(Mark
One)
|
x
|
Quarterly
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
|
||
For
the quarterly period ended March 31, 2008
|
|||
or
|
|||
o
|
Transition
Report Pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934
|
||
Large
accelerated filer
|
[X]
|
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
[ ]
|
PART I - FINANCIAL
INFORMATION
|
||||||||
Item 1. Financial
Statements
|
||||||||
AT&T
INC.
|
||||||||
CONSOLIDATED STATEMENTS OF
INCOME
|
||||||||
Dollars
in millions except per share amounts
|
||||||||
(Unaudited)
|
||||||||
Three
months ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
Operating
Revenues
|
||||||||
Wireless
service
|
$ |
10,605
|
$ |
9,070
|
||||
Voice
|
9,693
|
10,455
|
||||||
Data
|
5,972
|
5,655
|
||||||
Directory
|
1,398
|
1,022
|
||||||
Other
|
3,076
|
2,767
|
||||||
Total
operating revenues
|
30,744
|
28,969
|
||||||
Operating
Expenses
|
||||||||
Cost
of sales (exclusive of depreciation and amortization
|
||||||||
shown
separately below)
|
11,775
|
11,252
|
||||||
Selling,
general and administrative
|
8,086
|
7,437
|
||||||
Depreciation
and amortization
|
4,903
|
5,616
|
||||||
Total
operating expenses
|
24,764
|
24,305
|
||||||
Operating
Income
|
5,980
|
4,664
|
||||||
Other Income
(Expense)
|
||||||||
Interest
expense
|
(865 | ) | (873 | ) | ||||
Equity
in net income of affiliates
|
243
|
173
|
||||||
Other
income (expense) – net
|
33
|
504
|
||||||
Total
other income (expense)
|
(589 | ) | (196 | ) | ||||
Income Before Income
Taxes
|
5,391
|
4,468
|
||||||
Income
taxes
|
1,930
|
1,620
|
||||||
Net
Income
|
$ |
3,461
|
$ |
2,848
|
||||
Basic Earnings Per
Share
|
$ |
0.58
|
$ |
0.46
|
||||
Diluted Earnings Per
Share
|
$ |
0.57
|
$ |
0.45
|
||||
Weighted Average Number of
Common
|
||||||||
Shares Outstanding
– Basic (in
millions)
|
5,997
|
6,224
|
||||||
Dividends Declared Per Common
Share
|
$ |
0.400
|
$ |
0.355
|
AT&T
INC.
|
||||||||
CONSOLIDATED BALANCE
SHEETS
|
||||||||
Dollars
in millions except per share amounts
|
||||||||
March
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
Assets
|
(Unaudited)
|
|||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ |
1,963
|
$ |
1,970
|
||||
Accounts
receivable – net of allowances for
|
||||||||
uncollectibles of $1,361 and
$1,364
|
15,697
|
16,185
|
||||||
Prepaid
expenses
|
1,610
|
1,524
|
||||||
Deferred
income taxes
|
1,934
|
2,044
|
||||||
Other
current assets
|
2,742
|
2,963
|
||||||
Total
current assets
|
23,946
|
24,686
|
||||||
Property,
plant and equipment
|
209,920
|
210,518
|
||||||
Less: accumulated depreciation and
amortization
|
113,682
|
114,628
|
||||||
Property, Plant and Equipment –
Net
|
96,238
|
95,890
|
||||||
Goodwill
|
70,815
|
70,713
|
||||||
Licenses
|
40,711
|
37,985
|
||||||
Customer Lists and
Relationships - Net
|
13,692
|
14,505
|
||||||
Other Intangible Assets -
Net
|
5,877
|
5,912
|
||||||
Investments in Equity
Affiliates
|
2,578
|
2,270
|
||||||
Postemployment
Benefit
|
17,645
|
17,291
|
||||||
Other
Assets
|
6,697
|
6,392
|
||||||
Total
Assets
|
$ |
278,199
|
$ |
275,644
|
||||
Liabilities and Stockholders’
Equity
|
||||||||
Current
Liabilities
|
||||||||
Debt
maturing within one year
|
$ |
13,301
|
$ |
6,860
|
||||
Accounts
payable and accrued liabilities
|
18,590
|
21,399
|
||||||
Advanced
billing and customer deposits
|
3,677
|
3,571
|
||||||
Accrued
taxes
|
4,186
|
5,027
|
||||||
Dividends
payable
|
2,375
|
2,417
|
||||||
Total
current liabilities
|
42,129
|
39,274
|
||||||
Long-Term
Debt
|
60,189
|
57,255
|
||||||
Deferred Credits and Other
Noncurrent Liabilities
|
||||||||
Deferred
income taxes
|
25,203
|
24,939
|
||||||
Postemployment
benefit obligation
|
24,510
|
24,011
|
||||||
Other
noncurrent liabilities
|
13,910
|
14,798
|
||||||
Total
deferred credits and other noncurrent liabilities
|
63,623
|
63,748
|
||||||
Stockholders’
Equity
|
||||||||
Common
shares issued ($1 par value)
|
6,495
|
6,495
|
||||||
Capital
in excess of par value
|
91,598
|
91,638
|
||||||
Retained
earnings
|
34,311
|
33,297
|
||||||
Treasury
shares (at cost)
|
(19,590 | ) | (15,683 | ) | ||||
Accumulated
other comprehensive income (loss)
|
(556 | ) | (380 | ) | ||||
Total
stockholders’ equity
|
112,258
|
115,367
|
||||||
Total Liabilities and
Stockholders’ Equity
|
$ |
278,199
|
$ |
275,644
|
AT&T
INC.
