Record Wireless Sales, Strong Revenue and Earnings Growth Highlight AT&T’s Third-Quarter Results

  • $2.08 diluted EPS compared to $0.54 diluted EPS in the third quarter of 2009; EPS of $0.55, excluding $1.53 in one-time gains from a previously disclosed tax settlement and the sale of Sterling Commerce
  • Consolidated revenues from continuing operations of $31.6 billion in the third quarter, up $847 million, or 2.8 percent, versus the year-earlier period
  • 11.4 percent growth in wireless revenues, with a 10.5 percent increase in wireless service revenues
  • Record wireless volumes, with more than 8 million postpaid integrated device sales
  • 2.6 million increase in total wireless subscribers — the highest third-quarter net gain in the company's history — to reach 92.8 million subscribers in service
  • Postpaid subscriber ARPU (average monthly revenues per subscriber) up 2.0 percent to $62.84, the seventh consecutive quarter with a year-over-year increase
  • 1.32 percent total wireless churn, best-ever third-quarter
  • 30.5 percent growth in wireless data revenues, up $1.1 billion versus the year-earlier quarter
  • First year-over-year growth in wireline consumer revenues in more than two years
  • 30.0 percent growth in consumer IP data revenues, driven by AT&T U-verse® expansion
  • 236,000 net gain in AT&T U-verse TV subscribers to reach 2.7 million in service, with continued high broadband and voice attach rates
  • 148,000 net gain in wireline broadband connections
  • 15.4 percent growth in revenues from strategic business services such as Ethernet, Virtual Private Networks (VPNs), hosting and application services

Note: AT&T's third-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Thursday, Oct. 21, 2010, at www.att.com/investor.relations.

DALLAS--()--AT&T Inc. (NYSE:T) today reported third-quarter results highlighted by growth in consolidated revenues, strong sales of integrated devices, gains in IP-based and strategic business services, and disciplined execution on cost initiatives.

“This was a terrific mobile broadband quarter,” said Randall Stephenson, AT&T chairman and chief executive officer. “A record number of customers signed new two-year contracts and integrated device sales outpaced our previous best by a wide margin. Wireless revenues continue to grow, churn is reaching record low levels, and postpaid ARPU increased for the seventh straight quarter.

“These trends add to our momentum and confidence,” Stephenson said. “Mobile broadband is the industry’s most powerful growth driver, and demand is in its early stages in both the consumer and business segments. AT&T is well positioned for the opportunities ahead.”

Third-Quarter Financial Results

(On August 27, 2010, AT&T completed its sale of Sterling Commerce to IBM for approximately $1.4 billion in cash. Third-quarter comparisons are based on results from continuing operations, which exclude results from Sterling Commerce in all periods.)

For the quarter ended September 30, 2010, AT&T's consolidated revenues totaled $31.6 billion, up $847 million, or 2.8 percent, versus the year-earlier quarter, marking the company's third consecutive quarter with a year-over-year revenue increase. Versus the second quarter of this year, consolidated revenues were up $773 million, or 2.5 percent.

Compared with results for the third quarter of 2009, operating expenses were $26.1 billion versus $25.4 billion; operating income was $5.5 billion, up from $5.4 billion; and AT&T's operating income margin was stable at 17.3 percent, compared to 17.5 percent.

Third-quarter 2010 net income attributable to AT&T totaled $12.3 billion, or $2.08 per diluted share, including $1.53 in one-time gains from a previously disclosed tax settlement and the sale of Sterling Commerce. These results compare with reported net income attributable to AT&T of $3.2 billion, or $0.54 per diluted share, in the third quarter of 2009. Excluding one-time gains, earnings grew 3.8 percent to $0.55 per diluted share, compared to $0.53 per diluted share in the year-earlier quarter.

Third-quarter 2010 cash from operating activities totaled $9.5 billion; capital expenditures totaled $5.5 billion, including a nearly 64 percent increase in wireless-related capital investment versus the year-earlier quarter, as AT&T aggressively deploys next-generation wireless broadband networks. Free cash flow — cash from operating activities minus capital expenditures — totaled $4.0 billion.

Compared with results for the first three quarters of 2009, year to date through the third quarter, cash from operating activities totaled $25.4 billion versus $25.4 billion; capital expenditures totaled $13.7 billion versus $11.6 billion; and free cash flow totaled $11.6 billion versus $13.9 billion.

