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Share Name | Share Symbol | Market | Type |
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AT&T Inc | NYSE:T | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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-0.01 | -0.06% | 16.81 | 16.92 | 16.73 | 16.81 | 23,989,537 | 00:53:19 |
Increases Quarterly Dividend by 2.1%, 33rd Consecutive Annual Increase
AT&T Inc. (NYSE:T) today reported growing revenues and net income with solid margins and earnings for the third quarter. Detailed results, including financial tables, are included in the accompanying Investor Briefing and SEC Form 8-K. These materials and associated slide presentation of third-quarter results are available on the AT&T Investor Relations website.
AT&T also announced that its board of directors has approved a 2.1% increase in the company’s quarterly dividend. AT&T’s quarterly dividend will increase from $0.48 to $0.49 per share. The annual dividend will increase from $1.92 to $1.96 per share. The dividend will be payable on Feb. 1, 2017 to common stockholders of record on Jan. 10, 2017.
AT&T will host a webcast presentation on Monday, October 24, 2016, at 8:30 a.m. ET to discuss the Time Warner transaction and third-quarter results. Links to the webcast and accompanying documents will be available on the AT&T Investor Relations website. The third-quarter earnings conference call previously scheduled for Tuesday, October 25, 2016, at 4:30 p.m. ET is cancelled.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.
About AT&T
AT&T Inc. (NYSE:T) helps millions around the globe connect with leading entertainment, mobile, high speed internet and voice services. We’re the world’s largest provider of pay TV. We have TV customers in the U.S. and 11 Latin American countries. We offer the best global coverage of any U.S. wireless provider.* And we help businesses worldwide serve their customers better with our mobility and highly secure cloud solutions.
Additional information about AT&T products and services is available at http://about.att.com. Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att and YouTube at http://www.youtube.com/att.
© 2016 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
*Global coverage claim based on offering discounted voice and data roaming; LTE roaming; voice roaming; and world-capable smartphone and tablets in more countries than any other U.S. based carrier. International service required. Coverage not available in all areas. Coverage may vary per country and be limited/restricted in some countries.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at www.att.com/investor.relations.
The “quiet period” for FCC Spectrum Auction 1000 (also known as the 600 MHz incentive auction) is now in effect. During the quiet period, auction applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger between AT&T Inc. and Time Warner Inc. In connection with the proposed merger, AT&T Inc. intends to file a registration statement on Form S-4, containing a proxy statement/prospectus with the Securities and Exchange Commission (“SEC”). STOCKHOLDERS OF TIME WARNER INC. ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T Inc. and Time Warner Inc., without charge, at the SEC’s website, http://www.sec.gov. Copies of documents filed with the SEC by AT&T Inc. will be made available free of charge on AT&T’s Investor Relations website, www.att.com/investor.relations. Copies of documents filed with the SEC by Time Warner Inc. will be made available free of charge on Time Warner’s Investor Relations website, ir.timewarner.com.
Participants in Solicitation
AT&T Inc. and its directors and executive officers, and Time Warner Inc. and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Time Warner common stock in respect of the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2016. Information about the directors and executive officers of Time Warner is set forth in the proxy statement for Time Warner’s 2016 Annual Meeting of Stockholders, which was filed with the SEC on April 29, 2016. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available.
AT&T Q3 2016 INVESTOR BRIEFING
AT&T Reports Third-Quarter Results
Increases Quarterly Dividend by 2.1%, 33rd Consecutive Annual Increase
HIGHLIGHTS:
CONSOLIDATED FINANCIAL RESULTS
AT&T’s consolidated revenues for the third quarter totaled $40.9 billion, up 4.6% versus the year-earlier period due to the July 24, 2015 acquisition of DIRECTV. Excluding the impact of the DIRECTV acquisition and foreign exchange, revenues were essentially flat, as growth in video and IP-based services mostly offset pressures from declines in wireless and legacy services. Compared with results for the third quarter of 2015, operating expenses were $34.5 billion versus $33.2 billion; operating income was $6.4 billion versus $5.9 billion; and operating income margin was 15.7% versus 15.2%. When adjusting for $0.14 of amortization, $0.03 in merger- and integration-related costs and $0.03 of employee-separation costs, operating income was $8.3 billion versus $7.9 billion; and operating income margin was 20.3%, consistent with the year-ago quarter.
Third-quarter net income attributable to AT&T totaled $3.3 billion, or $0.54 per diluted share, compared to $3.0 billion, or $0.50 per diluted share, in the year-ago quarter. Adjusting for $0.20 of amortization, merger- and integration-related costs and other expenses, earnings per diluted share was $0.74 compared to an adjusted $0.74 in the year-ago quarter.
