10-QPeriod: Q2 FY2014

AT&T INC. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 1, 2014For Securities:TT-PCTBBT-PA

Summary

AT&T Inc.'s (T) Q2 2014 filing shows a mixed financial performance. While operating revenues saw a modest increase, driven by equipment sales under the AT&T Next program and growth in U-verse and strategic business services, operating income declined. This decline was primarily attributed to lower wireless service revenues due to the popularity of Mobile Share plans, increased AT&T U-verse content costs, and a decrease in legacy voice and data product revenues. The company completed the acquisition of Leap Wireless International, Inc. during the quarter, integrating it into their wireless operations. A significant development is the announced agreement to acquire DIRECTV, a move that signifies AT&T's strategic push into content and video services to enhance its competitive position against cable operators and other media companies. This pending acquisition, along with the sale of their stake in Am rica M vil, are key strategic shifts impacting the company's financial and operational outlook.

Financial Highlights

49 data points
Beta

Revenue

$32.58B

56.4% Gross Margin

Net Income

$3.62B

11.1% Net Margin

EPS (Diluted)

$0.69

Total Assets

$293.47B

Cash & Equivalents

$11.30B

Free Cash Flow

$8.07B

Financial Statements
Beta
Revenue$32.58B
Cost of Revenue$14.21B
Gross Profit$18.36B
SG&A Expenses$8.20B
Operating Expenses$26.96B
Operating Income$5.74B
Interest Expense$881.00M
Net Income$3.62B
EPS (Basic)$0.70
EPS (Diluted)$0.69
Shares Outstanding (Basic)5.20B
Shares Outstanding (Diluted)5.22B

Key Highlights

  • 1Operating revenues increased 1.6% year-over-year to $32.575 billion for the quarter, driven by wireless equipment sales and growth in U-verse and business services.
  • 2Operating income decreased by 8.1% to $5.616 billion, impacted by lower wireless service revenues and higher U-verse content costs.
  • 3Net income attributable to AT&T decreased by 7.2% to $3.547 billion for the quarter.
  • 4The company acquired Leap Wireless International, Inc. in March 2014, which is now included in its wireless operations.
  • 5AT&T announced a definitive agreement to acquire DIRECTV for approximately $48.5 billion, a significant strategic move into the video and content space.
  • 6The company divested its remaining stake in Am rica M vil, recording a pre-tax gain of $1.243 billion.
  • 7Total wireless subscribers grew 8.1% year-over-year to 116.6 million, boosted by the Leap acquisition.

Frequently Asked Questions

The AT&T Next program, which allows customers to purchase devices in installments, shifts revenue recognition. Instead of recognizing full equipment revenue at the point of sale, AT&T recognizes equipment revenue over the installment period. This has led to increased wireless equipment revenue but also lower wireless service revenue as monthly service charges are reduced for these plans.

The acquisition of DIRECTV is a major strategic move by AT&T to enhance its competitive position in the telecommunications and entertainment industries. By combining DIRECTV's premier pay TV services with AT&T's broadband and wireless offerings, the company aims to provide integrated bundles, achieve significant cost savings (particularly in content costs), and expand its reach in video services, allowing it to better compete against cable operators and other technology companies.

The sale of AT&T's remaining stake in Am rica M vil on June 30, 2014, resulted in a pre-tax gain of $1.243 billion. This gain contributed to higher 'Other income (expense) - net' and impacted the effective tax rate, as previously anticipated foreign tax credits related to undistributed earnings were no longer applicable due to the sale.

The Wireline segment continues to experience a decline in legacy voice and data product revenues. While growth in U-verse services (high-speed Internet, video, and VoIP) and strategic business services helps offset these declines, increased U-verse content costs and the overall transition away from traditional wireline services present ongoing challenges.