REG - AT & T Inc. - 2Q16 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 1
RNS Number : 7285HAT & T Inc.19 August 2016UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) July 21, 2016
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
1-8610
43-1301883
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
208 S. Akard St., Dallas, Texas
75202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code (210) 821-4105
__________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
The registrant announced on July 21, 2016, its results of operations for the second quarter of 2016. The text of the press release and accompanying financial information are attached as exhibits and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished as part of this report:
(d)Exhibits
99.1
Press release dated July 21, 2016 reporting financial results for the second quarter ended June 30, 2016.
99.2
AT&T Inc. selected financial statements and operating data.
99.3
Discussion and reconciliation of non-GAAP measures.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AT&T INC.
Date: July 21, 2016
By: /s/ Debra L. Dial_________________
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Second-Quarter Results
Including DIRECTV Acquisition
Consolidated revenues of $40.5 billion, up more than 22%
Operating income up 13.6%
Net income up 10.6%
Cash from operations of $10.3 billion, up 12.5%
Free cash flow of $4.8 billion, up 8.4%
Diluted EPS of $0.55 as reported and $0.72 diluted adjusted EPS compared to $0.59 and $0.70 in the year-ago quarter
2.1 million wireless net adds driven by connected devices, Mexico and Cricket
U.S. wireless postpaid churn of 0.97%, second-lowest ever
U.S. wireless operating margins expand; best-ever U.S. wireless EBITDA margins
342,000 U.S. DIRECTV net adds; 38,000 global TV net adds
o
Nearly 1 million U.S. satellite net adds since acquisition of DIRECTV
74,000 IP broadband net adds
Nearly 800,000 U.S.-branded smartphones added to subscriber base, more than offsetting a nearly 600,000 decline in U.S.-branded feature phone base
185,000 U.S.-branded (postpaid and prepaid) phone net adds
380 million North American 4G LTE POPs
Year-to-date cash from operations up 14.5%; year-to-date free cash flow up 11.6%
Full-year guidance on track to meet or exceed expectations
Note: AT&T's second-quarter earnings conference call will be webcast at 4:30 p.m. ET on Thursday, July 21, 2016. The webcast and related materials will be available on AT&T's Investor Relations website at www.att.com/investor.relations
DALLAS, July 21, 2016 - AT&T Inc. (NYSE:T) today reported revenue, net income, adjusted EPS and free cash flow growth for the second quarter.
July 21,2016
2016 AT&T Intellectual Property. All rights reserved. AT&T and the Globe logo are registered trademarks of AT&T Intellectual Property.
"One year after our acquisition of DIRECTV, the success of the integration has exceeded our expectations,"said Randall Stephenson, AT&T chairman and CEO. "Cost synergies are ahead of target, we've added nearly 1 million DIRECTV subscribers since the acquisition, and our new video streaming services are scheduled to roll out later this year. We plan to serve every segment of the video industry and offer customers their favorite content virtually wherever and whenever they want it.
"Second-quarter results continued our strong track record of delivering revenue, adjusted earnings and free cash flow growth. This steady execution done at scale gives us the financial strength to grow our business while returning substantial value to our shareholders."
Consolidated Financial Results
AT&T's consolidated revenues for the second quarter totaled $40.5 billion, up more than 22% versus the year-earlier period largely due to the July 24, 2015 acquisition of DIRECTV. Compared with results for the second quarter of 2015, operating expenses were $34.0 billion versus $27.2 billion; operating income was $6.6 billion versus $5.8 billion; and operating income margin was 16.2% versus 17.5%. When adjusting for amortization, merger- and integration-related costs and other expenses, operating income was $8.1 billion versus $6.5 billion; and operating income margin was 20.1%, up 30 basis points from a year ago.
Second-quarter net income attributable to AT&T totaled $3.4 billion, or $0.55 per diluted share, compared to $3.1 billion, or $0.59 per diluted share, in the year-ago quarter. Adjusting for $0.17 of amortization, merger-and integration-related costs and other expenses, earnings per diluted share was $0.72 compared to an adjusted $0.70 in the year-ago quarter.
Cash from operating activities was $10.3 billion in the second quarter, and capital investment1 totaled $5.6 billion. Free cash flow - cash from operating activities minus capital expenditures - was $4.8 billion, up 8.4% year over year.