Cash from operating activities was $11.0 billion in the third quarter, up 1.8%, and capital investment1 totaled $5.9 billion. Free cash flow — cash from operating activities minus capital expenditures — was $5.2 billion for the quarter, down 6.5%, and $13.3 billion year to date, up 3.7%.
AT&T also announced that its board of directors has approved a 2.1%increase in the company’s quarterly dividend. AT&T’s quarterly dividend will increase from $0.48 to $0.49 per share. The annual dividend will increase from $1.92 to $1.96 per share. The dividend will be payable on Feb. 1, 2017 to common stockholders of record on Jan. 10, 2017.
____________________
13Q16 includes $87 million in capital purchases in Mexico with favorable vendor payment terms.
Business Solutions
The Business Solutions segment provides both wireless and wireline services to business customers and to individual subscribers who purchase wireless services through employer-sponsored plans. AT&T’s wireless and wired networks provide complete communications solutions to these customers. AT&T’s business customer revenues include results from enterprise, public sector, wholesale and small/midsize customers.
FINANCIAL HIGHLIGHTS
Total third-quarter revenues from business customers were $17.8 billion, up 0.4% versus the year-earlier quarter. Growth in mobility and strategic business services offset declines in legacy services and a continuing low-growth economy. When adjusting for the transition of certain hosting operations, total revenues would have been even higher. Business Solutions service revenues were $15.6 billion, essentially stable year over year.
Third-quarter operating expenses were $13.5 billion, up 0.5% versus the third quarter of 2015. Operating income totaled $4.3 billion, up 0.1% year over year. Third-quarter operating income margin was 24.2%, stable year over year with declines in higher-margin legacy services offsetting growth in wireless and IP revenue and cost efficiencies.
BUSINESS WIRELESS FINANCIAL RESULTS
Business wireless revenues were up 4.0% year over year to $9.9 billion driven by wireless service revenue growth and higher equipment revenues. Wireless service revenues were up 4.1% year over year, reflecting smartphone and tablet gains and continued migration from consumer plans.
BUSINESS WIRELINE FINANCIAL RESULTS
In business wireline, declines in legacy products were partially offset by continued growth in strategic business services. Total business wireline revenues were $7.8 billion, down 3.7% year over year. When adjusting for the impact of the transition of certain hosting operations and foreign exchange pressures, wireline revenues would have decreased 2.5%. When adjusting for these same items, data revenues were stable. Data revenues make up nearly 60% of Business Solutions wireline revenues.
Revenues from strategic business services, the next-generation wireline capabilities that lead AT&T’s most advanced business solutions — including VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, dedicated internet, U-verse and security services — grew by $242 million, or 9.1%, versus the year-earlier quarter. These services represent an annualized revenue stream of more than $11 billion.
SUBSCRIBER METRICS
At the end of the third quarter, AT&T had 79.4 million business wireless subscribers. The company added 191,000 postpaid subscribers and 1.3 million connected devices in the third quarter. Postpaid business wireless subscriber churn was 0.97% versus 1.05% in the year-ago quarter.
During the quarter, the company also added nearly 15,000 high-speed IP broadband business subscribers. Total business broadband had a loss of 18,000 subscribers in the quarter.
BUSINESS INNOVATION
Through its powerful global networks, AT&T provides integrated solutions to business customers and offers a wide variety of wired and wireless products and services to increase businesses’ productivity. AT&T serves millions of business customers, from the largest multinational corporations to small businesses, in all major industries. AT&T continually develops products and services to ensure that its business customers have access to the latest technology solutions. In recent business news, AT&T:
Entertainment Group
AT&T’s Entertainment Group provides entertainment, high-speed internet and communications services predominantly to residential customers in the United States.
FINANCIAL HIGHLIGHTS
Total revenues were $12.7 billion, up 17.1% versus the year-earlier quarter mostly due to the acquisition of DIRECTV. Also contributing to the gain was continued growth in consumer IP services.
Broadband revenues were up 5% in the quarter with IP broadband growing by 12%. AdWorks has grown to a $1.5 billion annualized revenue stream with double-digit revenue growth year to date and strong margins.
Third-quarter operating expenses were $11.2 billion, up 14.2% from a year ago due to the acquisition of DIRECTV and higher content costs. Operating income totaled $1.5 billion, up from the year-ago $1.0 billion. Third-quarter operating income margin was 11.7%, up from 9.4% in the year-earlier quarter with satellite and IP revenue growth and cost efficiencies offsetting TV content cost pressure and declines in legacy services. In the fourth quarter, on a sequential basis, margins will be pressured by a full quarter of NFL Sunday Ticket costs, annual content cost increases and start-up costs for DIRECTV NOW.
