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” and “smaller reporting 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
[ ]
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, 2011 there were 5,926 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 Ended
September 30,
Nine Months Ended
September 30,
2011
2010
2011
2010
Operating Revenues
Wireless service
$
14,261
$
13,675
$
42,379
$
39,711
Data
7,472
6,947
22,008
20,464
Voice
6,243
6,978
19,136
21,685
Directory
803
961
2,512
3,009
Other
2,699
3,020
8,185
8,050
Total operating revenues
31,478
31,581
94,220
92,919
Operating Expenses
Cost of services and sales (exclusive of depreciation and
amortization shown separately below)
13,165
13,605
39,900
38,440
Selling, general and administrative
7,460
7,672
22,308
22,522
Depreciation and amortization
4,618
4,873
13,804
14,472
Total operating expenses
25,243
26,150
76,012
75,434
Operating Income
6,235
5,431
18,208
17,485
Other Income (Expense)
Interest expense
(889
)
(729
)
(2,583
)
(2,248
)
Equity in net income of affiliates
193
217
649
629
Other income (expense) - net
46
124
132
825
Total other income (expense)
(650
)
(388
)
(1,802
)
(794
)
Income from Continuing Operations Before Income Taxes
5,585
5,043
16,406
16,691
Income tax (benefit) expense
1,899
(6,573
)
5,594
(1,550
)
Income from Continuing Operations
3,686
11,616
10,812
18,241
Income from Discontinued Operations, net of tax
-
780
-
777
Net Income
3,686
12,396
10,812
19,018
Less: Net Income Attributable to Noncontrolling Interest
(63
)
(77
)
(190
)
(243
)
Net Income Attributable to AT&T
$
3,623
$
12,319
$
10,622
$
18,775
Basic Earnings Per Share from Continuing Operations
Attributable to AT&T
$
0.61
$
1.95
$
1.79
$
3.05
Basic Earnings Per Share from Discontinued Operations
Attributable to AT&T
-
0.13
-
0.13
Basic Earnings Per Share Attributable to AT&T
$
0.61
$
2.08
$
1.79
$
3.18
Diluted Earnings Per Share from Continuing Operations
Attributable to AT&T
$
0.61
$
1.94
$
1.79
$
3.03
Diluted Earnings Per Share from Discontinued Operations
Attributable to AT&T
-
0.13
-
0.13
Diluted Earnings Per Share Attributable to AT&T
$
0.61
$
2.07
$
1.79
$
3.16
Weighted Average Number of Common Shares
Outstanding - Basic (in millions)
5,936
5,909
5,931
5,908
Weighted Average Number of Common Shares
Outstanding - with Dilution (in millions)
5,954
5,938
5,950
5,937
Dividends Declared Per Common Share
$
0.43
$
0.42
$
1.29
$
1.26
See Notes to Consolidated Financial Statements.
2
AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
September 30,
December 31,
2011
2010
Assets
(Unaudited)
Current Assets
Cash and cash equivalents
$
10,762
$
1,437
Accounts receivable - net of allowances for doubtful accounts of $888 and $957
13,377
13,610
Prepaid expenses
1,507
1,458
Deferred income taxes
1,101
1,170
Other current assets
1,858
2,276
Total current assets
28,605
19,951
Property, plant and equipment
256,626
243,833
Less: accumulated depreciation and amortization
(150,840
)
(140,637
)
Property, Plant and Equipment – Net
105,786
103,196
Goodwill
73,590
73,601
Licenses
50,406
50,372
Customer Lists and Relationships – Net
3,175
4,708
Other Intangible Assets – Net
5,394
5,440
Investments in Equity Affiliates
4,483
4,515
Other Assets
6,214
6,705
Total Assets
$
277,653
$
268,488
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year
$
8,900
$
7,196
Accounts payable and accrued liabilities
17,860
20,055
Advanced billing and customer deposits
3,794
4,086
Accrued taxes
929
72
Dividends payable
2,548
2,542
Total current liabilities
34,031
33,951
Long-Term Debt
62,326
58,971
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
26,446
22,070
Postemployment benefit obligation
28,190
28,803
Other noncurrent liabilities
12,778
12,743
Total deferred credits and other noncurrent liabilities
67,414
63,616
Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2011 and
December 31, 2010: issued 6,495,231,088 at September 30, 2011 and December 31, 2010
6,495
6,495
Additional paid-in capital
91,455
91,731
Retained earnings
34,758
31,792
Treasury stock (569,537,116 at September 30, 2011 and 584,144,220
at December 31, 2010, at cost)
(20,770
)
(21,083
)
Accumulated other comprehensive income
1,677
2,712
Noncontrolling interest
267
303
Total stockholders’ equity
113,882
111,950
Total Liabilities and Stockholders’ Equity
$
277,653
$
268,488
See Notes to Consolidated Financial Statements.