For detailed segment results, please go to the Investor Briefing and Financial and Operational Results on the AT&T Investor Relations website.
12Q16 includes $95 million in capital purchases in Mexico with favorable vendor payment terms.
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.
July21, 2016
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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/attand YouTube athttp://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.
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.
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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.
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.
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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.
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.) As a result, 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%.
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.
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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.
Net Debt to Adjusted EBITDA Discussion
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to 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.
For more information, contact:
Name: Fletcher Cook
AT&T Corporate Communications
Phone: (214) 757-7629
Email: fletcher.cook@att.com
Name: McCall Butler
AT&T Corporate Communications
Phone: (917) 209-5792
Email: butlerm@att.com
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Financial Data
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
Operating Revenues
Service
$
37,142
$
29,541
25.7
%
$
74,243
$
58,503
26.9
%
Equipment
3,378
3,474
-2.8
%
6,812
7,088
-3.9
%
Total Operating Revenues
40,520
33,015
22.7
%
81,055
65,591
23.6
%
Operating Expenses
Cost of services and sales
Equipment
4,260
4,353
-2.1
%
8,635
8,899
-3.0
%
Broadcast, programming and operations
4,701
1,148
-
9,330
2,270
-
Other cost of services (exclusive of depreciation
and amortization shown separately below)
9,514
9,578
-0.7
%
18,910
18,390
2.8
%
Selling, general and administrative
8,909
7,467
19.3
%
17,350
15,428
12.5
%
Depreciation and amortization
6,576
4,696
40.0
%
13,139
9,274
41.7
%
Total Operating Expenses
33,960
27,242
24.7
%
67,364
54,261
24.1
%
Operating Income
6,560
5,773
13.6
%
13,691
11,330
20.8
%
Interest Expense
1,258
932
35.0
%
2,465
1,831
34.6
%
Equity in Net Income of Affiliates
28
33
-15.2
%
41
33
24.2
%
Other Income (Expense) - Net
91
48
89.6
%
161
118
36.4
%
Income Before Income Taxes
5,421
4,922
10.1
%
11,428
9,650
18.4
%
Income Tax Expense
1,906
1,738
9.7
%
4,028
3,127
28.8
%
Net Income
3,515
3,184
10.4
%
7,400
6,523
13.4
%
Less: Net Income Attributable to Noncontrolling Interest
(107
)
(102
)
-4.9
%
(189
)
(178
)
-6.2
%
Net Income Attributable to AT&T
$
3,408
$
3,082
10.6
%
$
7,211
$
6,345
13.6
%
Basic Earnings Per Share Attributable to AT&T
$
0.55
$
0.59
-6.8
%
$
1.17
$
1.22
-4.1
%
Weighted Average Common
Shares Outstanding (000,000)
6,174
5,204
18.6
%
6,173
5,204
18.6
%
Diluted Earnings Per Share Attributable to AT&T
$
0.55
$
0.59
-6.8
%
$
1.17
$
1.22
-4.1
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,195
5,220
18.7
%
6,193
5,220
18.6
%
Financial Data
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
Business Solutions
Segment Operating Revenues
Wireless service
$
7,963
$
7,756
2.7
%
$
15,818
$
15,271
3.6
%
Fixed strategic services
2,797
2,580
8.4
%
5,559
5,099
9.0
%
Legacy voice and data services
4,158
4,681
