REG - AT & T Inc. - 3Q14 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 1
RNS Number : 3762XAT & T Inc.18 November 2014UNITED 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) October22, 2014
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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
o 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 23, 2014, its results of operations for the second quarter of 2014. 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 23, 2014 reporting financial results for the second quarter ended June 30, 2014.
99.2
AT&T Inc. selected financial statements and operating data.
99.3
Discussion of EBITDA,Free Cash Flow, Free Cash Flow Yield, Free Cash Flow after Dividends and Adjusting Items
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, 2014
By: /s/Paul W. Stephens
Paul W. Stephens
Senior Vice President and Controller
For more information, contact:
McCall Butler
917-209-5792
mb8191@att.com
AT&T Reports 2 Million Wireless Net Adds, Record-Low Third-Quarter Postpaid Churn and Solid U-verse Subscriber Gains
in Third-Quarter Results$0.58 diluted EPS compared to $0.72 diluted EPS in the year-ago quarter. Excluding significant items, EPS was $0.63 versus $0.66 a year ago
Third-quarter consolidated revenues of $33.0billion, up 2.5 percent versus the year-earlier period
Strong cash from operations of $8.7 billion, with $3.5 billion in free cash flow
More than 2million new wireless and wireline high-speed broadband connections added
Strong Wireless Subscriber Growth and Record-Low Third-Quarter Postpaid Churn
Postpaid net adds of 785,000, more than double the year-ago quarter; more than
2.4 million postpaid net adds year to dateBest-ever third-quarter postpaid churn of 0.99 percent
Wireless revenues up 4.9 percent versus the year-ago quarter
Wireless data billings up nearly 24 percent versus the year-earlier quarter
Wireless operating income margin of 24.6 percent, with adjusted EBITDA service margin of 43.1 percent
Nearly 1.2 million new postpaid smartphones added; smartphones accounted for
91 percent of postpaid phone salesNearly 47 million connections on AT&T Mobile Share which represented about
62 percent of postpaid subscribers; more than half of Mobile Share accounts are on data plans of 10 gigabytes or higherBest-ever third-quarter 6.8million postpaid smartphone gross adds and upgrades; 3.4 million of all smartphone gross adds and upgrades on AT&T NextSM with no device subsidy
Solid Wireline Consumer Growth and Strategic Business Services Gains
Continued solid wireline consumer revenue growth of 3.0 percent versus the year-earlier period
Total U-verse revenues, including business, up 23.8percent year over year;
U-verse now a $15 billion annualized revenue streamo 601,000 U-verse high speed Internet subscriber net adds, including 44,000 business customers; more than 12 million total U-verse high speed Internet subscribers
o 216,000 U-verse TV subscribers added; more than 6 million total U-verse video subscribers
Strategic business services revenue growth of 14.3 percent year over year, to reach an annualized revenue stream of almost $10 billion
Note: AT&T's third-quarter earnings conference call will be broadcast live via the Internet at
4:30 p.m. ET on Wednesday, October 22, 2014, at www.att.com/investor.relations.DALLAS, Oct. 22, 2014 - AT&T Inc. (NYSE:T) today reported solid third-quarter results with continued revenue growth driven by gains in the company's key growth drivers - mobile and IP data, U-verse and strategic business services.
"Our strategy is on track and our investments in giving customers best-in-class service to access content everywhere and on any screen continue to pay off," said Randall Stephenson, AT&T chairman and CEO. "We had strong subscriber growth in wireless and U-verse, and our strategic business services revenues continued to post double-digit growth."
Third-Quarter Financial Results
For the quarter ended September 30, 2014, AT&T's consolidated revenues totaled $33.0 billion, up
2.5 percent versus the year-earlier period. Compared with results for the third quarter of 2013, operating expenses were $27.6billion versus $26.0billion; operating income was $5.4billion versus $6.2billion; and operating income margin was 16.4 percent versus 19.2 percent. When adjusted for Leap and Alltel integration expenses and DIRECTV merger costs, operating margin was 17.2 percent in the third quarter 2014.Third-quarter 2014 net income attributable to AT&T totaled $3.0 billion, or $0.58 per diluted share, compared to $3.8 billion, or $0.72, in the year-ago quarter. Adjusting for $0.03 of the previously mentioned merger and integration-related expenses and $0.02 of costs for early debt redemption, earnings per share was $0.63 compared to an adjusted $0.66 in the year-ago quarter.
