Current Report Filing (8-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) October 22, 2014

AT&T INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	1-8610	43-1301883
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

208 S. Akard St., Dallas, Texas	75202
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code (210) 821-4105

__________________________________

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

Throughout this document, AT&T Inc. is referred to as “we” or “AT&T.” We are a holding company whose subsidiaries and affiliates operate in the communications services industry. Our subsidiaries and affiliates provide wireless and wireline telecommunications services and equipment both domestically and internationally.

We announced on October 22, 2014 that third-quarter 2014 net income attributable to AT&T totaled $3.0 billion, or $0.58 per diluted share, compared to net income attributable to AT&T of $3.8 billion, or $0.72 per diluted share, in the third quarter of 2013. Our third quarter results include $213 million of Leap Wireless International, Inc. (Leap) and Atlantic Tele-Network Inc. (Alltel) integration costs and $42 million of DIRECTV merger charges.

Third-quarter 2014 revenues were $33.0 billion, up $799 million, or 2.5 percent, from the third-quarter 2013. The increase in revenues reflected increased revenues from wireless devices sold under AT&T Next^SM (AT&T Next), and continued growth in our AT&T U-verse^® (U-verse) and strategic business services, partially offset by continued declines in our legacy voice and data products. Compared with results for the third quarter of 2013, operating expenses were $27.6 billion versus $26.0 billion; operating income was $5.4 billion, down from $6.2 billion; and AT&T's operating income margin was 16.4 percent, compared to 19.2 percent.

Revenues from our Wireless segment for the third-quarter of 2014 were $18.3 billion, up 4.9 percent versus the year-ago quarter. The increase in revenues reflected the continuing trend by our postpaid subscribers to choose devices on installment purchase (our AT&T Next program) rather than the device subsidy model, which resulted in increased equipment revenue recognized for device sales. Third-quarter 2014 wireless operating expenses totaled $13.8 billion, up 7.5 percent versus the third quarter of 2013, and reflect higher equipment costs, network systems expenses, selling and administrative expenses and depreciation expense, which are largely attributable to the acquisition of Leap. AT&T’s wireless operating income margin was 24.6 percent compared to 26.4 percent in the year-ago quarter, reflecting pressure from the increasing popularity of Mobile Share Value plans, solid customer growth, promotional activities, and continued investment in new services. The operating results of the recently acquired Leap contributed to higher revenues and expenses, and lower margins.

We reported a net gain of 2.0 million wireless subscribers in the third quarter of 2014, bringing our wireless customer base to approximately 118.7 million at September 30, 2014, compared to 109.5 million at September 30, 2013. (Included in the base are approximately 4.5 million former Leap subscribers, as of the March 2014 closing date.) During the third quarter, net adds for connected devices were 1,275,000, net adds of postpaid subscribers were 785,000 and reseller net adds were 87,000. Prepaid had a net loss of 140,000 primarily due to declines in session-based tablets and expected reductions in Cricket subscribers as we transition the customer base. Third-quarter postpaid net adds include 466,000 smartphones and total branded smartphone net adds (both postpaid and prepaid) were 530,000. Total branded tablet net adds were 342,000.

During the third quarter of 2014, smartphone gross sales and upgrades were 6.8 million. Sales under AT&T Next continued to increase during the third quarter, with about half of all postpaid smartphone gross adds and upgrades, or about 3.4 million taking Next.

In the third quarter of 2014, an increasing number of subscribers have chosen to move to our simple pricing and no-device-subsidy plans (referred to as Mobile Share and Mobile Share Value, collectively referred to as “Mobile Share Plans”). At September 30, 2014 Mobile Share Plans represented nearly 47 million connections, or about 62 percent of postpaid subscribers. About 52 percent of our postpaid smartphone base is on no-device-subsidy plans. At the end of the quarter, about 82 percent, or 45.5 million, of postpaid smartphone subscribers are on usage-based data plans, compared to 72 percent, or 36.4 million, a year ago.