3
AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
Nine months ended
September 30,
2011
2010
Operating Activities
Net income
$
10,812
$
19,018
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
13,804
14,472
Undistributed earnings from investments in equity affiliates
(539
)
(531
)
Provision for uncollectible accounts
805
973
Deferred income tax expense and noncurrent unrecognized tax benefits
4,942
(4,184
)
Net gain from impairment and sale of investments
(57
)
(746
)
Income from discontinued operations
-
(777
)
Changes in operating assets and liabilities:
Accounts receivable
(573
)
266
Other current assets
439
495
Accounts payable and accrued liabilities
(1,630
)
(2,861
)
Net income attributable to noncontrolling interest
(190
)
(243
)
Other - net
(663
)
(532
)
Total adjustments
16,338
6,332
Net Cash Provided by Operating Activities
27,150
25,350
Investing Activities
Construction and capital expenditures:
Capital expenditures
(14,625
)
(13,170
)
Interest during construction
(119
)
(577
)
Acquisitions, net of cash acquired
(430
)
(2,615
)
Dispositions
76
1,821
(Purchases) and sales of securities, net
45
(437
)
Other
28
22
Net Cash Used in Investing Activities
(15,025
)
(14,956
)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
(1,620
)
(33
)
Issuance of long-term debt
7,935
2,235
Repayment of long-term debt
(1,298
)
(5,280
)
Issuance of treasury stock
216
24
Dividends paid
(7,627
)
(7,436
)
Other
(406
)
(399
)
Net Cash Used in Financing Activities
(2,800
)
(10,889
)
Net increase (decrease) in cash and cash equivalents
9,325
(495
)
Cash and cash equivalents beginning of year
1,437
3,741
Cash and Cash Equivalents End of Period
$
10,762
$
3,246
Cash paid during the nine months ended September 30 for:
Interest
$
3,066
$
3,322
Income taxes, net of refunds
$
(121
)
$
3,013
See Notes to Consolidated Financial Statements.
4
AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
September 30, 2011
Shares
Amount
Common Stock
Balance at beginning of year
6,495
$
6,495
Balance at end of period
6,495
$
6,495
Additional Paid-In Capital
Balance at beginning of year
$
91,731
Issuance of treasury stock
127
Share-based payments
(104
)
Change related to acquisition of interests held by noncontrolling owners
(299
)
Balance at end of period
$
91,455
Retained Earnings
Balance at beginning of year
$
31,792
Net income attributable to AT&T ($1.79 per diluted share)
10,622
Dividends to stockholders ($1.29 per share)
(7,638
)
Other
(18
)
Balance at end of period
$
34,758
Treasury Stock
Balance at beginning of year
(584
)
$
(21,083
)
Issuance of treasury stock
15
313
Balance at end of period
(569
)
$
(20,770
)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax:
Balance at beginning of year
$
2,712
Other comprehensive loss attributable to AT&T (see Note 2)
(1,035
)
Balance at end of period
$
1,677
Noncontrolling Interest:
Balance at beginning of year
$
303
Net income attributable to noncontrolling interest
190
Distributions
(167
)
Acquisition of interests held by noncontrolling owners
(59
)
Balance at end of period
$
267
Total Stockholders’ Equity at beginning of year
$
111,950
Total Stockholders’ Equity at end of period
$
113,882
See Notes to Consolidated Financial Statements.
5
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless and wireline communications services and equipment, managed networking, wholesale services, and advertising solutions.
All significant intercompany transactions are eliminated in the consolidation process. Investments in partnerships and less than majority-owned subsidiaries where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our period end.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation. See Notes 4 and 5 for a discussion of our changes in accounting and reporting for our pension and other postretirement benefit costs.
