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AT&T (NYSE:T) is a provider of telecommunications services in the U.S. and worldwide. The company reported earnings after the market closed on 28 Jan 14, and on the surface everything looked good, with the company reporting fourth quarter earnings of $1.31 per share (excluding significant items, EPS was $0.53 versus $0.44) on revenue of $33.16 billion (beating analysts' estimates by $100 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Income (millions)

4Q13

4Q12

Y/Y

Wireless

$ 18,437

$ 17,642

5%

Wireline

$ 14,716

$ 14,923

-1%

Other

$ 10

$ 13

-23%

Total Income

$ 33,163

$ 32,578

2%

Compared to last year, total revenue has increased by 2% for the fourth quarter. The only real notable thing about this portion of the earnings report is that Wireless increased revenues by 5% and accounts for roughly 56% of the company's revenues. The 23% decrease in Other revenue is immaterial as it only accounts for 0.03% of revenues.

Income Statement

Income Statement

4Q13

4Q12

Y/Y

Operating Revenues

$ 33,163

$ 32,578

2%

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

$ 12,237

$ 17,555

-30%

Selling, general and administrative

$ 4,008

$ 16,409

-76%

Depreciation and amortization

$ 4,680

$ 4,572

2%

Total Operating Expenses

$ 20,925

$ 38,536

-46%

Operating Income (Loss)

$ 12,238

$ (5,958)

305%

Interest Expense

$ 1,459

$ 820

78%

Equity in Net Income of Affiliates

$ 148

$ 215

-31%

Other Income (Expense) - Net

$ 226

$ 12

1783%

Income (Loss) Before Income Taxes

$ 11,153

$ (6,551)

270%

Income Tax Expense (Benefit)

$ 4,158

$ (2,772)

-250%

Net Income (Loss)

$ 6,995

$ (3,779)

285%

Less: Net Income Attributable to Noncontrolling Interest

$ (82)

$ (78)

5%

Net Income (Loss) Attributable to AT&T

$ 6,913

$ (3,857)

279%

Basic Shares Outstanding

5,267

5,661

-7%

Diluted Shares Outstanding

5,283

5,680

-7%

Basic earnings per share

$ 1.31

$ (0.68)

293%

Diluted earnings per share

$ 1.31

$ (0.68)

293%

On the income statement, everything seems excellent to me with revenues increasing 2% year-over-year while operating expenses decreased 46% due to a 30% drop-off in cost of services and a 76% drop-off in selling, general and administrative expenses. Interest expenses increased 78% while equity in net income of affiliates decreased 31% and other income increased 1783%! On an absolute basis, income before taxes increased 270%! Income taxes went from being a benefit to being an expense within the past year and net income increased an absolute value of 285%! Basic and diluted shares have decreased 7% in the past year, which helped earnings increase 293% including significant items.

Balance Sheet

Balance Sheet

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 3,339

$ 4,868

-31%

Accounts receivable - net of allowances for doubtful accounts of $483 and $547

$ 12,918

$ 12,657

2%

Prepaid expenses

$ 960

$ 1,035

-7%

Deferred income taxes

$ 1,199

$ 1,036

16%

Other current assets

$ 4,780

$ 3,110

54%

Total current assets

$ 23,196

$ 22,706

2%

Property, Plant and Equipment - Net

$ 110,968

$ 109,767

1%

Goodwill

$ 69,273

$ 69,773

-1%

Licenses

$ 56,433

$ 52,352

8%

Customer Lists and Relationships - Net

$ 763

$ 1,391

-45%

Other Intangible Assets - Net

$ 5,016

$ 5,032

0%

Investments in and Advances to Equity Affiliates

$ 3,860

$ 4,581

-16%

Other Assets

$ 8,278

$ 6,713

23%

Total Assets

$ 277,787

$ 272,315

2%

Debt maturing within one year

$ 5,498

$ 3,486

58%

Accounts payable and accrued liabilities

$ 21,107

$ 20,494

3%

Advanced billing and customer deposits

$ 4,212

$ 4,225

0%

Accrued taxes

$ 1,774

$ 1,026

73%

Dividends payable

$ 2,404

$ 2,556

-6%

Total current liabilities

$ 34,995

$ 31,787

10%

Long term debt

$ 69,290

$ 66,358

4%

Deferred income taxes

$ 36,308

$ 28,491

27%

Postemployment benefit obligation

$ 29,946

$ 41,392

-28%

Other noncurrent liabilities

$ 15,766

$ 11,592

36%

Total deferred credits and other noncurrent liabilities

$ 82,020

$ 81,475

1%

Common stock

$ 6,495

$ 6,495

0%

Additional paid-in capital

$ 91,091

$ 91,038

0%

Retained earnings

$ 31,141

$ 22,481

39%

Treasury stock

$ (45,619)

$ (32,888)

39%

Accumulated other comprehensive income

$ 7,880

$ 5,236

50%

Noncontrolling interest

$ 494

$ 333

48%

Total Stockholders' equity

$ 91,482

$ 92,695

-1%

Total Liabilities and Stockholders' Equity

$ 277,787

$ 272,315

2%

The first thing I notice on the balance sheet is that cash has decreased 31%, which is something I don't like to see. Deferred income tax has increased 16% and other current assets have increased 54%, helping overall current assets increase 2% year-to-year. Customer lists and relationships have decreased 45% and investments in and advances to equity affiliates have decreased 16% while other assets have increased 23% to allow all total assets to increase 2%. On the liability side of things, debt maturing within one year has increased 58% and accrued taxes have increased 73% causing total current liabilities to increase by an astounding 10%. Deferred credits and other noncurrent liabilities have increased 1%, due in large part to a 27% increase in deferred income taxes and a 36% increase in other noncurrent liabilities. Postemployment benefit obligations have decreased 28%, which is a good thing. Retained earnings and treasury stock have increased 39% while accumulated other comprehensive income increased 50% and noncontrolling interest increased 48%. Total stockholder equity decreased 1% and total liabilities have increased 2%.

Conclusion

The company reported earnings which were 20.5% higher than a year before on 2% more revenue, while the share price was down 0.94% in the past year excluding dividends. The share count has decreased 7% for the entire year. I definitely love that both earnings per share and revenue were up year-over-year. Earnings increased via financial engineering methods, reduced cost of services and reduced SG&A expenses. On a fundamental basis, this company is inexpensively valued with respect to 2014 earnings. The company added more subscribers than expected. The stock was down 2.05% in the after-hours session on the day of reporting, I believe because it announced it will be spending about $21 billion in capital expenses for this year, which is the same amount of what it spent in 2013. This didn't seem to be a bad quarter to me and the stock seems interesting again at these levels, but keep in mind it's not a high-flier.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade, and happy investing!

Disclosure: I am long T. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: AT&T Earnings Increase, But Is It A Buy?

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