T AT&T Inc

Consolidated Highlights

• $0.58 diluted earnings per share in the second quarter including significant merger and integration-related expenses; this compared to $0.68 diluted EPS in the year-ago quarter which included an $0.08 one-time gain from the sale of the company’s América Móvil investment. Excluding significant items, EPS was $0.69 versus $0.62 a year ago, up more than 11 percent year over year
• Second-quarter consolidated revenues of $33.0 billion, up 1.4 percent versus the year-earlier period reflecting Mexican acquisitions and pressure from foreign exchange and global hubbing exit; up 2.2 percent when adjusting for the sale of the Connecticut wireline property in the fourth quarter of 2014; wireline business and total revenue growth rates were impacted by foreign exchange
• Strong cash flows generated, including $9.2 billion in cash from operations and $4.5 billion in free cash flow
• Free cash flow dividend payout ratio* of 55 percent in the second quarter and 67 percent year to date

Wireless Highlights

• 2.1 million net adds including 410,000 postpaid, 331,000 prepaid and 1 million connected cars
• About 1.2 million branded (postpaid and prepaid) smartphones added to base
• Positive branded phone net adds
• Strong churn levels with continued low wireless postpaid churn of 1.01 percent and total churn of 1.31 percent
• Strong phone-only postpaid ARPU with AT&T Next monthly billings growth, increased 6.1 percent year over year and 3.3 percent sequentially
• Wireless operating margin of 25.6 percent; total EBITDA margin of 36.9 percent with a best-ever adjusted EBITDA service margin of 48.5 percent

Wireline Highlights

• Strategic business services revenues of $2.7 billion, up 13.0 percent and up 13.6 percent when adjusted for the Connecticut wireline sale; now one-third of total wireline business revenues
• U-verse consumer revenues of $4.1 billion with adjusted growth of 19.2 percent year over year

International Highlights

• Completion of Nextel Mexico acquisition
• Integration with Iusacell underway
• Established plans to own and operate 4G LTE network in Mexico with plans to cover 100 million POPs with a calling plan footprint of 400 million POPs across North America

Note: AT&T's second-quarter earnings conference call will be broadcast live via the Internet at 4:30 p.m. ET on Thursday, July 23, 2015. The conference call and related materials are available on AT&T’s Investor Relations website at www.att.com/investor.relations.

AT&T Inc. (NYSE:T) today reported solid second-quarter results with strong adjusted EPS growth, expanding margins and growing free cash flow.

“These results reaffirm our transformation strategy,” said Randall Stephenson, AT&T chairman and CEO. “We grew revenues, expanded margins and delivered double-digit adjusted EPS and cash flow growth. We added more than 2 million new wireless subscribers as the repositioning of our smartphone base nears completion. We also began expanding high-quality, high-speed wireless service to Mexican consumers and businesses.

“This is a pivotal time for us. We look forward to closing DIRECTV and building on this momentum by delivering a new TV everywhere experience integrated with mobile and high-speed Internet service.”

Consolidated Financial Results

AT&T's consolidated revenues for the second quarter totaled $33.0 billion, up 1.4 percent versus the year-earlier period. When excluding the divested Connecticut wireline property, revenues were up 2.2 percent. Compared with results for the second quarter of 2014, operating expenses were $27.3 billion versus $27.0 billion; operating income was $5.7 billion versus $5.6 billion in the second quarter a year ago, and operating income margin was 17.3 percent, up slightly from 17.2 percent in the year-ago quarter. When adjusting for merger and integration-related expenses, operating income was $6.5 billion versus $5.8 billion a year ago; and operating income margin was 19.6 percent, up 190 basis points from a year ago.

Second-quarter 2015 net income attributable to AT&T totaled $3.0 billion, or $0.58 per diluted share, compared to net income of $3.5 billion, or $0.68 per diluted share in the year-ago quarter. Adjusting for $0.05 of Leap network decommissioning, $0.03 of wireless integration expenses and $0.03 of DIRECTV and Mexico merger and integration-related expenses, earnings per share was $0.69 compared to an adjusted $0.62 in the year-ago quarter, an increase of more than 11 percent.

