AT&T Third-Quarter Results: Solid EPS Growth, Strong Wireless Revenue Gains and Record Free Cash Flow With Increase of $2 Billion in Full-Year Free Cash Flow Guidance

  • $0.63 diluted EPS compared to $0.61 diluted EPS in the third quarter of 2011; $0.62 compared to $0.59 when adjusted for sale of Advertising Solutions, up more than 5 percent year over year
  • EPS up 6 percent year to date; up more than 8 percent year to date when adjusted for Advertising Solutions
  • Record cash from operations of $11.5 billion and record free cash flow of $6.5 billion in third quarter; full-year free cash flow guidance increases $2 billion to $18 billion or higher
  • $3.8 billion in stock buybacks in the third quarter; 101 million shares repurchased

Revenue Growth Driven by Wireless, AT&T U-verse® and Strategic Business Services

  • Reported consolidated revenues of $31.5 billion, flat versus the year-earlier period
  • Strong 2.6 percent consolidated revenue growth when adjusted for Advertising Solutions
  • AT&T’s growth engines — wireless, wireline data and managed IT services — continue to transform the company’s revenue mix; represented 81 percent of total revenues and grew 6.4 percent versus the same quarter a year ago, led by:
    • 18.3 percent growth in wireless data revenues, up more than $1 billion versus the year-earlier quarter
    • 38.3 percent growth in U-verse revenues
    • 11.4 percent growth in strategic business services revenues

Strong Wireless Performance; Smartphones 81 percent of Postpaid Sales

  • Wireless revenues up 6.6 percent; wireless service revenues up 4.5 percent
  • Strongest postpaid wireless subscriber ARPU (average monthly revenues per subscriber) growth in six quarters, up 2.4 percent to $65.20; phone-only ARPU up almost 3 percent
  • Strong smartphone sales of 6.1 million; postpaid smartphone customer base now 44.5 million, up 1.4 million from second quarter 2012
  • 4.7 million iPhones activated; record sales quarter for Android and Windows smartphones
  • Best-ever third-quarter postpaid churn
  • 678,000 net increase in total wireless subscribers, including gains in every customer category
  • Wireless operating income margin of 26.2 percent; EBITDA service margin of 40.8 percent with strong smartphone sales

Wireline Consumer Revenue Growth Accelerates

  • Wireline consumer revenue growth accelerates, up 2.0 percent versus the year-earlier period, strongest growth in more than four years
  • 7.4 million total AT&T U-verse subscribers (TV and high speed Internet) in service; almost 200,000 net gain in U-verse TV subscribers and 613,000 net gain in high speed Internet subscribers
  • Total wireline broadband data ARPU up almost 10 percent year over year

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

DALLAS--()--AT&T Inc. (NYSE:T) today reported third-quarter results highlighted by strong EPS growth, record free cash flow, $3.8 billion in share buybacks and, when you exclude the divested Advertising Solutions business, strong consolidated revenue growth led by wireless, U-verse and strategic business services.

“We had another impressive quarter with strong earnings growth, record cash flows and solid returns to shareholders through dividends and share buybacks,” said Randall Stephenson, AT&T chairman and chief executive officer. “In wireless, we had another excellent smartphone quarter, penetration of usage-based mobile data plans continues to climb, and our 4G LTE network build is ahead of schedule. And in wireline, our IP network continues to deliver strong gains in U-verse high speed Internet connections, which helped drive an almost 10 percent increase in broadband data ARPU.

“Our strong performance allows us to increase our free cash flow guidance to $18 billion or higher this year, exceeding our previous outlook by $2 billion.”

Third-Quarter Financial Results

For the quarter ended September 30, 2012, AT&T's consolidated revenues totaled $31.5 billion, flat versus the year-earlier quarter. When excluding the divested Advertising Solutions business unit, AT&T’s consolidated revenues grew 2.6 percent. Compared with results for the third quarter of 2011, operating expenses were $25.4 billion versus $25.2 billion, up 0.7 percent year over year; excluding Advertising Solutions, operating expenses were $25.4 billion versus $24.6 billion in the year-ago quarter, up 3.4 percent. Operating income was $6.0 billion, down from $6.2 billion; and AT&T’s operating income margin was 19.2 percent, compared to 19.8 percent.