Wireless Operational Highlights

Led by a record quarter of integrated device sales, AT&T delivered solid third-quarter growth in its wireless business, including double-digit wireless revenue gains. Highlights included:

Best-Ever Third-Quarter Subscriber Gain. AT&T posted a net gain in total wireless subscribers of 2.6 million, to reach 92.8 million in service. Third-quarter net add growth reflects rapid adoption of smartphones, increases in prepaid subscribers and growth in a host of connected devices such as eReaders, security systems, fleet management and global positioning systems in both the business and consumer markets. Retail net adds for the quarter include postpaid net adds of 745,000 and prepaid net adds of 321,000. Connected device net adds were 1.2 million, and reseller net adds were 406,000.

Total Churn at Record Third-Quarter Level. Postpaid churn was 1.14 percent — matching the third-quarter record set in 2009 — and total churn reached a best-ever third-quarter level of 1.32 percent versus 1.42 percent in the third quarter of 2009.

Record Integrated Device Sales. More than 8 million postpaid integrated devices were activated in the third quarter, the most quarterly activations ever. More than 80 percent of postpaid sales were integrated devices. (Integrated devices are handsets with QWERTY or virtual keyboards in addition to voice functionality and are a key driver of wireless data usage.)

At the end of the quarter, 57.3 percent of AT&T's 67.7 million postpaid subscribers had integrated devices, up from 42.0 percent a year earlier. The average ARPU for integrated devices on AT&T's network is 1.7 times that of the company's non-integrated device base. More than 80 percent of integrated device subscribers are on FamilyTalk and/or business discount plans. Churn levels for these plans continue to run below the company's postpaid base.

AT&T’s third-quarter integrated device growth included 5.2 million iPhone activations, the most iPhone activations ever in a quarter. This is 62 percent more than the previous quarterly record of 3.2 million activated in the second quarter of 2010. Approximately 24 percent of those activations were for customers who were new to AT&T.

Data Revenue Growth of 30.5 Percent. Wireless data revenues — from messaging, Internet access, access to applications and related services — increased $1.1 billion, or 30.5 percent, from the year-earlier quarter to $4.8 billion. AT&T wireless subscribers on data plans increased by 21.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased about 34 percent to 161 billion and multimedia messages more than doubled to 2.8 billion.

Solid Postpaid ARPU Growth. Driven by strong data growth, postpaid subscriber ARPU increased 2.0 percent versus the year-earlier quarter to $62.84. This marked the seventh consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $22.02, up 19.5 percent versus the year-earlier quarter, and total postpaid subscriber revenues continued recent trends, with double-digit growth, reflecting increases in both voice and data.

Double-Digit Wireless Revenue Growth. Wireless service revenues increased 10.5 percent to $13.7 billion in the third quarter. Total wireless revenues, which include equipment sales, were up 11.4 percent year over year to $15.2 billion and increased 6.6 percent from the second quarter of 2010.

Wireless Margins. Wireless margins were impacted by increased operating costs associated with the company’s record quarter for integrated device activations. Absent the costs associated with these additional activations, service margins would have been similar to the prior quarter of this year. Operational execution and further growth in the company’s high-quality integrated device subscribers helped partially offset these costs. AT&T’s wireless operating income margin was 23.1 percent versus 25.6 percent in the year-earlier quarter, and AT&T’s wireless OIBDA service margin was 37.6 percent, compared to 40.3 percent in the third quarter of 2009 (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues). Third-quarter wireless operating expenses totaled $11.7 billion, up 15.2 percent versus the year-earlier quarter, and wireless operating income was $3.5 billion, up 0.2 percent year over year.

Wireline Operational Highlights

AT&T's third-quarter wireline results were highlighted by improving trends in revenues including the first year-over-year growth in consumer revenues in more than two years, further expansion in AT&T U-verse services, sustained growth in revenues from strategic business services and solid cost management. Highlights included:

Growth in Wireline Consumer Revenues. Driven by strength in IP data services, in the third quarter, total revenue from residential customers totaled $5.3 billion, up 0.2 percent from the third quarter of 2009, the first year-over-year growth in more than two years.

AT&T’s Award-Winning U-verse Services Drive Consumer Growth. AT&T U-verse TV subscribers increased by 236,000 in the quarter to reach 2.7 million. In the third quarter, the AT&T U-verse High Speed Internet attach rate continued to run above 90 percent, and nearly 60 percent of subscribers took AT&T U-verse Voice. More than three-fourths of AT&T U-verse TV subscribers have a triple- or quad-play option from AT&T. ARPU for U-verse triple-play customers was about $160.