Cash from operating activities totaled $9.2 billion in the second quarter and $15.9 billion year to date; and capital expenditures totaled $4.7 billion and $8.7 billion year to date. Free cash flow — cash from operating activities minus capital expenditures — totaled $4.5 billion for the quarter and $7.2 billion year to date, an increase over the year-ago quarter even as the company continues to invest in its high-quality network and customers. The free cash flow dividend payout ratio was 55 percent in the second quarter and 67 percent year to date.

For detailed segment results, please go to the Investor Briefing and Financial and Operational Results on the AT&T Investor Relations website.

*Free cash flow dividend payout ratio is dividends divided by free cash flow

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) helps millions of people and businesses around the globe stay connected through leading wireless, high-speed Internet, voice and cloud-based services. We’re helping people mobilize their worlds with state-of-the-art communications, entertainment services and amazing innovations like connected cars and devices for homes, offices and points in between. Our U.S. wireless network offers customers the nation’s strongest LTE signal and the nation’s most reliable 4G LTE network. We offer the best global wireless coverage*. We’re improving how our customers stay entertained and informed with AT&T U-verse® TV and High Speed Internet services. And businesses worldwide are serving their customers better with AT&T’s mobility and highly secure cloud solutions.

Additional information about AT&T products and services is available at http://about.att.com. Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att and YouTube at http://www.youtube.com/att.

© 2015 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

Reliability and signal strength claims based on nationwide carriers’ LTE. Signal strength claim based ONLY on avg. LTE signal strength. LTE not available everywhere.

*Global coverage claim based on offering discounted voice and data roaming; LTE roaming; voice roaming; and world-capable smartphone and tablets in more countries than any other U.S. carrier. International services required. Coverage not available in all areas. Coverage may vary per country and be limited/restricted in some countries.

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 construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of the cash 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 includes reimbursements of certain postretirement benefits paid.

NOTE: Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. 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 and Margin 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 Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies.

Adjusted Operating Income Margin is calculated by dividing Adjusted Operating Income by Operating Revenues.

NOTE: Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

NOTE: 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 this measure provides 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.

NOTE: Adjusted EBITDA is a non-GAAP financial measure calculated by excluding costs which are non-recurring in nature, including dispositions and merger integration and transaction costs. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans. 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 EBITDA 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 EBITDA, as presented, may differ from similarly titled measures reported by other companies.

Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Operating Revenues.

                                  Financial Data               AT&T Inc.                                 Consolidated Statements of Income Dollars in millions except per share amounts                               Unaudited Three Months Ended   Six Months Ended     6/30/2015   6/30/2014   % Chg   6/30/2015   6/30/2014   % Chg Operating Revenues Service $ 29,541 $ 29,556 -0.1 % $ 58,503 $ 59,332 -1.4 % Equipment     3,474       3,019     15.1 %     7,088       5,719     23.9 % Total Operating Revenues     33,015       32,575     1.4 %     65,591       65,051     0.8 %   Operating Expenses

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

15,140 14,212 6.5 % 29,721 27,533 7.9 % Selling, general and administrative 7,467 8,197 -8.9 % 15,428 16,457 -6.3 % Depreciation and amortization     4,696       4,550     3.2 %     9,274       9,167     1.2 % Total Operating Expenses     27,303       26,959     1.3 %     54,423       53,157     2.4 % Operating Income     5,712       5,616     1.7 %     11,168       11,894     -6.1 % Interest Expense 932 881 5.8 % 1,831 1,741 5.2 % Equity in Net Income of Affiliates 33 102 -67.6 % 33 190 -82.6 % Other Income (Expense) - Net     48       1,269     -96.2 %     118       1,414     -91.7 % Income Before Income Taxes 4,861 6,106 -20.4 % 9,488 11,757 -19.3 % Income Tax Expense     1,715       2,485     -31.0 %     3,066       4,402     -30.3 % Net Income     3,146       3,621     -13.1 %     6,422       7,355     -12.7 %

Less: Net Income Attributable to Noncontrolling Interest

    (102 )     (74 )   -37.8 %     (178 )     (156 )   -14.1 % Net Income Attributable to AT&T   $ 3,044     $ 3,547     -14.2 %   $ 6,244     $ 7,199     -13.3 %     Basic Earnings Per Share Attributable to AT&T $ 0.58 $ 0.68 -14.7 % $ 1.20 $ 1.38 -13.0 %