|
||||||||
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
||||||||
Dollars
in millions, increase (decrease) in cash and cash
equivalents
|
||||||||
(Unaudited)
|
||||||||
Three
months ended
|
||||||||
March
31,
|
||||||||
2008
|
2007
|
|||||||
Operating
Activities
|
||||||||
Net
income
|
$ |
3,461
|
$ |
2,848
|
||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided by operating
activities:
|
||||||||
Depreciation and
amortization
|
4,903
|
5,616
|
||||||
Undistributed earnings from
investments in equity affiliates
|
(225 | ) | (156 | ) | ||||
Provision for uncollectible
accounts
|
480
|
376
|
||||||
Deferred income tax
expense
|
569
|
65
|
||||||
Net gain on sales of
investments
|
(46 | ) |
-
|
|||||
Gain
on license exchange
|
-
|
(409 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(150 | ) |
237
|
|||||
Other
current assets
|
159
|
(748 | ) | |||||
Accounts
payable, accrued and other liabilities
|
(4,654 | ) | (3,232 | ) | ||||
Stock-based
compensation tax benefit
|
(7 | ) | (47 | ) | ||||
Other -
net
|
467
|
98
|
||||||
Total
adjustments
|
1,496
|
1,800
|
||||||
Net Cash Provided by Operating
Activities
|
4,957
|
4,648
|
||||||
Investing
Activities
|
||||||||
Construction
and capital expenditures
|
||||||||
Capital
expenditures
|
(4,178 | ) | (3,338 | ) | ||||
Interest during
construction
|
(70 | ) | (35 | ) | ||||
Acquisitions,
net of cash acquired
|
(3,662 | ) | (198 | ) | ||||
Dispositions
|
47
|
209
|
||||||
Proceeds
from sale of securities, net of investments
|
131
|
518
|
||||||
Other
|
33
|
7
|
||||||
Net Cash Used in Investing
Activities
|
(7,699 | ) | (2,837 | ) | ||||
Financing
Activities
|
||||||||
Net
change in short-term borrowings with original
|
||||||||
maturities of three months or
less
|
5,786
|
(2,989 | ) | |||||
Issuance
of long-term debt
|
3,972
|
5,924
|
||||||
Repayment
of long-term debt
|
(613 | ) | (227 | ) | ||||
Purchase
of treasury shares
|
(4,071 | ) | (3,005 | ) | ||||
Issuance
of treasury shares
|
103
|
687
|
||||||
Dividends
paid
|
(2,422 | ) | (2,218 | ) | ||||
Stock-based
compensation tax benefit
|
7
|
47
|
||||||
Other
|
(27 | ) | (84 | ) | ||||
Net Cash Provided by (Used in)
Financing Activities
|
2,735
|
(1,865 | ) | |||||
Net
decrease in cash and cash equivalents
|
(7 | ) | (54 | ) | ||||
Cash
and cash equivalents beginning of year
|
1,970
|
2,418
|
||||||
Cash and Cash Equivalents End
of Period
|
$ |
1,963
|
$ |
2,364
|
||||
Cash
paid during the three months ended March 31 for:
|
||||||||
Interest
|
$ |
1,130
|
$ |
904
|
||||
Income taxes, net of
refunds
|
$ |
2,763
|
$ |
1,177
|
AT&T
INC.
