operating expenses, driven by decreases
in pension and other postemployment benefits (OPEB) and other employee-related
expense. These factors were the primary causes of our operating income margin
increasing from 18.0% to 19.8% in the second quarter and from 18.4% to 19.8% for
the first six months of 2010, as compared to the same periods last year.
Operating revenues Our operating revenues increased $194, or 0.6%, in the
second quarter and $267, or 0.4%, for the first six months of 2010. This
increase was primarily due to the continued growth in wireless service revenue,
driven mostly by our increase in average subscribers and wireless data revenue,
along with an increase in wireline data revenue largely due to IP data growth,
driven by AT&T U-verseSM subscriber growth. These increases were partially
offset by the continuing decline in voice revenues due to decreasing access
lines and a decline in directory revenue driven by lower print 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 11.1%. 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.
21
AT&T INC.
JUNE 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 decreased $176, or 1.4%, in the second
quarter and $42, or 0.2%, for the first six months of 2010. The decrease for the
quarter was primarily due to lower equipment costs, and lower pension/OPEB
expenses and other employee-related costs along with lower traffic compensation.
These decreases were partially offset by higher Universal Service Fund (USF),
interconnect and network system costs. The decrease for the six months was
primarily due to lower pension/OPEB expenses and other employee-related costs,
along with lower traffic compensation, partially offset by higher USF costs.
Selling, general and administrative expenses decreased $207, or 2.7%, in the
second quarter and $477, or 3.1%, for the first six months of 2010. The decrease
for the quarter and the six months was primarily due to lower pension/OPEB
expenses and other employee-related costs, and lower bad debt expense along with
lower indirect commissions expenses, partially offset by increases in various
support expenses.
Depreciation and amortization expense decreased $37, or 0.8%, in the second
quarter and $95, or 1.0%, for the first six months of 2010. The decrease was due
to lower amortization of intangibles related to customer lists associated with
acquisitions, partially offset by increased depreciation associated with ongoing
capital spending for network upgrades and expansion.
Interest expense decreased $122, or 13.9%, in the second quarter and $203, or
11.8%, for the first six months of 2010. The declines in interest expense for
the quarter and the six 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 affiliatesdecreased $36, or 15.6%, in the second quarter
and increased $44, or 12.0%, for the first six months of 2010. The second
quarter decrease was primarily due to decreased results at América Móvil, S.A.
de C.V. (América Móvil) and Telefonos de Mexico, S.A. de C.V. (Telmex). The year
to date increase was primarily due to increased first quarter operating results
at América Móvil.
Other income (expense) - net We had other income of $723 in the second quarter
and $700 for the first six months of 2010, compared to other income of $30 in
the second quarter and $15 for the first six months of 2009. Results for the
second quarter 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 (See Note 7), a $41 gain on sale of investments, and $28 in interest,
dividend and leveraged lease income. Results in the second quarter of 2009
primarily included $50 in interest and lease income partially offset by $14 of
foreign exchange losses.
Results for the first six months of 2010 included a $647 gain on the exchange of
Telmex Internacional shares for América Móvil shares, and a $50 gain on sale of
investments. Results for the first six months of 2009 included $42 of gains on
sales of securities and a professional services business, and dividend,
interest, and leveraged lease income of $77 partially offset by $102 related to
Rabbi Trust asset impairment.
Income taxes increased $561, or 34.8%, in the second quarter and $1,625, or
47.5%, for the first six months of 2010. The increase in income taxes for the
second quarter was due to higher income before income taxes and to favorable
adjustments booked in the second quarter of 2009 related to completion of the
examination phase of IRS audits. The increase in income taxes for the first six
months primarily resulted from a change in the tax treatment of the Medicare
Part D subsidy included in the Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, which we recorded as a
charge of $995, along with higher income before income taxes. Our effective tax
rates were 34.6% in the second quarter of 2010, compared to 33.0% in the second
quarter of 2009, and 43.1% for the first six months of 2010, compared to 34.6%
for the first six months of 2009. The net increase in our effective tax rate for
the quarter was due primarily to the favorable adjustments related to the
completion of the examination phase of the IRS audits during second quarter
2009, while the net increase in the effective tax rate for the six months was
due to the enactment of the aforementioned health care legislation.
22
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Selected Financial and Operating Data
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| | | June 30, | |
+-------------+--------+-------------------------------------------------------+--------+
| | | 2010 | | | 2009 | |
+-------------+--------+------------------+--------+--------+------------------+--------+
| Wireless | | | 90,130 | | | | 79,600 | |
| customers | | | | | | | | |
| (000) | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Postpaid | | | 66,970 | | | | 61,647 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Prepaid | | | 5,881 | | | | 5,558 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Reseller | | | 10,597 | | | | 9,286 | |
| wireless | | | | | | | | |
| customers | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Connected | | | 6,682 | | | | 3,109 | |
| devices | | | | | | | | |
| (000)7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Consumer | | | 44,262 | | | | 46,288 | |
| revenue | | | | | | | | |
| connections | | | | | | | | |
| (000)1,2 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Network | | | 46,558 | | | | 52,379 | |
| access | | | | | | | | |
| lines | | | | | | | | |
| in | | | | | | | | |
| service | | | | | | | | |
| (000)2,9 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Broadband | | | 17,439 | | | | 16,945 | |
| connections | | | | | | | | |
| (000)2,3,7 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Video | | | 4,558 | | | | 3,787 | |
| connections | | | | | | | | |
| (000)4 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Debt | | | 40.3 | % | | | 43.7 | % |
| ratio5,7,8 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Ratio | | | 5.59 | | | | 4.59 | |
| of | | | | | | | | |
| earnings | | | | | | | | |
| to fixed | | | | | | | | |
| charges6 | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
| Number | | | 272,450 | | | | 288,660 | |
| of | | | | | | | | |
| AT&T | | | | | | | | |
| employees | | | | | | | | |
+-------------+--------+--------+---------+--------+--------+--------+---------+--------+
+--------+---------------+
| 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 2,505 in |
| | 2010 and |
| | 1,577 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 |
| | stockholder's |
| | equity) and |
| | does not |
| | consider cash |
| | on hand |
| | available to |
| | pay down |
| | debt. Cash on |
| | hand was |
| | $1,377 as of |
| | June 30, 2010 |
| | and $3,741 as |
| | of December |
| | 31, 2009. |
+--------+----------------+
+--------+---------------+
| 9 | At |
| | June |
| | 30, |
| | 2010, |
| | total |
| | switched |
| | access |
| | lines |
| | were |
| | 46,558, |
| | retail |
| | business |
| | switched |
| | access |
| | lines |
| | totaled |
| | 19,465 |
| | and |
| | wholesale |
| | and coin |
| | switched |
| | access |
| | lines |
| | totaled |
| | 2,641. |
| | These |
| | include |
| | 1,725 |
| | retail |
| | business |
| | and 102 |
| | wholesale |
| | lines |
| | that are |
| | used |
| | solely by |
| | AT&T or |
| | our |
| | subsidiaries. |
+--------+---------------+
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, 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 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. In May 2010, we announced the sale of Sterling
Commerce Inc. (Sterling). 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).