Weighted Average Common Shares Outstanding (000,000)

5,204 5,204 - 5,204 5,213 -0.2 %   Diluted Earnings Per Share Attributable to AT&T $ 0.58 $ 0.68 -14.7 % $ 1.20 $ 1.38 -13.0 %

Weighted Average Common Shares Outstanding with Dilution (000,000)

5,220 5,220 - 5,220 5,229 -0.2 %                                                   Financial Data       AT&T Inc.             Consolidated Balance Sheets Dollars in millions             6/30/15 12/31/14       Unaudited         Assets Current Assets Cash and cash equivalents $ 20,956 $ 8,603 Accounts receivable - net of allowances for doubtful accounts of $492 and $454 13,821 14,527 Prepaid expenses 834 831 Deferred income taxes 1,131 1,142 Other current assets     6,421       6,925   Total current assets     43,163       32,028   Property, Plant and Equipment - Net 114,348 112,898 Goodwill 70,920 69,692 Licenses 80,922 60,824 Other Intangible Assets - Net 6,385 6,139 Investments in Equity Affiliates 288 250 Other Assets     10,463       10,998   Total Assets   $ 326,489     $ 292,829     Liabilities and Stockholders' Equity Current Liabilities Debt maturing within one year $ 8,603 $ 6,056 Accounts payable and accrued liabilities 21,560 23,592 Advanced billing and customer deposits 4,075 4,105 Accrued taxes 3,848 1,091 Dividends payable     2,441       2,438   Total current liabilities     40,527       37,282   Long-Term Debt     105,067       76,011   Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 38,516 37,544 Postemployment benefit obligation 36,638 37,079 Other noncurrent liabilities     18,240       17,989   Total deferred credits and other noncurrent liabilities     93,394       92,612   Stockholders' Equity Common stock 6,495 6,495 Additional paid-in capital 91,032 91,108 Retained earnings 29,086 27,736 Treasury stock (46,793 ) (47,029 ) Accumulated other comprehensive income 7,039 8,060 Noncontrolling interest     642       554   Total stockholders' equity     87,501       86,924   Total Liabilities and Stockholders' Equity   $ 326,489     $ 292,829                   Financial Data       AT&T Inc.             Consolidated Statements of Cash Flows Dollars in millions (Unaudited)             Six months ended June 30,       2015     2014   Operating Activities Net income $ 6,422 $ 7,355

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 9,274 9,167 Undistributed earnings from investments in equity affiliates (23 ) (58 ) Provision for uncollectible accounts 535 444 Deferred income tax expense 1,183 546 Net gain from sale of investments, net of impairments (50 ) (1,365 ) Changes in operating assets and liabilities: Accounts receivable 434 (566 ) Other current assets 743 (771 ) Accounts payable and accrued liabilities (1,125 ) 2,894 Retirement benefit funding (455 ) (280 ) Other - net     (1,040 )     (497 ) Total adjustments     9,476       9,514   Net Cash Provided by Operating Activities     15,898       16,869     Investing Activities Construction and capital expenditures: Capital expenditures (8,328 ) (11,649 ) Interest during construction (339 ) (118 ) Acquisitions, net of cash acquired (20,954 ) (857 ) Dispositions 72 4,921 Sale of securities 1,890 - Return of advances to and investments in equity affiliates - 2 Other     (1 )     -   Net Cash Used in Investing Activities     (27,660 )     (7,701 )   Financing Activities

Net change in short-term borrowings with original maturities of three months or less

