Increases Quarterly Dividend by 2.1%, 33rd
Consecutive Annual Increase
- Consolidated revenues of $40.9 billion,
up 4.6% with DIRECTV acquisition
- Operating income up 8.2%
- Net income attributable to AT&T up
11.2%
- Cash from operations of $11.0
billion
- Free cash flow of $5.2 billion
- Diluted EPS of $0.54 as reported and
$0.74 as adjusted, compared to $0.50 and $0.74 in the year-ago
quarter
- 2.3 million wireless net adds driven by
connected devices, Mexico and Cricket
- U.S. wireless postpaid churn of 1.05%,
down 11 basis points year over year
- Strong U.S. wireless operating margin
of 29.6%; best-ever U.S. wireless service EBITDA margin of
50.1%
- 700,000 branded smartphones added to
U.S. subscriber base
- 323,000 U.S. DIRECTV net adds with TV
subscriber base stable
- 171,000 IP broadband net adds
- Full-year guidance on track to meet or
exceed expectations
AT&T Inc. (NYSE:T) today reported growing revenues and net
income with solid margins and earnings for the third quarter.
Detailed results, including financial tables, are included in the
accompanying Investor Briefing and SEC Form 8-K. These materials
and associated slide presentation of third-quarter results are
available on the AT&T Investor Relations website.
AT&T also announced that its board of directors has approved
a 2.1% increase in the company’s quarterly dividend. AT&T’s
quarterly dividend will increase from $0.48 to $0.49 per share. The
annual dividend will increase from $1.92 to $1.96 per share. The
dividend will be payable on Feb. 1, 2017 to common stockholders of
record on Jan. 10, 2017.
AT&T will host a webcast presentation on Monday, October 24,
2016, at 8:30 a.m. ET to discuss the Time Warner transaction and
third-quarter results. Links to the webcast and accompanying
documents will be available on the AT&T Investor Relations
website. The third-quarter earnings conference call previously
scheduled for Tuesday, October 25, 2016, at 4:30 p.m. ET is
cancelled.
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 around the globe connect
with leading entertainment, mobile, high speed internet and voice
services. We’re the world’s largest provider of pay TV. We have TV
customers in the U.S. and 11 Latin American countries. We offer the
best global coverage of any U.S. wireless provider.* And we help
businesses worldwide serve their customers better with our 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.
© 2016 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.
*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. based
carrier. International service 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 might 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 and 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.
The “quiet period” for FCC Spectrum Auction 1000 (also known as
the 600 MHz incentive auction) is now in effect. During the quiet
period, auction applicants are required to avoid discussions of
bids, bidding strategy and post-auction market structure with other
auction applicants.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication may be deemed to be
solicitation material in respect of the proposed merger between
AT&T Inc. and Time Warner Inc. In connection with the proposed
merger, AT&T Inc. intends to file a registration statement on
Form S-4, containing a proxy statement/prospectus with the
Securities and Exchange Commission (“SEC”). STOCKHOLDERS OF TIME
WARNER INC. ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE
SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors
and security holders will be able to obtain copies of the proxy
statement/prospectus as well as other filings containing
information about AT&T Inc. and Time Warner Inc., without
charge, at the SEC’s website, http://www.sec.gov. Copies of
documents filed with the SEC by AT&T Inc. will be made
available free of charge on AT&T’s Investor Relations website,
www.att.com/investor.relations. Copies of documents filed with the
SEC by Time Warner Inc. will be made available free of charge on
Time Warner’s Investor Relations website, ir.timewarner.com.
Participants in Solicitation
AT&T Inc. and its directors and executive officers, and Time
Warner Inc. and its directors and executive officers, may be deemed
to be participants in the solicitation of proxies from the holders
of Time Warner common stock in respect of the proposed merger.
Information about the directors and executive officers of AT&T
is set forth in the proxy statement for AT&T’s 2016 Annual
Meeting of Stockholders, which was filed with the SEC on March 11,
2016. Information about the directors and executive officers of
Time Warner is set forth in the proxy statement for Time Warner’s
2016 Annual Meeting of Stockholders, which was filed with the SEC
on April 29, 2016. Investors may obtain additional information
regarding the interest of such participants by reading the proxy
statement/prospectus regarding the proposed merger when it becomes
available.
AT&T Q3 2016 INVESTOR BRIEFING
AT&T Reports Third-Quarter Results
Increases Quarterly Dividend by 2.1%, 33rd Consecutive Annual
Increase
- Consolidated revenues of $40.9 billion,
up 4.6% with DIRECTV acquisition
- Operating income up 8.2%
- Net income attributable to AT&T up
11.2%
- Cash from operations of $11.0
billion
- Free cash flow of $5.2 billion
- Diluted EPS of $0.54 as reported and
$0.74 as adjusted, compared to $0.50 and $0.74 in the year-ago
quarter
HIGHLIGHTS:
- 2.3 million wireless net adds driven by
connected devices, Mexico and Cricket
- U.S. wireless postpaid churn of 1.05%,
down 11 basis points year over year
- U.S. wireless operating margin of
29.6%; best-ever U.S. wireless service EBITDA margin of 50.1%
- 700,000 branded smartphones added to
U.S. subscriber base
- 323,000 U.S. DIRECTV net adds with TV
subscriber base stable
- More than 1.2 million U.S. DIRECTV net
adds since acquisition
- 171,000 IP broadband net adds
- More than 390 million North American 4G
LTE POPs
- Year-to-date cash from operations of
$29.2 billion; free cash flow $13.3 billion year to date
- Full-year guidance on track to meet or
exceed expectations
CONSOLIDATED FINANCIAL RESULTS
AT&T’s consolidated revenues for the third quarter totaled
$40.9 billion, up 4.6% versus the year-earlier period due to the
July 24, 2015 acquisition of DIRECTV. Excluding the impact of the
DIRECTV acquisition and foreign exchange, revenues were essentially
flat, as growth in video and IP-based services mostly offset
pressures from declines in wireless and legacy services. Compared
with results for the third quarter of 2015, operating expenses were
$34.5 billion versus $33.2 billion; operating income was $6.4
billion versus $5.9 billion; and operating income margin was 15.7%
versus 15.2%. When adjusting for $0.14 of amortization, $0.03 in
merger- and integration-related costs and $0.03 of
employee-separation costs, operating income was $8.3 billion versus
$7.9 billion; and operating income margin was 20.3%, consistent
with the year-ago quarter.
Third-quarter net income attributable to AT&T totaled $3.3
billion, or $0.54 per diluted share, compared to $3.0 billion, or
$0.50 per diluted share, in the year-ago quarter. Adjusting for
$0.20 of amortization, merger- and integration-related costs and
other expenses, earnings per diluted share was $0.74 compared to an
adjusted $0.74 in the year-ago quarter.
Cash from operating activities was $11.0 billion in the third
quarter, up 1.8%, and capital investment1 totaled $5.9 billion.
Free cash flow — cash from operating activities minus capital
expenditures — was $5.2 billion for the quarter, down 6.5%, and
$13.3 billion year to date, up 3.7%.
AT&T also announced that its board of directors has approved
a 2.1%increase in the company’s quarterly dividend. AT&T’s
quarterly dividend will increase from $0.48 to $0.49 per share. The
annual dividend will increase from $1.92 to $1.96 per share. The
dividend will be payable on Feb. 1, 2017 to common stockholders of
record on Jan. 10, 2017.
____________________
13Q16 includes $87 million in capital purchases in Mexico with
favorable vendor payment terms.
Business Solutions
The Business Solutions segment provides both wireless and
wireline services to business customers and to individual
subscribers who purchase wireless services through
employer-sponsored plans. AT&T’s wireless and wired networks
provide complete communications solutions to these customers.
AT&T’s business customer revenues include results from
enterprise, public sector, wholesale and small/midsize
customers.
FINANCIAL HIGHLIGHTS
Total third-quarter revenues from business customers were $17.8
billion, up 0.4% versus the year-earlier quarter. Growth in
mobility and strategic business services offset declines in legacy
services and a continuing low-growth economy. When adjusting for
the transition of certain hosting operations, total revenues would
have been even higher. Business Solutions service revenues were
$15.6 billion, essentially stable year over year.
Third-quarter operating expenses were $13.5 billion, up 0.5%
versus the third quarter of 2015. Operating income totaled $4.3
billion, up 0.1% year over year. Third-quarter operating income
margin was 24.2%, stable year over year with declines in
higher-margin legacy services offsetting growth in wireless and IP
revenue and cost efficiencies.
BUSINESS WIRELESS FINANCIAL RESULTS
Business wireless revenues were up 4.0% year over year to $9.9
billion driven by wireless service revenue growth and higher
equipment revenues. Wireless service revenues were up 4.1% year
over year, reflecting smartphone and tablet gains and continued
migration from consumer plans.
BUSINESS WIRELINE FINANCIAL RESULTS
In business wireline, declines in legacy products were partially
offset by continued growth in strategic business services. Total
business wireline revenues were $7.8 billion, down 3.7% year over
year. When adjusting for the impact of the transition of certain
hosting operations and foreign exchange pressures, wireline
revenues would have decreased 2.5%. When adjusting for these same
items, data revenues were stable. Data revenues make up nearly 60%
of Business Solutions wireline revenues.
Revenues from strategic business services, the next-generation
wireline capabilities that lead AT&T’s most advanced business
solutions — including VPNs, Ethernet, cloud, hosting, IP
conferencing, voice over IP, dedicated internet, U-verse and
security services — grew by $242 million, or 9.1%, versus the
year-earlier quarter. These services represent an annualized
revenue stream of more than $11 billion.
SUBSCRIBER METRICS
At the end of the third quarter, AT&T had 79.4 million
business wireless subscribers. The company added 191,000 postpaid
subscribers and 1.3 million connected devices in the third quarter.
Postpaid business wireless subscriber churn was 0.97% versus 1.05%
in the year-ago quarter.