-11.2
%
8,521
9,465
-10.0
%
Other service and equipment
886
854
3.7
%
1,744
1,700
2.6
%
Wireless equipment
1,775
1,793
-1.0
%
3,546
3,686
-3.8
%
Total Segment Operating Revenues
17,579
17,664
-0.5
%
35,188
35,221
-0.1
%
Segment Operating Expenses
Operations and support expenses
10,857
10,972
-1.0
%
21,659
22,045
-1.8
%
Depreciation and amortization
2,521
2,460
2.5
%
5,029
4,802
4.7
%
Total Segment Operating Expenses
13,378
13,432
-0.4
%
26,688
26,847
-0.6
%
Segment Operating Income
4,201
4,232
-0.7
%
8,500
8,374
1.5
%
Equity in Net Income of Affiliates
-
-
-
-
-
-
Segment Contribution
$
4,201
$
4,232
-0.7
%
$
8,500
$
8,374
1.5
%
Segment Operating Income Margin
23.9
%
24.0
%
24.2
%
23.8
%
Entertainment Group
Segment Operating Revenues
Video entertainment
$
8,963
$
1,991
-
$
17,867
$
3,862
-
High-speed internet
1,867
1,623
15.0
%
3,670
3,176
15.6
%
Legacy voice and data services
1,244
1,516
-17.9
%
2,557
3,128
-18.3
%
Other service and equipment
637
652
-2.3
%
1,275
1,276
-0.1
%
Total Segment Operating Revenues
12,711
5,782
-
25,369
11,442
-
Segment Operating Expenses
Operations and support expenses
9,569
4,913
94.8
%
19,147
9,772
95.9
%
Depreciation and amortization
1,489
1,065
39.8
%
2,977
2,130
39.8
%
Total Segment Operating Expenses
11,058
5,978
85.0
%
22,124
11,902
85.9
%
Segment Operating Income (Loss)
1,653
(196
)
-
3,245
(460
)
-
Equity in Net Income (Loss) of Affiliates
(2
)
(12
)
83.3
%
1
(18
)
-
Segment Contribution
$
1,651
$
(208
)
-
$
3,246
$
(478
)
-
Segment Operating Income Margin
13.0
%
-3.4
%
12.8
%
-4.0
%
Financial Data
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
Consumer Mobility
Segment Operating Revenues
Service
$
6,948
$
7,359
-5.6
%
$
13,891
$
14,656
-5.2
%
Equipment
1,238
1,396
-11.3
%
2,623
2,877
-8.8
%
Total Segment Operating Revenues
8,186
8,755
-6.5
%
16,514
17,533
-5.8
%
Segment Operating Expenses
Operations and support expenses
4,680
5,202
-10.0
%
9,592
10,743
-10.7
%
Depreciation and amortization
932
934
-0.2
%
1,854
1,936
-4.2
%
Total Segment Operating Expenses
5,612
6,136
-8.5
%
11,446
12,679
-9.7
%
Segment Operating Income
2,574
2,619
-1.7
%
5,068
4,854
4.4
%
Equity in Net Income of Affiliates
-
-
-
-
-
-
Segment Contribution
$
2,574
$
2,619
-1.7
%
$
5,068
$
4,854
4.4
%
Segment Operating Income Margin
31.4
%
29.9
%
30.7
%
27.7
%
International
Segment Operating Revenues
Video entertainment
$
1,222
$
-
-
$
2,352
$
-
-
Wireless service
489
444
10.1
%
944
659
43.2
%
Wireless equipment
117
47
-
199
68
-
Total Segment Operating Revenues
1,828
491
-
3,495
727
-
Segment Operating Expenses
Operations and support expenses
1,723
529
-
3,311
747
-
Depreciation and amortization
298
93
-
575
121
-
Total Segment Operating Expenses
2,021
622
-
3,886
868
-
Segment Operating Income (Loss)
(193
)
(131
)
-47.3
%
(391 )
(141
)
-
Equity in Net Income of Affiliates
9
-
-
23
-
-
Segment Contribution
$
(184
)
$
(131
)
-40.5
%
$
(368 )
$
(141
)
-
Segment Operating Income Margin
-10.6
%
-26.7
%
-11.2
%
-19.4
%
Financial Data
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions
6/30/16
12/31/15
Unaudited
Assets
Current Assets
Cash and cash equivalents
$
7,208
$
5,121
Accounts receivable - net of allowances for doubtful accounts of $642 and $704
15,830
16,532
Prepaid expenses
1,197
1,072
Other current assets
11,770
13,267
Total current assets
36,005
35,992
Property, Plant and Equipment - Net
123,537
124,450
Goodwill
105,252
104,568
Licenses
94,098
93,093
Customer Lists and Relationships - Net
16,259
18,208
Other Intangible Assets - Net
