10-QPeriod: Q1 FY2018

AT&T INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 3, 2018For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. reported its first quarter 2018 results, showing a slight decrease in total operating revenues to $38.04 billion from $39.37 billion in the prior year, primarily due to a significant drop in service revenues. This decline in service revenue was largely attributed to the adoption of new revenue recognition accounting standards (ASC 606) and a shift by customers towards unlimited wireless plans. However, equipment revenues saw a substantial increase of 51.0% to $4.39 billion, driven by higher device sales and upgrades, also influenced by the new accounting standards. Net income attributable to AT&T increased by 34.4% to $4.66 billion, resulting in diluted earnings per share of $0.75, up from $0.56 in the first quarter of 2017. This improvement in profitability was significantly aided by a lower effective tax rate following the Tax Cuts and Jobs Act of 2017. The company's strategic initiatives, including segment realignments and the ongoing pursuit of the Time Warner acquisition, remain key focus areas. The company ended the quarter with a solid cash position of $48.87 billion.

Financial Highlights

48 data points
Beta

Revenue

$38.04B

Net Income

$4.66B

12.3% Net Margin

EPS (Diluted)

$0.75

Total Assets

$446.34B

Cash & Equivalents

$48.87B

Free Cash Flow

$8.95B

Financial Statements
Beta
Revenue$38.04B
SG&A Expenses$7.90B
Operating Expenses$31.84B
Operating Income$6.20B
Interest Expense$1.77B
Net Income$4.66B
EPS (Basic)$0.75
EPS (Diluted)$0.75
Shares Outstanding (Basic)6.16B
Shares Outstanding (Diluted)6.18B

Key Highlights

  • 1Total operating revenues decreased by 3.4% to $38.04 billion, primarily driven by a 7.7% decline in service revenues, influenced by new accounting standards and unlimited plan adoption.
  • 2Equipment revenues surged by 51.0% to $4.39 billion, boosted by increased device sales and upgrades, also benefiting from new accounting interpretations.
  • 3Net income attributable to AT&T grew by 34.4% to $4.66 billion, with diluted EPS rising to $0.75 from $0.56 year-over-year.
  • 4The effective tax rate decreased significantly to 22.5% from 33.5% due to the Tax Cuts and Jobs Act of 2017.
  • 5Total debt increased to $163.05 billion ($29.32 billion current portion), with the debt ratio at 52.6%.
  • 6The company continued to invest in capital expenditures, totaling $5.96 billion for property and equipment purchases, supporting network upgrades.
  • 7The pending acquisition of Time Warner Inc. remains a significant strategic focus, with ongoing litigation and an extended termination date of June 21, 2018.

Frequently Asked Questions

The decrease in service revenues was primarily driven by the adoption of new revenue recognition accounting standards (ASC 606), which reallocated revenue from service to equipment in bundled contracts and led to recording Universal Service Fund (USF) fees on a net basis. Additionally, customer migration to unlimited wireless plans, which often have lower service charges and reduced overage potential, also contributed to the decline.

The Tax Cuts and Jobs Act of 2017 significantly reduced the U.S. federal corporate income tax rate from 35% to 21%. This resulted in a substantial decrease in AT&T's income tax expense and its effective tax rate for the first quarter of 2018, which fell to 22.5% from 33.5% in the prior year, contributing to the reported increase in net income.

AT&T's agreement to acquire Time Warner Inc. is still pending. A lawsuit filed by the U.S. Department of Justice to block the merger is ongoing, with the trial having concluded and a decision awaited. The termination date of the merger agreement has been extended to June 21, 2018. Key risks include potential regulatory disapproval, litigation outcomes, and the potential termination fee of $500 million if the merger is not completed under certain circumstances.

Total debt increased to $163.05 billion, with $29.32 billion maturing within one year. The debt ratio rose to 52.6% from 51.6% in the prior year. This increase is partly due to debt issued in anticipation of the Time Warner acquisition and ongoing financing activities.