TIDM58KN
RNS Number : 8888Y
AT & T Inc.
08 December 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
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," "smaller reporting company" and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by checkmark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
At October 31, 2017, there were 6,1XX 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 Nine months
ended ended
September September
30, 30,
2017 2016 2017 2016
------------------------------------ ----------- ------- --------- ------- --------- -------
Operating Revenues
Service $ 36,378 $ 37,272 $ 109,372 $ 111,515
Equipment 3,290 3,618 9,498 10,430
------------------------------------ ----------- ------- --------- ------- --------- -------
Total operating revenues 39,668 40,890 118,870 121,945
------------------------------------ ----------- ------- --------- ------- --------- -------
Operating Expenses
Cost of services and sales
Equipment 4,191 4,455 12,177 13,090
Broadcast, programming and
operations 5,284 4,909 15,156 14,239
Other cost of services (exclusive
of depreciation and
amortization shown separately
below) 9,431 9,526 27,714 28,436
Selling, general and administrative 8,317 9,013 24,917 26,363
Depreciation and amortization 6,042 6,579 18,316 19,718
------------------------------------ ----------- ------- --------- ------- --------- -------
Total operating expenses 33,265 34,482 98,280 101,846
------------------------------------ ----------- ------- --------- ------- --------- -------
Operating Income 6,403 6,408 20,590 20,099
------------------------------------ ----------- ------- --------- ------- --------- -------
Other Income (Expense)
Interest expense (1,686) (1,224) (4,374) (3,689)
Equity in net income (loss)
of affiliates 11 16 (148) 57
Other income (expense) - net 246 (7) 354 154
------------------------------------ ----------- ------- --------- ------- --------- -------
Total other income (expense) (1,429) (1,215) (4,168) (3,478)
------------------------------------ ----------- ------- --------- ------- --------- -------
Income Before Income Taxes 4,974 5,193 16,422 16,621
Income tax expense 1,851 1,775 5,711 5,803
Net Income 3,123 3,418 10,711 10,818
------------------------------------ ----------- ------- --------- ------- --------- -------
Less: Net Income Attributable
to Noncontrolling Interest (94) (90) (298) (279)
------------------------------------ ----------- ------- --------- ------- --------- -------
Net Income Attributable to
AT&T $ 3,029 $ 3,328 $ 10,413 $ 10,539
==================================== =========== ======= ========= ======= ========= =======
Basic Earnings Per Share
Attributable
to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
Diluted Earnings Per Share
Attributable to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
------------------------------------ ----------- ------- --------- ------- --------- -------
Weighted Average Number of
Common Shares
Outstanding - Basic (in millions) 6,162 6,168 6,164 6,171
Weighted Average Number of
Common Shares
Outstanding - with Dilution
(in millions) 6,182 6,189 6,184 6,191
Dividends Declared Per Common
Share $ 0.49 $ 0.48 $ 1.47 $ 1.44
==================================== =========== ======= ========= ======= ========= =======
See Notes to Consolidated
Financial Statements.
AT&T INC.
------------------------------------ ----------- ------- --------- ------- --------- -------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
Dollars in millions
(Unaudited)
------------------------------------ ----------- ------- --------- ------- --------- -------
Three months Nine months
ended ended
September 30, September 30,
2017 2016 2017 2016
------------------------------------ --------------- ----------- ------------------ ------------------
Net income $ 3,123 $ 3,418 $ 10,711 $ 10,818
Other comprehensive income
(loss), net of tax:
Foreign currency:
Foreign currency translation
adjustment (includes $10,
$21, $6 and $21 attributable
to noncontrolling interest),
net of taxes of $74, $(91),
$580 and $35 151 (225) 490 (51)
Available-for-sale securities:
Net unrealized gains
(losses),
net of taxes of $28, $28,
$72
and $15 45 46 128 25
Reclassification adjustment
included in net income, net
of
taxes of $(50), $(3), $(54)
and $(3) (79) (5) (86) (5)
Cash flow hedges:
Net unrealized gains
(losses),
net of taxes of $178, $240,
$(94) and $99 330 446 (174) 183
Reclassification adjustment
included in net income, net
of
taxes of $5, $5, $15 and
$15 10 10 29 29
Defined benefit postretirement
plans:
Net prior service credit
arising during period, net
of
taxes of $0, $0, $594 and
$0 - - 969 -
Amortization of net prior
service credit included in
net
income, net of taxes of
$(157),
$(131), $(447) and $(393) (256) (215) (731) (644)
Other comprehensive income
(loss) 201 57 625 (463)
------------------------------------ ----------- ------- --------- ------- --------- -------
Total comprehensive income 3,324 3,475 11,336 10,355
Less: Total comprehensive
income attributable to
noncontrolling interest (104) (111) (304) (300)
------------------------------------ ----------- ------- --------- ------- --------- -------
Total Comprehensive Income
Attributable to AT&T $ 3,220 $ 3,364 $ 11,032 $ 10,055
==================================== =========== ======= ========= ======= ========= =======
See Notes to Consolidated
Financial Statements.
AT&T INC.
-------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
-------------------------------------------------------------------------------------------------
September December
30, 31,
2017 2016
--------------------------------------------------------- ------------------ ------------------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 48,499 $ 5,788
Accounts receivable - net of allowances
for doubtful accounts of $741 and $661 15,876 16,794
Prepaid expenses 1,258 1,555
Other current assets 10,724 14,232
--------------------------------------------------------- ------- --------- ------- ---------
Total current assets 76,357 38,369
--------------------------------------------------------- ------- --------- ------- ---------
Property, plant and equipment 326,240 319,648
Less: accumulated depreciation and amortization (199,778) (194,749)
--------------------------------------------------------- ------- --------- ------- ---------
Property, Plant and Equipment - Net 126,462 124,899
--------------------------------------------------------- ------- --------- ------- ---------
Goodwill 105,668 105,207
Licenses 96,071 94,176
Customer Lists and Relationships - Net 11,573 14,243
Other Intangible Assets - Net 7,775 8,441
Investments in Equity Affiliates 1,627 1,674
Other Assets 18,332 16,812
--------------------------------------------------------- ------- --------- ------- ---------
Total Assets $ 443,865 $ 403,821
========================================================= ======= ========= ======= =========
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 8,551 $ 9,832
Accounts payable and accrued liabilities 28,928 31,138
Advanced billing and customer deposits 4,503 4,519
Accrued taxes 2,703 2,079
Dividends payable 3,008 3,008
--------------------------------------------------------- ------- --------- ------- ---------
Total current liabilities 47,693 50,576
--------------------------------------------------------- ------- --------- ------- ---------
Long-Term Debt 154,728 113,681
--------------------------------------------------------- ------- --------- ------- ---------
Deferred Credits and Other Noncurrent
Liabilities
Deferred income taxes 64,381 60,128
Postemployment benefit obligation 31,231 33,578
Other noncurrent liabilities 19,723 21,748
--------------------------------------------------------- ------- --------- ------- ---------
Total deferred credits and other noncurrent
liabilities 115,335 115,454
--------------------------------------------------------- ------- --------- ------- ---------
Stockholders' Equity
Common stock ($1 par value, $14,000,000,000
authorized at September 30, 2017 and
December 31, 2016: issued 6,495,231,088
at September 30, 2017 and December 31,
2016) 6,495 6,495
Additional paid-in capital 89,527 89,604
Retained earnings 36,074 34,734
Treasury stock (355,897,357 at September
30, 2017 and 356,237,141
at December 31, 2016, at cost) (12,716) (12,659)
Accumulated other comprehensive income 5,580 4,961
Noncontrolling interest 1,149 975
--------------------------------------------------------- ------- --------- ------- ---------
Total stockholders' equity 126,109 124,110
--------------------------------------------------------- ------- --------- ------- ---------
Total Liabilities and Stockholders' Equity $ 443,865 $ 403,821
========================================================= ======= ========= ======= =========
See Notes to Consolidated Financial Statements.
AT&T INC.
-------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
--------------------------------------------------------- ------------------ ------------------
Nine months
ended
September 30,
2017 2016
--------------------------------------------------------- ------------------ ------------------
Operating Activities
Net income $ 10,711 $ 10,818
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 18,316 19,718
Undistributed loss (earnings) from investments
in equity affiliates 171 (22)
Provision for uncollectible accounts 1,216 1,036
Deferred income tax expense 3,254 3,011
Net loss (gain) from sale of investments,
net of impairments (114) (88)
Actuarial loss (gain) on pension and
postretirement benefits (259) -
Changes in operating assets and liabilities:
Accounts receivable (652) (1,108)
Other current assets (106) 1,805
Accounts payable and other accrued liabilities (1,437) (1,173)
Equipment installment receivables and
related sales 1,116 207
Deferred fulfillment costs (1,102) (1,883)
Retirement benefit funding (420) (770)
Other - net (1,420) (2,349)
--------------------------------------------------------- ------- --------- ------- ---------
Total adjustments 18,563 18,384
--------------------------------------------------------- ------- --------- ------- ---------
Net Cash Provided by Operating Activities 29,274 29,202
--------------------------------------------------------- ------- --------- ------- ---------
Investing Activities
Capital expenditures:
Purchase of property and equipment (15,756) (15,283)
Interest during construction (718) (669)
Acquisitions, net of cash acquired 1,154 (2,922)
Dispositions 56 184
(Purchases) sales of securities, net (2) 501
Net Cash Used in Investing Activities (15,266) (18,189)
--------------------------------------------------------- ------- --------- ------- ---------
Financing Activities
Issuance of long-term debt 46,761 10,140
Repayment of long-term debt (10,309) (10,688)
Purchase of treasury stock (460) (444)
Issuance of treasury stock 26 137
Dividends paid (9,030) (8,850)
Other 1,715 (534)
--------------------------------------------------------- ------- --------- ------- ---------
Net Cash Provided by (Used in) Financing
Activities 28,703 (10,239)
--------------------------------------------------------- ------- --------- ------- ---------
Net increase in cash and cash equivalents 42,711 774
Cash and cash equivalents beginning of
year 5,788 5,121
--------------------------------------------------------- ------- --------- ------- ---------
Cash and Cash Equivalents End of Period $ 48,499 $ 5,895
========================================================= ======= ========= ======= =========
Cash paid during the nine months ended
September 30 for:
Interest $ 5,031 $ 4,430
Income taxes, net of refunds $ 1,861 $ 3,166
See Notes to Consolidated Financial Statements.
AT&T INC.
-------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
-------------------------------------------------------------------------------------------------
September 30,
2017
--------------------------------------
Shares Amount
--------------------------------------------------------- ------------------ ------------------
Common Stock
Balance at beginning of year 6,495 $ 6,495
Issuance of stock - -
--------------------------------------------------------- ------------------ ------- ---------
Balance at end of period 6,495 $ 6,495
========================================================= ================== ======= =========
Additional Paid-In Capital
Balance at beginning of year $ 89,604
Issuance of treasury stock 4
Share-based payments (81)
Balance at end of period $ 89,527
========================================================= ================== ======= =========
Retained Earnings
Balance at beginning of year $ 34,734
Net income attributable to AT&T ($1.69
per diluted share) 10,413
Dividends to stockholders ($1.47 per
share) (9,075)
Other 2
--------------------------------------------------------- ------------------ ------- ---------
Balance at end of period $ 36,074
========================================================= ================== ======= =========
Treasury Stock
Balance at beginning of year (356) $ (12,659)
Repurchase and acquisition of common
stock (14) (530)
Issuance of treasury stock 14 473
--------------------------------------------------------- ------------------ ------- ---------
Balance at end of period (356) $ (12,716)
========================================================= ================== ======= =========
Accumulated Other Comprehensive Income
Attributable to AT&T, net of tax
Balance at beginning of year $ 4,961
Other comprehensive income attributable
to AT&T 619
--------------------------------------------------------- ------------------ ------- ---------
Balance at end of period $ 5,580
========================================================= ================== ======= =========
Noncontrolling Interest
Balance at beginning of year $ 975
Net income attributable to noncontrolling
interest 298
Distributions (270)
Acquisition of noncontrolling interest 140
Translation adjustments attributable
to noncontrolling interest, net of taxes 6
--------------------------------------------------------- ------------------ ------- ---------
Balance at end of period $ 1,149
========================================================= ================== ======= =========
Total Stockholders' Equity at beginning
of year $ 124,110
========================================================= ================== ======= =========
Total Stockholders' Equity at end of
period $ 126,109
========================================================= ================== ======= =========
See Notes to Consolidated Financial Statements.
AT&T INC.
SEPTEMBER 30, 2017
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 and
digital entertainment services industry. Our subsidiaries and
affiliates provide services and equipment that deliver voice, video
and broadband services both domestically and internationally. 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, 2016. The
results for the interim periods are not necessarily indicative of
those for the full year.
In the tables throughout this document, percentage increases and
decreases that are not considered meaningful are denoted with a
dash.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation These consolidated financial statements
include all adjustments that are necessary to present fairly the
results for the presented interim periods, consisting of normal
recurring accruals and other items. The consolidated financial
statements include the accounts of the Company and our subsidiaries
and affiliates over which we exercise control.
All significant intercompany transactions are eliminated in the
consolidation process. Investments in unconsolidated subsidiaries
and partnerships where we have significant influence are accounted
for under the equity method. Earnings from certain investments
accounted for using the equity method are included for periods
ended within up to one quarter of our period end. We also record
our proportionate share of our equity method investees' other
comprehensive income (OCI) items, including cumulative translation
adjustments.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP) 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.
Recently Adopted Accounting Standards
Income Taxes As of January 1, 2017, we adopted Accounting
Standards Update (ASU) No. 2016-16, "Income Taxes (Topic 740)" (ASU
2016-16), with modified retrospective application, resulting in our
recognition of an immaterial adjustment to retained earnings. Under
ASU 2016-16, we recognize the income tax effects of intercompany
sales or transfers of assets other than inventory (e.g.,
intellectual property or property, plant and equipment) during the
period of intercompany sale or transfer instead of the period of
either sale or transfer to a third party or recognition of
depreciation or impairment.
New Accounting Standards
Pension and Other Postretirement Benefits In March 2017, the
Financial Accounting Standards Board (FASB) issued ASU No. 2017-07,
"Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost" (ASU 2017-07), which changes the
presentation of periodic benefit cost components. Under ASU
2017-07, we will continue to present service costs within our
operating expenses but present amortization of prior service
credits and other components of our net periodic benefit cost in
"other income (expense) - net" in our consolidated statements of
income. ASU 2017-07 is effective for annual reporting periods
beginning after December 15, 2017. See Note 5 for our components of
net periodic benefit cost.
Revenue Recognition In May 2014, the FASB issued ASU No.
2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASC
606), and has modified the standard thereafter. This standard
replaces existing revenue recognition rules with a comprehensive
revenue measurement and recognition standard and expanded
disclosure requirements. ASC 606, as amended, becomes effective for
annual reporting periods beginning after December 15, 2017, at
which point we plan to adopt the standard using the "modified
retrospective method." Under that method, we will apply the rules
to all open contracts existing as of January 1, 2018, recognizing
in beginning retained earnings an adjustment for the cumulative
effect of the change and providing additional disclosures comparing
results to previous accounting standards.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and
diluted earnings per share for the three months and nine months
ended September 30, 2017 and 2016, is shown in the table below:
Three months Nine months
ended ended
September 30, September 30,
2017 2016 2017 2016
-------------------------------------- --------- ------ ------- -------
Numerators
Numerator for basic earnings
per share:
Net Income $ 3,123 $3,418 $10,711 $10,818
Less: Net income attributable
to noncontrolling interest (94) (90) (298) (279)
-------------------------------------- ----- ----- ------ ------
Net Income attributable to
AT&T 3,029 3,328 10,413 10,539
Dilutive potential common
shares:
Share-based payment 3 3 9 9
-------------------------------------- ----- ----- ------ ------
Numerator for diluted earnings
per share $ 3,032 $3,331 $10,422 $10,548
====================================== ===== ===== ====== ======
Denominators (000,000)
Denominator for basic earnings
per share:
Weighted average number of
common shares outstanding 6,162 6,168 6,164 6,171
Dilutive potential common
shares:
Share-based payment (in shares) 20 21 20 20
-------------------------------------- ----- ----- ------ ------
Denominator for diluted earnings
per share 6,182 6,189 6,184 6,191
====================================== ===== ===== ====== ======
Basic earnings per share attributable
to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
Diluted earnings per share
attributable to AT&T $ 0.49 $ 0.54 $ 1.69 $ 1.70
====================================== ===== ===== ====== ======
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in
accumulated other comprehensive income (accumulated OCI) are
presented below. All amounts are net of tax and exclude
noncontrolling interest.