Third-quarter 2012 net income attributable to AT&T totaled $3.6 billion, or $0.63 per diluted share, consistent with $3.6 billion, or $0.61 per diluted share, in the year-earlier quarter. When adjusted for Advertising Solutions, earnings per share was $0.62 compared to $0.59 in the year-ago quarter.

Third-quarter 2012 cash from operating activities totaled $11.5 billion, a record for the company, and capital expenditures totaled $4.9 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $6.5 billion, also a record for the company. The company now expects free cash flow to be $18 billion or higher this year, up from previous guidance of $15 to $16 billion. Capital expenditures for the year are now expected to come in at the low end of the $19 to $20 billion range while still meeting network build targets. In fact, the company’s LTE deployment is ahead of schedule, already covering more than 135 million POPs. During the third quarter, AT&T continued buying back shares under its initial 300 million shares repurchase authorization. A second 300 million share buyback authorization also was approved by the AT&T board during the third quarter. The company repurchased 101.1 million of its shares for $3.8 billion in the quarter. Through October 19, the company has repurchased 271 million shares for $9.4 billion. The company expects to continue to buy back shares consistent with its repurchase authorizations.

WIRELESS OPERATIONAL HIGHLIGHTS

AT&T delivered strong revenue growth, including robust wireless data revenue growth and solid postpaid ARPU gains in the third quarter. Highlights included:

Wireless Data Revenues Continue Strong Growth. Total wireless revenues, which include equipment sales, were up 6.6 percent year over year to $16.6 billion. Wireless service revenues increased 4.5 percent, to $14.9 billion, in the third quarter. Wireless data revenues — driven by mobile Internet access, access to applications, messaging and related services — increased by more than $1 billion, or 18.3 percent, from the year-earlier quarter to $6.6 billion. Third-quarter wireless operating expenses totaled $12.3 billion, up 11.7 percent versus the year-earlier quarter, driven by increased smartphone volumes, and wireless operating income was $4.4 billion, down 5.6 percent year over year.

Best Postpaid ARPU Growth in Six Quarters. Postpaid subscriber ARPU increased 2.4 percent versus the year-earlier quarter to $65.20, the strongest growth in six quarters. This also marked the 15th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Phone-only postpaid ARPU was up almost 3 percent. Postpaid data ARPU reached $28.81, up 14.6 percent versus the year-earlier quarter.

Smartphone Base Grows to Almost 64 Percent of Postpaid Subscribers. AT&T sold 6.1 million smartphones in the third quarter, 1.3 million more than in the third quarter a year ago. Smartphones represented 81 percent of postpaid device sales. At the end of the quarter, 63.8 percent, or 44.5 million, of AT&T's postpaid subscribers had smartphones, up from 52.6 percent, or 36.1 million, a year earlier and up 1.4 million from the second quarter. AT&T’s ARPU for smartphones is twice that of non-smartphone subscribers, and about 89 percent of smartphone subscribers are on FamilyTalk®, Mobile Share or business plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers. More than 40 percent of AT&T’s postpaid smartphone customers use a 4G-capable device.

In the quarter, the company activated 4.7 million iPhones, with 18 percent new to AT&T. The company also had its best-ever sales quarter for Android and Windows smartphones.

Subscribers Move to Usage-Based Data Plans. The number of subscribers on usage-based data plans continues to increase. Usage-based plans include tiered data plans and the recently introduced Mobile Share plans. About 64 percent, or 28.5 million of all smartphone subscribers are on usage-based data plans. This compares to 50 percent, or 18.0 million a year ago. About three-quarters of customers on tiered data plans have chosen the higher-priced plans. Early results from sales of Mobile Share plans have been positive. Nearly 2 million subscribers signed up for Mobile Share plans in the first five weeks they were available, with take rates on the higher-data plans stronger than expected. More than a third of Mobile Share subscribers are taking plans of 10 gigabits or higher. Overall, AT&T’s postpaid wireless subscribers on data plans increased by 11 percent over the past year.

Best-Ever Third-Quarter Postpaid Churn. For the third quarter, postpaid churn was 1.08 percent, compared to 1.15 percent in the year-ago third quarter and 0.97 percent in the second quarter of 2012. Total churn was 1.34 percent versus 1.28 percent in the third quarter of 2011 and 1.18 percent in the second quarter of 2012.

