Strong Wireless Gains, Sound Operational Execution Highlight AT&Ts Third Quarter; Results Led by 2.4 Million iPhone 3G Activations, Rapid Wireless Data Growth

  • $0.55 reported earnings per diluted share versus $0.50 in the year-earlier quarter
  • $0.67 adjusted earnings per diluted share which includes $0.10 of pressure generated by strong performance from the Apple iPhone 3G initiative and $0.02 from hurricane-related expenses compared with $0.71 in the third quarter of 2007
  • 2.4 million iPhone 3G devices activated in the quarter, approximately 40 percent of them to wireless customers who were new to AT&T; iPhone 3G delivering high-value subscribers with significantly higher ARPU and lower churn than postpaid subscriber average
  • 2.0 million net gain in total wireless subscribers to reach 74.9 million in service
  • 1.7 million net gain in retail postpaid wireless subscribers, up nearly 40 percent versus year-earlier third quarter; largest total for any quarter in AT&Ts history
  • 50.5 percent growth in wireless data revenues from Internet access, messaging, e-mail and related services; total wireless revenues up 15.4 percent
  • Strong ramp in AT&T U-verse TV subscribers, with a net subscriber gain of 232,000 to reach 781,000 in service; solidly on track to exceed 1 million subscribers in service by the end of 2008
  • 16.2 percent increase in wireline IP data revenues driven by expansion in AT&T U-verseSM services and growth in business products such as Virtual Private Networks (VPNs), managed Internet services and hosting
  • Major turnaround and return to growth in wholesale revenues, reflecting solid demand from wireless carriers, Internet service providers and other customers

Note: AT&Ts third-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Wednesday, Oct. 22, 2008, at www.att.com/investor.relations.

DALLAS--()--AT&T Inc. (NYSE:T) today reported third-quarter results that are highlighted by strong wireless gains and stable trends in business services, including continued double-digit IP data growth and a major turnaround in wholesale revenue growth.

Wireless growth was driven by a significant step up in retail postpaid subscriber additions, continued rapid adoption of wireless data services and robust demand for integrated devices, led by the Apple iPhone 3G. Activations of the iPhone 3G which was launched in the United States as an AT&T exclusive on July 11 totaled 2.4 million in the quarter, approximately 40 percent of them to new wireless AT&T customers.

I am particularly pleased with the customer response to the iPhone 3G, said Randall Stephenson, AT&T chairman and chief executive officer. The new customers were winning are high-value, with attractive revenue and churn profiles. Were expanding the market, as users adopt more data and media-rich services and access a wide array of applications. These achievements are positive for the future of our business.

Across our operations, AT&T continues to execute and deliver solid results. In wireless, we posted a record postpaid subscriber gain. Trends in business services continue to be stable, with a major turnaround in wholesale revenue growth. AT&T U-verse video gains continue to accelerate, helping transform our consumer business.

There are a number of things that set AT&T apart. Our company has premier assets, a sound balance sheet, solid cash flow and an excellent record of returning value to shareowners. These fundamentals, combined with an intense focus on execution, provide a solid foundation for AT&Ts future.

Reported Results

For the quarter ended Sept. 30, 2008, AT&Ts consolidated revenues totaled $31.3 billion, up 4.0 percent versus reported results in the year-earlier quarter and up 3.3 percent compared with third-quarter 2007 pro forma revenues, which exclude merger-related accounting impacts on directory revenues.

Consolidated revenue growth was driven by 15.4 percent growth in wireless revenues and a 16.2 percent increase in wireline IP data revenues, which includes AT&T U-verse services and business offerings such as VPNs, managed Internet services and hosting. Gains in these areas more than offset pressures in the macro-environment and a decline in wireline consumer voice, which was consistent with trends in recent quarters.

Compared with results for the year-earlier quarter, AT&Ts reported operating expenses for the third quarter of 2008 were $25.7 billion versus $24.8 billion; reported operating income was $5.6 billion, up from $5.3 billion; and AT&Ts reported operating income margin was 17.9 percent, up from 17.6 percent.

AT&Ts reported third-quarter 2008 net income totaled $3.2 billion, up from $3.1 billion in the year-earlier quarter, and reported earnings per diluted share totaled $0.55, up from $0.50 in the third quarter of 2007.