Cash from operating activities totaled $8.7billion in the third quarter and $25.6 billion year to date; and capital expenditures totaled $5.2billion in the third quarter and $17.0 billion year to date. Free cash flow - cash from operating activities minus capital expenditures - totaled $3.5billion for the quarter and $8.6 billion year to date. The company continues to repurchase shares opportunistically. During the quarter, the company repurchased 6 million of its shares for $221million.
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The company continues to rationalize its business portfolio. This includes:
Completing the sale of the Amrica Mvil equity investment;
Closing Connecticut wireline property transaction two months earlier than expected; and,
Exiting select low-margin wireline wholesale businesses.
With this rationalization, the company now expects full-year consolidated revenue growth in the 3 to 4 percent range, which also includes the impact of fewer than expected AT&T Next gross adds and upgrades and greater than expected number of BYOD (bring your own device) gross adds.
WIRELESS OPERATIONAL HIGHLIGHTS
Repositioning the company's wireless business model with no-device subsidy AT&T Next and Mobile Share ValueSM plans resulted in solid revenue growth, strong subscriber gains and best-ever third-quarter postpaid churn. Highlights included:
Wireless Revenues Grow Nearly 5 Percent. Total wireless revenues, which include equipment sales, were up 4.9percent year over year to $18.3billion. Wireless service revenues were essentially flat in the third quarter at $15.4billion, and wireless equipment revenues increased 44.3 percent to
$2.9 billion as more customers chose equipment installment plans versus subsidized devices. Third-quarter wireless operating expenses totaled $13.8billion, up 7.5percent versus the year-earlier quarter due to higher equipment costs, network systems expenses and marketing costs, largely attributable to the company's acquisition of Leap Wireless, and wireless operating income was $4.5 billion, down 2.3 percent year over year. Third-quarter 2014 revenue comparisons included impacts from strong customer adoption of Mobile Share Value plans and promotional activities, partially offset by increased revenues from Leap.Postpaid ARPU Grows Sequentially. The continued adoption of AT&T Next and Mobile Share Value plans is reflected in a year-over-year reduction in postpaid service ARPU (average revenues per user); however, ARPU improved when compared to the second quarter of 2014. Phone-only postpaid ARPU decreased 8.0 percent versus the year-earlier quarter but increased 0.3 percent versus the second quarter of 2014. Phone-only postpaid ARPU with AT&T Next monthly billings decreased 3.4 percent year over year but increased 2.0 percent sequentially. The strong adoption of Mobile Share Value plans without device upgrades on AT&T Next also is impacting service revenues. As customers upgrade on AT&T Next, phone-only ARPU with AT&T Next monthly billings is expected to increase. At the same time, better customer satisfaction is driving lower postpaid churn.
More than 2 Million Subscribers Added. AT&T posted a third-quarter net increase in total wireless subscribers of 2 million, led by gains in postpaid and connected devices. The company added 785,000 postpaid subscribers, more than twice as many as in the year-ago third quarter. Connected device net adds were 1,275,000 including more than 500,000 connected cars. Prepaid lost 140,000 subscribers primarily due to declines in session-based tablets and an expected reduction in Cricket subscribers as the company transitions the customer base. The company also had a net gain of 87,000 reseller subscribers, its first gain in seven quarters.
Postpaid net adds include 466,000 smartphones. Total branded smartphone net adds (both postpaid and prepaid) were 530,000, including expected declines in legacy Cricket smartphone subscribers. Total branded tablet net adds were 342,000. The company had 434,000 postpaid tablet net adds.
