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AT&T Inc.

Juan Ramirez

Financial Accounting 2301 P01


Professor Naismith
April 20, 2013

AT&T is a world leading telecommunication providing company that provides


wireless communications, local exchange services, long-distance services, data/broadband and
Internet services, video services, telecommunications equipment, managed networking, and
wholesale services. The name of its Chairman, Chief Executive Officer, and President is Randall
Stephenson. AT&Ts home office is located in the downtown area of Dallas, Texas at 208 S.
Akard St. The ending date of its latest fiscal year was December 31, 2012. AT&T provides
products and services to over 225 countries all over the world, including wireless mobile data to
over 150, and also provides service and data to over 140 cruise ships worldwide. The main area
of coverage though is the U.S. where its faster wireless connections of 4G and 4G LTE speeds
can be found.
AT&Ts independent accounting firm is Ernst & Young. After auditing AT&Ts financial
statements, Ernst & Young reported an unqualified opinion, meaning that all the numbers
reported were valid, did not show any issues or inaccuracies, and followed all the steps necessary
in accordance to GAAP. Ernst & Young is not responsible for the financial statements, their only
responsibility is only state an opinion based on the information it audited.1 The responsibility of
the income statement, statement of retained earnings, balance sheet, statement of cash flows, and
statement of changes in stockholders equity all fall under AT&T management.2
As of April 20, 2013, the closing market price for AT&T was $38.28 a share. Its dividend
per share ratio is calculated at $1.57, meaning every stockholder receives $1.57 payout per share.
AT&T is traded on the New York Stock Exchange under the ticker symbol T. The internet

1 AT&T 2012 Annual Report Page 94 Paragraph 1


2 AT&T 2012 Annual Report Page 94 Paragraph 1

address for AT&T is att.com, and any financial data needed can be found at the bottom of the
webpage with the link Investor Relations.
The telecommunications industry is and has been geared towards mobility and portability,
meaning that people all over the world are relying more on wireless devices for communication.3
This industry also looks forward to helping achieve the recovery of the global economy.4 This
can be a justified statement because of the rise of tablets, smartphones, and app stores that people
everywhere are relying upon for communication and entertainment purposes. According to
NASDAQs website, it claims that Wireless Is the Key, which talks about how the
telecommunications industry through its wireless networks have had such a strong standstill over
the years even through the past recession in 2008.5 CEO Randall Stephenson assures AT&Ts
stockholders that it will continue to thrive under any circumstances in continuing to grow its
wireless networks, as well as revenues. A risk factor AT&T has is innovation because it has to
continue being ahead on wireless technology in order to keep the interest of people high. AT&T
has to continue helping its consumers or future consumers make the transition of using faster and
better technology instead of the old technologies.6 This risk factor is significant because AT&T
has to continue working towards keeping up with the pace of the industry in order to not fall
behind in wireless technology; thus losing revenues by consumers switching to other networks.
3 Telecom Industry Stock Outlook - Feb 2013 - Industry Outlook. Nasdaq. 31 January 2013. Web. 20
April 2013. http://www.nasdaq.com/article/telecom-industry-stock-outlook-feb-2013-industry-outlookcm212892

4 Telecom Industry Stock Outlook - Feb 2013 - Industry Outlook. Nasdaq. 31 January 2013. Web. 20 April 2013.
http://www.nasdaq.com/article/telecom-industry-stock-outlook-feb-2013-industry-outlook-cm212892

5 Telecom Industry Stock Outlook - Feb 2013 - Industry Outlook. Nasdaq. 31 January 2013. Web. 20 April 2013.
http://www.nasdaq.com/article/telecom-industry-stock-outlook-feb-2013-industry-outlook-cm212892

6 AT&T 2012 Annual Report Page 5 Paragraph 2

Another risk factor is potential business slowdowns which can be tied in with the innovations
risk factor, except now it depends on whether the consumers will even care to be interested in the
new technology produced by AT&T. An external factor that affects the telecommunications
industry is spectrum, or public airwaves that produce signals.7 CEO Randall Stephenson
discussed how the purchase of spectrum allows AT&T to continue providing more innovation
and growth to the company.8 AT&Ts biggest rival and competition, Verizon, recently bought
spectrum from three different companies which gives it the highest number of people it can reach
its wireless networks to.9
The format AT&T used for its income statement is the multi-step since it broke down and
allocated where all revenue was generated from. AT&Ts gross profit, in millions, has shown an
increasing trend for the past three years as the numbers have been $127,434 for 2012, $126,723
for 2011, and $124,280 for 2010. The operating income, in millions, has not shown a steady
trend but has improved from last year for the past three years with the numbers being, $12,997
for 2012, $9,218 for 2011, and $19,573 for 2010. The net income has also not been a steady
trend where during the past three years it has only shown an increase the past two. The numbers
for net income, in millions, are $7,539 in 2012, $4,184 in 2011, and $20,179 in 2010. AT&T has
shown tremendous growth during the past few years; sales revenue was at its highest in 2012.
According to Exhibit A, from 2011 to 2012, sales revenue increased by .56%, cost of goods sold
increased by .69%, gross profit increased by .46%, operating income increased by 40.99%, and
7Fung, Brian. Committee Will Watch Spectrum Auction Closely National Journal. 17 April 2013. Web. 20 April 2013.
http://www.nationaljournal.com/house-energy-commerce-committee/committee-will-watch-spectrum-auction-closely-20130417