SUBSCRIBER METRICS
Total video subscribers were essentially flat in the quarter as competition increases. The company added 323,000 satellite subscribers in the third quarter. U-verse TV subscribers declined 326,000 as the company continued to focus on profitability and increasingly emphasized satellite sales. For the second straight quarter, gross additions increased on a year-over-year basis even when excluding IPTV customers transitioning to DIRECTV.
The Entertainment Group ended the quarter with 25.3 million video subscribers. While the company expects positive video net adds in the fourth quarter, it expects total video net adds for the year to decline slightly. At the end of the third quarter, about 100,000 pending video customers had the capability to watch TV on their mobile devices; however, these customers were not included in third-quarter subscriber numbers since the video service had not yet been installed at their homes.
The Entertainment Group had a net gain of 156,000 IP broadband subscribers in the third quarter. Total Entertainment Group broadband subscribers decreased 5,000 in the quarter. IP broadband subscribers at the end of the quarter totaled 12.8 million.
ENTERTAINMENT GROUP INNOVATION
In recent news, the company:
Consumer Mobility
The Consumer Mobility segment provides nationwide wireless service to consumer and wholesale subscribers located in the United States or in U.S. territories. The company’s wireless network powers voice and data services, including high-speed internet, video entertainment and home monitoring services.
FINANCIAL HIGHLIGHTS
Total revenues from Consumer Mobility customers totaled $8.3 billion, down 5.9% versus the year-earlier quarter, reflecting declines in equipment revenues from lower handset sales and in postpaid service revenues due to the success of Mobile Share plans and migrations to business plans. Third-quarter operating expenses were $5.7 billion, down 5.7% versus the third quarter of 2015, reflecting lower equipment and commission costs as well as increased operational efficiencies.
AT&T’s Consumer Mobility operating income totaled $2.6 billion, down 6.2% versus the third quarter of 2015. Third-quarter operating income margin was 31.1%, down slightly from the year-earlier quarter with lower volumes, fewer subsidized sales and cost efficiencies mostly offsetting service-revenue pressure from customers choosing Mobile Share plans. Consumer Mobility EBITDA margin was 42.5%, compared to 42.3% in the third quarter of 2015. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) EBITDA service margin was 50.9%, up from 50.5% in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
SUBSCRIBER METRICS
At the end of the third quarter, AT&T had 53.9 million Consumer Mobility subscribers. In the quarter, Consumer Mobility gained 50,000 total subscribers with 21,000 postpaid, 304,000 prepaid and 41,000 connected device net adds offsetting a loss of 316,000 reseller subscribers. Consumer Mobility postpaid churn was 1.19%, compared to 1.33% in the year-ago quarter.
CONSUMER MOBILITY INNOVATION
AT&T is a leader in mobile internet, delivering expanded choice in devices, services and applications. In recent weeks, AT&T:
International
The International segment includes wireless services in Mexico and satellite entertainment services in Latin America.
Total International revenues totaled $1.9 billion. Third-quarter operating expenses were $1.9 billion. AT&T’s International operating loss totaled $54 million. Third-quarter operating income margin was (2.9)%.
MEXICO
AT&T owns and operates a wireless network in Mexico. AT&T covered about 74 million people in Mexico with 4G LTE at the end of the third quarter and expects to cover 100 million POPs by the end of 2018.
Total wireless revenues from Mexico totaled $582 million, up 0.2% versus the year-earlier quarter, largely due to subscriber growth offset by foreign exchange and competitive pressures. Third-quarter operating loss was $148 million compared to a loss of $134 million in the year-ago quarter, reflecting continued investment in operations, network and subscriber acquisition. Third-quarter operating expenses benefitted from a few one-time items. Margins in the fourth quarter are expected to be consistent with prior quarters.
In the quarter, AT&T added 163,000 postpaid subscribers and 606,000 prepaid subscribers to reach 10.7 million total wireless subscribers in Mexico, a 32% increase from a year ago.
DIRECTV LATIN AMERICA
AT&T is a leading provider of pay television services in Latin America with satellite operations serving Argentina, Brazil, Chile, Colombia, Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. It also owns 41% of Sky Mexico. Sky Mexico financial results are accounted for as an equity method investment.
DIRECTV Latin America revenues reflect macroeconomic pressure with weakening local currencies. Total revenues from Latin America were $1.3 billion. Operating income was $94 million.
Third-quarter subscriber net losses were 48,000, driven by declines in Colombia, Argentina and Brazil. Total subscribers at the end of the quarter were 12.5 million. Sky Mexico had approximately 7.8 million subscribers as of June 30, 2016.