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Best-Ever Third-Quarter Postpaid Churn. Postpaid churn was the best ever for a third quarter at
0.99 percent. This compares to 1.07 percent in the year-ago quarter. Total churn of 1.36 percent was up versus 1.31 percent in the year-ago quarter due to expected pressure in prepaid from the acquisition of Leap Wireless. More than 90 percent of AT&T's total postpaid base is on AT&T Family Talk, Mobile Share or business plans. Churn levels for these plans are significantly lower than for other postpaid subscribers.Postpaid Smartphone Base Continues to Grow.AT&T added nearly 1.2million postpaid smartphones in the third quarter. At the end of the quarter, 81percent, or 55.8million, of AT&T's postpaid phone subscribers had smartphones, up from 75percent, or 50.6million, a year earlier. Smartphones accounted for 91percent of postpaid phone gross adds and upgrades in the quarter. AT&T's ARPU for smartphones is about twice that of non-smartphone subscribers. At the end of the third quarter, 67 percent of AT&T's postpaid smartphone customers had an LTE-capable device.
Mobile Share Value Plans Continue to Gain. AT&T continues to reposition the customer experience with attractive Mobile Share Value pricing for customers who choose to transition from the traditional device subsidy model. In the third quarter, an increasing number of subscribers chose Mobile Share Value plans. Mobile Share plans, including Mobile Share Value, now represent nearly 47 million connections, or about 62 percent of postpaid subscribers.
The number of Mobile Share accounts more than tripled year over year to reach 16.7 million with an average of about three devices per account. At the end of the third quarter, 51 percent of Mobile Share accounts had 10 gigabyte or larger data plans, up from 30 percent in the year-ago quarter. That helped drive a nearly 24 percent year-over-year increase in wireless data billings. In total, about 82 percent of postpaid smartphone subscribers are on usage-based data plans (tiered data and Mobile Share plans). This compares to 72 percent a year ago.
Record Third-Quarter Smartphone Gross Adds and Upgrades. The company had a third-quarter record 6.8million postpaid smartphone gross adds and upgrades. The company also had a record number of customers who brought their own devices onto AT&T's network - more than 460,000 of postpaid smartphone gross adds. Sales on AT&T Next also increased during the quarter. About half, or 3.4 million, of all postpaid smartphone gross adds and upgrades chose AT&T Next.
Adjusted Service Margins Expand.As expected, wireless margins were impacted by strong adoption of Mobile Share Value plans, solid customer growth, promotional activities and continued investment in new services. AT&T's reported third-quarter wireless operating income margin was 24.6 percent versus 26.4 percent in the year-earlier quarter. Wireless EBITDA margin was 35.3 percent, compared to
37.2 percent in the third quarter of 2013. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) Wireless service EBITDA margin was 42.0 percent, the same as in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)When adjusting for integration costs, AT&T's wireless EBITDA margin was 36.3 percent compared to 37.2 percent in the third quarter of 2013. Wireless EBITDA service margin was 43.1 percent compared to 42.0 percent in the year-ago quarter.
4
WIRELINE OPERATIONAL HIGHLIGHTS
Continued strong wireline consumer and strategic business services revenue growth with solid U-verse gains led AT&T's wireline results as the company continues its wireline transformation. Highlights included:
Wireline Revenues Stable Sequentially. Total third-quarter wireline revenues were $14.6billion, down 0.4percent versus the year-earlier quarter and down slightly versus the second quarter of 2014. Total U-verse revenues grew 23.8percent year over year. Third-quarter wireline operating expenses were $13.3billion, up 1.6 percent versus the third quarter of 2013. AT&T's wireline operating income totaled $1.3 billion, down 17.2 percent versus the third quarter of 2013. Third-quarter wireline operating income margin was 8.8percent versus 10.6percent in the year-earlier quarter, primarily due to U-verse content cost increases, declines in legacy services, success-based growth costs and expenses incurred as part of Project VIP.
U-verse Drives Solid Consumer Revenue Growth.Revenues from residential customers totaled $5.7billion, an increase of 3.0percent versus the third quarter a year ago. Continued strong growth in consumer IP data services in the third quarter more than offset lower revenues from legacy voice and data products. U-verse, which includes high speed Internet, TV and Voice over IP, now represents 64 percent of wireline consumer revenues, up from 54percent in the year-earlier quarter. Consumer U-verse revenues grew 23.2percent year over year.