23
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Historically, the 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.
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
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Segment | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Service | | $ | 13,186 | | | $ | 11,960 | | | | 10.3 | % | | $ | 26,036 | | | $ | 23,606 | | | | 10.3 | % |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equipment | | | 1,056 | | | | 1,262 | | | | (16.3 | ) | | | 2,103 | | | | 2,454 | | | | (14.3 | ) |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 14,242 | | | | 13,222 | | | | 7.7 | | | | 28,139 | | | | 26,060 | | | | 8.0 | |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 8,562 | | | | 8,428 | | | | 1.6 | | | | 16,745 | | | | 16,314 | | | | 2.6 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 1,578 | | | | 1,504 | | | | 4.9 | | | | 3,136 | | | | 3,003 | | | | 4.4 | |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 10,140 | | | | 9,932 | | | | 2.1 | | | | 19,881 | | | | 19,317 | | | | 2.9 | |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 4,102 | | | | 3,290 | | | | 24.7 | | | | 8,258 | | | | 6,743 | | | | 22.5 | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 7 | | | | - | | | | - | | | | 20 | | | | - | | | | - | |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 4,109 | | | $ | 3,290 | | | | 24.9 | % | | $ | 8,278 | | | $ | 6,743 | | | | 22.8 | % |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Wireless Properties Transactions
In May 2009, we announced a definitive agreement to acquire certain wireless
properties, including Federal Communications Commission (FCC) licenses and
network assets from Verizon Wireless. On June 22, 2010, we acquired these assets
for $2,372 in cash and increased goodwill by $972. The assets primarily
represent former Alltel Wireless assets and serve approximately 1.6 million
subscribers in 79 service areas across 18 states. We included these customers in
our total customer base as of June 30, 2010, but did not include them in our net
customer additions for the second quarter of 2010. The preliminary fair value of
the acquired net assets of $1,400 included $364 of property, plant and
equipment, $776 of FCC licenses, and $194 of customer lists and other intangible
assets.
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 to convert that network and subscriber handsets to our GSM
technology.
We have entered into definitive agreements to sell eight Centennial
Communications, Corp. (Centennial) service areas in Louisiana and Mississippi as
a condition to our acquisition of Centennial in November 2009. As of June 30,
2010, the fair value of the assets subject to the Centennial sales, net of
related liabilities, was $282. On July 26, 2010, the sales received clearance
from the U.S. Department of Justice but remained subject to approval from the
FCC.
24
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Wireless Metrics
Additions As of June 30, 2010, we served 90.1 million wireless customers. Net
organic customer additions (net additions) for the second quarter of 2010,
totaled 1.6 million, compared to 1.4 million for the same period in 2009, and
net additions for the six months ended June 30, 2010, totaled 3.4 million,
compared to 2.6 million for the same period in 2009. Net additions for the
second quarter of 2010 included an 896,000 net increase in connected devices
subscribers and a 300,000 net increase in prepaid subscribers. Net additions for
the six months ended June 30, 2010, included a 1.9 million net increase in
connected devices subscribers. Net postpaid additions of 496,000 for the second
quarter of 2010 were down 56.0%, compared to the same period in 2009, and down
50.2% for the six months ended June 30, 2010, compared to the same period in
2009, reflecting 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, and revenue growth
will continue to shift toward data revenues with increasing penetration rates
for integrated devices and additional sales of connected devices. In 2010, we
have continued to see an increase in gross and net additions related to the sale
of smartphones and connected devices, such as eReaders and alarm monitoring
devices, and we expect continued growth in these product areas.
Average service revenue per user (ARPU) in the second quarter of 2010 and the
six months ended June 30, 2010, declined 1.1% and 0.8% compared to the same
periods in 2009, reflecting strong growth in connected devices subscribers,
which have a lower ARPU compared to ARPU generated by our other customers. Data
service ARPU increased 14.0% and 15.5% in the second quarter of 2010 and six
months ended June 30, 2010, compared to the same periods in 2009. We expect
continued revenue growth from data services, as more customers purchase advanced
integrated devices and connected devices, such as eReaders, alarm monitoring,
and mobile navigation devices, and as we continue to expand our network. Voice
and other service ARPU declined 7.3% and 7.2% in the second quarter of 2010 and
the six months ended June 30, 2010, compared to the same periods in 2009.