INTERNATIONAL HIGHLIGHTS
In recent weeks AT&T:
AT&T Mobility
AT&T’s U.S. mobility operations are divided between the Business Solutions and Consumer Mobility segments. For comparison purposes, the company is providing supplemental information for its total domestic mobility operations.
FINANCIAL HIGHLIGHTS
Wireless revenues reflected lower service revenues from the continued adoption of Mobile Share plans and lower equipment revenues primarily from fewer handset upgrades and higher bring-your-own-device subscribers.
ARPU
The continued adoption of AT&T Next is reflected in postpaid service ARPU (average revenues per user).
SUBSCRIBER METRICS
In the third quarter, AT&T posted a net increase in total wireless subscribers of 1.5 million to reach more than 133 million in service, up 6.9 million over the past year.
CHURN
Improvements in postpaid and prepaid churn helped offset higher connected device and reseller churn.
SMARTPHONES
The company’s branded smartphone base continued to grow in the quarter, and even more customers moved off the subsidy model — either choosing AT&T Next or bringing their own devices.
DATA PLANS
Customers continue to choose Mobile Share and unlimited wireless with TV plans.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) October 22, 2016
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
1-8610
43-1301883
(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 8.01 Other Events.
Throughout this document, AT&T Inc. is referred to as “we” or “AT&T.” We are a holding company whose subsidiaries and affiliates operate in the communications and digital entertainment services industry. Our subsidiaries and affiliates provide services and equipment that deliver wireless, video and broadband services both domestically and internationally, as well as traditional telephony services.
Overview
We announced on October 22, 2016, that third-quarter 2016 net income attributable to AT&T totaled $3.3 billion, or $0.54 per diluted share, compared to $3.0 billion, or $0.50 per diluted share in the third quarter of 2015.
Our third-quarter 2016 results include 24 days of DIRECTV-related operations that were not reported in the comparable period in 2015, contributing to higher revenues and expenses when compared to the same period of the prior year. Third-quarter 2016 revenues were $40.9 billion, up 4.6 percent from the third-quarter 2015. Third quarter revenues reflect increased revenues primarily from our acquisition of DIRECTV. Compared with results for the third quarter of 2015, operating expenses were $34.5 billion versus $33.2 billion; operating income was $6.4 billion, up from $5.9 billion; and AT&T’s operating income margin was 15.7 percent, compared to 15.2 percent. Third-quarter 2016 cash from operating activities was $11.0 billion, up from $10.8 billion in the year-ago quarter primarily due to the acquisition of DIRECTV partially offset by the timing of working capital payments.
Many of our products, including AT&T Mobility and AT&T U-verse® (U-verse), are offered to subscribers in multiple segments. Accordingly, to aid in understanding subscriber trends, we are presenting an overall discussion of these customer metrics. We reported a net gain of 2.3 million North American wireless subscribers in the third quarter of 2016, of which 1.5 million were in the U.S. At September 30, 2016, our North American wireless customer base was approximately 144.0 million compared to 134.5 million in the prior year, and our domestic wireless subscribers totaled 133.3 million compared to 126.4 million. During the third quarter, net adds were as follows:
We no longer offer subsidized device purchases for the majority of our U.S. customers, instead allowing subscribers to purchase devices on installment (AT&T Next) or to bring their own device (BYOD). During the first quarter of 2016, we also introduced an integrated offer that allows for unlimited wireless data when combined with our video services, ending the third quarter with more than 6.7 million subscribers to this offer. At September 30, 2016, Mobile Share plans represented nearly 57.1 million domestic wireless connections and about 80 percent of our domestic wireless postpaid smartphone base was on a no-device-subsidy Mobile Share plans.
Sales under our equipment installment programs, including AT&T Next, represented 83 percent of all postpaid smartphone gross adds and upgrades, compared to 71 percent in the third quarter of 2015. During the third quarter of 2016, we sold 4.3 million smartphones under our AT&T Next program and had BYOD gross adds of 595,000. More than 94 percent of smartphone transactions in the quarter were no-subsidy compared to 80 percent in the year-ago quarter. At September 30, 2016, about 50 percent of the postpaid smartphone base is on AT&T Next compared to approximately 40 percent at September 30, 2015.
At September 30, 2016, we had 37.8 million video subscribers compared with 38.0 million at September 30, 2015. Total video subscribers decreased by 50,000 in the third quarter of 2016.
Our total broadband connections were 15.6 million at September 30, 2016, and 15.8 million at September 30, 2015. During the third quarter, we added 171,000 IP broadband subscribers, for a total of 13.7 million at September 30, 2016. Total broadband subscribers declined by 23,000 in the quarter.