U-verse Broadband Reaches More Than 12 Million Subscribers. U-verse high speed Internet had a third-quarter net gain of 601,000 subscribers, to reach a total of 12.1million. Overall, total wireline broadband subscribers increased by 38,000 in the quarter. Total wireline broadband ARPU was up more than 6 percent year over year. Total U-verse high speed Internet subscribers now represent 73 percent of all wireline broadband subscribers, compared with 59 percent in the year-earlier quarter.
U-verse TV added 216,000 subscribers in the third quarter to reach nearly 6.1 million in service. More than 97 percent of AT&T's video customers subscribe to bundled services. Nearly two-thirds of U-verse TV subscribers take three or four services from AT&T. ARPU for U-verse triple-play customers continues to be more than $170. At the end of the quarter, U-verse TV penetration was almost 22 percent and U-verse broadband penetration was 21 percent.
Continued Gains in Strategic Business Services. Total revenues from business customers were $8.7billion, down 2.0percent versus the year-earlier quarter but stable sequentially. Business services revenues declined 2.0percent year over year. Overall, declines in legacy products were partially offset by continued double-digit growth in strategic business services. Revenues from these services, the next-generation capabilities that lead AT&T's most advanced business solutions - including VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services - grew 14.3percent versus the year-earlier quarter. These services represent an annualized revenue stream of nearly $10 billion and are more than 28 percent of wireline business revenues in the third quarter. During the third quarter, the company also added 44,000 U-verse high speed broadband business subscribers.
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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) is a premier communications holding company andone of the most honored companies in the world. Its subsidiaries and affiliates - AT&T operating companies - are the providers of AT&T services in the United States and internationally. With a powerful array of network resources that includes the nation's most reliable 4G LTE network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet, voice and cloud-based services. A leader in mobile Internet, AT&T also offers the best global wireless coverage, based on offering roaming in more countries than any other U.S. based carrier, and offers the most wireless phones that work in the most countries. It also offers advanced TV service with the AT&T U-versebrand. The company's suite of IP-based business communications services is one of the most advanced in the world.
Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available athttp://www.att.com/aboutusor follow our news on Twitter at @ATT, on Facebook athttp://www.facebook.com/attand YouTube athttp://www.youtube.com/att.
2014 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Reliability claim based on data transfer completion rates on nationwide 4G LTE networks. 4G LTE availability varies.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this presentation 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 presentation based on new information or otherwise. This presentation 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 97 (also known as the AWS-3 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.
NOTE: EBITDA is defined as operating income before depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
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NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NOTE: Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Income and Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
7
Financial Data
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Three Months Ended