- 134 Issuance of long-term debt 33,958 8,564 Repayment of long-term debt (2,919 ) (3,508 ) Purchase of treasury stock - (1,396 ) Issuance of treasury stock 20 27 Dividends paid (4,873 ) (4,784 ) Other     (2,071 )     (239 ) Net Cash Provided by (Used in) Financing Activities     24,115       (1,202 ) Net increase in cash and cash equivalents 12,353 7,966 Cash and cash equivalents beginning of year     8,603       3,339   Cash and Cash Equivalents End of Period   $ 20,956     $ 11,305                                                   Financial Data               AT&T Inc.                                             Statements of Segment Income Dollars in millions                                             Unaudited Three Months Ended Six Months Ended   Wireless     6/30/2015     6/30/2014   % Chg   6/30/2015     6/30/2014   % Chg Segment Operating Revenues Service $ 15,115 $ 15,148 -0.2 % $ 29,927 $ 30,535 -2.0 % Equipment     3,189         2,782       14.6 %   6,563         5,261       24.7 % Total Segment Operating Revenues     18,304         17,930       2.1 %   36,490         35,796       1.9 %   Segment Operating Expenses Operations and support 11,551 11,568 -0.1 % 23,232 22,450 3.5 % Depreciation and amortization     2,073         2,035       1.9 %   4,131         3,966       4.2 % Total Segment Operating Expenses     13,624         13,603       0.2 %   27,363         26,416       3.6 % Segment Operating Income 4,680 4,327 8.2 % 9,127 9,380 -2.7 % Equity in Net Income (Loss) of Affiliates     -         (29 )     -     (4 )       (49 )     91.8 % Segment Income   $ 4,680       $ 4,298       8.9 % $ 9,123       $ 9,331       -2.2 %   Segment Operating Income Margin 25.6

%

 

24.1 % 25.0

%

 

26.2 %   Wireline                                           Segment Operating Revenues Service $ 13,981 $ 14,408 -3.0 % $ 27,916 $ 28,797 -3.1 % Equipment     233         229       1.7 %   446         441       1.1 % Total Segment Operating Revenues     14,214         14,637       -2.9 %   28,362         29,238       -3.0 %   Segment Operating Expenses Operations and support 10,362 10,700 -3.2 % 20,625 21,157 -2.5 % Depreciation and amortization     2,488         2,514       -1.0 %   4,964         5,198       -4.5 % Total Segment Operating Expenses     12,850         13,214       -2.8 %   25,589         26,355       -2.9 % Segment Operating Income 1,364 1,423 -4.1 % 2,773 2,883 -3.8 % Equity in Net Income (Loss) of Affiliates     1         -       -     (6 )       1       -   Segment Income   $ 1,365       $ 1,423       -4.1 % $ 2,767       $ 2,884       -4.1 %   Segment Operating Income Margin 9.6

%

 

9.7 % 9.8

%

 

9.9 %   International                                           Segment Operating Revenues Service $ 445 $ - - $ 660 $ - - Equipment     46         -       -     67         -       -   Total Segment Operating Revenues     491         -       -     727         -       -     Segment Operating Expenses Operations and support 529 - - 748 - - Depreciation and amortization     125         -       -     169         -       -   Total Segment Operating Expenses     654         -       -     917         -       -   Segment Operating Income (Loss) (163 ) - - (190 ) - - Equity in Net Income of Affiliates     -         99       -     -         153       -   Segment Income (Loss)   $ (163 )     $ 99       -   $ (190 )     $ 153       -     Segment Operating Income Margin (33.2 )

%

 

- (26.1 )

%

 

