AT&T Wireless 2013 Annual Report Download

Download and view the complete annual report

Please find the complete 2013 AT&T Wireless annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

mobilizing our world
AT&T INC. 2013 ANNUAL REPORT

Table of contents

  • Page 1
    mobilizing our world AT&T INC. 2013 ANNUAL REPORT

  • Page 2
    AT&T ONLINE ANNUAL REPORT Experience how we're mobilizing our world at www.att.com/annualreport2013

  • Page 3
    ...AT&T Foundry innovation centers, allowing us to deliver more apps and solutions to our customers faster. All of this has helped our company create new growth platforms. And more broadly, it has helped ignite a global wave of innovation that's transforming how we manage our lives, connect with others...

  • Page 4
    ... for some time. And thanks to the hard work of AT&T employees, I'm confident that our company is ready to thrive in this new world, as we did in the first wave of the mobile revolution. STRENGTH IN REVENUE GROWTH DRIVERS AT&T's growth drivers - wireless, wireline data and managed IT services - are...

  • Page 5
    ...wireless service to 300 million people across the United States. We also said we would expand our U-verse fixed-line broadband service to 57 million customer locations, while delivering even faster speeds. And we laid out plans to extend fiber connections to an additional 1 million business customer...

  • Page 6
    ...the foundation for that is wireless spectrum. It's the lifeblood of the mobile world because it gives us the capacity to meet rising customer demand and support new services. Spectrum is Randall Stephenson Chairman, Chief Executive Officer and President especially critical for video. That's why we...

  • Page 7
    ... for overall call, text and data performance AT&T Inc. 5 2013 Annual Report Nearly 280 million people covered by AT&T 4G LTE SUMMER 2014 93 OF 125 Plan to be essentially complete with LTE deployment by summer 2014 77 % More than half of AT&T's postpaid smartphone customers use an LTE...

  • Page 8
    ... consecutive year we returned nearly $23 billion directly to shareowners through dividends and share repurchases. We also ended 2013 with our pension plan funded, keeping our commitment to our retirees and employees, and with the best credit metrics among major U.S.-based telecom companies. You have...

  • Page 9
    ...39 $2.50 2013 2012 $2.31 Reported $1.25 $ 25B RETURNING VALUE TO OUR OWNERS AT&T's returns to shareowners in 2013 through dividends and share repurchases INVESTING IN OUR BUSINESS AT&T's investment in capital and spectrum to expand and enhance our networks for our customers in 2013 $ 22.7B

  • Page 10
    ...2014 Frost & Sullivan M2M Communications Company of the Year Award North America U -VERSE / HOME SOLUTIONS AT&T was the recipient of the 2013 Frost & Sullivan Video Company of the Year Award North America AT&T U-verse received the 2013 Frost & Sullivan North American Competitive Strategy Leadership...

  • Page 11
    ... Financial Statements Notes to Consolidated Financial Statements Report of Management Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Board of Directors Executive Officers 10 11 39 44 72 73...

  • Page 12
    ... common shares outstanding (000,000) Weighted-average common shares outstanding with dilution (000,000) End of period common shares outstanding (000,000) Operating Data Wireless subscribers (000)2 In-region network access lines in service (000)1 Broadband connections (000)3 Number of employees...

  • Page 13
    ...of $7,584 related to pension and postemployment benefit plans in 2013 and an actuarial loss of $9,994 in 2012. Operating income for 2013 also reflects continued growth in wireless data revenue, and increased revenues from AT&T U-verse® (U-verse) and strategic business services. Partially offsetting...

  • Page 14
    ...in 2012. Lower interconnect and long-distance expenses, lower costs associated with Universal Service Fund (USF) fees and the sale of our Advertising Solutions segment also contributed to expense declines in 2013. These decreases were partially offset by increased wireless equipment costs related to...

  • Page 15
    ..., national and global network to provide consumer and business customers with data and voice communications services, U-verse high-speed broadband, video, voice services and managed networking to business customers. The former Advertising Solutions segment (sold on May 8, 2012), included our...

  • Page 16
    ...Change (Subscribers in 000s) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Wireless Subscribers1 Postpaid smartphones2 Postpaid feature phones and data-centric devices Postpaid Prepaid Reseller Connected devices3 Total Wireless Subscribers Net Additions4 Postpaid Prepaid Reseller Connected devices Net...

  • Page 17
    ... data services as more subscribers use smartphones and data-centric devices. While price changes may impact revenue and service ARPU, going forward we expect to increase equipment sales under our AT&T Next installment program. Data services ARPU increased 15.1% in 2013 and 16.1% in 2012, reflecting...