Net Unrealized
Gains Net Unrealized
Foreign (Losses) Gains Defined Accumulated
Currency on (Losses) Benefit Other
Translation Available-for-Sale on Cash Postretirement Comprehensive
Adjustment Securities Flow Hedges Plans Income
------------------- -------------- --- -------------------- --- -------------- --- ---------------- --- ----------------
Balance as of
December 31, 2016 $ (1,995) $ 541 $ 744 $ 5,671 $ 4,961
Other comprehensive
income
(loss) before
reclassifications 484 128 (174) 969 1,407
Amounts
reclassified
from accumulated
OCI - (1) (86) (1) 29 (2) (731) (3) (788)
------------------- ---------- --- ---------------- --- ---------- --- ------------ --- ------------
Net other
comprehensive
income (loss) 484 42 (145) 238 619
------------------- ---------- --- ---------------- --- ---------- --- ------------ --- ------------
Balance as of
September 30,
2017 $ (1,511) $ 583 $ 599 $ 5,909 $ 5,580
=================== ========== === ================ === ========== === ============ === ============
Net Unrealized
Gains Net Unrealized
Foreign (Losses) Gains Defined Accumulated
Currency on (Losses) Benefit Other
Translation Available-for-Sale on Cash Postretirement Comprehensive
Adjustment Securities Flow Hedges Plans Income
------------------- -------------- --- -------------------- --- -------------- --- ---------------- --- ----------------
Balance as of
December 31, 2015 $ (1,198) $ 484 $ 16 $ 6,032 $ 5,334
Other comprehensive
income
(loss) before
reclassifications (72) 25 183 - 136
Amounts
reclassified
from accumulated
OCI - (1) (5) (1) 29 (2) (644) (3) (620)
------------------- ---------- --- ---------------- --- ---------- --- ------------ --- ------------
Net other
comprehensive
income (loss) (72) 20 212 (644) (484)
------------------- ---------- --- ---------------- --- ---------- --- ------------ --- ------------
Balance as of
September 30,
2016 $ (1,270) $ 504 $ 228 $ 5,388 $ 4,850
=================== ========== === ================ === ========== === ============ === ============
(1) (Gains) losses are included in Other income (expense)
- net in the consolidated statements of income.
(2) (Gains) losses are included in Interest expense in
the consolidated statements of income (see Note 6).
(3) The amortization of prior service credits associated
with postretirement benefits, net of amounts capitalized
as part of construction labor,
are included in Cost of services and sales and Selling,
general and administrative in the consolidated statements
of income (see Note 5).
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products
and services to different customer segments over various technology
platforms and/or in different geographies that are managed
accordingly. We analyze our segments based on Segment Contribution,
which consists of operating income, excluding acquisition-related
costs and other significant items (as discussed below), and equity
in net income (loss) of affiliates for investments managed within
each segment. We have four reportable segments: (1) Business
Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4)
International.
We also evaluate segment performance based on EBITDA and/or
EBITDA margin, which is defined as Segment Contribution excluding
equity in net income (loss) of affiliates and depreciation and
amortization. We believe EBITDA to be a relevant and useful
measurement to our investors as it is part of our internal
management reporting and planning processes and it is an important
metric that management uses to evaluate segment operating
performance. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
The Business Solutions segment provides services to business
customers, including multinational companies; governmental and
wholesale customers; and individual subscribers who purchase
wireless services through employer-sponsored plans. We provide
advanced IP-based services including Virtual Private Networks
(VPN); Ethernet-related products and broadband, collectively
referred to as fixed strategic services; as well as traditional
data and voice products. We utilize our wireless and wired networks
to provide a complete communications solution to our business
customers.
The Entertainment Group segment provides video, internet, voice
communication, and interactive and targeted advertising services to
customers located in the United States or in U.S. territories. We
utilize our copper and IP-based wired network and our satellite
technology.
The Consumer Mobility segment provides nationwide wireless
service to consumers, wholesale and resale wireless subscribers
located in the United States or in U.S. territories. We utilize our
network to provide voice and data services, including high-speed
internet, video and home monitoring services over wireless
devices.
The International segment provides entertainment services in
Latin America and wireless services in Mexico. Video entertainment
services are provided to primarily residential customers using
satellite technology. We utilize our regional and national networks
in Mexico to provide consumer and business customers with wireless
data and voice communication services. Our international
subsidiaries conduct business in their local currency, and
operating results are converted to U.S. dollars using official
exchange rates.
In reconciling items to consolidated operating income and income
before income taxes, Corporate and Other includes: (1) operations
that are not considered reportable segments and that are no longer
integral to our operations or which we no longer actively market,
and (2) impacts of corporate-wide decisions for which the
individual segments are not being evaluated, including interest
costs and expected return on plan assets for our pension and
postretirement benefit plans.
Certain operating items are not allocated to our business
segments, and those include:
-- Acquisition-related items which consists of (1) items
associated with the merger and integration of acquired businesses
and (2) the noncash amortization of intangible assets acquired in
acquisitions.
-- Certain significant items which consists of (1) noncash
actuarial gains and losses from pension and other postretirement
benefits, (2) employee separation charges associated with voluntary
and/or strategic offers, (3) losses resulting from abandonment or
impairment of assets and (4) other items for which the segments are
not being evaluated.
Interest expense and other income (expense) - net, are managed
only on a total company basis and are, accordingly, reflected only
in consolidated results.
Our operating assets are utilized by multiple segments and
consist of our wireless and wired networks as well as our satellite
fleet. Our domestic communications business strategies reflect
bundled product offerings that increasingly cut across product
lines and utilize our asset base. Therefore, asset information and
capital expenditures by segment are not presented. Depreciation is
allocated based on asset utilization by segment.
For the three months ended September 30, 2017
------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Business Solutions $ 17,061 $ 10,233 $ 6,828 $ 2,325 $ 4,503 $ - $ 4,503
Entertainment Group 12,648 9,953 2,695 1,379 1,316 (6) 1,310
Consumer Mobility 7,748 4,551 3,197 877 2,320 - 2,320
International 2,099 1,937 162 304 (142) 17 (125)
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 39,556 26,674 12,882 4,885 7,997 $ 11 $ 8,008
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Corporate and Other 201 89 112 21 91
Acquisition-related
items - 134 (134) 1,136 (1,270)
Certain significant
items (89) 326 (415) - (415)
-------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 39,668 $ 27,223 $12,445 $ 6,042 $ 6,403
==================== ======== ========== ====== ============ =========
For the nine months ended September 30, 2017
------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Business Solutions $ 51,016 $ 30,722 $20,294 $ 6,972 $ 13,322 $ - $ 13,322
Entertainment Group 37,953 29,112 8,841 4,256 4,585 (23) 4,562
Consumer Mobility 23,279 13,599 9,680 2,621 7,059 - 7,059
International 6,054 5,468 586 905 (319) 62 (257)
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 118,302 78,901 39,401 14,754 24,647 $ 39 $ 24,686
-------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Corporate and Other 657 397 260 54 206
Acquisition-related
items - 622 (622) 3,508 (4,130)
Certain significant
items (89) 44 (133) - (133)
-------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 118,870 $ 79,964 $38,906 $ 18,316 $ 20,590
==================== ======== ========== ====== ============ =========
For the three months ended September 30, 2016
--------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Business Solutions $ 17,767 $ 10,925 $ 6,842 $ 2,539 $ 4,303 $ - $ 4,303
Entertainment Group 12,720 9,728 2,992 1,504 1,488 - 1,488
Consumer Mobility 8,267 4,751 3,516 944 2,572 - 2,572
International 1,879 1,640 239 293 (54) 1 (53)
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Segment Total 40,633 27,044 13,589 5,280 8,309 $ 1 $ 8,310
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Corporate and Other 270 270 - 17 (17)
Acquisition-related
items - 290 (290) 1,282 (1,572)
Certain significant
items (13) 299 (312) - (312)
-------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 40,890 $ 27,903 $12,987 $ 6,579 $ 6,408
==================== ======== ========== ====== ============ =========
For the nine months ended September 30, 2016
--------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Business Solutions $ 52,955 $ 32,584 $20,371 $ 7,568 $ 12,803 $ - $ 12,803
Entertainment Group 38,089 28,875 9,214 4,481 4,733 1 4,734
Consumer Mobility 24,781 14,343 10,438 2,798 7,640 - 7,640
International 5,374 4,951 423 868 (445) 24 (421)
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Segment Total 121,199 80,753 40,446 15,715 24,731 $ 25 $ 24,756
-------------------- -------- ---------- ------ ------------ --------- ---------- --------------
Corporate and Other 759 940 (181) 54 (235)
Acquisition-related
items - 818 (818) 3,949 (4,767)
Certain significant
items (13) (383) 370 - 370
-------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 121,945 $ 82,128 $39,817 $ 19,718 $ 20,099
==================== ======== ========== ====== ============ =========
The following table is a reconciliation of Segment
Contribution to "Income Before Income Taxes" reported
on our
consolidated statements of income.
Three months Nine months
ended ended
September 30, September 30,
----------------- -----------------
2017 2016 2017 2016
------------------------------ ------- ------- ------- -------
Business Solutions $ 4,503 $ 4,303 $ 13,322 $ 12,803
Entertainment Group 1,310 1,488 4,562 4,734
Consumer Mobility 2,320 2,572 7,059 7,640
International (125) (53) (257) (421)
------------------------------ ------- ------- ------- -------
Segment Contribution 8,008 8,310 24,686 24,756
------------------------------ ------- ------- ------- -------
Reconciling Items:
Corporate and Other 91 (17) 206 (235)
Merger and integration
charges (134) (290) (622) (818)
Amortization of intangibles
acquired (1,136) (1,282) (3,508) (3,949)
Actuarial gain (loss) - - 259 -
Employee separation costs (208) (260) (268) (314)
Gain (loss) on wireless
spectrum transactions - (22) 181 714
Natural disaster costs
and revenue credits (207) (30) (207) (30)
Venezuela devaluation - - (98) -
Segment equity in net
(income) loss of affiliates (11) (1) (39) (25)
------------------------------ ------- ------- ------- -------
AT&T Operating Income 6,403 6,408 20,590 20,099
------------------------------ ------- ------- ------- -------
Interest expense 1,686 1,224 4,374 3,689
Equity in net income (loss)
of affiliates 11 16 (148) 57
Other income (expense)
- net 246 (7) 354 154
------------------------------ ------- ------- ------- -------
Income Before Income Taxes $ 4,974 $ 5,193 $ 16,422 $ 16,621
============================== ======= ======= ======= =======
NOTE 5. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory
pension plans. We also provide certain medical, dental, life
insurance and death benefits to certain retired employees under
various plans and accrue actuarially determined postretirement
benefit costs. 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
provide benefits described in the plans to employees upon their
retirement.
In 2013, we made a voluntary contribution of a preferred equity
interest in AT&T Mobility II LLC (Mobility II), the primary
holding company for our domestic wireless business, to the pension
trust used to pay benefits under our qualified pension plans. The
preferred equity interest had a value of $9,354 at September 30,
2017. The trust is entitled to receive cumulative cash
distributions of $560 per annum, which are distributed quarterly by
Mobility II to the trust, in equal amounts and accounted for as
contributions. Mobility II distributed $420 to the trust during the
nine months ended September 30, 2017. So long as those
distributions are made, we will have no limitations on our ability
to declare a dividend or repurchase shares. This preferred equity
interest is a plan asset under ERISA and is recognized as such in
the plan's separate financial statements. However, because the
preferred equity interest is not unconditionally transferable to an
unrelated party, it is not reflected in plan assets in our
consolidated financial statements and instead has been eliminated
in consolidation.
The preferred equity interest is not transferable by the trust
except through its put and call features. In early September 2017,
AT&T notified the trust and the fiduciary of the preferred
equity interest that AT&T committed that it would not exercise
its call option of the preferred interest until at least September
9, 2022, which resulted in an increase in the fair value of the
preferred interest of approximately $1,245.
We recognize actuarial gains and losses on pension and
postretirement plan assets in our operating results at our annual
measurement date of December 31, unless earlier remeasurements are
required. During the second quarter of 2017, a substantive plan
change involving the frequency of considering potential health
reimbursement account credit increases was communicated to our
retirees. This plan change triggered a remeasurement of our
postretirement obligations and resulted in additional prior service
credits recognized in other comprehensive income, reducing our
liability by $1,563. Such credits amortize through earnings over a
period approximating the average service period to full
eligibility. Upon our adoption of ASU 2017-07, the amortization of
these prior service credits will be recorded in other income
(expense) - net.
The following table details pension and postretirement benefit
costs included in operating expenses in the accompanying
consolidated statements of income. A portion of these expenses is
capitalized as part of internal construction projects, providing a
small reduction in the net expense recorded. Service costs and
prior service credits are reported in our segment results while
interest costs and expected return on plan assets are included with
Corporate and Other (see Note 4).
Three months Nine months
ended ended
September 30, September 30,
2017 2016 2017 2016
------------------------------------- --------- ------ -------- --------
Pension cost:
Service cost - benefits earned
during the period $ 282 $ 278 $ 846 $ 834
Interest cost on projected
benefit obligation 484 495 1,452 1,485
Expected return on assets (783) (778) (2,350) (2,336)
Amortization of prior service
credit (31) (26) (93) (77)
------------------------------------- ----- ----- ------- -------
Net pension (credit) cost $ (48) $ (31) $ (145) $ (94)
===================================== ===== ===== ======= =======
Postretirement cost:
Service cost - benefits earned
during the period $ 32 $ 48 $ 107 $ 144
Interest cost on accumulated
postretirement benefit obligation 193 243 617 729
Expected return on assets (81) (88) (240) (266)
Amortization of prior service
credit (382) (320) (1,084) (958)
Actuarial (gain) loss - - (259) -
------------------------------------- ----- ----- ------- -------
Net postretirement (credit)
cost $ (238) $(117) $ (859) $ (351)
===================================== ===== ===== ======= =======
Combined net pension and
postretirement (credit) cost $ (286) $(148) $(1,004) $ (445)
===================================== ===== ===== ======= =======
As part of our second-quarter 2017 remeasurement, we decreased
the weighted-average discount rate used to measure our
postretirement benefit obligation to 4.10%. The discount rate in
effect for determining postretirement service and interest costs
after remeasurement is 4.50% and 3.30%, respectively.
We also provide senior- and middle-management employees with
nonqualified, unfunded supplemental retirement and savings plans.
For the third quarter ended 2017 and 2016, net supplemental pension
benefits costs not included in the table above were $22 and $23.
For the first nine months of 2017 and 2016, net supplemental
pension benefit costs were $67 and $70.
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 1 Inputs to the valuation methodology are unadjusted
quoted prices for identical assets or liabilities in active markets
that we have the ability to access.
Level 2 Inputs 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.
Level 3 Inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
-- Fair value is often based on developed models in which there
are few, if any, external observations.
The fair value measurements level of an asset or liability
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. Our
valuation techniques 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. We believe
our 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 since December 31, 2016.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term
debt, including current maturities, and other financial
instruments, are summarized as follows:
September 30, December 31,
2017 2016
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------ -------- -------- -------- --------
Notes and debentures (1) $162,450 $171,025 $122,381 $128,726
Bank borrowings 2 2 4 4
Investment securities 2,565 2,565 2,587 2,587
============================== ======= ======= ======= =======
(1) Includes credit agreement
borrowings.
The carrying amount of debt with an original maturity of less
than one year approximates market value. The fair value
measurements used for notes and debentures are considered Level 2
and are determined using various methods, including quoted prices
for identical or similar securities in both active and inactive
markets.
Following is the fair value leveling for available-for-sale
securities and derivatives as of September 30, 2017 and December
31, 2016:
September 30, 2017
---------------------------------------------------------------------------
Level Level Level
1 2 3 Total
------------------------------ ------------------ ----------------------- ------- ---------------------
Available-for-Sale Securities
Domestic equities $ 1,274 $ - $ - $ 1,274
International equities 380 - - 380
Fixed income bonds - 659 - 659
Asset Derivatives (1)
Interest rate swaps - 45 - 45
Cross-currency swaps - 967 - 967
Liability Derivatives (1)
Interest rate swaps - (34) - (34)
Cross-currency swaps - (1,809) - (1,809)
Derivatives designated as hedging instruments are
reflected as "Other assets," "Other noncurrent liabilities"
(1) and, for a portion of
interest rate swaps, "Other current assets" in our
consolidated balance sheets.
December 31, 2016
---------------------------------------------------------------------------
Level Level Level
1 2 3 Total
------------------------------ ------------------ ----------------------- ------- ---------------------
Available-for-Sale Securities
Domestic equities $ 1,215 $ - $ - $ 1,215
International equities 594 - - 594
Fixed income bonds - 508 - 508
Asset Derivatives (1)
Interest rate swaps - 79 - 79
Cross-currency swaps - 89 - 89
Liability Derivatives (1)
Interest rate swaps - (14) - (14)
Cross-currency swaps - (3,867) - (3,867)
(1) Derivatives designated as hedging instruments are
reflected as "Other assets," "Other noncurrent liabilities"
and, for a portion of
interest rate swaps, "Other current assets" in our
consolidated balance sheets.