Subscriber Gains in Every Category. AT&T posted a net increase in total wireless subscribers of 678,000 in the third quarter to reach 105.9 million in service. This included gains in every customer category. Subscriber additions for the quarter included postpaid net adds of 151,000. Postpaid results were impacted by iPhone 5 inventory constraints which resulted in the vast majority of third-quarter iPhone sales going to existing customers, where there was considerable pent-up demand. Prepaid net adds were 77,000, connected device net adds were 313,000 and reseller net adds were 137,000.

Branded computing subscribers, which are included in the previous categories, reached a total of 6.4 million, up more than 40 percent from a year ago. Branded computing devices includes tablets, tethering plans and other data-only devices. AT&T added 139,000 branded computing subscribers in the quarter, including 114,000 tablets.

Solid Wireless Margins with Strong Smartphone Sales. In the third quarter, wireless margins included strong smartphone sales and further revenue gains from the company’s high-value smartphone subscribers. AT&T’s third-quarter wireless operating income margin was 26.2 percent versus 29.5 percent in the year-earlier quarter, and AT&T’s wireless EBITDA service margin was 40.8 percent, compared with 43.7 percent in the third quarter of 2011. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

WIRELINE OPERATIONAL HIGHLIGHTS

AT&T's third-quarter wireline results were led by strong U-verse TV and high speed Internet gains and accelerating wireline consumer revenue growth. Highlights included:

Consumer IP Broadband Growth Helps Offset Declines in Legacy Revenues. Total third-quarter wireline revenues were $14.8 billion, down 1.6 percent versus the year-earlier quarter and down slightly sequentially. Third-quarter wireline operating expenses were $12.9 billion, down 2.1 percent versus the third quarter of 2011. AT&T’s wireline operating income totaled $1.9 billion, up 2.0 percent from the third quarter of 2011. Positive consumer and strategic business services revenue trends and execution of cost initiatives helped to partially offset declines in voice revenues. Third-quarter wireline operating income margin was 12.9 percent, compared to 12.4 percent in the year-earlier quarter.

Consumer Posts Ninth Consecutive Quarter of Revenue Growth. Revenues from residential customers totaled $5.4 billion, an increase of 2.0 percent versus the third quarter a year ago and their strongest growth in more than four years. Continued strong growth in consumer IP data services in the third quarter more than offset lower revenues from voice and legacy products. The third quarter marked the ninth 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 59 percent of wireline consumer revenues, up from 51 percent in the year-earlier quarter. Increased AT&T U-verse penetration and a significant number of subscribers purchasing three or four services drove 17.9 percent year-over-year growth in IP revenues from residential customers (broadband, U-verse TV and U-verse Voice) and 2.7 percent sequential growth. Total U-verse revenues grew 38.3 percent compared with the year-ago third quarter and were up 6.1 percent versus the second quarter of 2012.

U-verse Subscribers Continue Strong Growth. Total AT&T U-verse subscribers (TV and high speed Internet) reached 7.4 million in the third quarter. AT&T U-verse TV added 198,000 subscribers to reach 4.3 million in service. AT&T U-verse High Speed Internet delivered a third-quarter net gain of 613,000 subscribers to reach a total of 7.1 million, helping offset losses from DSL. Overall, AT&T wireline broadband connections decreased 42,000. However, total broadband ARPU was up almost 10 percent year over year.

A majority of U-verse broadband subscribers have a plan delivering speeds up to 12 Mbps or higher — 54 percent, up from 43 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 third quarter. 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 more than $170, up slightly year over year. U-verse TV penetration of eligible living units continues to grow and was at 18.0 percent at the end of the third quarter.

Strategic Business Services Lead Wireline Business. Total business revenues were $9.1 billion, down 2.6 percent versus the year-earlier quarter and slightly lower than the second quarter of 2012. Business service revenues also declined 2.6 percent year over year. Overall, declines in legacy products were largely offset by continued growth in strategic business services. 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 11.4 percent versus the year-earlier quarter, continuing trends in this area. Total business data revenues grew 0.6 percent year over year, continuing the transition from legacy data products to next-generation data 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.

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 internationally. 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, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain 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 Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS 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.