|
||||||||
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY
|
||||||||
Dollars
and shares in millions, except per share amounts
|
||||||||
(Unaudited)
|
||||||||
Three
months ended
|
||||||||
March
31, 2008
|
||||||||
Shares
|
Amount
|
|||||||
Common
Stock
|
||||||||
Balance
at beginning of year
|
6,495
|
$ |
6,495
|
|||||
Balance
at end of period
|
6,495
|
$ |
6,495
|
|||||
Capital in Excess of Par
Value
|
||||||||
Balance
at beginning of year
|
$ |
91,638
|
||||||
Issuance
of shares
|
21
|
|||||||
Stock
based compensation
|
(61 | ) | ||||||
Balance
at end of period
|
$ |
91,598
|
||||||
Retained
Earnings
|
||||||||
Balance
at beginning of year
|
$ |
33,297
|
||||||
Net
income ($0.57 per diluted share)
|
3,461
|
|||||||
Dividends
to stockholders ($0.40 per share)
|
(2,380 | ) | ||||||
Other
|
(67 | ) | ||||||
Balance
at end of period
|
$ |
34,311
|
||||||
Treasury
Shares
|
||||||||
Balance
at beginning of year
|
(451 | ) | $ | (15,683 | ) | |||
Purchase
of shares
|
(112 | ) | (4,071 | ) | ||||
Issuance
of shares
|
7
|
164
|
||||||
Balance
at end of period
|
(556 | ) | $ | (19,590 | ) | |||
Accumulated Other Comprehensive
Income, net of tax
|
||||||||
Balance
at beginning of year
|
$ | (380 | ) | |||||
Other
comprehensive income (loss) (see Note 2)
|
(176 | ) | ||||||
Balance
at end of period
|
$ | (556 | ) | |||||
See Notes to Consolidated Financial Statements. |
12/31/07
|
Cash
|
3/31/08
|
||||||||||||||
Balance
|
Payments
|
Adjustments
|
Balance
|
|||||||||||||
Severance
accruals paid from:
|
||||||||||||||||
Company
funds
|
$ |
540
|
$ | (68 | ) | $ |
5
|
$ |
477
|
|||||||
Pension
and postemployment
benefit
plans
|
129
|
(16 | ) |
-
|
113
|
|||||||||||
Lease
terminations
|
425
|
(27 | ) |
2
|
400
|
|||||||||||
Equipment
removal and other related costs
|
161
|
(6 | ) | (5 | ) |
150
|
||||||||||
Total
|
$ |
1,255
|
$ | (117 | ) | $ |
2
|
$ |
1,140
|
Three months ended
|
||||||||
March 31,
|
||||||||
2008
|
2007
|
|||||||
Net
income
|
$
|
3,461
|
$ |
2,848
|
||||
Other
comprehensive income, net of tax:
|
||||||||
Foreign
currency translation adjustment
|
66
|
(26 | ) | |||||
Net
unrealized gains (losses) on securities:
|
||||||||
Unrealized gains
(losses)
|
(90 | ) |
81
|
|||||
Less reclassification
adjustment realized in net income
|
(50 | ) |
-
|
|||||
Net
unrealized gains (losses) on cash flow hedges:
|
||||||||
Unrealized
gains (losses)
|
(78 | ) | (23 | ) | ||||
Reclassification
adjustment for losses on cash flow hedges
included in net
income
|
4
|
4
|
||||||
Defined
benefit postretirement plans:
Amortization
of net actuarial (gain) loss and prior service benefit
included in
net income
|
(28 | ) |
48
|
|||||
Other
|
-
|
(2 | ) | |||||
Other
comprehensive income (loss)
|
(176 | ) |
82
|
|||||
Total Comprehensive
Income
|
$
|
3,285
|
$ |
2,930
|
Three months ended | ||||||||
March 31,
|
||||||||
2008
|
2007
|
|||||||
Numerators
|
||||||||
Numerator for basic earnings per
share:
|
||||||||
Net income
|
$ |
3,461
|
$
|
2,848
|
||||
Dilutive potential common
shares:
|
||||||||
Other stock-based
compensation
|
2
|
2
|
||||||
Numerator for diluted earnings per
share
|
$ |
3,463
|
$
|
2,850
|
||||
Denominators
(000,000)
|
||||||||
Denominator for basic earnings per
share:
|
||||||||