AT&T's U-verse deployment now reaches more than 26 million living units. Companywide penetration of eligible living units is 14.1 percent, and across areas marketed to for 30 months or more, overall penetration is more than 22 percent. AT&T's total video subscribers, which combine the company's U-verse and bundled satellite customers, reached 4.7 million at the end of the quarter, representing 18.8 percent of households served.

Rebound in Broadband Subscriber Growth. Driven by strength in AT&T U-verse High Speed Internet service, AT&T posted a 148,000 net gain in wireline broadband connections.

U-verse Revenues Exceed $1 Billion. Increased AT&T U-verse penetration drove 30.0 percent year-over-year growth in consumer IP revenues (broadband, U-verse TV and U-verse Voice). U-verse continues to drive a transformation in AT&T’s consumer business, reflected by the fact that consumer IP revenues now represent 42.6 percent of AT&T's wireline consumer revenues, up from 32.8 percent in the year-earlier quarter. In the third quarter, AT&T U-verse revenues were $1.1 billion, 84.5 percent higher than in the third quarter of 2009.

Consumer Connection Trends. In the third quarter, AT&T posted a decline in total consumer revenue connections due primarily to expected declines in traditional voice access lines, partially offset by increases in broadband, U-verse TV and VoIP (Voice over Internet Protocol) connections. Combined wireline consumer TV and broadband connections increased by 343,000 in the third quarter and 1.3 million over the past four quarters. AT&T U-verse Voice connections increased by 166,000 in the quarter and 759,000 over the past four quarters. Total consumer revenue connections at the end of the third quarter were 43.7 million, compared with 45.7 million at the end of the third quarter of 2009 and 44.3 million at the end of the second quarter of 2010.

Further Signs of Stabilization in Business Markets. AT&T posted its best year-over-year business revenue comparisons in six quarters — reflecting continued solid sales performance and continued improvement in key economic metrics. Total business revenues were $9.5 billion, a decline of 3.9 percent versus the year-earlier quarter. Business service revenues, which exclude CPE, declined 3.7 percent year over year and decreased slightly sequentially, down 1.3 percent.

Business IP Revenues Continue Growth. Business IP data revenues grew 8.0 percent overall, led by growth in VPN revenues. Global Enterprise Solutions IP data revenues grew 9.7 percent. Approximately 70 percent of AT&T's frame customers have made the transition to IP-based solutions, which allows them to easily add managed services such as network security, cloud services and IP conferencing on top of their infrastructures.

15.4 Percent Growth in Strategic Business Services Revenues. Revenues from new-generation capabilities that lead AT&T's most advanced business solutions — including Ethernet, VPNs, hosting, IP conferencing and application services — grew 15.4 percent versus the year-earlier quarter and were up 4.5 percent from the second quarter of 2010, continuing AT&T’s strong trends in this category.

Wireline Results. Led by improved consumer and business customer trends, total wireline revenues posted their smallest year-over-year decline in six quarters, down 3.0 percent, and down slightly sequentially. Third-quarter revenues in AT&T’s wireline segment totaled $15.3 billion versus $15.7 billion in the year-earlier quarter. Third-quarter wireline operating expenses were $13.4 billion, down 3.9 percent versus the third quarter of 2009 and down 0.6 percent sequentially. Wireline operating income totaled $1.8 billion, compared to $1.8 billion in the third quarter of 2009 and $1.9 billion in the second quarter of 2010. AT&T’s third-quarter wireline operating income margin was 12.0 percent, compared with 11.2 percent in the year-earlier quarter and 12.2 percent in the second quarter of 2010.

About AT&T

AT&T Inc. (NYSE:T) is a premier communications holding company. Its subsidiaries and affiliates – AT&T operating companies – are the providers of AT&T services in the United States and around the world. With a powerful array of network resources that includes the nation’s fastest mobile broadband network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet and voice services. A leader in mobile broadband, AT&T also offers the best wireless coverage worldwide, offering the most wireless phones that work in the most countries. It also offers advanced TV services under the AT&T U-verse® and AT&T │DIRECTVSM brands. The company’s suite of IP-based business communications services is one of the most advanced in the world. In domestic markets, AT&T Advertising Solutions and AT&T Interactive are known for their leadership in local search and advertising. In 2010, AT&T again ranked among the 50 Most Admired Companies by FORTUNE® magazine.

Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com. This AT&T news release and other announcements are available at http://www.att.com/newsroom and as part of an RSS feed at www.att.com/rss. Or follow our news on Twitter at @ATTNews. Find us on Facebook at www.Facebook.com/ATT to discover more about our consumer and wireless services or at www.Facebook.com/ATTSmallBiz to discover more about our small business services.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.

© 2010 AT&T Intellectual Property. All rights reserved. 3G service not available in all areas. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise. This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's Web site at www.att.com/investor.relations. Accompanying financial statements follow.

NOTE: OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from Segment Operating Income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

OIBDA DISCUSSION

OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA margin is calculated as OIBDA divided by service revenues. OIBDA differs from Segment Operating Income (Loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

We believe these measures are relevant and useful information to our investors as they are part of AT&T Mobility’s internal management reporting and planning processes and are important metrics that AT&T Mobility’s management uses to evaluate the operating performance of its regional operations. These measures are used by management as a gauge of AT&T Mobility’s success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T Mobility’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing AT&T Mobility’s performance with that of many of its competitors. The financial and operating metrics which affect OIBDA include the key revenue and expense drivers for which AT&T Mobility’s operating managers are responsible and upon which we evaluate their performance.

OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA excludes other, net, minority interest in earnings of consolidated entities and equity in net income (loss) of affiliates, as these do not reflect the operating results of AT&T Mobility’s subscriber base and its national footprint that AT&T Mobility utilizes to obtain and service its customers. Equity in net income (loss) of affiliates represents AT&T Mobility’s proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. OIBDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, OIBDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

We believe OIBDA as a percentage of service revenues to be a more relevant measure of AT&T Mobility’s operating margin than OIBDA as a percentage of total revenue. AT&T Mobility generally subsidizes a portion of its handset sales, all of which are recognized in the period in which AT&T Mobility sells the handset. This results in a disproportionate impact on its margin in that period. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. AT&T Mobility also uses service revenues to calculate margin to facilitate comparison, both internally and externally with its competitors, as they calculate their margins using services revenue as well.

There are material limitations to using these non-GAAP financial measures. OIBDA and OIBDA margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates, which directly affect AT&T Mobility’s net income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to OIBDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. OIBDA and OIBDA margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

FREE CASH FLOW DISCUSSION

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management monthly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

                                   
Financial Data              
 
AT&T Inc.                                  
Consolidated Statements of Income
Dollars in millions except per share amounts                              
Unaudited Three Months Ended Nine Months Ended
      9/30/2010     9/30/2009   % Chg   9/30/2010     9/30/2009   % Chg
Operating Revenues
Wireless service $ 13,675 $ 12,372 10.5 % $ 39,711 $ 35,978 10.4 %
Voice 6,973 7,943 -12.2 % 21,671 24,701 -12.3 %
Data 6,928 6,448 7.4 % 20,407 19,053 7.1 %
Directory 961 1,162 -17.3 % 3,009 3,622 -16.9 %
Other     3,044       2,809     8.4 %   8,121       8,451     -3.9 %
Total Operating Revenues     31,581       30,734     2.8 %   92,919       91,805     1.2 %
 
Operating Expenses

Cost of services and sales (exclusive of depreciation and amortization shown separately below)

13,519 12,907 4.7 % 38,235 37,665 1.5 %
Selling, general and administrative 7,707 7,574 1.8 % 22,570 22,914 -1.5 %
Depreciation and amortization     4,891       4,881     0.2 %   14,529       14,614     -0.6 %
Total Operating Expenses     26,117       25,362     3.0 %   75,334       75,193     0.2 %
Operating Income     5,464       5,372     1.7 %   17,585       16,612     5.9 %
Interest Expense 729 851 -14.3 % 2,248 2,573 -12.6 %
Equity in Net Income of Affiliates 217 181 19.9 % 629 549 14.6 %
Other Income (Expense) - Net     125       29     -     825       44     -  
Income from Continuing Operations Before Income Taxes 5,077 4,731 7.3 % 16,791 14,632 14.8 %
Income Tax (Benefit) Expense     (6,560 )     1,463     -     (1,512 )     4,886     -  
Income from Continuing Operations     11,637       3,268     -     18,303       9,746     87.8 %
Income from Discontinued Operations, net of tax     780       7     -     777       6     -  
Net Income     12,417       3,275     -     19,080       9,752     95.7 %
Less: Net Income Attributable to Noncontrolling Interest     (78 )     (83 )   6.0 %   (243 )     (236 )   -3.0 %
Net Income Attributable to AT&T   $ 12,339     $ 3,192     -   $ 18,837     $ 9,516     98.0 %
 
