AT&T Reports 10 Percent Earnings Growth, Strong Revenue and Margin Gains and Best-Ever Wireless Margins and Churn In Second-Quarter Results

  • $0.66 diluted EPS compared to $0.60 diluted EPS in the second quarter of 2011, up 10 percent year over year and sequentially
  • Consolidated revenues of $31.6 billion, up 0.3 percent versus the year-earlier period; up 2.0 percent when adjusted for Advertising Solutions sale
  • Highest-ever wireless margins, operating income margin of 30.3 percent, with EBITDA service margin of 45.0 percent
  • $2.5 billion in stock buybacks; 75.8 million shares repurchased
  • AT&T’s growth engines — wireless, wireline data and managed services — represented 80 percent of total revenues when excluding Advertising Solutions, and grew 5.5 percent versus the same quarter a year ago, led by:
    • 18.8 percent growth in wireless data revenues, up $1 billion versus the year-earlier quarter
    • 13.5 percent growth in strategic business services revenues
    • 38.3 percent growth in U-verse revenues
  • Best-ever postpaid, prepaid and total wireless churn; postpaid churn drops to 0.97 percent
  • 1.3 million total wireless net adds, with gains in every customer category; 320,000 postpaid net adds
  • Strong smartphone sales of 5.1 million with more than one-third of all postpaid smartphone subscribers now on 4G-capable devices
  • Branded computing (tablets, tethering plans, etc.) net adds of 496,000 to reach a total of 6.3 million, up more than 50 percent versus a year ago
  • Postpaid wireless subscriber ARPU (average monthly revenues per subscriber) up 1.7 percent to $64.93
  • First enterprise revenue growth in more than four years
  • Wireline consumer revenues up 1.7 percent versus the year-earlier period; their strongest growth in more than four years
  • 6.8 million total AT&T U-verse® subscribers (TV and high speed Internet) in service; U-verse TV subscribers grew 22 percent year over year

Note: AT&T's second-quarter earnings conference call will be broadcast live via the Internet at 9:30 a.m. ET on Tuesday, July 24, 2012, at www.att.com/investor.relations.

DALLAS--()--AT&T Inc.* (NYSE:T) today reported second-quarter results highlighted by growing revenues and earnings, record wireless service margins and churn, strong wireless data growth and continued gains in U-verse services.

“We executed well across the business and posted another strong quarter with growing revenues, expanding margins and double-digit earnings growth,” said Randall Stephenson, AT&T chairman and chief executive officer. “Our mobile Internet leadership continues, with solid gains in smartphones and tablets, plus our wireless margins have never been better. And most impressive, with this growth, we also achieved our best-ever postpaid wireless churn, which points to the premier experience customers receive on our network. All of these things add to our confidence and enthusiasm looking ahead.

“In addition, with disciplined cost management our cash generation continues to be strong,” Stephenson added. “This allows us to invest aggressively in our growth platforms while returning substantial value to shareowners through dividends and share repurchases.”

Second-Quarter Financial Results

For the quarter ended June 30, 2012, AT&T's consolidated revenues totaled $31.6 billion, up 0.3 percent versus the year-earlier quarter. On May 8, 2012, AT&T closed the sale of its Advertising Solutions unit to an affiliate of Cerberus Capital Management, L.P. Year-over-year comparisons include full, second-quarter 2011 Advertising Solutions revenues. When excluding Advertising Solutions results, AT&T’s consolidated revenues grew 2.0 percent. Compared with results for the second quarter of 2011, operating expenses were $24.8 billion versus $25.3 billion, down 2.3 percent year over year; excluding Advertising Solutions, operating expenses were $24.5 billion versus $24.6 billion in the year-ago quarter, down 0.6 percent.

Operating income was $6.8 billion, up from $6.2 billion; and AT&T’s operating income margin expanded to 21.6 percent, compared to 19.6 percent, the best in four years.

Second-quarter 2012 net income attributable to AT&T totaled $3.9 billion, or $0.66 per diluted share, up from $3.6 billion, or $0.60 per diluted share, in the year-earlier quarter.