Adjusted Results

AT&Ts adjusted results for the third quarter of 2008 exclude noncash merger-related amortization expenses. For the third quarter of 2007, adjusted results excluded merger integration costs, merger-related amortization expenses and a merger-related directory accounting effect.

Compared with results for the year-earlier quarter, AT&Ts adjusted operating expenses for the third quarter of 2008 totaled $24.6 billion versus $23.1 billion; adjusted operating income was $6.7 billion, compared with $7.2 billion; and AT&Ts adjusted operating income margin was 21.4 percent versus 23.7 percent. AT&Ts adjusted third-quarter 2008 net income totaled $3.9 billion versus $4.3 billion in the year-earlier quarter, and adjusted earnings per diluted share totaled $0.67, compared with $0.71 in the third quarter of 2007.

iPhone 3G Impacts and Hurricane-Related Expenses

AT&Ts third-quarter 2008 reported and adjusted margins and earnings reflect revenue growth and continued progress with previously outlined cost initiatives, offset by hurricane-related expenses and effects on wireless results from the iPhone 3G. Impacts from the companys iPhone 3G initiative reduced pretax third-quarter earnings by approximately $900 million or $0.10 per share, and costs related to hurricanes reduced pretax earnings by approximately $145 million or $0.02 per share.

Based on third-quarter customer response, AT&T is optimistic regarding continued strong iPhone 3G activations and is confident in the long-term value created by this investment in acquiring high-value, data-centric wireless subscribers. As a result, AT&T expects its dilution associated with the iPhone 3G will run above its previous expectation, and AT&T now expects, depending on volumes, its full-year 2008 wireless service OIBDA margin to be better than 37 percent versus its previous outlook of 39 percent to 40 percent. AT&T expects its full-year adjusted consolidated operating income margin to be approximately 23 percent versus its previous outlook of approximately 24 percent.

Cash From Operations

AT&Ts cash from operating activities for the third quarter of 2008 totaled $9.3 billion, capital expenditures totaled $5.3 billion and free cash flow (cash from operations minus capital expenditures) totaled $4.0 billion. Through the first three quarters of 2008, cash from operating activities totaled $22.8 billion, capital expenditures totaled $14.8 billion and free cash flow totaled $7.9 billion. AT&T continues to expect full-year 2008 capital expenditures in the mid-teens as a percentage of total revenues and expects full-year 2008 free cash flow of approximately $14 billion.

Through the first three quarters of 2008, dividends paid totaled $7.2 billion, shares repurchased totaled 164.2 million for $6.1 billion and AT&T ended the third quarter with 5.9 billion shares outstanding.

Wireless Operational Highlights

AT&T delivered strong wireless growth in the third quarter, powered by a significant step up in retail postpaid subscriber gains, robust iPhone 3G activations and continued rapid growth in advanced data services. Highlights include the following:

Strongest Postpaid Net Add Quarter in Company's History. In the third quarter, AT&T posted the largest postpaid net subscriber gain for any quarter in its history. Retail postpaid net subscriber additions of 1.7 million were up nearly 40 percent versus results in the year-earlier third quarter and accounted for more than 85 percent of AT&T's 2.0 million total wireless net adds. Total monthly subscriber churn in the third quarter was 1.7 percent, flat with results for the year-earlier quarter, and postpaid churn was 1.2 percent, down from 1.3 percent in the third quarter of 2007.

 

2.4 Million Apple iPhone 3G Activations. Postpaid subscriber growth was boosted by the dramatic market success of the iPhone 3G. Third-quarter activations of the iPhone 3G totaled 2.4 million, approximately 40 percent to customers who were new to AT&T. AT&T's iPhone exclusive has delivered high-value subscribers with ARPU (average monthly revenues per subscriber) approximately 1.6 times higher and churn rates significantly lower than the company's overall postpaid subscriber base. The iPhone and other integrated devices are key to AT&T's success in expanding flow share of high-value subscribers. During the third quarter, more than two-thirds of the company's postpaid net adds came from customers choosing an integrated device, and 22.0 percent of AT&T's postpaid wireless subscribers now have an integrated device, up from 10.5 percent one year earlier.

 

50.5 Percent Wireless Data Revenue Growth. AT&T's wireless data revenues grew 50.5 percent versus the year-earlier quarter to $2.7 billion, reflecting strong increases in areas such as Internet access, messaging, e-mail and related services. Wireless Internet access revenues more than doubled versus results for the year-earlier quarter, and multimedia message volumes were also more than double third-quarter 2007 levels.