ARPU from postpaid customers increased 3.4% in the second quarter of 2010 and
3.7% in the six months ended June 30, 2010, compared to the same periods in
2009, reflecting usage of more advanced integrated devices by these customers,
evidenced by an 18.6% increase in postpaid data services ARPU in the second
quarter of 2010 and a 20.1% increase in postpaid data services ARPU in the six
months ended June 30, 2010. Approximately half of our postpaid customers now use
integrated devices. The growth in postpaid data services ARPU in the second
quarter of 2010 and six months ended June 30, 2010, was partially offset by a
2.9% decline in postpaid voice and other service ARPU for the same periods in
2010. Postpaid voice and other service ARPU declined due to lower access
charges, roaming revenues, and long-distance usage. Increases in our family
plans (Family Talk plans), connected devices, and reseller customer base, which
have lower ARPU than traditional postpaid customers, have also contributed to
these declines. We expect continued pressure on voice and other service ARPU.
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 churn rate for each month of that period. Ongoing improvement in our
total and postpaid churn rate-now at our lowest recorded levels-contributed to
our net additions in the second quarter of 2010 and the six months ended June
30, 2010. Our churn rate was 1.29% for the second quarter of 2010 and six months
ended June 30, 2010, down from 1.48% and 1.52% for the same periods in 2009. The
postpaid churn rate was 1.01% for the second quarter of 2010, down from 1.07%
for the same period in 2009, and it decreased to 1.04% for the six months ended
June 30, 2010, compared to 1.11% for the same period in 2009. These churn rate
declines reflect network enhancements and broader coverage, more affordable rate
plans and exclusive devices, continued growth in Family Talk plans, and free
mobile-to-mobile calling among our wireless customers.
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 post-paid
customers typically sign a two-year contract, which includes discounted handsets
and early termination fees (i.e., compensation to us for our investment in the
customer). We also offer data plans at different price levels, beginning as low
as $15 per month, to attract a wide variety of customers and differentiate us
from our competitors. Many of our customers are on Family Talk 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 June 30, 2010, more than 80 percent of our postpaid subscribers are on
Family Talk and/or business 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 half of 2010, over 60 percent of our smartphone handsets
were purchased by existing AT&T customers.
25
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
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 handset 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 percent of our postpaid subscribers are on
Family Talk Plans and business plans that would involve moving the whole group
to a new carrier. Moreover, the vast majority of our postpaid subscribers
(including Family Talk Plan users) are allowed to accumulate unused minutes
(known as rollover minutes), a feature that is currently not offered by other
major post-paid 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 (even a
carrier using 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 terminations to have a
material negative impact on our Wireless segment income, consolidated operating
margin or our cash from operations.
Wireless Operating Results
Our Wireless segment operating income margin was 28.8% in the second quarter of
2010, compared to 24.9% for the same period in 2009, and increased to 29.3% for
the six months ended June 30, 2010, compared to 25.9% for the same period in
2009. Higher margins for these periods were primarily due to operating revenue
growth that continued to exceed operating expense growth. Wireless margins
improved in the second quarter of 2010 despite record Apple iPhone activations.
Service revenues are comprised of local voice and data services, roaming,
long-distance and other revenue. Service revenues increased $1,226, or 10.3%, in
the second quarter of 2010, compared to the same period in 2009, and increased
$2,430, or 10.3%, in the six months ended June 30, 2010, compared to the same
period in 2009. The increases for these periods consisted of the following:
+--------+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Data service revenue increased $936, or 27.2%, in the second quarter of 2010, compared to the same period in 2009, and increased $1,883, or 28.4%, in the six months ended June 30, 2010, compared to the same period in 2009. The increases were primarily due to the increased number of subscribers and heavier text and multimedia messaging by subscribers using integrated devices and other data-centric connected devices, such as eReaders and mobile navigation devices. Data service revenues represented 33.2% of our Wireless segment service revenues in the second quarter of 2010, an increase from 28.8% for the same period in 2009. |
+--------+--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
+--------+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| · | Voice and other service revenue increased $290, or 3.4%, in the second quarter of 2010 and $547, or 3.2%, in the six months ended June 30, 2010, compared to the same periods in 2009. The increases were due to an 11.8% increase and an 11.3% increase in the average number of wireless customers in the second quarter of 2010 and the six months ended June 30, 2010, compared to the same periods in 2009, partially offset by lower ARPU for these services. |
+--------+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
Equipment revenues decreased $206, or 16.3%, in the second quarter of 2010,
compared to the same period in 2009, and decreased $351, or 14.3%, in the six
months ended June 30, 2010, compared to the same period in 2009. The decrease
was due to lower traditional handset sales and increased sales of lower priced
integrated devices.