For the quarter, average service revenue per postpaid subscribers decreased 9.2 percent versus the year-earlier quarter and increased 0.6 percent versus the second quarter of 2014. The year-over-year trend reflects the increasing number of lower-ARPU but higher-margin tablets and the attractive Mobile Share pricing for customers who move off the traditional device subsidization model. The sequential trend reflects our continued success in our Mobile Share Value Plan offering over recent quarters. As we adjust our service offerings and pricing structures, management believes that postpaid phone-only ARPU plus Next subscriber installment billings (postpaid phone-only ARPU plus AT&T Next) is an appropriate representation of the monthly economic value per postpaid subscriber. Postpaid phone-only ARPU decreased 8.0 percent versus the year-earlier quarter, but increased 0.3 percent versus the second quarter of 2014. Postpaid phone-only ARPU plus AT&T Next decreased 3.4 percent versus the year-earlier quarter, but increased 2.0 percent sequentially.

Postpaid churn was 0.99 percent, compared to 1.07 percent in the year-ago third quarter, and compared to 0.86 percent in the second quarter of 2014. Total customer churn was 1.36 percent versus 1.31 percent in the third quarter of 2013 due to the expected pressure in prepaid subscribers and versus 1.47 percent in the second quarter of 2014.

Revenues from our Wireline segment for the third quarter of 2014 were $14.6 billion, a 0.4 percent decrease from the year-ago quarter and a 0.2 percent decrease on a sequential quarterly basis. Total revenues from our wireline business customers were $8.7 billion, a decrease of 2.0 percent from the year-ago quarter, reflecting continued declines in older circuit-based data services and voice partially offset by increases in IP-based data services. Total revenues from our wireline consumer customers were $5.7 billion, an increase of 3.0 percent compared to the third-quarter 2013, driven by a continued increase in IP-based broadband and video revenues partially offset by the decline in voice revenues.

At September 30, 2014, our total switched access lines were 21.5 million compared with 25.7 million at September 30, 2013. The number of U-verse voice connections (which use VoIP technology and therefore are not included in the access line total) increased from 3.3 million at September 30, 2013 to 4.8 million at September 30, 2014. The decline in switched access lines reflects continuing economic pressures on our customers as well as customers switching to another AT&T product like wireless and VoIP and increasing competition from other wireless, VoIP and cable providers. Our total broadband connections were 16.5 million at September 30, 2014 and 16.4 million at September 30, 2013. U-verse High Speed Internet subscribers totaled 12.1 million at September 30, 2014, and now represent 73 percent of our total broadband base. At September 30, 2014, the number of U-verse video subscribers totaled 6.1 million, with a net gain of 216,000 subscribers in the third quarter of 2014. U-verse video penetration of customer locations continues to grow and was almost 22 percent at September 30, 2014. During the third quarter of 2014, the number of U-verse voice connections increased by 345,000 to reach 4.8 million.

Third-quarter wireline operating expenses totaled $13.3 billion, up 1.6 percent from the year-ago quarter, driven by higher U-verse related content fees, success-based growth costs and expenses incurred as part of Project VIP. AT&T’s wireline operating margin was 8.8 percent, compared to 10.6 percent in the year-earlier quarter.

Repurchases of our common stock under our previously announced share repurchase authorization by our Board of Directors totaled 6 million shares, or $221 million during the third quarter of 2014. At the end of the third quarter, about 415 million shares remain on existing authorizations.

Our fourth-quarter 2014 results will reflect the annual remeasurement of our pension and other postemployment assets and obligations. One of the most significant assumptions used in determining the fair value of our obligation is the discount rate, which has significantly decreased since December 31, 2013. If the underlying bond rates remain constant or continue to decrease, we could record a material loss upon remeasurement in our fourth-quarter results. We estimate that a ten basis point change in the discount rate results in an approximate $1 billion change in our combined pension and postretirement obligations. Other significant assumptions include, but are not limited to: asset returns; medical costs, including subsidies; as well as the demographics of the participants, including mortality assumptions. Actuarial gains and losses are managed on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, any gains or losses will not affect segment operating results or margins.