 

15.4 Percent Total Wireless Revenue Growth. Driven by subscriber gains and data growth, AT&T's total wireless revenues increased 15.4 percent to $12.6 billion, and wireless service revenues, which exclude handset and accessory sales, grew 14.3 percent to $11.3 billion. Retail postpaid subscriber ARPU was $58.99, up 2.6 percent versus the year-earlier third quarter.

 

Wireless Margins. On a reported basis, third-quarter wireless operating expenses totaled $10.2 billion, operating income was $2.4 billion and AT&T's wireless operating income margin was 18.9 percent versus 18.0 percent in the year-earlier third quarter. On an adjusted basis, third-quarter wireless operating expenses totaled $9.7 billion, operating income was $2.9 billion and AT&T's wireless operating income margin was 22.8 percent versus 26.4 percent in the year-earlier third quarter. AT&T's third-quarter wireless OIBDA service margin was 33.5 percent versus an unadjusted 37.3 percent and an adjusted 39.1 percent in the year-earlier quarter. In addition to operational improvements, year-over-year margin comparisons reflect approximately $900 million of pressure associated with the iPhone 3G and approximately $55 million of expenses due to hurricanes. Without the iPhone and hurricane impacts, AT&T's third-quarter wireless OIBDA service margin would have been approximately 42 percent. (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

 

Wireline Operational Highlights

AT&Ts third-quarter wireline results were highlighted by continued strong double-digit growth in IP-based data revenues, a substantial turnaround in wholesale revenues and a further ramp in AT&T U-verse TV subscribers. Highlights include the following:

Strength in Business. AT&T's total business revenues -- comprised of enterprise, regional and wholesale customer categories -- grew 0.3 percent versus the year-earlier quarter to $11.5 billion. In the third quarter, AT&T delivered a return to growth in wholesale revenues, extending a major turnaround of trends in this category over the past year. Wholesale revenues totaled $3.5 billion, up 0.8 percent sequentially and 0.7 percent versus the year-earlier quarter. Regional business revenues increased 0.7 percent sequentially and 2.3 percent versus the year-earlier quarter to $3.2 billion. Regional business data revenues grew 8.4 percent year over year, led by Ethernet and IP data services, including managed Internet and VPNs. IP data and Ethernet, which made up 53.6 percent of AT&T's regional business data revenues, grew 18.9 percent versus the year-earlier third quarter. Enterprise revenues totaled $4.7 billion, up 0.8 percent sequentially and down 1.4 percent versus the year-earlier quarter, reflecting solid sales results with some pressures on voice and data transport volumes. Enterprise fundamentals in terms of closed sales, a strong sales funnel and new service adoption remain solid.

 

Accelerated Ramp in AT&T U-verse TV Services. AT&T further accelerated its ramp in U-verse TV growth with a net gain of 232,000 subscribers in the third quarter, up from 170,000 added in the second quarter of this year. At the end of the quarter, subscribers to the company's next-generation, IP-based TV service totaled 781,000, on a trajectory to exceed its target of more than 1 million U-verse TV subscribers by year-end 2008. U-verse network deployment now passes 14 million living units. Rollout of Total Home DVR service is under way and expected to be completed by the end of the year. Attach rates for broadband service continue to be high, at more than 85 percent.

 

16.2 Percent Growth in Wireline IP Data Revenues. Driven by expansion in AT&T U-verse services and growth in business products such as VPNs, managed Internet services and hosting, AT&T posted its fourth consecutive quarter of strong mid-teens growth in total wireline IP data revenues. Consumer IP data revenues, which include broadband and U-verse services, grew 19.0 percent, and business IP data revenues were up 14.7 percent. IP data now accounts for 44.0 percent of AT&T's total wireline data revenues.

 

Broadband Connection Growth. At the end of the third quarter, AT&T's wireline broadband subscribers totaled 14.8 million, up 148,000 in the quarter and 1.1 million over the past year. Customers increasingly use both wireline and wireless connections for broadband connectivity, as reflected in AT&T's strong growth in wireless LaptopConnect cards and integrated devices. In recognition of this trend, AT&T now also provides data on total broadband connections, which combines wireline and wireless subscribers. Total broadband-capable connections in service increased 2.9 million in the third quarter to reach 20.7 million. (Wireless broadband connections include data users with 3G LaptopConnect cards and broadband-speed integrated devices with a QWERTY or touch-screen keyboard.)