26
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Operations and support expenses increased $134, or 1.6%, in the second quarter
of 2010, compared to the same period in 2009. The second quarter increase was
primarily due to the following:
+--------+--------------------------------------------------------------------------------------------------------------------------------------+
| · | Interconnect, USF, and network system cost increases of $333 due to higher network traffic, revenue growth, and a USF rate increase; |
+--------+--------------------------------------------------------------------------------------------------------------------------------------+
+--------+--------------------------------------------------------------------------------+
| · | Information technology and other administrative expense increases of $211; and |
+--------+--------------------------------------------------------------------------------+
+--------+-----------------------------------------------------------------------------------------------------------------------------------------+
| · | Selling expense increases (other than commissions) of $51, primarily due to increased advertising in response to competitive pressures. |
+--------+-----------------------------------------------------------------------------------------------------------------------------------------+
These increases were partially offset by the following:
+--------+------------------------------------------------------------------------+
| · | Equipment cost net decreases of $157; |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Bad debt expense decrease of $103; |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Commission expense and reseller services cost decreases of $93; and |
+--------+------------------------------------------------------------------------+
+--------+-------------------------------------------------------------------------------+
| · | Customer service, long distance, and incollect roaming cost decreases of $78. |
+--------+-------------------------------------------------------------------------------+
Operations and support expenses increased $431, or 2.6%, in the six months ended
June 30, 2010. The year to date increase was primarily due to the following:
+--------+--------------------------------------------------------------------------------------------------------------------------------------+
| · | Interconnect, USF, and network system cost increases of $514 due to higher network traffic, revenue growth, and a USF rate increase; |
+--------+--------------------------------------------------------------------------------------------------------------------------------------+
+--------+--------------------------------------------------------------------------------+
| · | Information technology and other administrative expense increases of $261; and |
+--------+--------------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------------------------------------------------------------------------+
| · | Selling expense increases (other than commissions) of $157, primarily due to increased advertising in response to competitive pressures. |
+--------+------------------------------------------------------------------------------------------------------------------------------------------+
These increases were partially offset by the following:
+--------+------------------------------------------------------------------------+
| · | Commission expense and reseller services cost decreases of $211; |
+--------+------------------------------------------------------------------------+
+--------+------------------------------------------------------------------------+
| · | Bad debt expense decrease of $152; and |
+--------+------------------------------------------------------------------------+
+--------+--------------------------------------------------------------------------------+
| · | Customer service, long distance, and incollect roaming cost decreases of $151. |
+--------+--------------------------------------------------------------------------------+
The decreases in the 2010 periods were due in part to lower net postpaid
additions in the second quarter of 2010 and six months ended June 30, 2010,
compared to the same periods in 2009.
Depreciation and amortization expenses increased $74, or 4.9%, in the second
quarter and $133, or 4.4%, for the first six months of 2010. Depreciation
expense increased $160, or 14.7%, in the second quarter and $311, or 14.5%, in
the first six months ended June 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 $86, or 20.7%, in the second quarter and $178, or
20.6%, for the first six 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 the Centennial acquisition.
27
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Wireless Supplementary Operating and Financial Data
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+-----------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+-----------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Wireless | | | | | | | | | | | | 90,130 | | | | 79,600 | | | | 13.2 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 1,562 | | | | 1,368 | | | | 14.2 | % | | | 3,419 | | | | 2,591 | | | | 32.0 | % |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 1.29 | % | | | 1.48 | % | | (19) BP | | | 1.29 | % | | | 1.52 | % | | (23) BP |
| Churn | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postpaid | | | | | | | | | | | | | | | 66,970 | | | | 61,647 | | | | 8.6 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 496 | | | | 1,128 | | | | (56.0 | )% | | | 1,008 | | | | 2,025 | | | | (50.2 | )% |
| Postpaid | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Postpaid | | | 1.01 | % | | | 1.07 | % | | (6) BP | | | 1.04 | % | | | 1.11 | % | | (7) BP |
| Churn | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------------------------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Prepaid | | | | | | | | | | | | | | | 5,881 | | | | 5,558 | | | | 5.8 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 300 | | | | (412 | ) | | | - | | | | 324 | | | | (567 | ) | | | - | |
| Prepaid | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Reseller | | | | | | | | | | | | | | | 10,597 | | | | 9,286 | | | | 14.1 | % |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | (130 | ) | | | 348 | | | | - | | | | 139 | | | | 685 | | | | - | |
| Reseller | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Connected | | | | | | | | | | | | | | | 6,682 | | | | 3,109 | | | | - | |
| Device | | | | | | | | | | | | | | | | | | | | | | | | |
| Customers | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Net | | | 896 | | | | 304 | | | | - | | | | 1,948 | | | | 448 | | | | - | |
| Connected | | | | | | | | | | | | | | | | | | | | | | | | |
| Device | | | | | | | | | | | | | | | | | | | | | | | | |
| Customer | | | | | | | | | | | | | | | | | | | | | | | | |
| Additions | | | | | | | | | | | | | | | | | | | | | | | | |
| (000) | | | | | | | | | | | | | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
28
AT&T INC.
JUNE 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
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+ + + + + + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Segment | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | |
| revenues | | | | | | | | | | | | | | | | | | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Voice | | $ | 7,219 | | | $ | 8,255 | | | | (12.5 | )% | | $ | 14,698 | | | $ | 16,758 | | | | (12.3 | )% |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Data | | | 6,848 | | | | 6,323 | | | | 8.3 | | | | 13,479 | | | | 12,605 | | | | 6.9 | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | 1,329 | | | | 1,411 | | | | (5.8 | ) | | | 2,640 | | | | 2,788 | | | | (5.3 | ) |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 15,396 | | | | 15,989 | | | | (3.7 | ) | | | 30,817 | | | | 32,151 | | | | (4.1 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 10,389 | | | | 10,924 | | | | (4.9 | ) | | | 21,006 | | | | 21,856 | | | | (3.9 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 3,123 | | | | 3,194 | | | | (2.2 | ) | | | 6,219 | | | | 6,368 | | | | (2.3 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 13,512 | | | | 14,118 | | | | (4.3 | ) | | | 27,225 | | | | 28,224 | | | | (3.5 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | 1,884 | | | | 1,871 | | | | 0.7 | | | | 3,592 | | | | 3,927 | | | | (8.5 | ) |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | - | | | | 4 | | | | - | | | | 5 | | | | 7 | | | | (28.6 | ) |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 1,884 | | | $ | 1,875 | | | | 0.5 | % | | $ | 3,597 | | | $ | 3,934 | | | | (8.6 | )% |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Operating Income and Margin Trends
Our wireline segment operating income increased $13, or 0.7%, in the second
quarter of 2010 and decreased $335, or 8.5%, for the first six months of 2010.