Second-quarter 2012 cash from operating activities totaled $9.7 billion, and capital expenditures totaled $4.5 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $5.1 billion. During the second quarter, AT&T continued buying back shares under its outstanding 300 million share repurchase authorization. The company repurchased 75.8 million of its shares for $2.5 billion in the quarter. Year to date, the company has repurchased 143.5 million shares for $4.6 billion. The company expects to continue to buy back shares consistent with its repurchase authorization.

WIRELESS OPERATIONAL HIGHLIGHTS

AT&T delivered strong wireless data revenue growth, record low churn and best-ever service margins in the second quarter. Highlights included:

Wireless Data Revenues Increase $1 Billion. Total wireless revenues, which include equipment sales, were up 4.8 percent year over year to $16.4 billion. Wireless service revenues increased 4.3 percent, to $14.8 billion, in the second quarter. Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased by $1.0 billion, or 18.8 percent, from the year-earlier quarter to $6.4 billion. Second-quarter wireless operating expenses totaled $11.4 billion, flat versus the year-earlier quarter, and wireless operating income was $5.0 billion, up 17.8 percent year over year.

Best-Ever Wireless Margins. In the second quarter, the company reported its best-ever wireless service margins, driven by improved operating efficiencies, fewer handset upgrades and further revenue gains from the company’s 43 million high-value smartphone subscribers. AT&T’s second-quarter wireless operating income margin was 30.3 percent versus 26.9 percent in the year-earlier quarter, and AT&T’s wireless EBITDA service margin was 45.0 percent, compared with 41.1 percent in the second quarter of 2011. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

Industry-Leading Postpaid ARPU Continues Growth. Postpaid subscriber ARPU increased 1.7 percent versus the year-earlier quarter to $64.93, which is the highest in the industry. This marked the 14th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $28.04, up 14.1 percent versus the year-earlier quarter.

Subscriber Gains in Every Category. AT&T posted a net increase in total wireless subscribers of 1.3 million in the second quarter to reach 105.2 million in service. This included gains in every customer category. Subscriber additions for the quarter included postpaid net adds of 320,000. Prepaid net adds were 92,000, connected device net adds were 382,000 and reseller net adds were 472,000. Second-quarter net adds reflect continued adoption of smartphones and sales of tablets.

Churn Reaches Record Low Levels. Postpaid, prepaid and total churn reached their lowest levels ever. For the second quarter, postpaid churn was 0.97 percent, compared to 1.15 percent in the year-ago second quarter and 1.10 percent in the first quarter of 2012. Total churn was 1.18 percent versus 1.43 percent in the second quarter of 2011 and 1.47 percent in the first quarter of 2012.

Strong Smartphone Sales Continue. AT&T sold 5.1 million smartphones in the second quarter. Smartphones represented 77 percent of postpaid device sales. At the end of the quarter, 61.9 percent, or 43.1 million, of AT&T's postpaid subscribers had smartphones, up from 49.9 percent, or 34.1 million, a year earlier. AT&T’s ARPU for smartphones is twice that of non-smartphone subscribers, and about 88 percent of smartphone subscribers are on FamilyTalk® or business plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers. More than one-third of AT&T’s postpaid smartphone customers use a 4G-capable device.

Android, iPhone and Windows device sales were supported by AT&T’s 4G network. Only AT&T’s 4G network lets iPhone 4S download three-times faster than any other U.S. carrier’s network. In the quarter, the company activated 3.7 million iPhones, with 22 percent new to AT&T.

Tethering Plans and Tablets Drive Branded Computing Sales. AT&T had another strong quarter of sales for branded computing subscribers, a wireless data revenue growth area for the company that includes tablets, tethering plans, aircards, mobile Wi-Fi hot spots and other data-only devices. AT&T added 496,000 to reach a total of 6.3 million, up more than 50 percent from a year ago. During the quarter, 219,000 tablets were added, about three-quarters of which were postpaid.

