AT&T Reports Solid Earnings, Strong Cash Flow, Robust Mobile Broadband Sales and Improving Wireline Revenue Trends in Third-Quarter Results

  • $0.61 diluted EPS compared to $2.07 diluted EPS in the third quarter of 2010 and $0.54 when excluding one-time gains in the year-ago quarter
  • 2.1 million increase in total wireless subscribers to pass 100 million subscribers, with gains in every customer category
  • Best free cash flow in two years even with higher capital spending
  • First sequential growth in wireline business revenues in three years
  • Best wireless EBITDA service margin performance in six quarters
  • Sales of Android and other non-iPhone smartphones were almost half of 4.8 million smartphone sales in the quarter
  • Branded computing subscribers (includes tablets, aircards, MiFi devices, tethering plans and other data-only devices) up 505,000, to reach 4.5 million
  • 18.0 percent growth in wireless data revenues, up $857 million versus the year-earlier quarter
  • 11th consecutive quarter with a year-over-year increase in postpaid subscriber ARPU (average monthly revenues per subscriber), up 1.4 percent to $63.69
  • Total churn improves; postpaid churn stable
  • Continued growth in strategic business services revenues, up 19.3 percent year over year
  • Fifth consecutive quarter of year-over-year growth in wireline consumer revenues, driven by AT&T U-verse® services
  • 176,000 net gain in AT&T U-verse TV subscribers to reach 3.6 million in service, with continued high broadband and voice attach rates
  • 19.6 percent growth in wireline consumer Internet Protocol (IP) data revenues to reach half of consumer revenues, driven by continued AT&T U-verse expansion

Note: AT&T's third-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Thursday, October 20, 2011, at www.att.com/investor.relations.

DALLAS--()--AT&T Inc.* (NYSE:T) today reported third-quarter results, highlighted by solid earnings and free cash flow, continued strong mobile broadband growth and sequential growth in wireline business revenues.

“Mobile broadband growth continues to be robust, execution was strong across the business, and we delivered another solid quarter,” said Randall Stephenson, AT&T chairman and chief executive officer.

Smartphones, connected devices and tablets all posted impressive gains. Our first LTE 4G markets are up and running with terrific speeds. And we continue to work toward a successful completion of our planned T-Mobile USA merger. The next waves in the mobile Internet revolution represent tremendous growth potential, and we are laying the groundwork required for that future.”

Third-Quarter Financial Results

For the quarter ended September 30, 2011, AT&T's consolidated revenues totaled $31.5 billion, down $103 million, or 0.3 percent, versus the year-earlier quarter.

Compared with results for the third quarter of 2010, AT&T's operating income margin was 19.8 percent, compared to 17.2 percent; operating expenses were $25.2 billion versus $26.2 billion; and operating income was $6.2 billion, up from $5.4 billion.

Third-quarter 2011 net income attributable to AT&T totaled $3.6 billion, or $0.61 per diluted share. These results compare with reported net income attributable to AT&T of $12.3 billion, or $2.07 per diluted share, in the third quarter of 2010, which included one-time gains from a tax settlement and the sale of Sterling Commerce. Excluding one-time gains, earnings were $0.54 in the third quarter a year ago.

Third-quarter 2011 cash from operating activities totaled $10.4 billion, and capital expenditures totaled $5.3 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $5.1 billion.

Compared with results for the first nine months of 2010, year to date through the third quarter, cash from operating activities totaled $27.2 billion versus $25.4 billion; capital expenditures totaled $14.7 billion compared to $13.7 billion; and free cash flow totaled $12.4 billion versus $11.6 billion.

