01—Abstract
Summary
Summary of the 10-K filed February 24, 2012. Cited figures are marked; the original filing is the authoritative source.
AT&T's 2011 10-K shows a year of sharp reported earnings decline driven largely by non-cash and one-time items rather than core operating deterioration.
Revenue rose 2.0% to $126.7 billiona, led by Wireless service growth (+6.0%) and wireline data (+7.4%), while wireline voice fell 11.3%. However, operating income dropped 52.9% to $9.2 billion, and net income attributable to AT&T fell 80.1% to $3.9 billion ($0.66 per diluted share, versus $3.35 in 2010). The decline reflects a $6.3 billion non-cash pension/OPEB actuarial loss, $4.2 billion of charges tied to the terminated T-Mobile acquisition (including a $3.0 billion breakup fee), and $2.9 billion of impairments in the Advertising Solutions directory business.
The 2010 comparison was also inflated by an $8.3 billionb one-time IRS tax settlement, which is why effective tax rates swung from (6.4)% to 37.7%. Underlying trends remain mixed. Wireless is the growth engine, with 103.2 million subscribers, data service revenue up 21%, and a segment margin of 24.2%, though margins compressed from higher smartphone subsidies and handset costs.
Wireline is in structural decline, with switched access lines down 12.3% and segment operating income down 7.2%, partly offset by U-verse growth (3.8 million subscribers). Cash generation remained solid, with operating cash flow of $34.6 billionc covering $20.1 billion of capex and $10.2 billion of dividends.
Management expects 2012 revenue growth and an improving operating margin, with capex of roughly $20 billiond, and it is authorizing up to 300 million share buybacks. Investors should weigh the spectrum constraints, rising competition, and the labor contract renewals covering about 120,000 employees in 2012.
02—Key points
Key Highlights
- Revenue grew 2.0% to $126.7 billion, driven by Wireless service (+6.0%) and wireline data (+7.4%), offset by a 11.3% decline in wireline voice revenue.
- Operating income fell 52.9% to $9.2 billion; the operating margin dropped to 7.3% from 15.7%, largely due to non-cash and one-time charges rather than core operating weakness.
- Non-recurring charges totaled roughly $13.4 billion: a $6.3B pension/OPEB actuarial loss, $4.2B tied to the terminated T-Mobile deal (including a $3.0B breakup fee), and $2.9B in directory-related impairments.
- Diluted EPS fell to $0.66 from $3.35, and the 2010 base included an $8.3 billion one-time IRS tax benefit that inflated prior-year earnings.
- Wireless remained the growth engine with 103.2 million subscribers, data service revenue up 21%, and a 24.2% segment margin, though down from 26.1% on handset subsidies.
- Operating cash flow was $34.6 billion, funding $20.1 billion in capex and $10.2 billion in dividends; the quarterly dividend was raised 2.3% to $0.44 per share.
- Management guides to 2012 revenue growth, a improving operating margin, roughly $20 billion in capex, and buybacks under a 300 million share authorization; 2012 labor contracts covering about 120,000 employees pose a risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, AT&T Inc. kept $0.03.
- Revenue$126.72B100.0%
- Cost of revenue−$54.90B43.3%
- Gross profit$71.82B56.7%
- Operating costs−$62.60B49.4%
- Operating income$9.22B7.3%
- Interest, other & tax−$5.27B4.2%
- Net income$3.94B3.1%
Where FY2011 revenue went
$126.72B- Cost of revenue: $54.90B, 43% of revenue
- SG&A: $41.31B, 33% of revenue
- Other operating costs: $21.29B, 17% of revenue
- Net income: $3.94B, 3.1% of revenue
- Interest, other & tax: $5.27B, 4.2% of revenue
Kept 3.1% as net incomeNet income $3.94B · 3.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $126.72B$124.28B | +2.0% |
| Cost of Revenue | $54.90B$50.26B | +9.2% |
| Gross Profit | $71.82B$74.02B | −3.0% |
| SG&A Expenses | $41.31B$34.99B | +18.1% |
| Operating Expenses | $117.50B$104.71B | +12.2% |
| Operating Income | $9.22B$19.57B | −52.9% |
| Interest Expense | $3.54B$2.99B | +18.1% |
| Net Income | $3.94B$19.86B | −80.1% |
| EPS (Basic) | $0.66$3.36 | −80.4% |
| EPS (Diluted) | $0.66$3.35 | −80.3% |
| Shares Outstanding (Basic) | 5.93B5.91B | +0.3% |
| Shares Outstanding (Diluted) | 5.95B5.94B | +0.2% |
05—Questions
Frequently Asked Questions
Why did AT&T's net income fall so sharply in 2011?
Most of the decline came from non-cash and one-time items. A $6.3 billion actuarial loss on pension and retiree healthcare plans, $4.2 billion of T-Mobile termination-related charges (including a $3.0 billion breakup fee), and $2.9 billion of directory impairments reduced operating income. The 2010 results had also benefited from an $8.3 billion IRS settlement that lowered tax expense, making the year-over-year comparison unusually unfavorable.
Is AT&T's core business still growing?
Partly. Total revenue grew 2.0%, and Wireless service revenue rose 6.0%, with data services up 21%. Wireline, however, is shrinking: switched access lines fell 12.3% and wireline segment operating income declined 7.2%. U-verse (3.8 million subscribers) and business data are offsetting some of the losses from voice declines.
How is AT&T's balance sheet and cash flow position?
Operating cash flow of $34.6 billion comfortably covered $20.1 billion in capital expenditures and $10.2 billion in dividends. Total debt was $64.8 billion with a debt ratio of 38.0%, and cash rose to $3.2 billion. Management plans to fund 2012 through operating cash flow and debt issuance, with the emphasis on dividends, share repurchases, and debt repayment.
What are the main risks investors should watch in 2012?
Key risks include spectrum scarcity and network capacity constraints in Wireless, continued access line losses to wireless, cable, and VoIP competitors, and rising wireless subsidy and handset costs that pressure margins. Regulatory uncertainty around U-verse video, federal broadband and intercarrier compensation reform, and labor negotiations covering about 120,000 employees, with a possible work stoppage for roughly 80,000 wireline workers, also present risk.
What is AT&T's capital return and buyback outlook?
AT&T raised its quarterly dividend 2.3% to $0.44 per share, totaling $1.73 declared for 2011. The board authorized a repurchase of up to 300 million shares (about 5% of shares outstanding), and buybacks began in January 2012. Dividend payments remain subject to board approval.
06—Continue