More Subscribers Move to Tiered Data Plans. The number of subscribers on tiered data plans also continues to increase. Approximately 27 million, or about two-thirds, of all smartphone subscribers are on tiered data plans, compared to 45 percent a year ago, and about three-quarters of these have chosen the higher-tiered plans. AT&T’s postpaid wireless subscribers on data plans increased by 12.2 percent over the past year.

WIRELINE OPERATIONAL HIGHLIGHTS

AT&T's second-quarter wireline results were led by strong wireline consumer revenue growth, positive revenue growth in enterprise and effective cost management. Highlights included:

Wireline Margins Expand. Total second-quarter wireline revenues were $14.9 billion, down 0.8 percent versus the year-earlier quarter and down slightly sequentially. Second-quarter wireline operating expenses were $12.9 billion, down 1.3 percent versus the second quarter of 2011 and down 1.9 percent sequentially. Positive consumer and strategic business services revenue trends and execution of cost initiatives helped to partially offset declines in voice revenues. AT&T’s wireline operating income totaled $2.1 billion, 2.2 percent higher than the second quarter of 2011 and up 12.6 percent versus the first quarter of 2012. Second-quarter wireline operating income margin was 13.8 percent, compared to 13.4 percent in the year-earlier quarter and 12.2 percent in the first quarter of 2012.

Enterprise Returns to Growth. Total business revenues were $9.1 billion, down 1.5 percent versus the year-earlier quarter. Business service revenues declined 1.4 percent year over year, compared to a year-over-year decline of 3.9 percent in the year-ago quarter. Overall, declines in legacy products were largely offset by continued growth in strategic business services. Business revenue comparisons were helped by the first year-over-year revenue growth in enterprise since the first quarter of 2008.

Business Data Revenue Growth Continues. Revenues from strategic business services, the new-generation capabilities that lead AT&T's most advanced business solutions — including Ethernet, VPNs, hosting, IP conferencing and application services — grew 13.5 percent versus the year-earlier quarter, continuing strong trends in this area. Total business data revenues grew 2.0 percent year over year, continuing the transition from legacy data products to next-generation data services.

U-verse Revenues Up 38 Percent. Revenues from residential customers totaled $5.5 billion, an increase of 1.7 percent versus the second quarter a year ago — their strongest growth in more than four years. Continued strong growth in consumer IP data services in the second quarter more than offset lower revenues from voice and legacy products. The second quarter marked the eighth consecutive quarter of year-over-year growth in wireline consumer revenues. U-verse continues to drive a transformation in wireline consumer, reflected by the fact that consumer broadband, video and voice over IP revenues now represent 57 percent of wireline consumer revenues, up from 50 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 18.2 percent year-over-year growth in IP revenues from residential customers (broadband, U-verse TV and U-verse Voice) and 6.2 percent sequential growth. U-verse revenues grew 38.3 percent compared with the year-ago second quarter and were up 10.2 percent versus the first quarter of 2012.

U-verse Subscribers Near 7 Million Mark. Total AT&T U-verse subscribers (TV and high speed Internet) reached 6.8 million in the second quarter. AT&T U-verse TV added 155,000 subscribers to reach 4.1 million in service. AT&T U-verse High Speed Internet delivered a second-quarter net gain of 553,000 subscribers to reach a total of 6.5 million, helping offset losses from DSL. Overall, AT&T wireline broadband connections decreased 96,000, partly due to seasonality. More than 50 percent of U-verse broadband subscribers have a plan delivering speeds up to 12 Mbps or higher, up from 39 percent in the year-ago quarter. About 90 percent of new U-verse TV customers took AT&T U-verse High Speed Internet in the second quarter and about half of new subscribers took AT&T U-verse Voice. About 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 $170, up slightly year over year. U-verse TV penetration of eligible living units continues to grow and was at 17.3 percent in the second quarter.

*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 largest 4G network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet, voice and cloud-based services. A leader in mobile Internet, 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.

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.

© 2012 AT&T Intellectual Property. All rights reserved. 4G not available everywhere. 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 operating income before 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.

