Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
T > SEC Filings for T > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for AT&T INC.

Form 10-Q for AT&T INC.


1-Aug-2014

Quarterly Report


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 both in the United States and internationally, providing wireless and wireline telecommunication services and equipment. 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, 2013. 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. Certain amounts have been reclassified to conform to the current period's presentation.

Consolidated Results Our financial results in the second quarter and for the first six months of 2014 and 2013 are summarized as follows:

                                    Second Quarter                              Six-Month Period
                                                     Percent                                      Percent
                          2014          2013          Change           2014          2013          Change
Operating Revenues      $  32,575     $  32,075            1.6   %   $  65,051     $  63,431            2.6   %
Operating expenses
  Cost of services
and sales                  14,212        13,270            7.1          27,533        25,824            6.6
  Selling, general
and administrative          8,197         8,121            0.9          16,457        16,454              -
  Depreciation and
amortization                4,550         4,571           (0.5 )         9,167         9,100            0.7
Total Operating
Expenses                   26,959        25,962            3.8          53,157        51,378            3.5
Operating Income            5,616         6,113           (8.1 )        11,894        12,053           (1.3 )
Income Before Income
Taxes                       6,106         5,794            5.4          11,757        11,124            5.7
Net Income                  3,621         3,880           (6.7 )         7,355         7,653           (3.9 )
Net Income

Attributable to AT&T $ 3,547 $ 3,822 (7.2 ) % $ 7,199 $ 7,522 (4.3 ) %

Overview
Operating income decreased $497, or 8.1%, in the second quarter and $159, or 1.3%, for the first six months of 2014. Operating income in the second quarter reflects lower wireless service revenues resulting from the popularity of Mobile Share plans, continued decline in legacy voice and data product revenues as well as higher AT&T U-verse® (U-verse) content costs. This decline is partially offset by higher wireless equipment revenue for device sales under our AT&T NextSM (AT&T Next) program as well as continued growth in our U-verse and strategic business services. Our operating results include the operations of Leap Wireless International, Inc. (Leap) from March 13, 2014, the date of acquisition.

Operating revenues increased $500, or 1.6%, in the second quarter and $1,620, or 2.6%, for the first six months of 2014. Growth in wireless revenues reflected the continuing trend by our postpaid subscribers to choose devices on installment purchase rather than the device subsidy model, which resulted in increased equipment revenue recognized for device sales, partially offset by lower wireless service revenues. Wireline revenues were slightly lower and continue to be driven by service revenues from our U-verse services and strategic business services, which almost offset decreases from our legacy voice and data products.

The telecommunications industry is rapidly evolving from fixed location, voice-oriented services into an industry driven by customer demand for instantly available, data-based services (including video). Our products, services and plans are changing as we transition to sophisticated, high-speed, IP-based alternatives. In addition to re-designing our networks to accommodate these new demands and to take advantage of related technological efficiencies, we are also repositioning our wireless model by moving to simple pricing and no-device-subsidy plans. We expect continued growth in our wireless and wireline IP-based services as we bundle and price plans with greater focus on data and video offerings. We expect continued declines in voice services and our basic wireline data services as customers choose these next-generation services.


AT&T INC.

JUNE 30, 2014

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 sales expenses increased $942, or 7.1%, in the second quarter and $1,709, or 6.6%, for the first six months of 2014. The increases were primarily due to customers choosing higher-priced devices, which contributed to increased wireless equipment costs and handset insurance costs. The increases also reflect higher wireless network costs and wireline costs attributable to U-verse subscriber growth and employee-related charges.

Selling, general and administrative expenses increased $76, or 0.9%, in the second quarter and $3 for the first six months of 2014. The increases were primarily due to increased nonemployee related expenses related to information technology enhancements, and higher selling (other than commissions) and administrative expenses in our Wireless segment. Partially offsetting the increases were lower commissions expenses and lower employee-related costs in our Wireline segment.

Depreciation and amortization expense decreased $21, or 0.5%, in the second quarter and increased $67, or 0.7%, for the first six months of 2014. The second-quarter decrease was primarily due to an increase in the useful life of non-network software, an increase in fully depreciated assets and lower amortization of intangibles for customer lists related to acquisitions, which were partially offset by ongoing capital spending for network upgrades and expansion and additional expense for assets acquired from Leap. The increase for the first six months was primarily due to increased capital spending for network upgrades and expansion.