Weighted-average number of
common
|
||||||||
shares
outstanding
|
5,997
|
6,224
|
||||||
Dilutive potential common
shares:
|
||||||||
Stock
options
|
14
|
22
|
||||||
Other stock-based
compensation
|
22
|
20
|
||||||
Denominator for diluted earnings
per share
|
6,033
|
6,266
|
||||||
Basic earnings per
share
|
$ |
0.58
|
$
|
0.46
|
||||
Diluted earnings per
share
|
$ |
0.57
|
$
|
0.45
|
At
March 31, 2008 or for the three months ended
|
||||||||||||||||||||||||
Advertising
&
|
Consolidation
|
Consolidated
|
||||||||||||||||||||||
Wireless
|
Wireline
|
Publishing
|
Other
|
and
Elimination
|
Results
|
|||||||||||||||||||
Revenues
from external customers
|
$ |
11,785
|
$ |
17,087
|
$ |
1,398
|
$ |
474
|
$ |
-
|
$ |
30,744
|
||||||||||||
Intersegment
revenues
|
40
|
537
|
19
|
70
|
(666 | ) |
-
|
|||||||||||||||||
Total
segment operating revenues
|
11,825
|
17,624
|
1,417
|
544
|
(666 | ) |
30,744
|
|||||||||||||||||
Operations
and support expenses
|
7,389
|
11,621
|
787
|
730
|
(666 | ) |
19,861
|
|||||||||||||||||
Depreciation
and amortization expenses
|
1,480
|
3,170
|
212
|
40
|
1
|
4,903
|
||||||||||||||||||
Total
segment operating expenses
|
8,869
|
14,791
|
999
|
770
|
(665 | ) |
24,764
|
|||||||||||||||||
Segment
operating income (loss)
|
2,956
|
2,833
|
418
|
(226 | ) | (1 | ) |
5,980
|
||||||||||||||||
Interest
expense
|
-
|
-
|
-
|
-
|
865
|
865
|
||||||||||||||||||
Equity
in net income of affiliates
|
2
|
-
|
-
|
241
|
-
|
243
|
||||||||||||||||||
Minority
interest
|
(60 | ) |
-
|
-
|
-
|
60
|
-
|
|||||||||||||||||
Other
income (expense) – net
|
-
|
-
|
-
|
-
|
33
|
33
|
||||||||||||||||||
Segment
income before income taxes
|
$ |
2,898
|
$ |
2,833
|
$ |
418
|
$ |
15
|
$ | (773 | ) | $ |
5,391
|
|||||||||||
Segment
Assets
|
$ |
118,743
|
$ |
172,103
|
$ |
14,212
|
$ |
202,373
|
$ | (229,232 | ) | $ |
278,199
|
For
the three months ended March 31, 2007
|
||||||||||||||||||||||||
Advertising
&
|
Consolidation
|
Consolidated
|
||||||||||||||||||||||
Wireless
|
Wireline
|
Publishing
|
Other
|
and
Elimination
|
Results
|
|||||||||||||||||||
Revenues
from external customers
|
$ |
9,975
|
$ |
17,476
|
$ |
1,431
|
$ |
496
|
$ | (409 | ) | $ |
28,969
|
|||||||||||
Intersegment
revenues
|
22
|
510
|
12
|
48
|
(592 | ) |
-
|
|||||||||||||||||
Total
segment operating revenues
|
9,997
|
17,986
|
1,443
|
544
|
(1,001 | ) |
28,969
|
|||||||||||||||||
Operations
and support expenses
|
6,583
|
11,651
|
734
|
421
|
(700 | ) |
18,689
|
|||||||||||||||||
Depreciation
and amortization expenses
|
1,891
|
3,440
|
242
|
43
|
-
|
5,616
|
||||||||||||||||||
Total
segment operating expenses
|
8,474
|
15,091
|
976
|
464
|
(700 | ) |
24,305
|
|||||||||||||||||
Segment
operating income
|
1,523
|
2,895
|
467
|
80
|
(301 | ) |
4,664
|
|||||||||||||||||
Interest
expense
|
-
|
-
|
-
|
-
|
873
|
873
|
||||||||||||||||||
Equity
in net income of affiliates
|
7
|
-
|
-
|
172
|
(6 | ) |
173
|
|||||||||||||||||
Minority
interest
|
(48 | ) |
-
|
-
|
-
|
48
|
-
|
|||||||||||||||||
Other
income (expense) – net
|
-
|
-
|
-
|
-
|
504
|
504
|
||||||||||||||||||
Segment
income before income taxes
|
$ |
1,482
|
$ |
2,895
|
$ |
467
|
$ |
252
|
$ | (628 | ) | $ |
4,468
|
Three months ended
|
||||||||
March 31,
|
||||||||
2008