For the second quarter of 2010 and 2009, our wireline segment operating income
margin increased from 11.7% to 12.2%, and for the first six months decreased
from 12.2% in 2009 to 11.7% 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 second quarter, continued growth in data revenue driven by
U-verse growth along with operating expense reductions were both offset by
continued voice revenue declines. 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 $1,036, or 12.5%, in the second quarter and $2,060, or
12.3%, for the first six months of 2010 primarily due to continuing 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 $595, or 11.8%, in the second quarter and $1,202, or 11.7%, for the first six months of 2010. The decrease was driven primarily by an 11.1% 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 $401, or 13.9%, in the second quarter and $774, or 13.2%, for the first six months of 2010. Lower demand for long-distance service from global businesses and consumer customers decreased revenues $320 in the second quarter and $601 for the first six months of 2010, and declines in the number of our national mass-market customers decreased revenues $85 in the second quarter and $179 for the first six months of 2010. |
+-----+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
29
AT&T INC.
JUNE 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 $525, or 8.3%, in the second quarter and $874, or 6.9%,
for the first six 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 $647, or 20.2%, in the second quarter and $1,199, or 19.2%, for the first six months of 2010 primarily driven by AT&T U-verse expansion and growth in IP-based strategic business services which include virtual private networks (VPN), and application services. U-verse video increased $331 in the second quarter and $628 for the first six months of 2010, and strategic business service revenues increased $158 in the second quarter and $301 for the first six months of 2010. Broadband high speed Internet access increased IP data revenues $105 in the second quarter and $196 for the first six 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 $104, or 20.2%, in the second quarter and $226, or 21.2%, for the first six 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 decreased $82, or 5.8%, in the second quarter and $148,
or 5.3%, for the first six months of 2010. Integration services and customer
premises equipment, government-related services and outsourcing account for more
than 60% of total other revenue for all periods. Revenue from equipment sales
and related network integration decreased by $70 in the second quarter and $122
for the first six months of 2010 primarily due to economic pressure on business
customers.
Operations and support decreased $535, or 4.9%, in the second quarter and
decreased $850, or 3.9%, for the first six months of 2010. Operation 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 decrease was primarily due to lower Pension/OPEB and other employee-related
expense of $390 in the second quarter and $730 in the first six months, lower
traffic compensation of $89 in the second quarter and $104 in the first six
months, lower contract services of $42 in the second quarter and $173 in the
first six months, and lower uncollectibles of $43 in the second quarter and $156
in the first six months.
Partially offsetting these decreases were increased USF expenses of $84 in the
second quarter and $237 in the first six months due to rate increases.
Depreciation and amortization expenses decreased $71, or 2.2%, in the second
quarter and $149, or 2.3%, for the first six months. The second quarter and year
to date decrease was primarily related to lower amortization of intangibles for
customer lists associated with acquisitions.
30
AT&T INC.
JUNE 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, Wired Broadband and Video Connections Summary
Our switched access lines and other services provided by our local exchange
telephone subsidiaries at June 30, 2010 and 2009 are shown below and trends are
addressed throughout this segment discussion.
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| (in | | | | | | | | | |
| 000s) | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | June 30, | | | June 30, | | | Percent | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| | | 2010 | | | 2009 | | | Change | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Switched | | | | | | | | | |
| Access | | | | | | | | | |
| Lines1 | | | | | | | | | |
+-----------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Retail | | | 24,452 | | | | 28,477 | | | | (14.1 | )% |
| Consumer | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Retail | | | 19,465 | | | | 21,078 | | | | (7.7 | ) |
| Business2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Retail | | | 43,917 | | | | 49,555 | | | | (11.4 | ) |
| Subtotal2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 94.3 | % | | | 94.6 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Wholesale | | | 2,570 | | | | 2,726 | | | | (5.7 | ) |
| Subtotal2 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 5.5 | % | | | 5.2 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Payphone | | | 71 | | | | 98 | | | | (27.6 | ) |
| (Retail | | | | | | | | | | | | |
| and | | | | | | | | | | | | |
| Wholesale)3 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Percent | | | 0.2 | % | | | 0.2 | % | | | | |
| of | | | | | | | | | | | | |
| total | | | | | | | | | | | | |
| switched | | | | | | | | | | | | |
| access | | | | | | | | | | | | |
| lines | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 46,558 | | | | 52,379 | | | | (11.1 | )% |
| Switched | | | | | | | | | | | | |
| Access | | | | | | | | | | | | |
| Lines7 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 25,780 | | | | 29,047 | | | | (11.2 | )% |
| Retail | | | | | | | | | | | | |
| Consumer | | | | | | | | | | | | |
| Voice | | | | | | | | | | | | |
| Connections6 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 15,952 | | | | 15,548 | | | | 2.6 | % |
| Wired | | | | | | | | | | | | |
| Broadband | | | | | | | | | | | | |
| Connections4 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Satellite | | | 2,053 | | | | 2,210 | | | | (7.1 | )% |
| service5 | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| U-verse | | | 2,505 | | | | 1,577 | | | | 58.8 | |
| video | | | | | | | | | | | | |
+-----------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Video | | | 4,558 | | | | 3,787 | | | | 20.4 | % |
| 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 |
| | wired |
| | 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 1,328 at |
| | June 30, |
| | 2010. |
+--------+----------------+
| 7 | At |
| | June |
| | 30, |
| | 2010, |
| | total |
| | switched |
| | access |
| | lines |
| | were |
| | 46,558, |
| | retail |
| | business |
| | switched |
| | access |
| | lines |
| | totaled |
| | 19,465 |
| | and |
| | wholesale |
| | and coin |
| | switched |
| | access |
| | lines |
| | totaled |
| | 2,641. |
| | These |
| | include |
| | 1,725 |
| | retail |
| | business |
| | and 102 |
| | wholesale |
| | lines |
| | that are |
| | used |
| | solely by |
| | AT&T or |
| | our |
| | subsidiaries. |
+--------+----------------+
31
AT&T INC.