-     Financial Data               AT&T Inc. Supplementary Operating and Financial Data Dollars in millions except per share amounts, subscribers and connections in (000s) Unaudited Three Months Ended Six Months Ended         6/30/2015   6/30/2014   % Chg 6/30/2015   6/30/2014   % Chg   Wireless Subscribers and Connections                         Total               123,902       116,634     6.2 % Postpaid 76,541 74,332 3.0 % Prepaid1 10,438 10,082 3.5 % Reseller 13,506 13,756 -1.8 % Connected Devices1 23,417 18,464 26.8 %   Wireless Net Adds                         Total     2,094       634     -     3,312       1,696     95.3 % Postpaid 410 1,026 -60.0 % 851 1,651 -48.5 % Prepaid 331 (286 ) - 429 (198 ) - Reseller (95 ) (162 ) 41.4 % (361 ) (368 ) 1.9 % Connected Devices 1,448 56 - 2,393 611 - M&A Activity, Partitioned Customers and Other Adjs. 36 (14 ) - 36 4,562 -   Wireless Churn Postpaid Churn 1.01 % 0.86 % 15 BP 1.01 % 0.96 % 5 BP Total Churn 1.31 % 1.47 % -16 BP 1.36 % 1.43 % -7 BP   Other Licensed POPs (000,000) 321 321 -   Wireline Voice                           Total Wireline Voice Connections               23,497       26,958     -12.8 % Net Change (652 ) (758 ) 14.0 % (1,281 ) (1,531 ) 16.3 %   Broadband                         Total Wireline Broadband Connections               15,961       16,448     -3.0 % Net Change (136 ) (55 ) - (67 ) 23   Video                           Total U-verse Video Connections               5,971       5,851     2.1 % Net Change (22 ) 190 - 28 391 -92.8 %   Consumer Revenue Connections                       Broadband2 14,428 14,780 -2.4 % U-verse Video Connections 5,946 5,831 2.0 %   Voice3               13,312       15,314     -13.1 % Total Consumer Revenue Connections1               33,686       35,925     -6.2 % Net Change (489 ) (299 ) -63.5 % (680 ) (465 ) -46.2 %   AT&T Inc. Construction and capital expenditures: Capital expenditures $ 4,480 $ 5,933 -24.5 % $ 8,328 $ 11,649 -28.5 % Interest during construction $ 216 $ 63 - $ 339 $ 118 - Dividends Declared per Share $ 0.47 $ 0.46 2.2 % $ 0.94 $ 0.92 2.2 % End of Period Common Shares Outstanding (000,000) 5,193 5,191 - Debt Ratio4 56.5 % 47.6 % 890 BP Total Employees 250,730 248,170 1.0 %                                

1

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

2

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

3

Includes consumer U-verse Voice over Internet Protocol connections of 5,170 as of June 30, 2015.

4

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

Note: For the end of 2Q15, total switched access lines were 18,116; retail business switched access lines totaled 8,331; and wholesale, national mass markets and coin switched access lines totaled 1,643. Restated switched access lines do not include ISDN lines.

                        Financial Data             AT&T Inc. Non-GAAP Wireless Reconciliation                     Wireless Segment EBITDA Dollars in millions Unaudited Three Months Ended 6/30/14   9/30/14   12/31/14   3/31/15   6/30/15   Segment Operating Revenues Service $ 15,148 $ 15,423 $ 15,074 $ 14,812 $ 15,115 Equipment     2,782       2,914       4,785       3,374       3,189   Total Segment Operating Revenues   $ 17,930     $ 18,337     $ 19,859     $ 18,186     $ 18,304     Segment Operating Expenses Operations and support 11,568 11,855 14,619 11,681 11,551 Depreciation and amortization     2,035       1,965       2,010       2,058       2,073   Total Segment Operating Expenses     13,603       13,820       16,629       13,739       13,624   Segment Operating Income     4,327       4,517       3,230       4,447       4,680   Segment Operating Income Margin 24.1 % 24.6 % 16.3 % 24.5 % 25.6 %   Plus: Depreciation and amortization     2,035       1,965       2,010       2,058       2,073   EBITDA1   $ 6,362     $ 6,482     $ 5,240     $ 6,505     $ 6,753   EBITDA as a % of Service Revenues2 42.0 % 42.0 % 34.8 % 43.9 % 44.7 %  

1 EBITDA is defined as Operating Income before Depreciation and amortization.

2 Service revenues include Wireless data, voice, text and other service revenues.

                    Financial Data             AT&T Inc. Non-GAAP Wireless Reconciliation                 Wireless Segment Adjusted EBITDA Dollars in millions Unaudited Three Months Ended June 30,         2013   2014   2015 Service Revenues2       $ 15,370     $ 15,148     $ 15,115     EBITDA1 $ 6,521 $ 6,362 $ 6,753 EBITDA as a % of Service Revenues2 42.4 % 42.0 % 44.7 % Adjustments: Wireless merger integration costs3 - 96 215 Leap network decommissioning - - 364                   Adjusted EBITDA1       $ 6,521     $ 6,458     $ 7,332   Adjusted EBITDA as a % of Adjusted Service Revenues2 42.4 % 42.6 % 48.5 %  