Our annual remeasurement will also include the effects of settlement accounting for a portion of our pension plan. Due in part to our 2013 enhanced retirement offer and other distributions, lump sum distributions from the plan during 2014 exceeded service and interest costs in early October.

We now expect consolidated revenue to grow in the 3 to 4 percent range for the year. Revenue impacts include:

·	The slower than expected growth of AT&T Next gross adds and upgrades and the greater than expected number of BYOD (bring your own device) gross adds;

·	The sale of the Connecticut wireline property expected on October 24;

·	Exiting select low-margin wireline wholesale businesses.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this filing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this filing based on new information or otherwise.

Item 9.01 Financial Statements and Exhibits.

The following exhibits are filed as part of this report:

(d) Exhibits

99.1 AT&T Inc. selected financial statements and operating data.

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 hereunto duly authorized.

	AT&T INC.



Date: October 22, 2014	By: /s/ Paul W. Stephens Paul W. Stephens Senior Vice President and Controller

Financial Data

AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited	Three Months Ended									Nine Months Ended
	9/30/2014			9/30/2013			% Chg			9/30/2014			9/30/2013			% Chg
Operating Revenues	$	32,957		$	32,158			2.5	%	$	98,008		$	95,589			2.5	%

Operating Expenses
Cost of services and sales (exclusive of depreciation and amortization shown separately below)		14,541			13,403			8.5	%		42,074			39,227			7.3	%
Selling, general and administrative		8,475			7,952			6.6	%		24,932			24,406			2.2	%
Depreciation and amortization		4,539			4,615			-1.6	%		13,706			13,715			-0.1	%
Total Operating Expenses		27,555			25,970			6.1	%		80,712			77,348			4.3	%
Operating Income		5,402			6,188			-12.7	%		17,296			18,241			-5.2	%
Interest Expense		1,016			829			22.6	%		2,757			2,481			11.1	%
Equity in Net Income (Loss) of Affiliates		(2	)		91			-			188			494			-61.9	%
Other Income (Expense) - Net		42			50			-16.0	%		1,456			370			-
Income Before Income Taxes		4,426			5,500			-19.5	%		16,183			16,624			-2.7	%
Income Tax Expense		1,367			1,595			-14.3	%		5,769			5,066			13.9	%
Net Income		3,059			3,905			-21.7	%		10,414			11,558			-9.9	%
Less: Net Income Attributable to Noncontrolling Interest		(57	)		(91	)		37.4	%		(213	)		(222	)		4.1	%
Net Income Attributable to AT&T	$	3,002		$	3,814			-21.3	%	$	10,201		$	11,336			-10.0	%


Basic Earnings Per Share Attributable to AT&T	$	0.58		$	0.72			-19.4	%	$	1.96		$	2.10			-6.7	%
Weighted Average Common Shares Outstanding (000,000)		5,198			5,315			-2.2	%		5,208			5,402			-3.6	%

Diluted Earnings Per Share Attributable to AT&T	$	0.58		$	0.72			-19.4	%	$	1.95		$	2.09			-6.7	%
Weighted Average Common Shares Outstanding with Dilution (000,000)		5,214			5,331			-2.2	%		5,224			5,419			-3.6	%

Financial Data

AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
	Three Months Ended									Nine Months Ended

Wireless	9/30/2014			9/30/2013			% Chg			9/30/2014			9/30/2013			% Chg
Segment Operating Revenues
Service	$	15,423		$	15,460			-0.2	%	$	45,958		$	45,892			0.1	%
Equipment		2,914			2,020			44.3	%		8,175			5,570			46.8	%
Total Segment Operating Revenues		18,337			17,480			4.9	%		54,133			51,462			5.2	%

Segment Operating Expenses
Operations and support		11,855			10,982			7.9	%		34,305			31,932			7.4	%
Depreciation and amortization		1,965			1,875			4.8	%		5,931			5,553			6.8	%
Total Segment Operating Expenses		13,820			12,857			7.5	%		40,236			37,485			7.3	%
Segment Operating Income		4,517			4,623			-2.3	%		13,897			13,977			-0.6	%
Equity in Net Income (Loss) of Affiliates		(26	)		(18	)		-44.4	%		(75	)		(55	)		-36.4	%
Segment Income	$	4,491		$	4,605			-2.5	%	$	13,822		$	13,922			-0.7	%