Investment Securities
Our investment securities include equities, fixed income bonds
and other securities. A substantial portion of the fair values of
our available-for-sale securities was estimated based on quoted
market prices. Investments in securities not traded on a national
securities exchange are valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows. Realized gains and losses on securities are included in
"Other income (expense) - net" in the consolidated statements of
income using the specific identification method. Unrealized gains
and losses, net of tax, on available-for-sale securities are
recorded in accumulated 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. Fixed income investments of $509 have maturities of
less than one year, $33 within one to three years, $32 within three
to five years and $85 for five or more years.
Our cash equivalents (money market securities), short-term
investments (certificate and time deposits) and nonrefundable
customer deposits are recorded at amortized cost, and the
respective carrying amounts approximate fair values. Short-term
investments and nonrefundable customer deposits are recorded in
"Other current assets" and our investment securities are recorded
in "Other Assets" on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market
risks, primarily interest rate risk and foreign currency exchange
risk. This includes the use of interest rate swaps, interest rate
locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not
use derivatives for trading or speculative purposes. We record
derivatives on our consolidated balance sheets at fair value that
is derived from observable market data, including yield curves and
foreign exchange rates (all of our derivatives are Level 2). Cash
flows associated with derivative instruments are presented in the
same category on the consolidated statements of cash flows as the
item being hedged.
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 in the consolidated statements of income.
Unrealized gains on interest rate swaps are recorded at fair market
value as assets, and unrealized losses on interest rate swaps are
recorded at fair market value as liabilities. Changes in the fair
values of the interest rate swaps are exactly offset by changes in
the fair value of the underlying debt. Gains or losses realized
upon early termination of our fair value hedges are recognized in
interest expense. In the nine months ended September 30, 2017 and
September 30, 2016, no ineffectiveness was measured on interest
rate swaps designated as fair value hedges.
Cash Flow Hedging 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, British pound sterling, Canadian dollar and
Swiss franc denominated debt. These agreements include initial and
final exchanges of principal from fixed foreign currency
denominated amounts to fixed U.S. dollar denominated amounts, to be
exchanged at a specified rate that is usually determined by the
market spot rate upon issuance. They also include an interest rate
swap of a fixed or floating foreign currency-denominated rate to a
fixed U.S. dollar denominated interest rate.
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. 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 as "Other income
(expense) - net" in the consolidated statements of income in each
period. We evaluate the effectiveness of our cross-currency swaps
each quarter. In the nine months ended September 30, 2017 and
September 30, 2016, no ineffectiveness was measured on
cross-currency swaps designated as cash flow hedges.
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 "Other income (expense) - net" in the consolidated
statements of income. Over the next 12 months, we expect to
reclassify $59 from accumulated OCI to interest expense due to the
amortization of net losses on historical interest rate locks.
We hedge a 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. Gains and
losses at the time we settle or take delivery on our designated
foreign exchange contracts are amortized into income in the same
period the hedged transaction affects earnings, except where an
amount is deemed to be ineffective, which would be immediately
reclassified to "Other income (expense) - net" in the consolidated
statements of income. In the nine months ended September 30, 2017
and September 30, 2016, no ineffectiveness was measured on foreign
exchange contracts designated as cash flow hedges.
Collateral and Credit-Risk Contingency We have entered into
agreements with our derivative counterparties establishing
collateral thresholds based on respective credit ratings and
netting agreements. At September 30, 2017, we had posted collateral
of $837 (a deposit asset) and held collateral of $338 (a receipt
liability). Under the agreements, if AT&T's credit rating had
been downgraded one rating level by Fitch Ratings, before the final
collateral exchange in September, we would have been required to
post additional collateral of $141. If DIRECTV Holdings LLC's
credit rating had been downgraded below BBB- (S&P), we would
have been required to post additional collateral of $221. At
December 31, 2016, we had posted collateral of $3,242 (a deposit
asset) and held no 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)
exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative
positions:
September December
30, 31,
2017 2016
--------------------- ----------- ----------
Interest rate swaps $ 10,775 $ 9,650
Cross-currency swaps 38,694 29,642
Total $ 49,469 $ 39,292
===================== ======= ======
Following are the related hedged items affecting our
financial position and performance:
Effect of Derivatives on the Consolidated
Statements of Income
------------------------------------------------- ----- ----- -----
Fair
Value
Hedging Three months Nine months
Relationships ended ended
September 30, September 30,
2017 2016 2017 2016
-------------------------------------- --------- ------ --------- ------
Interest rate swaps (Interest
expense):
Gain (Loss) on interest
rate swaps $ (3) $ (54) $ (51) $ 17
Gain (Loss) on long-term
debt 3 54 51 (17)
====================================== ===== ===== ===== =====
In addition, the net swap settlements that accrued and settled
in the quarter ended September 30 were offset against interest
expense.
Cash
Flow
Hedging Three months Nine months
Relationships ended ended
September 30, September 30,
2017 2016 2017 2016
--------------------------------- --------- ------ ---------- -----
Cross-currency swaps:
Gain (Loss) recognized
in accumulated OCI $ 429 $ 686 $ (268) $ 282
Interest rate locks:
Gain (Loss) recognized
in accumulated OCI 79 - - -
Interest income (expense)
reclassified from
accumulated OCI into income (15) (15) (44) (44)
================================= ===== ===== ====== ====
NOTE 7. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Auction 1000 On April 13, 2017, the Federal Communications
Commission (FCC) announced that we were the successful bidder for
$910 of spectrum in 18 markets. We provided the FCC an initial
deposit of $2,348 in July 2016 and received a refund of $1,438 in
April 2017, which was recorded as cash from investing activities on
our consolidated statements of cash flows.
Dispositions
YP Holdings LLC In June 2017, YP Holdings LLC was acquired by
Dex Media. Our results include a gain of $36 for our portion of the
proceeds.
Pending Acquisitions
Time Warner Inc. On October 22, 2016, we entered into and
announced a merger agreement (Merger Agreement) to acquire Time
Warner Inc. (Time Warner) in a 50% cash and 50% stock transaction
for $107.50 per share of Time Warner common stock, or approximately
$85,400 at the date of the announcement (Merger). Combined with
Time Warner's net debt at September 30, 2017, the total transaction
value is approximately $105,834. Each share of Time Warner common
stock will be exchanged for $53.75 per share in cash and a number
of shares of AT&T common stock equal to the exchange ratio. If
the average stock price (as defined in the Merger Agreement) at the
time of closing the Merger is between (or equal to) $37.411 and
$41.349 per share, the exchange ratio will be the quotient of
$53.75 divided by the average stock price. If the average stock
price is greater than $41.349, the exchange ratio will be 1.300. If
the average stock price is less than $37.411, the exchange ratio
will be 1.437. Post-transaction, Time Warner shareholders will own
between 14.4% and 15.7% of AT&T shares on a fully-diluted basis
based on the number of AT&T shares outstanding. The cash
portion of the purchase price will be financed with new debt and
cash.
Time Warner is a global leader in media and entertainment whose
major businesses encompass an array of some of the most respected
and successful media brands. The deal combines Time Warner's vast
library of content and ability to create new premium content for
audiences around the world with our extensive customer
relationships and distribution, one of the world's largest pay-TV
subscriber bases and leading scale in TV, mobile and broadband
distribution.
The Merger Agreement was approved by Time Warner shareholders on
February 15, 2017. The transaction has been approved by all
requisite foreign jurisdictions and remains subject to review by
the U.S. Department of Justice. The transaction is expected to
close before year-end 2017. If the Merger is terminated as a result
of reaching the termination date (and at that time one or more of
the conditions relating to certain regulatory approvals have not
been satisfied) or there is a final, non-appealable order
preventing the transaction relating to antitrust laws,
communications laws, utilities laws or foreign regulatory laws,
then under certain circumstances, we would be obligated to pay Time
Warner $500. On October 20, 2017, to facilitate obtaining final
regulatory approval required to close the merger, AT&T and Time
Warner elected to extend the October 22, 2017 termination date of
the agreement for a short period of time.
Other Events
FirstNet On March 30, 2017, the First Responder Network
Authority (FirstNet) announced its selection of AT&T to build
and manage the first nationwide broadband network dedicated to
America's first responders. FirstNet will provide 20 MHz of
valuable telecommunications spectrum and success-based payments of
$6,500 over the next five years to support network buildout. We
expect to spend about $40,000, in part recoverable from FirstNet,
over the life of the 25-year contract to build, operate and
maintain the network. AT&T will construct and operate the
network and provide sustainability payments to FirstNet.
Sustainability payments are required to be used for the operating
expenses of FirstNet and to fund network improvements included in
our $40,000 estimate. FirstNet's operating expenses are anticipated
to be in the $75-$100 range annually, and when adjusted for
inflation, we expect to be in the $3,000 range over the life of the
25-year contract. After FirstNet's operating expenses are paid, we
anticipate that the remaining amount, expected to be in the $15,000
range, will be reinvested into the network. As of November 2, 2017,
30 states and territories have opted-in to the program,
representing 38%, or approximately $6,900, of this total
sustainability payment commitment. The actual reach of the network
and our investment over the 25-year period will be determined by
the number of individual states and territories electing to
participate in FirstNet.
States have until December 28, 2017 to elect to opt-out of the
federally funded program, after which any state that did not
formally make an election will automatically be opted-in. We do not
expect FirstNet to materially impact our 2017 results.
NOTE 8. SALES OF EQUIPMENT INSTALLMENT RECEIVABLES
We offer our customers the option to purchase certain wireless
devices in installments over a period of up to 30 months and, in
many cases, they have the right to trade in the original equipment
for a new device within a set period and have the remaining unpaid
balance satisfied. As of September 30, 2017 and December 31, 2016,
gross equipment installment receivables of $4,176 and $5,665 were
included on our consolidated balance sheets, of which $2,485 and
$3,425 are notes receivable that are included in "Accounts
receivable - net."
In 2014, we entered into an uncommitted agreement pertaining to
the sale of equipment installment receivables and related security
with Citibank and various other relationship banks as purchasers
(collectively, the Purchasers). Under this agreement, we transfer
certain receivables to the Purchasers for cash and additional
consideration upon settlement of the receivables, referred to as
the deferred purchase price. Since 2014, we have made beneficial
modifications to the agreement. During 2017, we modified the
agreement and entered into a second uncommitted agreement with the
Purchasers such that we receive more upfront cash consideration at
the time the receivables are transferred to the Purchasers.
Additionally, in the event a customer trades in a device prior to
the end of the installment contract period, we agree to make a
payment to the Purchasers equal to any outstanding remaining
installment receivable balance. Accordingly, we record a guarantee
obligation to the Purchasers for this estimated amount at the time
the receivables are transferred. Under the terms of the agreement,
we continue to bill and collect the payments from our customers on
behalf of the Purchasers. Since inception, cash proceeds received,
net of remittances (excluding amounts returned as deferred purchase
price), were $4,019.
The following table sets forth a summary of equipment
installment receivables sold during the three and nine months ended
September 30, 2017 and 2016:
Three months
ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
------------------------------ ---------------- -------------- -------------- --------------
Gross receivables sold $ 1,619 $ 1,485 $ 6,217 $ 5,812
Net receivables sold (1) 1,478 1,336 5,698 5,263
Cash proceeds received 1,292 891 4,139 3,538
Deferred purchase price
recorded 285 463 1,767 1,745
Guarantee obligation recorded 65 - 139 -
=============================== === =========== ========== ========== ==========
Receivables net of allowance, imputed interest and
(1) trade-in right guarantees.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently carried
at the lower of cost or net realizable value. The estimation of
their fair values is based on remaining installment payments
expected to be collected and the expected timing and value of
device trade-ins. The estimated value of the device trade-ins
considers prices offered to us by independent third parties that
contemplate changes in value after the launch of a device model.
The fair value measurements used for the deferred purchase price
and the guarantee obligation are considered Level 3 under the Fair
Value Measurement and Disclosure framework (see Note 6).
The following table shows the equipment installment receivables,
previously sold to the Purchasers, which we repurchased in exchange
for the associated deferred purchase price during the three months
and nine months ended September 30, 2017 and 2016:
Three months
ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
--------------------------- -------------- -------------- ----------------- -----------------
Fair value of repurchased
receivables $ 567 $ 749 $ 1,281 $ 1,281
Carrying value of deferred
purchase price 507 722 1,147 1,261
---------------------------- --- --------- --- --------- ------------- -------------
Gain (loss) on repurchases
(1) $ 60 $ 27 $ 134 $ 20
============================ === ========= === ========= ============= =============
These gains (losses) are included in "Selling, general
and administrative" in the consolidated statements
(1) of income.
At September 30, 2017 and December 31, 2016, our deferred
purchase price receivable was $3,170 and $3,090, respectively, of
which $2,023 and $1,606 are included in "Other current assets" on
our consolidated balance sheets, with the remainder in "Other
Assets." Our maximum exposure to loss as a result of selling these
equipment installment receivables is limited to the total amount of
our deferred purchase price and guarantee obligation.
The sales of equipment installment receivables did not have a
material impact on our consolidated statements of income or to
"Total Assets" reported on our consolidated balance sheets. We
reflect the cash flows related to the arrangement as operating
activities in our consolidated statements of cash flows because the
cash received from the Purchasers upon both the sale of the
receivables and the collection of the deferred purchase price is
not subject to significant interest rate risk.
Derecognized Installment Receivables
The following table sets forth a summary of equipment
installment receivables that were sold to Purchasers and are no
longer considered our assets.
2017
--------------------------------------- --------
Outstanding derecognized receivables
at January 1, $ 7,232
Gross receivables sold 6,217
Collections on cash purchase price (3,556)
Collections on deferred purchase price (665)
Trade ins and other (295)
Fair value of repurchased receivables (1,281)
---------------------------------------- -------
Outstanding derecognized receivables
at September 30, $ 7,652
========================================= =======
AT&T INC.
SEPTEMBER 30, 2017
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Dollars in millions except per share and per subscriber
amounts
RESULTS OF OPERATIONS
AT&T is a holding company whose subsidiaries and affiliates
operate in the communications and digital entertainment services
industry. Our subsidiaries and affiliates provide services and
equipment that deliver voice, video and broadband services both
domestically and internationally. You should read this discussion
in conjunction with the consolidated financial statements and
accompanying notes. A reference to a "Note" in this section refers
to the accompanying Notes to Consolidated Financial Statements.
Consolidated Results Our financial results in the third quarter
and for the first nine months of 2017 and 2016 are summarized as
follows:
Third Quarter Nine-Month Period
------------------------- ---------------------------
Percent Percent
2017 2016 Change 2017 2016 Change
---------------------------- ------- ------- ------- -------- -------- -------
Operating Revenues
Service $36,378 $37,272 (2.4)% $109,372 $111,515 (1.9)%
Equipment 3,290 3,618 (9.1) 9,498 10,430 (8.9)
---------------------------- ------ ------ ------- -------
Total Operating
Revenues 39,668 40,890 (3.0) 118,870 121,945 (2.5)
---------------------------- ------ ------ ------- -------
Operating expenses
Cost of services
and sales
Equipment 4,191 4,455 (5.9) 12,177 13,090 (7.0)
Broadcast, programming
and
operations 5,284 4,909 7.6 15,156 14,239 6.4
Other cost of
services 9,431 9,526 (1.0) 27,714 28,436 (2.5)
Selling, general
and administrative 8,317 9,013 (7.7) 24,917 26,363 (5.5)
Depreciation and
amortization 6,042 6,579 (8.2) 18,316 19,718 (7.1)
---------------------------- ------ ------ ------- -------
Total Operating
Expenses 33,265 34,482 (3.5) 98,280 101,846 (3.5)
---------------------------- ------ ------ ------- -------
Operating Income 6,403 6,408 (0.1) 20,590 20,099 2.4
Income Before Income
Taxes 4,974 5,193 (4.2) 16,422 16,621 (1.2)
Net Income 3,123 3,418 (8.6) 10,711 10,818 (1.0)
Net Income Attributable
to AT&T $ 3,029 $ 3,328 (9.0)% $ 10,413 $ 10,539 (1.2)%
============================ ====== ====== ======= ======= ======= =======
Overview
Operating revenues decreased $1,222, or 3.0%, in the third
quarter and $3,075, or 2.5%, for the first nine months of 2017.
Service revenues decreased $894, or 2.4%, in the third quarter
and $2,143, or 1.9%, for the first nine months of 2017. The
decreases were primarily due to continued declines in legacy
wireline voice and data products and lower wireless service
revenues reflecting increased adoption of unlimited plans.
Additionally, we waived $89 in service revenues for customers in
areas affected by natural disasters during the third quarter of
2017. These were partially offset by increased revenues from
strategic business services.
Equipment revenues decreased $328, or 9.1%, in the third quarter
and $932, or 8.9%, for the first nine months of 2017. The decreases
were primarily due to lower wireless handset sales and upgrades.
Equipment revenue is becoming increasingly unpredictable as many
customers are choosing to upgrade devices less frequently or are
bringing their own devices.
Operating expenses decreased $1,217, or 3.5%, in the third
quarter and $3,566, or 3.5%, for the first nine months of 2017.