 

Basic Earnings Per Share from Continuing Operations Attributable to AT&T

$ 1.96 $ 0.54 - $ 3.06 $ 1.61 90.1 %

Basic Earnings Per Share from Discontinued Operations Attributable to AT&T

0.13       -   - 0.13       -   -
Basic Earnings Per Share Attributable to AT&T $ 2.09     $ 0.54   - $ 3.19     $ 1.61   98.1 %

Weighted Average Common Shares Outstanding (000,000)

5,909 5,901 0.1 % 5,908 5,899 0.2 %
 

Diluted Earnings Per Share from Continuing Operations Attributable to AT&T

$ 1.95 $ 0.54 - $ 3.04 $ 1.61 88.8 %

Diluted Earnings Per Share from Discontinued Operations Attributable to AT&T

0.13       -   - 0.13       -   -
Diluted Earnings Per Share Attributable to AT&T $ 2.08     $ 0.54   - $ 3.17     $ 1.61   96.9 %

Weighted Average Common Shares Outstanding with Dilution (000,000)

5,938 5,922 0.3 % 5,937 5,922 0.3 %
                                   
 
 
Financial Data              
 
AT&T Inc.                          
Statements of Segment Income
Dollars in millions                      
Unaudited
Three Months Ended Nine Months Ended
 
Wireless   9/30/2010   9/30/2009   % Chg 9/30/2010   9/30/2009   % Chg
Segment Operating Revenues
Service $ 13,675 $ 12,372 10.5 % $ 39,711 $ 35,978 10.4 %
Equipment   1,505     1,255     19.9 % 3,608     3,709     -2.7 %
Total Segment Operating Revenues   15,180     13,627     11.4 % 43,319     39,687     9.2 %
 
Segment Operating Expenses
Operations and support 10,040 8,645 16.1 % 26,785 24,959 7.3 %
Depreciation and amortization   1,640     1,490     10.1 % 4,776     4,493     6.3 %
Total Segment Operating Expenses   11,680     10,135     15.2 % 31,561     29,452     7.2 %
Segment Operating Income 3,500 3,492 0.2 % 11,758 10,235 14.9 %
Equity in Net Income of Affiliates   (6 )   -     -   14     -     -  
Segment Income   $ 3,494     $ 3,492     0.1 % $ 11,772     $ 10,235     15.0 %
 
 
Segment Operating Income Margin 23.1 % 25.6 % 27.1 % 25.8 %
 
 
Wireline                      
Segment Operating Revenues
Voice $ 6,973 $ 7,943 -12.2 % $ 21,671 $ 24,701 -12.3 %
Data 6,928 6,448 7.4 % 20,407 19,053 7.1 %
Other   1,374     1,358     1.2 % 4,014     4,146     -3.2 %
Total Segment Operating Revenues   15,275     15,749     -3.0 % 46,092     47,900     -3.8 %
 
Segment Operating Expenses
Operations and support 10,318 10,762 -4.1 % 31,324 32,618 -4.0 %
Depreciation and amortization   3,118     3,226     -3.3 % 9,337     9,594     -2.7 %
Total Segment Operating Expenses   13,436     13,988     -3.9 % 40,661     42,212     -3.7 %
Segment Operating Income 1,839 1,761 4.4 % 5,431 5,688 -4.5 %
Equity in Net Income of Affiliates   2     9     -77.8 % 7     16     -56.3 %
Segment Income   $ 1,841     $ 1,770     4.0 % $ 5,438     $ 5,704     -4.7 %
 
Segment Operating Income Margin 12.0 % 11.2 % 11.8 % 11.9 %
 
Advertising Solutions                      
Segment Operating Revenues   $ 961     $ 1,162     -17.3 % $ 3,009     $ 3,622     -16.9 %
 