  • Page 18
    ... of a new iPhone model and increased handset upgrade fees. Operations and support expenses increased $1,212, or 2.8%, in 2013 and $2,014, or 4.9%, in 2012. The increase in 2013 was primarily due to the following: • Equipment costs increased $817, reflecting sales of more expensive smartphones...

  • Page 19
    ... for customer lists related to acquisitions. Equity in net income (loss) of affiliates for the Wireless segment includes expenses for ISIS, our mobile payment joint venture with Verizon and T-Mobile. Percent Change 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 Segment operating revenues Data Voice...

  • Page 20
    ... in switched access lines. • Long-distance revenues decreased $843, or 11.0%, in 2013 and $965, or 11.2%, in 2012. Lower demand for long-distance service from our business and consumer customers decreased revenues $709 in 2013 and $801 in 2012. Additionally, expected declines in the number of...

  • Page 21
    ...current-period reporting methodology. 3 Total switched access lines include access lines provided to national mass markets and private payphone service providers of 246 at December 31, 2013, 313 at December 31, 2012, and 374 at December 31, 2011. Advertising Solutions Segment Results Percent Change...

  • Page 22
    ... from leased equipment programs. Segment operating expenses increased $271, or 25.4%, in 2013 and decreased $4,012, or 79.0%, in 2012. The increase in 2013 was primarily related to higher charges for employee separations, increased new product development expenses and higher corporate support and...

  • Page 23
    ...voice or video telephony services. The rules also imposed transparency requirements on providers of both fixed and mobile broadband Internet access services, requiring public disclosure of information regarding network management practices, performance and commercial terms of their service offerings...

  • Page 24
    ...Life) and have announced plans for car-related security and entertainment services. We also participate in ISIS which has also begun its national rollout of mobile payment services. In the United States, we now cover all major metropolitan areas and nearly 280 million people with our LTE technology...

  • Page 25
    ... Project VIP, we filed a petition with the FCC asking it to open a proceeding to facilitate our transition to all IP-based networks and services to promote consumer interests and incent private investment in broadband infrastructure. On January 30, 2014, the FCC adopted an order authorizing a broad...

  • Page 26
    ...to rate-of-return requirements; or adopt a regulatory framework that incorporates deregulation and price caps. Some states may impose minimum customer service standards with required payments if we fail to meet the standards. We continue to lose access lines due to competitors (e.g., wireless, cable...

  • Page 27
    ...decrease in the expected long-term rate of return would cause 2014 combined pension and postretirement cost to increase $262, which under our accounting policy would be recognized in the current year as part of our fourth-quarter remeasurement of our retiree benefit plans. In 2013, the actual return...

  • Page 28
    ... traded companies whose services are comparable to those offered by the segment and then calculated a weighted-average of those multiples. Using those weighted averages, we then calculated fair values for each of those segments. In 2013, the calculated fair value of the reporting unit exceeded book...

  • Page 29
    ... rates, EBITDA margins and churn rates. For impairment testing purposes, we assumed wireless revenue growth to trend down from our 2013 growth rate of 4.7% to a long-term growth rate that reflects expected long-term inflation trends. We assumed our churn rates will decline in 2014 from our rate...

  • Page 30
    ...In July 2013, we announced an agreement to acquire Leap Wireless International, Inc. (Leap), a provider of prepaid wireless service under the Cricket brand name, for fifteen dollars per outstanding share of Leap's common stock, or approximately $1,260, plus one nontransferable contingent value right...

  • Page 31
    ... by our Board of Directors. In 2013, we continued to take advantage of lower market interest rates and undertook several activities related to our long-term debt which caused our weighted average interest rate of our entire long-term debt portfolio to decrease from 4.9% at December 31, 2012 to...

  • Page 32
    ... common stock. We began buying back stock under this program in the first quarter of 2012 and completed the authorized repurchase that year. In July 2012, the Board of Directors approved a second authorization to repurchase 300 million shares, which we completed in May 2013. In March 2013, our Board...

  • Page 33
    ... increased $3,731 in 2013 compared to a decrease of $8,011 in 2012. The 2013 capital increase was primarily due to increases in net income due to actuarial gains on our pension and postretirement benefit plans, increases in accumulated other comprehensive income related to prior service credits...

  • Page 34
    ...of the Mobility preferred equity interest, or expected pension and postretirement payments (we maintain pension funds and Voluntary Employee Beneficiary Association trusts to fully or partially fund these benefits) (see Note 12). In the ordinary course of business, we routinely enter into commercial...

  • Page 35
    ... of December 31, 2013. Maturity 2014 2015 2016 2017 2018 Thereafter Total Fair Value 12/31/13 Interest Rate Derivatives Interest Rate Swaps: Receive Fixed/Pay Variable Notional Amount Maturing Weighted-Average Variable Rate Payable1 Weighted-Average Fixed Rate Receivable 1 $ 500 2.3% 4.6% $1,500...