 
Financial Data
             
AT&T Inc.    
Consolidated Statements of Income
Dollars in millions except per share amounts                                  
Unaudited Three Months Ended Nine Months Ended  
      9/30/2012     9/30/2011   % Chg       9/30/2012     9/30/2011   % Chg
Operating Revenues
Wireless service $ 14,906 $ 14,261 4.5% $ 44,237 $ 42,379 4.4%
Data 7,977 7,459 6.9% 23,695 21,979 7.8%
Voice 5,565 6,242 -10.8% 17,155 19,132 -10.3%
Directory - 803 - 1,049 2,512 -58.2%
Other     3,011     2,713   11.0%       8,720     8,218   6.1%
Total Operating Revenues     31,459     31,478   -0.1%       94,856     94,220   0.7%
 
Operating Expenses
Cost of services and sales (exclusive of depreciation and

amortization shown separately below)

12,718 12,656 0.5% 38,000 38,225 -0.6%
Selling, general and administrative 8,192 7,969 2.8% 24,330 23,983 1.4%
Depreciation and amortization     4,512     4,618   -2.3%       13,571     13,804   -1.7%
Total Operating Expenses     25,422     25,243   0.7%       75,901     76,012   -0.1%
Operating Income     6,037     6,235   -3.2%       18,955     18,208   4.1%
Interest Expense 824 889 -7.3% 2,624 2,583 1.6%
Equity in Net Income of Affiliates 182 193 -5.7% 537 649 -17.3%
Other Income (Expense) - Net     47     46   2.2%       122     132   -7.6%
Income Before Income Taxes 5,442 5,585 -2.6% 16,990 16,406 3.6%
Income Tax Expense     1,741     1,899   -8.3%       5,672     5,594   1.4%
Net Income     3,701     3,686   0.4%       11,318     10,812   4.7%
Less: Net Income Attributable to Noncontrolling Interest     (66)     (63)   -4.8%       (197)     (190)   -3.7%
Net Income Attributable to AT&T   $ 3,635   $ 3,623   0.3%     $ 11,121   $ 10,622   4.7%
 
                           
Basic Earnings Per Share Attributable to AT&T $ 0.63   $ 0.61   3.3%     $ 1.90   $ 1.79 6.1%
Weighted Average Common

Shares Outstanding (000,000)

5,771 5,936 -2.8% 5,848 5,931 -1.4%
                           
Diluted Earnings Per Share Attributable to AT&T $ 0.63   $ 0.61   3.3%     $ 1.90   $ 1.79 6.1%
Weighted Average Common

Shares Outstanding with Dilution (000,000)

5,792 5,954 -2.7% 5,869 5,950 -1.4%
 
Financial Data
               
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended Nine Months Ended
Wireless       9/30/2012       9/30/2011     % Chg       9/30/2012       9/30/2011     % Chg
Segment Operating Revenues
Service $ 14,906 $ 14,261 4.5 % $ 44,237 $ 42,379 4.4 %
Equipment       1,726       1,345     28.3 %       4,884       4,140     18.0 %
Total Segment Operating Revenues       16,632       15,606     6.6 %       49,121       46,519     5.6 %
 
Segment Operating Expenses
Operations and support 10,549 9,376 12.5 % 30,337 29,023 4.5 %
Depreciation and amortization       1,730       1,620     6.8 %       5,092       4,741     7.4 %
Total Segment Operating Expenses       12,279       10,996     11.7 %       35,429       33,764     4.9 %
Segment Operating Income 4,353 4,610 -5.6 % 13,692 12,755 7.3 %
Equity in Net Income (Loss) of Affiliates       (17 )     (8 )   -         (45 )     (19 )   -  
Segment Income     $ 4,336     $ 4,602     -5.8 %     $ 13,647     $ 12,736     7.2 %
 
Segment Operating Income Margin 26.2 % 29.5 % 27.9 % 27.4 %
 
Wireline                            
Segment Operating Revenues
Data $ 7,977 $ 7,459 6.9 % $ 23,695 $ 21,979 7.8 %
Voice 5,565 6,242 -10.8 % 17,155 19,132 -10.3 %
Other       1,271       1,354     -6.1 %       3,795       4,025     -5.7 %
Total Segment Operating Revenues       14,813       15,055     -1.6 %       44,645       45,136     -1.1 %
 