Interest expense increased $56, or 6.8%, in the second quarter and $89, or 5.4%, for the first six months of 2014. The increases were primarily due to higher interest related to our December 2013 tower transaction, partially offset by lower interest incurred as a result of 2013 refinancing activity.

Equity in net income of affiliates decreased $116, or 53.2%, in the second quarter and $213, or 52.9%, for the first six months of 2014. Decreased equity in net income of affiliates in the second quarter, and for the first six months, was primarily due to decreased earnings at América Móvil, S.A. de C.V. (América Móvil) and YP Holdings LLC (YP Holdings). The second-quarter 2014 results also reflect our change in accounting for América Móvil (see Note 7).

                                       Second Quarter          Six-Month Period
                                       2014        2013        2014          2013
América Móvil                        $     99      $ 174     $    153       $  325
YP Holdings                                31         63           85          115
Mobile Wallet Joint Venture               (29 )      (19 )        (49 )        (37 )
Other                                       1          -            1            -
Equity in Net Income of Affiliates   $    102      $ 218     $    190       $  403

Other income (expense) - net We had other income of $1,269 in the second quarter and $1,414 for the first six months of 2014, compared to other income of $288 in the second quarter and $320 for the first six months of 2013. Results in the second quarter and for the first six months of 2014 included a net gain on the sale of América Móvil shares and other investments of $1,245 and $1,367, interest and dividend income of $23 and $36 and leveraged lease income of $7 and $13, respectively.

Other income in the second quarter and for the first six months of 2013 included a net gain on the sale of América Móvil shares and other investments of $249 and $260, interest and dividend income of $23 and $40 and leveraged lease income of $10 and $15, respectively.

Income taxes increased $571, or 29.8%, in the second quarter and $931, or 26.8%, for the first six months of 2014. Our effective tax rate was 40.7% for the second quarter and 37.4% for the first six months of 2014, as compared to 33.0% for the second quarter and 31.2% for the first six months of 2013. The increase in effective tax rate for both the second quarter and the first six months was primarily due to the sale of América Móvil shares in 2014. We had previously assumed that undistributed earnings for our investment in América Móvil would be returned through dividends that, when received, would qualify for foreign tax credits. As a result of our strategic decision to sell this equity position in connection with our pending acquisition of DIRECTV, these foreign tax credits were not available to be realized.


AT&T INC.

JUNE 30, 2014

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,
Subscribers and connections in (000s)     2014          2013
Wireless subscribers                      116,634       107,884
Network access lines in service            22,547        26,849
U-Verse VoIP connections                    4,411         3,379
Total wireline broadband connections       16,448        16,453
Debt ratio1                                  47.6 %        46.6 %
Ratio of earnings to fixed charges2          5.53          5.51
Number of AT&T employees                  248,170       245,350

1 Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital (total debt plus total stockholders' equity) and do not consider cash available to pay down debt. See our "Liquidity and Capital Resources" section for discussion.

2 See exhibit 12

Segment Results

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. Our operating segment results presented in Note 4 and discussed below for each segment follow our internal management reporting. We analyze our operating segments based on segment income before income taxes. We make our capital allocation decisions based on our strategic direction of the business, needs of the network (wireless or wireline) providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, 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 each segment's reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have two reportable segments: (1) Wireless and (2) Wireline.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless data and voice communications services. This segment includes our portion of the results from our mobile wallet joint venture which is accounted for as an equity investment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, U-verse high speed Internet, video and VoIP services and managed networking to business customers.

We discuss capital expenditures for each segment in "Liquidity and Capital Resources."


AT&T INC.

JUNE 30, 2014

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts

Wireless
Segment Results
                                    Second Quarter                              Six-Month Period
                                                     Percent                                      Percent
                          2014          2013          Change           2014          2013          Change
Segment operating
revenues
  Service               $  15,148     $ 15,370            (1.4 ) %   $  30,535     $ 30,432             0.3 %
  Equipment                 2,782        1,921            44.8           5,261        3,550            48.2
Total Segment
Operating Revenues         17,930       17,291             3.7          35,796       33,982             5.3
Segment operating
expenses
  Operations and
support                    11,568       10,770             7.4          22,450       20,950             7.2
  Depreciation and
amortization                2,035        1,843            10.4           3,966        3,678             7.8
Total Segment
Operating Expenses         13,603       12,613             7.8          26,416       24,628             7.3
Segment Operating
Income                      4,327        4,678            (7.5 )         9,380        9,354             0.3
Equity in Net Income
(Loss) of
  Affiliates                  (29 )        (19)          (52.6 )           (49 )        (37)          (32.4 )
Segment Income          $   4,298     $  4,659            (7.7 ) %   $   9,331     $  9,317             0.2 %


AT&T INC.