9,107
9,409
Investments in Equity Affiliates
1,677
1,606
Other Assets
15,873
15,346
Total Assets
$
401,808
$
402,672
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
9,528
$
7,636
Accounts payable and accrued liabilities
26,746
30,372
Advanced billing and customer deposits
4,465
4,682
Accrued taxes
2,773
2,176
Dividends payable
2,953
2,950
Total current liabilities
46,465
47,816
Long-Term Debt
117,308
118,515
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
57,983
56,181
Postemployment benefit obligation
34,023
34,262
Other noncurrent liabilities
21,425
22,258
Total deferred credits and other noncurrent liabilities
113,431
112,701
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
89,486
89,763
Retained earnings
34,950
33,671
Treasury stock
(12,343
)
(12,592
)
Accumulated other comprehensive income
5,047
5,334
Noncontrolling interest
969
969
Total stockholders' equity
124,604
123,640
Total Liabilities and Stockholders' Equity
$
401,808
$
402,672
Financial Data
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
(Unaudited)
Six months ended June 30,
2016
2015
Operating Activities
Net income
$
7,400
$
6,523
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
13,139
9,274
Undistributed earnings from investments in equity affiliates
(22
)
(23
)
Provision for uncollectible accounts
705
535
Deferred income tax expense
1,767
1,244
Net gain from sale of investments, net of impairments
(85
)
(50
)
Changes in operating assets and liabilities:
Accounts receivable
543
434
Other current assets
1,069
732
Accounts payable and accrued liabilities
(3,059
)
(1,125
)
Retirement benefit funding
(280
)
(455
)
Other - net
(2,970
)
(1,191
)
Total adjustments
10,807
9,375
Net Cash Provided by Operating Activities
18,207
15,898
Investing Activities
Capital expenditures:
Purchase of property and equipment
(9,702
)
(8,328
)
Interest during construction
(437
)
(339
)
Acquisitions, net of cash acquired
(485
)
(20,954
)
Dispositions
107
72
Sales of securities, net
500
1,890
Other
-
(1
)
Net Cash Used in Investing Activities
(10,017
)
(27,660
)
Financing Activities
Issuance of long-term debt
10,140
33,958
Repayment of long-term debt
(9,129
)
(2,919
)
Purchase of treasury stock
(197
)
-
Issuance of treasury stock
119
20
Dividends paid
(5,899
)
(4,873
)
Other
(1,137
)
(2,071
)
Net Cash (Used in) Provided by Financing Activities
(6,103
)
24,115
Net increase in cash and cash equivalents
2,087
12,353
Cash and cash equivalents beginning of year
5,121
8,603
Cash and Cash Equivalents End of Period
$
7,208
$
20,956
Financial Data
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts, subscribers and connections in (000s)
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
Business Solutions Wireless Subscribers
77,545
69,178
12.1
%
Postpaid
49,432
46,697
5.9
%
Branded Subscribers
49,432
46,697
5.9
%
Reseller
52
19
-
Connected Devices
28,061
22,462
24.9
%
Business Solutions Wireless Net Adds
1,371
1,769
-22.5
%
3,060
3,093
-1.1
%
Postpaid
185
288
-35.8
%
318
585
-45.6
%
Branded Net Adds
185
288
-35.8
%
318
585
-45.6
%
Reseller
(13
)
3
-
(35
)
6
-
Connected Devices
1,199
1,478
-18.9
%
2,777
2,502
11.0
%
Business Wireless Postpaid Churn
0.91
%
0.91
%
-
0.97
%
0.90
%
7
BP
Consumer Mobility Subscribers
54,260
54,724
-0.8
%
Postpaid
27,862
29,844
-6.6
%
Prepaid
12,633
10,438
21.0
%
Branded Subscribers
40,495
40,282
0.5
%
Reseller
12,869
13,487
-4.6
%
Connected Devices
896
955
-6.2
%
Consumer Mobility Net Adds
(10
)
325
-
82
219
-62.6
%
Postpaid
72
122
-41.0
%
68
266
-74.4