Segment Operating Expenses
Operations and support 10,134 10,295 -1.6 % 30,516 30,752 -0.8 %
Depreciation and amortization       2,774       2,892     -4.1 %       8,348       8,726     -4.3 %
Total Segment Operating Expenses       12,908       13,187     -2.1 %       38,864       39,478     -1.6 %
Segment Operating Income 1,905 1,868 2.0 % 5,781 5,658 2.2 %
Equity in Net Income (Loss) of Affiliates       -       -     -         (1 )     -     -  
Segment Income     $ 1,905     $ 1,868     2.0 %     $ 5,780     $ 5,658     2.2 %
 
Segment Operating Income Margin 12.9 % 12.4 % 12.9 % 12.5 %
 
Advertising Solutions                            
Segment Operating Revenues     $ -     $ 803     -       $ 1,049     $ 2,512     -58.2 %
 
Segment Operating Expenses
Operations and support - 554 - 773 1,707 -54.7 %
Depreciation and amortization       -       94     -         106       301     -64.8 %
Total Segment Operating Expenses       -       648     -         879       2,008     -56.2 %
Segment Income     $ -     $ 155     -       $ 170     $ 504     -66.3 %
 
Segment Income Margin - 19.3 % 16.2 % 20.1 %
 
Other                            
Segment Operating Revenues $ 14 $ 14 - $ 41 $ 53 -22.6 %
Segment Operating Expenses       235       412     -43.0 %       729       762     -4.3 %
Segment Operating Income (Loss) (221 ) (398 ) 44.5 % (688 ) (709 ) 3.0 %
Equity in Net Income of Affiliates       199       201     -1.0 %       583       668     -12.7 %
Segment Income (Loss)     $ (22 )   $ (197 )   88.8 %     $ (105 )   $ (41 )   -  
 
Financial Data
     
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
9/30/12 12/31/11
    Unaudited      
Assets
Current Assets
Cash and cash equivalents $ 2,217 $ 3,185
Accounts receivable - net of allowances for
doubtful accounts of $606 and $878 12,398 13,606
Prepaid expenses 1,337 1,155
Deferred income taxes 1,312 1,470
Other current assets     1,694         3,611  
Total current assets     18,958         23,027  
Property, Plant and Equipment - Net 108,217 107,087
Goodwill 69,762 70,842
Licenses 52,082 51,374
Customer Lists and Relationships - Net 1,622 2,757
Other Intangible Assets - Net 5,038 5,212
Investments in and Advances to Equity Affiliates 4,563 3,718
Other Assets     6,607         6,327  
Total Assets   $ 266,849       $ 270,344  
 
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 3,433 $ 3,453
Accounts payable and accrued liabilities 18,936 19,858
Advanced billing and customer deposits 3,709 3,872
Accrued taxes 2,209 1,003
Dividends payable     2,511         2,608  
Total current liabilities     30,798         30,794  
Long-Term Debt     60,314         61,300  
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 29,092 25,748
Postemployment benefit obligation 33,842 34,011
Other noncurrent liabilities     11,529         12,694  
Total deferred credits and other noncurrent liabilities     74,463         72,453  
Stockholders' Equity
Common stock 6,495 6,495
Additional paid-in capital 90,982 91,156
Retained earnings 28,907 25,453
Treasury stock (28,533 ) (20,750 )
Accumulated other comprehensive income 3,106 3,180
Noncontrolling interest     317         263  
Total stockholders' equity     101,274         105,797  
Total Liabilities and Stockholders' Equity   $ 266,849       $ 270,344  
 
Financial Data  
 
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions        
Unaudited Nine Months Ended September 30,
    2012       2011  
 
Operating Activities
Net income $ 11,318 $ 10,812
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,571 13,804
Undistributed earnings from investments in equity affiliates (483 ) (539 )
Provision for uncollectible accounts 835 805
Deferred income tax expense and noncurrent
unrecognized tax benefits 3,441 4,942
Net (gain) loss from sale of investments, net of impairments (27 ) (57 )
Changes in operating assets and liabilities:
Accounts receivable (450 ) (573 )
Other current assets 1,459 1,342
Accounts payable and accrued liabilities 387 (2,533 )
Other - net   (1,107 )     (853 )
Total adjustments   17,626       16,338  
Net Cash Provided by Operating Activities   28,944       27,150  
 