Healthcare Legislation In March 2010, the President of the United States signed into law comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, which included a change in the tax treatment related to Medicare Part D subsidies. As a result, during the first quarter of 2010, we recorded a $995 charge to income tax expense in our consolidated statement of income.
Internal Revenue Service Settlement In September 2010, we reached a settlement with the Internal Revenue Service (IRS) on tax basis calculations related to a 2008 restructuring of our wireless operations. The IRS settlement resolved the uncertainty regarding the amount and timing of amortization deductions related to certain of our wireless assets. We recorded an $8,300 reduction to income tax expense in our consolidated statement of income during the third quarter of 2010 and corresponding decreases to our net noncurrent deferred income tax liabilities and other net tax liabilities to reflect the tax benefits of the settlement.
Our effective tax rates were 34.0% for the third quarter and 34.1% for the nine months ended September 30, 2011, compared to (130.3)% and (9.3)% for the same periods in 2010. The IRS settlement, partially offset by the effects of the healthcare legislation, caused the lower effective tax rates in 2010.
6
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 2. COMPREHENSIVE INCOME
The components of our comprehensive income for the three and nine months ended September 30, 2011 and 2010 are included in the table below. Prior-year results have been adjusted to reflect our change in method of recognizing actuarial gains and losses for pension and other postretirement benefits (see Note 5).
and $4 attributable to noncontrolling interest), net of
taxes of $(280), $54, $(157) and $116
(519
)
100
(291
)
215
Net unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses), net of taxes of $(88), $31, $(59)
and $17
(165
)
58
(110
)
33
Reclassification adjustment realized in net income, net of
taxes of $(2), $(1), $(23) and $(30)
(2
)
(1
)
(43
)
(56
)
Net unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses), net of taxes of $(135), $(108),
$(143) and $(380)
(249
)
(205
)
(263
)
(706
)
Reclassification adjustment for losses included in net income,
net of taxes of $1, $5, $4 and $11
2
4
7
9
Defined benefit postretirement plans:
Amortization of net prior service cost (benefit) included in
net income, net of taxes of $(69), $(61), $(206) and $(183)
(112
)
(99
)
(336
)
(297
)
Other
2
-
1
-
Other comprehensive loss
(1,043
)
(143
)
(1,035
)
(802
)
Total comprehensive income
2,643
12,253
9,777
18,216
Less: Total comprehensive income attributable to
noncontrolling interest
(63
)
(83
)
(190
)
(247
)
Total Comprehensive Income Attributable to AT&T
$
2,580
$
12,170
$
9,587
$
17,969
7
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 3. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for net income attributable to AT&T for the three and nine months ended September 30, 2011 and 2010, are shown in the table below:
Three months ended
Nine months ended
September 30,
September 30,
2011
2010
2011
2010
Numerators
Numerator for basic earnings per share:
Income from continuing operations
$
3,686
$
11,616
$
10,812
$
18,241
Net income attributable to noncontrolling interest
(63
)
(77
)
(190
)
(243
)
Income from continuing operations attributable to AT&T
3,623
11,539
10,622
17,998
Dilutive potential common shares:
Other share-based payment
3
3
8
8
Numerator for diluted earnings per share
$
3,626
$
11,542
$
10,630
$
18,006
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding
5,936
5,909
5,931
5,908
Dilutive potential common shares:
Stock options
3
3
4
3
Other share-based payment
15
26
15
26
Denominator for diluted earnings per share
5,954
5,938
5,950
5,937
Basic earnings per share from continuing operations
attributable to AT&T
$
0.61
$
1.95
$
1.79
$
3.05
Basic earnings per share from discontinued operations
attributable to AT&T
-
0.13
-
0.13
Basic earnings per share attributable to AT&T
$
0.61
$
2.08
$
1.79
$
3.18
Diluted earnings per share from continuing operations
attributable to AT&T
$
0.61
$
1.94
$
1.79
$
3.03
Diluted earnings per share from discontinued operations
attributable to AT&T
-
0.13
-
0.13
Diluted earnings per share attributable to AT&T
$
0.61
$
2.07
$
1.79
$
3.16
At September 30, 2011 and 2010, we had issued and outstanding options to purchase approximately 85 million and 136 million shares of AT&T common stock. For quarter ended September 30, 2011 and 2010, the exercise prices of 58 million and 109 million shares were above the market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares. At September 30, 2011 and 2010, the exercise prices of 24 million and 22 million vested stock options were below market price.