During the quarter, the company also added nearly 15,000
high-speed IP broadband business subscribers. Total business
broadband had a loss of 18,000 subscribers in the quarter.
BUSINESS INNOVATION
Through its powerful global networks, AT&T provides
integrated solutions to business customers and offers a wide
variety of wired and wireless products and services to increase
businesses’ productivity. AT&T serves millions of business
customers, from the largest multinational corporations to small
businesses, in all major industries. AT&T continually develops
products and services to ensure that its business customers have
access to the latest technology solutions. In recent business news,
AT&T:
- Announced a multiyear agreement between
AT&T and Amazon Web Services (AWS) to deliver integrated
solutions that combine the companies’ leading cloud and networking
capabilities. The collaboration will help customers migrate to and
use the AWS Cloud with the AT&T network. The solutions are
intended to span cloud networking, mobility, IoT, security and
analytics.
- Teamed up with IBM to help businesses
manage their networking services. IBM will take advantage of
AT&T FlexWare, which makes it easy to set up and manage virtual
network functions on a single device. AT&T will also be able to
run applications on IBM’s cloud, cognitive, analytics and security
infrastructure. In addition to making AT&T FlexWare available
to clients, IBM is rolling out the solution in many of its own
sites.
- Introduced a trial with Qualcomm
Technologies Inc. to test how drones can connect more safely and
securely on commercial 4G LTE. The research will look at coverage,
signal strength and how drones function in flight.
- Collaborated with VeloCloud to deliver
AT&T Software-defined Wide Area Network (AT&T SD-WAN), a
key step in helping businesses evolve their networks from hardware
to software. The AT&T SD-WAN portfolio will include a
network-based solution combining hybrid networking with multiple
types of network access. The network-based solution will be
available in 2017. The AT&T SD-WAN premises-based, over-the-top
solution will be available later this year.
- Closed significant business deals with
Live Nation, State of Wisconsin and Waste Management.
Entertainment Group
AT&T’s Entertainment Group provides entertainment,
high-speed internet and communications services predominantly to
residential customers in the United States.
FINANCIAL HIGHLIGHTS
Total revenues were $12.7 billion, up 17.1% versus the
year-earlier quarter mostly due to the acquisition of DIRECTV. Also
contributing to the gain was continued growth in consumer IP
services.
Broadband revenues were up 5% in the quarter with IP broadband
growing by 12%. AdWorks has grown to a $1.5 billion annualized
revenue stream with double-digit revenue growth year to date and
strong margins.
Third-quarter operating expenses were $11.2 billion, up 14.2%
from a year ago due to the acquisition of DIRECTV and higher
content costs. Operating income totaled $1.5 billion, up from the
year-ago $1.0 billion. Third-quarter operating income margin was
11.7%, up from 9.4% in the year-earlier quarter with satellite and
IP revenue growth and cost efficiencies offsetting TV content cost
pressure and declines in legacy services. In the fourth quarter, on
a sequential basis, margins will be pressured by a full quarter of
NFL Sunday Ticket costs, annual content cost increases and start-up
costs for DIRECTV NOW.
SUBSCRIBER METRICS
Total video subscribers were essentially flat in the quarter as
competition increases. The company added 323,000 satellite
subscribers in the third quarter. U-verse TV subscribers declined
326,000 as the company continued to focus on profitability and
increasingly emphasized satellite sales. For the second straight
quarter, gross additions increased on a year-over-year basis even
when excluding IPTV customers transitioning to DIRECTV.
The Entertainment Group ended the quarter with 25.3 million
video subscribers. While the company expects positive video net
adds in the fourth quarter, it expects total video net adds for the
year to decline slightly. At the end of the third quarter, about
100,000 pending video customers had the capability to watch TV on
their mobile devices; however, these customers were not included in
third-quarter subscriber numbers since the video service had not
yet been installed at their homes.
The Entertainment Group had a net gain of 156,000 IP broadband
subscribers in the third quarter. Total Entertainment Group
broadband subscribers decreased 5,000 in the quarter. IP broadband
subscribers at the end of the quarter totaled 12.8 million.
ENTERTAINMENT GROUP INNOVATION
In recent news, the company:
- Launched an updated DIRECTV App that
allows customers to watch live and recorded programs virtually
anywhere.
- Premiered a new “Data Free TV” feature
that lets AT&T wireless customers stream AT&T DIRECTV and
U-verseSM content without counting it against their data
allowance.
- Entered into 10 key DIRECTV NOW content
agreements with program providers whose premium brands will be part
of the company’s new streaming platform, planned to launch in the
fourth quarter of 2016. As publicly announced HBO, , Disney,
Turner, Discovery Networks, NBCU, Scripps Networks, STARZ, AMCN
(AMC Networks), AETN (A+E Networks) and Viacom will be among the
more than 100 channels included on DIRECTV NOW.
- Since the end of the second quarter,
announced the launch of our 100% fiber network under the AT&T
Fiber brand in 14 additional metro areas — Augusta, Ga.;
Bakersfield, Calif.; Cleveland; Columbus, Ohio; Detroit; Greater
New Orleans; Huntsville, Ala.; Indianapolis; Louisville, Ky.;
Lubbock, Texas; Memphis, Tenn.; Mobile, Ala.; Sacramento, Calif.
and St. Louis — bringing the total to 39 major metros where
AT&T’s gigabit connection is available.
- Expanded live 4K broadcast offerings
with premier content from the Olympics, MLB, UFC, PGA, College
Football and the World Series of Beach Volleyball.
- Received top honors in several J.D.
Power studies:
- AT&T outscored all other
full-service wireless providers for the top overall ranking in the
J.D. Power 2016 Full-Service Wireless Purchase Experience StudySM
Volume 2.
- AT&T also earned the top ranking
among full-service wireless providers in the J.D. Power 2016 Full
Service Wireless Customer Performance Care StudySM Volume 2.
AT&T scored significantly higher than the industry average — by
16 points — and increased its overall score by 20 points over the
prior 6-month period.
- AT&T ranked “Highest In Customer
Satisfaction with Small/Medium Business Wireline Service, 2 Years
in a Row” in the J.D. Power 2016 Business Wireline Satisfaction
Study.
Consumer Mobility
The Consumer Mobility segment provides nationwide wireless
service to consumer and wholesale subscribers located in the United
States or in U.S. territories. The company’s wireless network
powers voice and data services, including high-speed internet,
video entertainment and home monitoring services.
FINANCIAL HIGHLIGHTS
Total revenues from Consumer Mobility customers totaled $8.3
billion, down 5.9% versus the year-earlier quarter, reflecting
declines in equipment revenues from lower handset sales and in
postpaid service revenues due to the success of Mobile Share plans
and migrations to business plans. Third-quarter operating expenses
were $5.7 billion, down 5.7% versus the third quarter of 2015,
reflecting lower equipment and commission costs as well as
increased operational efficiencies.
AT&T’s Consumer Mobility operating income totaled $2.6
billion, down 6.2% versus the third quarter of 2015. Third-quarter
operating income margin was 31.1%, down slightly from the
year-earlier quarter with lower volumes, fewer subsidized sales and
cost efficiencies mostly offsetting service-revenue pressure from
customers choosing Mobile Share plans. Consumer Mobility EBITDA
margin was 42.5%, compared to 42.3% in the third quarter of 2015.
(EBITDA margin is operating income before depreciation and
amortization, divided by total wireless revenues.) EBITDA service
margin was 50.9%, up from 50.5% in the year-ago quarter. (EBITDA
service margin is operating income before depreciation and
amortization, divided by total service revenues.)
SUBSCRIBER METRICS
At the end of the third quarter, AT&T had 53.9 million
Consumer Mobility subscribers. In the quarter, Consumer Mobility
gained 50,000 total subscribers with 21,000 postpaid, 304,000
prepaid and 41,000 connected device net adds offsetting a loss of
316,000 reseller subscribers. Consumer Mobility postpaid churn was
1.19%, compared to 1.33% in the year-ago quarter.
CONSUMER MOBILITY INNOVATION
AT&T is a leader in mobile internet, delivering expanded
choice in devices, services and applications. In recent weeks,
AT&T:
- Introduced Mobile Share Advantage (MSA)
plans, which offer more data at a lower cost per megabyte than some
of the plans previously offered by AT&T. With the new MSA
plans, customers get unlimited talk and text, rollover data and
shareable data with no overage charges. In place of overage
charges, once a customer uses the data in a plan, data speeds are
reduced for the remainder of the billing cycle.
- Reached agreements with Empresa De
Telecomunicaciones De Cuba to allow AT&T wireless customers to
roam in Cuba and to enable direct interconnection between the U.S.
and Cuba. The deal continues to enhance AT&T’s global coverage
for customers.
- Enhanced the AT&T THANKS program by
adding priority presale ticket access to popular Live Nation
concerts. The first two presales gave customers early access to
tickets to see Panic! At the Disco and Thomas Rhett. The company
also introduced new tiers with benefits and offers to complement
customers’ needs.
- Launched a new smartphone plan for
Cricket customers starting at $30/month that includes unlimited
talk and text, plus 1GB of high-speed data.
International
The International segment includes wireless services in Mexico
and satellite entertainment services in Latin America.
Total International revenues totaled $1.9 billion. Third-quarter
operating expenses were $1.9 billion. AT&T’s International
operating loss totaled $54 million. Third-quarter operating income
margin was (2.9)%.
MEXICO
AT&T owns and operates a wireless network in Mexico.
AT&T covered about 74 million people in Mexico with 4G LTE at
the end of the third quarter and expects to cover 100 million POPs
by the end of 2018.
Total wireless revenues from Mexico totaled $582 million, up
0.2% versus the year-earlier quarter, largely due to subscriber
growth offset by foreign exchange and competitive pressures.
Third-quarter operating loss was $148 million compared to a loss of
$134 million in the year-ago quarter, reflecting continued
investment in operations, network and subscriber acquisition.
Third-quarter operating expenses benefitted from a few one-time
items. Margins in the fourth quarter are expected to be consistent
with prior quarters.