JUNE 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
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+--------------------+--------+-----------------------------------------------------------------------------------------+--------+--------+-----------------------------------------------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | Percent Change | | | 2010 | | | 2009 | | | Percent Change | |
+--------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| Total | | $ | 1,007 | | | $ | 1,211 | | | | (16.8 | )% | | $ | 2,048 | | | $ | 2,460 | | | | (16.7 | )% |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| operating | | | | | | | | | | | | | | | | | | | | | | | | |
| expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Operations | | | 673 | | | | 706 | | | | (4.7 | ) | | | 1,348 | | | | 1,427 | | | | (5.5 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| support | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Depreciation | | | 132 | | | | 166 | | | | (20.5 | ) | | | 270 | | | | 342 | | | | (21.1 | ) |
| and | | | | | | | | | | | | | | | | | | | | | | | | |
| amortization | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 805 | | | | 872 | | | | (7.7 | ) | | | 1,618 | | | | 1,769 | | | | (8.5 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 202 | | | $ | 339 | | | | (40.4 | )% | | $ | 430 | | | $ | 691 | | | | (37.8 | )% |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
+--------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Operating Results
Our advertising solutions operating income margin was 20.1% in the second
quarter of 2010, compared to 28.0% in the second quarter of 2009, and 21.0% for
the first six months of 2010, compared to 28.1% for the first six months of
2009.
Operating revenues decreased $204, or 16.8%, in the second quarter and $412, or
16.7%, for the first six months of 2010, largely driven by continued declines in
print revenue of $222 in the second quarter and $456 for the first six months as
customers reduced or eliminated print ad purchases due to the slow economy.
These decreases were partially offset by increased Internet revenue of $20 in
the second quarter and $46 for the first six months as some customers shifted
from print ads.
Operating expenses decreased $67, or 7.7%, in the second quarter and $151, or
8.5%, for the first six months of 2010, largely driven by decreased amortization
of $34 in the second quarter and $72 for the first six months, resulting from
use of an accelerated method of amortization for the customer lists and
decreases in print product related expenses of $38 in the second quarter and $60
in the first six months.
Other
Segment Results
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | Second Quarter | | Six-Month Period | |
+------------+--------------------------------------------------------------------------------------------------+--------+--------------------------------------------------------------------------------------------------+--------+
| | 2010 | | 2009 | | | Percent Change | | 2010 | | 2009 | | | Percent Change | |
+------------+ + + + + + + + + + + + + + +
| | | | | | | | | | | | | | | |
+------------+--------------------------+--------+--------------------------+--------+--------+-----------------+--------+--------------------------+--------+--------------------------+--------+--------+-----------------+--------+
| Total | | $ | 163 | | | $ | 192 | | | | (15.1 | )% | | $ | 334 | | | $ | 400 | | | | (16.5 | )% |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Total | | | 237 | | | | 192 | | | | 23.4 | | | | 493 | | | | 521 | | | | (5.4 | ) |
| Segment | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | | (74 | ) | | | - | | | | - | | | | (159 | ) | | | (121 | ) | | | (31.4 | ) |
| Operating | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Equity | | | 188 | | | | 226 | | | | (16.8 | ) | | | 387 | | | | 360 | | | | 7.5 | |
| in Net | | | | | | | | | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Segment | | $ | 114 | | | $ | 226 | | | | (49.6 | )% | | $ | 228 | | | $ | 239 | | | | (4.6 | )% |
| Income | | | | | | | | | | | | | | | | | | | | | | | | |
| (Loss) | | | | | | | | | | | | | | | | | | | | | | | | |
+------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Our Other segment operating results consist primarily of customer information
services (primarily operator services and payphone), corporate and other
operations. In the second quarter 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 $29, or 15.1%, in the second quarter and
$66, or 16.5%, for the first six months of 2010 primarily due to reduced
revenues from our operator services.
Segment operating expensesincreased $45, or 23.4%, in the second quarter and
decreased $28, or 5.4%, for the first six months of 2010. The second quarter
increase was primarily due to mark-to-market adjustments of benefit plan
investments. The year to date change was primarily due to decreased operator
services expense.
32
AT&T INC.
JUNE 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:
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| | | Second Quarter | | | Six-Month Period | |
+------------------+--------+-----------------------------------------------------+--------+--------+-----------------------------------------------------+--------+
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
+------------------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+--------+-----------------+--------+
| América | | $ | 138 | | | $ | 157 | | | $ | 283 | | | $ | 258 | |
| Móvil | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Telmex | | | 31 | | | | 49 | | | | 71 | | | | 66 | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Telmex | | | 19 | | | | 20 | | | | 35 | | | | 37 | |
| Internacional | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | | - | | | | - | | | | (2 | ) | | | (1 | ) |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
| Other | | $ | 188 | | | $ | 226 | | | $ | 387 | | | $ | 360 | |
| Segment | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | | | | | |
| in Net | | | | | | | | | | | | | | | | |
| Income | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | |
| Affiliates | | | | | | | | | | | | | | | | |
+------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+
Equity in net income of affiliatesdecreased $38, or 16.8%, in the second quarter
and increased $27, or 7.5%, for the first six months of 2010. The second quarter
decrease was primarily due to decreased results at América Móvil and Telmex. The
year to date increase was primarily due to increased first quarter operating
results at América Móvil. On January 13, 2010, 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
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. 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 and six months
ended June 30, 2010. 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 restore our ownership
percentage in América Móvil to the level that existed before the exchange. Our
investment in América Móvil was $3,450 at June 30, 2010.