Investing Activities
Construction and capital expenditures:
Capital expenditures (13,619 ) (14,625 )
Interest during construction (197 ) (119 )
Acquisitions, net of cash acquired (551 ) (430 )
Dispositions 807 76
Sales (purchases) of securities, net 311 45
Other   (2 )     28  
Net Cash Used in Investing Activities   (13,251 )     (15,025 )
 
Financing Activities
Net change in short-term borrowings with
original maturities of three months or less - (1,620 )
Issuance of long-term debt 6,935 7,935
Repayment of long-term debt (8,042 ) (1,298 )
Purchase of treasury stock (8,374 ) -
Issuance of treasury stock 460 216
Dividends paid (7,738 ) (7,627 )
Other   98       (406 )
Net Cash Used in Financing Activities   (16,661 )     (2,800 )
Net (decrease) increase in cash and cash equivalents (968 ) 9,325
Cash and cash equivalents beginning of year   3,185       1,437  
Cash and Cash Equivalents End of Period $ 2,217     $ 10,762  
 
Financial Data
             
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts
Unaudited Three Months Ended Nine Months Ended
    9/30/2012     9/30/2011     % Chg 9/30/2012     9/30/2011     % Chg
 
Wireless
Volumes (000)              
Total           105,871       100,738   5.1 %
Postpaid 69,747 68,614 1.7 %
Prepaid 7,545 7,059 6.9 %
Reseller 14,573 13,028 11.9 %
Connected Devices 14,006 12,037 16.4 %
 
Wireless Net Adds (000)              
Total     678       2,123   -68.1 %   2,670       5,202   -48.7 %
Postpaid 151 319 -52.7 % 658 712 -7.6 %
Prepaid 77 293 -73.7 % 294 515 -42.9 %
Reseller 137 473 -71.0 % 793 1,282 -38.1 %
Connected Devices 313 1,038 -69.8 % 925 2,693 -65.7 %
M&A Activity, Partitioned Customers and Other Adjs. (13 ) - - (46 ) - -
 
Wireless Churn
Postpaid Churn 1.08 % 1.15 % -7 BP 1.05 % 1.16 % -11 BP
Total Churn 1.34 % 1.28 % 6 BP 1.33 % 1.36 % -3 BP
 
Other
Branded Computing Subscribers1 6,419 4,537 41.5 %
Licensed POPs (000,000) 313 313 0.0 %
 
Wireline
Voice              
Total Wireline Voice Connections           35,821       40,098   -10.7 %
Net Change (1,020 ) (1,200 ) 15.0 % (3,191 ) (3,465 ) 7.9 %
 
Broadband              
Total Wireline Broadband Connections           16,392       16,476   -0.5 %
Net Change2 (42 ) 3 - (35 ) 167 -
 
Video              
U-verse 4,344 3,583 21.2 %
Satellite           1,633       1,809   -9.7 %
Total Video Connections           5,977       5,392   10.8 %
Net Change 147 133 10.5 % 421 475 -11.4 %
 
Consumer Revenue Connections              
Broadband3 14,501 14,530 -0.2 %
Video Connections4 5,954 5,381 10.6 %
Voice5           19,222       21,941   -12.4 %
Total Consumer Revenue Connections           39,677       41,852   -5.2 %
Net Change (518 ) (652 ) 20.6 % (1,589 ) (1,575 ) -0.9 %
 
AT&T Inc.
Construction and capital expenditures
Capital expenditures $ 4,877 $ 5,220 -6.6 % $ 13,619 $ 14,625 -6.9 %
Interest during construction $ 67 $ 42 59.5 % $ 197 $ 119 65.5 %
Dividends Declared per Share $ 0.44 $ 0.43 2.3 % $ 1.32 $ 1.29 2.3 %
End of Period Common Shares Outstanding (000,000) 5,707 5,926 -3.7 %
Debt Ratio6 38.6 % 38.5 % 10 BP
Total Employees 241,130 256,210 -5.9 %
                           

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

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

Consumer wireline broadband connections include DSL lines, U-verse High Speed Internet access and satellite broadband.