 
Financial Data
               
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited Three Months Ended Six Months Ended
      6/30/2012   6/30/2011   % Chg 6/30/2012   6/30/2011   % Chg
Operating Revenues
Wireless service $ 14,765 $ 14,157 4.3 % $ 29,331 $ 28,118 4.3 %
Data 7,923 7,349 7.8 % 15,718 14,520 8.3 %
Voice 5,697 6,340 -10.1 % 11,590 12,890 -10.1 %
Directory 305 841 -63.7 % 1,049 1,709 -38.6 %
Other       2,885       2,808     2.7 %   5,709       5,505     3.7 %
Total Operating Revenues       31,575       31,495     0.3 %   63,397       62,742     1.0 %
 
Operating Expenses

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

12,369 12,756 -3.0 % 25,282 25,569 -1.1 %
Selling, general and administrative 7,890 7,972 -1.0 % 16,138 16,014 0.8 %
Depreciation and amortization       4,499       4,602     -2.2 %   9,059       9,186     -1.4 %
Total Operating Expenses       24,758       25,330     -2.3 %   50,479       50,769     -0.6 %
Operating Income       6,817       6,165     10.6 %   12,918       11,973     7.9 %
Interest Expense 941 848 11.0 % 1,800 1,694 6.3 %
Equity in Net Income of Affiliates 132 207 -36.2 % 355 456 -22.1 %
Other Income (Expense) - Net       23       27     -14.8 %   75       86     -12.8 %
Income Before Income Taxes 6,031 5,551 8.6 % 11,548 10,821 6.7 %
Income Tax Expense       2,066       1,893     9.1 %   3,931       3,695     6.4 %
Net Income       3,965       3,658     8.4 %   7,617       7,126     6.9 %
Less: Net Income Attributable to Noncontrolling Interest       (63 )     (67 )   6.0 %   (131 )     (127 )   -3.1 %
Net Income Attributable to AT&T     $ 3,902     $ 3,591     8.7 % $ 7,486     $ 6,999     7.0 %
 
                   
Basic Earnings Per Share Attributable to AT&T $ 0.67     $ 0.60   11.7 % $ 1.27     $ 1.18   7.6 %

Weighted Average Common Shares Outstanding (000,000)

5,855 5,932 -1.3 % 5,886 5,929 -0.7 %
                   
Diluted Earnings Per Share Attributable to AT&T $ 0.66     $ 0.60   10.0 % $ 1.27     $ 1.18   7.6 %

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

5,876 5,953 -1.3 % 5,907 5,948 -0.7 %
 
Financial Data
           
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended Six Months Ended
 
Wireless   6/30/2012   6/30/2011   % Chg 6/30/2012   6/30/2011   % Chg
Segment Operating Revenues
Service $ 14,765 $ 14,157 4.3 % $ 29,331 $ 28,118 4.3 %
Equipment     1,588       1,446     9.8 %   3,158       2,795     13.0 %
Total Segment Operating Revenues     16,353       15,603     4.8 %   32,489       30,913     5.1 %
 
Segment Operating Expenses
Operations and support 9,705 9,786 -0.8 % 19,788 19,647 0.7 %
Depreciation and amortization     1,696       1,615     5.0 %   3,362       3,121     7.7 %
Total Segment Operating Expenses     11,401       11,401     -     23,150       22,768     1.7 %
Segment Operating Income 4,952 4,202 17.8 % 9,339 8,145 14.7 %
Equity in Net Income (Loss) of Affiliates     (15 )     (7 )   -     (28 )     (11 )   -  
Segment Income   $ 4,937     $ 4,195     17.7 % $ 9,311     $ 8,134     14.5 %
 
Segment Operating Income Margin 30.3 % 26.9 % 28.7 % 26.3 %
 
Wireline                        
Segment Operating Revenues
Data $ 7,923 $ 7,349 7.8 % $ 15,718 $ 14,520 8.3 %
Voice 5,697 6,340 -10.1 % 11,590 12,890 -10.1 %
Other     1,284       1,341     -4.3 %   2,524       2,671     -5.5 %
Total Segment Operating Revenues     14,904       15,030     -0.8 %   29,832       30,081     -0.8 %
 