Nine Months Ended
9/30/2014
9/30/2013
% Chg
9/30/2014
9/30/2013
% Chg
Operating Revenues
$
32,957
$
32,158
2.5
%
$
98,008
$
95,589
2.5
%
Operating Expenses
Cost of services and sales (exclusive of depreciation and
amortization shown separately below)
14,541
13,403
8.5
%
42,074
39,227
7.3
%
Selling, general and administrative
8,475
7,952
6.6
%
24,932
24,406
2.2
%
Depreciation and amortization
4,539
4,615
-1.6
%
13,706
13,715
-0.1
%
Total Operating Expenses
27,555
25,970
6.1
%
80,712
77,348
4.3
%
Operating Income
5,402
6,188
-12.7
%
17,296
18,241
-5.2
%
Interest Expense
1,016
829
22.6
%
2,757
2,481
11.1
%
Equity in Net Income (Loss) of Affiliates
(2
)
91
-
188
494
-61.9
%
Other Income (Expense) - Net
42
50
-16.0
%
1,456
370
-
Income Before Income Taxes
4,426
5,500
-19.5
%
16,183
16,624
-2.7
%
Income Tax Expense
1,367
1,595
-14.3
%
5,769
5,066
13.9
%
Net Income
3,059
3,905
-21.7
%
10,414
11,558
-9.9
%
Less: Net Income Attributable to Noncontrolling Interest
(57
)
(91
)
37.4
%
(213
)
(222
)
4.1
%
Net Income Attributable to AT&T
$
3,002
$
3,814
-21.3
%
$
10,201
$
11,336
-10.0
%
Basic Earnings Per Share Attributable to AT&T
$
0.58
$
0.72
-19.4
%
$
1.96
$
2.10
-6.7
%
Weighted Average Common
Shares Outstanding (000,000)
5,198
5,315
-2.2
%
5,208
5,402
-3.6
%
Diluted Earnings Per Share Attributable to AT&T
$
0.58
$
0.72
-19.4
%
$
1.95
$
2.09
-6.7
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
5,214
5,331
-2.2
%
5,224
5,419
-3.6
%
Financial Data
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended
Nine Months Ended
Wireless
9/30/2014
9/30/2013
% Chg
9/30/2014
9/30/2013
% Chg
Segment Operating Revenues
Service
$
15,423
$
15,460
-0.2
%
$
45,958
$
45,892
0.1
%
Equipment
2,914
2,020
44.3
%
8,175
5,570
46.8
%
Total Segment Operating Revenues
18,337
17,480
4.9
%
54,133
51,462
5.2
%
Segment Operating Expenses
Operations and support
11,855
10,982
7.9
%
34,305
31,932
7.4
%
Depreciation and amortization
1,965
1,875
4.8
%
5,931
5,553
6.8
%
Total Segment Operating Expenses
13,820
12,857
7.5
%
40,236
37,485
7.3
%
Segment Operating Income
4,517
4,623
-2.3
%
13,897
13,977
-0.6
%
Equity in Net Income (Loss) of Affiliates
(26
)
(18
)
-44.4
%
(75
)
(55
)
-36.4
%
Segment Income
$
4,491
$
4,605
-2.5
%
$
13,822
$
13,922
-0.7
%
Segment Operating Income Margin
24.6
%
26.4
%
25.7
%
27.2
%
Wireline
Segment Operating Revenues
Service
$
14,368
$
14,403
-0.2
%
$
43,165
$
43,266
-0.2
%
Equipment
247
267
-7.5
%
688
832
-17.3
%
Total Segment Operating Revenues
14,615
14,670
-0.4
%
43,853
44,098
-0.6
%
Segment Operating Expenses
Operations and support
10,761
10,385
3.6
%
31,918
31,137
2.5
%
Depreciation and amortization
2,571
2,736
-6.0
%
7,769
8,146
-4.6
%
Total Segment Operating Expenses
13,332
13,121
1.6
%
39,687
39,283
1.0
%
Segment Operating Income
1,283
1,549
-17.2
%
4,166
4,815
-13.5
%
Equity in Net Income of Affiliates
1
-
-
2
1
-
Segment Income
$
1,284
$
1,549
-17.1
%
$
4,168
$
4,816
-13.5
%
Segment Operating Income Margin
8.8
%
10.6
%
9.5
%
10.9
%
Financial Data
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions
9/30/14
12/31/13
Unaudited
Assets
Current Assets
Cash and cash equivalents
$
2,458
$
3,339
Accounts receivable - net of allowances for doubtful accounts of $482 and $483
13,445
12,918
Prepaid expenses
869
960
Deferred income taxes
1,030
1,199
Other current assets
8,033
4,780
Total current assets
25,835
23,196
Property, Plant and Equipment - Net
115,134
110,968
Goodwill
70,131
69,273
Licenses
60,784
56,433
Other Intangible Assets - Net
6,252
5,779
Investments in and Advances to Equity Affiliates
166
3,860
Other Assets
9,637
8,278
Total Assets
$
287,939
$
277,787
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
5,109
$
5,498
Accounts payable and accrued liabilities
24,119
21,107
Advanced billing and customer deposits
4,038
4,212
Accrued taxes
4,328
1,774