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

Includes consumer U-verse Voice over Internet Protocol connections of 2,733 as of September 30, 2012.

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

   Note: For the end of 3Q12, total switched access lines were 33,088, retail business switched access lines totaled 14,619, and wholesale
           and coin switched access lines totaled 1,980.

 

 
Financial Data
 
AT&T Inc.
Non-GAAP Wireless Reconciliation
Wireless Segment EBITDA
Dollars in millions
Unaudited
Three Months Ended
9/30/11   12/31/11   3/31/12   6/30/12   9/30/12  
 
Segment Operating Revenues
Service $ 14,261 $ 14,347 $ 14,566 $ 14,765 $ 14,906
Equipment     1,345     2,349     1,570     1,588     1,726  
Total Segment Operating Revenues     15,606     16,696     16,136     16,353     16,632  
 
Segment Operating Expenses
Operations and support 9,376 12,598 10,083 9,705 10,549
Depreciation and amortization     1,620     1,588     1,666     1,696     1,730  
Total Segment Operating Expenses     10,996     14,186     11,749     11,401     12,279  
 
Segment Operating Income     4,610     2,510     4,387     4,952     4,353  
Segment Operating Income Margin 29.5 % 15.0 % 27.2 % 30.3 % 26.2 %
 
Plus: Depreciation and amortization     1,620     1,588     1,666     1,696     1,730  
EBITDA     6,230     4,098     6,053     6,648     6,083  
EBITDA as a % of Service Revenue 43.7 % 28.6 % 41.6 % 45.0 % 40.8 %
 

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 Nine Months Ended
September 30, September 30,
    2011     2012     2011     2012  
 
Net cash provided by operating activities $ 10,393 $ 11,485 $ 27,150 $ 28,944
 
Less: Construction and capital expenditures (5,262 ) (4,944 ) (14,744 ) (13,816 )
                 
Free Cash Flow   $ 5,131     $ 6,541     $ 12,406     $ 15,128  

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,
    2011     2012     2011     2012  
 
Net cash provided by operating activities $ 10,393 $ 11,485 $ 27,150 $ 28,944
 
Less: Construction and capital expenditures (5,262 ) (4,944 ) (14,744 ) (13,816 )
                 
Free Cash Flow     5,131       6,541       12,406       15,128  
 
Less: Dividends paid (2,545 ) (2,551 ) (7,627 ) (7,738 )
                 
Free Cash Flow After Dividends   $ 2,586     $ 3,990     $ 4,779     $ 7,390  
 
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   9/30/12   2012 YTD
 
Operating Revenues $ 31,822 $ 31,575 $ 31,459 $ 94,856
Operating Expenses 25,721 24,758 25,422 75,901
Total Operating Income 6,101 6,817 6,037 18,955
Add Back Depreciation and Amortization 4,560 4,499 4,512 13,571
Total Consolidated EBITDA 10,661 11,316 10,549 32,526
Annualized Consolidated EBITDA* 43,368
End-of-period current debt 3,433
End-of-period long-term debt 60,314
Total End-of-Period Debt 63,747
(Premiums) Discounts on long-term debt (32 )
Normalized Debt Balance 63,715
Less Cash and Cash Equivalents 2,217
Normalized Net Debt Balance 61,498
                 
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
12/31/10 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12
                                 
 
Operating Revenues - reported $ 31,361 $ 31,247 $ 31,495 $ 31,478 $ 32,503 $ 31,822 $ 31,575 $ 31,459
less: Advertising Solutions 926 868 841 803 781 744 305 -
Operating Revenues - without Ad Solutions 30,435 30,379 30,654 30,675 31,722 31,078 31,270 31,459
Year-over-year growth - reported 3.6 % 1.8 % 0.3 % -0.1 %
Year-over-year growth - without Ad Solutions 4.2 % 2.3 % 2.0 % 2.6 %
                                 
 
Operating Expenses
 

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

13,766 12,813 12,756 12,656 16,950 12,913 12,369 12,718
less: Advertising Solutions 319 344 322 276 289 314 130 -