Segment Operating Expenses
Operations and support 10,085 10,145 -0.6 % 20,382 20,457 -0.4 %
Depreciation and amortization     2,766       2,876     -3.8 %   5,574       5,834     -4.5 %
Total Segment Operating Expenses     12,851       13,021     -1.3 %   25,956       26,291     -1.3 %
Segment Operating Income 2,053 2,009 2.2 % 3,876 3,790 2.3 %
Equity in Net Income (Loss) of Affiliates     (1 )     -     -     (1 )     -     -  
Segment Income   $ 2,052     $ 2,009     2.1 % $ 3,875     $ 3,790     2.2 %
 
Segment Operating Income Margin 13.8 % 13.4 % 13.0 % 12.6 %
 
Advertising Solutions                      
Segment Operating Revenues   $ 305     $ 841     -63.7 % $ 1,049     $ 1,709     -38.6 %
 
Segment Operating Expenses
Operations and support 226 581 -61.1 % 773 1,153 -33.0 %
Depreciation and amortization     29       101     -71.3 %   106       207     -48.8 %
Total Segment Operating Expenses     255       682     -62.6 %   879       1,360     -35.4 %
Segment Income   $ 50     $ 159     -68.6 % $ 170     $ 349     -51.3 %
 
Segment Income Margin 16.4 % 18.9 % 16.2 % 20.4 %
 
Other                      
Segment Operating Revenues $ 13 $ 21 -38.1 % $ 27 $ 39 -30.8 %
Segment Operating Expenses     251       226     11.1 %   494       350     41.1 %
Segment Operating Income (Loss) (238 ) (205 ) -16.1 % (467 ) (311 ) -50.2 %
Equity in Net Income of Affiliates     148       214     -30.8 %   384       467     -17.8 %
Segment Income (Loss)   $ (90 )   $ 9     -   $ (83 )   $ 156     -  
 
Financial Data
     
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
6/30/12 12/31/11
    Unaudited      
Assets
Current Assets
Cash and cash equivalents $ 2,151 $ 3,185

Accounts receivable - net of allowances for doubtful accounts of $614 and $878

12,430 13,606
Prepaid expenses 1,533 1,155
Deferred income taxes 1,418 1,470
Other current assets     1,624         3,611  
Total current assets     19,156         23,027  
Property, Plant and Equipment - Net 107,483 107,087
Goodwill 69,763 70,842
Licenses 51,981 51,374
Customer Lists and Relationships - Net 1,881 2,757
Other Intangible Assets - Net 5,045 5,212
Investments in and Advances to Equity Affiliates 4,388 3,718
Other Assets     6,597         6,327  
Total Assets   $ 266,294       $ 270,344  
 
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 3,402 $ 3,453
Accounts payable and accrued liabilities 16,298 19,858
Advanced billing and customer deposits 3,743 3,872
Accrued taxes 3,705 1,003
Dividends payable     2,554         2,608  
Total current liabilities     29,702         30,794  
Long-Term Debt     61,132         61,300  
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 26,011 25,748
Postemployment benefit obligation 34,021 34,011
Other noncurrent liabilities     11,849         12,694  
Total deferred credits and other noncurrent liabilities     71,881         72,453  
Stockholders' Equity
Common stock 6,495 6,495
Additional paid-in capital 90,927 91,156
Retained earnings 27,788 25,453
Treasury stock (24,869 ) (20,750 )
Accumulated other comprehensive income 2,939 3,180
Noncontrolling interest     299         263  
Total stockholders' equity     103,579         105,797  
Total Liabilities and Stockholders' Equity   $ 266,294       $ 270,344  
               
Financial Data
       
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited Six Months Ended June 30,
      2012   2011
 
Operating Activities
Net income $ 7,617 $ 7,126

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

Depreciation and amortization 9,059 9,186
Undistributed earnings from investments in equity affiliates (355 ) (417 )
Provision for uncollectible accounts 572 523