Segment Operating Expenses
Operations and support 640 686 -6.7 % 1,988 2,113 -5.9 %
Depreciation and amortization   123     159     -22.6 % 393     501     -21.6 %
Total Segment Operating Expenses   763     845     -9.7 % 2,381     2,614     -8.9 %
Segment Income   $ 198     $ 317     -37.5 % $ 628     $ 1,008     -37.7 %
 
Segment Income Margin 20.6 % 27.3 % 20.9 % 27.8 %
 
Other                      
Segment Operating Revenues $ 165 $ 196 -15.8 % $ 499 $ 596 -16.3 %
Segment Operating Expenses   238     394     -39.6 % 731     915     -20.1 %
Segment Operating Loss (73 ) (198 ) 63.1 % (232 ) (319 ) 27.3 %
Equity in Net Income of Affiliates   221     172     28.5 % 608     532     14.3 %
Segment Income (Loss) from Continuing Operations   $ 148     $ (26 )   -   $ 376     $ 213     76.5 %
 
Segment Income Margin 89.7 % - 75.4 % 35.7 %
 
             
Financial Data        
 
AT&T Inc.            
Consolidated Balance Sheets
Dollars in millions except per share amounts            
9/30/10 12/31/09
    Unaudited        
 
Assets
Current Assets
Cash and cash equivalents $ 3,246 $ 3,741

Accounts receivable - net of allowances for doubtful accounts of $978 and $1,202

13,606 14,845
Prepaid expenses 1,686 1,562
Deferred income taxes 1,059 1,247
Other current assets     2,380           3,792  
Total current assets     21,977           25,187  
Property, plant and equipment 240,466 230,295
Less: accumulated depreciation and amortization     (138,991 )         (130,242 )
Property, Plant and Equipment - Net     101,475           100,053  
Goodwill 73,447 72,782
Licenses 50,113 48,741
Customer Lists and Relationships - Net 5,369 7,393
Other Intangible Assets - Net 5,525 5,494
Investments in Equity Affiliates 4,544 2,921
Other Assets     6,802           6,275  
Total Assets   $ 269,252         $ 268,846  
 
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 6,426 $ 7,361
Accounts payable and accrued liabilities 18,417 21,260
Advanced billing and customer deposits 3,933 4,170
Accrued taxes 1,416 1,681
Dividends payable     2,482           2,479  
Total current liabilities     32,674           36,951  
Long-Term Debt     62,540           64,720  
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 20,651 23,781
Postemployment benefit obligation 27,071 27,847
Other noncurrent liabilities     13,023           13,226  
Total deferred credits and other noncurrent liabilities     60,745           64,854  
Stockholders' Equity

Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2010 and December 31, 2009: issued 6,495,231,088 at September 30, 2010 and December 31, 2009)

6,495 6,495
Additional paid-in capital 91,748 91,707
Retained earnings 50,751 39,366

Treasury stock (585,370,749 at September 30, 2010 and 593,300,187 at December 31, 2009, at cost)

(21,112 ) (21,260 )
Accumulated other comprehensive loss (14,888 ) (14,412 )
Noncontrolling interest     299           425  
Total stockholders' equity     113,293           102,321  
Total Liabilities and Stockholders' Equity   $ 269,252         $ 268,846  
 
         
Financial Data    
 
AT&T Inc.        
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents        
Unaudited Nine months ended
September 30,
    2010   2009
Operating Activities
Net income $ 19,080 $ 9,752

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,529 14,614
Undistributed earnings from investments in equity affiliates (531 ) (430 )
Bad debt expense 973 1,383
Deferred income tax expense and noncurrent unrecognized tax benefits (4,146 ) 2,476
Net (gain) loss from impairment and sale of investments (746 ) 98
Income from discontinued operations (777 ) (6 )
Changes in operating assets and liabilities:
Accounts receivable 266 (270 )
Other current assets 495 (269 )
Accounts payable and accrued liabilities (2,861 ) (1,551 )
Net income attributable to noncontrolling interest (243 ) (236 )
Other - net     (689 )     (117 )
Total Adjustments     6,270       15,692  
Net Cash Provided by Operating Activities     25,350       25,444  
 
Investing Activities
Construction and capital expenditures
Capital expenditures (13,170 ) (11,034 )
Interest during construction (577 ) (553 )
Acquisitions, net of cash acquired (2,615 ) (184 )
Dispositions 1,821 205
(Purchases) and sales of securities, net (437 ) 11
Other     22       19  
Net Cash Used in Investing Activities     (14,956 )     (11,536 )
 