WIRELESS OPERATIONAL HIGHLIGHTS

Led by continued strong performance in mobile broadband in the third quarter, AT&T continued to grow revenues, add subscribers, increase postpaid ARPU and expand margins. Highlights included:

Subscribers Pass 100 Million Mark. AT&T posted a net gain in total wireless subscribers of 2.1 million, to reach 100.7 million in service. This included gains in every customer category. Net adds for the quarter include postpaid net adds of 319,000. Excluding the impacts of the Alltel and Centennial integration migrations, postpaid net adds were approximately 384,000. Prepaid net adds were 293,000, connected device net adds were 1,038,000 and reseller net adds were 473,000. Third-quarter net adds reflect adoption of smartphones, increases in prepaid and reseller subscribers and sales of tablets and connected devices such as automobile monitoring systems, security systems and a host of other emerging products.

Strong Quarter for Branded Computing Device Sales. AT&T had another strong quarter with branded computing subscribers, a new growth area for the company that includes tablets, aircards, MiFi devices, tethering plans and other data-only devices. AT&T added 505,000 of these devices to reach 4.5 million, an almost 80 percent increase from a year ago. Most of those new subscribers were tablets, with 290,000 added in the quarter, of which more than 35 percent were postpaid.

Total Churn Improves, Postpaid Churn Stable. Total churn declined to 1.28 percent versus 1.32 percent in the third quarter of 2010 and 1.43 percent in the second quarter of 2011. Postpaid churn was 1.15 percent, compared to 1.14 percent in the year-ago third quarter and 1.15 percent in the second quarter of 2011. Excluding the impacts of the Alltel and Centennial migrations, postpaid churn of 1.11 percent for the quarter was unchanged versus the year-ago quarter.

Non-iPhone Smartphone Sales Increase. AT&T continues to deliver robust smartphone sales. (Smartphones are voice and data devices with an advanced operating system to better manage data and Internet access.) In the third quarter, the company sold 4.8 million smartphones, representing nearly two-thirds of postpaid device sales. Sales of Android devices more than doubled year over year, and almost half of all smartphone sales were non-iPhone devices. During the quarter, 2.7 million iPhones were activated.

At the end of the quarter, 52.6 percent of AT&T's 68.6 million postpaid subscribers had smartphones, up from 39.1 percent a year earlier and 31.1 percent two years ago. The average ARPU for smartphones on AT&T’s network is 1.9 times that of the company's non-smartphone devices. More than 85 percent of smartphone subscribers are on FamilyTalk® or business plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers. The number of subscribers on tiered-data plans continues to increase. About 18 million, or nearly half, of all smartphone subscribers are on tiered-data plans.

Wireless Revenues Grow. Total wireless revenues, which include equipment sales, were up 2.8 percent year over year to $15.6 billion. Wireless service revenues increased 4.3 percent, to $14.3 billion, in the third quarter.

Wireless Data Revenues Lead Growth. Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased by $857 million, or 18.0 percent, from the year-earlier quarter to $5.6 billion. AT&T’s postpaid wireless subscribers on monthly data plans increased by 16.5 percent over the past year. Versus the year-earlier quarter, total text messages carried on the AT&T network increased by 22 percent to 196.3 billion, and multimedia messages increased by 54 percent to 4.3 billion.

Postpaid ARPU Continues Growth. Driven by strong data growth, postpaid subscriber ARPU increased 1.4 percent versus the year-earlier quarter to $63.69. This marked the 11th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $25.14, up 14.2 percent versus the year-earlier quarter.

Wireless Margins Expand. Third-quarter wireless margins reflect strong smartphone sales, solid customer upgrade levels and some residual Alltel and Centennial merger costs. This was offset in part by improved operating efficiencies and further revenue gains from the company’s growing base of high-quality smartphone subscribers. Year-over-year comparisons are also influenced by the launch of iPhone 4 at the end of the second quarter a year ago.

AT&T’s third-quarter wireless operating income margin was 29.6 percent versus 23.1 percent in the year-earlier quarter, and AT&T’s wireless EBITDA service margin was 43.7 percent, compared with 37.6 percent in the third quarter of 2010. Without customer migration and integration costs from the Alltel and Centennial mergers, the EBITDA service margin would have been 44.0 percent. (EBITDA service margin is earnings before interest, taxes, depreciation and amortization, divided by total service revenues.) Third-quarter wireless operating expenses totaled $11.0 billion, down 5.9 percent versus the year-earlier quarter, and wireless operating income was $4.6 billion, up 31.7 percent year over year.