Deferred income tax expense and noncurrent unrecognized tax benefits

(639 ) 2,818
Net loss (gain) from impairment and sale of investments 2 (44 )
Changes in operating assets and liabilities:
Accounts receivable (220 ) (521 )
Other current assets 1,228 1,007
Accounts payable and accrued liabilities 441 (2,037 )
Other - net       (246 )     (884 )
Total adjustments       9,842       9,631  
Net Cash Provided by Operating Activities       17,459       16,757  
 
Investing Activities
Construction and capital expenditures:
Capital expenditures (8,742 ) (9,405 )
Interest during construction (130 ) (77 )
Acquisitions, net of cash acquired (477 ) (62 )
Dispositions 800 30
Sales of securities, net of investment 124 45
Other       -       19  
Net Cash Used in Investing Activities       (8,425 )     (9,450 )
 
Financing Activities

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

- (1,603 )
Issuance of long-term debt 6,935 2,985
Repayment of long-term debt (7,035 ) (1,290 )
Purchase of treasury stock (4,623 ) -
Issuance of treasury stock 376 199
Dividends paid (5,187 ) (5,082 )
Other       (534 )     (122 )
Net Cash Used in Financing Activities       (10,068 )     (4,913 )
Net (decrease) increase in cash and cash equivalents (1,034 ) 2,394
Cash and cash equivalents beginning of year       3,185       1,437  
Cash and Cash Equivalents End of Period     $ 2,151       $ 3,831  
 
Financial Data
                       
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts
Unaudited Three Months Ended Six Months Ended
          6/30/2012     6/30/2011     % Chg 6/30/2012     6/30/2011     % Chg
 
Wireless
Volumes (000)                  
Total             105,206         98,615   6.7 %
Postpaid 69,666 68,353 1.9 %
Prepaid 7,473 6,750 10.7 %
Reseller 14,382 12,522 14.9 %
Connected Devices 13,685 10,990 24.5 %
 
Wireless Net Adds (000)                  
Total     1,266         1,095   15.6 %   1,992         3,079   -35.3 %
Postpaid 320 331 -3.3 % 507 393 29.0 %
Prepaid 92 137 -32.8 % 217 222 -2.3 %
Reseller 472 248 90.3 % 656 809 -18.9 %
Connected Devices 382 379 0.8 % 612 1,655 -63.0 %
M&A Activity, Partitioned Customers and Other Adjs. - 1 - (33 ) - -
 
Wireless Churn
Postpaid Churn 0.97 % 1.15 % -18 BP 1.03 % 1.17 % -14 BP
Total Churn 1.18 % 1.43 % -25 BP 1.32 % 1.40 % -8 BP
 
Other
Branded Computing Subscribers1 6,276 4,037 55.5 %
Licensed POPs (000,000) 313 313 0.0 %
 
Wireline
Voice                  
Total Wireline Voice Connections             36,841         41,298   -10.8 %
Net Change (1,037 ) (1,159 ) 10.5 % (2,171 ) (2,265 ) 4.2 %
 
Broadband                  
Total Wireline Broadband Connections             16,434         16,473   -0.2 %
Net Change2 (96 ) (13 ) - 7 164 -95.7 %
 
Video                  
U-verse 4,146 3,407 21.7 %
  Satellite             1,684         1,852   -9.1 %
Total Video Connections             5,830         5,259   10.9 %
Net Change 107 168 -36.3 % 274 342 -19.9 %
 
Consumer Revenue Connections                  
Broadband3 14,517 14,520 0.0 %
Video Connections4 5,810 5,250 10.7 %
Voice5             19,868         22,735   -12.6 %
Total Consumer Revenue Connections             40,195         42,505   -5.4 %
Net Change (643 ) (574 ) -12.0 % (1,071 ) (922 ) -16.2 %
 