Equipment expenses decreased $264, or 5.9%, in the third quarter
and $913, or 7.0%, for the first nine months of 2017. The decreases
were driven by a decline in devices sold reflecting a change in
customer buying habits.
Broadcast, programming and operations expenses increased $375,
or 7.6%, in the third quarter and $917, or 6.4%, for the first nine
months of 2017, reflecting annual content cost increases and
additional programming costs for DIRECTV NOW.
Other cost of services expenses decreased $95, or 1.0%, in the
third quarter and $722, or 2.5%, for the first nine months of 2017.
The decreases reflect our continued focus on cost management and
the utilization of automation and digitalization where appropriate,
as well as lower Federal Universal Service Fund (USF) rates and
fees. The decrease for the first nine months also includes an
actuarial gain from the second-quarter 2017 remeasurement of our
postretirement benefit obligation. These expense declines were
partially offset by an increase in amortization of deferred
customer fulfillment cost.
Selling, general and administrative expenses decreased $696, or
7.7%, in the third quarter and $1,446, or 5.5%, for the first nine
months of 2017. The decreases were attributable to our disciplined
cost management, lower selling and wireless commission costs from
reduced volumes, fewer advertising costs, and, for the nine month
period, the actuarial gain resulting from the second-quarter
remeasurement of our postretirement benefit obligation. The
decreases in the third quarter were partially offset by costs
arising from natural disasters, and, for the first nine months,
lower gains on wireless spectrum transactions during 2017 than in
the comparable period of 2016. We are continuing to assess network
damage from the natural disasters that occurred in the third
quarter as well as the recent fires in California, and expect
additional pressure in the fourth quarter.
Depreciation and amortization expense decreased $537, or 8.2%,
in the third quarter and $1,402, or 7.1%, for the first nine months
of 2017. Depreciation expense decreased $393, or 7.4%, in the third
quarter and $962, or 6.1%, for the first nine months of 2017. The
decreases were primarily due to our fourth-quarter 2016 change in
estimated useful lives and salvage values of certain assets
associated with our transition to an IP-based network, which
accounted for $327 of the decrease in the third quarter and $980 of
the decrease for the first nine months. Also contributing to lower
depreciation expenses were network assets becoming fully
depreciated. These decreases were partially offset by increases
resulting from ongoing capital spending for upgrades and
expansion.
Amortization expense decreased $144, or 11.2%, in the third
quarter and $440, or 11.1%, for the first nine months of 2017 due
to lower amortization of intangibles for the customer lists
associated with acquisitions.
Operating income decreased $5, or 0.1%, in the third quarter and
increased $491, or 2.4%, for the first nine months of 2017. Our
operating income margin in the third quarter increased from 15.7%
in 2016 to 16.1% in 2017, and for the first nine months increased
from 16.5% in 2016 to 17.3% in 2017.
Interest expense increased $462, or 37.7%, in the third quarter
and $685, or 18.6%, for the first nine months of 2017. The
increases were primarily due to higher debt balances in
anticipation of closing our acquisition of Time Warner Inc. (Time
Warner) and an increase in average interest rates when compared to
the prior year. Financing fees related to pending acquisitions also
contributed to higher interest expense in 2017.
Equity in net income (loss) of affiliates decreased $5, or
31.3%, in the third quarter and $205 for the first nine months of
2017, predominantly from losses from our legacy publishing business
(which we sold in June 2017), partially offset by income from our
investments in video-related businesses.
Other income (expense) - net increased $253 in the third quarter
and $200 for the first nine months. The increases were primarily
due to higher net gains from the sale of non-strategic assets and
investments of $123 and $26, respectively, and growth in interest
and dividend income of $91 and $146, including interest on cash
held in anticipation of closing our acquisition of Time Warner.
Income taxes increased $76, or 4.3%, in the third quarter and
decreased $92, or 1.6%, for the first nine months of 2017. Our
effective tax rate was 37.2% in the third quarter and 34.8% for the
first nine months of 2017, as compared to 34.2% in the third
quarter and 34.9% for the first nine months of 2016. The increase
in the third quarter was primarily due to state-level legislation
changes that resulted in a remeasurement of our deferred tax
liabilities offset by lower income before income taxes. The
decrease for the first nine months of 2017 was primarily due to
lower income before income taxes and the recognition of tax
benefits related to the restructuring of a portion of our wireless
business offset by state-level legislation changes.
Selected Financial and Operating Data
-------------------------------------------- ------- -------
September 30,
Subscribers and connections in (000s) 2017 2016
-------------------------------------------- ------- -------
Domestic wireless subscribers 138,826 133,338
Mexican wireless subscribers 13,779 10,698
-------------------------------------------- ------- -------
North American wireless subscribers 152,605 144,036
============================================ ======= =======
North American branded subscribers 106,098 100,821
North American branded net additions 2,782 3,881
Domestic satellite and over-the-top video
subscribers 21,392 20,777
AT&T U-verse(R) (U-verse) video subscribers 3,718 4,544
Latin America satellite video subscribers
(1) 13,490 12,476
-------------------------------------------- ------- -------
Total video subscribers 38,600 37,797
============================================ ======= =======
Total domestic broadband connections 15,715 15,618
Network access lines in service 12,249 14,603
U-verse VoIP connections 5,774 5,707
Debt ratio (2) 56.4% 50.1%
Net debt ratio (3) 39.7% 47.8%
Ratio of earnings to fixed charges (4) 3.55 3.91
Number of AT&T employees 256,800 273,140
============================================ ======= =======
(1) Excludes subscribers of our International segment equity
investments in SKY Mexico, in which we own a 41.3% stake. At June
30, 2017, SKY Mexico had 8.0 million subscribers.
(2) 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.
(3) Net debt ratios are calculated by deriving total debt (debt
maturing within one year plus long-term debt) less cash available
by total capital (total debt plus total stockholders' equity).
(4) See Exhibit 12.
Segment Results
Our segments are strategic business units that offer different
products and services over various technology platforms and/or in
different geographies that are managed accordingly. Our segment
results presented in Note 4 and discussed below for each segment
follow our internal management reporting. We analyze our segments
based on Segment Contribution, which consists of operating income,
excluding acquisition-related costs and other significant items,
and equity in net income (loss) of affiliates for investments
managed within each segment. We have four reportable segments: (1)
Business Solutions, (2) Entertainment Group, (3) Consumer Mobility
and (4) International.
We also evaluate segment performance based on EBITDA and/or
EBITDA margin, which is defined as Segment Contribution, excluding
equity in net income (loss) of affiliates and depreciation and
amortization. We believe EBITDA to be a relevant and useful
measurement to our investors as it is part of our internal
management reporting and planning processes and it is an important
metric that management uses to evaluate operating performance.
EBITDA does not give effect to cash used for debt service
requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
The Business Solutions segment provides services to business
customers, including multinational companies; governmental and
wholesale customers; and individual subscribers who purchase
wireless services through employer-sponsored plans. We provide
advanced IP-based services including Virtual Private Networks
(VPN); Ethernet-related products and broadband, collectively
referred to as fixed strategic services; as well as traditional
data and voice products. We utilize our wireless and wired networks
to provide a complete integrated communications solution to our
business customers.
The Entertainment Group segment provides video, internet, voice
communication, and interactive and targeted advertising services to
customers located in the United States or in U.S. territories. We
utilize our copper and IP-based wired network and our satellite
technology.
The Consumer Mobility segment provides nationwide wireless
service to consumers, wholesale and resale wireless subscribers
located in the United States or in U.S. territories. We utilize our
networks to provide voice and data services, including high-speed
internet, video and home monitoring services over wireless
devices.
The International segment provides entertainment services in
Latin America and wireless services in Mexico. Video entertainment
services are provided to primarily residential customers using
satellite technology. We utilize our regional and national networks
in Mexico to provide consumer and business customers with wireless
data and voice communication services. Our international
subsidiaries conduct business in their local currency, and
operating results are converted to U.S. dollars using official
exchange rates. Our International segment is subject to foreign
currency fluctuations.
Our operating assets are utilized by multiple segments and
consist of our wireless and wired networks as well as an
international satellite fleet. Our domestic communications business
strategies reflect bundled product offerings that increasingly cut
across product lines and utilize our asset base. Therefore asset
information and capital expenditures by segment are not presented.
Depreciation is allocated based on asset utilization by segment. In
expectation of the close of our acquisition of Time Warner, we are
beginning to realign our operations and strategies. We are pushing
down administrative activities into the business units to better
manage costs and serve our customers.
Business Solutions
Segment Results
------------------------ ------ ------ ------ ------ ------ ------
Third Quarter Nine-Month Period
------------------------ ------------------------
Percent Percent
2017 2016 Change 2017 2016 Change
------------------------ ------- ------- ---------- ------- ------- ----------
Segment operating
revenues
Wireless service $ 8,034 $ 8,050 (0.2)% $23,969 $23,868 0.4%
Fixed strategic
services 3,087 2,913 6.0 9,089 8,469 7.3
Legacy voice and
data services 3,434 4,042 (15.0) 10,572 12,577 (15.9)
Other service
and equipment 852 886 (3.8) 2,513 2,619 (4.0)
Wireless equipment 1,654 1,876 (11.8) 4,873 5,422 (10.1)
------------------------ ------ ------ ------ ------
Total Segment Operating
Revenues 17,061 17,767 (4.0) 51,016 52,955 (3.7)
------------------------ ------ ------ ------ ------
Segment operating
expenses
Operations and
support 10,233 10,925 (6.3) 30,722 32,584 (5.7)
Depreciation and
amortization 2,325 2,539 (8.4) 6,972 7,568 (7.9)
------------------------ ------ ------ ------ ------
Total Segment Operating
Expenses 12,558 13,464 (6.7) 37,694 40,152 (6.1)
------------------------ ------ ------ ------ ------
Segment Operating
Income 4,503 4,303 4.6 13,322 12,803 4.1
Equity in Net Income - - - - - -
of Affiliates
------------------------ ------ ------ ------ ------
Segment Contribution $ 4,503 $ 4,303 4.6% $13,322 $12,803 4.1%
======================== ====== ====== ====== ====== ====== ======
The following tables highlight other key measures of performance
for the Business Solutions segment:
September 30, Percent
(in 000s) 2017 2016 Change
----------------------------------- ---------- --------- ---------
Business Wireless
Subscribers
Postpaid/Branded 51,412 50,014 2.8%
Reseller 77 58 32.8
Connected devices
(1) 35,909 29,355 22.3
----------------------------------- --------- ---------
Total Business Wireless
Subscribers 87,398 79,427 10.0
=================================== ========= =========
Business IP Broadband
Connections 1,017 963 5.6%
=================================== ========= ========= =====
Includes data-centric devices such as session-based
tablets, monitoring devices and primarily wholesale
(1) automobile systems.
Excludes postpaid
tablets.
Third Quarter Nine-Month Period
------------------------ ------------------------
Percent Percent
(in 000s) 2017 2016 Change 2017 2016 Change
----------------------------- ----- ----- ---------- ----- ----- ----------
Business Wireless
Net Additions (1,
4)
Postpaid/Branded 15 191 (92.1)% (74) 509 -%
Reseller 2 1 - 3 (34) -
Connected devices
(2) 2,292 1,290 77.7 7,015 4,067 72.5
----------------------------- ----- ----- ----- -----
Business Wireless
Net Subscriber Additions 2,309 1,482 55.8 6,944 4,542 52.9
============================= ===== ===== ===== =====
Business Wireless
Postpaid Churn (1,
3, 4) 1.01% 0.97% 4 BP 1.02% 0.97% 5 BP
============================= ===== ===== ===== =====
Business IP Broadband
Net Additions 25 15 66.7% 41 52 (21.2)%
============================= ===== ===== ====== ===== ===== ======
Excludes migrations between AT&T segments and/or
subscriber categories and acquisition-related additions
(1) during the period.
Includes data-centric devices such as session-based
tablets, monitoring devices and primarily wholesale
(2) automobile systems.
Excludes postpaid
tablets.
Calculated by dividing the aggregate number of wireless
subscribers who canceled service during a period
(3) 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.
2017 excludes the impact of the 2G shutdown, which
(4) was reflected in beginning of period subscribers.
Operating Revenues decreased $706, or 4.0%, in the third quarter
and $1,939, or 3.7%, for the first nine months of 2017. Revenue
declines reflect technological shifts away from legacy products, as
well as decreasing wireless equipment revenues resulting from
changes in customer buying habits. These decreases were partially
offset by fixed strategic services, which represent 41% of
non-wireless revenues. Our revenues continue to be pressured by
slower fixed business investment.
Wireless service revenues decreased $16, or 0.2%, in the third
quarter and increased $101, or 0.4%, for the first nine months of
2017. The decrease in the third quarter was primarily due to
customers shifting to our unlimited plans as well as fewer
migrations from our Consumer Mobility segment during the quarter.
The increase in the first nine months was primarily due to the
migration of customers from our Consumer Mobility segment.
At September 30, 2017, we served 87.4 million subscribers, an
increase of 10.0% from the prior year. Postpaid subscribers
increased 2.8% from the prior year reflecting the addition of new
customers as well as migrations from our Consumer Mobility segment,
partially offset by continuing competitive pressures in the
industry. Connected devices, which have lower average revenue per
average subscriber (ARPU) and churn, increased 22.3% from the prior
year reflecting growth in our connected car business and other data
centric devices that utilize the network to connect and control
physical devices using embedded computing systems and/or software,
commonly called the Internet of Things (IoT).
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. In the third quarter, business wireless postpaid churn
increased to 1.01% in 2017 from 0.97% in 2016, and for the first
nine months increased to 1.02% in 2017 from 0.97% in 2016.
Fixed strategic services revenues increased $174, or 6.0%, in
the third quarter and $620, or 7.3%, for the first nine months of
2017. Our revenues increased in the third quarter and first nine
months of 2017 primarily due to: Ethernet of $77 and $243;
Dedicated Internet services of $46 and $150; and VoIP of $41 and
$159, respectively.
Legacy wired voice and data service revenues decreased $608, or
15.0%, in the third quarter and $2,005, or 15.9%, for the first
nine months of 2017. In the third quarter and first nine months of
2017, legacy voice billings decreased $324 and $1,068 and
traditional data billings decreased $284 and $937, respectively.
These decreases were primarily due to lower demand, as customers
continue to shift to our more advanced IP-based offerings or to
competitors.
Wireless equipment revenues decreased $222, or 11.8%, in the
third quarter and $549, or 10.1%, for the first nine months of
2017. The decreases were primarily due to decreases in device
upgrades reflecting a change in customer buying habits.
Operations and support expenses decreased $692, or 6.3%, in the
third quarter and $1,862, or 5.7%, for the first nine months of
2017. Operations and support expenses consist of costs incurred to
provide our products and services, including costs of operating and
maintaining our networks and personnel costs, such as compensation
and benefits.
Decreased operations and support expenses in the third quarter
and first nine months were primarily due to lower equipment sales
and wireless upgrade transactions, which decreased equipment costs
by $336 and $732, and efforts to automate and digitize our support
activities improved results $146 and $543, respectively. As of
September 30, 2017, approximately 45% of our network functions have
been moved to software-based systems. Expense reductions also
reflect lower administrative costs, contributing to a reduction in
expenses of $49 and $213, and fewer traffic compensation and
wireless interconnect costs, resulting in declines of $44 and $155,
respectively, in access and interconnect costs. Lower selling and
wireless commission costs also contributed to decreased expenses
for the first nine months.
Depreciation expense decreased $214, or 8.4%, in the third
quarter and $596, or 7.9%, for the first nine months of 2017. The
decreases were primarily due to our fourth-quarter 2016 change in
estimated useful lives and salvage value of certain network assets.
Also contributing to lower depreciation expenses were network
assets becoming fully depreciated, partially offset by ongoing
capital spending for network upgrades and expansion.
Operating income increased $200, or 4.6%, in the third quarter
and $519, or 4.1%, for the first nine months of 2017. Our Business
Solutions segment operating income margin in the third quarter
increased from 24.2% in 2016 to 26.4% in 2017, and for the first
nine months increased from 24.2% in 2016 to 26.1% in 2017. Our
Business Solutions EBITDA margin in the third quarter increased
from 38.5% in 2016 to 40.0% in 2017, and for the first nine months
increased from 38.5% in 2016 to 39.8% in 2017.