WIRELINE OPERATIONAL HIGHLIGHTS

AT&T's third-quarter wireline results were highlighted by the first sequential growth in wireline revenues in more than four years. Other highlights included:

Wireline Consumer Revenues Stable. Driven by strength in IP data services, revenues from residential customers totaled $5.3 billion, an increase of 0.2 percent versus the third quarter a year ago, the fifth consecutive quarter of year-over-year growth.

U-verse Attach Rate Drives ARPU Growth. AT&T U-verse TV added 176,000 subscribers to reach 3.6 million in service. In the third quarter, the AT&T U-verse High Speed Internet attach rate was 90 percent and about half of new subscribers took AT&T U-verse Voice. 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 almost $170, up 5.7 percent year over year.

AT&T's U-verse deployment now reaches almost 30 million living units. Companywide penetration of eligible living units is 15.7 percent, and 24.8 percent across areas marketed to for 36 months or more. AT&T's total video subscribers, which combine the company's U-verse and bundled satellite customers, reached 5.4 million at the end of the quarter, representing 22.6 percent of households served.

U-verse Broadband Continues Strong Growth. AT&T U-verse High Speed Internet delivered a third-quarter gain of 504,000 subscribers to reach a total of 4.6 million, helping offset losses from DSL. Overall, AT&T posted a slight net gain in wireline broadband connections. More than 70 percent of consumers have a broadband plan of 3 Mbps or higher.

IP Data Half of Consumer Revenues. U-verse continues to drive a transformation in wireline consumer, reflected by the fact that consumer IP revenues now represent 50.9 percent of wireline consumer revenues, up from 42.6 percent in the year-earlier quarter. Increased AT&T U-verse penetration and a significant number of subscribers on triple- or quad-play options drove 19.6 percent year-over-year growth in IP revenues from residential customers (broadband, U-verse TV and U-verse Voice) and 2.9 percent sequential growth. U-verse revenues grew 50.1 percent compared with the year-ago third quarter and were up 6.0 percent versus the second quarter of 2011.

Continued Growth in Revenues Per Household. Wireline revenues per household served increased 5.0 percent versus the year-earlier third quarter and were up 1.4 percent sequentially (average revenues per household is total wireline consumer revenues divided by the average monthly households in service), driven by AT&T U-verse services. This marked AT&T’s 15th consecutive quarter with year-over-year growth in wireline consumer revenues per household as U-verse scales and represents a larger portion of wireline consumer revenues.

Consumer Connection Trends Continue. In the third quarter, AT&T posted a decline in total consumer revenue connections primarily due to expected declines in traditional voice access lines, consistent with broader industry trends and somewhat offset by increases in U-verse TV, broadband and VoIP (Voice over Internet Protocol) connections. AT&T U-verse Voice connections increased by 119,000 in the quarter and 648,000 over the past four quarters. Total consumer revenue connections at the end of the third quarter were 41.9 million, compared with 43.7 million at the end of the third quarter of 2010 and 42.5 million at the end of the second quarter of 2011.

Wireline Business Revenues Grow Sequentially. Total business revenues were $9.3 billion, an increase of 0.7 percent sequentially and down 2.7 percent versus the year-earlier quarter. The year-over-year decline reflects economic weakness in voice and legacy data products somewhat offset by growth in IP data. Excluding the effect of the third-quarter 2010 sale of Japan assets, business service revenues, which exclude CPE, declined 1.7 percent year over year, compared to a year-over-year decline of 3.4 percent in the year-ago quarter.

Robust Strategic Business Services Revenues. Revenues from the new-generation capabilities that lead AT&T's most advanced business solutions — including Ethernet, VPNs, hosting, IP conferencing and application services — grew 19.3 percent versus the year-earlier quarter, continuing strong trends in this area. This now represents a nearly $5.8 billion annualized revenue stream.

