10-QPeriod: Q2 FY2009

AT&T INC. Quarterly Report for Q2 Ended May 6, 2009

Filed May 7, 2009For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported first quarter 2009 results showing a slight decrease in overall operating revenues, down 0.6% to $30.57 billion, driven by a significant decline in voice revenues offset by growth in wireless service and data revenues. While total operating expenses remained relatively flat, a rise in cost of sales, particularly due to higher wireless equipment costs associated with iPhone sales, and increased pension and postemployment benefits expense, led to a 4.1% decrease in operating income to $5.74 billion. Net income attributable to AT&T fell 9.7% to $3.13 billion, or $0.53 per diluted share, compared to $3.46 billion or $0.57 per diluted share in the prior year's first quarter. The company's balance sheet shows a slight increase in cash and cash equivalents to $3.81 billion, while total assets slightly decreased. Debt levels increased, with the debt ratio rising to 43.2%.

Financial Highlights

47 data points
Beta

Revenue

$30.61B

59.0% Gross Margin

Net Income

$3.16B

10.3% Net Margin

EPS (Diluted)

$0.53

Total Assets

$267.92B

Cash & Equivalents

$7.28B

Free Cash Flow

$7.86B

Financial Statements
Beta
Revenue$30.61B
Cost of Revenue$12.56B
Gross Profit$18.06B
SG&A Expenses$7.68B
Operating Expenses$25.11B
Operating Income$5.44B
Interest Expense$876.00M
Net Income$3.16B
EPS (Basic)$0.54
EPS (Diluted)$0.53
Shares Outstanding (Diluted)6K

Key Highlights

  • 1Total operating revenues decreased slightly by 0.6% to $30.57 billion, primarily due to a 12.2% drop in wireline voice revenues, which was partially offset by a 9.6% increase in wireless service revenue.
  • 2Wireless segment operating income grew by 13.0% to $3.34 billion, driven by an 8.8% increase in total segment operating revenues, reflecting subscriber growth and higher data ARPU, even as equipment costs increased.
  • 3Wireline segment operating income experienced a significant decline of 27.4% to $2.14 billion, as voice revenue continued to fall and was not fully offset by data revenue growth.
  • 4Net income attributable to AT&T decreased by 9.7% to $3.13 billion, leading to a drop in diluted earnings per share from $0.57 in Q1 2008 to $0.53 in Q1 2009.
  • 5Cash provided by operating activities increased substantially to $7.92 billion in Q1 2009, up from $4.96 billion in Q1 2008, largely due to decreased tax payments.
  • 6Capital expenditures for Q1 2009 were $3.17 billion, a decrease from $4.18 billion in the prior year, with a significant portion allocated to the wireline segment.
  • 7The company's debt ratio increased to 43.2% as of March 31, 2009, up from 39.5% in the prior year, reflecting an increase in debt and a decrease in stockholders' equity.

Frequently Asked Questions

The wireless segment saw robust growth, with total segment operating revenues increasing by 8.8% to $12.86 billion, driven by a 9.6% rise in service revenues due to subscriber growth and increasing data usage. Conversely, the wireline segment experienced a decline of 5.4% in total segment operating revenues to $16.68 billion, primarily due to a sharp 12.2% decrease in voice revenues, which was only partially offset by a 5.3% increase in data revenues.

Net income attributable to AT&T decreased by 9.7% to $3.13 billion. This was primarily driven by a decline in operating income resulting from lower overall revenues, higher cost of sales (especially wireless equipment costs), and increased pension and postemployment benefits expense. These factors more than offset the positive impact of increased cash from operations and lower income tax payments.

AT&T expects 2009 capital expenditures to be in the range of $17 billion to $18 billion, primarily for wireless network expansion and U-verse services. The company anticipates funding these expenditures using cash from operations and potentially incremental borrowings, depending on market conditions. Financing activities in Q1 2009 included significant debt issuance and repayment, with a focus on managing the mix of short- and long-term debt. The company also noted a focus on reducing debt levels for the remainder of 2009.

The company's debt ratio increased to 43.2% as of March 31, 2009. While cash and cash equivalents increased to $3.81 billion, driven by strong operating cash flow and debt issuance, the company is balancing investments with debt repayment. AT&T has a substantial credit agreement in place but had no borrowings outstanding under it at the end of the quarter. The company's stated intention for the remainder of 2009 is to focus on debt reduction rather than share repurchases.