AT&T Inc.
Construction and capital expenditures
Capital expenditures $ 4,481 $ 5,272 -15.0 % $ 8,742 $ 9,405 -7.0 %
Interest during construction $ 65 $ 42 54.8 % $ 130 $ 77 68.8 %
Dividends Declared per Share $ 0.44 $ 0.43 2.3 % $ 0.88 $ 0.86 2.3 %
End of Period Common Shares Outstanding (000,000) 5,805 5,925 -2.0 %
Debt Ratio6 38.4 % 36.8 % 160 BP
Total Employees 242,380 258,870 -6.4 %
                                         

1

Branded Computing Subscribers includes tablets, tethering plans, aircards, mobile Wi-Fi hotspots and other data-only devices.

2

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

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

Includes consumer U-verse Voice over Internet Protocol connections of 2,567 as of June 30, 2012.

6

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

Note: For the end of 2Q12, total switched access lines were 34,274, retail business switched access lines totaled 14,988, and wholesale and coin switched access lines totaled 1,985.

 
Financial Data
         
AT&T Inc.
Non-GAAP Wireless Reconciliation
Wireless Segment EBITDA
Dollars in millions
Unaudited
Three Months Ended
6/30/11   9/30/11   12/31/11   3/31/12   6/30/12
 
Segment Operating Revenues
Service $ 14,157 $ 14,261 $ 14,347 $ 14,566 $ 14,765
Equipment     1,446       1,345       2,349       1,570       1,588  
Total Segment Operating Revenues     15,603       15,606       16,696       16,136       16,353  
 
Segment Operating Expenses
Operations and support 9,786 9,376 12,598 10,083 9,705
Depreciation and amortization     1,615       1,620       1,588       1,666       1,696  
Total Segment Operating Expenses     11,401       10,996       14,186       11,749       11,401  
 
Segment Operating Income     4,202       4,610       2,510       4,387       4,952  
Segment Operating Income Margin 26.9 % 29.5 % 15.0 % 27.2 % 30.3 %
 
Plus: Depreciation and amortization     1,615       1,620       1,588       1,666       1,696  
EBITDA     5,817       6,230       4,098       6,053       6,648  
EBITDA as a % of Service Revenue 41.1 % 43.7 % 28.6 % 41.6 % 45.0 %
 

EBITDA is defined as Operating Income Before Depreciation and Amortization.

                 
Financial Data
       
AT&T Inc.
Non-GAAP Financial Reconciliation
Free Cash Flow
Dollars in Millions
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
    2011   2012   2011   2012
 
Net cash provided by operating activities $ 9,025 $ 9,663 $ 16,757 $ 17,459
 
Less: Construction and capital expenditures (5,314 ) (4,546 ) (9,482 ) (8,872 )
                 
Free Cash Flow   $ 3,711     $ 5,117     $ 7,275     $ 8,587  
 
 

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 Six Months Ended
June 30, June 30,
    2011   2012   2011   2012
 
Net cash provided by operating activities $ 9,025 $ 9,663 $ 16,757 $ 17,459
 
Less: Construction and capital expenditures (5,314 ) (4,546 ) (9,482 ) (8,872 )
                 
Free Cash Flow     3,711       5,117       7,275       8,587  
 
Less: Dividends paid (2,542 ) (2,581 ) (5,082 ) (5,187 )
                 
Free Cash Flow After Dividends   $ 1,169     $ 2,536     $ 2,193     $ 3,400  
 
Financial Data
     
AT&T Inc.
Non-GAAP Financial Reconciliation
Annualized Net-Debt-to-EBITDA Ratio
Dollars in millions
Unaudited
Three Months Ended
    3/31/12   6/30/12   2012 YTD
 
Operating Revenues $ 31,822 $ 31,575 $ 63,397
Operating Expenses 25,721 24,758 50,479
Total Operating Income 6,101 6,817 12,918
Add Back Depreciation and Amortization 4,560 4,499 9,059
Total Consolidated EBITDA 10,661 11,316 21,977
Annualized Consolidated EBITDA* 43,954
End-of-period current debt 3,402
End-of-period long-term debt 61,132
Total End-of-Period Debt 64,534
(Premiums) Discounts on long-term debt (28 )
Normalized Debt Balance 64,506
Less Cash and Cash Equivalents 2,151
Normalized Net Debt Balance 62,355
             
Annualized Net-Debt-to-EBITDA Ratio             1.42  
 

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

 

Note: 4Q12 EBITDA will exclude the impact of benefit plan actuarial gains/losses in order to better represent AT&T's operational performance.