Entertainment Group
Segment Results
------------------------ ------ ------ ------ ------ ------ ------
Third Quarter Nine-Month Period
------------------------ ------------------------
Percent Percent
2017 2016 Change 2017 2016 Change
------------------------ ------- ------- ---------- ------- ------- ----------
Segment operating
revenues
Video entertainment $ 9,200 $ 9,026 1.9% $27,373 $26,893 1.8%
High-speed internet 1,916 1,892 1.3 5,784 5,562 4.0
Legacy voice and
data services 949 1,168 (18.8) 3,010 3,725 (19.2)
Other service
and equipment 583 634 (8.0) 1,786 1,909 (6.4)
------------------------ ------ ------ ------ ------
Total Segment Operating
Revenues 12,648 12,720 (0.6) 37,953 38,089 (0.4)
------------------------ ------ ------ ------ ------
Segment operating
expenses
Operations and
support 9,953 9,728 2.3 29,112 28,875 0.8
Depreciation and
amortization 1,379 1,504 (8.3) 4,256 4,481 (5.0)
------------------------ ------ ------ ------ ------
Total Segment Operating
Expenses 11,332 11,232 0.9 33,368 33,356 -
------------------------ ------ ------ ------ ------
Segment Operating
Income 1,316 1,488 (11.6) 4,585 4,733 (3.1)
Equity in Net Income
(Loss) of Affiliates (6) - - (23) 1 -
------------------------ ------ ------ ------ ------
Segment Contribution $ 1,310 $ 1,488 (12.0)% $ 4,562 $ 4,734 (3.6)%
======================== ====== ====== ====== ====== ====== ======
The following tables highlight other key measures of performance
for the Entertainment Group segment:
September 30,
----------------
Percent
(in 000s) 2017 2016 Change
----------------------- ----------------- ----------------- -----------------------
Video Connections
Satellite 20,605 20,777 (0.8)%
U-verse 3,691 4,515 (18.3)
DIRECTV NOW (1) 787 - -
---------------------- ----------------- -----------------
Total Video
Connections 25,083 25,292 (0.8)
====================== ================= =================
Broadband Connections
IP 13,367 12,752 4.8
DSL 964 1,424 (32.3)
---------------------- ----------------- -----------------
Total Broadband
Connections 14,331 14,176 1.1
====================== ================= =================
Retail Consumer Switched
Access Lines 4,996 6,155 (18.8)
U-verse Consumer VoIP
Connections 5,337 5,378 (0.8)
------------------------ ----------------- -----------------
Total Retail Consumer
Voice Connections 10,333 11,533 (10.4)%
======================== ================= ================= ================ ====
Consistent with industry practice, DIRECTV NOW includes
(1) over-the-top connections that are on a free-trial.
Third Quarter Nine-Month Period
----------------------------------- --------------------------------
Percent Percent
(in 000s) 2017 2016 Change 2017 2016 Change
------------------------- -------- -------- --------------- ------- ---------- -----------
Video Net Additions
Satellite (1) (251) 323 -% (407) 993 -%
U-verse (1) (134) (326) 58.9 (562) (1,099) 48.9
DIRECTV NOW (2) 296 - - 520 - -
------------------------- -------- -------- ------- ----------
Net Video Additions (89) (3) - (449) (106) -
========================= ======== ======== ======= ==========
Broadband Net Additions
IP 125 156 (19.9) 479 396 21.0
DSL (96) (161) 40.4 (327) (506) 35.4
------------------------- -------- -------- ------- ----------
Net Broadband Additions 29 (5) -% 152 (110) -%
========================= ======== ======== ========== ======= ========== ======
Includes disconnections for customers that migrated
(1) to DIRECTV NOW.
Consistent with industry practice, DIRECTV NOW includes
(2) over-the-top connections that are on a free-trial.
Operating revenues decreased $72, or 0.6%, in the third quarter
and $136, or 0.4%, for the first nine months of 2017, largely due
to lower revenues from legacy voice and data products, partially
offset by growth in revenues from consumer IP broadband
services.
As consumers continue to demand more mobile access to video, we
provide streaming access to our subscribers, including mobile
access for existing satellite and U-verse subscribers. In November
2016, we launched DIRECTV NOW, our newest video streaming option
that does not require either satellite or U-verse service (commonly
called over-the-top video service).
Video entertainment revenues increased $174, or 1.9%, in the
third quarter and $480, or 1.8%, for the first nine months of 2017.
These increases include a third-quarter 2017 pay-per-view event and
reflect a 4.5% and 3.3% increase in average revenue per linear
(combined satellite and U-verse) video connection. Advertising
revenues also increased $41 and $113, respectively.
Linear video subscriber losses, and associated margin pressure,
continued their recent trend, with some of the losses due to the
impact from hurricanes as well as tightening of our credit
policies. We are also seeing the impact of customers wanting mobile
and over-the-top offerings, which is contributing to growth in
DIRECTV NOW connections and partially offsetting linear video
subscriber losses. DIRECTV NOW connections continue to grow as we
add eligible devices and increase content choices. Our strategy to
bundle services has positively impacted subscriber trends and
churn, with customers who bundle our wireless and video having
nearly half the rate of churn as customers with a single service.
Customers with linear video but no wireless service through
AT&T increased churn during the quarter, partially due to
pricing increases associated with annual content cost increases and
involuntary churn.
High-speed internet revenues increased $24, or 1.3%, in the
third quarter and $222, or 4.0%, for the first nine months of 2017,
reflecting a 4.8% increase in IP broadband subscribers when
compared to the prior year. Average revenue per IP broadband
connection (ARPU) decreased 3.7% in the third quarter and 0.8% for
the first nine months of 2017. Our bundling strategy is also
helping to lower churn for broadband subscribers, with subscribers
who bundle broadband with another AT&T service having about 30%
lower churn than broadband-only subscribers. To compete more
effectively against other broadband providers in the midst of
ongoing declines in DSL subscribers, we continued to deploy our
all-fiber, high-speed wireline network, which has improved customer
retention rates. We also expect our planned 5G national deployment
to aid our ability to provide more locations with competitive
broadband speeds.
Legacy voice and data service revenues decreased $219, or 18.8%,
in the third quarter and $715, or 19.2%, for the first nine months
of 2017. For the nine months ended September 30, 2017, legacy voice
and data services represented approximately 8% of our total
Entertainment Group revenue compared to 10% for the September 30,
2016 period, and reflect third quarter and year to date decreases
of $148 and $483 in local voice and long-distance, and $70 and $232
in traditional data billings, respectively. The decreases reflect
the continued migration of customers to our more advanced IP-based
offerings or to competitors. At September 30, 2017, approximately
7% of our broadband connections were DSL compared to 10% at
September 30, 2016.
Operations and support expenses increased $225, or 2.3%, in the
third quarter and increased $237, or 0.8%, for the first nine
months of 2017. Operations and support expenses consist of costs
associated with providing video content, and expenses incurred to
provide our products and services, which include costs of operating
and maintaining our networks, as well as personnel charges for
compensation and benefits.
Increased operations and support expenses in the third quarter
and for the first nine months of 2017 were primarily due to annual
content cost increases, a pay-per-view event, deferred customer
fulfillment cost amortization, and video platform development
costs. Partially offsetting these increases were the impact of our
ongoing focus on cost efficiencies and merger synergies, as well as
workforce reductions and lower marketing costs.
Depreciation expense decreased $125, or 8.3%, in the third
quarter, and $225, or 5.0%, for the first nine months of 2017. The
decreases were primarily due to our fourth-quarter 2016 change in
estimated useful lives and salvage value of certain assets. Also
contributing to lower depreciation expenses were network assets
becoming fully depreciated. These decreases were offset by ongoing
capital spending for network upgrades and expansion.
Operating income decreased $172, or 11.6%, in the third quarter
and $148, or 3.1%, for the first nine months of 2017. Our
Entertainment Group segment operating income margin in third
quarter decreased from 11.7% in 2016 to 10.4% in 2017, and for the
first nine months decreased from 12.4% in 2016 to 12.1% in 2017.
Our Entertainment Group segment EBITDA margin in the third quarter
decreased from 23.5% in 2016 to 21.3% in 2017, and for the first
nine months decreased from 24.2% in 2016 to 23.3% in 2017.
Consumer Mobility
Segment Results
------------------------ ----- ----- ----- ------ ------ -----
Third Quarter Nine-Month Period
--------------------- -----------------------
Percent Percent
2017 2016 Change 2017 2016 Change
------------------------ ------ ------ --------- ------- ------- ---------
Segment operating
revenues
Service $6,507 $6,914 (5.9)% $19,644 $20,805 (5.6)%
Equipment 1,241 1,353 (8.3) 3,635 3,976 (8.6)
------------------------ ----- ----- ------ ------
Total Segment Operating
Revenues 7,748 8,267 (6.3) 23,279 24,781 (6.1)
------------------------ ----- ----- ------ ------
Segment operating
expenses
Operations and
support 4,551 4,751 (4.2) 13,599 14,343 (5.2)
Depreciation and
amortization 877 944 (7.1) 2,621 2,798 (6.3)
------------------------ ----- ----- ------ ------
Total Segment Operating
Expenses 5,428 5,695 (4.7) 16,220 17,141 (5.4)
------------------------ ----- ----- ------ ------
Segment Operating
Income 2,320 2,572 (9.8) 7,059 7,640 (7.6)
Equity in Net Income
of Affiliates - - - - - -
------------------------ ----- ----- ------ ------
Segment Contribution $2,320 $2,572 (9.8)% $ 7,059 $ 7,640 (7.6)%
======================== ===== ===== ===== ====== ====== =====
The following tables highlight other key measures
of performance for the Consumer Mobility segment:
September
30, Percent
(in 000s) 2017 2016 Change
------------------------ ------------------ ----------------- -----------------------
Consumer Mobility
Subscribers
Postpaid 26,003 27,374 (5.0)%
Prepaid (2) 15,136 13,035 16.1
------------------------ ------------------ -----------------
Branded 41,139 40,409 1.8
Reseller 9,800 12,566 (22.0)
Connected devices
(1, 2) 489 936 (47.8)
------------------------ ------------------ -----------------
Total Consumer Mobility
Subscribers 51,428 53,911 (4.6)%
======================== ================== ================= ================= ===
Includes data-centric devices such as session-based
tablets, monitoring devices and postpaid automobile
(1) systems. Excludes
postpaid tablets. See (2) below.
Beginning in July 2017, we are reporting prepaid
IoT connections, which primarily consist of "connected"
(2) cars, as a component of
prepaid subscribers. The prepaid subscriber base
at September 30, 2017 now includes approximately
543 subscribers that
were formerly included in connected devices.
Third Quarter Nine-Month Period
---------------------------------- ----------------------------------
Percent Percent
(in 000s) 2017 2016 Change 2017 2016 Change
--------------------------- --------- ------- -------------- --------- --------- ------------
Consumer Mobility
Net Additions (1,
4)
Postpaid 102 21 -% 127 89 42.7%
Prepaid (5) 324 304 6.6 873 1,169 (25.3)
--------------------------- --------- ------- --------- ---------
Branded Net Additions 426 325 31.1 1,000 1,258 (20.5)
Reseller (394) (316) (24.7) (1,345) (1,140) (18.0)
Connected devices
(2, 5) (18) 41 - 87 14 -
--------------------------- --------- ------- --------- ---------
Consumer Mobility
Net Subscriber Additions 14 50 (72.0)% (258) 132 -%
=========================== ========= ======= ========= =========
Total Churn (1, 3,
4) 2.37% 2.11% 26 BP 2.32% 2.06% 26 BP
Postpaid Churn (1, (2) (1)
3, 4) 1.17% 1.19% BP 1.16% 1.17% BP
=========================== ========= ======= ========= === ========= ========= ========
Excludes migrations between AT&T segments and/or
subscriber categories and acquisition-related additions
(1) during the period.
Includes data-centric devices such as session-based
tablets, monitoring devices and postpaid automobile
(2) systems. Excludes
postpaid tablets. See (5) below.
Calculated by dividing the aggregate number of wireless
subscribers who canceled service during a month divided
(3) by the total number
of wireless subscribers at the beginning of that
month. The churn rate for the period is equal to
the average of the churn rate for
each month of that period.
2017 excludes the impact of the 2G shutdown and a
true-up to the reseller subscriber base, which were
(4) reflected in beginning of
period subscribers.
Beginning in July 2017, we are reporting prepaid
IoT connections, which primarily consist of "connected"
(5) cars, as a component
of prepaid subscribers, resulting in 97 additional
prepaid net adds in the quarter. Had we restated
our prior periods, prepaid
net adds for the comparable periods would have been
381 in the third quarter of 2016, and 1,060 and 1,324
for the first nine months of ,
2017 and 2016, respectively.
Operating Revenues decreased $519, or 6.3%, in the third quarter
and $1,502, or 6.1%, for the first nine months of 2017. Decreased
revenues reflect declines in postpaid service revenues due to
customers migrating to our Business Solutions segment and choosing
unlimited plans, partially offset by higher prepaid service
revenues. Our business wireless offerings allow for individual
subscribers to purchase wireless services through
employer-sponsored plans for a reduced price. The migration of
these subscribers to the Business Solutions segment negatively
impacted our consumer postpaid subscriber total and service revenue
growth.
Service revenue decreased $407, or 5.9%, in the third quarter
and $1,161, or 5.6%, for the first nine months of 2017. The
decreases were largely due to postpaid customers continuing to
shift to discounted monthly service charges under our unlimited
plans and the migration of subscribers to Business Solutions.
Revenues from postpaid customers declined $419, or 8.6%, in the
third quarter and $1,422, or 9.5%, for the first nine months of
2017. Without the migration of customers to Business Solutions,
postpaid wireless revenues would have decreased approximately 4.6%
and 5.2%, respectively. The decreases were partially offset by
higher prepaid service revenues of $155, or 10.7%, in the third
quarter and $595, or 14.5%, for the first nine months primarily
from growth in Cricket and AT&T PREPAID(SM) subscribers.
Equipment revenue decreased $112, or 8.3%, in the third quarter
and $341, or 8.6%, for the first nine months of 2017. The decreases
in equipment revenues resulted from lower handset sales and
upgrades. As previously discussed, equipment revenue is becoming
increasingly unpredictable as customers are choosing to upgrade
devices less frequently or bring their own.
Operations and support expenses decreased $200, or 4.2%, in the
third quarter and $744, or 5.2%, for the first nine months of 2017.
Operations and support expenses consist of costs incurred to
provide our products and services, including costs of operating and
maintaining our networks and personnel expenses, such as
compensation and benefits.
Decreased operations and support expenses for the third quarter
were primarily due to lower volumes of wireless equipment sales and
upgrades, which decreased equipment and selling and commission
costs, and operational efficiencies. The nine-month period also
reflects lower marketing and advertising costs resulting from the
timing of scheduled ad campaigns and integrated advertising.
Depreciation expense decreased $67, or 7.1%, in the third
quarter and $177, or 6.3%, for the first nine months of 2017. The
decreases were primarily due to fully depreciated assets, partially
offset by ongoing capital spending for network upgrades and
expansion.
Operating income decreased $252, or 9.8%, in the third quarter
and $581, or 7.6%, for the first nine months of 2017. Our Consumer
Mobility segment operating income margin in the third quarter
decreased from 31.1% in 2016 to 29.9% in 2017, and for the first
nine months decreased from 30.8% in 2016 to 30.3% in 2017. Our
Consumer Mobility EBITDA margin in the third quarter decreased from
42.5% in 2016 to 41.3% in 2017, and for the first nine months
decreased from 42.1% in 2016 to 41.6% in 2017.
International
Segment Results
------------------------ ----- ----- ----- ----- ----- -----
Third Quarter Nine-Month Period
--------------------- ------------------------
Percent Percent
2017 2016 Change 2017 2016 Change
------------------------ ------ ------ --------- --------- ------ ---------
Segment operating
revenues
Video entertainment $1,363 $1,297 5.1% $ 4,065 $3,649 11.4%
Wireless service 536 484 10.7 1,546 1,428 8.3
Wireless equipment 200 98 - 443 297 49.2
------------------------ ----- ----- ----- -----
Total Segment Operating
Revenues 2,099 1,879 11.7 6,054 5,374 12.7
------------------------ ----- ----- ----- -----
Segment operating
expenses
Operations and
support 1,937 1,640 18.1 5,468 4,951 10.4
Depreciation and
amortization 304 293 3.8 905 868 4.3
------------------------ ----- ----- ----- -----
Total Segment Operating
Expenses 2,241 1,933 15.9 6,373 5,819 9.5
------------------------ ----- ----- ----- -----
Segment Operating
Income (Loss) (142) (54) - (319) (445) 28.3
Equity in Net Income
(Loss)
of Affiliates 17 1 - 62 24 -
------------------------ ----- ----- ----- -----
Segment Contribution $(125) $ (53) -% $ (257) $(421) 39.0%
======================== ===== ===== ===== ===== ===== =====
The following tables highlight other key measures of performance
for the International segment:
September
30, Percent
(in 000s) 2017 2016 Change
------------------------------ --------------- --------------- ----------------------
Mexican Wireless
Subscribers
Postpaid 5,316 4,733 12.3%
Prepaid 8,231 5,665 45.3
------------------------------ --------------- ---------------
Branded 13,547 10,398 30.3
Reseller 232 300 (22.7)
------------------------------ --------------- ---------------
Total Mexican Wireless
Subscribers 13,779 10,698 28.8
============================== =============== ===============
Latin America Satellite
Subscribers
PanAmericana 8,201 7,139 14.9
SKY Brazil (1) 5,289 5,337 (0.9)
------------------------------ --------------- ---------------
Total Latin America Satellite
Subscribers 13,490 12,476 8.1%
=================================== =============== =============== =============== ====
Excludes subscribers of our International segment
equity investments in SKY Mexico, in which we own
(1) a 41.3% stake. SKY Mexico
had 8.0 million subscribers at June 30, 2017 and
7.9 million subscribers at September 30, 2016.