|
2007
|
|||||||
Pension
(benefit) cost:
|
||||||||
Service cost – benefits earned
during the period
|
$ |
293
|
$ |
316
|
||||
Interest cost on projected
benefit obligation
|
830
|
801
|
||||||
Expected return on
assets
|
(1,400 | ) | (1,367 | ) | ||||
Amortization of prior service cost
|
33
|
32
|
||||||
Recognized actuarial loss
|
2
|
60
|
||||||
Net
pension (benefit) cost
|
$ | (242 | ) | $ | (158 | ) | ||
Postretirement
benefits cost:
|
||||||||
Service cost – benefits earned during the period
|
$ |
107
|
$ |
127
|
||||
Interest cost on accumulated postretirement
|
||||||||
benefit
obligation
|
636
|
643
|
||||||
Expected return on assets
|
(332 | ) | (337 | ) | ||||
Amortization of prior service benefit and transition
obligation
|
(90 | ) | (89 | ) | ||||
Recognized actuarial loss
|
-
|
74
|
||||||
Postretirement
benefits cost
|
$ |
321
|
$ |
418
|
||||
Combined net pension and postretirement cost
|
$ |
79
|
$ |
260
|
First
Quarter
|
||||||||||||
Percent
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Operating
revenues
|
$ |
30,744
|
$ |
28,969
|
6.1 | % | ||||||
Operating
expenses
|
24,764
|
24,305
|
1.9
|
|||||||||
Operating
income
|
5,980
|
4,664
|
28.2
|
|||||||||
Income
before income taxes
|
5,391
|
4,468
|
20.7
|
|||||||||
Net
Income
|
3,461
|
2,848
|
21.5 | % |
March 31,
|
||||||||
2008
|
2007
|
|||||||
Wireless customers (000)
|
71,367
|
62,217
|
||||||
Consumer revenue connections (000) 1,2
|
49,340
|
49,265
|
||||||
Network access lines in service (000) 2
|
60,415
|
65,429
|
||||||
Broadband connections (000) 2,3
|
14,647
|
12,861
|
||||||
Video connections (000) 2,4
|
2,611
|
1,697
|
||||||
Debt ratio 5
|
39.6 | % | 35.4 | % | ||||
Ratio of earnings to fixed charges
|
5.5
|
5.4
|
||||||
Number of
AT&T employees
|
310,070
|
301,760
|
1
|
Consumer revenue
connections includes retail access lines, VoIP customers, broadband and
video.
|
2
|
Represents services
by AT&T’s local exchange companies (ILECs) and
affiliates.
|
3
|
Broadband connections
include DSL, U-verse high-speed Internet access and satellite
broadband.
|
4
|
Video connections
include customers that have satellite service under our agency
arrangements and U-verse video
connections.
|
5
|
See our “Liquidity
and Capital Resources” section for
discussion.
|
First
Quarter
|
||||||||||||
Percent
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Segment
operating revenues
|
||||||||||||
Service
|
$ |
10,645
|
$ |
9,092
|
17.1 | % | ||||||
Equipment
|
1,180
|
905
|
30.4
|
|||||||||
Total
Segment Operating Revenues
|
11,825
|
9,997
|
18.3
|
|||||||||
Segment
operating expenses
|
||||||||||||
Cost
of services and equipment sales
|
4,110
|
3,670
|
12.0
|
|||||||||
Selling,
general and administrative
|
3,279
|
2,913
|
12.6
|
|||||||||
Depreciation
and amortization
|
1,480
|
1,891
|
(21.7 | ) | ||||||||
Total
Segment Operating Expenses
|
8,869
|
8,474
|
4.7
|
|||||||||
Segment
Operating Income
|
2,956
|
1,523
|
94.1
|
|||||||||
Equity
in Net Income of Affiliates
|
2
|
7
|
(71.4 | ) | ||||||||
Minority
Interest 1
|
(60 | ) | (48 | ) | (25.0 | ) | ||||||
Segment
Income
|
$ |
2,898
|
$ |
1,482
|
95.5 | % |
1
|
Minority
interest is reported as “Other Income (Expense) – Net” in the consolidated
statements of income.