VPN Growth Drives Business IP Revenues. Total business IP data revenues grew 10.2 percent versus the year-earlier third quarter, led by growth in VPN revenues. IP-based solutions allow customers to easily add managed services such as network security, cloud services and IP conferencing on top of their infrastructures. Total business data revenues grew 1.8 percent year over year.

Wireline Revenues Increase Sequentially. Third-quarter total wireline revenues were $15.0 billion, down 2.2 percent versus the year-earlier quarter but up slightly sequentially. Third-quarter wireline operating expenses were $13.2 billion, down 1.3 percent versus the third quarter of 2010 and up 1.3 percent sequentially. Wireline operating income totaled $1.8 billion, down from $2.0 billion in the third quarter of 2010 and down versus the second quarter of 2011. AT&T’s third-quarter wireline operating income margin was 12.1 percent, compared to 13.0 percent in the year-earlier quarter and down from 13.1 percent in the second quarter of 2011. Improved consumer and business IP data revenue trends and execution of cost initiatives helped to partially offset declines in voice revenues.

*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.

About AT&T

AT&T Inc. (NYSE:T) is a premier communications holding company and one of the most honored companies in the world. 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, voice and cloud-based services. A leader in mobile broadband and emerging 4G capabilities, AT&T also offers the best wireless coverage worldwide of any U.S. carrier, 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 │DIRECTV 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.

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 @ATT.

© 2011 AT&T Intellectual Property. All rights reserved. Mobile broadband 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. All other marks contained herein are the property of their respective owners.

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 website at www.att.com/investor.relations. Accompanying financial statements follow.

NOTE: EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA 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. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, 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.

NOTE: Adjusted Operating Income and Adjusted Operating Income Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. Adjusted Operating Income and Adjusted Operating Income Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Operating Income, as presented, may differ from similarly titled measures reported by other companies.

NOTE: 2008, 2009 and 2010 have been restated for the benefit plan accounting change. Detailed schedules can be found on AT&T’s website at www.att.com/investor.relations.

                                 
Financial Data
           
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited Three Months Ended   Nine Months Ended
      9/30/2011       9/30/2010     % Chg   9/30/2011       9/30/2010     % Chg
Operating Revenues
Wireless service $ 14,261 $ 13,675 4.3 % $ 42,379 $ 39,711 6.7 %
Data 7,472 6,947 7.6 % 22,008 20,464 7.5 %
Voice 6,243 6,978 -10.5 % 19,136 21,685 -11.8 %
Directory 803 961 -16.4 % 2,512 3,009 -16.5 %
Other     2,699       3,020     -10.6 %   8,185       8,050     1.7 %
Total Operating Revenues     31,478       31,581     -0.3 %   94,220       92,919     1.4 %
 
Operating Expenses

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

13,165 13,605 -3.2 % 39,900 38,440 3.8 %
Selling, general and administrative 7,460 7,672 -2.8 % 22,308 22,522 -1.0 %
Depreciation and amortization     4,618       4,873     -5.2 %   13,804       14,472     -4.6 %
Total Operating Expenses     25,243       26,150     -3.5 %   76,012       75,434     0.8 %
Operating Income     6,235       5,431     14.8 %   18,208       17,485     4.1 %
Interest Expense 889 729 21.9 % 2,583 2,248 14.9 %
Equity in Net Income of Affiliates 193 217 -11.1 % 649 629 3.2 %
Other Income (Expense) - Net     46       124     -62.9 %   132       825     -84.0 %
Income from Continuing Operations Before Income Taxes 5,585 5,043 10.7 % 16,406 16,691 -1.7 %
Income Tax (Benefit) Expense     1,899       (6,573 )   -     5,594       (1,550 )   -  
Income from Continuing Operations     3,686       11,616     -68.3 %   10,812       18,241     -40.7 %
Income from Discontinued Operations, net of tax     -       780     -     -       777     -  
Net Income     3,686       12,396     -70.3 %   10,812       19,018     -43.1 %
Less: Net Income Attributable to Noncontrolling Interest     (63 )     (77 )   18.2 %   (190 )     (243 )   21.8 %
Net Income Attributable to AT&T   $ 3,623     $ 12,319     -70.6 % $ 10,622     $ 18,775     -43.4 %
 