Financing Activities

Net change in short-term borrowings with original maturities of three months or less

(33 ) (3,918 )
Issuance of long-term debt 2,235 8,161
Repayment of long-term debt (5,280 ) (6,169 )
Issuance of treasury stock 24 8
Dividends paid (7,436 ) (7,252 )
Other     (399 )     (367 )
Net Cash Used in Financing Activities     (10,889 )     (9,537 )
Net increase (decrease) in cash and cash equivalents     (495 )     4,371  
Cash and cash equivalents beginning of year     3,741       1,727  
Cash and Cash Equivalents End of Period   $ 3,246     $ 6,098  
 
                           
Financial Data              
 
AT&T Inc.                          
Supplementary Operating and Financial Data
Dollars in millions except per share amounts                      
Unaudited Three Months Ended Nine Months Ended
        9/30/2010   9/30/2009   % Chg 9/30/2010   9/30/2009   % Chg
 
Wireless
Wireless Customers (000) 92,761 81,596 13.7 %
Net Customer Additions (000) 2,631 2,026 29.9 % 6,050 4,617 31.0 %
M&A Activity, Partitioned Customers and Other Adjs. (000) - (30 ) 1,591 (30 )
Total Churn7 1.32 % 1.42 % -10 BP 1.30 % 1.49 % -19 BP
Postpaid Customers (000)7 67,688 62,961 7.5 %
Net Postpaid Customer Additions (000)7 745 1,333 -44.1 % 1,753 3,358 -47.8 %
Postpaid Churn7 1.14 % 1.14 % 0 BP 1.08 % 1.12 % -4 BP
Licensed POPs (000,000) 308 306 0.7 %
Prepaid Customers (000)7 6,209 5,386 15.3 %
Net Prepaid Customer Additions (000)7 321 (176 ) 645 (743 )
Connected Devices Customers (000)7 7,843 3,315
Net Connected Devices Customer Additions (000)7 1,159 235 3,107 683
 
 
In-Region Wireline 1

Total Consumer Revenue Connections (000)

Retail Consumer Voice Connections 2 24,908 28,098 -11.4 %
Consumer Wired Broadband Connections 3 14,092 13,550 4.0 %
Video Connections: 4
Satellite Connections 1,994 2,195 -9.2 %
U-verse Video Connections   2,739       1,816   50.8 %
Total Consumer Revenue Connections (000)   43,733       45,659   -4.2 %
 
Net Consumer Revenue Connection Changes (000) (529 ) (629 ) 15.9 % (1,554 ) (1,384 ) -12.3 %
 
Broadband and Video
Total Broadband Connections (000) 5 17,562 17,083 2.8 %
Net Broadband Connection Changes (000) 5 123 138 -10.9 % 308 818 -62.3 %
Total Video Connections (000) 4 4,735 4,012 18.0 %
Net Video Connection Changes (000) 4 177 225 -21.3 % 496 777 -36.2 %
 
AT&T Inc.
Construction and capital expenditures
Capital expenditures $ 5,314 $ 4,017 32.3 % $ 13,170 $ 11,034 19.4 %
Interest during construction $ 198 $ 185 7.0 % $ 577 $ 553 4.3 %
Dividends Declared per Share $ 0.4200 $ 0.4100 2.4 % $ 1.2600 $ 1.2300 2.4 %
End of Period Common Shares Outstanding (000,000) 5,910 5,901 0.2 %
Debt Ratio 6 37.8 % 42.1 % -430 BP
Total Employees 267,720 284,970 -6.1 %
 
                               

1

In-region wireline represents access lines served by AT&T's incumbent local exchange companies.

2

Includes consumer U-verse Voice over IP connections of 1,494 as of September 30, 2010.

3

Consumer Wired Broadband Connections include DSL lines, U-verse High Speed Internet access and satellite broadband.

4

Video connections include sales under agency agreements with EchoStar and DirecTV customers and U-verse connections.

5

Total broadband connections include DSL lines, U-verse High Speed Internet access, satellite broadband and 3G LaptopConnect cards.

6

Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.

7

Prior year amounts restated to conform to current period reporting methodology.

Note: For the end of 3Q10, total switched access lines were 45,108, retail business switched access lines totaled 19,089, and wholesale and coin switched access lines totaled 2,605. These include 1,706 retail business and 98 wholesale lines that are used solely by AT&T or our subsidiaries.