In the quarter, AT&T added 163,000 postpaid subscribers and
606,000 prepaid subscribers to reach 10.7 million total wireless
subscribers in Mexico, a 32% increase from a year ago.
DIRECTV LATIN AMERICA
AT&T is a leading provider of pay television services in
Latin America with satellite operations serving Argentina, Brazil,
Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the
Caribbean. It also owns 41% of Sky Mexico. Sky Mexico financial
results are accounted for as an equity method investment.
DIRECTV Latin America revenues reflect macroeconomic pressure
with weakening local currencies. Total revenues from Latin America
were $1.3 billion. Operating income was $94 million.
Third-quarter subscriber net losses were 48,000, driven by
declines in Colombia, Argentina and Brazil. Total subscribers at
the end of the quarter were 12.5 million. Sky Mexico had
approximately 7.8 million subscribers as of June 30, 2016.
INTERNATIONAL HIGHLIGHTS
In recent weeks AT&T:
- Continued to make significant progress
in building the company’s customer base and deploying a 4G LTE
network in Mexico, while expanding distribution to match this
expanded network reach.
- Opened additional points of sale
throughout the country. The company also completed the rebrand of
nearly 2,900 Nextel and Iusacell points of sale to AT&T.
AT&T Mobility
AT&T’s U.S. mobility operations are divided between the
Business Solutions and Consumer Mobility segments. For comparison
purposes, the company is providing supplemental information for its
total domestic mobility operations.
FINANCIAL HIGHLIGHTS
Wireless revenues reflected lower service revenues from the
continued adoption of Mobile Share plans and lower equipment
revenues primarily from fewer handset upgrades and higher
bring-your-own-device subscribers.
- Total wireless revenues were $18.2
billion, down 0.7% year over year, due to decreases in service and
equipment revenues. Wireless service revenues of $15.0 billion were
down 0.9% year over year but were up sequentially. Continued growth
of smartphones and tablets partially offset adoption of Mobile
Share plans. Wireless equipment revenues decreased 0.2% to $3.2
billion.
- Third-quarter wireless operating
expenses totaled $12.8 billion, down 0.8% year over year,
reflecting operating efficiencies and lower sales volumes, which
offset higher promotional costs. Wireless operating income was $5.4
billion, down 0.5% year over year, reflecting continued adoption of
Mobile Share plans and increased promotional activity.
- Wireless margins reflect adoption of
AT&T NextSM, increases in BYOD customers, lower smartphone
upgrade volumes and continued efforts to drive operating costs out
of the business. AT&T’s reported third-quarter wireless
operating income margin was 29.6%, consistent with the year-earlier
quarter.
- Wireless EBITDA margin was 41.2%,
compared to 40.7% in the third quarter of 2015. Wireless EBITDA
service margin was a best-ever 50.1%, up from 49.4% in the year-ago
quarter.
ARPU
The continued adoption of AT&T Next is reflected in postpaid
service ARPU (average revenues per user).
- Phone-only postpaid ARPU decreased 1.9%
versus the year-earlier quarter; however, phone-only postpaid ARPU
with AT&T Next monthly billings increased 1.7% year over year.
This growth comes even with lower upgrade volumes, promotional
offers and an increasing number of customers holding onto their
devices after completing Next payments.
SUBSCRIBER METRICS
In the third quarter, AT&T posted a net increase in total
wireless subscribers of 1.5 million to reach more than 133 million
in service, up 6.9 million over the past year.
- The company added 212,000 postpaid
subscribers and 304,000 prepaid subscribers with gains in both
Cricket and GoPhone.
- AT&T also added 1.3 million
connected devices. It lost 315,000 reseller subscribers in the
quarter, largely due to disconnects from the company’s 2G network.
The company added 299,000 postpaid tablet and computing devices in
the quarter and lost 268,000 postpaid phone subscribers with the
majority of the losses in lower-ARPU feature phones.
- The company had 516,000 branded net
adds (both postpaid and prepaid) in the quarter, including 165,000
branded smartphone net adds. About 700,000 total branded
smartphones were added to the base.
- The company expects to shut down its 2G
network on or around Jan. 1, 2017. At the end of the third quarter,
the company had about 4 million 2G subscribers. This includes 2.8
million connected devices, 673,000 reseller, 335,000 postpaid and
210,000 prepaid. This compares to more than 6 million 2G
subscribers at the end of the second quarter. The company has had
success migrating these subscribers and will continue those efforts
in the fourth quarter; however, the 2G shutdown is expected to
impact net adds and churn in the fourth quarter.
CHURN
Improvements in postpaid and prepaid churn helped offset higher
connected device and reseller churn.
- Postpaid churn was 1.05%, compared to
1.16% in the year-ago quarter, an 11 basis point improvement. That
includes about 2 basis points of pressure from the 2G network
shutdown. Postpaid phone churn was 0.90%, a 14 basis point
improvement from the year-ago quarter. Branded churn was 1.63%,
compared to 1.68% in the year-ago quarter. Total churn was 1.45%,
up from 1.33% in the year-ago quarter driven by churn from the
shutdown of the 2G network. The planned shutdown of the 2G network
contributed more than 20 basis points of pressure to total
churn.
SMARTPHONES
The company’s branded smartphone base continued to grow in the
quarter, and even more customers moved off the subsidy model —
either choosing AT&T Next or bringing their own devices.
- The company had 7.0 million branded
smartphone gross adds and upgrades in the quarter, including 1.9
million from prepaid. The postpaid upgrade rate in the quarter was
5.1%.
- Sales on AT&T Next were 4.3
million, or 83% of all postpaid smartphone gross adds and upgrades.
The company also had 595,000 BYOD gross adds, the second most ever.
That means about 94% of postpaid smartphone transactions in the
quarter were non-subsidy.
- About 50% of the company’s postpaid
smartphone base is currently on AT&T Next, with almost 80% of
postpaid smartphone subscribers on no-device-subsidy plans.
- At the end of the quarter, 90%, or 58.7
million, of AT&T’s postpaid phone subscribers had smartphones.
Smartphones accounted for 96% of postpaid phone sales during the
quarter.
DATA PLANS
Customers continue to choose Mobile Share and unlimited wireless
with TV plans.
- The total number of Mobile Share
connections was 57.1 million with an average of about 3 devices per
account. Nearly 40% of Mobile Share accounts are on 15 gigabyte or
larger data plans.
- About 6.7 million postpaid subscribers
are on unlimited wireless with TV plans.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 8-K
CURRENT REPORTPursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event
reported) October 22, 2016
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 8.01 Other Events.
Throughout this document, AT&T Inc. is referred to as “we”
or “AT&T.” We are a holding company whose subsidiaries and
affiliates operate in the communications and digital entertainment
services industry. Our subsidiaries and affiliates provide services
and equipment that deliver wireless, video and broadband services
both domestically and internationally, as well as traditional
telephony services.
Overview
We announced on October 22, 2016, that third-quarter 2016 net
income attributable to AT&T totaled $3.3 billion, or $0.54 per
diluted share, compared to $3.0 billion, or $0.50 per diluted share
in the third quarter of 2015.
Our third-quarter 2016 results include 24 days of
DIRECTV-related operations that were not reported in the comparable
period in 2015, contributing to higher revenues and expenses when
compared to the same period of the prior year. Third-quarter 2016
revenues were $40.9 billion, up 4.6 percent from the third-quarter
2015. Third quarter revenues reflect increased revenues primarily
from our acquisition of DIRECTV. Compared with results for the
third quarter of 2015, operating expenses were $34.5 billion versus
$33.2 billion; operating income was $6.4 billion, up from
$5.9 billion; and AT&T’s operating income margin was
15.7 percent, compared to 15.2 percent. Third-quarter
2016 cash from operating activities was $11.0 billion, up from
$10.8 billion in the year-ago quarter primarily due to the
acquisition of DIRECTV partially offset by the timing of working
capital payments.
Many of our products, including AT&T Mobility and AT&T
U-verse® (U-verse), are offered to subscribers in multiple
segments. Accordingly, to aid in understanding subscriber trends,
we are presenting an overall discussion of these customer metrics.
We reported a net gain of 2.3 million North American wireless
subscribers in the third quarter of 2016, of which 1.5 million were
in the U.S. At September 30, 2016, our North American wireless
customer base was approximately 144.0 million compared to 134.5
million in the prior year, and our domestic wireless subscribers
totaled 133.3 million compared to 126.4 million. During the third
quarter, net adds were as follows:
- North American branded net adds
(combined postpaid and prepaid) were 1.3 million, of which 516,000
were domestic. North American prepaid subscriber net adds were
910,000, of which 304,000 were domestic. North American postpaid
subscriber net adds were 375,000, of which 212,000 were domestic.
Total domestic postpaid tablet and computing device net adds were
299,000.
- Connected devices were 1.3 million; 1.1
million attributable to connected cars.
- North American reseller had a net loss
of 341,000, with 315,000 in the U.S. primarily attributable to the
expected year-end 2016 shutdown of our 2G U.S. network.
We no longer offer subsidized device purchases for the majority
of our U.S. customers, instead allowing subscribers to purchase
devices on installment (AT&T Next) or to bring their own device
(BYOD). During the first quarter of 2016, we also introduced an
integrated offer that allows for unlimited wireless data when
combined with our video services, ending the third quarter with
more than 6.7 million subscribers to this offer. At September 30,
2016, Mobile Share plans represented nearly 57.1 million domestic
wireless connections and about 80 percent of our domestic wireless
postpaid smartphone base was on a no-device-subsidy Mobile Share
plans.
Sales under our equipment installment programs, including
AT&T Next, represented 83 percent of all postpaid smartphone
gross adds and upgrades, compared to 71 percent in the third
quarter of 2015. During the third quarter of 2016, we sold 4.3
million smartphones under our AT&T Next program and had BYOD
gross adds of 595,000. More than 94 percent of smartphone
transactions in the quarter were no-subsidy compared to 80 percent
in the year-ago quarter. At September 30, 2016, about 50 percent of
the postpaid smartphone base is on AT&T Next compared to
approximately 40 percent at September 30, 2015.
