UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549
 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934


Date of report (Date of earliest event reported) July 23, 2015

AT&T INC.
(Exact Name of Registrant as Specified in Charter)


Delaware
1-8610
43-1301883
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)

                      208 S. Akard St., Dallas, Texas
75202
                        (Address of Principal Executive Offices)
(Zip Code)

Registrant's telephone number, including area code (210) 821-4105


__________________________________
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 ☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 ☐   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 ☐   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
 ☐   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.

The registrant announced on July 23, 2015, its results of operations for the second quarter of 2015. The text of the press release and accompanying financial information are attached as exhibits and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished as part of this report:
(d)          Exhibits

99.1
 
Press release dated July 23, 2015 reporting financial results for the second quarter ended June 30, 2015.

99.2
 
AT&T Inc. selected financial statements and operating data.
     
99.3
  
Discussion of EBITDA,  Free Cash Flow, Free Cash Flow Yield, Free Cash Flow after Dividends and Adjusting Items.



Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
AT&T INC.
   
   
   
Date: July 23, 2015
By: /s/ Paul W. Stephens__________
Paul W. Stephens
Senior Vice President and Controller

  



 
 
 
For more information, contact:
Fletcher Cook
 Jaquelyn Scharnick
Phone: (214) 757-7629
Phone: (214) 254-3790
Email: fletcher.cook@att.com
Email: jscharnick@brunswickgroup.com
 
 
AT&T REPORTS DOUBLE-DIGIT ADJUSTED EPS AND
FREE CASH FLOW GROWTH, AND 2.1 MILLION
WIRELESS NET ADDS IN SECOND-QUARTER RESULTS

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.

DALLAS, July 23, 2015 — 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.
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.
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.
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 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.
 
3Adjustments 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 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
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
    
YTD 2015
           
  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.
                 
2Adjustments 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 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
%
                                         
1EBITDA is defined as Operating Income before Depreciation and amortization.
2Service 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 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
%
                         
1EBITDA 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
%
                                                                 
1Prior-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.
 
2Strategic 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.
 
                 


Exhibit 99.3
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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