8
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our various operating segments based on segment income before income taxes. We make our capital allocations decisions primarily based on the network (wireless or wireline) providing services. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have four reportable segments: (1) Wireless, (2) Wireline, (3) Advertising Solutions and (4) Other.
The Wireless segment uses our nationwide network to provide consumer and business customers with wireless voice and advanced data communications services.
The Wireline segment uses our regional, national and global network to provide consumer and business customers with landline voice and data communications services, AT&T U-verse® TV, high-speed broadband and voice services and managed networking to business customers. Additionally, we receive commissions on sales of satellite television services offered through our agency arrangements.
The Advertising Solutions segment includes our directory operations, which publish Yellow and White Pages directories and sell directory advertising and Internet-based advertising and local search.
The Other segment includes results from customer information services, our portion of the results from our international equity investments and all corporate and other operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest cost and expected return on plan assets for our pension and postretirement benefit plans.
In January 2011, we announced a change in our method of recognizing actuarial gains and losses for pension and other postretirement benefits as well as the attribution of those benefit costs to our segments. Historically, the total benefit costs were attributed to our various segments. As part of the benefit accounting change, the service cost and the amortization of prior service costs, which represent the benefits earned by active employees during the period, will continue to be attributed to the segment in which the employee is employed, while interest cost and expected return on assets are recorded in the Other segment as those financing activities are managed on a corporate level. Actuarial gains and losses resulting from the remeasurement of our pension and postretirement benefit plans, which generally occurs in the fourth quarter, will be reflected in AT&T’s consolidated results only. We have adjusted prior-period segment information to conform to the current period’s presentation.
In the following tables, we show how our segment results are reconciled to our consolidated results reported. The Wireless, Wireline, Advertising Solutions and Other columns represent the segment results of each such operating segment. The Consolidations column adds in those line items that we manage on a consolidated basis only: actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net.
9
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2011
Wireless
Wireline
Advertising
Solutions
Other
Consolidations
Consolidated Results
Total segment operating revenues
$
15,606
$
14,961
$
803
$
108
$
-
$
31,478
Operations and support expenses
9,367
10,259
553
446
-
20,625
Depreciation and amortization expenses
1,619
2,892
94
13
-
4,618
Total segment operating expenses
10,986
13,151
647
459
-
25,243
Segment operating income (loss)
4,620
1,810
156
(351
)
-
6,235
Interest expense
-
-
-
-
889
889
Equity in net income (loss) of affiliates
(7
)
-
-
200
-
193
Other income (expense) – net
-
-
-
-
46
46
Segment income before income taxes
$
4,613
$
1,810
$
156
$
(151
)
$
(843
)
$
5,585
At September 30, 2011 or for the nine months ended
Wireless
Wireline
Advertising Solutions
Other
Consolidations
Consolidated Results
Total segment operating revenues
$
46,517
$
44,846
$
2,512
$
345
$
-
$
94,220
Operations and support expenses
29,007
30,629
1,706
866
-
62,208
Depreciation and amortization expenses
4,737
8,726
301
40
-
13,804
Total segment operating expenses
33,744
39,355
2,007
906
-
76,012
Segment operating income (loss)
12,773
5,491
505
(561
)
-
18,208
Interest expense
-
-
-
-
2,583
2,583
Equity in net income (loss) of affiliates
(19
)
-
-
668
-
649
Other income (expense) – net
-
-
-
-
132
132
Segment income before income taxes
$
12,754
$
5,491
$
505
$
107
$
(2,451
)
$
16,406
Segment assets
$
124,785
$
133,502
$
7,711
$
17,339
$
(5,684
)
$
277,653
Investments in equity method affiliates
17
-
-
4,466
-
4,483
Expenditures for additions
to long-lived assets
$
6,901
$
7,820
$
21
$
2
$
-
$
14,744
10
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2010
Wireless
Wireline