1 EBITDA is defined as Operating Income before Depreciation and amortization.

2 Service revenues include Wireless data, voice, text and other service revenues.

3 Operations and Support expenses for domestic wireless integration costs.

                    Financial Data           AT&T Inc. Non-GAAP Consolidated Reconciliation                 Free Cash Flow Dollars in millions Unaudited Three Months Ended Six Months Ended June 30, June 30,     2014   2015   2014   2015 Net cash provided by operating activities $ 8,070 $ 9,160 $ 16,869 $ 15,898 Less: Construction and capital expenditures     (5,996 )     (4,696 )     (11,767 )     (8,667 ) Free Cash Flow   $ 2,074     $ 4,464     $ 5,102     $ 7,231                       Free Cash Flow after Dividends Dollars in millions Unaudited Three Months Ended

Six Months Ended

June 30, June 30,     2014   2015   2014   2015 Net cash provided by operating activities $ 8,070 $ 9,160 $ 16,869 $ 15,898 Less: Construction and capital expenditures     (5,996 )     (4,696 )     (11,767 )     (8,667 ) Free Cash Flow     2,074       4,464       5,102       7,231   Less: Dividends paid     (2,386 )     (2,439 )     (4,784 )     (4,873 ) Free Cash Flow after Dividends   $ (312 )   $ 2,025     $ 318     $ 2,358                     Free Cash Flow Dividend Payout Ratio         55 %         67 %  

Free cash flow includes reimbursements of certain postretirement benefits paid.

 

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 dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of the cash 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.

    Financial Data         AT&T Inc. Non-GAAP Consolidated Reconciliation             Annualized Net-Debt-to-Adjusted-EBITDA Ratio Dollars in millions Unaudited Three Months Ended     3/31/15   6/30/15   2015 YTD   Operating Revenues $ 32,576 $ 33,015 $ 65,591 Operating Expenses 27,120 27,303 54,423 Total Operating Income 5,456 5,712 11,168 Add Back Depreciation and Amortization 4,578 4,696 9,274 Consolidated Reported EBITDA 10,034 10,408 20,442 Add Back: Wireless merger integration costs1 209 215 424 Leap network decommissioning - 364 364 DIRECTV/Mexico merger costs2 89 116 205 Pension termination charges 150 - 150 Total Consolidated Adjusted EBITDA 10,482 11,103 21,585 Annualized Consolidated Adjusted EBITDA $ 43,170 End-of-period current debt 8,603 End-of-period long-term debt 105,067 Total End-of-Period Debt 113,670 Less Cash and Cash Equivalents 20,956 Net Debt Balance $ 92,714               Annualized Net-Debt-to-Adjusted-EBITDA Ratio 2.15                

1 Adjustments include Operations and Support expenses for domestic wireless integration costs.

 

2 Adjustments include Operations and Support expenses for Iusacell and Nextel Mexico integration costs and DIRECTV merger costs.

 

Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.

 

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

          Financial Data       AT&T Inc. Non-GAAP Consolidated Reconciliation         Adjusted Diluted EPS Unaudited   Three Months Ended June 30,     2014   2015 Reported Diluted EPS $ 0.68 $ 0.58 Adjustments: Wireless merger integration costs1 0.02 0.03 Gain on sale of América Móvil shares (0.08 ) - Leap network decommissioning - 0.05 DIRECTV/Mexico merger costs2     -       0.03   Adjusted Diluted EPS   $ 0.62     $ 0.69   Year-over-year growth - Adjusted         11.3 %

Weighted Average Common Shares Outstanding with Dilution (000,000)

    5,220       5,220    

1 Adjustments include domestic wireless integration costs.

 

2 Adjustments include Iusacell and Nextel Mexico integration costs, DIRECTV merger costs and interest expense incurred on debt issued in May 2015 to fund the cash consideration of the DIRECTV merger.

 

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 this measure provides 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.

  Sum of components may not tie due to rounding.                   Financial Data           AT&T Inc. Non-GAAP Consolidated Reconciliation               Adjusted Operating Income and Margin Dollars in millions Unaudited Three Months Ended June 30,       2013   2014   2015 Operating Revenues     $ 32,075     $ 32,575     $ 33,015   Reported Operating Income $ 6,113 $ 5,616 $ 5,712 Adjustments: Wireless merger integration costs1 - 141 247 Leap network decommissioning - - 364 DIRECTV/Mexico merger costs2       -       -       147   Adjusted Operating Income     $ 6,113     $ 5,757     $ 6,470   Year-over-year growth - Adjusted           -5.8 %     12.4 % Adjusted Operating Income Margin*       19.1 %     17.7 %     19.6 %  

1 Adjustments include domestic wireless integration costs.

 

2 Adjustments include Iusacell and Nextel Mexico integration costs and DIRECTV merger costs.

 

Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. 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 and Margin 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 Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies.