At September 30, 2016, we had 37.8 million video subscribers
compared with 38.0 million at September 30, 2015. Total video
subscribers decreased by 50,000 in the third quarter of 2016.
Our total broadband connections were 15.6 million at September
30, 2016, and 15.8 million at September 30, 2015. During the third
quarter, we added 171,000 IP broadband subscribers, for a total of
13.7 million at September 30, 2016. Total broadband subscribers
declined by 23,000 in the quarter.
At September 30, 2016, our total switched access lines were 14.6
million compared with 17.4 million at September 30, 2015. The
number of U-verse voice connections (which use VoIP technology and
therefore are not included in the access line total) increased by
114,000 in the quarter to reach 5.7 million at September 30, 2016,
compared to 5.4 million at September 30, 2015.
Segment Summary
Business Solutions
Revenues from our Business Solutions (ABS) segment for the third
quarter of 2016 were $17.8 billion, up 0.4 percent versus the
year-ago quarter primarily due to growth in strategic business
services and higher wireless service revenues, largely due to
migrations from our Consumer Mobility segment. These revenue
increases were mostly offset by continued declines in our legacy
voice and data products, lower equipment revenues and foreign
exchange pressures. Third-quarter 2016 ABS operating expenses
totaled $13.5 billion, up 0.5 percent versus the third quarter of
2015. The ABS operating margin was 24.2 percent, compared to 24.3
percent in the year-earlier quarter with declines in higher-margin
legacy services mostly offset by wireless and IP revenue growth and
cost efficiencies.
We had approximately 79.4 million business wireless subscribers
at September 30, 2016, compared to 71.6 million at September 30,
2015. During the third quarter of 2016, business wireless net adds
for connected devices were 1.3 million and postpaid net adds were
191,000. Postpaid business wireless subscriber churn was 0.97
percent, compared to 1.05 percent in the year-ago quarter.
During the third quarter of 2016, we added 15,000 high-speed
Internet business subscribers, bringing total business IP broadband
to 963,000 subscribers. Total business broadband connections had a
loss of 18,000 subscribers in the quarter.
Entertainment Group
Our Entertainment Group (Entertainment) segment includes the
results of the U.S. satellite-based DIRECTV operations as well as
broadband and wired voice services to domestic residential
customers. Entertainment revenues for the third quarter of 2016
were $12.7 billion, up 17.1 percent versus the year-ago quarter due
to the acquisition of DIRECTV as well as strong growth in consumer
IP broadband. Revenues from legacy voice and data products continue
to decline. Third-quarter 2016 Entertainment operating expenses
totaled $11.2 billion compared to $9.8 billion in the third quarter
of 2015, largely due to the acquisition of DIRECTV and higher
content costs. The Entertainment operating margin was 11.7 percent,
compared to 9.4 percent in the year-earlier quarter with satellite
video and IP revenue growth and cost efficiencies offsetting
programming content cost pressure and declines in legacy
services.
At September 30, 2016, Entertainment had approximately 51.0
million revenue connections, compared to 52.6 million at September
30, 2015, which included:
- Approximately 25.3 million video
connections at September 30, 2016, compared to 25.4 million at
September 30, 2015. During the third quarter of 2016, we added
323,000 satellite subscribers; however, U-verse subscribers
declined 326,000 as we focused on profitability and increasingly
emphasized satellite sales, including U-verse subscribers choosing
to switch to satellite. At September 30, 2016, more than 80 percent
of our domestic video subscribers are on the DIRECTV platform.
- Approximately 14.2 million broadband
connections at September 30, 2016, compared to 14.3 million at
September 30, 2015. During the third quarter, we added 156,000 IP
broadband subscribers, for a total of 12.8 million at September 30,
2016. Total broadband subscribers declined 5,000 in the
quarter.
- Approximately 11.5 million wired voice
connections at September 30, 2016, compared to 12.9 million at
September 30, 2015. Voice connections include switched access lines
and VoIP connections.
Consumer Mobility
Revenues from our Consumer Mobility segment, which consist of
consumer, wholesale and resale subscribers located in the U.S., for
the third quarter of 2016 were $8.3 billion, down 5.9 percent
versus the year-ago quarter, reflecting a $632 million decline in
postpaid service revenues due to the popularity of Mobile Share
plans, migrations of customers to our ABS segment and lower
equipment revenues, reflecting lower smartphone upgrade volumes and
an increase in BYOD. This decline was partially offset by an
increase of $250 million in prepaid service revenues. Third-quarter
2016 Consumer Mobility operating expenses totaled $5.7 billion,
down 5.7 percent versus the third quarter of 2015 reflecting lower
equipment and commission costs as well as increased operational
efficiencies. The Consumer Mobility operating margin was 31.1
percent, compared to 31.2 percent in the year-earlier quarter with
the pressure from customers choosing our lower service rate Mobile
Share plans offset by lower volumes, fewer subsidized sales and
cost efficiencies.
We had approximately 53.9 million Consumer Mobility subscribers
at September 30, 2016, compared to 54.8 million at September 30,
2015. During the third quarter of 2016, we had branded net adds of
325,000 (prepaid net adds were 304,000 and consumer postpaid net
adds were 21,000). Consumer reseller had a net loss of 316,000. Our
business wireless offerings allow for individual subscribers to
purchase wireless services through employer-sponsored plans for a
reduced price. The migration of these subscribers to the ABS
segment negatively impacted Consumer postpaid subscriber and
service revenues growth.
Total customer churn of Consumer Mobility subscribers was 2.11
percent versus 1.90 percent in the third quarter of 2015, including
postpaid churn of 1.19 percent, compared to 1.33 percent in the
year-ago quarter.
International
Our International segment consists of the Latin American
operations acquired in our July 2015 acquisition of DIRECTV as well
as the Mexican wireless operations acquired earlier in 2015. Third
quarter 2016 operating revenues were $1.9 billion, up 23.1 percent
versus the prior year, with $1.3 billion attributable to video
services in Latin America and $582 million of wireless revenues in
Mexico. Our international segment revenues reflect foreign exchange
pressures in our DIRECTV Latin America and Mexican wireless
results. Operating expenses were $1.9 billion compared to $1.6
billion in the third quarter of 2015, largely due to our
acquisition of DIRECTV. The International operating margin was
(2.9) percent, compared to (5.4) percent in the year-earlier
quarter.
At September 30, 2016, we had approximately 10.7 million
wireless subscribers in Mexico and 12.5 million video connections
in Latin America, including 5.3 million in Brazil. During the third
quarter of 2016, our Mexico wireless business had net adds of
743,000 subscribers and our Latin America video connections
declined by 48,000.
Supplemental Discussion
As a supplemental discussion of our operating results, for
comparison purposes, we are providing a view of our combined
AT&T Mobility operations (domestic only). AT&T Mobility
revenues for the third quarter of 2016 were $18.2 billion, down 0.7
percent versus the third quarter of 2015, and AT&T Mobility’s
operating income margin was 29.6 percent compared to 29.6 percent
in the year-ago quarter reflecting continuing adoption of AT&T
Next, an increase in BYOD customers, lower smartphone upgrade
volumes and continued efforts to drive operating costs out of the
business.
For the quarter ended September 30, 2016, postpaid phone-only
ARPU decreased 1.9 percent versus the year-earlier quarter and 0.3
percent sequentially. Postpaid phone-only ARPU plus AT&T Next
increased 1.7 percent versus the year earlier quarter and was flat
sequentially.
Postpaid churn was 1.05 percent, compared to 1.16 percent in the
year-ago. Total customer churn was 1.45 percent versus 1.33 percent
in the third quarter of 2015.
Repurchases of our common stock under our previously announced
share repurchase authorization by our Board of Directors totaled 6
million shares, or $247 million during the third quarter of 2016.
At September 30, 2016, about 396 million shares remain available
under approved share repurchase authorizations.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING
STATEMENTS
Information set forth in this filing contains financial
estimates and other forward-looking statements that are subject to
risks and uncertainties. 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 filing
based on new information or otherwise.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are filed as part of this report:
(d) Exhibits
99.1 AT&T Inc. selected financial
statements and operating data.
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: October 22, 2016
By: /s/ Debra L.
Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Inc.