 

Growth in Regional Consumer ARPU. Reflecting growth in wireline broadband and U-verse services, AT&T's revenues per consumer household served increased 4.3 percent versus the year-earlier third quarter. Regional consumer revenue connections (retail voice, high speed Internet and video) totaled 47.5 million at the end of the quarter versus 49.6 million at the end of the third quarter of 2007 and 48.4 million at the end of the second quarter of 2008. Total consumer broadband and TV connections over the past year increased by 1.9 million. Total regional consumer revenues were $5.5 billion, down 3.8 percent. This reflects operational trends and a change in AT&T's relationship with Yahoo!(R) Inc., which provides portal services to AT&T's nearly 15 million wireline broadband subscribers. Under the new arrangement, announced in the second quarter of 2008, AT&T no longer pays monthly portal fees and receives a reduced level of shared advertising revenues from Yahoo!

 

Wireline Expenses. AT&T's reported third-quarter wireline operating expenses totaled $14.8 billion, down 1.1 percent from results in the year-earlier quarter, and on an adjusted basis, wireline operating expenses were $14.4 billion versus $14.4 billion in the third quarter of 2007. In addition to operational trends and progress on cost initiatives, third-quarter wireline cost trends also include expenses of approximately $90 million related to hurricanes.

 

Additional Background on Adjusted and Pro Forma Results

AT&Ts adjusted earnings for the third quarter of 2008 exclude noncash, pretax amortization costs related to acquisitions totaling $1.1 billion or $0.12 per diluted share. Adjusted results for the third quarter of 2007 excluded: (1) pretax cash merger-related integration costs totaling $322 million or $0.04 per diluted share; (2) noncash, pretax merger-related costs totaling $1.4 billion or $0.16 per diluted share; and (3) a merger-related directory accounting impact of $132 million or $0.01 per diluted share.

Advertising & Publishing results for 2007 were affected by accounting adjustments following AT&Ts late 2006 acquisition of BellSouth. In accordance with purchase accounting rules, deferred revenues and expenses for all BellSouth directories delivered prior to the close of the merger were eliminated from 2007 consolidated results. This elimination of amortizations reduced third-quarter 2007 consolidated revenues by $196 million and consolidated operating expenses by $64 million.

AT&T manages its print directory business using amortized results. As a result, 2007 amortized results are shown in the Advertising & Publishing segment on AT&Ts Statement of Segment Income. In 2008, both consolidated and segment results reflect amortization accounting.

About AT&T

AT&T Inc. (NYSE:T) is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies, are the providers of AT&T services in the United States and around the world. Among their offerings are the worlds most advanced IP-based business communications services and the nations leading wireless, high speed Internet access and voice services. In domestic markets, AT&T is known for the directory publishing and advertising sales leadership of its Yellow Pages and YELLOWPAGES.COM organizations, and the AT&T brand is licensed to innovators in such fields as communications equipment. As part of its three-screen integration strategy, AT&T is expanding its TV entertainment offerings. In 2008, AT&T again ranked No. 1 on Fortune magazines Worlds Most Admired Telecommunications Company list and No. 1 on Americas Most Admired Telecommunications Company list. Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com.

© 2008 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies.

Note: This AT&T news release and other announcements are available as part of an RSS feed at www.att.com/rss. For more information, please review this announcement in the AT&T newsroom at http://www.att.com/newsroom.

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&Ts 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 companys Web site at www.att.com/investor.relations. Accompanying financial statements follow.

NOTE: OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from Segment Operating Income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly 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.

NOTE: Adjusted consolidated operating income margins and wireless service OIBDA margins less the impacts of the iPhone 3G initiative and hurricane-related expenses are intended to provide useful information for investors. Management views the dilution from the iPhone 3G initiative and hurricane-related costs as having a short term impact on the business.