 

*Adjusted Operating Income Margin is calculated by dividing Adjusted Operating Income by Operating Revenues.

                  Financial Data           AT&T Inc. Non-GAAP Consolidated Reconciliation               Adjusted Consolidated EBITDA Dollars in millions Unaudited Three Months Ended June 30,       2013   2014   2015 Operating Revenues     $ 32,075     $ 32,575     $ 33,015   Reported Operating Income $ 6,113 $ 5,616 $ 5,712 Plus: Depreciation and Amortization       4,571       4,550       4,696   EBITDA1     $ 10,684     $ 10,166     $ 10,408   Adjustments: Wireless merger integration costs2 - 97 215 Leap network decommissioning - - 364 DIRECTV/Mexico merger costs3       -       -       116   Adjusted EBITDA     $ 10,684     $ 10,263     $ 11,103   Year-over-year growth - Adjusted           -3.9 %     8.2 % Adjusted EBITDA Margin*       33.3 %     31.5 %     33.6 %  

1 EBITDA is defined as operating income before depreciation and amortization.

2 Adjustments include Operations and Support expenses for domestic wireless integration costs.

3 Adjustments include Operations and Support expenses for Iusacell and Nextel Mexico integration costs and DIRECTV merger costs.

 

Adjusted EBITDA is a non-GAAP financial measure calculated by excluding costs which are non-recurring in nature, including dispositions and merger integration and transaction costs. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans. 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 EBITDA 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 EBITDA, as presented, may differ from similarly titled measures reported by other companies.

 

*Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Operating Revenues.

                      Financial Data               AT&T Inc. Non-GAAP Wireline Reconciliation                   Wireline Segment EBITDA Dollars in millions Unaudited Three Months Ended 6/30/14   3/31/15   6/30/15 Segment Operating Revenues Service $ 14,408 $ 13,935 $ 13,981 Equipment           229       213       233   Total Segment Operating Revenues         $ 14,637     $ 14,148     $ 14,214   Segment Operating Expenses Operations and support 10,700 10,263 10,362 Depreciation and amortization           2,514       2,476       2,488   Total Segment Operating Expenses           13,214       12,739       12,850   Segment Operating Income           1,423       1,409       1,364   Segment Operating Income Margin 9.7 % 10.0 % 9.6 % Plus: Depreciation and amortization           2,514       2,476       2,488   EBITDA1         $ 3,937     $ 3,885     $ 3,852   EBITDA Margin 26.9 % 27.5 % 27.1 %  