%
Prepaid
365
331
10.3
%
865
429
-
Branded Net Adds
437
453
-3.5
%
933
695
34.2
%
Reseller
(446
)
(98
)
-
(824
)
(367
)
-
Connected Devices
(1
)
(30
)
96.7
%
(27
)
(109
)
75.2
%
Consumer Mobility Postpaid Churn
1.09
%
1.16
%
-7
BP
1.16
%
1.18
%
-2
BP
Total Consumer Mobility Churn
1.96
%
1.86
%
10
BP
2.04
%
1.95
%
9
BP
Entertainment Group
51,291
33,686
52.3
%
Video Connections
25,295
5,946
-
Satellite
20,454
-
-
U-verse
4,841
5,946
-18.6
%
Video Net Adds
(49
)
(23
)
-
(103
)
26
-
Satellite
342
-
-
670
-
-
U-verse
(391
)
(23
)
-
(773
)
26
-
Broadband Connections
14,181
14,428
-1.7
%
IP
12,596
12,013
4.9
%
DSL
1,585
2,415
-34.4
%
Broadband Net Adds
(110
)
(107
)
-2.8
%
(105
)
(14
)
-
IP
54
217
-75.1
%
240
630
-61.9
%
DSL
(164
)
(324
)
49.4
%
(345
)
(644
)
46.4
%
Total Wireline Voice Connections
11,815
13,312
-11.2
%
AT&T International
Mexican Wireless Subscribers and Connections
Subscribers
9,955
8,550
16.4
%
Net Adds
742
(170
)
-
1,271
(458
)
-
Total Churn
5.83
%
6.81
%
-98
BP
5.65
%
7.36
%
-171
BP
Video Subscribers and Connections
Latin America Video Subscribers
12,523
-
-
Pan Americana
7,175
-
-
Brazil
5,348
-
-
Video Subscribers and Connections Net Adds
Latin America Video Subscribers
87
-
-
14
-
-
Pan Americana
81
-
-
109
-
-
Brazil
6
-
-
(95
)
-
-
Financial Data
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts, subscribers and connections in (000s)
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
AT&T Total Subscribers and Connections
AT&T Mobility Subscribers
131,805
123,902
6.4
%
Postpaid
77,295
76,541
1.0
%
Prepaid
12,633
10,438
21.0
%
Branded Subscribers
89,928
86,979
3.4
%
Reseller
12,920
13,506
-4.3
%
Connected Devices
28,957
23,417
23.7
%
AT&T Mobility Net Adds
1,361
2,094
-35.0
%
3,142
3,312
-5.1
%
Postpaid
257
410
-37.3
%
386
851
-54.6
%
Prepaid
365
331
10.3
%
865
429
-
Branded Net Adds
622
741
-16.1
%
1,251
1,280
-2.3
%
Reseller
(459
)
(95
)
-
(859
)
(361
)
-
Connected Devices
1,198
1,448
-17.3
%
2,750
2,393
14.9
%
M&A Activity, Partitioned Customers and Other Adjs.
(1
)
36
-
23
36
-36.1
%
AT&T Mobility Churn
Postpaid Churn
0.97
%
1.01
%
-4
BP
1.04
%
1.01
%
3
BP
Total Churn
1.35
%
1.31
%
4
BP
1.38
%
1.36
%
2
BP
Other
Domestic Licensed POPs (000,000)
322
321
0.3
%
Total Video Subscribers
37,846
5,971
-
Domestic
25,323
5,971
-
Pan Americana
7,175
-
-
Brazil
5,348
-
-
Total Video Net Adds
38
(22
)
-
(87
)
28
-
Domestic
(49
)
(22
)
-
(101
)
28
-
Pan Americana
81
-
-
109
-
-
Brazil
6
-
-
(95
)
-
-
Total Broadband Connections
15,641
15,961
-2.0
%
IP
13,544
12,885
5.1
%
DSL
2,097
3,076
-31.8
%
Broadband Net Adds
(123
)
(136
)
9.6
%
(137
)
(67
)
-
IP
74
241
-69.3
%
276
680
-59.4
%
DSL
(197
)
(377
)
47.7
%
(413
)
(747
)
44.7
%
Total Wireline Voice Connections
20,877
23,497
-11.2
%
Total Wireless Subscribers
141,760
132,452
7.0
%
Domestic Wireless Subscribers
131,805
123,902
6.4
%
Mexican Wireless Subscribers
9,955
8,550
16.4
%
Branded Subscribers
99,557
95,049
4.7
%
Branded Net Adds
1,401
741
89.1
%
2,596
1,280
-
AT&T Inc.
Capital expenditures:
Purchase of property and equipment
$
5,251
$
4,480
17.2
%
$
9,702
$
8,328
16.5
%
Interest during construction
$
219
$
216
1.4
%
$
437
$
339
28.9
%
Dividends Declared per Share
$
0.48
$
0.47
2.1
%
$
0.96
$
0.94
2.1
%
End of Period Common Shares Outstanding (000,000)
6,152
5,193
18.5
%
Debt Ratio1,2
50.4
%
55.5
%
-510
BP
Total Employees
277,200
250,730
10.6
%
1
Prior year amounts restated to conform to current period reporting methodology.
2
Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.