Dividends payable
2,385
2,404
Total current liabilities
39,979
34,995
Long-Term Debt
70,516
69,290
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
37,393
36,308
Postemployment benefit obligation
29,918
29,946
Other noncurrent liabilities
17,014
15,766
Total deferred credits and other noncurrent liabilities
84,325
82,020
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
91,064
91,091
Retained earnings
34,165
31,141
Treasury stock
(47,037
)
(45,619
)
Accumulated other comprehensive income
7,926
7,880
Noncontrolling interest
506
494
Total stockholders' equity
93,119
91,482
Total Liabilities and Stockholders' Equity
$
287,939
$
277,787
Financial Data
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited
Nine Months Ended
September 30,
2014
2013
Operating Activities
Net income
$
10,414
$
11,558
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization
13,706
13,715
Undistributed earnings from investments in equity affiliates
(45
)
(232
)
Provision for uncollectible accounts
692
653
Deferred income tax expense
1,304
2,505
Net gain from sale of investments, net of impairments
(1,374
)
(272
)
Changes in operating assets and liabilities:
Accounts receivable
(1,269
)
(440
)
Other current assets
(813
)
520
Accounts payable and accrued liabilities
4,763
(420
)
Retirement benefit funding
(420
)
(175
)
Other - net
(1,365
)
(533
)
Total adjustments
15,179
15,321
Net Cash Provided by Operating Activities
25,593
26,879
Investing Activities
Construction and capital expenditures:
Capital expenditures
(16,829
)
(15,565
)
Interest during construction
(178
)
(213
)
Acquisitions, net of cash acquired
(2,053
)
(4,025
)
Dispositions
6,074
846
Purchases of securities, net
(1,996
)
-
Return of advances to and investments in equity affiliates
3
301
Other
(1
)
(4
)
Net Cash Used in Investing Activities
(14,980
)
(18,660
)
Financing Activities
Net change in short-term borrowings with
original maturities of three months or less
(16
)
1,851
Issuance of other short-term borrowings
-
1,476
Repayment of other short-term borrowings
-
(1,476
)
Issuance of long-term debt
8,564
6,416
Repayment of long-term debt
(10,376
)
(2,131
)
Purchase of treasury stock
(1,617
)
(11,134
)
Issuance of treasury stock
34
108
Dividends paid
(7,170
)
(7,325
)
Other
(913
)
499
Net Cash Used in Financing Activities
(11,494
)
(11,716
)
Net decrease in cash and cash equivalents
(881
)
(3,497
)
Cash and cash equivalents beginning of year
3,339
4,868
Cash and Cash Equivalents End of Period
$
2,458
$
1,371
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
Nine Months Ended
9/30/2014
9/30/2013
% Chg
9/30/2014
9/30/2013
% Chg
Wireless
Subscribers and Connections
Total
118,650
109,460
8.4
%
Postpaid
75,105
72,032
4.3
%
Prepaid
11,179
7,425
50.6
%
Reseller
13,884
14,089
-1.5
%
Connected Devices
18,482
15,914
16.1
%
Wireless Net Adds
Total
2,007
989
-
3,703
1,912
93.7
%
Postpaid
785
363
-
2,436
1,210
-
Prepaid
(140
)
192
-
(595
)
19
-
Reseller
87
(285
)
-
(281
)
(951
)
70.5
%
Connected Devices
1,275
719
77.3
%
2,143
1,634
31.2
%
M&A Activity, Partitioned Customers and Other Adjs.
9
587
-98.5
%
4,571
591
-
Wireless Churn
Postpaid Churn
0.99
%
1.07
%
-8 BP
0.97
%
1.04
%
-7 BP
Total Churn
1.36
%
1.31
%
5 BP
1.41
%
1.35
%
6 BP
Other
Licensed POPs (000,000)
321
317
1.3
%
Wireline
Voice
Total Wireline Voice Connections
26,220
29,296
-10.5
%
Net Change
(738
)
(932
)
20.8
%
(2,269
)
(2,888
)
21.4
%
Broadband
Total Wireline Broadband Connections
16,486
16,427
0.4
%
Net Change
38
(26
)
-
61
37
64.9
%
Video
Total U-verse Video Connections
6,067
5,266
15.2
%
Net Change
216
265
-18.5
%
607
730
-16.8
%
Consumer Revenue Connections
Broadband1
14,844
14,665
1.2
%
U-verse Video Connections
6,045
5,249
15.2
%
Voice2
14,880
16,749
-11.2
%
Total Consumer Revenue Connections1
35,769
36,663
-2.4
%
Net Change
(156
)
(345
)
54.8
%
(621
)
(1,004
)
38.1
%
AT&T Inc.