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

13,447 12,469 12,434 12,380 16,661 12,599 12,239 12,718
 
Selling, general and administrative - reported 10,515 8,042 7,972 7,969 17,060 8,248 7,890 8,192
less: Advertising Solutions 308 228 259 278 269 233 96 -
Selling, general and administrative - without Ad Solutions 10,207 7,814 7,713 7,691 16,791 8,015 7,794 8,192
 
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 4,907 4,584 4,602 4,618 4,573 4,560 4,499 4,512
less: Advertising Solutions 103 106 101 94 85 77 29 -
Depreciation and amortization - without Ad Solutions 4,804 4,478 4,501 4,524 4,488 4,483 4,470 4,512
 
Total Operating Expenses - reported 29,273 25,439 25,330 25,243 41,493 25,721 24,758 25,422
less: Advertising Solutions 730 678 682 648 3,553 624 255 -
Total Operating Expenses - without Ad Solutions 28,543 24,761 24,648 24,595 37,940 25,097 24,503 25,422
                                 
 
Operating Income (Loss) - reported $ 2,088 $ 5,808 $ 6,165 $ 6,235 $ (8,990 ) $ 6,101 $ 6,817 $ 6,037
less: Advertising Solutions 196 190 159 155 (2,772 ) 120 50 -
Operating Income (Loss) - without Ad Solutions 1,892 5,618 6,006 6,080 (6,218 ) 5,981 6,767 6,037
Operating Income Margin - reported 6.7 % 18.6 % 19.6 % 19.8 % -27.7 % 19.2 % 21.6 % 19.2 %
Operating Income Margin - without Ad Solutions 6.2 % 18.5 % 19.6 % 19.8 % -19.6 % 19.2 % 21.6 % 19.2 %
                                 
 
Reconciliation of Net Income and Diluted Earnings Per Share Attributable to AT&T excluding Advertising Solutions Segment
AT&T Inc.
Dollars in millions except per share amounts Three Months Ended
Unaudited     12/31/10       3/31/11       6/30/11       9/30/11       12/31/11       3/31/12       6/30/12       9/30/12  
Net Income Attributable to AT&T - reported   $ 1,089     $ 3,408     $ 3,591     $ 3,623     $ (6,678 )   $ 3,584     $ 3,902     $ 3,635  
Adjustments for Advertising Solutions
Less: Advertising Solution Segment Operating Income 196 190 159 155 (2,772 ) 120 50 -
Less: Equity in Net Income of Affiliates from YP Holdings - - - - - - 19 75
Tax expense (benefit)     65       65       54       53       (9 )     41       24       24  
less: Advertising Solutions     131       125       105       102       (2,763 )     79       45       51  
Net Income Attributable to AT&T - without Ad Solutions   $ 958     $ 3,283     $ 3,486     $ 3,521     $ (3,915 )   $ 3,505     $ 3,857     $ 3,584  
 
Weighted Average Common Shares Outstanding
with Dilution (000,000) 5,941 5,945 5,953 5,954 5,955 5,940 5,876 5,792
                                 
 
Diluted Earnings Per Share - reported $ 0.18 $ 0.57 $ 0.60 $ 0.61 $ (1.12 ) $ 0.60 $ 0.66 $ 0.63
Year-over-year growth - reported - 5.3 % 10.0 % 3.3 %
 
Diluted Earnings Per Share - without Ad Solutions $ 0.16 $ 0.55 $ 0.59 $ 0.59 $ (0.66 ) $ 0.59 $ 0.66 $ 0.62
Year-over-year growth - without Ad Solutions - 7.3 % 11.9 % 5.1 %
                                 
 
Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain 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 Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS 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.
 
Financial Data
       
AT&T Inc.
Non-GAAP Financial Reconciliation
Adjusted Diluted EPS
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
    2011     2012     2011     2012  
 
Reported Diluted EPS $ 0.61 $ 0.63 $ 1.79 $ 1.90
Significant Items:
Advertising Solutions (0.02 ) (0.01 ) (0.06 ) (0.03 )
                 
Adjusted Diluted EPS   $ 0.59     $ 0.62     $ 1.73     $ 1.87  
 
Year-over-year growth - without Ad Solutions 5.1 % 8.1 %
                 
 
Weighted Average Common Shares Outstanding
with Dilution (000,000)     5,954       5,792       5,950       5,869  
 

Adjusted diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain 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 diluted EPS 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 diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

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, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain 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 Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS 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