Advertising Solutions
Other
Consolidations
Consolidated Results
Total segment operating revenues
$
15,180
$
15,304
$
961
$
136
$
-
$
31,581
Operations and support expenses
10,032
10,220
631
394
-
21,277
Depreciation and amortization expenses
1,640
3,099
123
11
-
4,873
Total segment operating expenses
11,672
13,319
754
405
-
26,150
Segment operating income (loss)
3,508
1,985
207
(269
)
-
5,431
Interest expense
-
-
-
-
729
729
Equity in net income of affiliates
(6
)
2
-
221
-
217
Other income (expense) – net
-
-
-
-
124
124
Segment income before income taxes
$
3,502
$
1,987
$
207
$
(48
)
$
(605
)
$
5,043
For the nine months ended September 30, 2010
Wireless
Wireline
Advertising Solutions
Other
Consolidations
Consolidated Results
Total segment operating revenues
$
43,319
$
46,172
$
3,009
$
419
$
-
$
92,919
Operations and support expenses
26,758
31,021
1,957
1,226
-
60,962
Depreciation and amortization expenses
4,776
9,280
393
23
-
14,472
Total segment operating expenses
31,534
40,301
2,350
1,249
-
75,434
Segment operating income (loss)
11,785
5,871
659
(830
)
-
17,485
Interest expense
-
-
-
-
2,248
2,248
Equity in net income of affiliates
14
7
-
608
-
629
Other income (expense) – net
-
-
-
-
825
825
Segment income before income taxes
$
11,799
$
5,878
$
659
$
(222
)
$
(1,423
)
$
16,691
11
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. PENSION AND POSTRETIREMENT BENEFITS
Substantially all of our employees are covered by one of various noncontributory pension and death benefit plans. We also provide certain medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. 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 meet the plans’ obligations to provide benefits to employees upon their retirement. No significant cash contributions are required under ERISA regulations during 2011.
The following details pension and postretirement benefit costs included in operating expenses (in cost of sales and selling, general and administrative expenses) in the accompanying consolidated statements of income. In the following table, gains are denoted with parentheses. A portion of these expenses is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded.
Three months ended
Nine months ended
September 30,
September 30,
2011
2010
2011
2010
Pension cost:
Service cost – benefits earned during the period
$
297
$
269
$
890
$
807
Interest cost on projected benefit obligation
740
787
2,219
2,362
Expected return on assets
(923
)
(943
)
(2,767
)
(2,830
)
Amortization of prior service benefit
(4
)
(4
)
(12
)
(12
)
Net pension cost
$
110
$
109
$
330
$
327
Postretirement cost:
Service cost – benefits earned during the period
$
90
$
87
$
271
$
261
Interest cost on accumulated postretirement benefit obligation
513
564
1,538
1,693
Expected return on assets
(260
)
(236
)
(780
)
(709
)
Amortization of prior service benefit
(173
)
(156
)
(520
)
(468
)
Net postretirement cost
$
170
$
259
$
509
$
777
Combined net pension and postretirement cost
$
280
$
368
$
839
$
1,104
Our combined net pension and postretirement cost decreased $88 in the third quarter and $265 for the first nine months of 2011. The decrease was primarily related to lower interest costs due to our reduction in the discount rate from 6.50% in 2010 to 5.80% in 2011.
In January 2011, we announced a change in our method of recognizing actuarial gains and losses for pension and other postretirement benefits for all benefit plans. Historically, we recognized the actuarial gains and losses as a component of “Stockholders’ Equity” on our consolidated balance sheets on an annual basis and amortized them into our operating results over the average future service period of the active employees of these plans, to the extent such gains and losses were outside of a corridor. We have elected to immediately recognize actuarial gains and losses in our operating results, noting that it is generally preferable to accelerate the recognition of deferred gains and losses into income rather than to delay such recognition. Generally, these gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter.
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was $35 in the third quarter of 2011, of which $31 was interest cost and $106 for the first nine months, of which $94 was interest cost. In 2010, net supplemental retirement pension benefits cost was $37 in the third quarter, of which $34 was interest cost and $113 for the first nine months, of which $102 was interest cost.
12
AT&T INC.
SEPTEMBER 30, 2011
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