Financial Data
Consolidated Statements of
Income Dollars in millions except per share amounts Three Months
Ended Nine Months Ended Unaudited September 30, Percent September
30, Percent
2016
2015 Change
2016
2015 Change
Operating
Revenues Service
$ 37,272 $ 35,539 4.9 %
$
111,515
$
94,042 18.6 % Equipment
3,618
3,552 1.9 %
10,430 10,640
-2.0 %
Total Operating Revenues
40,890 39,091 4.6 %
121,945 104,682 16.5 %
Operating Expenses Cost of services and sales Equipment
4,455 4,501 -1.0 %
13,090 13,400 -2.3 % Broadcast,
programming and operations
4,909 4,081 20.3 %
14,239
6,351 - %
Other cost of services (exclusive of
depreciation and amortization shown separately below)
9,526 9,214 3.4 %
28,436 27,604 3.0 % Selling,
general and administrative
9,013 9,107 -1.0 %
26,363
24,535 7.5 % Depreciation and amortization
6,579 6,265 5.0 %
19,718
15,539 26.9 %
Total Operating
Expenses 34,482 33,168
4.0 %
101,846 87,429
16.5 %
Operating Income 6,408
5,923 8.2 %
20,099
17,253 16.5 %
Interest Expense 1,224
1,146 6.8 %
3,689 2,977 23.9 %
Equity in Net Income of
Affiliates 16 15 6.7 %
57 48 18.8 %
Other
Income (Expense) - Net (7 )
(57 ) 87.7 %
154 61 - %
Income Before Income Taxes 5,193 4,735 9.7 %
16,621 14,385 15.5 %
Income Tax Expense
1,775 1,657 7.1 %
5,803
4,784 21.3 %
Net Income
3,418 3,078 11.0 %
10,818 9,601 12.7 %
Less: Net Income Attributable to
Noncontrolling Interest
(90 ) (84 ) -7.1 %
(279 ) (262 ) -6.5 %
Net Income
Attributable to AT&T $ 3,328 $
2,994 11.2 %
$
10,539
$ 9,339 12.8 %
Basic Earnings
Per Share Attributable to AT&T $ 0.54 $ 0.50
8.0 %
$ 1.70 $ 1.71 -0.6 %
Weighted Average Common Shares Outstanding
(000,000)
6,168 5,924 4.1 %
6,171 5,447 13.3 %
Diluted Earnings Per Share Attributable to AT&T $
0.54 $ 0.50 8.0 %
$ 1.70 $ 1.71 -0.6 %
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,189 5,943 4.1
%
6,191 5,463 13.3
%
AT&T Inc. Financial
Data
Consolidated Balance Sheets Dollars in millions Unaudited
Sep. 30, Dec. 31,
2016
2015
Assets Current Assets Cash
and cash equivalents
$ 5,895 $ 5,121 Accounts
receivable - net of allowances for doubtful accounts of $650 and
$704
16,855 16,532 Prepaid expenses
1,333 1,072 Other
current assets
13,291
13,267 Total current assets
37,374
35,992
Property, Plant and Equipment
- Net 123,922 124,450
Goodwill 105,271
104,568
Licenses 94,241 93,093
Customer Lists and
Relationships - Net 15,227 18,208
Other Intangible
Assets - Net 8,734 9,409
Investments in Equity
Affiliates 1,679 1,606
Other Assets
16,527 15,346
Total
Assets $ 402,975 $ 402,672
Liabilities and Stockholders' Equity
Current Liabilities Debt maturing within one year
$
7,982 $ 7,636 Accounts payable and accrued liabilities
28,849 30,372 Advanced billing and customer deposits
4,637 4,682 Accrued taxes
2,686 2,176 Dividends
payable
2,948 2,950
Total current liabilities
47,102
47,816
Long-Term Debt
117,239 118,515
Deferred
Credits and Other Noncurrent Liabilities Deferred income taxes
59,649 56,181 Postemployment benefit obligation
33,483 34,262 Other noncurrent liabilities
20,899 22,258 Total deferred
credits and other noncurrent liabilities
114,031 112,701
Stockholders'
Equity Common stock
6,495 6,495 Additional paid-in
capital
89,536 89,763 Retained earnings
35,319 33,671
Treasury stock
(12,589 ) (12,592 ) Accumulated other
comprehensive income
4,850 5,334 Noncontrolling interest
992 969 Total
stockholders' equity
124,603
123,640
Total Liabilities and Stockholders'
Equity $ 402,975 $ 402,672
AT&T Inc. Financial Data
Consolidated
Statements of Cash Flows Dollars in millions
Nine Months Ended
Unaudited September 30,
2016
2015
Operating Activities Net income
$
10,818 $ 9,601 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization
19,718 15,539 Undistributed earnings from
investments in equity affiliates
(22 ) (36 )
Provision for uncollectible accounts
1,036 895 Deferred
income tax expense
3,011 1,539 Net gain from sale of
investments, net of impairments
(88 ) (46 ) Changes
in operating assets and liabilities: Accounts receivable
(1,108 ) 737 Other current assets
1,805 546
Accounts payable and accrued liabilities
(1,173 )
1,332 Equipment installment plan receivables and securitizations
207 (1,682 ) Deferred fulfillment costs
(1,883
) (884 ) Retirement benefit funding
(770 )
(595 ) Other - net
(2,349 ) (251
) Total adjustments
18,384
17,094 Net Cash Provided by Operating Activities
29,202 26,695
Investing Activities Capital expenditures: Purchase of
property and equipment
(15,283 ) (13,356 ) Interest
during construction
(669 ) (566 ) Acquisitions, net
of cash acquired
(2,922 ) (30,694 ) Dispositions
184 79 Sales of securities, net
501
1,490 Net Cash Used in Investing Activities
(18,189 ) (43,047 )
Financing Activities Net change in short-term borrowings
with original maturities of three months or less
- (1 )
Issuance of long-term debt
10,140 33,967 Repayment of
long-term debt
(10,688 ) (9,962 ) Purchase of
treasury stock
(444 ) - Issuance of treasury stock
(excluding acquisition of DIRECTV)
137 133 Dividends paid
(8,850 ) (7,311 ) Other
(534 )
(2,875 ) Net Cash (Used in) Provided by Financing
Activities
(10,239 ) 13,951
Net increase (decrease) in cash and cash equivalents
774 (2,401 ) Cash and cash equivalents beginning of year
5,121 8,603
Cash and
Cash Equivalents End of Period $ 5,895
$ 6,202
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial
Data Dollars in millions except per share amounts Three Months
Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Capital expenditures Purchase of property and equipment
$
5,581 $ 5,028 11.0 %
$ 15,283 $ 13,356 14.4 %
Interest during construction
$ 232 $ 227 2.2 %
$ 669 $ 566 18.2 % Dividends Declared per
Share
$ 0.48 $ 0.47 2.1 %
$ 1.44 $ 1.41
2.1 % End of Period Common Shares Outstanding (000,000)
6,141 6,152 -0.2 % Debt Ratio
50.1 % 50.8 %
-70 BP Total Employees
273,140 281,240
-2.9 %
Supplementary Operating Data
Subscribers and connections in
thousands Unaudited September 30, Percent
2016
2015 Change
Wireless Subscribers
Domestic
133,338 126,406 5.5 % Mexico
10,698
8,091 32.2 % Total Wireless Subscribers
144,036 134,497 7.1 %
Total Branded Wireless Subscribers 100,821 95,305 5.8
%
Video Connections Domestic
25,321 25,450
-0.5 % PanAmericana
7,139 7,006 1.9 % Brazil
5,337
5,538 -3.6 % Total Video Connections
37,797 37,994 -0.5 %
Broadband Connections IP
13,715 13,076 4.9 % DSL
1,903 2,756 -31.0 % Total
Broadband Connections
15,618 15,832
-1.4 %
Voice Connections Network Access Lines
14,603 17,352 -15.8 % U-verse VoIP Connections
5,707
5,443 4.9 % Total Retail Consumer Voice
Connections
20,310 22,795 -10.9 %
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Wireless Net Additions Domestic
1,532 2,513 -39.0 %
4,674 5,825 -19.8 % Mexico
743
(231 ) - %
2,014 (689 ) - %
Total Wireless Net Additions
2,275
2,282 -0.3 %
6,688 5,136
30.2 %
Total Branded Wireless Net Additions
1,285 125 - %
3,881 1,405 - %
Video Net
Additions Domestic
(2 ) (65 ) 96.9 %
(103
) (37 ) - % PanAmericana
(36 ) 16 - %
73 16 - % Brazil
(12 ) (129 )
90.7 %
(107 ) (129 ) 17.1 %
Total Video Net Additions
(50 ) (178 )
71.9 %
(137 ) (150 ) 8.7 %
Broadband Net Additions IP
171 192 -10.9 %
447 871 -48.7 % DSL
(194 ) (321
) 39.6 %
(607 ) (1,067 ) 43.1 %
Total Broadband Net Additions
(23 )
(129 ) 82.2 %
(160 ) (196 )
18.4 %
BUSINESS SOLUTIONS
The Business Solutions segment provides services to business
customers, including multinational companies; governmental and
wholesale customers; and individual subscribers who purchase
wireless services through employer-sponsored plans. We provide
advanced IP-based services including Virtual Private Networks
(VPN); Ethernet-related products and broadband, collectively
referred to as strategic business services; as well as traditional
data and voice products. We utilize our wireless and wired networks
(referred to as “wired” or “wireline”) to provide a complete
communications solution to our business customers.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Segment Operating Revenues Wireless service
$
8,049 $ 7,732 4.1 %
$ 23,867 $ 23,003 3.8 %
Fixed strategic services
2,888 2,646 9.1 %
8,447
7,745 9.1 % Legacy voice and data services
4,046 4,616 -12.3
%
12,567 14,081 -10.8 % Other service and equipment
