DALLAS--(BUSINESS WIRE)--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
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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.
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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.
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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%.
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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 REPORT
Pursuant 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 |
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| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
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208 S. Akard St., Dallas, Texas |
75202 |
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| (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 | |||||||||||||