JUNE 30, 2014

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts

The following table highlights other key measures of performance for the Wireless segment:

                                    Second Quarter                            Six-Month Period
                                                     Percent                                     Percent
(in 000s)                 2014          2013          Change         2014           2013          Change
Wireless Subscribers
1                                                                    116,634       107,884             8.1 %
  Postpaid
smartphones                                                           54,629        49,462            10.4
  Postpaid feature
phones and
data-centric
   devices                                                            19,703        21,816            (9.7 )
Postpaid                                                              74,332        71,278             4.3
Prepaid                                                               11,343         7,084            60.1
Reseller                                                              13,756        14,330            (4.0 )
Connected devices 2                                                   17,203        15,192            13.2
Total Wireless
Subscribers                                                          116,634       107,884             8.1

Net Additions 3
  Postpaid                  1,026          551            86.2 %       1,651           847            94.9
  Prepaid                    (405 )         11               -          (455 )        (173)              -
  Reseller                   (162 )       (414)           60.9          (368 )        (666)           44.7
  Connected devices2          175          484           (63.8 )         868           915            (5.1 )
Net Subscriber
Additions                     634          632             0.3         1,696           923            83.7

Mobile Share
connections                                                           41,291        13,077               -
Smartphones sold
under our installment
  program during
period                      3,142            -               -         6,010             -               -

Total Churn4                1.47%         1.36%          11 BP         1.43%          1.37%           6 BP
Postpaid Churn4             0.86%         1.02%        (16) BP         0.96%          1.03%         (7) BP

1 Represents 100% of AT&T Mobility wireless subscribers.

2 Includes data-centric devices (eReaders and automobile monitoring systems).
Excludes tablets, which are primarily included in postpaid.

3 Excludes merger and acquisition-related additions during the period.

4 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Subscriber Relationships
As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we have launched a wide variety of plans, including Mobile Share and AT&T NextSM (AT&T Next). While we have historically focused on attracting and retaining postpaid subscribers, we have recently increased our focus on prepaid subscribers with our acquisition of Leap.

At June 30, 2014, we served 116.6 million subscribers (including approximately 4.5 million Cricket subscribers from our March 13, 2014 acquisition of Leap), an increase of 8.1% from the prior year. Our subscriber base consists primarily of postpaid accounts. Our prepaid services, which include results from services sold under the Cricket brand, are monthly, pay-as-you-go services.


AT&T INC.

JUNE 30, 2014

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts

ARPU
Total ARPU (average service revenue per average wireless subscribers) was down 8.9 % in the second quarter and 5.5% for the first six months of 2014. Postpaid ARPU was down 9.6% and 5.5% when compared to the second quarter and first six months of 2013, primarily due to the attractive Mobile Share Value pricing. As we adjust our service offerings and pricing structures, management believes that postpaid phone-only ARPU plus Next subscriber installment billings (postpaid phone-only ARPU plus AT&T Next) is a better representation of the monthly economic value per postpaid subscriber. For the quarter and six months, postpaid phone-only ARPU decreased 7.7% and 3.7% versus the year-ago periods and postpaid phone-only ARPU plus AT&T Next decreased 4.7% and 1.4% compared to the same periods last year.

Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Total churn was higher in the second quarter and for the first six months of 2014 due to the expected pressure in prepaid with the transition of Cricket subscribers to our network. Postpaid churn was lower for both the second quarter and the first six months.

Postpaid
Postpaid subscribers increased 1.4% during the second quarter and 4.3% when compared to June 30, 2013. At June 30, 2014, 80% of our postpaid phone subscriber base used smartphones, compared to 73% at June 30, 2013. About 95% of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with approximately 80% on these plans as compared to 71% in the prior year, and about 49% of our Mobile Share accounts have chosen the 10 gigabyte or higher plans. Device connections on our Mobile Share plans now represent about 56% of our postpaid customer base. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn.

As of June 30, 2014, approximately 84% of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or LTE network), and about 63% of our postpaid smartphone subscribers use an LTE device.