Third Quarter Nine-Month Period
-------------------------------- --------------------------------
Percent Percent
(in 000s) 2017 2016 Change 2017 2016 Change
------------------------- -------- ------ -------------- -------- -------- ------------
Mexican Wireless
Net Additions
Postpaid 129 163 (20.9)% 351 444 (20.9)%
Prepaid 585 606 (3.5) 1,504 1,670 (9.9)
------------------------- -------- ------ -------- --------
Branded Net Additions 714 769 (7.2) 1,855 2,114 (12.3)
Reseller (17) (26) 34.6 (49) (100) 51.0
------------------------- -------- ------ -------- --------
Mexican Wireless
Net Subscriber
Additions 697 743 (6.2) 1,806 2,014 (10.3)
========================= ======== ====== ======== ========
Latin America Satellite
Net Additions (1)
PanAmericana 98 (36) - 163 73 -
SKY Brazil (230) (12) - (260) (107) -
------------------------- -------- ------ -------- --------
Latin America Satellite
Net Subscriber
Additions (2) (132) (48) -% (97) (34) -%
========================= ======== ====== ========= ======== ======== ========
In 2017, we updated the methodology used to account
for prepaid video connections, which were reflected
(1) in beginning of period
subscribers.
Excludes SKY Mexico net subscriber losses of 13 for
the six months ended June 30, 2017 and additions
(2) of 519 for the six
months of June 30, 2016.
Operating Results
Our International segment consists of the Latin American
operations acquired with DIRECTV as well as our Mexican wireless
operations. Video entertainment services are provided to primarily
residential customers using satellite technology. Our international
subsidiaries conduct business in their local currency and operating
results are converted to U.S. dollars using official exchange
rates. Our International segment is subject to foreign currency
fluctuations.
Operating revenues increased $220, or 11.7%, in the third
quarter and $680, or 12.7%, for the first nine months of 2017. The
increases include $66 and $416 from video services in Latin America
due to price increases driven primarily by macroeconomic conditions
with mixed local currencies. Mexico wireless revenues increased
$154, or 26.5%, in the third quarter and $264, or 15.3%, for the
first nine months of 2017, primarily due to growth in equipment
revenues as we have increased our subscriber base, partially offset
by competitive pricing for services.
Operations and support expenses increased $297, or 18.1%, in the
third quarter and $517, or 10.4%, for the first nine months of
2017. Operations and support expenses consist of costs incurred to
provide our products and services, including costs of operating and
maintaining our networks and providing video content and personnel
expenses, such as compensation and benefits.
The increases in Latin America in the third quarter and for the
first nine months were primarily due to higher programming and
other operating costs. The nine-month period was partially offset
by foreign currency exchange rates and our reassessment of
operating tax contingencies in Brazil. The increases in Mexico for
the first nine months were primarily driven by higher operational
costs, including expenses associated with our network expansion and
foreign currency pressures.
Depreciation expense increased $11, or 3.8%, in the third
quarter and $37, or 4.3%, for the first nine months of 2017. The
increases were primarily due to updating the estimated asset lives
for video equipment in Latin America and higher capital spending in
Mexico.
Operating income decreased $88 in the third quarter and
increased $126, or 28.3%, for the first nine months of 2017, and
were negatively impacted by foreign exchange pressure. Our
International segment operating income margin in the third quarter
decreased from (2.9)% in 2016 to (6.8)% in 2017, and for the first
nine months increased from (8.3)% in 2016 to (5.3)% in 2017. Our
International EBITDA margin in the third quarter decreased from
12.7% in 2016 to 7.7% in 2017, and for the first nine months
increased from 7.9% in 2016 to 9.7% in 2017.
Supplemental Operating Information
As a supplemental discussion of our operating results, for
comparison purposes, we are providing a view of our combined
domestic wireless operations (AT&T Mobility). See "Discussion
and Reconciliation of Non-GAAP Measure" for a reconciliation of
these supplemental measures to the most directly comparable
financial measures calculated and presented in accordance with U.S.
generally accepted accounting principles.
AT&T Mobility Results
---------------------- ------ ------ ------ ------ ------ -----
Third Quarter Nine-Month Period
------------------------ -----------------------
Percent Percent
2017 2016 Change 2017 2016 Change
---------------------- ------- ------- ---------- ------- ------- ---------
Operating revenues
Service $14,541 $14,964 (2.8)% $43,613 $44,673 (2.4)%
Equipment 2,895 3,229 (10.3) 8,508 9,398 (9.5)
---------------------- ------ ------ ------ ------
Total Operating
Revenues 17,436 18,193 (4.2) 52,121 54,071 (3.6)
---------------------- ------ ------ ------ ------
Operating expenses
Operations and
support 10,113 10,697 (5.5) 30,308 31,822 (4.8)
---------------------- ------ ------ ------ ------
EBITDA 7,323 7,496 (2.3) 21,813 22,249 (2.0)
---------------------- ------ ------ ------ ------
Depreciation and
amortization 2,010 2,107 (4.6) 5,999 6,244 (3.9)
---------------------- ------ ------ ------ ------
Total Operating
Expenses 12,123 12,804 (5.3) 36,307 38,066 (4.6)
---------------------- ------ ------ ------ ------
Operating Income $ 5,313 $ 5,389 (1.4)% $15,814 $16,005 (1.2)%
====================== ====== ====== ====== ====== ====== =====
The following tables highlight other key measures
of performance for AT&T Mobility:
September
30, Percent
(in 000s) 2017 2016 Change
--------------- ----- ----- ------ -------- --------- ------- --------------
Wireless
Subscribers
(1)
Postpaid
smartphones 59,277 58,688 1.0%
Postpaid feature
phones
and data-centric
devices 18,138 18,700 (3.0)
---------------------- ----- ------ -------- --------- -------
Postpaid 77,415 77,388 -
Prepaid (3) 15,136 13,035 16.1
--------------- ----- ----- ------ -------- --------- -------
Branded 92,551 90,423 2.4
Reseller 9,877 12,624 (21.8)
Connected
devices
(2, 3) 36,398 30,291 20.2
--------------- ----- ----- ------ -------- --------- -------
Total Wireless
Subscribers 138,826 133,338 4.1
=============== ===== ===== ====== ======== ========= =======
Branded
Smartphones 72,242 69,752 3.6
Smartphones under our installment
programs at end of period 31,207 29,382 6.2%
===================================== ======== ========= ======= ======== ===
(1) Represents 100% of AT&T Mobility wireless subscribers.
Includes data-centric devices such as session-based
tablets, monitoring devices and primarily wholesale
(2) automobile systems. Excludes
postpaid tablets. See (3) below.
Beginning in July 2017, we are reporting prepaid
IoT connections, which primarily consist of "connected"
(3) cars, as a component of
prepaid subscribers. The prepaid subscriber base
at September 30, 2017 now includes approximately
543 subscribers
that were formerly included in connected devices.
Third Quarter Nine-Month Period
------------------------------ ----------------------------------
Percent Percent
(in 000s) 2017 2016 Change 2017 2016 Change
--------------- ----- ----- ---------------- --------- ------- --------------
Wireless Net
Additions
(1, 4)
Postpaid 117 212 (44.8) % 53 598 (91.1)%
Prepaid (5) 324 304 6.6 873 1,169 (25.3)
--------------- ----- ----- --------- -------
Branded Net
Additions 441 516 (14.5) 926 1,767 (47.6)
Reseller (392) (315) (24.4) (1,342) (1,174) (14.3)
Connected
devices
(2, 5) 2,274 1,331 70.8 7,102 4,081 74.0
--------------- ----- ----- --------- -------
Wireless Net
Subscriber
Additions 2,323 1,532 51.6 6,686 4,674 43.0
=============== ===== ===== ========= =======
Smartphones
sold
under our
installment
programs
during
period 3,491 4,283 (18.5) % 10,575 12,378 (14.6)%
Total Churn (3, (13) (6)
4) 1.32% 1.45% BP 1.35% 1.41% BP
Branded Churn
(3,
4) 1.70% 1.63% 7 BP 1.66% 1.57% 9 BP
Postpaid Churn
(3,
4) 1.07% 1.05% 2 BP 1.07% 1.04% 3 BP
Postpaid Phone
Only (6) (6)
Churn (3, 4) 0.84% 0.90% BP 0.84% 0.90% BP
=============== ===== ===== ====== ======== ========= ======= ======== ====
Excludes acquisition-related additions during the
(1) period.
Includes data-centric devices such as session-based
tablets, monitoring devices and primarily wholesale
(2) automobile systems. Excludes
postpaid tablets. See (5) below.
Calculated by dividing the aggregate number of wireless
subscribers who canceled service during a month divided
(3) by the total number
of wireless subscribers at the beginning of that
month. The churn rate for the period is equal to
the average of the churn rate for
each month of that period.
2017 excludes the impact of the 2G shutdown and a
true-up to the reseller subscriber base, which were
(4) reflected in beginning of
period subscribers.
Beginning in July 2017, we are reporting prepaid
IoT connections, which primarily consist of "connected"
(5) cars, as a component
of prepaid subscribers, resulting in 97 additional
prepaid net adds in the quarter. Had we restated
our prior periods, prepaid
net adds for the comparable periods would have been
381 in the third quarter of 2016, and 1,060 and 1,324
for the first nine months of ,
2017 and 2016, respectively.
Operating income decreased $76, or 1.4%, in the third quarter
and $191, or 1.2%, for the first nine months of 2017. The
third-quarter operating income margin of AT&T Mobility
increased from 29.6% in 2016 to 30.5% in 2017 and for the first
nine months increased from 29.6% in 2016 to 30.3% in 2017. AT&T
Mobility's third-quarter EBITDA margin increased from 41.2% in 2016
to 42.0% in 2017 and for the first nine months increased from 41.1%
in 2016 to 41.9% in 2017. AT&T Mobility's third-quarter EBITDA
service margin increased from 50.1% in 2016 to 50.4% in 2017 and
for the first nine months increased from 49.8% in 2016 to 50.0% in
2017 (EBITDA service margin is operating income before depreciation
and amortization, divided by total service revenues).
Subscriber Relationships
As the wireless industry continues to mature, future wireless
growth will become increasingly dependent 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 unlimited, as well as equipment installment
programs. Beginning in the first quarter of 2017, we expanded our
unlimited wireless data plans to make them available to customers
that do not subscribe to our video services.
ARPU
Postpaid phone-only ARPU was $58.29 for the third quarter and
$58.23 for the first nine months of 2017, compared to $59.64 and
$59.66 in 2016. Postpaid phone-only ARPU plus equipment installment
billings was $68.95 for the third quarter and $68.94 for the first
nine months of 2017, compared to $69.99 and $69.83 in 2016. ARPU
has been affected by customers shifting to unlimited plans, which
decreases overage revenues; however, customers are adding
additional devices helping to offset that decline.
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 lower for the third quarter and first nine
months of 2017. Postpaid churn was higher for the third quarter and
first nine months of 2017, driven by higher tablet churn. Postpaid
phone-only churn was lower in the third quarter and first nine
months of 2017, despite competitive pressure in the industry.
Branded Subscribers
Branded subscribers increased 1.1% in the third quarter of 2017
when compared to June 30, 2017 and increased 2.4% when compared to
September 30, 2016. Both the sequential and year-over-year
increases reflect postpaid subscribers remaining essentially flat
while prepaid subscribers grew 6.7% and 16.1%, respectively.
Beginning in July 2017, we are reporting prepaid IoT connections,
which primarily consist of "connected" cars where customers
actively subscribe for vehicle connectivity, as a component of
prepaid subscribers. The prepaid subscriber base at September 30,
2017 now includes approximately 543,000 subscribers that were
formerly included in connected devices.
At September 30, 2017, 92% of our postpaid phone subscriber base
used smartphones, compared to 90% at September 30, 2016, with more
than 95% of phone sales during both years attributable to
smartphones. Virtually all 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. Device connections on our Mobile Share and
unlimited wireless data plans now represent 86% of our postpaid
customer base, compared to 83% at September 30, 2016. Such
offerings are intended to encourage existing subscribers to upgrade
their current services and/or add connected devices, attract
subscribers from other providers and/or minimize subscriber
churn.
Our equipment installment purchase programs, including AT&T
Next, allow for postpaid subscribers to purchase certain devices in
installments over a period of up to 30 months. Additionally, after
a specified period of time, AT&T Next subscribers also have the
right to trade in the original device for a new device with a new
installment plan and have the remaining unpaid balance satisfied.
For installment programs, we recognize equipment revenue at the
time of the sale 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 choosing
equipment installment programs pay a lower monthly service charge,
which results in lower service revenue recorded for these
subscribers. At September 30, 2017, about 53% of the postpaid
smartphone base is on an equipment installment program compared to
50% at September 30, 2016. Over 90% of postpaid smartphone gross
adds and upgrades for all periods presented were either equipment
installment plans or Bring Your Own Device (BYOD). While BYOD
customers do not generate equipment revenue or expense, the service
revenue helps improve our margins.
Connected Devices
Connected Devices includes data-centric devices such as
session-based tablets, monitoring devices and primarily wholesale
automobile systems. Connected device subscribers increased 5.0%
during the third quarter when compared to June 30, 2017 and 20.2%
when compared to September 30, 2016. During the third quarter and
first nine months of 2017, we added approximately 1.5 million and
4.7 million wholesale connected cars, respectively, through
agreements with various carmakers, and experienced strong growth in
other IoT connections as well. We believe that these connected car
agreements give us the opportunity to create future retail
relationships with the car owners.
OTHER BUSINESS MATTERS
Time Warner Inc. Acquisition In October 2016, we announced an
agreement (Merger Agreement) to acquire Time Warner in a 50% cash
and 50% stock transaction for $107.50 per share of Time Warner
common stock, or approximately $85,400 at the date of the
announcement (Merger). Each share of Time Warner common stock will
be exchanged for $53.75 per share in cash and a number of shares of
AT&T common stock equal to the exchange ratio. The cash portion
of the purchase price will be financed with new debt and cash. The
transaction remains subject to review by the U.S. Department of
Justice, but is expected to close before year-end 2017. See Note 7
for additional details of the transaction and "Liquidity" for a
discussion of our financing arrangements.
FirstNet On March 30, 2017, the First Responder Network
Authority (FirstNet) announced its selection of AT&T to build
and manage the first nationwide broadband network dedicated to
America's first responders. FirstNet will provide 20 MHz of
valuable telecommunications spectrum and success-based payments of
$6,500 over the next five years to support network buildout. We
expect to spend about $40,000, in part recoverable from FirstNet,
over the life of the 25-year contract to build, operate and
maintain the network. AT&T will construct and operate the
network and provide sustainability payments to FirstNet.
Sustainability payments are required to be used for the operating
expenses of FirstNet and to fund network improvements included in
our $40,000 estimate. FirstNet's operating expenses are anticipated
to be in the $75-$100 range annually, and when adjusted for
inflation, we expect to be in the $3,000 range over the life of the
25-year contract. After FirstNet's operating expenses are paid, we
anticipate that the remaining amount, expected to be in the $15,000
range, will be reinvested into the network. As of November 2, 2017,
30 states and territories have opted-in to the program,
representing 38%, or approximately $6,900, of this total
sustainability payment commitment. The actual reach of the network
and our investment over the 25-year period will be determined by
the number of individual states and territories electing to
participate in FirstNet.
States have until December 28, 2017 to elect to opt-out of the
federally funded program, after which any state that did not
formally make an election will automatically be opted-in. We do not
expect FirstNet to materially impact our 2017 results.
Litigation Challenging DIRECTV's NFL SUNDAY TICKET More than two
dozen putative class actions were filed in the U.S. District Courts
for the Central District of California and the Southern District of
New York against DIRECTV and the National Football League (NFL).
These cases were brought by residential and commercial DIRECTV
subscribers that have purchased NFL SUNDAY TICKET. The plaintiffs
allege that (i) the 32 NFL teams have unlawfully agreed not to
compete with each other in the market for nationally televised NFL
football games and instead have "pooled" their broadcasts and
assigned to the NFL the exclusive right to market them; and (ii)
the NFL and DIRECTV have entered into an unlawful exclusive
distribution agreement that allows DIRECTV to charge
"supra-competitive" prices for the NFL SUNDAY TICKET package. The
complaints seek unspecified treble damages and attorneys' fees
along with injunctive relief. The first complaint, Abrahamian v.
