10-QPeriod: Q1 FY2013

AT&T INC. Quarterly Report for Q1 Ended Mar 31, 2013

Filed May 3, 2013For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported first-quarter 2013 financial results with a slight year-over-year increase in net income attributable to AT&T, reaching $3.7 billion, or $0.67 per diluted share, up from $3.58 billion, or $0.60 per diluted share, in the prior year. Total operating revenues saw a modest decrease of 1.5% to $31.36 billion, primarily due to the sale of the Advertising Solutions segment, offset by growth in wireless data and equipment revenues, and wireline data revenues. The company continues its strategic shift towards data-centric services, expecting further declines in traditional voice revenues while investing heavily in network expansion, particularly LTE technology, through its Project VIP initiative. Liquidity remains solid, with $3.88 billion in cash and cash equivalents at the end of the quarter. Cash flow from operations was robust at $8.2 billion. The company significantly increased its debt ratio to 45.6% from 38.4% in the prior year, reflecting debt issuances to fund capital expenditures and share repurchases. AT&T remains committed to returning value to shareholders, evidenced by substantial share repurchases and consistent dividend payments, with plans to continue opportunistic buybacks.

Financial Highlights

49 data points
Beta

Revenue

$31.36B

60.0% Gross Margin

Net Income

$3.70B

11.8% Net Margin

EPS (Diluted)

$0.67

Total Assets

$270.99B

Cash & Equivalents

$3.88B

Free Cash Flow

$8.20B

Financial Statements
Beta
Revenue$31.36B
Cost of Revenue$12.55B
Gross Profit$18.80B
SG&A Expenses$8.33B
Operating Expenses$25.42B
Operating Income$5.94B
Interest Expense$827.00M
Net Income$3.70B
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)5.51B
Shares Outstanding (Diluted)5.53B

Key Highlights

  • 1Net income attributable to AT&T increased by 3.2% to $3.7 billion ($0.67 per diluted share) in Q1 2013 compared to Q1 2012 ($3.58 billion or $0.60 per diluted share).
  • 2Total operating revenues decreased by 1.5% to $31.36 billion, largely due to the divestiture of the Advertising Solutions segment, though offset by growth in wireless data/equipment and wireline data services.
  • 3The company is actively investing in network infrastructure through Project VIP, aiming to expand LTE coverage and wireline IP broadband, with expected capital expenditures of $21 billion in 2013.
  • 4Cash provided by operating activities was strong at $8.2 billion for the first three months of 2013.
  • 5The debt ratio increased to 45.6% at March 31, 2013, from 38.4% at March 31, 2012, indicating increased leverage.
  • 6AT&T repurchased approximately 168 million shares for $5.91 billion during the first quarter of 2013, demonstrating a commitment to shareholder returns.
  • 7Wireless segment operating income increased by 4.1% to $4.66 billion, driven by strong growth in data service revenues (up 21.0%).

Frequently Asked Questions

The sale of the Advertising Solutions segment had a notable impact, reducing operating revenues by $744 million and operating expenses by a combined $314 million (Cost of services and sales, Selling general and administrative, and Depreciation and amortization) in the first quarter of 2013 compared to the prior year. This divestiture is a key reason for the overall decrease in reported operating revenues.

AT&T is heavily investing in its network through Project Velocity IP (VIP) to expand its wireless and wireline broadband capabilities. This includes deploying LTE technology for wider wireless coverage and enhancing its IP-based wireline network. The strategy focuses on shifting towards data-centric services and expects significant capital expenditures for these upgrades over the next few years to support future IP data growth and new services.

AT&T's debt ratio increased to 45.6% as of March 31, 2013, up from 38.4% in the prior year, reflecting significant debt issuances. These issuances are primarily to fund capital expenditures for network expansion and acquisitions, as well as to support share repurchases and dividend payments. While the increased leverage raises financial risk, the company's solid operating cash flow and strong liquidity provide some cushion.

The Wireless segment is experiencing revenue growth, primarily driven by a 21.0% increase in data service revenues, fueled by the increasing adoption of smartphones and data-centric devices. Conversely, voice and text revenues are declining. The Wireline segment's data revenues are growing, particularly from U-verse and strategic business services, but this is offset by significant declines in traditional voice revenues and legacy data services as customers migrate to IP-based alternatives.