|
·
|
Data
revenue increases of $835, or 57.3%, in the first quarter primarily due to
the increased number of data users and an increase in data ARPU of 37.1%,
which primarily resulted from increased use of more advanced and
integrated handsets, which provide for text messaging, Internet access,
e-mail, other data services and media bundling services. Data service
revenues represented 21.5% of wireless service revenues in the first
quarter of 2008 and 16.0% in the first quarter of
2007.
|
·
|
Voice
and other revenue increases of $718, or 9.4%, in the first quarter
primarily due to an increase in the average number of wireless customers
of 14.8%, partially offset by a decline in voice ARPU of 4.7%. Included in
voice revenues were increases in long-distance and net roaming revenue due
to increased international usage and a positive impact from the
acquisition of Dobson.
|
·
|
Increases
in customer service and other expenses of $212 primarily due to increased
support costs and bad-debt expense.
|
·
|
Increases
in selling, upgrade commissions and residual expenses of $154 due to
increases in sales, prepaid plan gross addition costs and handset upgrade
activity, which was consistent with our increase in customer gross and net
additions. This increase was partially offset by a decline in advertising
expenses.
|
First
Quarter
|
||||||||||||
Percent
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Segment
operating revenues
|
||||||||||||
Voice
|
$ |
9,919
|
$ |
10,677
|
(7.1 | )% | ||||||
Data
|
6,205
|
5,862
|
5.9
|
|||||||||
Other
|
1,500
|
1,447
|
3.7
|
|||||||||
Total
Segment Operating Revenues
|
17,624
|
17,986
|
(2.0 | ) | ||||||||
Segment
operating expenses
|
||||||||||||
Cost
of sales
|
7,616
|
7,558
|
0.8
|
|||||||||
Selling,
general and administrative
|
4,005
|
4,093
|
(2.2 | ) | ||||||||
Depreciation
and amortization
|
3,170
|
3,440
|
(7.8 | ) | ||||||||
Total
Segment Operating Expenses
|
14,791
|
15,091
|
(2.0 | ) | ||||||||
Segment
Income
|
$ |
2,833
|
$ |
2,895
|
(2.1 | )% |
·
|
Local
voice revenues decreased $410, or 6.5%, in the first quarter. The decrease
was driven primarily by declines in customer demand for access lines of
$278 and by expected declines in revenues from ATTC’s mass-market
customers of $164. The decrease in local voice revenues was partially
offset by pricing increases for telephone service, custom calling features
and inside wire maintenance agreements. We expect our local voice revenue
to continue to be negatively affected by increased competition, including
customers shifting to competitors’ alternative technologies and the
disconnection of additional lines for DSL service and other
reasons.
|
·
|
Long-distance
revenues decreased $238, or 6.1%, in the first quarter. The decrease was
primarily due to a net decrease in demand for long-distance service,
mostly due to expected declines in ATTC’s mass-market customers, which
decreased $186.
|
·
|
Local
wholesale revenues decreased $110, or 21.4%, in the first quarter. The
decrease was primarily due to industry consolidation as certain customers
moved more traffic to their own networks and the declining Unbundled
Network Element-Platform wholesale lines industry
wide.
|
·
|
Higher
nonemployee-related expenses, such as contract services, materials and
supplies costs, of $129.
|
·
|
Salary
and wage merit increases and other bonus accrual adjustments of
$61.
|
·
|
Higher
employee levels increased expenses (primarily salary and wages) by
$38.
|
·
|
Lower
net pension and postretirement cost, which reduced expense $94, reflecting
the decrease in amortization of unrecognized actuarial
losses.
|
·
|
Lower
traffic compensation expenses (for access to another carrier’s network) of
$41, primarily due to migration of long-distance calls onto our network
and a lower volume of calls from ATTC’s declining national mass-market
customer base.
|
·
|
Lower
other wireline support charges of
$32.
|
·
|
Lower
other wireline support costs of $66, primarily due to higher advertising
costs incurred in 2007 for brand advertising and re-branding related to
the BellSouth acquisition.
|
·
|
Lower
net pension and postretirement cost, which reduced expense $56, reflecting
the decrease in amortization of unrecognized actuarial
losses.