  • Page 36
    ... businesses throughout the world. The current slow economic recovery in the United States continues to pressure our customers' demand for and ability to pay for existing services, especially local landline service, and their interest in purchasing new services. Customers are changing their buying...

  • Page 37
    ... pricing and margins as we continue to compete for customers who would have even less discretionary income. Adverse changes in medical costs and the U.S. securities markets and a further decline in interest rates could materially increase our benefit plan costs. Our costs to provide current benefits...

  • Page 38
    ..., including delays in determining equipment and handset operating standards, supplier delays, increases in network equipment and handset component costs, regulatory permitting delays for tower sites or enhancements or labor-related delays. Deployment of new technology also may adversely affect...

  • Page 39
    ... breaches of network or IT security that affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, or our customer account support and information systems...

  • Page 40
    ... 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 data services, including...

  • Page 41
    Consolidated Statements of Income Dollars in millions except per share amounts 2013 2012 2011 Operating Revenues Operating Expenses Cost of services and sales (exclusive of depreciation and amortization shown separately below) Selling, general and administrative Impairment of intangible assets ...

  • Page 42
    ..., $15 and $8 Defined benefit postretirement plans: Net actuarial loss from equity method investees arising during period, net of taxes of $0, $(32) and $0 Reclassification adjustment included in net income, net of taxes of $7, $0 and $0 Net prior service credit arising during period, net of taxes of...

  • Page 43
    ... except per share amounts December 31, 2013 2012 Assets Current Assets Cash and cash equivalents Accounts receivable - net of allowances for doubtful accounts of $483 and $547 Prepaid expenses Deferred income taxes Other current assets Total current assets Property, Plant and Equipment - Net...

  • Page 44
    ... Net (gain) loss from sale of investments, net of impairments Impairment of intangible assets Actuarial (gain) loss on pension and postretirement benefits Changes in operating assets and liabilities: Accounts receivable Other current assets Accounts payable and accrued liabilities Retirement benefit...

  • Page 45
    ... except per share amounts 2013 Shares Amount Shares 2012 Amount Shares 2011 Amount Common Stock Balance at beginning of year Issuance of stock Balance at end of year Additional Paid-In Capital Balance at beginning of year Issuance of treasury stock Share-based payments Share of equity method...

  • Page 46
    ... for the original device. For customers that elect these trade-in programs, we recognize revenue for the entire amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. As of December 31, 2013, total equipment installment plan receivables of $863...

  • Page 47
    ... expenditures reported on the consolidated statements of cash flows. The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain...

  • Page 48
    ... finite-lived intangible assets are generally amortized using the straight-line method. Advertising Costs We expense advertising costs for advertising products and services or for promoting our corporate image as we incur them (see Note 15). Traffic Compensation Expense We use various estimates and...

  • Page 49
    ... accounted for as an equity method investment. The Wireline segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, AT&T U-verse® high-speed broadband, video and voice services and managed networking to business...

  • Page 50
    ... method affiliates 61 Expenditures for additions to long-lived assets 11,191 At December 31, 2012 and for the year ended Wireless Wireline Advertising Solutions Other Consolidations Data Voice, text and other Equipment and other Total segment operating revenues Operations and support expenses...

  • Page 51
    ... provider of prepaid wireless service, for fifteen dollars per outstanding share of Leap's common stock, or approximately $1,260, plus one nontransferable contingent value right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share of the net proceeds of the future sale of...

  • Page 52
    ... Liabilities related to assets held for sale: Current liabilities Noncurrent liabilities Total liabilities $ 155 1,289 799 17 $2,260 $ 128 480 $ 608 agreement, we paid a breakup fee of $3,000, entered into a broadband roaming agreement and transferred certain wireless spectrum with a book value of...

  • Page 53
    ... 31, 2012 Gross Carrying Amount Accumulated Amortization Amortized intangible assets: Customer lists and relationships: AT&T Mobility LLC BellSouth Corporation AT&T Corp. Other Subtotal Other Total Indefinite-lived intangible assets not subject to amortization: Licenses Trade names Total 982...

  • Page 54
    ... 2012. The weighted average interest rate of our entire long-term debt portfolio decreased from 4.9% at December 31, 2012 to 4.5% at December 31, 2013. Current maturities of long-term debt include debt that may be put back to us by the holders in 2014. We have $1,000 of annual put reset securities...

  • Page 55
    ... of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2013, and the corresponding weighted-average interest rate scheduled for repayment are as follows: 2014 2015 2016 2017...

  • Page 56
    ... in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2012. Long-Term Debt and Other Financial Instruments The carrying amounts and estimated fair values of our long-term debt, including current maturities and other...

  • Page 57
    ... 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...