1 EBITDA is defined as Operating Income before Depreciation and amortization.

                                    Financial Data                   AT&T Inc. Non-GAAP Wireline Reconciliation                                 Adjusted Operating Revenues to Exclude Connecticut Wireline Properties1 Dollars in millions Unaudited Three Months Ended     9/30/13   12/31/13   3/31/14   6/30/14   9/30/14   12/31/14   3/31/15   6/30/15 Connecticut Wireline Operating Revenues Consumer Markets $ 169 $ 169 $ 174 $ 173 $ 170 $ 43 $ - $ - AT&T Business Solutions 109 107 101 99 101 24 - - Other     1       (1 )     -       2       1       -       -       -   Connecticut Wireline Operating Revenues   $ 279     $ 275     $ 275     $ 274     $ 272     $ 67     $ -     $ -                                     Total AT&T Operating Revenues $ 32,158 $ 33,163 $ 32,476 $ 32,575 $ 32,957 $ 34,439 $ 32,576 $ 33,015 Less Connecticut Wireline     (279 )     (275 )     (275 )     (274 )     (272 )     (67 )     -       -   Adjusted AT&T Operating Revenues   $ 31,879     $ 32,888     $ 32,201     $ 32,301     $ 32,685     $ 34,372     $ 32,576     $ 33,015   Year-over-Year growth - Adjusted 2.5 % 4.5 % 1.2 % 2.2 %   Wireline Operating Revenues $ 14,670 $ 14,716 $ 14,601 $ 14,637 $ 14,615 $ 14,572 $ 14,148 $ 14,214 Less Connecticut Wireline     (279 )     (275 )     (275 )     (274 )     (272 )     (67 )     -       -   Adjusted Wireline Operating Revenues   $ 14,391     $ 14,441     $ 14,326     $ 14,363     $ 14,343     $ 14,505     $ 14,148     $ 14,214   Year-over-Year growth - Adjusted -0.3 % 0.4 % -1.2 % -1.0 %   Wireline Consumer Operating Revenues $ 5,567 $ 5,638 $ 5,715 $ 5,748 $ 5,735 $ 5,643 $ 5,658 $ 5,782 Less Connecticut Wireline     (169 )     (169 )     (174 )     (173 )     (170 )     (43 )     -       -   Adjusted Wireline Consumer Operating Revenues   $ 5,398     $ 5,469     $ 5,541     $ 5,575     $ 5,565     $ 5,600     $ 5,658     $ 5,782   Year-over-Year growth - Adjusted 3.1 % 2.4 % 2.1 % 3.7 %   Wireline Business Solutions Operating Revenues $ 8,849 $ 8,839 $ 8,670 $ 8,672 $ 8,669 $ 8,596 $ 8,288 $ 8,239 Less Connecticut Wireline     (109 )     (107 )     (101 )     (99 )     (101 )     (24 )     -       -   Adjusted Wireline Business Solutions Operating Revenues   $ 8,739     $ 8,733     $ 8,569     $ 8,572     $ 8,568     $ 8,572     $ 8,288     $ 8,239   Year-over-Year growth - Adjusted -2.0 % -1.8 % -3.3 % -3.9 %   Wireline Strategic Business Services Revenues2 $ 2,154 $ 2,251 $ 2,289 $ 2,382 $ 2,467 $ 2,565 $ 2,628 $ 2,692 Less Connecticut Wireline     (9 )     (10 )     (11 )     (11 )     (13 )     (2 )     -       -   Adjusted Wireline Business Operating Revenues   $ 2,145     $ 2,240     $ 2,278     $ 2,370     $ 2,454     $ 2,563     $ 2,628     $ 2,692   Year-over-Year growth - Adjusted 14.4 % 14.4 % 15.4 % 13.6 %   Wireline U-verse Services Revenue $ 3,061 $ 3,276 $ 3,470 $ 3,657 $ 3,791 $ 3,898 $ 4,047 $ 4,283 Less Connecticut Wireline     (95 )     (100 )     (105 )     (109 )     (111 )     (28 )     -       -   Adjusted U-verse Services Revenues   $ 2,966     $ 3,176     $ 3,365     $ 3,548     $ 3,680     $ 3,870     $ 4,047     $ 4,283   Year-over-Year growth - Adjusted 24.1 % 21.9 % 20.3 % 20.7 %  

1 Prior-period amounts restated to conform to current-period reporting methodology and divestiture of Connecticut Wireline Properties. Sum of segments' revenues within a quarter might not tie to total revenues due to rounding. For ease of presentation, Connecticut Wireline Properties revenues are presented separately on the schedules above.

 

2 Strategic business services are AT&T’s most advanced business solutions, including VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services.

 

These Adjusted Operating Revenues are non-GAAP financial measure calculated by excluding the operating revenues of Connecticut Wireline Properties sold in October 2014. Management believes that these measures provides 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 Revenues 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 Revenues 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 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.

We believe these measures are relevant and useful information to our investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless subscribers because we believe these measures reflect AT&T’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 our Wireless segment’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 our wireless subscriber base and national footprint that we utilize to obtain and service our 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 our Wireless segment operating margin than EBITDA as a percentage of total revenue. We generally subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. 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. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless 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 our Wireless segment 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 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.

NET DEBT TO EBITDA DISCUSSION

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.

Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. This measure is consistent with metrics under our existing credit agreements.

ADJUSTING ITEMS DISCUSSION

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. 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 Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service 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 diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

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AT&T Inc.Fletcher Cook, 214-757-7629fletcher.cook@att.comorJaquelyn Scharnick, 214-254-3790jscharnick@brunswickgroup.com