 
                     
Financial Data          
 
AT&T Inc.
Non-GAAP Wireless Reconciliation                    
Wireless Segment OIBDA
AT&T Inc.
Dollars in millions
Unaudited
Three Months Ended
9/30/2009   12/31/2009   3/31/2010   6/30/2010   9/30/2010
 
Service Revenues $ 12,372 $ 12,585 $ 12,850 $ 13,186 $ 13,675
Equipment Revenues     1,255       1,232       1,047       1,056       1,505  
Total Operating Revenues     13,627       13,817       13,897       14,242       15,180  
 
Operating Expenses
Operations and support 8,645 8,701 8,183 8,562 10,040
Depreciation and amortization     1,490       1,550       1,558       1,578       1,640  
Total Operating Expenses     10,135       10,251       9,741       10,140       11,680  
 
Operating Income 3,492 3,566 4,156 4,102 3,500
 
Plus: Depreciation and amortization     1,490       1,550       1,558       1,578       1,640  
OIBDA     4,982       5,116       5,714       5,680       5,140  
OIBDA as a % of Service Revenue 40.3 % 40.7 % 44.5 % 43.1 % 37.6 %
 

OIBDA is defined as operating income (loss) before depreciation and amortization. EBITDA is defined as Earnings Before Interest, Taxes, Depreciation and Amortization. This term is often used as a substitute for OIBDA. OIBDA differs from segment operating income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

 
                         
Financial Data          
 
AT&T Inc.
Non-GAAP Financial Reconciliation                        
Free Cash Flow
AT&T Inc.
Dollars in Millions
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
    2009   2010   2009   2010  
 
Net cash provided by operating activities $ 9,672 $ 9,540 $ 25,444 $ 25,350
 
Less: Construction and capital expenditures (4,202 ) (5,512 ) (11,587 ) (13,747 )
                   
Free Cash Flow   $ 5,470     $ 4,028     $ 13,857     $ 11,603    
 

Free cash flow is defined as cash from operations minus capital expenditures. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

 
                         
Free Cash Flow After Dividends
AT&T Inc.
Dollars in Millions
Unaudited
Three Months Ended
    6/30/2009  

9/30/2009

  12/31/2009   3/31/2010   6/30/2010   9/30/2010
 
Net cash provided by operating activities $ 7,862 $ 9,672 $ 8,964

 

$ 7,237

 

$ 8,573

 

$ 9,540
 
Less: Construction and capital expenditures (4,037 ) (4,202 ) (5,707 )

 

(3,331 )

 

(4,904 )

 

(5,512 )
                         
Free Cash Flow     3,825       5,470       3,257  

 

  3,906  

 

  3,669  

 

  4,028  
 
Less: Dividends paid (2,418 ) (2,418 ) (2,418 )

 

(2,479 )

 

(2,481 )

 

(2,476 )
                         
Free Cash Flow After Dividends   $ 1,407     $ 3,052     $ 839  

 

$ 1,427  

 

$ 1,188  

 

$ 1,552  
 
                 
Financial Data        
 
AT&T Inc.
Non-GAAP Financial Reconciliation                
Annualized Net Debt-to-EBITDA Ratio
AT&T Inc.
Dollars in millions
Unaudited
Three Months Ended
    3/31/2010   6/30/2010   9/30/2010   2010 YTD
 
Reported Consolidated Revenues $ 30,530 $ 30,808 $ 31,581 $ 92,919
Total Operating Expenses 24,523 24,694 26,117 75,334
Total Operating Income 6,007 6,114 5,464 17,585
Add Back Depreciation and Amortization 4,800 4,838 4,891 14,529
Total Consolidated EBITDA 10,807 10,952 10,355 32,114
Annualized Consolidated EBITDA * 42,819
End-of-period current debt 6,426
End-of-period long-term debt 62,540
Total End-of-Period Debt 68,966
(Premiums) Discounts on long-term debt (248 )
Normalized Debt Balance 68,718
Less Cash and Cash Equivalents 3,246
Normalized Net Debt Balance 65,472
                 
Annualized Net Debt-to-EBITDA Ratio 1.5
                 

*EBITDA is annualized by dividing YTD EBITDA by YTD number of quarters and multiplying by 4.

Contacts

AT&T Inc.
McCall Butler, 917-209-5792
mbutler@attnews.us

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Contacts

AT&T Inc.
McCall Butler, 917-209-5792
mbutler@attnews.us