 

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

$ 0.61 $ 1.95 -68.7 % $ 1.79 $ 3.05 -41.3 %

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

  -       0.13   -   -       0.13   -
Basic Earnings Per Share Attributable to AT&T $ 0.61     $ 2.08   -70.7 % $ 1.79     $ 3.18   -43.7 %

Weighted Average Common Shares Outstanding (000,000)

5,936 5,909 0.5 % 5,931 5,908 0.4 %
 

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

$ 0.61 $ 1.94 -68.6 % $ 1.79 $ 3.03 -40.9 %

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

  -       0.13   -   -       0.13   -
Diluted Earnings Per Share Attributable to AT&T $ 0.61     $ 2.07   -70.5 % $ 1.79     $ 3.16   -43.4 %

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

5,954 5,938 0.3 % 5,950 5,937 0.2 %
                                 
 
Financial Data
           
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended Nine Months Ended
 
Wireless     9/30/2011       9/30/2010     % Chg   9/30/2011       9/30/2010     % Chg
Segment Operating Revenues
Service $ 14,261 $ 13,675 4.3 % $ 42,379 $ 39,711 6.7 %
Equipment     1,345       1,505     -10.6 %   4,138       3,608     14.7 %
Total Segment Operating Revenues     15,606       15,180     2.8 %   46,517       43,319     7.4 %
 
Segment Operating Expenses
Operations and support 9,367 10,032 -6.6 % 29,007 26,758 8.4 %
Depreciation and amortization     1,619       1,640     -1.3 %   4,737       4,776     -0.8 %
Total Segment Operating Expenses     10,986       11,672     -5.9 %   33,744       31,534     7.0 %
Segment Operating Income 4,620 3,508 31.7 % 12,773 11,785 8.4 %
Equity in Net Income (Loss) of Affiliates     (7 )     (6 )   -16.7 %   (19 )     14     -  
Segment Income   $ 4,613     $ 3,502     31.7 % $ 12,754     $ 11,799     8.1 %
 
Segment Operating Income Margin 29.6 % 23.1 % 27.5 % 27.2 %
 
Wireline                      
Segment Operating Revenues
Data $ 7,472 $ 6,947 7.6 % $ 22,008 $ 20,464 7.5 %
Voice 6,243 6,978 -10.5 % 19,136 21,685 -11.8 %
Other     1,246       1,379     -9.6 %   3,702       4,023     -8.0 %
Total Segment Operating Revenues     14,961       15,304     -2.2 %   44,846       46,172     -2.9 %
 
Segment Operating Expenses
Operations and support 10,259 10,220 0.4 % 30,629 31,021 -1.3 %
Depreciation and amortization     2,892       3,099     -6.7 %   8,726       9,280     -6.0 %
Total Segment Operating Expenses     13,151       13,319     -1.3 %   39,355       40,301     -2.3 %
Segment Operating Income 1,810 1,985 -8.8 % 5,491 5,871 -6.5 %
Equity in Net Income of Affiliates     -       2     -     -       7     -  
Segment Income   $ 1,810     $ 1,987     -8.9 % $ 5,491     $ 5,878     -6.6 %
 
Segment Operating Income Margin 12.1 % 13.0 % 12.2 % 12.7 %
 
Advertising Solutions                      
Segment Operating Revenues   $ 803     $ 961     -16.4 % $ 2,512     $ 3,009     -16.5 %
 
Segment Operating Expenses
Operations and support 553 631 -12.4 % 1,706 1,957 -12.8 %
Depreciation and amortization     94       123     -23.6 %   301       393     -23.4 %
Total Segment Operating Expenses     647       754     -14.2 %   2,007       2,350     -14.6 %
Segment Income   $ 156     $ 207     -24.6 % $ 505     $ 659     -23.4 %
 