Historically, our postpaid customers have signed two-year service contracts for subsidized handsets. However, through our Mobile Share plans, we have recently begun offering postpaid services at lower prices for those customers who either bring their own devices or participate in our AT&T Next program. Our AT&T Next program allows for postpaid subscribers to purchase certain devices in installments over a period of up to 24 months. Additionally, after a specified period of time they also have the right to trade in the original device for a new device and have the remaining unpaid balance satisfied. For customers that elect these trade-in programs, at the time of the sale, we recognize equipment revenue for the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A significant percentage of our customers on the AT&T Next program pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers. In the second quarter of 2014, we began offering the AT&T Next program through other distributors and we plan to expand the offering to additional distributors, which is expected to further accelerate the impacts on service revenues.

Prepaid
In March 2014, we completed our acquisition of Leap, which included approximately 4.5 million prepaid subscribers at closing. Prepaid subscribers decreased 4.0% during the second quarter due to expected transition of Cricket subscribers. Excluding merger and acquisition related additions, prepaid subscribers decreased 3.9% when compared to June 30, 2013. As of July 31, we have approximately 1 million Leap and former Aio subscribers on our GSM network.


AT&T INC.

JUNE 30, 2014

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Continued
Dollars in millions except per share amounts

Operating Results
Our Wireless segment operating income margin in the second quarter decreased from 27.1% in 2013 to 24.1% in 2014 and for the first six months decreased from 27.5% in 2013 to 26.2% in 2014. Our Wireless segment operating income decreased $351, or 7.5%, in the second quarter and increased $26, or 0.3%, for the first six months of 2014. The decreases in operating margin and income in the second quarter reflected the increasing popularity of Mobile Share plans, promotional activities and new business initiatives. The increase in segment operating income for the first six months was primarily driven by overall growth in the number of subscribers using smartphones with larger data plans, which was mostly offset by lower service revenues from Mobile Share plans and new business initiatives.

Service revenues decreased $222, or 1.4%, in the second quarter and increased $103, or 0.3%, for the first six months of 2014. The decrease in the second quarter is due to customers shifting to no-device subsidy plans, which allow for discounted monthly service charges under our Mobile Share plans. This decrease was largely offset by revenues from Cricket subscribers that were not included in our 2013 results. The increase in the first six months was primarily due to the increased number of subscribers using smartphones with larger data plans and revenues from Cricket subscribers, which were partially offset by the expanding Mobile Share plans. While we expect monthly service revenues to continue to be pressured as customers move to Mobile Share plans, we expect equipment revenues to increase for those subscribers who elect the AT&T Next program.

Equipment revenues increased $861, or 44.8%, in the second quarter and $1,711, or 48.2%, for the first six months of 2014. The increases were primarily related to devices sold under our AT&T Next program. During the second quarter, with the launch of the AT&T Next program through other distributors we began deferring the recognition of equipment revenue and costs until the device is sold to the end subscriber and the trade-in right is conveyed. This lag in timing of the recognition of the sale resulted in lower revenue through these distributors during the second quarter of 2014.

Operations and support expenses increased $798, or 7.4%, in the second quarter and $1,500, or 7.2%, in the first six months of 2014. The increases in the second quarter and for the first six months were primarily due to the following:
· Selling (other than commissions) and administrative expenses increased $416 and $699 due primarily to increases of: $177 and $165 primarily due to legal costs and accruals including fees and costs related to acquisitions; $65 and $110 in sales expense; $41 and $56 in bad debt expense; $36 and $96 in customer service expense; $32 and $68 in information technology costs in conjunction with ongoing support systems development; and $22 and $48 in marketing expense. Each of these increases included additional costs related to the acquisition of Leap.

· Network system costs increased $242 and $353 due to higher network traffic and personnel-related network support costs and cell site related costs in conjunction with our network enhancement efforts.

· Equipment costs increased $175 and $544 reflecting the sales of more expensive smartphones.

· Handset insurance cost increased $84 and $163 due to an increase in the cost of replacement phones.

Partially offsetting these increases were lower commission expenses of $240 and $340 primarily due to the decline in upgrade transactions and lower average commission rates.

Depreciation and amortization expenses increased $192, or 10.4%, in the second quarter and $288, or 7.8%, for the first six months of 2014. Depreciation expense increased $193, or 10.8%, in the second quarter and $339, or 9.6%, for the first six months primarily due to ongoing capital spending for network upgrades and expansion. Amortization expense decreased $1, or 1.6%, in the second quarter and $51, or 36.4%, for the first six months primarily due to the fact we have fully amortized customer lists acquired in our acquisition of BellSouth Corporation. The change in the second quarter includes higher amortization of intangibles for customer lists related to our acquisition of Leap.


AT&T INC. . . .

  Add T to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for T - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.