Segment Operating Income Margin		24.6	%		26.4	%					25.7	%		27.2	%

Wireline
Segment Operating Revenues
Service	$	14,368		$	14,403			-0.2	%	$	43,165		$	43,266			-0.2	%
Equipment		247			267			-7.5	%		688			832			-17.3	%
Total Segment Operating Revenues		14,615			14,670			-0.4	%		43,853			44,098			-0.6	%

Segment Operating Expenses
Operations and support		10,761			10,385			3.6	%		31,918			31,137			2.5	%
Depreciation and amortization		2,571			2,736			-6.0	%		7,769			8,146			-4.6	%
Total Segment Operating Expenses		13,332			13,121			1.6	%		39,687			39,283			1.0	%
Segment Operating Income		1,283			1,549			-17.2	%		4,166			4,815			-13.5	%
Equity in Net Income of Affiliates		1			-			-			2			1			-
Segment Income	$	1,284		$	1,549			-17.1	%	$	4,168		$	4,816			-13.5	%

Segment Operating Income Margin		8.8	%		10.6	%					9.5	%		10.9	%

Financial Data

AT&T Inc.
Consolidated Balance Sheets
Dollars in millions
	9/30/14			12/31/13
	Unaudited

Assets
Current Assets
Cash and cash equivalents	$	2,458		$	3,339
Accounts receivable - net of allowances for doubtful accounts of $482 and $483		13,445			12,918
Prepaid expenses		869			960
Deferred income taxes		1,030			1,199
Other current assets		8,033			4,780
Total current assets		25,835			23,196
Property, Plant and Equipment - Net		115,134			110,968
Goodwill		70,131			69,273
Licenses		60,784			56,433
Other Intangible Assets - Net		6,252			5,779
Investments in and Advances to Equity Affiliates		166			3,860
Other Assets		9,637			8,278
Total Assets	$	287,939		$	277,787

Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year	$	5,109		$	5,498
Accounts payable and accrued liabilities		24,119			21,107
Advanced billing and customer deposits		4,038			4,212
Accrued taxes		4,328			1,774
Dividends payable		2,385			2,404
Total current liabilities		39,979			34,995
Long-Term Debt		70,516			69,290
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		37,393			36,308
Postemployment benefit obligation		29,918			29,946
Other noncurrent liabilities		17,014			15,766
Total deferred credits and other noncurrent liabilities		84,325			82,020
Stockholders' Equity
Common stock		6,495			6,495
Additional paid-in capital		91,064			91,091
Retained earnings		34,165			31,141
Treasury stock		(47,037	)		(45,619	)
Accumulated other comprehensive income		7,926			7,880
Noncontrolling interest		506			494
Total stockholders' equity		93,119			91,482
Total Liabilities and Stockholders' Equity	$	287,939		$	277,787

Financial Data

AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited	Nine Months Ended September 30,
	2014			2013

Operating Activities
Net income	$	10,414		$	11,558
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		13,706			13,715
Undistributed earnings from investments in equity affiliates		(45	)		(232	)
Provision for uncollectible accounts		692			653
Deferred income tax expense		1,304			2,505
Net gain from sale of investments, net of impairments		(1,374	)		(272	)
Changes in operating assets and liabilities:
Accounts receivable		(1,269	)		(440	)
Other current assets		(813	)		520
Accounts payable and accrued liabilities		4,763			(420	)
Retirement benefit funding		(420	)		(175	)
Other - net		(1,365	)		(533	)
Total adjustments		15,179			15,321
Net Cash Provided by Operating Activities		25,593			26,879

Investing Activities
Construction and capital expenditures:
Capital expenditures		(16,829	)		(15,565	)
Interest during construction		(178	)		(213	)
Acquisitions, net of cash acquired		(2,053	)		(4,025	)
Dispositions		6,074			846
Purchases of securities, net		(1,996	)		-
Return of advances to and investments in equity affiliates		3			301
Other		(1	)		(4	)
Net Cash Used in Investing Activities		(14,980	)		(18,660	)