Construction and capital expenditures:
Capital expenditures
$
5,180
$
5,900
-12.2
%
$
16,829
$
15,565
8.1
%
Interest during construction
$
60
$
73
-17.8
%
$
178
$
213
-16.4
%
Dividends Declared per Share
$
0.46
$
0.45
2.2
%
$
1.38
$
1.35
2.2
%
End of Period Common Shares Outstanding (000,000)
5,185
5,280
-1.8
%
Debt Ratio3
44.8
%
46.9
%
-210 BP
Total Employees
247,700
246,740
0.4
%
1
Consumer wireline broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband.
2
Includes consumer U-verse Voice over Internet Protocol connections of 4,698 as of September 30, 2014.
3
Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.
Note: For the end of 3Q14, total switched access lines were 21,464; retail business switched access lines totaled 9,509; and wholesale,
national mass markets and coin switched access lines totaled 1,773. Restated switched access lines do not include ISDN lines.
Financial Data
AT&T Inc.
Non-GAAP Wireless Reconciliation
Wireless Segment EBITDA
Dollars in millions
Unaudited
Three Months Ended
9/30/13
12/31/13
3/31/14
6/30/14
9/30/14
Segment Operating Revenues
Service
$
15,460
$
15,660
$
15,387
$
15,148
$
15,423
Equipment
2,020
2,777
2,479
2,782
2,914
Total Segment Operating Revenues
$
17,480
$
18,437
$
17,866
$
17,930
$
18,337
Segment Operating Expenses
Operations and support
10,982
12,576
10,882
11,568
11,855
Depreciation and amortization
1,875
1,915
1,931
2,035
1,965
Total Segment Operating Expenses
12,857
14,491
12,813
13,603
13,820
Segment Operating Income
4,623
3,946
5,053
4,327
4,517
Segment Operating Income Margin
26.4
%
21.4
%
28.3
%
24.1
%
24.6
%
Plus: Depreciation and amortization
1,875
1,915
1,931
2,035
1,965
EBITDA1
$
6,498
$
5,861
$
6,984
$
6,362
$
6,482
EBITDA as a % of Service Revenues2
42.0
%
37.4
%
45.4
%
42.0
%
42.0
%
1EBITDA is defined as Operating Income Before Depreciation and Amortization.
2Service revenues include Wireless data, voice, text and other service revenues.
Financial Data
AT&T Inc.
Non-GAAP Wireless Reconciliation
Wireless Segment Adjusted EBITDA
Dollars in millions
Unaudited
Three Months Ended
9/30/13
9/30/14
Segment Operating Revenues
Service
$
15,460
$
15,423
Equipment
2,020
2,914
Total Segment Operating Revenues
$
17,480
$
18,337
Segment Operating Income
4,623
4,517
Segment Operating Income Margin
26.4
%
24.6
%
Plus: Depreciation and amortization
1,875
1,965
EBITDA1
$
6,498
$
6,482
Total EBITDA Margin
37.2
%
35.3
%
EBITDA as a % of Service Revenues2
42.0
%
42.0
%
Adjustments:
Wireless integration expense3
-
171
Adjusted EBITDA1
$
6,498
$
6,653
Total Adjusted EBITDA Margin
37.2
%
36.3
%
Adjusted EBITDA as a % of Service Revenues2
42.0
%
43.1
%
1 EBITDA is defined as Operating Income Before Depreciation and Amortization.
2 Service revenues include Wireless data, voice, text and other service revenues.
3 Operations and Support expenses for Leap and Alltel wireless integration costs.
Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Adjusted Diluted EPS
Unaudited
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2014
2013
2014
Reported Diluted EPS
$
0.72
$
0.58
$
2.09
$
1.95
Adjustments:
Merger and integration costs1
-
0.03
-
0.07
Early debt redemption costs
-
0.02
-
0.02
Tax and spectrum transfer
(0.06
)
-
(0.08
)
-
Amrica Mvil - Gain on AMX shares sale
-
-
(0.04
)
(0.08
)