 
Financial Data
 
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts    
Unaudited   Three Months Ended Nine Months Ended
    9/30/2008  

9/30/2007

  % Chg 9/30/2008   9/30/2007   % Chg
Operating Revenues        
Wireless service $ 11,227 $ 9,834 14.2 % $ 32,726 $ 28,417 15.2 %
Voice 9,313 10,164 -8.4 % 28,525 30,997 -8.0 %
Data 6,144 5,880 4.5 % 18,170 17,281 5.1 %
Directory 1,333 1,240 7.5 % 4,114 3,417 20.4 %
Other     3,325       3,014     10.3 %   9,417       8,467   11.2 %
Total Operating Revenues     31,342       30,132     4.0 %   92,952       88,579   4.9 %
 
Operating Expenses

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

13,070 11,736 11.4 % 36,972 34,816 6.2 %
Selling, general and administrative 7,676 7,770 -1.2 % 22,976 22,497 2.1 %
Depreciation and amortization     4,978       5,322     -6.5 %   14,839       16,354   -9.3 %
Total Operating Expenses     25,724       24,828     3.6 %   74,787       73,667   1.5 %
Operating Income     5,618       5,304     5.9 %   18,165       14,912   21.8 %
Interest Expense 858 887 -3.3 % 2,577 2,639 -2.3 %
Equity in Net Income of Affiliates 257 162 58.6 % 712 545 30.6 %
Other Income (Expense) - Net     (81 )     (17 )   -     (91 )     614   -  
Income Before Income Taxes 4,936 4,562 8.2 % 16,209 13,432 20.7 %
Income Taxes     1,706       1,499     13.8 %   5,746       4,617   24.5 %
Net Income   $ 3,230     $ 3,063     5.5 % $ 10,463     $ 8,815   18.7 %
 
 
Basic Earnings Per Share $ 0.55 $ 0.50 10.0 % $ 1.76 $ 1.43 23.1 %
Weighted Average Common
Shares Outstanding (000,000) 5,893 6,088 -3.2 % 5,938 6,152 -3.5 %
 
Diluted Earnings Per Share $ 0.55 $ 0.50 10.0 % $ 1.75 $ 1.42 23.2 %
Weighted Average Common
Shares Outstanding with Dilution (000,000) 5,921 6,129 -3.4 % 5,971 6,196 -3.6 %
 
Financial Data
 
AT&T Inc.
Statements of Segment Income
Dollars in millions    

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

Wireless

  9/30/2008   9/30/2007   % Chg 9/30/2008   9/30/2007   % Chg
Segment Operating Revenues        
Service $ 11,273 $ 9,860 14.3 % $ 32,869 $ 28,492 15.4 %
Equipment     1,345       1,077     24.9 %   3,607       2,837     27.1 %
Total Segment Operating Revenues     12,618       10,937     15.4 %   36,476       31,329     16.4 %
 
Segment Operating Expenses
Cost of services and equipment sales 4,989 4,079 22.3 % 13,261 11,690 13.4 %
Selling, general and administrative 3,849 3,183 20.9 % 10,489 9,136 14.8 %
Depreciation and amortization     1,401       1,709     -18.0 %   4,327       5,410     -20.0 %
Total Segment Operating Expenses     10,239       8,971     14.1 %   28,077       26,236     7.0 %
Segment Operating Income 2,379 1,966 21.0 % 8,399 5,093 64.9 %
Equity in Net Income of Affiliates - 3 -100.0 % 5 12 -58.3 %
Minority Interest     (57 )     (43 )   -32.6 %   (186 )     (143 )   -30.1 %
Segment Income   $ 2,322     $ 1,926     20.6 % $ 8,218     $ 4,962     65.6 %
 
 
Wireline                      
Segment Operating Revenues
Voice $ 9,515 $ 10,356 -8.1 % $ 29,191 $ 31,619 -7.7 %
Data 6,401 6,076 5.3 % 18,893 17,918 5.4 %
Other     1,634       1,509     8.3 %   4,698       4,389     7.0 %
Total Segment Operating Revenues     17,550       17,941     -2.2 %   52,782       53,926     -2.1 %
 
Segment Operating Expenses
Cost of sales 8,128 7,778 4.5 % 23,908 23,396 2.2 %
Selling, general and administrative 3,354 3,868 -13.3 % 10,305 11,354 -9.2 %
Depreciation and amortization     3,331       3,334     -0.1 %   9,770       10,076     -3.0 %
Total Segment Operating Expenses     14,813       14,980     -1.1 %   43,983       44,826     -1.9 %
Segment Income   $ 2,737     $ 2,961     -7.6 % $ 8,799     $ 9,100     -3.3 %
 