OTHER BUSINESS MATTERS
U-verse Services We are continuing to expand our deployment of U-verse High
Speed Internet and TV services. As of June 30, 2010, we have passed 25 million
living units (constructed housing units as well as platted housing lots) and are
marketing the services to almost 75 percent of those units. Our deployment
strategy is to enter each new area on a limited basis in order to ensure that
all operating and back-office systems are functioning successfully and then
expand within each as we continue to monitor these systems. 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.
33
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
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.
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.
Labor Contracts On April 17, 2010, the Company and the Communications Workers
of America announced a tentative agreement covering approximately 11,200
Mobility employees in the nine-state former BellSouth Corporation (BellSouth)
region (Mobility Southeast Region) subject to ratification by covered employees.
This agreement was ratified on May 28, 2010. The agreement provides for a
four-year term with general wage increase of 2.75 percent in year one, 2.25
percent in year two, and 2.5 percent in each of years three and four (2012 -
2013). The agreement includes traditional work rules and wages only.
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.
34
AT&T INC.
JUNE 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 on
March 16, 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 over the course of the next 12 to 18 months. 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.
However, at this stage, it is too early to assess what, if any, impact such
proposed changes could have on us.
Our wireless operations operate in robust competitive markets but are likewise
subject to substantial 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.
AT&T has previously noted that the broadband marketplace is robustly competitive
and that we do not block consumers from accessing the lawful Internet sites of
their choice. We therefore believe that prescriptive "net neutrality" rules are
not only unnecessary but also counterproductive to the extent they would
restrict broadband Internet access providers from developing innovative new
services for consumers and/or content and application providers. Nor do we
believe that wireless providers should be prohibited from entering into
exclusive arrangements with handset manufacturers or that government should
regulate wireless early termination fees. It is widely recognized that the
wireless industry in the United States is characterized by innovation,
differentiation, declining prices and extensive competition among handset
manufacturers, service providers and applications. For this reason, additional
broadband regulation and new wireless requirements are unwarranted.
Net Neutrality In 2009, the FCC adopted a Notice of Proposed Rulemaking (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.
35
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
On April 6, 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 below.
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 conditions at this time.
LIQUIDITY AND CAPITAL RESOURCES
We had $1,377 in cash and cash equivalents available at June 30, 2010. Cash and
cash equivalents included cash of $370 and money market funds and other cash
equivalents of $1,007. In the first six months of 2010, cash inflows were
primarily provided by cash receipts from operations and the issuance of
commercial paper. 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, acquisitions, dividends to stockholders, the
repayment of debt and the payment of interest on debt. We discuss many of these
factors in detail below.
Cash Provided by or Used in Operating Activities
In the first six months of 2010, cash provided by operating activities was
$15,810 which is comparable to $15,772 in the first six months of 2009.
Cash Used in or Provided by Investing Activities
In the first six months of 2010, cash used in investing activities consisted
primarily of $7,856 for capital expenditures, $379 for interest during
construction, $2,372 cash paid for the acquisition of Verizon assets and $175
for additional spectrum. In addition, the company's Rabbi Trusts invested $347
of cash on hand into various investments and the company purchased an additional
$202 of América Móvil shares. 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 increased 56% in the first six months. 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 represents 61% of the total capital expenditures, excluding interest
during construction. Wireline capital expenditures decreased 5% in the first six
months compared to the previous year reflecting decreased spending on U-verse
services as the upgrades to our existing network become more mature.
We continue to expect that our 2010 capital expenditures 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.
36
AT&T INC.
JUNE 30, 2010
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts
Cash Used in or Provided by Financing Activities
In the first six months of 2010, our financing activities primarily consisted of
the payment of dividends, the repayment of debt and the transfer of collateral
(see Note 6 for collateral discussion).
In the first six months of 2010, we paid dividends of $4,960 compared with
$4,834 in the first six months of 2009, primarily reflecting an 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
second quarter of 2010 and $0.41 per share in the second 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.
In the first six months of 2010, we repaid $4,661 of long-term debt.
In the first six months of 2010, we funded our financing activities primarily
through cash from operations, net proceeds of $3,280 from the issuance of
commercial paper and other short-term borrowings, and cash on hand.
At June 30, 2010, we had $9,721 debt maturing within one year, which included
$6,408 of long-term debt maturities and $3,313 of commercial paper and other
short-term borrowings. Debt maturing within one year includes $1,000 of annual
put reset securities issued by BellSouth that may be put back to us by the
holders each April until maturity in 2021. In July 2010, we issued $2,250 of
2.50% global notes due 2015 for proceeds of approximately $2,235. In August
2010, we announced a private offer to exchange any and all of the outstanding
8.750% 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 Inc. notes due 2040 and cash. The offer is
subject to conditions, including that we receive a minimum principal amount of
$500 in the exchange.
At June 30, 2010, our debt ratio was 40.3% compared to 43.7% at June 30, 2009
and 41.3% at December 31, 2009. The decreased debt ratio from a year ago is due
to a $6,722 decrease in debt and a $4,471 increase in stockholders' equity. The
decreased debt ratio from December 31, 2009 is due to a $2,083 decrease in debt
and a $1,162 increase 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 June 30, 2010,
we had no borrowings outstanding under this agreement.
37
AT&T INC.
JUNE 30, 2010
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At June 30, 2010, we had interest rate swaps with a notional value of $11,250
and a fair value of $602.
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
$(906) at June 30, 2010. We have rate locks with a notional value of $3,400 and
a net fair value of $(290) and foreign exchange contracts with a notional value
of $229 and a net fair value of $(16) at June 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 June 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 June 30, 2010.
