10-QPeriod: Q3 FY2011

AT&T INC. Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 3, 2011For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its financial results for the third quarter and the first nine months of 2011. For the three months ending September 30, 2011, total operating revenues were largely flat year-over-year, while operating income saw a significant increase of 14.8%. This improvement was driven by strong growth in wireless service revenue, particularly from data services, and increased revenues from U-verse services. Declining voice and directory revenues continued to be a drag on overall revenue. For the nine-month period, operating revenues increased by 1.4%, with wireless service revenue growth and IP-based wireline services being key drivers. Operating income also grew by 4.1% for the period. However, net income attributable to AT&T saw a substantial decrease of 43.4% for the nine months compared to the prior year, largely due to a significant tax benefit recognized in the third quarter of 2010 from an IRS settlement. The company is actively pursuing a significant strategic acquisition of T-Mobile USA, which is subject to regulatory review and potential legal challenges, and also completed the acquisition of minority interests in a wireless partnership. Significant capital expenditures were made, primarily in network upgrades and expansion.

Financial Highlights

49 data points
Beta

Revenue

$31.48B

59.8% Gross Margin

Net Income

$3.62B

11.5% Net Margin

EPS (Diluted)

$0.61

Total Assets

$277.65B

Cash & Equivalents

$10.76B

Free Cash Flow

$10.39B

Financial Statements
Beta
Revenue$31.48B
Cost of Revenue$12.66B
Gross Profit$18.82B
SG&A Expenses$7.97B
Operating Expenses$25.24B
Operating Income$6.24B
Interest Expense$889.00M
Net Income$3.62B
EPS (Basic)$0.61
EPS (Diluted)$0.61
Shares Outstanding (Basic)5.94B
Shares Outstanding (Diluted)5.95B

Key Highlights

  • 1Wireless service revenue increased by 4.3% in Q3 2011 and 6.7% for the nine months ended September 30, 2011, driven by subscriber and data revenue growth.
  • 2Operating income increased by 14.8% in Q3 2011 and 4.1% for the nine-month period, reflecting revenue growth and cost management initiatives.
  • 3Net income attributable to AT&T decreased significantly by 43.4% for the nine months of 2011 compared to 2010, largely due to a large tax benefit recognized in the prior year.
  • 4The company is in the process of acquiring T-Mobile USA, a transaction facing significant regulatory scrutiny and legal challenges from the DOJ and other parties.
  • 5Capital expenditures remain substantial, with a focus on wireless network capacity expansion (including LTE) and wireline network upgrades (including U-verse).
  • 6Wireline voice revenues continued to decline, down 10.5% in Q3 and 11.8% for the nine months, as customers migrate to wireless and IP-based services.
  • 7Cash provided by operating activities increased to $27.15 billion for the first nine months of 2011, up from $25.35 billion in the prior year.

Frequently Asked Questions

The primary driver of AT&T's revenue growth was the continued expansion of its wireless services, particularly data revenues. Growth in IP-based wireline services, such as U-verse, also contributed positively.

The substantial decrease in net income for the nine months of 2011 compared to 2010 was primarily due to a one-time tax benefit of $8.3 billion recognized in the third quarter of 2010 resulting from a settlement with the IRS. Without this prior-year benefit, the net income performance would appear more favorable.

AT&T announced an agreement to acquire T-Mobile USA in March 2011. However, the transaction is facing significant regulatory hurdles, including a lawsuit filed by the U.S. Department of Justice in August 2011, and other challenges from competitors. A trial date for the DOJ lawsuit is set for February 2012. AT&T intends to contest the allegations vigorously and anticipates closing the transaction in the first half of 2012, though uncertainty remains.

AT&T is actively managing the decline in its wireline voice business by focusing on increasing revenues from non-access-line-related services such as data, U-verse services (broadband and TV), and IP-based business services. The company also aims to capture these customers for its wireless services, offsetting wireline losses with wireless gains.