 
Advertising & Publishing                      
Segment Operating Revenues   $ 1,350     $ 1,457     -7.3 % $ 4,174     $ 4,378     -4.7 %
 
Segment Operating Expenses
Cost of sales 461 417 10.6 % 1,321 1,214 8.8 %
Selling, general and administrative 274 338 -18.9 % 972 1,067 -8.9 %
Depreciation and amortization     194       238     -18.5 %   609       743     -18.0 %
Total Segment Operating Expenses     929       993     -6.4 %   2,902       3,024     -4.0 %
Segment Income   $ 421     $ 464     -9.3 % $ 1,272     $ 1,354     -6.1 %
 
 
Other                      
Segment Operating Revenues $ 501 $ 562 -10.9 % $ 1,557 $ 1,658 -6.1 %
Segment Operating Expenses     420       518     -18.9 %   1,862       1,673     11.3 %
Segment Operating Income(Loss) 81 44 84.1 % (305 ) (15 ) -
Equity in Net Income of Affiliates     257       159     61.6 %   707       533     32.6 %
Segment Income   $ 338     $ 203     66.5 % $ 402     $ 518     -22.4 %
 
Financial Data
 
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
  9/30/08   12/31/07
    Unaudited    
 
Assets
Current Assets
Cash and cash equivalents $ 1,594 $ 1,970

Accounts receivable - net of allowances for uncollectibles of $1,328 and $1,364

16,395 16,185
Prepaid expenses 1,657 1,524
Deferred income taxes 1,560 2,044
Other current assets     2,239       2,963  
Total current assets     23,445       24,686  
Property, Plant and Equipment - Net     97,771       95,890  
Goodwill 71,537 70,713
Licenses 46,931 37,985
Customer Lists and Relationships - Net 11,495 14,505
Other Intangible Assets - Net 5,816 5,912
Investments in Equity Affiliates 2,839 2,270
Postemployment Benefit 18,164 17,291
Other Assets     6,530       6,392  
Total Assets   $ 284,528     $ 275,644  
 
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 17,419 $ 6,860
Accounts payable and accrued liabilities 18,690 21,399
Advanced billing and customer deposits 3,896 3,571
Accrued taxes 2,976 5,027
Dividends payable     2,357       2,417  
Total current liabilities     45,338       39,274  
Long-Term Debt     59,355       57,255  
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 27,776 24,939
Postemployment benefit obligation 25,493 24,011
Other noncurrent liabilities     14,048       14,798  
Total deferred credits and other noncurrent liabilities     67,317       63,748  
 
Stockholders' Equity
Common shares issued ($1 par value) 6,495 6,495
Capital in excess of par value 91,684 91,638
Retained earnings 36,613 33,297
Treasury shares (at cost) (21,412 ) (15,683 )
Accumulated other comprehensive income(loss)     (862 )     (380 )
Total stockholders' equity     112,518       115,367  
Total Liabilities and Stockholders' Equity   $ 284,528     $ 275,644  
 
Financial Data
 
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions increase (decrease) in cash and cash equivalents
Unaudited   Nine Months Ended
    9/30/08   9/30/07
Operating Activities  
Net income $ 10,463 $ 8,815

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

Depreciation and amortization 14,839 16,354
Undistributed earnings from investments in equity affiliates (572 ) (434 )
Provision for uncollectible accounts 1,297 1,142
Deferred income tax expense 4,063 486
Net gain on sales of investments (2 ) (29 )
Gain on license exchange - (409 )
Changes in operating assets and liabilities:
Accounts receivable (1,597 ) (1,253 )
Other current assets 616 (661 )
Accounts payable and accrued liabilities (5,958 ) (46 )
Stock-based compensation tax benefit (15 ) (149 )
Other - net     (361 )     529  
Total adjustments     12,310       15,530  
Net Cash Provided by Operating Activities     22,773       24,345  
 
Investing Activities
Construction and capital expenditures
Capital expenditures (14,388 ) (12,124 )
Interest during construction (455 ) (125 )
Acquisitions, net of cash acquired (10,086 ) (233 )
Dispositions 1,444 993
Proceeds from sale of securities, net of investments (103 ) 584
Sale of other investments 436 -
Other     33       28  
Net Cash Used in Investing Activities     (23,119 )     (10,877 )
 