     
Financial Data
               
AT&T Inc.
Non-GAAP Financial Reconciliation
Reconciliation of Consolidated Operating Results excluding Advertising Solutions Segment
Dollars in millions
Unaudited
Three Months Ended
    9/30/10   12/31/10   3/31/11   6/30/11   9/30/11   12/31/11   3/31/12   6/30/12
 
Operating Revenues - reported $ 31,581 $ 31,361 $ 31,247 $ 31,495 $ 31,478 $ 32,503 $ 31,822 $ 31,575
less: Advertising Solutions 961 926 868 841 803 781 744 305
Operating Revenues - without Ad Solutions 30,620 30,435 30,379 30,654 30,675 31,722 31,078 31,270
Year-over-year growth - reported -0.3 % 3.6 % 1.8 % 0.3 %
Year-over-year growth - without Ad Solutions 0.2 % 4.2 % 2.3 % 2.0 %
                                 
 
Operating Expenses
 

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

13,016 13,766 12,813 12,756 12,656 16,950 12,913 12,369
less: Advertising Solutions 359 319 344 322 276 289 314 130

Cost of services and sales (exclusive of depreciation and amortization shown separately below) - without Ad Solutions

12,657 13,447 12,469 12,434 12,380 16,661 12,599 12,239
 
Selling, general and administrative - reported 8,261 10,515 8,042 7,972 7,969 17,060 8,248 7,890
less: Advertising Solutions 271 308 228 259 278 269 233 96
Selling, general and administrative - without Ad Solutions 7,990 10,207 7,814 7,713 7,691 16,791 8,015 7,794
 
Impairment of intangible assets - reported - 85 - - - 2,910 - -
less: Advertising Solutions - - - - - 2,910 - -
Impairment of intangible assets - without Ad Solutions - 85 - - - - - -
 
Depreciation and amortization - reported 4,873 4,907 4,584 4,602 4,618 4,573 4,560 4,499
less: Advertising Solutions 124 103 106 101 94 85 77 29
Depreciation and amortization - without Ad Solutions 4,749 4,804 4,478 4,501 4,524 4,488 4,483 4,470
 
Total Operating Expenses - reported 26,150 29,273 25,439 25,330 25,243 41,493 25,721 24,758
less: Advertising Solutions 754 730 678 682 648 3,553 624 255
Total Operating Expenses - without Ad Solutions 25,396 28,543 24,761 24,648 24,595 37,940 25,097 24,503
                                 
 
Operating Income (Loss) - reported $ 5,431 $ 2,088 $ 5,808 $ 6,165 $ 6,235 $ (8,990 ) $ 6,101 $ 6,817
less: Advertising Solutions 207 196 190 159 155 (2,772 ) 120 50
Operating Income (Loss) - without Ad Solutions 5,224 1,892 5,618 6,006 6,080 (6,218 ) 5,981 6,767
Operating Income Margin - reported 17.2 % 6.7 % 18.6 % 19.6 % 19.8 % -27.7 % 19.2 % 21.6 %
Operating Income Margin - without Ad Solutions 17.1 % 6.2 % 18.5 % 19.6 % 19.8 % -19.6 % 19.2 % 21.6 %
                                 
 
Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues 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, including dispositions. 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.

EBITDA DISCUSSION

For AT&T, EBITDA is defined as operating income before 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, net income attributable to noncontrolling interest 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.

ADJUSTING ITEMS DISCUSSION

Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues 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, including dispositions. 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, Adjusted Operating Expense and Adjusted Operating Revenues 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 calculations of Adjusted Operating Income and Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

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