Note: For the end of 2Q16, total switched access lines were 15,285.
Business Solutions and Consumer Mobility may not total to AT&T Mobility due to rounding.
Financial Data
AT&T Inc.
Segment Supplemental - QTD
Dollars in millions
Unaudited
For the three months ended June 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
$
17,579
$
10,857
$
6,722
$
2,521
$
4,201
$
-
$
4,201
Entertainment Group
12,711
9,569
3,142
1,489
1,653
(2
)
1,651
Consumer Mobility
8,186
4,680
3,506
932
2,574
-
2,574
International
1,828
1,723
105
298
(193
)
9
(184
)
Segment Total
40,304
26,829
13,475
5,240
8,235
$
7
$
8,242
Corporate and Other
216
293
(77
)
20
(97
)
Acquisition-related items
-
233
(233
)
1,316
(1,549
)
Certain Significant items
-
29
(29
)
-
(29
)
AT&T Inc.
$
40,520
$
27,384
$
13,136
$
6,576
$
6,560
For the three months ended June 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
$
17,664
$
10,972
$
6,692
$
2,460
$
4,232
$
-
$
4,232
Entertainment Group
5,782
4,913
869
1,065
(196
)
(12
)
(208
)
Consumer Mobility
8,755
5,202
3,553
934
2,619
-
2,619
International
491
529
(38
)
93
(131
)
-
(131
)
Segment Total
32,692
21,616
11,076
4,552
6,524
$
(12
)
$
6,512
Corporate and Other
323
236
87
24
63
Acquisition-related items
-
694
(694
)
120
(814
)
Certain Significant items
-
-
-
-
-
AT&T Inc.
$
33,015
$
22,546
$
10,469
$
4,696
$
5,773
Financial Data
AT&T Inc.
Segment Supplemental - YTD
Dollars in millions
Unaudited
For the six months ended June 30, 2016
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income of Affiliates
Segment
Contribution
Business Solutions
$
35,188
$
21,659
$
13,529
$
5,029
$
8,500
$
-
$
8,500
Entertainment Group
25,369
19,147
6,222
2,977
3,245
1
3,246
Consumer Mobility
16,514
9,592
6,922
1,854
5,068
-
5,068
International
3,495
3,311
184
575
(391
)
23
(368
)
Segment Total
80,566
53,709
26,857
10,435
16,422
$
24
$
16,446
Corporate and Other
489
670
(181
)
37
(218
)
Acquisition-related items
-
528
(528
)
2,667
(3,195
)
Certain Significant items
-
(682
)
682
-
682
AT&T Inc.
$
81,055
$
54,225
$
26,830
$
13,139
$
13,691
For the six months ended June 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
$
35,221
$
22,045
$
13,176
$
4,802
$
8,374
$
-
$
8,374
Entertainment Group
11,442
9,772
1,670
2,130
(460
)
(18
)
(478
)
Consumer Mobility
17,533
10,743
6,790
1,936
4,854
-
4,854
International
727
747
(20
)
121
(141
)
-
(141
)
Segment Total
64,923
43,307
21,616
8,989
12,627
$
(18
)
$
12,609
Corporate and Other
668
470
198
44
154
Acquisition-related items
-
993
(993
)
241
(1,234
)
Certain Significant items
-
217
(217
)
-
(217
)
AT&T Inc.
$
65,591
$
44,987
$
20,604
$
9,274
$
11,330
Financial Data
AT&T Inc.
Supplemental AT&T Mobility Results
Dollars in millions
Unaudited
Three Months Ended
Six Months Ended
6/30/2016
6/30/2015
% Chg
6/30/2016
6/30/2015
% Chg
AT&T Mobility
Operating Revenues
Service
$
14,912
$
15,115
-1.3
%
$
29,710
$
29,927
-0.7
%
Equipment
3,013
3,189
-5.5
%
6,169
6,563
-6.0
%
Total Operating Revenues
17,925
18,304
-2.1
%
35,879
36,490
-1.7
%
Operating Expenses
Operations and support expenses
10,502
10,973
-4.3
%
21,126
22,445
-5.9
%
Depreciation and amortization
2,081
2,031
2.5
%
4,137
4,036
2.5
%
Total Operating Expenses
12,583
13,004
-3.2
%
25,263
26,481
-4.6
%
Operating Income
$
5,342
$
5,300
0.8
%
$
10,616
$
10,009
6.1
%
Operating Income Margin
29.8
%
29.0
%
29.6
%
27.4
%
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.