National Football League, Inc., et al., was served in June 2015. In
December 2015, the Judicial Panel on Multidistrict Litigation
transferred the cases outside the Central District of California to
that court for consolidation and management of pre-trial
proceedings. In June 2016, the plaintiffs filed a consolidated
amended complaint. We vigorously dispute the allegations the
complaints have asserted. In August 2016, DIRECTV filed a motion to
compel arbitration and the NFL defendants filed a motion to dismiss
the complaint. In June 2017, the court granted the NFL defendants'
motion to dismiss the complaint without leave to amend, finding
that: (1) the plaintiffs did not plead a viable market; (2) the
plaintiffs did not plead facts supporting the contention that the
exclusive agreement between the NFL and DIRECTV harms competition;
(3) the claims failed to overcome the fact that the NFL and its
teams must cooperate to sell broadcasts; and (4) the plaintiffs do
not have standing to challenge the horizontal agreement among the
NFL and the teams. In light of the order granting the motion to
dismiss, the court denied DIRECTV's motion to compel arbitration as
moot. In July 2017, plaintiffs filed an appeal in the U.S. Court of
Appeals for the Ninth Circuit, which is pending.
Federal Trade Commission Litigation Involving DIRECTV In March
2015, the Federal Trade Commission (FTC) filed a civil suit in the
U.S. District Court for the Northern District of California against
DIRECTV seeking injunctive relief and money damages under Section 5
of the Federal Trade Commission Act and Section 4 of the Restore
Online Shoppers' Confidence Act. The FTC's allegations concern
DIRECTV's advertising, marketing and sale of programming packages.
The FTC alleges that DIRECTV did not adequately disclose all
relevant terms. We vigorously dispute these allegations. A bench
trial began on August 14, 2017, and was suspended on August 25,
2017, after the FTC rested its case, so that the court could
consider DIRECTV's motion for judgment. The hearing on the motion
occurred on October 25, 2017, and the judge took it under
advisement.
Unlimited Data Plan Claims In October 2014, the FTC filed a
civil suit in the U.S. District Court for the Northern District of
California against AT&T Mobility, LLC seeking injunctive relief
and unspecified money damages under Section 5 of the Federal Trade
Commission Act. The FTC's allegations concern the application of
AT&T's Maximum Bit Rate (MBR) program to customers who enrolled
in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces
in certain instances the download speeds of a small portion of our
legacy Unlimited Data Plan customers each month after the customer
exceeds a designated amount of data during the customer's billing
cycle. MBR is an industry-standard practice that is designed to
affect only the most data-intensive applications (such as video
streaming). Texts, emails, tweets, social media posts, internet
browsing and many other applications are typically unaffected.
Contrary to the FTC's allegations, our MBR program is permitted by
our customer contracts, was fully disclosed in advance to our
Unlimited Data Plan customers, and was implemented to protect the
network for the benefit of all customers. In March 2015, our motion
to dismiss the litigation on the grounds that the FTC lacked
jurisdiction to file suit was denied. In May 2015, the Court
granted our motion to certify its decision for immediate appeal.
The United States Court of Appeals for the Ninth Circuit
subsequently granted our petition to accept the appeal, and, on
August 29, 2016, issued its decision reversing the district court
and finding that the FTC lacked jurisdiction to proceed with the
action. The FTC asked the Court of Appeals to reconsider the
decision "en banc," which the Court agreed to do. The en banc
hearing was held on September 19, 2017. We do not expect a decision
until early 2018. In addition to the FTC case, several class
actions have been filed also challenging our MBR program. We
vigorously dispute the allegations the complaints have
asserted.
Labor Contracts As of September 30, 2017, we employed
approximately 257,000 persons. Approximately 46% of our employees
are represented by the Communications Workers of America, the
International Brotherhood of Electrical Workers or other unions.
After expiration of the agreements, work stoppages or labor
disruptions may occur in the absence of new contracts or other
agreements being reached.
A summary of labor contract negotiations, by region or employee
group, is as follows:
-- Approximately 20,000 mobility employees across the country
are covered by a contract that expired in early 2017. We continue
to negotiate with labor representatives. On October 30, 2017, we
presented a contract that provides for, among other things,
compounded annual wage increases totaling nearly 10% over the term
of the contract and continued health care coverage. The contract is
subject to acceptance and ratification.
-- Approximately 15,000 traditional wireline employees in our
West region are covered by a contract that expired in April 2016.
In August, these employees, along with 2,300 legacy DIRECTV
non-management employees, ratified a new four-year contract that
will expire in April 2020.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United
States are subject to federal and state regulatory authorities.
AT&T subsidiaries operating outside the United States are
subject to the jurisdiction of national and supranational
regulatory authorities in the markets where service is
provided.
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. Since
the Telecom Act was passed, the Federal Communications Commission
(FCC) and some state regulatory commissions have maintained or
expanded certain regulatory requirements that were imposed decades
ago on our traditional wireline subsidiaries when they operated as
legal monopolies. However, based on their public statements and
written opinions, we expect the new leadership at the FCC to chart
a more predictable and balanced regulatory course that will
encourage long-term investment and benefit consumers. In addition,
we are pursuing, at both the state and federal levels, additional
legislative and regulatory measures to reduce regulatory burdens
that are no longer appropriate in a competitive telecommunications
market and that inhibit our ability to compete more effectively and
offer services wanted and needed by our customers, including
initiatives to transition services from traditional networks to all
IP-based networks. At the same time, we also seek to ensure that
legacy regulations are not further extended to broadband or
wireless services, which are subject to vigorous competition.
On April 20, 2017, the FCC adopted an order that maintains light
touch pricing regulation of packet-based services, extends such
light touch pricing regulation to high-speed TDM transport services
and to most of our TDM channel termination services, based on a
competitive market test for such services. For those services that
do not qualify for light touch regulation, the order allows
companies to offer volume and term discounts, as well as contract
tariffs. Several parties appealed the FCC's decision. These appeals
were consolidated in the U.S. Court of Appeals for the Eighth
Circuit, where they remain pending.
In October 2016, a sharply divided FCC adopted new rules
governing the use of customer information by providers of broadband
internet access service. Those rules were more restrictive in
certain respects than those governing other participants in the
internet economy, including so-called "edge" providers such as
Google and Facebook. On April 3, 2017, the President signed a
resolution passed by Congress repealing the new rules under the
Congressional Review Act, which prohibits the issuance of a new
rule that is substantially the same as a rule repealed under its
provisions, or the reissuance of the repealed rule, unless the new
or reissued rule is specifically authorized by a subsequent act of
Congress. In June 2017, the FCC released an order clarifying that
providers of broadband internet access service continue to be
subject to privacy requirements under section 222 of The
Communications Act of 1934 (Communications Act), but not the more
restrictive rules that were adopted in October 2016.
In February 2015, the FCC released an order classifying both
fixed and mobile consumer broadband internet access services as
telecommunications services, subject to Title II of the
Communications Act. The FCC's decision significantly expanded its
authority to regulate the provision of fixed and mobile broadband
internet access services. AT&T and other providers of broadband
internet access services challenged the FCC's decision before the
U.S. Court of Appeals for the D.C. Circuit. In June 2016, a panel
of the Court of Appeals upheld the FCC's classification of
broadband internet access and the attendant rules by a 2-1 vote. On
May 1, 2017, the Court of Appeals denied requests for rehearing
filed by AT&T and several other parties. In May 2017, the FCC
initiated a proceeding to reverse its 2015 decision to classify
broadband internet access services as telecommunications services.
AT&T fully supports an open internet and believes that Congress
should pass bipartisan legislation that codifies core principles of
net neutrality while maintaining a stable regulatory environment
conducive to investment, future innovation and economic growth. On
September 28, 2017, AT&T and other parties filed with the
United States Supreme Court petitions for certiorari to review the
Court of Appeals decision.
We provide satellite video service through our subsidiary
DIRECTV, whose satellites are licensed by the FCC. The
Communications Act of 1934 and other related acts give the FCC
broad authority to regulate the U.S. operations of DIRECTV. In
addition, states representing a majority of our local service
access lines have adopted legislation that enables us to provide
IP-based service through a single statewide or state-approved
franchise (as opposed to the need to acquire hundreds or even
thousands of municipal-approved franchises) to offer a competitive
video product. We also are supporting efforts to update and improve
regulatory treatment for our services. Regulatory reform and
passage of legislation is uncertain and depends on many
factors.
We provide wireless services in robustly competitive markets,
but are subject to substantial governmental regulation. Wireless
communications providers must obtain licenses from the FCC to
provide communications services at specified spectrum frequencies
within specified geographic areas and must comply with the FCC
rules and policies governing the use of the spectrum. While
wireless communications providers' prices and offerings are
generally not subject to state or local regulation, states
sometimes attempt to regulate or legislate various aspects of
wireless services, such as in the areas of consumer protection and
the deployment of cell sites and equipment. The anticipated
industry-wide deployment of 5G technology, which is needed to
satisfy extensive demand for video and internet access, will
involve significant deployment of "small cell" equipment and
therefore increase the need for a quick permitting process.
The FCC has recognized that the explosive growth of
bandwidth-intensive wireless data services requires the U.S.
government to make more spectrum available. The FCC finished its
most recent auction in April 2017 of certain spectrum that is
currently used by broadcast television licensees (the "600 MHz
Auction").
In May 2014, the FCC issued an order revising its policies
governing mobile spectrum holdings. The FCC rejected the imposition
of caps on the amount of spectrum any carrier could acquire,
retaining its case-by-case review policy. Moreover, it increased
the amount of spectrum that could be acquired before exceeding an
aggregation "screen" that would automatically trigger closer
scrutiny of a proposed transaction. On the other hand, it indicated
that it will separately consider an acquisition of "low band"
spectrum that exceeds one-third of the available low band spectrum
as presumptively harmful to competition. The spectrum screen
(including the low band screen) recently increased by 23 MHz. On
balance, the order and the spectrum screen should allow AT&T to
obtain additional spectrum to meet our customers' needs.
As the wireless industry continues to mature, future wireless
growth will become increasingly dependent on our ability to offer
innovative video and data services and a wireless network that has
sufficient spectrum and capacity to support these innovations. We
continue to invest significant capital in expanding our network
capacity, as well as to secure and utilize spectrum that meets our
long-term needs. To that end, we have:
-- Submitted winning bids for 251 Advanced Wireless Services
(AWS) spectrum licenses for a near-nationwide contiguous block of
high-quality spectrum in the AWS-3 Auction.
-- Redeployed spectrum previously used for basic 2G services to
support more advanced mobile internet services on our 3G and 4G
networks.
-- Secured the FirstNet contract, which provides us with access
to a nationwide low band 20 MHz of spectrum, assuming all states
opt-in.
-- Invested in 5G and millimeter-wave technologies with our
in-process acquisition of Fiber-Tower Corporation, which holds
significant amounts of spectrum in the millimeter wave bands (28
GHz and 39 GHz) that the FCC recently reallocated for mobile
broadband services. These bands will help to accelerate our entry
into 5G services.
Tax Reform On November 2, 2017, the Tax Cuts and Jobs Act was
introduced in the U.S. House of Representatives. If enacted, we
expect it would stimulate investment, job creation and economic
growth which would result in a positive impact on demand for our
services. As written, we anticipate the legislation will have a
positive impact on our consolidated operations and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
In anticipation of the Time Warner transaction, we had $48,499
in cash and cash equivalents available at September 30, 2017. Cash
and cash equivalents included cash of $3,707 and money market funds
and other cash equivalents of $44,792. Approximately $888 of our
cash and cash equivalents resided in foreign jurisdictions and were
primarily in foreign currencies; these funds are primarily used to
meet working capital requirements of foreign operations.
Cash and cash equivalents increased $42,711 since December 31,
2016. In the first nine months of 2017, cash inflows were primarily
provided by the issuance of long-term debt, and cash receipts from
operations, including cash from our sale and transfer of certain
wireless equipment installment receivables to third parties. We
also received a $1,438 deposit refund from the FCC. 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, debt repayments, dividends to
stockholders, and the acquisition of wireless spectrum and other
operations. We discuss many of these factors in detail below.
Cash Provided by or Used in Operating Activities
During the first nine months of 2017, cash provided by operating
activities was $29,274, compared to $29,202 for the first nine
months of 2016. Higher operating cash flows in 2017 were primarily
due to higher receipts from our sale of AT&T Next receivables
and working capital improvements.
Cash Used in or Provided by Investing Activities
For the first nine months of 2017, cash used in investing
activities totaled $15,266 and consisted primarily of $15,756 for
capital expenditures, excluding interest during construction.
Investing activities also include a refund from the FCC in the
amount of $1,438 in April 2017, resulting from the conclusion of
the FCC's 600 MHz Auction. We submitted winning bids to purchase
spectrum licenses in 18 markets for which we paid $910.
The majority of our capital expenditures are spent on our
networks, our video services and related support systems. Capital
expenditures, excluding interest during construction, increased
$473 in the first nine months. The increase was primarily due to
our continued fiber buildout and timing of build schedules in 2017
compared with 2016. Additionally, in connection with capital
improvements, we negotiate favorable payment terms (referred to as
vendor financing). For the first nine months of 2017, vendor
financing related to capital investments was $897. We do not report
capital expenditures at the segment level.
We continue to expect our 2017 capital expenditures to be in the
$22,000 range, and we expect our capital expenditures to be in the
15% range of service revenues or lower for each of the years 2017
through 2019. The amount of capital expenditures is influenced by
demand for services and products, capacity needs and network
enhancements. Our capital spending takes into account existing tax
law and does not reflect anticipated tax reform. We continue to
focus on ensuring DIRECTV merger commitments are met.
Cash Provided by or Used in Financing Activities
For the first nine months of 2017, cash provided by financing
activities totaled $28,703 and included net proceeds of $46,761
primarily from the following long-term debt issuances:
-- February issuance of $1,250 of 3.200% global notes due 2022.
-- February issuance of $750 of 3.800% global notes due 2024.
-- February issuance of $2,000 of 4.250% global notes due 2027.
-- February issuance of $3,000 of 5.250% global notes due 2037.
-- February issuance of $2,000 of 5.450% global notes due 2047.
-- February issuance of $1,000 of 5.700% global notes due 2057.
-- March issuance of $1,430 of 5.500% global notes due 2047.
-- March issuance of $800 floating rate global notes due 2020.
The floating rate for the notes is based upon the three-month
London Interbank Offered Rate (LIBOR), reset quarterly, plus 65
basis points.
-- March draw of $300 on a private financing agreement with
Banco Nacional de Mexico, S.A. due March 2019. The agreement
contains terms similar to that provided under our syndicated credit
arrangements; the interest rate is a market rate.
-- May issuance of $1,500 floating rate global notes due 2021.
The floating rate for the notes is based upon the three-month
LIBOR, reset quarterly, plus 95 basis points.
-- May issuance of CAD$600 of 2.850% global notes due 2024 and
CAD$750 of 4.850% global notes due 2047 (together, equivalent to
$994, when issued).
-- June issuance of GBP1,000 of 3.550% global notes due 2037,
subject to mandatory redemption (equivalent to $1,282 when
issued).
-- June issuance of EUR750 of 1.050% global notes due 2023,
EUR1,750 of 1.800% global notes due 2026, EUR1,500 of 2.350% global
notes due 2029, EUR1,750 of 3.150% global notes due 2036 and
EUR1,250 of floating rate global notes due 2023. All except the
2036 global notes are subject to mandatory redemption (together,
equivalent to $7,883, when issued).
-- August issuance of $750 of floating rate notes due 2023,
$1,750 of 2.85% global notes due 2023, $3,000 of 3.40% global notes
due 2024, $5,000 of 3.90% global notes due 2027, $4,500 of 4.90%
global notes due 2037, $5,000 of 5.15% global notes due 2050 and
$2,500 of 5.30% global notes due 2058. All are subject to mandatory
redemption.
For notes subject to mandatory redemption ($29,801), if we do
not consummate the Time Warner acquisition pursuant to the merger
agreement, on or prior to April 22, 2018, or, if prior to such
date, the merger agreement is terminated, then in either case we
must redeem certain of the notes at a redemption price equal to
101% of the principal amount of the notes, plus accrued but unpaid
interest.
On October 27, 2017, we issued $1,150 of 5.35% global notes due
2066. The underwriters have an option to purchase up to an
additional $173 aggregate principal amount within 30 days of the
offering.
On October 30, 2017, we launched an exchange offer covering
approximately $24,000 of notes issued by AT&T Inc., DIRECTV
Holdings LLC and DIRECTV Financing Co., Inc. due between 2020 and
2023. We may issue up to $8,000 of new AT&T Inc. notes, subject
to increase, due 2028 and 2030. Also on October 30, 2017, we
offered to exchange approximately $9,000 of high-coupon existing
AT&T Inc. notes and existing subsidiary notes for new AT&T
Inc. notes. The notes covered in the exchange have coupons ranging
from 5.85% to 8.75% and maturities from 2022 to 2097. The existing
AT&T Inc. notes may be exchanged for new AT&T Inc. notes
due 2046 and the subsidiary bonds may be exchanged for new AT&T
Inc. notes due 2046 or new AT&T Inc. notes with identical
coupon and maturity as the existing subsidiary notes. We are also
seeking consent of bondholders to modify the covenants of the
subsidiary indentures to generally conform to AT&T Inc.'s
indenture. The exchange offers will expire on November 28,
2017.