At September 30, 2016, our total switched access lines were 14.6 million compared with 17.4 million at September 30, 2015. The number of U-verse voice connections (which use VoIP technology and therefore are not included in the access line total) increased by 114,000 in the quarter to reach 5.7 million at September 30, 2016, compared to 5.4 million at September 30, 2015.
Segment Summary
Business Solutions
Revenues from our Business Solutions (ABS) segment for the third quarter of 2016 were $17.8 billion, up 0.4 percent versus the year-ago quarter primarily due to growth in strategic business services and higher wireless service revenues, largely due to migrations from our Consumer Mobility segment. These revenue increases were mostly offset by continued declines in our legacy voice and data products, lower equipment revenues and foreign exchange pressures. Third-quarter 2016 ABS operating expenses totaled $13.5 billion, up 0.5 percent versus the third quarter of 2015. The ABS operating margin was 24.2 percent, compared to 24.3 percent in the year-earlier quarter with declines in higher-margin legacy services mostly offset by wireless and IP revenue growth and cost efficiencies.
We had approximately 79.4 million business wireless subscribers at September 30, 2016, compared to 71.6 million at September 30, 2015. During the third quarter of 2016, business wireless net adds for connected devices were 1.3 million and postpaid net adds were 191,000. Postpaid business wireless subscriber churn was 0.97 percent, compared to 1.05 percent in the year-ago quarter.
During the third quarter of 2016, we added 15,000 high-speed Internet business subscribers, bringing total business IP broadband to 963,000 subscribers. Total business broadband connections had a loss of 18,000 subscribers in the quarter.
Entertainment Group
Our Entertainment Group (Entertainment) segment includes the results of the U.S. satellite-based DIRECTV operations as well as broadband and wired voice services to domestic residential customers. Entertainment revenues for the third quarter of 2016 were $12.7 billion, up 17.1 percent versus the year-ago quarter due to the acquisition of DIRECTV as well as strong growth in consumer IP broadband. Revenues from legacy voice and data products continue to decline. Third-quarter 2016 Entertainment operating expenses totaled $11.2 billion compared to $9.8 billion in the third quarter of 2015, largely due to the acquisition of DIRECTV and higher content costs. The Entertainment operating margin was 11.7 percent, compared to 9.4 percent in the year-earlier quarter with satellite video and IP revenue growth and cost efficiencies offsetting programming content cost pressure and declines in legacy services.
At September 30, 2016, Entertainment had approximately 51.0 million revenue connections, compared to 52.6 million at September 30, 2015, which included:
Consumer Mobility
Revenues from our Consumer Mobility segment, which consist of consumer, wholesale and resale subscribers located in the U.S., for the third quarter of 2016 were $8.3 billion, down 5.9 percent versus the year-ago quarter, reflecting a $632 million decline in postpaid service revenues due to the popularity of Mobile Share plans, migrations of customers to our ABS segment and lower equipment revenues, reflecting lower smartphone upgrade volumes and an increase in BYOD. This decline was partially offset by an increase of $250 million in prepaid service revenues. Third-quarter 2016 Consumer Mobility operating expenses totaled $5.7 billion, down 5.7 percent versus the third quarter of 2015 reflecting lower equipment and commission costs as well as increased operational efficiencies. The Consumer Mobility operating margin was 31.1 percent, compared to 31.2 percent in the year-earlier quarter with the pressure from customers choosing our lower service rate Mobile Share plans offset by lower volumes, fewer subsidized sales and cost efficiencies.
We had approximately 53.9 million Consumer Mobility subscribers at September 30, 2016, compared to 54.8 million at September 30, 2015. During the third quarter of 2016, we had branded net adds of 325,000 (prepaid net adds were 304,000 and consumer postpaid net adds were 21,000). Consumer reseller had a net loss of 316,000. Our business wireless offerings allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The migration of these subscribers to the ABS segment negatively impacted Consumer postpaid subscriber and service revenues growth.
Total customer churn of Consumer Mobility subscribers was 2.11 percent versus 1.90 percent in the third quarter of 2015, including postpaid churn of 1.19 percent, compared to 1.33 percent in the year-ago quarter.
International
Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as well as the Mexican wireless operations acquired earlier in 2015. Third quarter 2016 operating revenues were $1.9 billion, up 23.1 percent versus the prior year, with $1.3 billion attributable to video services in Latin America and $582 million of wireless revenues in Mexico. Our international segment revenues reflect foreign exchange pressures in our DIRECTV Latin America and Mexican wireless results. Operating expenses were $1.9 billion compared to $1.6 billion in the third quarter of 2015, largely due to our acquisition of DIRECTV. The International operating margin was (2.9) percent, compared to (5.4) percent in the year-earlier quarter.