Certain amounts have been conformed to the current period's presentation, including our change in accounting to capitalize customer set-up and installation costs and amortize them over the expected economic life of the customer relationship.
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
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Net cash provided by operating activities
$
10,307
$
9,160
$
18,207
$
15,898
Less: Capital expenditures
(5,470
)
(4,696
)
(10,139
)
(8,667
)
Free Cash Flow
4,837
4,464
8,068
7,231
Less: Dividends paid
(2,952
)
(2,439
)
(5,899
)
(4,873
)
Free Cash Flow after Dividends
$
1,885
$
2,025
$
2,169
$
2,358
Free Cash Flow Dividend Payout Ratio
61.0
%
54.6
%
73.1
%
67.4
%
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
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Capital expenditures
$
5,470
$
4,696
$
10,139
$
8,667
Vendor financing
95
-
138
-
Capital Investment
$
5,565
$
4,696
$
10,277
$
8,667
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
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Net Income
$
3,515
$
3,184
$
7,400
$
6,523
Additions:
Income Tax Expense
1,906
1,738
4,028
3,127
Interest Expense
1,258
932
2,465
1,831
Equity in Net (Income) of Affiliates
(28
)
(33
)
(41
)
(33
)
Other (Income) Expense - Net
(91
)
(48
)
(161
)
(118
)
Depreciation and amortization
6,576
4,696
13,139
9,274
EBITDA
13,136
10,469
26,830
20,604
Total Operating Revenues
40,520
33,015
81,055
65,591
Service Revenues
37,142
29,541
74,243
58,503
EBITDA Margin
32.4
%
31.7
%
33.1
%
31.4
%
EBITDA Service Margin
35.4
%
35.4
%
36.1
%
35.2
%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Business Solutions Segment
Segment Contribution
$
4,201
$
4,232
$
8,500
$
8,374
Additions:
Equity in Net (Income) Loss of Affiliates
-
-
-
-
Depreciation and amortization
2,521
2,460
5,029
4,802
EBITDA
6,722
6,692
13,529
13,176
Total SegmentOperating Revenues
17,579
17,664
35,188
35,221
Segment Operating Income Margin
23.9
%
24.0
%
24.2
%
23.8
%
EBITDA Margin
38.2
%
37.9
%
38.4
%
37.4
%
Entertainment Group Segment
Segment Contribution
$
1,651
$
(208
)
$
3,246
$
(478
)
Additions:
Equity in Net (Income) Loss of Affiliates
2
12
(1
)
18
Depreciation and amortization
1,489
1,065
2,977
2,130
EBITDA
3,142
869
6,222
1,670
Total SegmentOperating Revenues
12,711
5,782
25,369
11,442
Segment Operating Income Margin
13.0
%
-3.4
%
12.8
%
-4.0
%
EBITDA Margin
24.7
%
15.0
%
24.5
%
14.6
%
Consumer Mobility Segment
Segment Contribution
$
2,574
$
2,619
$
5,068
$
4,854
Additions:
Equity in Net (Income) Loss of Affiliates
-
-
-
-
Depreciation and amortization
932
934
1,854
1,936
EBITDA
3,506
3,553
6,922
6,790
Total SegmentOperating Revenues
8,186
8,755
16,514
17,533
Service Revenues
6,948
7,359
13,891
14,656
Segment Operating Income Margin
31.4
%
29.9
%
30.7
%
27.7
%
EBITDA Margin
42.8
%
40.6
%
41.9
%
38.7
%
EBITDA Service Margin
50.5
%
48.3
%
49.8
%
46.3
%
International Segment
Segment Contribution
$
(184
)
$
(131
)
$
(368
)
$
(141
)
Additions:
Equity in Net (Income) Loss of Affiliates
(9
)
-
(23
)
-
Depreciation and amortization
298
93
575
121
EBITDA
105
(38
)
184
(20
)
Total SegmentOperating Revenues
1,828
491
3,495
727
Segment Operating Income Margin
-10.6
%
-26.7
%
-11.2
%
-19.4
%
EBITDA Margin
5.7
%
-7.7
%
5.3
%
-2.8
%
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
AT&T Mobility
Operating Income
$
5,342
$
5,300
$
10,616
$
10,009
Add: Depreciation and amortization
2,081
2,031
4,137
4,036
EBITDA
7,423
7,331
14,753
14,045
Total Operating Revenues
17,925
18,304
35,879
36,490
Service Revenues
14,912
15,115
29,710
29,927
Operating Income Margin
29.8
%