Segment Income Margin 19.4 % 21.5 % 20.1 % 21.9 %
 
Other                      
Segment Operating Revenues $ 108 $ 136 -20.6 % $ 345 $ 419 -17.7 %
Segment Operating Expenses     459       405     13.3 %   906       1,249     -27.5 %
Segment Operating Income (Loss) (351 ) (269 ) -30.5 % (561 ) (830 ) 32.4 %
Equity in Net Income of Affiliates     200       221     -9.5 %   668       608     9.9 %
Segment Income (Loss) from Continuing Operations   $ (151 )   $ (48 )   -   $ 107     $ (222 )   -  
 
Financial Data
   
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
9/30/11 12/31/10
    Unaudited    
 
Assets
Current Assets
Cash and cash equivalents $ 10,762 $ 1,437

Accounts receivable - net of allowances for doubtful accounts of $888 and $957

13,377 13,610
Prepaid expenses 1,507 1,458
Deferred income taxes 1,101 1,170
Other current assets     1,858       2,276  
Total current assets     28,605       19,951  
Property, Plant and Equipment - Net 105,786 103,196
Goodwill 73,590 73,601
Licenses 50,406 50,372
Customer Lists and Relationships - Net 3,175 4,708
Other Intangible Assets - Net 5,394 5,440
Investments in Equity Affiliates 4,483 4,515
Other Assets     6,214       6,705  
Total Assets   $ 277,653     $ 268,488  
 
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 8,900 $ 7,196
Accounts payable and accrued liabilities 17,860 20,055
Advanced billing and customer deposits 3,794 4,086
Accrued taxes 929 72
Dividends payable     2,548       2,542  
Total current liabilities     34,031       33,951  
Long-Term Debt     62,326       58,971  
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 26,446 22,070
Postemployment benefit obligation 28,190 28,803
Other noncurrent liabilities     12,778       12,743  
Total deferred credits and other noncurrent liabilities     67,414       63,616  
Stockholders' Equity
Common stock 6,495 6,495
Additional paid-in capital 91,455 91,731
Retained earnings 34,758 31,792
Treasury stock (20,770 ) (21,083 )
Accumulated other comprehensive income 1,677 2,712
Noncontrolling interest     267       303  
Total stockholders' equity     113,882       111,950  
Total Liabilities and Stockholders' Equity   $ 277,653     $ 268,488  
 
Financial Data
   
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited Nine months ended September 30,
      2011       2010  
Operating Activities
Net income $ 10,812 $ 19,018

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

Depreciation and amortization 13,804 14,472
Undistributed earnings from investments in equity affiliates (539 ) (531 )
Provision for uncollectible accounts 805 973

Deferred income tax expense and noncurrent unrecognized tax benefits

4,942 (4,184 )
Net gain from impairment and sale of investments (57 ) (746 )
Income from discontinued operations - (777 )
Changes in operating assets and liabilities:
Accounts receivable (573 ) 266
Other current assets 439 495
Accounts payable and accrued liabilities (1,630 ) (2,861 )
Net income attributable to noncontrolling interest (190 ) (243 )
Other - net     (663 )     (532 )
Total adjustments     16,338       6,332  
Net Cash Provided by Operating Activities     27,150       25,350  
 
Investing Activities
Construction and capital expenditures:
Capital expenditures (14,625 ) (13,170 )
Interest during construction (119 ) (577 )
Acquisitions, net of cash acquired (430 ) (2,615 )
Dispositions 76 1,821
(Purchases) and sales of securities, net 45 (437 )
Other     28       22  
Net Cash Used in Investing Activities     (15,025 )     (14,956 )
 