At September 30, 2016, we had approximately 10.7 million wireless subscribers in Mexico and 12.5 million video connections in Latin America, including 5.3 million in Brazil. During the third quarter of 2016, our Mexico wireless business had net adds of 743,000 subscribers and our Latin America video connections declined by 48,000.
Supplemental Discussion
As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined AT&T Mobility operations (domestic only). AT&T Mobility revenues for the third quarter of 2016 were $18.2 billion, down 0.7 percent versus the third quarter of 2015, and AT&T Mobility’s operating income margin was 29.6 percent compared to 29.6 percent in the year-ago quarter reflecting continuing adoption of AT&T Next, an increase in BYOD customers, lower smartphone upgrade volumes and continued efforts to drive operating costs out of the business.
For the quarter ended September 30, 2016, postpaid phone-only ARPU decreased 1.9 percent versus the year-earlier quarter and 0.3 percent sequentially. Postpaid phone-only ARPU plus AT&T Next increased 1.7 percent versus the year earlier quarter and was flat sequentially.
Postpaid churn was 1.05 percent, compared to 1.16 percent in the year-ago. Total customer churn was 1.45 percent versus 1.33 percent in the third quarter of 2015.
Repurchases of our common stock under our previously announced share repurchase authorization by our Board of Directors totaled 6 million shares, or $247 million during the third quarter of 2016. At September 30, 2016, about 396 million shares remain available under approved share repurchase authorizations.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this filing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this filing based on new information or otherwise.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are filed as part of this report:
(d) Exhibits
99.1 AT&T Inc. selected financial statements and operating data.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AT&T INC. Date: October 22, 2016By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Inc. Financial Data Consolidated Statements of Income Dollars in millions except per share amounts Three Months Ended Nine Months Ended Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Operating Revenues Service $ 37,272 $ 35,539 4.9 % $ 111,515$
94,042 18.6 % Equipment 3,618 3,552 1.9 % 10,430 10,640 -2.0 % Total Operating Revenues 40,890 39,091 4.6 % 121,945 104,682 16.5 % Operating Expenses Cost of services and sales Equipment 4,455 4,501 -1.0 % 13,090 13,400 -2.3 % Broadcast, programming and operations 4,909 4,081 20.3 % 14,239 6,351 - %Other cost of services (exclusive of depreciation and amortization shown separately below)
9,526 9,214 3.4 % 28,436 27,604 3.0 % Selling, general and administrative 9,013 9,107 -1.0 % 26,363 24,535 7.5 % Depreciation and amortization 6,579 6,265 5.0 % 19,718 15,539 26.9 % Total Operating Expenses 34,482 33,168 4.0 % 101,846 87,429 16.5 % Operating Income 6,408 5,923 8.2 % 20,099 17,253 16.5 % Interest Expense 1,224 1,146 6.8 % 3,689 2,977 23.9 % Equity in Net Income of Affiliates 16 15 6.7 % 57 48 18.8 % Other Income (Expense) - Net (7 ) (57 ) 87.7 % 154 61 - % Income Before Income Taxes 5,193 4,735 9.7 % 16,621 14,385 15.5 % Income Tax Expense 1,775 1,657 7.1 % 5,803 4,784 21.3 % Net Income 3,418 3,078 11.0 % 10,818 9,601 12.7 %Less: Net Income Attributable to Noncontrolling Interest
(90 ) (84 ) -7.1 % (279 ) (262 ) -6.5 % Net Income Attributable to AT&T $ 3,328 $ 2,994 11.2 % $10,539
$ 9,339 12.8 % Basic Earnings Per Share Attributable to AT&T $ 0.54 $ 0.50 8.0 % $ 1.70 $ 1.71 -0.6 %Weighted Average Common Shares Outstanding (000,000)
6,168 5,924 4.1 % 6,171 5,447 13.3 % Diluted Earnings Per Share Attributable to AT&T $ 0.54 $ 0.50 8.0 % $ 1.70 $ 1.71 -0.6 %Weighted Average Common Shares Outstanding with Dilution (000,000)