|
·
|
Lower
employee levels decreased expenses (primarily salary and wages) by
$40.
|
·
|
Lower
nonemployee-related expenses, such as contract services, materials and
supplies costs, of $27.
|
(in
000s)
|
|
|
|
|||||||||
Actual
|
Actual
|
|||||||||||
March
31,
|
March
31,
|
% Increase
|
||||||||||
2008
|
2007
|
(Decrease)
|
||||||||||
Switched Access Lines 1
|
||||||||||||
Retail
Consumer
|
34,178
|
36,660
|
(6.8 | )% | ||||||||
Retail
Business 2
|
22,647
|
23,318
|
(2.9 | ) | ||||||||
Retail Subtotal 2
|
56,825
|
59,978
|
(5.3 | ) | ||||||||
Percent
of total switched access lines
|
94.1 | % | 91.7 | % | ||||||||
Sold
to ATTC
|
164
|
1,091
|
(85.0 | ) | ||||||||
Sold
to other CLECs 2,3
|
3,243
|
4,045
|
(19.8 | ) | ||||||||
Wholesale Subtotal 2
|
3,407
|
5,136
|
(33.7 | ) | ||||||||
Percent
of total switched access lines
|
5.6 | % | 7.8 | % | ||||||||
Payphone (Retail and Wholesale)
4
|
183
|
315
|
(41.9 | )% | ||||||||
Percent
of total switched access lines
|
0.3 | % | 0.5 | % | ||||||||
Total Switched Access
Lines
|
60,415
|
65,429
|
(7.7 | )% | ||||||||
Total Broadband Connections
5
|
14,647
|
12,861
|
13.9 | % | ||||||||
Satellite
service 6
|
2,232
|
1,684
|
32.5 | % | ||||||||
U-verse
video
|
379
|
13
|
-
|
|||||||||
Total Video
Connections
|
2,611
|
1,697
|
53.9 | % |
1
|
Represents access
lines served by AT&T’s ILECs and
affiliates.
|
2
|
Prior period amounts
restated to conform to current period reporting
methodology.
|
3
|
Competitive local
exchange carriers (CLECs).
|
4
|
Payphone lines are
presented above as previously reported. Revenue from these lines is
reported in the Other
segment.
|
5
|
Broadband connections
include DSL, U-verse high-speed Internet and satellite
broadband.
|
6
|
Satellite
service includes connections under our agency and resale
arrangements.
|
First
Quarter
|
||||||||||||
Percent
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Total
Segment Operating Revenues
|
$ |
1,417
|
$ |
1,443
|
(1.8 | )% | ||||||
Segment
operating expenses
|
||||||||||||
Cost
of sales
|
444
|
455
|
(2.4 | ) | ||||||||
Selling,
general and administrative
|
343
|
279
|
22.9
|
|||||||||
Depreciation
and amortization
|
212
|
242
|
(12.4 | ) | ||||||||
Total
Segment Operating Expenses
|
999
|
976
|
2.4
|
|||||||||
Segment
Income
|
$ |
418
|
$ |
467
|
(10.5 | )% |
First
Quarter
|
||||||||||||
Percent
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Total
Segment Operating Revenues
|
$ |
544
|
$ |
544
|
-
|
|||||||
Total
Segment Operating Expenses
|
770
|
464
|
65.9
|
|||||||||
Segment
Operating Income
|
(226 | ) |
80
|
-
|
||||||||
Equity
in Net Income of Affiliates
|
241
|
172
|
40.1
|
|||||||||
Segment
Income
|
$ |
15
|
$ |
252
|
(94.0 | )% |
·
|
Approximately
$2,688 for the purchase of spectrum licenses, primarily for the
acquisition of licenses from Aloha Partners,
L.P.
|
·
|
$500
deposit with the FCC related to the 700 MHz Band wireless spectrum
auction.
|
·
|
$350
related to a customer list
acquisition.
|
·
|
$124
related to other acquisitions.
|
·
|
$2,500
of 5.5% global notes due in 2018.
|
·
|
$750
of 4.95% global notes due in 2013.
|
·
|
$750
of 6.3% global notes due in 2038.
|
·
|
Adverse
economic changes in the markets served by us or in countries in which we
have significant investments.
|
·
|
Changes
in available technology and the effects of such changes including product
substitutions and deployment costs.