8 2012 AT&T Annual Report Page 3 Paragraph 1


9Telecom Industry Stock Outlook - Feb 2013 - Industry Outlook. Nasdaq. 31 January 2013. Web. 20 April 2013.
http://www.nasdaq.com/article/telecom-industry-stock-outlook-feb-2013-industry-outlook-cm212892

net income increased by 80.18%. AT&T did not have a consistent trend over the past four years
up until this past year when everything increased on their income statement. Based on the
historical numbers, which have not been in favor of AT&T having a consistent trend, but with
sales revenues reaching an all time high, more and more increases can be expected in the future.
For 2012, AT&Ts total assets, in millions, summed up to be $272,315. Its total liabilities
summed up, in millions, to be $179,620 and stockholders equity summed up, in millions, to be
$92,695. When liabilities and stockholders equity were added, they equaled, in millions,
$272,315 which matched the total assets. For 2011, AT&Ts total assets, in millions, summed up
to be $270,442. Its total liabilities summed up, in millions, to be $164,645 and stockholders
equity summed up, in millions, to be $105,797. When liabilities and stockholders equity were
added, they equaled, in millions, $270,442 which matched the total assets.
AT&Ts net income for 2012 and 2011 was lower than the cash flow from operations. In
millions, 2012s net income was $7,539 and net cash provided by operating activities was
$39,176. In millions, 2011s net income was $4,184 and net cash provided by operating activities
was $34,743. This is important because what this means is that operating activities generated
back the cash that was spent for expenses that lowered net income. AT&Ts main investing
activities have been focused towards construction and capital expenditures for both 2012 and
2011. Its main source of financing for 2012 and 2011 has been issuance of long term debt. Cash
increased in 2012 by 62% and by 39% in 2011. This is important because it shows that AT&Ts
assets are on the rise which adds value to the company.

The first footnote of AT&Ts annual report states that, prior-period amounts are restated
to conform to current-period reporting methodology.10 This makes it easier to compare statistics
from previous years to the current one.
The telecommunications industry is here to stay and with all the many innovations that
are still to come, there is a low risk in investing in AT&T stock. AT&T should definitely be
recommended to invest in and buy common stocks because as an investor, he/she wants to take a
look at how much money he/she is getting back for how much he/she is putting in. A great way
to convince someone as to why AT&T is a great choice to invest in is to look at the how the
company is performing by looking at the earnings per share ratio first, then the dividends per
share ratio, and last the return on equity ratio. Once he/she has looked at all three then they can
compare them to the competitors ratios, as well as the industrys. At the end of the 2012 fiscal
year for AT&T, earnings per share ratio are calculated by dividing its net income, by the average
number of outstanding shares, totaling the ratio to be 1.16. What this means is that AT&T earned
$1.16 from net income for each common share. Also when calculating AT&Ts earnings per
share ratio, the earnings increased $0.52 from the $0.64 earnings per share in 2011. This
indicates that as long as net income continues to increase each year, the profit of the investor will
continue to do so as well. As an investor, it is important to know how well your company is
doing compared to the industry and the competition. When comparing AT&T to its most notable
competitors like Sprint and Verizon, AT&Ts ratio was right in between the two. Sprints ratio
was calculated at -1.44, which was lower than AT&Ts, and also indicated that it did not perform
as well by having a net loss for 2012. Verizons ratio, which was calculated at 3.55, is much
greater than AT&Ts, which indicates far better net income for 2012. AT&Ts earnings per share

10 2012 AT&T Annual Report page 30

have not been quite as high as Verizons the past few years and a good explanation for that would
be that when AT&T lost its exclusive rights to sell the famous iPhone in 2010, many of their
customers headed towards Verizon.11 The numbers do not lie as it shows that AT&T took a
downturn in its earnings per share going from $3.11 in 2010 to $0.64 in 2011. But these facts are
nothing to be concerned about because again as an investor, he/she has to look at how well
AT&T has been performing the past few years; which it has not had a net loss year since 2008.
When AT&T is compared to the industry itself as of April 2013, the earnings per share ratio
matches the high at $1.25, leaving behind its closest competitor Verizon at $0.31. Also an
investor, he/she would want take a look at how many common stocks he/she is looking to
purchase; AT&Ts current market price is at $38.28, while Verizons is at $52.25. No need to
mention Sprints market price since it had a net loss. An investor could purchase many more
common stocks at the lower price.
We have discussed the earnings per share for AT&T now let us look at the dividends per share
ratio, or the amount of money you as a future stockholder will receive, as well as the return on
equity ratio, or the amount of profit a company makes with stockholders money. At the end of
2012, AT&T had a dividend per share ratio of $1.57. AT&Ts competitor Sprint did not report
any dividends at the end of 2012, which as a stockholder, he/she would not be happy to hear
knowing he/she did not get any money back for what he/she put in. Verizon on the other hand,
produced a higher dividends per share ratio of $1.95. This can be tied in with the fact that
Verizon had lesser dividends to divide by the number of outstanding shares than AT&T. When
looking at the return on equity ratio, as an investor it is important to know how actual
stockholders money is producing. During 2012, the ratio for AT&T was calculated at .08, which
11 Reardon, Marguerite. AT&T prepares for the end to iPhone exclusivity. Cnet. 12 November 2010.
Web. 20 April 2013.http://news.cnet.com/8301-30686_3-20022622-266.html

translates to 8% of the profit was produced with stockholders investment. AT&Ts ratio was
much profitable than that of Sprints, which was -46.73%. However, Verizon had a much higher
ratio at 12.32%. Compared to the industry, AT&Ts ratio was much lower than 20.71%. As an
investor, 8% return on equity should look intriguing knowing that AT&T is putting current
stockholders money to good use.