Financing Activities

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

5,188 (4,279 )
Issuance of long-term debt 10,924 7,898
Repayment of long-term debt (3,143 ) (3,008 )
Purchase of treasury shares (6,077 ) (8,912 )
Issuance of treasury shares 317 1,736
Dividends paid (7,150 ) (6,584 )
Stock-based compensation tax benefit 15 149
Other     (104 )     (172 )
Net Cash Used in Financing Activities     (30 )     (13,172 )
Net increase (decrease) in cash and cash equivalents     (376 )     296  
Cash and cash equivalents beginning of year     1,970       2,418  
Cash and Cash Equivalents End of Period   $ 1,594     $ 2,714  
Financial Data
 
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts    
Unaudited   Three Months Ended Nine Months Ended
    9/30/2008   9/30/2007   % Chg 9/30/2008   9/30/2007   % Chg
       
Wireless
Wireless Customers (000) 74,871 65,666 14.0 %
Net Customer Additions (000) 1,976 1,993 -0.9 % 4,604 4,640 -0.8 %
M&A Activity, Partitioned Customers and Other Adjs. (000) 13 - - 215 64 -
Postpaid Customers (000) 58,735 52,689 11.5 %
Net Postpaid Customer Additions (000) 1,693 1,212 39.7 % 3,292 2,804 17.4 %
Postpaid Churn 1.2 % 1.3 % -10 BP 1.2 % 1.3 % -10 BP
Licensed POPs (000,000) 304 299 1.7 %
 
In-Region Wireline 1

Total Consumer Revenue Connections (000) 6

Retail Consumer Voice Connections 2 28,329 31,658 -10.5 %
Retail Consumer Additional Voice Connections 2 3,526 4,112 -14.3 %
Consumer Broadband Connections 3 12,730 11,716 8.7 %
Video Connections: 4
Satellite Connections 2,182 1,986 9.9 %
U-verse Video Connections   781       126   -
Total Consumer Revenue Connections (000)   47,548       49,598   -4.1 %
 
Net Consumer Revenue Connection Changes (000) (869 ) 85 - (1,890 ) 737 -
 
Total Broadband Connections (000) 3, 6 14,841 13,760 7.9 %
Net Broadband Connection Changes (000) 3, 6 148 499 -70.3 % 685 1,590 -56.9 %
Total Video Connections (000) 4 2,963 2,112 40.3 %
Net Video Connection Changes (000) 4 179 215 -16.7 % 616 602 2.3 %
 
AT&T Inc.
Construction and capital expenditures
Capital expenditures $ 5,068 $ 4,664 8.7 % $ 14,388 $ 12,124 18.7 %
Interest during construction $ 198 $ 47 - $ 455 $ 125 -
Dividends Declared Per Share $ 0.4000 $ 0.3550 12.7 % $ 1.2000 $ 1.0650 12.7 %
End of Period Common Shares Outstanding (000,000) 5,893 6,072 -2.9 %
Debt Ratio 5 40.6 % 35.3 % 530 BP
Total Employees 303,530 303,670 -
 
1In-region wireline represents access lines served by AT&T's incumbent local exchange companies.
2Includes consumer U-verse voice over IP connections.
3Broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband.
4Video connections include sales under agency agreements with EchoStar and DirecTV customers and U-verse connections.
5Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.
6Prior year amounts restated to conform to current period reporting methodology.
Note: For the end of 3Q08, total switched access lines were 57,191, business switched access lines totaled 22,159, and wholesale and coin switched access lines totaled 3,281.
 
Financial Data
 
AT&T Inc.
Non-GAAP Wireless Reconciliations
Wireless Segment Adjusted OIBDA
Dollars in Millions
 

Unaudited

 
Quarter Ended September 30, 2008
 

 

 

Adjusting Items

   
GAAP

Intangible

Amortization

Adjusted
Service Revenues $ 11,273 $ 11,273
Equipment Revenues   1,345       1,345  
Total Operating Revenues $ 12,618   $ -   $ 12,618  
 
Operating Expenses
Cost of Services and Equipment Sales 4,989 - 4,989
Selling, General and Administrative 3,849 - 3,849
Depreciation and Amortization   1,401     (499 )   902  
Total Operating Expenses   10,239     (499 )   9,740  
 
