What is the status of the AT&T acquisition and its expected impact?

SBC agreed to acquire AT&T Corp. in January 2005. AT&T shareholders approved the transaction in June 2005, and it is subject to regulatory approvals, with an expected closing date by late 2005. The acquisition is projected to create significant cost synergies, primarily from reduced operational and IT expenses, and is expected to increase SBC's earnings per share starting in 2008. Management anticipates that the integration will slow revenue growth in the near term but provide long-term value.

How is SBC's core wireline business performing amidst competition?

SBC's wireline segment reported a 1.6% increase in total operating revenues to $9.38 billion for the quarter, driven by a 9.9% surge in data revenues and a 13.1% increase in long-distance voice revenues. However, traditional voice revenues declined by 4.4%. The company is experiencing a decrease in total access lines (down 4.8% year-over-year) due to competition from wireless, VoIP, and cable. Despite these challenges, the wireline segment's operating income margin improved to 10.9% due to the growth in data and long-distance services.

What is the financial health and liquidity position of SBC?

SBC generated $5.04 billion in cash from operating activities for the first six months of 2005. The company's cash and cash equivalents stood at $406 million as of June 30, 2005. The debt ratio increased to 38.3% from 31.0% in the prior year, largely due to debt issued for Cingular's acquisition of AT&T Wireless. SBC repaid $1.04 billion in long-term debt and continued its share repurchase program, demonstrating proactive management of its balance sheet and capital resources.

How is the Cingular wireless business contributing to SBC's results?

SBC accounts for its 60% stake in Cingular Wireless using the equity method. Cingular's total operating revenues more than doubled to $8.61 billion in the quarter, significantly boosted by the acquisition of AT&T Wireless. However, Cingular's segment operating income declined by 24.9% year-over-year due to increased expenses related to integration, customer acquisition, network upgrades, and higher equipment costs. SBC's share of Cingular's results (reported as "Equity in net income of affiliates") decreased significantly, impacting SBC's overall net income.

AT&T INC. 10-Q Quarterly Report Q2 FY2005

Summary

SBC Communications Inc. (SBC) reported $10.33 billion in total operating revenues for the second quarter of 2005, a slight increase of 1.3% year-over-year, driven by robust growth in data and long-distance voice services. Despite an overall revenue increase, voice revenues saw a decline due to ongoing competition and shifts to alternative technologies. Operating income improved by 5.4% to $1.52 billion, reflecting improved operational efficiencies and strategic revenue growth areas. However, net income for the quarter decreased by 14.4% to $1 billion, or $0.30 per diluted share, impacted by lower "Equity in net income of affiliates" and other income/expense fluctuations. A significant development for investors is the pending acquisition of AT&T Corp. by SBC, which was approved by AT&T shareholders in June 2005 and is expected to close by late 2005. This strategic move aims to generate substantial cost synergies and enhance EPS in the long term. The company is also investing heavily in "Project Lightspeed," its next-generation integrated IP network initiative, signaling a commitment to future growth and service innovation. Financially, SBC's cash from operating activities remained strong at $5.04 billion for the first six months of 2005, though lower than the prior year due to increased tax payments. The company's debt ratio increased to 38.3% due to debt issued for Cingular's acquisition of AT&T Wireless, but the company maintained liquidity with $406 million in cash and cash equivalents and an undrawn credit facility. The company continues its share repurchase program, repurchasing 10 million shares in the quarter.

Key Highlights

1Total operating revenues increased by 1.3% to $10.33 billion for Q2 2005, primarily driven by data and long-distance voice revenue growth.
2Operating income saw a healthy increase of 5.4% to $1.52 billion, indicating effective cost management and revenue diversification.
3Net income declined by 14.4% to $1 billion ($0.30/share) due to a significant drop in "Equity in net income of affiliates" and other income/expense variations.
4The acquisition of AT&T Corp. is progressing, with AT&T shareholder approval received, and the transaction is anticipated to close by late 2005, with significant projected cost synergies.
5SBC is actively investing in "Project Lightspeed" for next-generation IP services, including fiber deployment and trials for IP video, broadband, and VoIP.
6Wireless customer base grew significantly, reaching 51.6 million customers for Cingular post-AT&T Wireless acquisition, though Cingular's segment operating income declined due to integration costs and increased expenses.
7The company repaid $1.04 billion in long-term debt and repurchased 10 million shares of common stock during the first six months of 2005, demonstrating a focus on capital management.

AT&T INC. Quarterly Report for Q2 Ended Jun 30, 2005

Summary

Key Highlights

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