AT&T Reports Double-Digit Adjusted EPS and Free Cash Flow Growth, and 2.1 Million Wireless Net Adds in Second-Quarter Results

Consolidated Highlights

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

Wireless Highlights

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

Wireline Highlights

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

International Highlights

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

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

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

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

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

Consolidated Financial Results

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

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

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

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

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

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.

About AT&T

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

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

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

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

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

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise. This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at www.att.com/investor.relations. Accompanying financial statements follow.

NOTE: EBITDA is defined as operating income before depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

NOTE: Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of the cash generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

Free cash flow includes reimbursements of certain postretirement benefits paid.

NOTE: Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Income and Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies.

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

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

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

NOTE: Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

NOTE: Adjusted EBITDA is a non-GAAP financial measure calculated by excluding costs which are non-recurring in nature, including dispositions and merger integration and transaction costs. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted EBITDA, as presented, may differ from similarly titled measures reported by other companies.

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

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

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

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

Less: Net Income Attributable to Noncontrolling Interest

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

Weighted Average Common Shares Outstanding (000,000)

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

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

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

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

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

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

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

%

 

24.1 % 25.0

%

 

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

%

 

9.7 % 9.8

%

 

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

%

 

- (26.1 )

%

 

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

1

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

2

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

3

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

4

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

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

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

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

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

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

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

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

3 Operations and Support expenses for domestic wireless integration costs.

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

Six Months Ended

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

Free cash flow includes reimbursements of certain postretirement benefits paid.

 

Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of the cash generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

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

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

 

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

 

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

 

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

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

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

    5,220       5,220  
 

1 Adjustments include domestic wireless integration costs.

 

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

 

Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

 

Adjusted Diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

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

1 Adjustments include domestic wireless integration costs.

 

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

 

Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

 

Adjusted Operating Income and Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies.

 

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

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

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

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

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

 

Adjusted EBITDA is a non-GAAP financial measure calculated by excluding costs which are non-recurring in nature, including dispositions and merger integration and transaction costs. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

 

Adjusted EBITDA should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted EBITDA, as presented, may differ from similarly titled measures reported by other companies.

 

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

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

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

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

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

 

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

 

These Adjusted Operating Revenues are non-GAAP financial measure calculated by excluding the operating revenues of Connecticut Wireline Properties sold in October 2014. Management believes that these measures provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

 

Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies.

 

EBITDA DISCUSSION

For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

We believe these measures are relevant and useful information to our investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless subscribers because we believe these measures reflect AT&T’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing our Wireless segment’s performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which AT&T Mobility’s operating managers are responsible and upon which we evaluate their performance.

EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) – net, net income attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the operating results of our wireless subscriber base and national footprint that we utilize to obtain and service our customers. Equity in net income (loss) of affiliates represents AT&T Mobility’s proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

We believe EBITDA as a percentage of service revenues to be a more relevant measure of our Wireless segment operating margin than EBITDA as a percentage of total revenue. We generally subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates, which directly affect our Wireless segment income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

FREE CASH FLOW DISCUSSION

Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

NET DEBT TO EBITDA DISCUSSION

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

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

ADJUSTING ITEMS DISCUSSION

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

Contacts

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

Contacts

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