Operating Income 2,379 2,878
 
Plus: Depreciation and Amortization 1,401 902
OIBDA     3,780           3,780  
OIBDA as a % of Service Revenue     33.5 %         33.5 %
 
 
 
Quarter Ended September 30, 2007
Adjusting Items
GAAP

Integration

Costs

Intangible

Amortization

Adjusted
Service Revenues $ 9,860 $ 9,860
Equipment Revenues   1,077         1,077  
Total Operating Revenues $ 10,937   $ -   $ -   $ 10,937  
 
Operating Expenses
Cost of Services and Equipment Sales 4,079 (60 ) - 4,019
Selling, General and Administrative 3,183 (117 ) - 3,066
Depreciation and Amortization   1,709     (83 )   (658 )   968  
Total Operating Expenses   8,971     (260 )   (658 )   8,053  
 
Operating Income 1,966 2,884
 
Plus: Depreciation and Amortization 1,709 968
OIBDA     3,675               3,852  
OIBDA as a % of Service Revenue     37.3 %             39.1 %

OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from segment operating income (loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.

 
Financial Data
 
AT&T Inc.
Non-GAAP Consolidated Reconciliations
Reconciliation of Free Cash Flow
Dollars in Millions
 
Unaudited
September 30, 2008   Three Months Ended     Nine Months Ended
   
Net cash provided by operating activities $ 9,268 $ 22,773
Less: Construction and capital expenditures     (5,266 )       (14,843 )
Free Cash Flow   $ 4,002       $ 7,930  

Free cash flow is defined as cash from operations minus capital expenditures. We believe these metrics provide useful information to our investors because management regularly 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 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 Reconciliations
Adjusted and Reported Wireline Operating Expenses
Dollars in Millions
 
Unaudited
  Three Months Ended  
    9/30/08   9/30/07   YoY % Change
 
Reported Wireline Operating Expenses $ 14,813 $ 14,980 -1.1 %
Operating Adjustments
Cash Integration Costs - 139 -
Intangible Amortization     396     473   -16.3 %
Total Adjusting Items     396     612   -35.3 %
Adjusted Wireline Operating Expenses   $ 14,417   $ 14,368   0.3 %

Adjusted Wireline operating expenses differs from reported operating expenses in that it excludes the merger-related expenses shown above and provides additional comparability to prior periods.

OIBDA DISCUSSION

OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA margin is calculated as OIBDA divided by service revenues. OIBDA differs from Segment Operating Income (Loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles. Our calculation of OIBDA, 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 Mobilitys internal management reporting and planning processes and are important metrics that AT&T Mobilitys management uses to evaluate the operating performance of its regional operations. These measures are used by management as a gauge of AT&T Mobilitys success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T Mobilitys 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 AT&T Mobilitys performance with that of many of its competitors. The financial and operating metrics which affect OIBDA include the key revenue and expense drivers for which AT&T Mobilitys operating managers are responsible and upon which we evaluate their performance.

OIBDA 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. OIBDA excludes other, net, minority interest in earnings of consolidated entities and equity in net income (loss) of affiliates, as these do not reflect the operating results of AT&T Mobilitys subscriber base and its national footprint that AT&T Mobility utilizes to obtain and service its customers. Equity in net income (loss) of affiliates represents AT&T Mobilitys 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. OIBDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, OIBDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

We believe OIBDA as a percentage of service revenues to be a more relevant measure of AT&T Mobilitys operating margin than OIBDA as a percentage of total revenue. AT&T Mobility generally subsidizes a portion of its handset sales, all of which are recognized in the period in which AT&T Mobility sells the handset. This results in a disproportionate impact on its margin in that period. 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. AT&T Mobility also uses service revenues to calculate margin to facilitate comparison, both internally and externally with its competitors, as they calculate their margins using services revenue as well.

There are material limitations to using these non-GAAP financial measures. OIBDA and OIBDA 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 AT&T Mobilitys net income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to OIBDA 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. OIBDA and OIBDA 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 capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less 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 monthly 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.

Contacts

AT&T Inc.
McCall Butler, 917-209-5792 (Mobile)
mbutler@attnews.us

Contacts

AT&T Inc.
McCall Butler, 917-209-5792 (Mobile)
mbutler@attnews.us