10-QPeriod: Q3 FY2012

AT&T INC. Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 2, 2012For Securities:TT-PCTBBT-PA

Summary

AT&T Inc.'s Q3 2012 10-Q filing shows a company navigating a dynamic market. Total operating revenues remained relatively flat year-over-year for the quarter but saw a slight increase over the first nine months, primarily driven by robust growth in wireless data services and increasing U-verse subscriptions. Despite overall revenue stability, the company experienced a slight decline in operating income for the quarter, influenced by increased wireless equipment costs and administrative expenses. However, for the nine-month period, operating income saw a healthy increase, reflecting cost management and revenue diversification. A significant strategic move during the period was the sale of the Advertising Solutions segment, which impacted reported revenues and expenses but allowed AT&T to focus on its core communications businesses and its stake in the new entity, YP Holdings. The company also continued its aggressive share repurchase program, demonstrating a commitment to returning value to shareholders.

Financial Highlights

49 data points
Beta

Revenue

$31.46B

59.9% Gross Margin

Net Income

$3.63B

11.6% Net Margin

EPS (Diluted)

$0.63

Total Assets

$266.85B

Cash & Equivalents

$1.79B

Free Cash Flow

$11.33B

Financial Statements
Beta
Revenue$31.46B
Cost of Revenue$12.60B
Gross Profit$18.86B
SG&A Expenses$8.31B
Operating Expenses$25.42B
Operating Income$6.04B
Interest Expense$824.00M
Net Income$3.63B
EPS (Basic)$0.63
EPS (Diluted)$0.63
Shares Outstanding (Basic)5.77B
Shares Outstanding (Diluted)5.79B

Key Highlights

  • 1Wireless segment operating revenues grew by 6.6% year-over-year for the quarter, driven by strong performance in both service (4.5%) and equipment (28.3%) revenues, with data service revenues up 18.3%.
  • 2Wireline segment data revenues increased by 6.9% year-over-year for the quarter, largely offsetting a 10.8% decline in voice revenues, indicating a strategic shift towards data-centric services.
  • 3Net income attributable to AT&T increased by 0.3% for the quarter to $3,635 million and by 4.7% for the first nine months to $11,121 million, showing earnings growth over the longer term.
  • 4AT&T repurchased approximately 101 million shares of common stock in the third quarter of 2012 for $3.75 billion as part of its ongoing share repurchase program.
  • 5The company maintained a stable debt ratio of approximately 38.6%, indicating a consistent leverage profile.
  • 6The sale of the Advertising Solutions segment was completed on May 8, 2012, impacting revenues and expenses for the period and resulting in a 47% equity interest in the new entity, YP Holdings.

Frequently Asked Questions

The sale of the Advertising Solutions segment on May 8, 2012, reduced AT&T's reported operating revenues and expenses. For the third quarter, it decreased revenues by $803 million and expenses by $277 million. For the nine-month period, it reduced revenues by $1,463 million and expenses by $499 million. The company now holds a 47% equity interest in the new entity, YP Holdings, which is reported within the 'Other' segment.

Wireless revenues are showing strong growth, particularly from data services, which accounted for 43.4% of wireless service revenues in the first nine months of 2012, up from 38.0% in the prior year. Wireline revenues are experiencing a decline in voice services (down 10.3% year-to-date) but are being bolstered by growth in data services (up 7.8% year-to-date), including U-verse TV and broadband. This indicates a strategic shift from traditional voice to data-intensive services across both segments.

AT&T maintained a consistent debt ratio of approximately 38.6% as of September 30, 2012. The company actively managed its debt by issuing new debt, such as global notes totaling $6.9 billion in the first nine months of 2012, and by repaying $8.0 billion in debt during the same period. AT&T also continued its share repurchase program, demonstrating a commitment to returning capital to shareholders while managing its leverage.

AT&T is actively working to address spectrum and capacity constraints. They are redeploying spectrum from 2G to 3G and 4G networks, with plans to discontinue 2G service by January 1, 2017. The company also announced an agreement to acquire NextWave Wireless Inc. to gain additional spectrum licenses and received FCC approval for a joint proposal with Sirius XM to use WCS spectrum for mobile Internet services, expected to begin deployment within three years.