During the first nine months of 2017, we redeemed or repaid
$10,309 of debt, primarily consisting of the following:
-- $1,142 of 2.400% global notes due 2017.
-- $1,000 of 1.600% global notes due 2017.
-- $500 of floating rate notes due 2017.
-- GBP750 of 5.875% global notes due 2017.
-- $750 repayment of a private financing agreement with Export Development Canada due 2017.
-- $1,150 of 1.700% global notes due 2017.
-- $4,155 repayment of amounts outstanding under our syndicated credit agreement.
Our weighted average interest rate of our entire long-term debt
portfolio, including the impact of derivatives, was approximately
4.4% as of September 30, 2017, compared to 4.2% as of December 31,
2016. We had $162,450 of total notes and debentures outstanding at
September 30, 2017, which included Euro, British pound sterling,
Swiss franc, Brazilian real, Mexican peso and Canadian dollar
denominated debt that totaled approximately $37,260.
As of September 30, 2017, we had approximately 388 million
shares remaining from 2013 and 2014 authorizations from our Board
of Directors to repurchase shares of our common stock. During the
first nine months of 2017, we repurchased approximately 7 million
shares totaling $279 under these authorizations. In 2017, we intend
to use free cash flow (operating cash flows less construction and
capital expenditures) after dividends primarily to pay down
debt.
We paid dividends of $9,030 during the first nine months of
2017, compared with $8,850 for the first nine months of 2016,
primarily reflecting the increase in the quarterly dividend
approved by our Board of Directors in October 2016. Dividends
declared by our Board of Directors totaled $0.49 per share in the
third quarter and $1.47 per share in the first nine months of 2017
and $0.48 per share in the third quarter and $1.44 for the first
nine months of 2016. Our dividend policy considers the expectations
and requirements of stockholders, capital funding requirements of
AT&T and long-term growth opportunities. It is our intent to
provide the financial flexibility to allow our Board of Directors
to consider dividend growth and to recommend an increase in
dividends to be paid in future periods. All dividends remain
subject to declaration by our Board of Directors.
At September 30, 2017, we had $8,551 of debt maturing within one
year, $8,379 of which was related to long-term debt issuances. Debt
maturing within one year includes the following notes that may be
put back to us by the holders:
-- $1,000 of annual put reset securities issued by BellSouth
that may be put back to us each April until maturity in 2021.
-- An accreting zero-coupon note that may be redeemed each May
until maturity in 2022. In May 2017, $1 was redeemed by the holder
for $1. If the remainder of the zero-coupon note (issued for
principal of $500 in 2007) is held to maturity, the redemption
amount will be $1,029.
Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In December 2015, we entered into a five-year $12,000
revolving credit agreement of which no amounts are outstanding as
of September 30, 2017. On September 5, 2017 we repaid all of the
amounts outstanding under our $9,155 syndicated credit agreement
and terminated the facility. On September 29, 2017, we entered into
a five-year $2,250 syndicated term loan credit agreement containing
(i) a $750 term loan facility (the "Tranche A Facility), (ii) a
$750 term loan facility (the "Tranche B Facility") and (iii) a $750
term loan facility (the "Tranche C Facility"), with certain
investment and commercial banks and The Bank of Nova Scotia, as
administrative agent. No amounts are outstanding under the Tranche
A Facility, the Tranche B Facility or the Tranche C Facility as of
September 30, 2017.
We also enter into various credit arrangements supported by
government agencies to support network equipment purchases.
In connection with our pending Merger with Time Warner, we
entered into a $30,000 bridge loan credit agreement ("Bridge Loan")
and a $10,000 term loan agreement ("Term Loan"). Following the
August issuances of $22,500 of global notes, we reduced the
commitments under the Bridge Loan to $0 and terminated the
facility. No amounts will be borrowed under the Term Loan prior to
the closing of the Merger. Borrowings under the Term Loan will be
used solely to finance a portion of the cash to be paid in the
Merger, the refinancing of debt of Time Warner and its subsidiaries
and the payment of related expenses.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring AT&T to maintain, as of the last day of each
fiscal quarter, a ratio of not more than 3.5-to-1. As of September
30, 2017, we were in compliance with the covenants for our credit
facilities.
Collateral Arrangements
During the first nine months of 2017, we received $2,743 of
additional cash collateral, on a net basis, from banks and other
participants in our derivative arrangements. Cash postings under
these arrangements vary with changes in credit ratings and netting
agreements. At September 30, 2017, we had posted collateral assets
of $837 and received collateral liabilities of $338, compared to
December 31, 2016, posted collateral assets of $3,242 and no
collateral liabilities. (See Note 6)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investments. At September 30, 2017, our debt ratio was 56.4%,
compared to 50.1% at September 30, 2016, and 49.9% at December 31,
2016. Our net debt ratio was 39.7% at September 30, 2017, compared
to 47.8% at September 30, 2016 and 47.5% at December 31, 2016. The
debt ratio is affected by the same factors that affect total
capital, and reflects our recent debt issuances and repayments.
During the first nine months of 2017, we received $4,217 from
the monetization of various assets, primarily the sale of certain
equipment installment receivables. We plan to continue to explore
similar opportunities.
In 2013, we made a voluntary contribution of a preferred equity
interest in AT&T Mobility II LLC (Mobility), the holding
company for our U.S. wireless operations, to the pension trust used
to pay benefits under our qualified pension plans. The preferred
equity interest had a value of $9,354 as of September 30, 2017, and
$8,477 as of December 31, 2016, does not have any voting rights and
has a liquidation value of $8,000. The trust is entitled to receive
cumulative cash distributions of $560 per annum, which are
distributed quarterly in equal amounts. Mobility II distributed
$420 to the trust during the first nine months of 2017. So long as
those distributions are made, the terms of the preferred equity
interest will not impose any limitations on our ability to declare
a dividend or repurchase shares.
During the third quarter, AT&T notified the trust and the
fiduciary of the preferred interest that AT&T would not
exercise its call option of the preferred interest until at least
September 9, 2022, which raised the valuation of the preferred
interest by approximately $1,245.
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful
information to investors as it is used by management as a method of
comparing performance with that of many of our competitors. This
supplemental measure should be considered in addition to, but not
as a substitute of, our consolidated and segment financial
information.
Supplemental Operational Measure
We provide a supplemental discussion of our domestic wireless
operations that is calculated by combining our Consumer Mobility
and Business Solutions segments, and then adjusting to remove
non-wireless operations. The following table presents a
reconciliation of our supplemental AT&T Mobility results.
Three Months Ended
----------------------------------------------------------------------------------------------------
September 30, 2017 September 30, 2016
------------------------------------------------- ------------------------------------------------
Consumer Business AT&T Consumer Business AT&T
Mobility Solutions Adjustments(1) Mobility Mobility Solutions Adjustments(1) Mobility
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Revenues
Wireless
service $ 6,507 $ 8,034 $ - $ 14,541 $ 6,914 $ 8,050 $ - $ 14,964
Fixed
strategic
services - 3,087 (3,087) - - 2,913 (2,913) -
Legacy voice
and data
services - 3,434 (3,434) - - 4,042 (4,042) -
Other service
and
equipment - 852 (852) - - 886 (886) -
Wireless
equipment 1,241 1,654 - 2,895 1,353 1,876 - 3,229
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Total Operating
Revenues 7,748 17,061 (7,373) 17,436 8,267 17,767 (7,841) 18,193
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Expenses
Operations
and support 4,551 10,233 (4,671) 10,113 4,751 10,925 (4,979) 10,697
EBITDA 3,197 6,828 (2,702) 7,323 3,516 6,842 (2,862) 7,496
Depreciation
and
amortization 877 2,325 (1,192) 2,010 944 2,539 (1,376) 2,107
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Total Operating
Expense 5,428 12,558 (5,863) 12,123 5,695 13,464 (6,355) 12,804
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Income $ 2,320 $ 4,503 $ (1,510) $ 5,313 $ 2,572 $ 4,303 $ (1,486) $ 5,389
=============== ======== ========= ============== ========= ======== ========= ============== ========
(1) Non-wireless (fixed) operations reported in Business Solutions
segment.
Nine Months Ended
----------------------------------------------------------------------------------------------------
September 30, 2017 September 30, 2016
------------------------------------------------- ------------------------------------------------
Consumer Business AT&T Consumer Business AT&T
Mobility Solutions Adjustments(1) Mobility Mobility Solutions Adjustments(1) Mobility
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Revenues
Wireless
service $ 19,644 $ 23,969 $ - $ 43,613 $ 20,805 $ 23,868 $ - $ 44,673
Fixed
strategic
services - 9,089 (9,089) - - 8,469 (8,469) -
Legacy voice
and data
services - 10,572 (10,572) - - 12,577 (12,577) -
Other service
and
equipment - 2,513 (2,513) - - 2,619 (2,619) -
Wireless
equipment 3,635 4,873 - 8,508 3,976 5,422 - 9,398
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Total Operating
Revenues 23,279 51,016 (22,174) 52,121 24,781 52,955 (23,665) 54,071
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Expenses
Operations
and support 13,599 30,722 (14,013) 30,308 14,343 32,584 (15,105) 31,822
EBITDA 9,680 20,294 (8,161) 21,813 10,438 20,371 (8,560) 22,249
Depreciation
and
amortization 2,621 6,972 (3,594) 5,999 2,798 7,568 (4,122) 6,244
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Total Operating
Expense 16,220 37,694 (17,607) 36,307 17,141 40,152 (19,227) 38,066
--------------- -------- --------- -------------- --------- -------- --------- -------------- --------
Operating
Income $ 7,059 $ 13,322 $ (4,567) $ 15,814 $ 7,640 $ 12,803 $ (4,438) $ 16,005
=============== ======== ========= ============== ========= ======== ========= ============== ========
(1) Non-wireless (fixed) operations reported in Business Solutions
segment.
AT&T INC.
SEPTEMBER 30, 2017
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Dollars in millions except per share amounts
At September 30, 2017, we had interest rate swaps with a
notional value of $10,775 and a fair value of $11.
We have fixed-to-fixed and floating-to-fixed cross-currency
swaps on foreign currency-denominated debt instruments with a U.S.
dollar notional value of $38,694 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 $(842) at September 30, 2017.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed by
the registrant is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms. The chief executive officer and chief financial officer have
performed an evaluation of the effectiveness of the design and
operation of the registrant's disclosure controls and procedures as
of September 30, 2017. Based on that evaluation, the chief
executive officer and chief financial officer concluded that the
registrant's disclosure controls and procedures were effective as
of September 30, 2017.
AT&T INC.
SEPTEMBER 30, 2017
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 at
favorable rates and terms.
-- 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 United States and foreign securities
markets, resulting in worse-than-assumed investment returns and
discount rates; adverse changes in mortality assumptions; adverse
medical cost trends; and unfavorable or delayed implementation or
repeal of healthcare legislation, regulations or related court
decisions.
-- The final outcome of FCC and other federal, state or foreign
government agency proceedings (including judicial review, if any,
of such proceedings) involving issues that are important to our
business, including, without limitation, special access and
business data services; intercarrier compensation; interconnection
obligations; pending Notices of Apparent Liability; the transition
from legacy technologies to IP-based infrastructure, including the
withdrawal of legacy TDM-based services; universal service;
broadband deployment; wireless equipment siting regulations; E911
services; competition policy; privacy; net neutrality, including
the FCC's order classifying broadband as Title II services subject
to much more comprehensive regulation; unbundled network elements
and other wholesale obligations; multi-channel video programming
distributor services and equipment; availability of new spectrum,
on fair and balanced terms; and wireless and satellite license
awards and renewals.
-- The final outcome of state and federal legislative efforts
involving issues that are important to our business, including
deregulation of IP-based services, relief from Carrier of Last
Resort obligations and elimination of state commission review of
the withdrawal of services.
-- Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
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
or delivery methods (e.g., cable, wireless, VoIP and over-the-top
video service), subscriber reluctance to purchase new wireless
handsets, and our ability to maintain capital expenditures.
-- The extent of competition including from governmental
networks and other providers and the resulting pressure on customer
totals and segment operating margins.
-- Our ability to develop attractive and profitable
product/service offerings to offset increasing competition.
-- 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
non-regulation of comparable alternative technologies (e.g.,
VoIP).
-- The continued development and delivery of attractive and
profitable video and broadband offerings; the extent to which
regulatory and build-out requirements apply to our offerings; our
ability to match speeds offered by our competitors and the
availability, cost and/or reliability of the various technologies
and/or content required to provide such offerings.
-- Our continued ability to maintain margins, attract and offer
a diverse portfolio of video, wireless service and devices and
device financing plans.
-- The availability and cost of additional wireless spectrum and
regulations and conditions relating to spectrum use, licensing,
obtaining additional spectrum, technical standards and deployment
and usage, including network management rules.
-- Our ability to manage growth in wireless video and data
services, including network quality and acquisition of adequate
spectrum at reasonable costs and terms.
-- The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties.
-- The impact from major equipment failures on our networks,
including satellites operated by DIRECTV; the effect of security
breaches related to the network or customer information; our
inability to obtain handsets, equipment/software or have handsets,
equipment/software serviced in a timely and cost-effective manner
from suppliers; and in the case of satellites launched, timely
provisioning of services from vendors; or 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.
-- Our ability to integrate our acquisition of DIRECTV.
-- Our ability to close our pending acquisition of Time Warner
Inc. and successfully reorganize our operations, including the
ability to manage various businesses in widely dispersed business
locations and with decentralized management.
-- Our ability to adequately fund our wireless operations,
including payment for additional spectrum, network upgrades and
technological advancements.
-- Our increased exposure to video competition and foreign
economies, including foreign exchange fluctuations as well as
regulatory and political uncertainty.
-- Changes in our corporate strategies, such as changing
network-related requirements or acquisitions and dispositions,
which may require significant amounts of cash or stock, to respond
to competition and regulatory, legislative and technological
developments.
-- The uncertainty surrounding further congressional action to
address spending reductions, which may result in a significant
decrease in government spending and reluctance of businesses and
consumers to spend in general.
-- The uncertainty and impact of anticipated regulatory and
corporate tax reform, which may impact the overall economy and
incentives for business investments.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
AT&T INC.
SEPTEMBER 30, 2017
PART II - OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K various risks that
may materially affect our business. We use this section to update
this discussion to reflect material developments since our Form
10-K was filed. For the third quarter 2017, there were no such
material developments.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the third quarter of 2017 is as follows:
(a) (b) (c) (d)
Maximum Number (or
Total Number of Approximate Dollar
Shares (or Units) Value) of Shares
Purchased as Part (or Units) That
Total Number of of Publicly May Yet Be
Shares (or Units) Announced Plans or Purchased
Purchased (1, 2, Average Price Paid Per Programs Under The Plans or
Period 3) Share (or Unit) (1) Programs
--------------------- ------------------ --------------------------- ------------------ ------------------
July 1, 2017 -
July 31, 2017 19,060 $ 37.45 - 388,296,000
August 1, 2017 -
August 31, 2017 16,379 38.88 - 388,296,000
September 1, 2017 -
September 30, 2017 618,928 38.08 - 388,296,000
--------------------- ------------------ ------- ------------------ ------------------ ------------------
Total 654,367 $ 38.10 -
===================== ================== ======= ================== ================== ==================
In March 2014, our Board of Directors approved an additional authorization to repurchase
up
(1) to 300 million shares of our common
stock. In March 2013, our Board of Directors authorized the repurchase of up to an additional
300 million shares of our common stock.
The authorizations have no expiration date.
Of the shares repurchased, 63,861 shares were acquired through the withholding of taxes
on
(2) the vesting of restricted stock
and performance shares or on the exercise price of options.
Of the shares repurchased, 590,506 shares were acquired through reimbursements from AT&T
maintained
(3) Voluntary Employee Benefit
Association (VEBA) trusts.
Item 6. Exhibits
The following exhibits are filed or
incorporated by reference as a part
of this report:
Exhibit Filed Incorporated by Reference
--------------------------------------------
Period Filing
Number Exhibit Description Herewith Form Ending Exhibit Date
Resolution Regarding John
10-a Donovan x
Resolution Regarding John
10-b Stankey x
Resolution Regarding John
10-c Stephens x
10-d AT&T Health Plan x
2005 Supplemental Employee
10-e Retirement Plan 8-K 10.1 10/4/2017
10-f Term Loan Credit Agreement x
Computation of Ratios
12 of Earnings to Fixed Charges x
Rule 13a-14(a)/15d-14(a)
31 Certifications
31.1 Certification of
Principal Executive Officer x
31.2 Certification of
Principal Financial Officer x
32 Section 1350 Certifications x
101 XBRL Instance Document x
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AT&T Inc.
November 3, 2017 /s/ John J. Stephens
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
This information is provided by RNS
The company news service from the London Stock Exchange
END
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