908 885 2.6 %
2,652 2,585 2.6 % Wireless equipment
1,876 1,813 3.5 %
5,422 5,499 -1.4 %
Total
Segment Operating Revenues 17,767
17,692 0.4 %
52,955
52,913 0.1 %
Segment Operating Expenses
Operations and support expenses
10,925 10,921 - %
32,584 32,966 -1.2 % Depreciation and amortization
2,539 2,474 2.6 %
7,568 7,276 4.0 %
Total
Segment Operating Expenses 13,464
13,395 0.5 %
40,152
40,242 -0.2 %
Segment Operating Income
4,303 4,297 0.1 %
12,803 12,671 1.0 %
Equity in
Net Income of Affiliates - -
- %
- - - %
Segment Contribution $ 4,303 $ 4,297
0.1 %
$ 12,803 $ 12,671
1.0 %
Segment Operating Income Margin
24.2 % 24.3 %
24.2 % 23.9 %
Supplementary
Operating Data
Subscribers
and connections in thousands Unaudited September 30, Percent
2016 2015 Change
Business Solutions Wireless Subscribers Postpaid/Branded
50,014 47,414 5.5 % Reseller
58 83 -30.1 % Connected
Devices
29,355 24,064 22.0 %
Total Business Solutions Wireless Subscribers
79,427
71,561 11.0 %
Business Solutions IP
Broadband Connections
963 891 8.1
% Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Business Solutions Wireless Net Additions Postpaid/Branded
191 265 -27.9 %
509 850 -40.1 % Reseller
1 8
-87.5 %
(34 ) 14 - % Connected Devices
1,290 1,602 -19.5 %
4,067 4,104 -0.9 % Total
Business Solutions Wireless Net Additions
1,482
1,875 -21.0 %
4,542
4,968 -8.6 % Business Solutions
Wireless Postpaid Churn
0.97 % 1.05 %
-8 BP
0.97 % 0.95 % 2 BP
Business Solutions IP Broadband Net
Additions
15 20 -25.0 %
52 70 -25.7 %
ENTERTAINMENT GROUP
The Entertainment Group segment provides video, internet, voice
communication, and interactive and targeted advertising services to
customers located in the U.S. or in U.S. territories. We utilize
our copper and IP-based wired network and/or our satellite
technology.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Segment Operating Revenues Video entertainment
$ 9,026 $ 7,162 26.0 %
$ 26,893 $
11,024 - % High-speed internet
1,892 1,685 12.3 %
5,562 4,861 14.4 % Legacy voice and data services
1,168 1,419 -17.7 %
3,725 4,547 -18.1 % Other service
and equipment
634 592 7.1
%
1,909 1,868 2.2 %
Total Segment Operating Revenues 12,720
10,858 17.1 %
38,089
22,300 70.8 %
Segment Operating
Expenses Operations and support expenses
9,728 8,450
15.1 %
28,875 18,222 58.5 % Depreciation and amortization
1,504 1,389 8.3 %
4,481 3,519 27.3 %
Total
Segment Operating Expenses 11,232
9,839 14.2 %
33,356
21,741 53.4 %
Segment Operating Income
1,488 1,019 46.0 %
4,733 559 - %
Equity in Net
Income (Loss) of Affiliates - 2
- %
1 (16 ) - %
Segment Contribution $ 1,488 $ 1,021
45.7 %
$ 4,734 $ 543
- %
Segment Operating Income Margin
11.7 % 9.4 %
12.4 % 2.5 %
Supplementary
Operating Data
Subscribers
and connections in thousands Unaudited September 30, Percent
2016 2015 Change
Video
Connections Satellite
20,777 19,570 6.2 % U-verse
4,515 5,854 -22.9 % Total Video
Connections
25,292 25,424 -0.5 %
Broadband Connections ` IP
12,752 12,185 4.7 %
DSL
1,424 2,137 -33.4 % Total
Broadband Connections
14,176 14,322
-1.0 %
Voice Connections Retail Consumer
Switched Access Lines
6,155 7,675 -19.8 % U-verse Consumer
VoIP Connections
5,378 5,216 3.1 % Total Retail
Consumer Voice Connections
11,533 12,891
-10.5 % Three Months Ended Nine
Months Ended September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Video Net Additions Satellite
323 26 - %
993 26 - % U-verse
(326 ) (92 )
- %
(1,099 ) (66 ) - % Total
Video Net Additions
(3 ) (66 )
95.5 %
(106 ) (40 ) - %
Broadband Net Additions IP
156 172 -9.3 %
396
802 -50.6 % DSL
(161 ) (278 )
42.1 %
(506 ) (922 ) 45.1 % Total
Broadband Net Additions
(5 ) (106 )
95.3 %
(110 ) (120 ) 8.3
%
CONSUMER MOBILITY
The Consumer Mobility segment provides nationwide wireless
service to consumers and wholesale and resale wireless subscribers
located in the U.S. or in U.S. territories. We utilize our U.S.
wireless network to provide voice and data services, including
high-speed internet, video, and home monitoring services.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Segment Operating
Revenues Service
$ 6,914 $ 7,363 -6.1 %
$
20,805 $ 22,019 -5.5 % Equipment
1,353
1,421 -4.8 %
3,976 4,298 -7.5 %
Total Segment Operating Revenues 8,267
8,784 -5.9 %
24,781 26,317 -5.8
%
Segment Operating Expenses Operations and support
expenses
4,751 5,065 -6.2 %
14,343 15,808 -9.3 %
Depreciation and amortization
944 976
-3.3 %
2,798 2,912 -3.9 %
Total
Segment Operating Expenses 5,695 6,041
-5.7 %
17,141 18,720 -8.4 %
Segment Operating Income 2,572 2,743 -6.2 %
7,640 7,597 0.6 %
Equity in Net Income of Affiliates
- - - %
- -
- %
Segment Contribution $ 2,572 $ 2,743
-6.2 %
$ 7,640 $ 7,597 0.6 %
Segment Operating Income Margin 31.1 %
31.2 %
30.8 % 28.9 %
Supplementary Operating Data
Subscribers and connections in thousands Unaudited
September 30, Percent
2016 2015 Change
Consumer Mobility Subscribers Postpaid
27,374
29,257 -6.4 % Prepaid
13,035 10,988 18.6 %
Branded
40,409 # 40,245 0.4 % Reseller
12,566
13,647 -7.9 % Connected Devices
936 953 -1.8 %
Total Consumer Mobility Subscribers
53,911 54,845
-1.7 % Three Months Ended Nine Months
Ended September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Consumer Mobility
Net Additions Postpaid
21 23 -8.7 %
89 289 -69.2
% Prepaid
304 466 -34.8 %
1,169 895 30.6 % Branded
325 489 -33.5
%
1,258 1,184 6.3 % Reseller
(316) 149 - %
(1,140) (218) - % Connected Devices
41
- - %
14 (109) - % Total
Consumer Mobility Net Additions
50 638
-92.2 %
132 857 -84.6 % Total
Churn
2.11% 1.90% 21 BP
2.06% 1.93% 13 BP Postpaid
Churn
1.19% 1.33% -14 BP
1.17% 1.23% -6 BP
INTERNATIONAL
The International segment provides entertainment services in
Latin America and wireless services in Mexico. Video entertainment
services are provided to primarily residential customers using
satellite technology. We utilize our regional and national wireless
networks in Mexico to provide consumer and business customers with
wireless data and voice communication services. Our international
subsidiaries conduct business in their local currency and operating
results are converted to U.S. dollars using official exchange
rates.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Segment Operating Revenues Video entertainment
$ 1,297 $ 945 37.2 %
$ 3,649 $ 945 - %
Wireless service
484 494 -2.0 %
1,428 1,153 23.9 %
Wireless equipment
98 87
12.6 %
297 155 91.6 %
Total Segment Operating Revenues 1,879
1,526 23.1 %
5,374
2,253 - %
Segment Operating Expenses
Operations and support expenses
1,640 1,384 18.5 %
4,951 2,131 - % Depreciation and amortization
293 225 30.2 %
868
346 - %
Total Segment Operating
Expenses 1,933 1,609
20.1 %
5,819 2,477 - %
Segment Operating Income (Loss) (54 ) (83 )
34.9 %
(445 ) (224 ) -98.7 %
Equity in Net Income
(Loss) of Affiliates 1 (4 )
- %
24 (4 ) - %
Segment
Contribution $ (53 ) $ (87 ) 39.1 %
$ (421 ) $ (228 ) -84.6 %
Segment Operating Income Margin (2.9 )
% (5.4 ) %
(8.3 )
% (9.9 ) %
Supplementary Operating Data
Subscribers and connections in
thousands Unaudited September 30, Percent
2016
2015 Change
Mexican Wireless
Subscribers Postpaid
4,733 4,159 13.8 % Prepaid
5,665 3,487 62.5 % Branded
10,398 7,646 36.0 % Reseller
300 445
-32.6 % Total Mexican Wireless Subscribers
10,698 8,091 32.2 %
Latin America Satellite Subscribers PanAmericana
7,139 7,006 1.9 % SKY Brazil
5,337 5,538
-3.6 % Total Latin America Satellite Subscribers
12,476 12,544 -0.5 %
Three Months Ended Nine Months Ended September 30,
Percent September 30, Percent
2016
2015 Change
2016
2015 Change
Mexican Wireless
Net Additions Postpaid
163 15 - %
444 47 - %
Prepaid
606 (210 ) - %
1,670 (677 ) - % Branded
769
(195 ) - %
2,114 (630 ) - % Reseller
(26
) (36 ) 27.8 %
(100 )
(59 ) -69.5 % Total Mexican Wireless Net Additions
743 (231 ) - %
2,014 (689 ) - %
Latin
America Satellite Net Additions PanAmericana
(36
) 16 - %
73 16 - % SKY Brazil
(12
) (129 ) 90.7 %
(107 )
(129 ) 17.1 % Total Latin America Satellite Net
Additions
(48 ) (113 ) 57.5 %
(34 ) (113 ) 69.9 %
SUPPLEMENTAL OPERATING INFORMATION -
AT&T MOBILITY
As a supplemental discussion of our operating results, for
comparison purposes, we are providing a view of our combined
domestic wireless operations (AT&T Mobility).