38
AT&T INC.
+--------------------------------------------------------------------------------+
| JUNE 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 equipment/software or have 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.
39
AT&T INC.
+--------------------------------------------------------------------------------+
| JUNE 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 second quarter
2010, there were no such material developments.
40
AT&T INC.
+--------------------------------------------------------------------------------+
| JUNE 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 | Cash |
| | Deferral |
| | Plan, |
| | amended |
| | and |
| | restated |
| | June 24, |
| | 2010 |
+--------+---------------------+
| 10b | Stock |
| | Purchase |
| | and |
| | Deferral |
| | Plan, |
| | amended |
| | and |
| | restated |
| | June 24, |
| | 2010 |
+--------+---------------------+
| 10c | 2006 |
| | Incentive |
| | Plan, |
| | amended |
| | and |
| | restated |
| | January |
| | 28, 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 |
+--------+---------------------+
41
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.
August 6, 2010
/s/ Richard G. Lindner
Richard G. Lindner
Senior Executive Vice President
42
EXHIBIT 12
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| AT&T INC. |
+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES |
+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| Dollars in Millions |
+---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | Six Months Ended | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | June 30, | | Year Ended |
+-----------------------------------------------------------+--------+--------------------------------------------+--------+------------------------------------------------------------------------------------------------------------------------------+
| | | | 2010 | | | 2009 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Earnings: | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Income | | $ | 11,714 | | $ | 9,901 | | $ | 18,970 | | $ | 20,164 | | $ | 18,458 | | $ | 10,919 | | $ | 5,720 |
| from | | | | | | | | | | | | | | | | | | | | | |
| continuing | | | | | | | | | | | | | | | | | | | | | |
| operations | | | | | | | | | | | | | | | | | | | | | |
| before | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | |
| taxes | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Equity | | | (412) | | | (368) | | | (734) | | | (819) | | | (692) | | | (2,043) | | | (609) |
| in net | | | | | | | | | | | | | | | | | | | | | |
| income | | | | | | | | | | | | | | | | | | | | | |
| of | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | |
| included | | | | | | | | | | | | | | | | | | | | | |
| above | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | | 2,389 | | | 2,561 | | | 5,071 | | | 4,943 | | | 4,489 | | | 2,166 | | | 1,681 |
| charges | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Distributed | | | 34 | | | 29 | | | 317 | | | 164 | | | 395 | | | 97 | | | 158 |
| income of | | | | | | | | | | | | | | | | | | | | | |
| equity | | | | | | | | | | | | | | | | | | | | | |
| affiliates | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | | (379) | | | (368) | | | (740) | | | (659) | | | (171) | | | (73) | | | (36) |
| capitalized | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Earnings, | | $ | 13,346 | | $ | 11,755 | | $ | 22,884 | | $ | 23,793 | | $ | 22,479 | | $ | 11,066 | | $ | 6,914 |
| as | | | | | | | | | | | | | | | | | | | | | |
| adjusted | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | | | | | | | | | | | | | | | | | | | | |
| Charges: | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | $ | 1,519 | | $ | 1,722 | | $ | 3,368 | | $ | 3,369 | | $ | 3,460 | | $ | 1,800 | | $ | 1,456 |
| expense | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Interest | | | 379 | | | 368 | | | 740 | | | 659 | | | 171 | | | 73 | | | 36 |
| capitalized | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Dividends | | | - | | | - | | | - | | | 4 | | | 3 | | | 3 | | | 31 |
| on | | | | | | | | | | | | | | | | | | | | | |
| preferred | | | | | | | | | | | | | | | | | | | | | |
| securities | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Portion | | | 491 | | | 471 | | | 963 | | | 911 | | | 855 | | | 290 | | | 158 |
| of | | | | | | | | | | | | | | | | | | | | | |
| rental | | | | | | | | | | | | | | | | | | | | | |
| expense | | | | | | | | | | | | | | | | | | | | | |
| representative | | | | | | | | | | | | | | | | | | | | | |
| of interest | | | | | | | | | | | | | | | | | | | | | |
| factor | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Fixed | | $ | 2,389 | | $ | 2,561 | | $ | 5,071 | | $ | 4,943 | | $ | 4,489 | | $ | 2,166 | | $ | 1,681 |
| Charges | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| | | | | | | | | | | | | | | | | | | | | | |
+-----------------------------------------------------------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+---------+--------+--------+--------+
| Ratio | | | 5.59 | | | 4.59 | | | 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: August 6, 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: August 6, 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 June 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.
+---------+---------+
| August | August |
| 6, 2010 | 6, 2010 |
+---------+---------+
+--------------------------------------------+-----------------------------------------------------------------+
| By: /s/ Randal Stephenson | By: /s/ Richard G. Lindner |
+--------------------------------------------+-----------------------------------------------------------------+
| Randall Stephenson | Richard G. Lindner |
+--------------------------------------------+-----------------------------------------------------------------+
+-------------------------------------------+-------------------------------------+----------------------------+
| Chairman of the Board, | Senior Executive Vice President | |
| Chief Executive Officer | | |
+-------------------------------------------+-------------------------------------+----------------------------+
+-------------------------------------------+-------------------------------------+-----------------------------+
| and President | and Chief Financial Officer | |
+-------------------------------------------+-------------------------------------+-----------------------------+
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
Section 1350 and is not being filed as part of the Report or as a separate
disclosure document. This certification shall not be deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934 ("Exchange Act") or
otherwise subject to liability under that section. This certification shall not
be deemed to be incorporated by reference into any filing under the Securities
Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is
expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to AT&T Inc. and will be retained by
AT&T Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAKPAFEKEEFF
1 Year Bank Mont. 45 Chart |
1 Month Bank Mont. 45 Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
