AT&T INC. annual report, FY2010

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AT&T Inc. — 2010 Form 10-K Summary

Business context and reporting period

AT&T is a diversified telecommunications provider with wireless, wireline, advertising and other operations. This annual report covers the fiscal year ended December 31, 2010. The filing incorporates much of its financial statements and management discussion by reference to the 2010 Annual Report to Stockholders; those detailed financial statements are not included in the supplied text.

Key financial and operating metrics

  • Revenue, profit, cash flow, margins, debt and liquidity: The supplied filing text does not provide clear consolidated values for these measures. Segment income is discussed only as a share of total segment income, not as a dollar amount or consolidated profit measure.
  • Segment mix: Wireless represented approximately 47% of 2010 segment operating revenues and 67% of segment income; Wireline represented approximately 49% and 34%, respectively. Advertising Solutions represented approximately 3% of revenues and 4% of segment income. Other represented approximately 1% of revenues and had expenses exceeding revenues.
  • Revenue composition: As a percentage of consolidated operating revenues, wireless service was 43% in 2010, versus 40% in 2009 and 36% in 2008. Wireline voice was 23%, versus 26% and 30%; wireline data was 22%, versus 21% and 20%.
  • Scale and shareholder return: AT&T served 95.5 million wireless customers at year-end. It declared dividends of $1.69 per share in 2010, compared with $1.65 in 2009.
  • Research and development: Expenses were $1.345 billion in 2010, $986 million in 2009 and $832 million in 2008.

Material changes versus prior periods

  • Wireless service increased its share of consolidated revenues, while wireline voice continued to decline; wireline data gained modest share.
  • Management attributed pressure on traditional wireline voice to customers switching to wireless, cable and Internet-based alternatives, as well as economic weakness. AT&T emphasized bundled voice, broadband and video offerings in response.
  • AT&T sold Sterling Commerce in August 2010; its results are presented as discontinued operations, and the Other segment’s comparative results were adjusted accordingly.
  • R&D spending rose in each of the three years shown. Dividends per share increased from 2009 to 2010.

Outlook, risks and unusual items

  • For 2011, management identified continued wireless network and device development, business-customer services, broadband and U-verse expansion, and IP-based offerings as priorities. The supplied text gives no quantitative earnings or revenue guidance.
  • AT&T reported that U-verse passed more than 27.3 million living units and was marketed to almost 77% of those units at year-end. Deployment could be delayed by permitting, equipment or software issues and by disputes over regulatory treatment, municipal rights-of-way and public, educational and governmental programming.
  • Key risks include competition and customer churn, declining wireline access lines, wireless data growth and network quality, device and spectrum availability, regulatory outcomes, benefit-plan costs, litigation, and severe weather or network disruptions.
  • AT&T expected to settle EPA allegations concerning backup-power systems for penalties of $1 million to $3 million. The company stated that it did not believe the proceeding would materially affect results.
  • The filing says no pending legal proceeding was believed to require disclosure as a material proceeding under the relevant item. This does not eliminate the risks of ongoing litigation and regulatory matters.

Important facts for investors to verify

  1. Review the incorporated 2010 Annual Report for consolidated revenue, net income, operating margins, cash flow, balance-sheet liquidity, debt, capital spending and segment dollar results; these values are not clear in the supplied text.
  2. Check the full MD&A for management’s explanation of year-over-year earnings and cash-flow changes, and for any outlook beyond the qualitative priorities summarized here.
  3. Assess whether wireless subscriber and data growth offset wireline voice declines, including the effects of customer churn, device subsidies and network investment.
  4. Review the status and potential financial impact of U-verse regulatory disputes, other litigation, and the EPA matter.
  5. Confirm the impact of the Sterling Commerce sale and discontinued-operations presentation on comparable-period results.