AT&T Inc. 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2009. Unaudited results; dollar amounts are in millions except per-share data. AT&T provides wireless and wireline communications, data, video, managed networking, and advertising services.
Financial performance
| Metric | Q3 2009 | Q3 2008 | Nine months 2009 | Nine months 2008 |
|---|---|---|---|---|
| Operating revenue | $30,855 | $31,342 | $92,160 | $92,952 |
| Operating income | $5,388 | $5,618 | $16,631 | $18,165 |
| Net income attributable to AT&T | $3,192 | $3,230 | $9,516 | $10,463 |
| Diluted EPS | $0.54 | $0.55 | $1.61 | $1.75 |
| Operating margin | 17.5% | 17.9% | 18.0% | 19.5% |
- Wireless service revenue rose 10.0% in Q3 and 9.7% year to date; total wireless customers reached 81.6 million, up 9.0% year over year. Data ARPU grew 22.4% in Q3, while voice and other service ARPU fell 6.1%.
- Wireline revenue declined 7.1% in Q3 and 6.2% year to date. Wireline voice revenue fell 14.5% in Q3; data revenue increased 5.4%, supported by U-verse, broadband, and VPN growth. Switched access lines declined 11.1% year over year.
- Advertising Solutions revenue declined 12.6% in Q3, principally due to lower print advertising, partly offset by Internet revenue growth.
- Cash from operating activities was $25,481 for the first nine months, versus $22,773 in 2008. Capital expenditures were $11,067, excluding $553 of interest during construction; operating cash flow less capital expenditures was $14,414.
- Cash and cash equivalents were $6,167 at September 30, versus $1,792 at December 31, 2008. Current assets were $25,921 and current liabilities $33,268. Debt was $72,664, including $6,755 maturing within one year; the reported debt ratio was 42.1%.
- Long-term debt issued during the first nine months totaled $8,161; the company repaid $10,761 of debt and paid $7,252 in dividends. Q3 dividend declared was $0.41 per share.
Changes versus comparable periods
- Revenue decreased 1.6% in Q3 and 0.9% year to date. AT&T-attributable net income fell 1.2% and 9.1%, respectively; diluted EPS was down $0.01 in Q3 and $0.14 year to date.
- Operating income declined 4.1% in Q3 and 8.4% year to date. Management attributed pressure mainly to declining voice revenue, higher pension and postemployment benefit costs, and wireless equipment costs, partly offset by wireless service growth, wireline data growth, and wireline cost reductions.
- Combined pension and postretirement cost rose to $432 in Q3 and $1,552 year to date, compared with $81 and $243, respectively, in 2008. Management cited lower expected asset returns and actuarial-loss amortization following 2008 investment losses.
Outlook, commentary, and risks
- Management expected 2009 revenue to be slightly below 2008 and maintained a capital expenditure outlook of $17 billion to $18 billion. It expected wireless capital spending to be proportionately higher in Q4.
- Management expected ongoing pressure on wireline voice revenue and wireless voice ARPU, with continued growth in wireless data, broadband, and U-verse. U-verse deployment could be delayed by permitting, litigation, or equipment and software availability.
- Q3 income taxes included a benefit from favorable resolution of federal and state audit issues. Separately, AT&T appealed a court judgment for the government concerning tax treatment of Universal Service Fund receipts for 1998 and 1999.
- Centennial Communications’ acquisition remained subject to FCC approval and was expected to close early in Q4 2009. As of September 30, approximately half of covered collectively bargained wireline employees had ratified new agreements; a further agreement reached in October remained subject to ratification.
- Material risks discussed include competition and line losses, economic conditions, benefit-plan costs, regulatory and net-neutrality proceedings, U-verse deployment and litigation, labor negotiations, and technology or network disruptions. AT&T said no material risk-factor developments had occurred during Q3. The 10-Q reported effective disclosure controls.
Important facts for investors to verify
- Whether wireless data growth and customer additions continue to offset voice revenue declines and handset-related costs.
- Whether wireline access-line losses, U-verse expansion, and advertising declines develop in line with management’s expectations.
- Actual full-year revenue and capital spending versus the stated outlook, and the effect of pension and postemployment costs on margins.
- Debt maturities, borrowing and dividend commitments, and liquidity; current liabilities exceeded current assets at quarter-end.
- Outcomes of the tax appeal, U-verse regulatory and municipal disputes, labor agreement ratifications, and Centennial acquisition approval.