Adjusted Diluted EPS
$
0.66
$
0.63
$
1.97
$
1.96
Year-over-year growth - Adjusted
-4.5
%
-0.5
%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
5,331
5,214
5,419
5,224
1 Includes Leap and Alltel wireless integration costs and DIRECTV merger costs.
Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Free Cash Flow
Dollars in millions
Unaudited
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2014
2013
2014
Net cash provided by operating activities
$
9,168
$
8,724
$
26,879
$
25,593
Less: Construction and capital expenditures
(5,973
)
(5,240
)
(15,778
)
(17,007
)
Free Cash Flow
$
3,195
$
3,484
$
11,101
$
8,586
Free Cash Flow after Dividends
Dollars in millions
Unaudited
Three Months Ended
Nine Months Ended
September 30,
September 30,
2013
2014
2013
2014
Net cash provided by operating activities
$
9,168
$
8,724
$
26,879
$
25,593
Less: Construction and capital expenditures
(5,973
)
(5,240
)
(15,778
)
(17,007
)
Free Cash Flow
3,195
3,484
11,101
8,586
Less: Dividends paid
(2,395
)
(2,386
)
(7,325
)
(7,170
)
Free Cash Flow after Dividends
$
800
$
1,098
$
3,776
$
1,416
Free cash flow includes reimbursements of certain postretirement benefits paid.
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.
Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Annualized Net-Debt-to-Adjusted-EBITDA Ratio
Dollars in millions
Unaudited
Three Months Ended
3/31/14
6/30/14
9/30/14
2014 YTD
Operating Revenues
$
32,476
$
32,575
$
32,957
$
98,008
Operating Expenses
26,198
26,959
27,555
80,712
Total Operating Income
6,278
5,616
5,402
17,296
Add back Depreciation and Amortization
4,617
4,550
4,539
13,706
Consolidated Reported EBITDA
10,895
10,166
9,941
31,002
Add Back:
Merger and wireless integration costs1
81
97
213
391
Total Consolidated Adjusted EBITDA
10,976
10,263
10,154
31,393
Annualized Consolidated Adjusted EBITDA
$
41,857
End-of-period current debt
5,109
End-of-period long-term debt
70,516
Total End-of-Period Debt
75,625
Less Cash and Cash Equivalents
2,458
Less Bank Securities - Certificates of Deposit & Time Deposits2
1,890
Net Debt Balance
$
71,277
Annualized Net-Debt-to-Adjusted-EBITDA Ratio
1.70
1 Adjustments include Operations and Support expenses for Leap and Alltel wireless integration costs and DIRECTV merger costs.
2 Bank Securities are included in "Other current assets" on the Consolidated Balance Sheets.
Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Adjusted Operating Income Margin
Dollars in millions
Unaudited
Three Months Ended
September 30,
2013
2014
Reported Operating Income
$
6,188
$
5,402
Reported Operating Income Margin
19.2
%
16.4
%
Adjustments:
Merger and integration costs1
-
(255
)
Spectrum transfer
229
-
Adjusted Operating Income
$
5,959
$
5,657
Adjusted Operating Income Margin
18.5
%
17.2
%
1 Includes Leap and Alltel wireless integration costs and DIRECTV merger costs.
Adjusted Operating Income and Adjusted Operating Income Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Income and Adjusted Operating Income Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies.
Exhibit 99.3
EBITDA DISCUSSION
For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
We believe these measures are relevant and useful information to our investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing our Wireless segment's performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which AT&T Mobility's operating managers are responsible and upon which we evaluate their performance.
EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) - net, net income attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the operating results of our wireless subscriber base and national footprint that we utilize to obtain and service our customers. Equity in net income (loss) of affiliates represents AT&T Mobility's proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.
We believe EBITDA as a percentage of service revenues to be a more relevant measure of our Wireless segment operating margin than EBITDA as a percentage of total revenue. We subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates, which directly affect our Wireless segment income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
FREE CASH FLOW DISCUSSION
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NET DEBT TO EBITDA DISCUSSION
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.
Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. This measure is consistent with metrics under our existing credit agreements.
ADJUSTING ITEMS DISCUSSION
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA 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. 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 and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
This information is provided by RNSThe company news service from the London Stock ExchangeENDQRTQKFDQABDDQDD
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