|
·
|
Increases
in our benefit plans’ costs including increases due to adverse changes in
the U.S. and foreign securities markets, resulting in worse-than-assumed
investment returns and discount rates, and adverse medical cost
trends.
|
·
|
The
final outcome of Federal Communications Commission proceedings and
reopenings of such proceedings and judicial review, if any, of such
proceedings, including issues relating to access charges, broadband
deployment, unbundled loop and transport elements and wireless
services.
|
·
|
The
final outcome of regulatory proceedings in the states in which we operate
and reopenings of such proceedings, and judicial review, if any, of such
proceedings, including proceedings relating to interconnection terms,
access charges, universal service, unbundled network elements and resale
and wholesale rates, broadband deployment including our U-verse services,
performance measurement plans, service standards and traffic
compensation.
|
·
|
Enactment
of additional state, federal and/or foreign regulatory and tax laws and
regulations pertaining to our subsidiaries and foreign
investments.
|
·
|
Our
ability to absorb revenue losses caused by increasing competition,
including offerings using alternative technologies (e.g., cable, wireless
and VoIP), and our ability to maintain capital
expenditures.
|
·
|
The
extent of competition and the resulting pressure on access line totals and
wireline and wireless operating
margins.
|
·
|
Our
ability to develop attractive and profitable product/service offerings to
offset increasing competition in our wireless and wireline
markets.
|
·
|
The
ability of our competitors to offer product/service offerings at lower
prices due to lower cost structures and regulatory and legislative actions
adverse to us, including state regulatory proceedings relating to
unbundled network elements and nonregulation of comparable alternative
technologies (e.g., VoIP).
|
·
|
The
timing, extent and cost of deployment of our U-verse services; the
development of attractive and profitable service offerings; the extent to
which regulatory, franchise fees and build-out requirements apply to these
services; and the availability, cost and/or reliability of the various
technologies and/or content required to provide such
services.
|
·
|
The
outcome of pending or threatened litigation including patent claims by or
against third parties.
|
·
|
The
impact on our networks and business of major equipment failures, severe
weather conditions, natural disasters or terrorist
attacks.
|
·
|
The
issuance by the Financial Accounting Standards Board or other accounting
oversight bodies of new accounting standards or changes to existing
standards.
|
·
|
The
issuance by the Internal Revenue Service and/or other tax authorities of
new tax regulations or changes to existing standards; actions by tax
agencies and judicial authorities with respect to applying applicable tax
laws and regulations; and the resolution of disputes with any taxing
jurisdictions.
|
·
|
Our
ability to adequately fund our wireless operations, including access to
additional spectrum, network upgrades and technological
advancements.
|
·
|
The
impact of our acquisition of BellSouth, including the risk that the
businesses will not be integrated successfully; the risk that the cost
savings and any other synergies from the acquisition may take longer to
realize than expected or may not be fully
realized.
|
·
|
Changes
in our corporate strategies, such as changing network requirements or
acquisitions and dispositions, to respond to competition and regulatory,
legislative and technological
developments.
|
(a)
|
During
the first quarter of 2008, non-employee directors acquired shares of
common stock pursuant to the Non-Employee Director Stock and Deferral
Plan. Under the plan, a director may make an annual election to receive
all or part of his or her annual retainer or fees in the form of shares or
deferred stock units (DSUs) that are convertible into cash or shares. Each
director also receives an annual grant of DSUs. The plan provides that
DSUs (and dividends earned thereon) acquired during 2007 and thereafter
would be convertible in the form of cash only. During the first quarter of
2008, an aggregate of 5,826 shares and DSUs (from pre-2007 accruals) were
acquired by non-employee directors at prices ranging from $34.83 to
$38.49, in each case the fair market value of the shares on the date of
acquisition. The issuances of shares and DSUs were exempt from
registration pursuant to Section 4(2) of the Securities
Act.
|
(c)
|
On
December 10, 2007, our Board of Directors authorized the repurchase of up
to 400 million shares of AT&T common stock; this authorization expires
at the end of 2009. In the first quarter of 2008, we repurchased 111.6
million shares at a cost of $4,071. We have repurchased, and intend to
continue to repurchase, shares pursuant to plans that comply with the
requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934.
We will fund our share repurchases through a combination of cash from
operations, borrowings, dependent upon market conditions, and cash from
the disposition of certain non-strategic
investments.
|
Purchase
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share1
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
|