Operating Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2016 2015 Change
2016 2015 Change
Operating Revenues Service
$ 14,963 $
15,095 -0.9 %
$ 44,673 $ 45,022 -0.8 % Equipment
3,229 3,234 -0.2 %
9,398 9,797 -4.1 %
Total
Operating Revenues 18,192 18,329
-0.7 %
54,071 54,819
-1.4 %
Operating Expenses Operations
and support expenses
10,696 10,865 -1.6 %
31,822
33,310 -4.5 % Depreciation and amortization
2,107
2,046 3.0 %
6,244
6,082 2.7 %
Total Operating Expenses
12,803 12,911 -0.8 %
38,066 39,392 -3.4 %
Operating Income 5,389 5,418 -0.5 %
16,005
15,427 3.7 %
Equity in Net Income of Affiliates
- - - %
-
- - %
Operating Contribution $
5,389 $ 5,418 -0.5 %
$
16,005 $ 15,427 3.7 %
Operating Income Margin 29.6 %
29.6 %
29.6 % 28.1
%
Supplementary Operating Data
Subscribers and connections in
thousands Unaudited September 30, Percent
2016
2015 Change
AT&T Mobility
Subscribers Postpaid
77,388 76,671 0.9 % Prepaid
13,035 10,988 18.6 % Branded
90,423 # 87,659 3.2 % Reseller
12,624 13,729
-8.0 % Connected Devices
30,291 25,018
21.1 % Total AT&T Mobility Subscribers
133,338
126,406 5.5 % Domestic Licensed
POPs (000,000)
323 321 0.6 %
Three Months Ended Nine Months Ended September
30, Percent September 30, Percent
2016
2015 Change
2016
2015 Change
AT&T Mobility
Net Additions Postpaid
212 289 -26.6 %
598 1,140
-47.5 % Prepaid
304 466
-34.8 %
1,169 895 30.6 %
Branded
516 755 -31.7 %
1,767 # 2,035 -13.2 %
Reseller
(315 ) 156 - %
(1,174 ) (205 )
- % Connected Devices
1,331 1,602
-16.9 %
4,081 3,995
2.2 % Total AT&T Mobility Net Additions
1,532 2,513 -39.0 %
4,674 # 5,825 -19.8 %
M&A Activity, Partitioned Customers
and Other Adjustments
1 (9 ) - %
24 27 -11.1 % Total Churn
1.45 % 1.33 % 12 BP
1.41 % 1.35 % 6 BP
Postpaid Churn
1.05 % 1.16 % -11
BP
1.04 % 1.06 % -2 BP
SUPPLEMENTAL
SEGMENT RECONCILIATION
Three
Months Ended Dollars in millions Unaudited
September
30, 2016
Revenues
Operations and Support Expenses EBITDA
Depreciation and Amortization Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates Segment
Contribution Business Solutions
$ 17,767 $
10,925 $ 6,842 $ 2,539 $
4,303 $ - $ 4,303 Entertainment
Group
12,720 9,728 2,992 1,504
1,488 - 1,488 Consumer Mobility
8,267
4,751 3,516 944 2,572 -
2,572 International
1,879
1,640 239
293 (54 ) 1
(53 ) Segment Total
40,633 27,044
13,589 5,280
8,309 $ 1
$ 8,310 Corporate and Other
270
270 - 17 (17 )
Acquisition-related items
- 290 (290 )
1,282 (1,572 ) Certain Significant items
(13 ) 299
(312 ) -
(312 ) AT&T Inc.
$ 40,890
$ 27,903 $ 12,987
$ 6,579 $ 6,408
September 30, 2015
Revenues Operations and Support Expenses EBITDA
Depreciation and Amortization Operating Income
(Loss) Equity in Net Income (Loss) of Affiliates
Segment Contribution Business Solutions $ 17,692 $ 10,921 $ 6,771 $
2,474 $ 4,297 $ - $ 4,297 Entertainment Group 10,858 8,450 2,408
1,389 1,019 2 1,021 Consumer Mobility 8,784 5,065 3,719 976 2,743 -
2,743 International 1,526 1,384
142 225 (83 )
(4 ) (87 ) Segment Total 38,860
25,820 13,040
5,064 7,976 $ (2 )
$ 7,974 Corporate and Other 316 315 1 3 (2 )
Acquisition-related items (85 ) 611 (696 ) 1,198 (1,894 ) Certain
Significant items - 157
(157 ) - (157 ) AT&T Inc. $
39,091 $ 26,903 $ 12,188
$ 6,265 $ 5,923
Nine Months Ended
Dollars in
millions Unaudited
September 30, 2016
Revenues Operations and Support Expenses
EBITDA Depreciation and Amortization
Operating Income (Loss) Equity in Net Income (Loss) of
Affiliates Segment Contribution Business Solutions
$
52,955 $ 32,584 $ 20,371
$ 7,568 $ 12,803 $ -
$ 12,803 Entertainment Group
38,089
28,875 9,214 4,481 4,733 1
4,734 Consumer Mobility
24,781 14,343
10,438 2,798 7,640 - 7,640
International
5,374 4,951
423 868
(445 ) 24
(421 ) Segment Total
121,199 80,753
40,446 15,715
24,731 $ 25
$ 24,756 Corporate and Other
759
940 (181 ) 54 (235 )
Acquisition-related items
- 818 (818 )
3,949 (4,767 ) Certain Significant items
(13 ) (383 )
370 -
370 AT&T Inc.
$ 121,945
$ 82,128 $
39,817 $ 19,718 $
20,099 September 30, 2015
Revenues Operations and Support Expenses
EBITDA Depreciation and Amortization
Operating Income (Loss) Equity in Net Income (Loss) of
Affiliates Segment Contribution Business Solutions $ 52,913
$ 32,966 $ 19,947 $ 7,276 $ 12,671 $ - $ 12,671 Entertainment Group
22,300 18,222 4,078 3,519 559 (16 ) 543 Consumer Mobility 26,317
15,808 10,509 2,912 7,597 - 7,597 International 2,253
2,131 122
346 (224 ) (4 ) (228 )
Segment Total 103,783 69,127
34,656 14,053
20,603 $ (20 ) $ 20,583 Corporate and
Other 984 785 199 47 152 Acquisition-related items (85 ) 1,604
(1,689 ) 1,439 (3,128 ) Certain Significant items -
374 (374 ) -
(374 ) AT&T Inc. $ 104,682 $ 71,890
$ 32,792 $ 15,539 $ 17,253
Exhibit 99.3
Discussion and Reconciliation of Non-GAAP
Measures
We believe the following measures are relevant and useful
information to 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 AT&T and its segments. Management also uses these measures
as a method of comparing performance with that of many of our
competitors.
Free Cash Flow
Free cash flow is defined as cash from operations minus Capital
expenditures. Free cash flow after dividends is defined as cash
from operations minus 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 views free
cash flow as an important indicator of how much cash is generated
by routine 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 and Free Cash Flow Dividend Payout Ratio
Dollars in millions Three Months Ended Nine Months
Ended September 30, September 30,
2016
2015
2016
2015 Net cash provided by operating activities
$
10,995 $ 10,797
$ 29,202 $ 26,695 Less:
Capital expenditures
(5,813 )
(5,255 )
(15,952 ) (13,922 )
Free Cash Flow 5,182
5,542
13,250 12,773
Less: Dividends paid
(2,951
) (2,438 )
(8,850 )
(7,311 ) Free Cash Flow after Dividends
$
2,231 $ 3,104
$ 4,400
$ 5,462
Free Cash Flow Dividend Payout Ratio
56.9 % 44.0 %
66.8 % 57.2 %
Capital Investment
Capital Investment is a non-GAAP financial measure that adds to
Capital expenditures the amount of vendor financing arrangements
for capital improvements to our wireless network in Mexico. These
favorable payment terms are considered vendor financing
arrangements and are reported as repayments of debt instead of
Capital expenditures. Management believes that Capital Investment
provides relevant and useful information to investors and other
users of our financial data in evaluating long-term investment in
our business.
Capital Investment Dollars in millions Three Months
Ended Nine Months Ended September 30, September 30,
2016 2015
2016
2015 Capital Expenditures
$ 5,813 $ 5,255
$ 15,952 $ 13,922 Vendor Financing
87 -
225 -
Capital
Investment $ 5,900 $ 5,255
$
16,177 $ 13,922
EBITDA
Our calculation of EBITDA, as presented, may differ from
similarly titled measures reported by other companies. For
AT&T, EBITDA excludes other income (expense) – net, and equity
in net income (loss) of affiliates, as these do not reflect the
operating results of our subscriber base or operations that are not
under our control. Equity in net income (loss) of affiliates
represents the proportionate share of the net income (loss) of
affiliates in which we exercise significant influence, but do not
control. Because we do not control these entities, management
excludes these results when evaluating the performance of our
primary operations. EBITDA also excludes interest expense and the
provision for income taxes. Excluding these items eliminates the
expenses associated with our capital and tax structures. Finally,
EBITDA excludes depreciation and amortization in order to eliminate
the impact of capital investments. 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 U.S. generally accepted accounting
principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service
revenues.
When discussing our segment results, EBITDA excludes equity in
net income (loss) of affiliates, and depreciation and amortization
from segment contribution. For our supplemental presentation of our
combined domestic wireless operations (AT&T Mobility), EBITDA
excludes depreciation and amortization from Operating Income.
These measures are used by management as a gauge of our success
in acquiring, retaining and servicing 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 segment 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
segment managers are responsible and upon which we evaluate their
performance.
We believe EBITDA Service Margin (EBITDA as a percentage of
service revenues) to be a more relevant measure than EBITDA Margin
(EBITDA as a percentage of total revenue) for our Consumer Mobility
segment operating margin and our supplemental AT&T Mobility
operating margin. For the periods covered by this report, we
subsidized a portion of some of our wireless handset sales, 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, EBITDA margin 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.
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, EBITDA margin 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.
EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in
millions Three Months Ended Nine Months Ended September 30,
September 30,
2016 2015
2016 2015
Net
Income $ 3,418 $ 3,078
$ 10,818 $
9,601 Additions: Income Tax Expense
1,775 1,657
5,803
4,784 Interest Expense
1,224 1,146
3,689 2,977 Equity
in Net (Income) of Affiliates
(16 ) (15 )
(57
) (48 ) Other (Income) Expense - Net
7 57
(154
) (61 ) Depreciation and amortization
6,579
6,265
19,718
15,539
EBITDA 12,987
12,188
39,817
32,792 Total Operating Revenues
40,890 39,091
121,945 104,682 Service Revenues
37,272 35,539
111,515 94,042
EBITDA
Margin 31.8 % 31.2 %
32.7 % 31.3 %
EBITDA Service Margin 34.8 %
34.3 %
35.7 % 34.9 %
Segment EBITDA, EBITDA Margin and EBITDA Service
Margin Dollars in millions Three Months Ended Nine
Months Ended September 30, September 30,
2016
2015
2016
2015
Business Solutions Segment
Segment
Contribution $ 4,303 $ 4,297
$
12,803 $ 12,671 Additions: Depreciation and amortization
2,539 2,474
7,568 7,276
EBITDA
6,842 6,771
20,371
19,947 Total Segment Operating Revenues
17,767 17,692
52,955 52,913
Segment
Operating Income Margin 24.2 % 24.3 %
24.2
% 23.9 %
EBITDA Margin 38.5 % 38.3 %
38.5 % 37.7 %
Entertainment Group
Segment
Segment Contribution $ 1,488 $ 1,021
$ 4,734 $ 543 Additions: Equity in Net (Income) of
Affiliates
- (2 )
(1 ) 16 Depreciation and
amortization
1,504 1,389
4,481 3,519
EBITDA
2,992 2,408
9,214
4,078 Total Segment Operating Revenues
12,720 10,858
38,089 22,300
Segment
Operating Income Margin 11.7 % 9.4 %
12.4
% 2.5 %
EBITDA Margin 23.5 % 22.2 %
24.2 % 18.3 %
Consumer Mobility Segment
Segment Contribution $ 2,572 $ 2,743
$
7,640 $ 7,597 Additions: Depreciation and amortization
944 976
2,798 2,912
EBITDA
3,516 3,719
10,438
10,509 Total Segment Operating Revenues
8,267 8,784
24,781 26,317 Service Revenues
6,914 7,363
20,805 22,019
Segment Operating
Income Margin 31.1 % 31.2 %
30.8 %
28.9 %
EBITDA Margin 42.5 % 42.3 %
42.1
% 39.9 %
EBITDA Service Margin 50.9 %
50.5 %
50.2 % 47.7 %
International
Segment
Segment Contribution $ (53 ) $
(87 )
$ (421 ) $ (228 ) Additions: Equity in
Net (Income) of Affiliates
(1 ) 4
(24 )
4 Depreciation and amortization
293 225
868 346
EBITDA 239 142
423 122 Total Segment
Operating Revenues
1,879 1,526
5,374 2,253
Segment Operating Income Margin -2.9 % -5.4 %
-8.3 % -9.9 %
EBITDA Margin 12.7
% 9.3 %
7.9 % 5.4
%
Supplemental AT&T Mobility EBITDA, EBITDA Margin
and EBITDA Service Margin Dollars in millions Three Months
Ended Nine Months Ended September 30, September 30,
2016 2015
2016
2015
AT&T Mobility
Operating
Contribution $ 5,389 $ 5,418
$
16,005 $ 15,427 Add: Depreciation and amortization
2,107 2,046
6,244
6,082
EBITDA 7,496
7,464
22,249
21,509 Total Segment Operating Revenues
18,192
18,329
54,071 54,819 Service Revenues
14,963 15,095
44,673 45,022
Segment Operating Income Margin
29.6 % 29.6 %
29.6 % 28.1 %
EBITDA
Margin 41.2 % 40.7 %
41.1 % 39.2 %
EBITDA Service Margin 50.1 %
49.4 %
49.8 % 47.8 %
Adjusting Items
Adjusting items include revenues and costs we consider
nonoperational in nature, such as items arising from asset
acquisitions or dispositions. We also adjust for net actuarial
gains or losses associated with our pension and postemployment
benefit plans due to the often significant impact on our
fourth-quarter results (we immediately recognize this gain or loss
in the income statement, pursuant to our accounting policy for the
recognition of actuarial gains and losses.) Consequently, our
adjusted results reflect an expected return on plan assets rather
than the actual return on plan assets, as included in the GAAP
measure of income.
The tax impact of adjusting items is calculated using the
effective tax rate during the quarter except for (1) adjustments
related to Mexico operations, which are taxed at the 30% marginal
rate for Mexico and (2) adjustments that, given their magnitude can
drive a change in the effective tax rate, reflect the actual tax
expense or combined marginal rate of approximately 38%.
Adjusting Items Dollars in millions Three Months Ended
Nine Months Ended September 30, September 30,
2016 2015
2016
2015
Operating Revenues Merger related deferred
revenue
$ - $ 85
$ - $ 85 Storm revenue
credits
13 -
13
-
Adjustments to Operating Revenues
13 85
13 85
Operating Expenses DIRECTV and other video merger
integration costs
189 173
495 337 Mexico merger
integration costs
84 42
231 83 Wireless merger
integration costs
17 146
92 570 Leap network
decommissioning - 250 - 614 New cell site abandonment
- 35
- 35 Storm costs
17 -
17 - Employee separation
costs
260 122
314 339 (Gain) loss on transfer of
wireless spectrum
22 -
(714 ) -
Adjustments to Operations and
Support Expenses 589 768
435 1,978 Amortization of intangible
assets
1,282 1,171
3,949 1,284
Adjustments to Operating
Expenses 1,871 1,939
4,384 3,262
Other DIRECTV-related
interest expense and exchange fees 1
- 38
16 142
(Gain) loss on sale of investments 2
- -
4 -
Adjustments to
Income Before Income Taxes 1,884 2,062
4,417 3,489 Tax impact of
adjustments
640 705
1,521 1,202 Tax-related items
- (34 )
-
228
Adjustments to Net Income $ 1,244 $ 1,391
$ 2,896 $ 2,059
1 Includes interest expense incurred on the debt issued prior to
the close of the DIRECTV transaction and fees associated with the
exchange of DIRECTV notes for AT&T notes.2 Residual effect of
previously adjusted item.
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA margin, 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 margin,
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.
AT&T's calculation of Adjusted items, as presented, may differ
from similarly titled measures reported by other companies.
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin
and Adjusted EBITDA Service Margin
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2016
2015
2016 2015
Operating Income $ 6,408 $ 5,923
$
20,099 $ 17,253 Adjustments to Operating Revenues
13
85
13 85 Adjustments to Operating Expenses
1,871 1,939
4,384
3,262
Adjusted Operating Income
8,292 7,947
24,496
20,600
EBITDA 12,987
12,188
39,817 32,792 Adjustments to Operating Revenues
13 85
13 85 Adjustments to Operations and Support
Expenses
589 768
435 1,978
Adjusted EBITDA
13,589 13,041
40,265 34,855 Total Operating
Revenues
40,890 39,091
121,945 104,682 Adjustments to
Operating Revenues
13 85
13 85
Total Adjusted
Operating Revenues 40,903 39,176
121,958 104,767
Service Revenues
37,272 35,539
111,515 94,042
Adjustments to Operating Revenues
13 85
13 85
Adjusted
Service Revenues 37,285 35,624
111,528 94,127
Operating Income Margin
15.7 % 15.2 %
16.5 % 16.5 % Adjusted Operating Income Margin
20.3 % 20.3 %
20.1 % 19.7 %
Adjusted
EBITDA Margin 33.2 % 33.3 %
33.0 %
33.3 %
Adjusted EBITDA Service Margin 36.4
% 36.6 %
36.1 %
37.0 %
Adjusted Diluted EPS Three Months Ended
Nine Months Ended September 30, September 30,
2016 2015
2016
2015
Diluted Earnings Per Share (EPS) $
0.54 $ 0.50
$ 1.70 $ 1.71 Amortization of
intangible assets
0.14 0.13
0.42 0.16 Merger
integration and other costs1
0.03 0.09
0.09 0.22
Employee separations
0.03 0.01
0.03 0.04 Gain (loss)
on transfer of wireless spectrum
- -
(0.07 ) -
Tax-related items
- 0.01
- (0.04 )
Adjusted EPS $
0.74 $ 0.74
$ 2.17 $ 2.09
Year-over-year growth - Adjusted
0.0 %
3.8 %
Weighted Average Common Shares
Outstanding with Dilution (000,000)
6,189 5,943
6,191
5,463
1Includes combined merger integration costs, Leap network
decommissioning, DIRECTV-related interest expense and exchange
fees, abandonments and other costs.
Entertainment Group
Segment
Adjusted Operating Revenues includes the external operating
revenues from DIRECTV U.S. as reported in the DIRECTV Form 10-Q/A
dated June 30, 2015 adjusted to (1) include operations reported in
other DIRECTV operating segments that AT&T has chosen to manage
in our Entertainment Group segment, (2) conform DIRECTV's practice
of recognizing revenue to be received under contractual commitments
on a straight line basis over the minimum contract period to
AT&T's method of limiting the revenue recognized to the monthly
amounts billed and (3) eliminate intercompany transactions from
DIRECTV U.S. and the Entertainment Group segment. Adjusting
Entertainment Group segment operating revenues provides for
comparability between periods.
Entertainment Group Adjusted Operating Revenues Dollars in
millions Three Months Ended Nine Months Ended September 30,
September 30,
2016 2015
2016 2015
Segment
Operating Revenues $ 12,720 $ 10,858
$
38,089 $ 22,300 DIRECTV Operating Revenues1 1,700 14,864
Adjustments: Other DIRECTV operations - 182 Revenue recognition 35
229 Intercompany eliminations (6 )
(40 )
Adjusted Segment Operating
Revenues $ 12,720 $ 12,587
$ 38,089 $ 37,535 Year-over-year growth
- Adjusted
1.1 %
1.5 % 1Includes results from July 1,
2015 through July 24, 2015 acquisition date.
Net Debt to Adjusted
EBITDA
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 Adjusted EBITDA ratio is calculated by dividing the Net
Debt by annualized Net Debt Adjusted EBITDA. Annualized Net Debt
Adjusted EBITDA excludes severance-related adjustments as described
in our credit agreements. 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 Adjusted
EBITDA is calculated by annualizing the year-to-date Net Debt
Adjusted EBITDA.
Net Debt to Adjusted EBITDA Dollars in millions
Three Months Ended
Mar. 31, Jun. 30 Sep.
30 YTD 2016 2016
2016 2016
Adjusted EBITDA $ 13,279 $ 13,397 $ 13,589 $
40,265 Add back
severance (25 ) (29 ) (260 )
(314 ) Net Debt Adjusted
EBITDA 13,254 13,368 13,329
39,951 Annualized Net Debt
Adjusted EBITDA 53,268 End-of-period current debt
7,982 End-of-period long-term debt
117,239 Total
End-of-Period Debt 125,221 Less: Cash and Cash
Equivalents
5,895 Net Debt Balance
119,326
Annualized Net Debt Adjusted EBITDA Ratio
2.24
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161022005016/en/
AT&T Corporate CommunicationsFletcher Cook,
214-757-7629fletcher.cook@att.com
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