Financing Activities

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

(1,620 ) (33 )
Issuance of long-term debt 7,935 2,235
Repayment of long-term debt (1,298 ) (5,280 )
Issuance of treasury shares 216 24
Dividends paid (7,627 ) (7,436 )
Other     (406 )     (399 )
Net Cash Used in Financing Activities     (2,800 )     (10,889 )
Net increase (decrease) in cash and cash equivalents 9,325 (495 )
Cash and cash equivalents beginning of year     1,437       3,741  
Cash and Cash Equivalents End of Period   $ 10,762     $ 3,246  
 
Financial Data
           
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts
Unaudited Three Months Ended Nine Months Ended
        9/30/2011   9/30/2010   % Chg 9/30/2011   9/30/2010   % Chg
 
Wireless
Volumes (000)
                       
Total           100,738     92,761   8.6 %
Postpaid6 68,614 67,688 1.4 %
Prepaid6 7,059 6,209 13.7 %
Reseller6 13,028 11,021 18.2 %
Connected Devices6 12,037 7,843 53.5 %
 
Wireless Net Adds (000)
                               
Total     2,123       2,631   -19.3 %   5,202       6,050   -14.0 %
Postpaid6 319 745 -57.2 % 712 1,753 -59.4 %
Prepaid6 293 321 -8.7 % 515 645 -20.2 %
Reseller6 473 406 16.5 % 1,282 545 -
Connected Devices6 1,038 1,159 -10.4 % 2,693 3,107 -13.3 %
M&A Activity, Partitioned Customers and Other Adjs. - - - 1,591
 
Wireless Churn
Postpaid Churn6 1.15 % 1.14 % 1 BP 1.16 % 1.08 % 8 BP
Total Churn6 1.28 % 1.32 % -4 BP 1.36 % 1.30 % 6 BP
 
Other
Licensed POPs (000,000) 313 308 1.6 %
 
In-Region Wireline1
Voice
                       
Total Wireline Voice Connections           40,098       44,796   -10.5 %
Net Change (1,200 ) (1,262 ) 4.9 % (3,465 ) (3,692 ) 6.1 %
 
Broadband
                       
Total Wireline Broadband Connections           16,476       16,100   2.3 %
Net Change 3 148 -98.0 % 167 311 -46.3 %
 
Video
                         
U-verse 3,583 2,741 30.7 %
  Satellite           1,809       1,994   -9.3 %
Total Video Connections 5,392 4,735 13.9 %
                                 
Net Change 133 177 -24.9 % 475 496 -4.2 %
 
Consumer Revenue Connections
                       
Broadband3 14,530 14,093 3.1 %
Video Connections4 5,381 4,732 13.7 %
Voice2           21,941       24,908   -11.9 %
Total Consumer Revenue Connections 41,852 43,733 -4.3 %
                               
Net Change (652 ) (529 ) -23.3 % (1,575 ) (1,555 ) -1.3 %
 
AT&T Inc.
Construction and capital expenditures
Capital expenditures $ 5,220 $ 5,314 -1.8 % $ 14,625 $ 13,170 11.0 %
Interest during construction $ 42 $ 198 -78.8 % $ 119 $ 577 -79.4 %
Dividends Declared per Share $ 0.43 $ 0.42 2.4 % $ 1.29 $ 1.26 2.4 %
End of Period Common Shares Outstanding (000,000) 5,926 5,910 0.3 %
Debt Ratio5 38.5 % 37.9 % 60 BP
Total Employees 256,210 267,720 -4.3 %
                             

1

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

2

Includes consumer U-verse Voice over Internet Protocol connections of 2,142 as of September 30, 2011.

3

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

6

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

Note: For the end of 3Q11, total switched access lines were 37,956, retail business switched access lines totaled 15,951 and wholesale and coin switched access lines totaled 2,206.