29.0
%
29.6
%
27.4
%
EBITDA Margin
41.4
%
40.1
%
41.1
%
38.5
%
EBITDA Service Margin
49.8
%
48.5
%
49.7
%
46.9
%
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
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Operating Expenses
DIRECTV and other video merger integration costs
$
133
$
92
$
306
$
164
Mexico merger integration costs
66
24
147
41
Wireless merger integration costs
33
215
75
424
Leap network decommissioning
-
364
-
364
Employee separation costs
29
-
54
217
Gain on transfer of wireless spectrum
-
-
(736
)
-
Adjustments to Operations and Support Expenses
261
695
(154
)
1,210
Amortization of intangible assets
1,316
63
2,667
113
Adjustments to Operating Expenses
1,577
758
2,513
1,323
Other
DIRECTV-related interest expense and exchange fees1
-
104
16
104
(Gain) loss on sale of investments2
-
-
4
-
Adjustments to Income Before Income Taxes
1,577
862
2,533
1,427
Tax impact of adjustments
550
301
881
497
Tax-related items
-
-
-
262
Adjustments to Net Income
$
1,027
$
561
$
1,652
$
668
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 EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions
Three Months Ended
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Operating Income
$
6,560
$
5,773
$
13,691
$
11,330
Adjustments to Operating Expenses
1,577
758
2,513
1,323
Adjusted Operating Income
8,137
6,531
16,204
12,653
EBITDA
13,136
10,469
26,830
20,604
Adjustments to Operations and Support Expenses
261
695
(154
)
1,210
Adjusted EBITDA
13,397
11,164
26,676
21,814
Total Operating Revenues
40,520
33,015
81,055
65,591
Service Revenues
37,142
29,541
74,243
58,503
Operating Income Margin
16.2
%
17.5
%
16.9
%
17.3
%
Adjusted Operating Income Margin
20.1
%
19.8
%
20.0
%
19.3
%
Adjusted EBITDA Margin
33.1
%
33.8
%
32.9
%
33.3
%
Adjusted EBITDA Service Margin
36.1
%
37.8
%
35.9
%
37.3
%
Adjusted Diluted EPS
Three Months Ended
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Diluted Earnings Per Share (EPS)
$
0.55
$
0.59
$
1.17
$
1.22
Amortization of intangible assets
0.14
0.01
0.28
0.01
Merger integration and other costs 1
0.03
0.10
0.06
0.16
Gain on transfer of wireless spectrum
-
-
(0.08
)
-
Tax-related items
-
-
-
(0.05
)
Adjusted EPS
$
0.72
$
0.70
$
1.43
$
1.34
Year-over-year growth - Adjusted
2.9
%
6.7
%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,195
5,220
6,193
5,220
1 Includes combined merger and integration costs, Leap network decommissioning, DIRECTV-related interest expense and exchange fees, employee separation charges 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
June 30,
Six Months Ended
June 30,
2016
2015
2016
2015
Segment Operating Revenues
$
12,711
$
5,782
$
25,369
$
11,442
DIRECTV Operating Revenues
6,708
13,164
Adjustments:
Other DIRECTV operations
94
182
Revenue recognition
99
194
Intercompany eliminations
(18
)
(34
)
Adjusted Segment Operating Revenues
$
12,711
$
12,665
$
25,369
$
24,948
Year-over-year growth - Adjusted
0.4
%
1.7
%
Net Debt to Adjusted EBITDA Discussion
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to 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, 2016
Jun. 30, 2016
YTD 2016
Adjusted EBITDA
$
13,279
$
13,397
$
26,676
Add back severance
(25
)
(29
)
(54
)
Net Debt Adjusted EBITDA
13,254
13,368
26,622
Annualized Net Debt Adjusted EBITDA
53,244
End-of-period current debt
9,528
End-of-period long-term debt
117,308
Total End-of-Period Debt
126,836
Less Cash and Cash Equivalents
7,208
Net Debt Balance
119,628
Annualized Net Debt to Adjusted EBITDA Ratio
2.25
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR AKCDDBBKBOFD
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