  • Page 58
    ... right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments. Following is the notional amount of our outstanding derivative positions at December 31: 2013 2012 Interest rate swaps Cross-currency swaps...

  • Page 59
    ...and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $35 for 2013, $(74) for 2012, and $(65) for 2011. We file income tax returns in the U.S. federal jurisdiction and various state, local and...

  • Page 60
    ... to elect a full lump sum payment of their accrued pension if they retired as of December 30, 2013. The lump sum value was calculated using the August 2012 discount rates for some pension programs and was equal to the cash balance amount for the management new hire pension program. The lump sum...

  • Page 61
    ...31 and the plans' funded status at December 31: Pension Benefits 2013 2012 Postretirement Benefits 2013 2012 Fair value of plan assets at beginning of year Actual return on plan assets Benefits paid1 Contributions Transfer for sale of Advertising Solutions segment Other Fair value of plan assets at...

  • Page 62
    ... (continued) Dollars in millions except per share amounts Amounts recognized on our consolidated balance sheets at December 31 are listed below: Pension Benefits 2013 2012 Postretirement Benefits 2013 2012 Current portion of employee benefit obligation1 Employee benefit obligation2 Net amount...

  • Page 63
    ... and the net pension and postemployment benefit cost, we used the following significant weighted-average assumptions: 2013 2012 2011 Discount rate for determining projected benefit obligation at December 31 Discount rate in effect for determining net cost Long-term rate of return on plan assets...

  • Page 64
    ... registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end. Over-thecounter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the...

  • Page 65
    ... external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue specific add-ons or credits as well as call or other options. Purchases and sales of securities are recorded as of the trade date. Realized...

  • Page 66
    ... Other Corporate and other bonds and notes Government and municipal bonds Private equity funds Real estate and real assets Commingled funds Securities lending collateral Receivable for variation margin Assets at fair value Investments sold short and other liabilities at fair value Total plan net...

  • Page 67
    ... assets for the year ended December 31, 2013: Fixed Income Funds Private Equity Funds Real Estate and Real Assets Pension Assets Equities Total Balance at beginning of year Realized gains (losses) Unrealized gains (losses) Transfers in Transfers out Purchases Sales Balance at end of year...

  • Page 68
    ... Other Corporate and other bonds and notes Government and municipal bonds Private equity funds Real estate and real assets Commingled funds Securities lending collateral Receivable for variation margin Assets at fair value Investments sold short and other liabilities at fair value Total plan net...

  • Page 69
    ...benefit cost. The following tables provide the plans' benefit obligations and fair value of assets at December 31 and the components of the supplemental retirement pension benefit cost. The net amounts are recorded as "Other noncurrent liabilities" on our consolidated balance sheets. 2014 2015 2016...

  • Page 70
    ... information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets at December 31: 2013 2012 NOTE 13. SHARE-BASED PAYMENTS Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock...

  • Page 71
    ... 2013, $517 for 2012 and $250 for 2011. NOTE 14. STOCKHOLDERS' EQUITY Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In December 2010, our Board of Directors authorized...

  • Page 72
    ... Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We sublease space on the towers from Crown Castle for an initial term of 10 years at current market rates, subject to optional...

  • Page 73
    ... versus the weighted-average common shares for the year. Includes an actuarial gain on pension and postretirement benefit plans (Note 12), special termination charges (Note 12) and charges for employee separations (Note 1). 2012 Calendar Quarter First Second Third Fourth2 Annual Total Operating...

  • Page 74
    ... the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the company's internal control over financial reporting. Randall Stephenson Chairman of the Board, Chief Executive Officer and President John...

  • Page 75
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992 framework) issued by the Committee of...

  • Page 76
    ...of Management. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and...

  • Page 77
    ...: Economics, education (1,6) President and Chief Executive Officer Oil States International, Inc. Director since June 2013 Background: Public accounting, oil and gas Retired Chairman of the Board and Chief Executive Officer Humana Inc. Director since February 2013 Background: Health care AT&T Inc...

  • Page 78
    ... Andy Geisse, 57 Chief Executive OfficerAT&T Business Solutions John Stephens, 54 Senior Executive Vice President and Chief Financial Officer Bill Blase Jr., 58 Senior Executive Vice PresidentHuman Resources Ralph de la Vega, 62 President and Chief Executive Officer, AT&T Mobility Lori Lee, 48...

  • Page 79
    ...account, including stock transfers • Information on The DirectSERVICE TM Investment Program for Stockholders of AT&T Inc. (sponsored and administered by Computershare Trust Company, N.A.) Stock Trading Information AT&T Inc. is listed on the New York Stock Exchange. Ticker symbol: T Annual Report...

  • Page 80
    AT&T Inc. 208 S. Akard St. Dallas, TX 75202 att.com