Financing Activities
Net change in short-term borrowings with
original maturities of three months or less		(16	)		1,851
Issuance of other short-term borrowings		-			1,476
Repayment of other short-term borrowings		-			(1,476	)
Issuance of long-term debt		8,564			6,416
Repayment of long-term debt		(10,376	)		(2,131	)
Purchase of treasury stock		(1,617	)		(11,134	)
Issuance of treasury stock		34			108
Dividends paid		(7,170	)		(7,325	)
Other		(913	)		499
Net Cash Used in Financing Activities		(11,494	)		(11,716	)
Net decrease in cash and cash equivalents		(881	)		(3,497	)
Cash and cash equivalents beginning of year		3,339			4,868
Cash and Cash Equivalents End of Period	$	2,458		$	1,371

Financial Data

AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts, subscribers and connections in (000s)
Unaudited	Three Months Ended									Nine Months Ended
	9/30/2014			9/30/2013			% Chg			9/30/2014			9/30/2013			% Chg

Wireless
Subscribers and Connections
Total											118,650			109,460			8.4	%
Postpaid											75,105			72,032			4.3	%
Prepaid											11,179			7,425			50.6	%
Reseller											13,884			14,089			-1.5	%
Connected Devices											18,482			15,914			16.1	%

Wireless Net Adds
Total		2,007			989			-			3,703			1,912			93.7	%
Postpaid		785			363			-			2,436			1,210			-
Prepaid		(140	)		192			-			(595	)		19			-
Reseller		87			(285	)		-			(281	)		(951	)		70.5	%
Connected Devices		1,275			719			77.3	%		2,143			1,634			31.2	%
M&A Activity, Partitioned Customers and Other Adjs.		9			587			-98.5	%		4,571			591			-

Wireless Churn
Postpaid Churn		0.99	%		1.07	%	-8 BP				0.97	%		1.04	%	-7 BP
Total Churn		1.36	%		1.31	%	5 BP				1.41	%		1.35	%	6 BP

Other
Licensed POPs (000,000)											321			317			1.3	%

Wireline
Voice
Total Wireline Voice Connections											26,220			29,296			-10.5	%
Net Change		(738	)		(932	)		20.8	%		(2,269	)		(2,888	)		21.4	%

Broadband
Total Wireline Broadband Connections											16,486			16,427			0.4	%
Net Change		38			(26	)		-			61			37			64.9	%

Video
Total U-verse Video Connections											6,067			5,266			15.2	%
Net Change		216			265			-18.5	%		607			730			-16.8	%

Consumer Revenue Connections
Broadband¹											14,844			14,665			1.2	%
U-verse Video Connections											6,045			5,249			15.2	%
Voice²											14,880			16,749			-11.2	%
Total Consumer Revenue Connections¹											35,769			36,663			-2.4	%
Net Change		(156	)		(345	)		54.8	%		(621	)		(1,004	)		38.1	%

AT&T Inc.
Construction and capital expenditures:
Capital expenditures	$	5,180		$	5,900			-12.2	%	$	16,829		$	15,565			8.1	%
Interest during construction	$	60		$	73			-17.8	%	$	178		$	213			-16.4	%
Dividends Declared per Share	$	0.46		$	0.45			2.2	%	$	1.38		$	1.35			2.2	%
End of Period Common Shares Outstanding (000,000)											5,185			5,280			-1.8	%
Debt Ratio³											44.8	%		46.9	%	-210 BP
Total Employees											247,700			246,740			0.4	%

¹	Consumer wireline broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband.
²	Includes consumer U-verse Voice over Internet Protocol connections of 4,698 as of September 30, 2014.
³	Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.
	Note: For the end of 3Q14, total switched access lines were 21,464; retail business switched access lines totaled 9,509; and wholesale,
		national mass markets and coin switched access lines totaled 1,773. Restated switched access lines do not include ISDN lines.