 
Financial Data
         
AT&T Inc.
Non-GAAP Wireless Reconciliation
Wireless Segment EBITDA
Dollars in millions
Unaudited
Three Months Ended
9/30/2010   12/31/2010   3/31/2011   6/30/2011   9/30/2011
 
Segment Operating Revenues
Service $ 13,675 $ 13,799 $ 13,961 $ 14,157 $ 14,261
Equipment     1,505       1,382       1,348       1,445       1,345  
Total Segment Operating Revenues     15,180       15,181       15,309       15,602       15,606  
 
Segment Operating Expenses
Operations and support 10,032 9,988 9,858 9,782 9,367
Depreciation and amortization     1,640       1,721       1,505       1,613       1,619  
Total Segment Operating Expenses     11,672       11,709       11,363       11,395       10,986  
 
Segment Operating Income 3,508 3,472 3,946 4,207 4,620
 
Plus: Depreciation and amortization     1,640       1,721       1,505       1,613       1,619  
EBITDA     5,148       5,193       5,451       5,820       6,239  
EBITDA as a % of Service Revenue 37.6 % 37.6 % 39.0 % 41.1 % 43.7 %
 

EBITDA is defined as Earnings Before Interest, Taxes, Depreciation and Amortization. Annual Service EBITDA Margin is calculated as the sum of quarterly EBITDA divided by the sum of quarterly Service Revenues.

Financial Data
       
AT&T Inc.
Non-GAAP Financial Reconciliation
Free Cash Flow
Dollars in Millions
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
    2010   2011   2010   2011
 
Net cash provided by operating activities $ 9,539 $ 10,393 $ 25,350 $ 27,150
Less: Construction and capital expenditures     (5,512 )     (5,262 )     (13,747 )     (14,744 )
Free Cash Flow   $ 4,027     $ 5,131     $ 11,603     $ 12,406  
 

Free cash flow is defined as cash from operations minus construction and 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
Dollars in Millions
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
    2010   2011   2010   2011
 
Net cash provided by operating activities $ 9,539 $ 10,393 $ 25,350 $ 27,150
Less: Construction and capital expenditures     (5,512 )     (5,262 )     (13,747 )     (14,744 )
Free Cash Flow     4,027       5,131       11,603       12,406  
Less: Dividends paid     (2,476 )     (2,545 )     (7,436 )     (7,627 )
Free Cash Flow After Dividends   $ 1,551     $ 2,586     $ 4,167     $ 4,779  
 
Financial Data
       
AT&T Inc.
Non-GAAP Financial Reconciliation
Annualized Net Debt-to-EBITDA Ratio
Dollars in millions
Unaudited
Three Months Ended
      3/31/2011     6/30/2011     9/30/2011   2011 YTD
 
Operating Revenues $ 31,247 $ 31,495 $ 31,478 $ 94,220
Operating Expenses 25,439 25,330 25,243 76,012
Total Operating Income 5,808 6,165 6,235 18,208
Add Back Depreciation and Amortization 4,584 4,602 4,618 13,804
Total Consolidated EBITDA 10,392 10,767 10,853 32,012
Annualized Consolidated EBITDA* 42,683
End-of-period current debt 8,900
End-of-period long-term debt 62,326
Total End-of-Period Debt 71,226
(Premiums) Discounts on long-term debt (87 )
Normalized Debt Balance 71,139
Less Cash and Cash Equivalents 10,762
Normalized Net Debt Balance                 60,377  
Annualized Net Debt-to-EBITDA Ratio                 1.41  
 

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

 

Note: 4Q11 EBITDA will exclude the impact of benefit plan actuarial gains/losses in order to better represent AT&T's operational performance.

 

EBITDA DISCUSSION

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. EBITDA 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. EBITDA 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 EBITDA, 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 EBITDA include the key revenue and expense drivers for which AT&T Mobility’s operating managers are responsible and upon which we evaluate their performance.

EBITDA 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. EBITDA excludes other income (expense) – net, noncontrolling 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. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

We believe EBITDA as a percentage of service revenues to be a more relevant measure of AT&T Mobility’s operating margin than EBITDA 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 service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service 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 EBITDA 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. EBITDA and EBITDA service 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 construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and 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.

Contacts

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

Sharing

Contacts

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