6,189 5,943 4.1 % 6,191 5,463 13.3 % AT&T Inc. Financial Data Consolidated Balance Sheets Dollars in millions Unaudited Sep. 30, Dec. 31, 2016 2015 Assets Current Assets Cash and cash equivalents $ 5,895 $ 5,121 Accounts receivable - net of allowances for doubtful accounts of $650 and $704 16,855 16,532 Prepaid expenses 1,333 1,072 Other current assets 13,291 13,267 Total current assets 37,374 35,992 Property, Plant and Equipment - Net 123,922 124,450 Goodwill 105,271 104,568 Licenses 94,241 93,093 Customer Lists and Relationships - Net 15,227 18,208 Other Intangible Assets - Net 8,734 9,409 Investments in Equity Affiliates 1,679 1,606 Other Assets 16,527 15,346 Total Assets $ 402,975 $ 402,672 Liabilities and Stockholders' Equity Current Liabilities Debt maturing within one year $ 7,982 $ 7,636 Accounts payable and accrued liabilities 28,849 30,372 Advanced billing and customer deposits 4,637 4,682 Accrued taxes 2,686 2,176 Dividends payable 2,948 2,950 Total current liabilities 47,102 47,816 Long-Term Debt 117,239 118,515 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 59,649 56,181 Postemployment benefit obligation 33,483 34,262 Other noncurrent liabilities 20,899 22,258 Total deferred credits and other noncurrent liabilities 114,031 112,701 Stockholders' Equity Common stock 6,495 6,495 Additional paid-in capital 89,536 89,763 Retained earnings 35,319 33,671 Treasury stock (12,589 ) (12,592 ) Accumulated other comprehensive income 4,850 5,334 Noncontrolling interest 992 969 Total stockholders' equity 124,603 123,640 Total Liabilities and Stockholders' Equity $ 402,975 $ 402,672 AT&T Inc. Financial Data Consolidated Statements of Cash Flows Dollars in millions
Nine Months Ended
Unaudited September 30, 2016 2015 Operating Activities Net income $ 10,818 $ 9,601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,718 15,539 Undistributed earnings from investments in equity affiliates (22 ) (36 ) Provision for uncollectible accounts 1,036 895 Deferred income tax expense 3,011 1,539 Net gain from sale of investments, net of impairments (88 ) (46 ) Changes in operating assets and liabilities: Accounts receivable (1,108 ) 737 Other current assets 1,805 546 Accounts payable and accrued liabilities (1,173 ) 1,332 Equipment installment plan receivables and securitizations 207 (1,682 ) Deferred fulfillment costs (1,883 ) (884 ) Retirement benefit funding (770 ) (595 ) Other - net (2,349 ) (251 ) Total adjustments 18,384 17,094 Net Cash Provided by Operating Activities 29,202 26,695 Investing Activities Capital expenditures: Purchase of property and equipment (15,283 ) (13,356 ) Interest during construction (669 ) (566 ) Acquisitions, net of cash acquired (2,922 ) (30,694 ) Dispositions 184 79 Sales of securities, net 501 1,490 Net Cash Used in Investing Activities (18,189 ) (43,047 ) Financing Activities Net change in short-term borrowings with original maturities of three months or less - (1 ) Issuance of long-term debt 10,140 33,967 Repayment of long-term debt (10,688 ) (9,962 ) Purchase of treasury stock (444 ) - Issuance of treasury stock (excluding acquisition of DIRECTV) 137 133 Dividends paid (8,850 ) (7,311 ) Other (534 ) (2,875 ) Net Cash (Used in) Provided by Financing Activities (10,239 ) 13,951 Net increase (decrease) in cash and cash equivalents 774 (2,401 ) Cash and cash equivalents beginning of year 5,121 8,603 Cash and Cash Equivalents End of Period $ 5,895 $ 6,202 AT&T Inc. Consolidated Supplementary Data Supplementary Financial Data Dollars in millions except per share amounts Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Capital expenditures Purchase of property and equipment $ 5,581 $ 5,028 11.0 % $ 15,283 $ 13,356 14.4 % Interest during construction $ 232 $ 227 2.2 % $ 669 $ 566 18.2 % Dividends Declared per Share $ 0.48 $ 0.47 2.1 % $ 1.44 $ 1.41 2.1 % End of Period Common Shares Outstanding (000,000) 6,141 6,152 -0.2 % Debt Ratio 50.1 % 50.8 % -70 BP Total Employees 273,140 281,240 -2.9 % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change Wireless Subscribers Domestic 133,338 126,406 5.5 % Mexico 10,698 8,091 32.2 % Total Wireless Subscribers 144,036 134,497 7.1 % Total Branded Wireless Subscribers 100,821 95,305 5.8 % Video Connections Domestic 25,321 25,450 -0.5 % PanAmericana 7,139 7,006 1.9 % Brazil 5,337 5,538 -3.6 % Total Video Connections 37,797 37,994 -0.5 % Broadband Connections IP 13,715 13,076 4.9 % DSL 1,903 2,756 -31.0 % Total Broadband Connections 15,618 15,832 -1.4 % Voice Connections Network Access Lines 14,603 17,352 -15.8 % U-verse VoIP Connections 5,707 5,443 4.9 % Total Retail Consumer Voice Connections 20,310 22,795 -10.9 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Wireless Net Additions Domestic 1,532 2,513 -39.0 % 4,674 5,825 -19.8 % Mexico 743 (231 ) - % 2,014 (689 ) - % Total Wireless Net Additions 2,275 2,282 -0.3 % 6,688 5,136 30.2 % Total Branded Wireless Net Additions 1,285 125 - % 3,881 1,405 - % Video Net Additions Domestic (2 ) (65 ) 96.9 % (103 ) (37 ) - % PanAmericana (36 ) 16 - % 73 16 - % Brazil (12 ) (129 ) 90.7 % (107 ) (129 ) 17.1 % Total Video Net Additions (50 ) (178 ) 71.9 % (137 ) (150 ) 8.7 % Broadband Net Additions IP 171 192 -10.9 % 447 871 -48.7 % DSL (194 ) (321 ) 39.6 % (607 ) (1,067 ) 43.1 % Total Broadband Net Additions (23 ) (129 ) 82.2 % (160 ) (196 ) 18.4 %BUSINESS SOLUTIONS
The Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively referred to as strategic business services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as “wired” or “wireline”) to provide a complete communications solution to our business customers.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Segment Operating Revenues Wireless service $ 8,049 $ 7,732 4.1 % $ 23,867 $ 23,003 3.8 % Fixed strategic services 2,888 2,646 9.1 % 8,447 7,745 9.1 % Legacy voice and data services 4,046 4,616 -12.3 % 12,567 14,081 -10.8 % Other service and equipment 908 885 2.6 % 2,652 2,585 2.6 % Wireless equipment 1,876 1,813 3.5 % 5,422 5,499 -1.4 % Total Segment Operating Revenues 17,767 17,692 0.4 % 52,955 52,913 0.1 % Segment Operating Expenses Operations and support expenses 10,925 10,921 - % 32,584 32,966 -1.2 % Depreciation and amortization 2,539 2,474 2.6 % 7,568 7,276 4.0 % Total Segment Operating Expenses 13,464 13,395 0.5 % 40,152 40,242 -0.2 % Segment Operating Income 4,303 4,297 0.1 % 12,803 12,671 1.0 % Equity in Net Income of Affiliates - - - % - - - % Segment Contribution $ 4,303 $ 4,297 0.1 % $ 12,803 $ 12,671 1.0 % Segment Operating Income Margin 24.2 % 24.3 % 24.2 % 23.9 % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change Business Solutions Wireless Subscribers Postpaid/Branded 50,014 47,414 5.5 % Reseller 58 83 -30.1 % Connected Devices 29,355 24,064 22.0 % Total Business Solutions Wireless Subscribers 79,427 71,561 11.0 % Business Solutions IP Broadband Connections 963 891 8.1 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Business Solutions Wireless Net Additions Postpaid/Branded 191 265 -27.9 % 509 850 -40.1 % Reseller 1 8 -87.5 % (34 ) 14 - % Connected Devices 1,290 1,602 -19.5 % 4,067 4,104 -0.9 % Total Business Solutions Wireless Net Additions 1,482 1,875 -21.0 % 4,542 4,968 -8.6 % Business Solutions Wireless Postpaid Churn 0.97 % 1.05 % -8 BP 0.97 % 0.95 % 2 BPBusiness Solutions IP Broadband Net Additions
15 20 -25.0 % 52 70 -25.7 %ENTERTAINMENT GROUP
The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the U.S. or in U.S. territories. We utilize our copper and IP-based wired network and/or our satellite technology.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Segment Operating Revenues Video entertainment $ 9,026 $ 7,162 26.0 % $ 26,893 $ 11,024 - % High-speed internet 1,892 1,685 12.3 % 5,562 4,861 14.4 % Legacy voice and data services 1,168 1,419 -17.7 % 3,725 4,547 -18.1 % Other service and equipment 634 592 7.1 % 1,909 1,868 2.2 % Total Segment Operating Revenues 12,720 10,858 17.1 % 38,089 22,300 70.8 % Segment Operating Expenses Operations and support expenses 9,728 8,450 15.1 % 28,875 18,222 58.5 % Depreciation and amortization 1,504 1,389 8.3 % 4,481 3,519 27.3 % Total Segment Operating Expenses 11,232 9,839 14.2 % 33,356 21,741 53.4 % Segment Operating Income 1,488 1,019 46.0 % 4,733 559 - % Equity in Net Income (Loss) of Affiliates - 2 - % 1 (16 ) - % Segment Contribution $ 1,488 $ 1,021 45.7 % $ 4,734 $ 543 - % Segment Operating Income Margin 11.7 % 9.4 % 12.4 % 2.5 % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change Video Connections Satellite 20,777 19,570 6.2 % U-verse 4,515 5,854 -22.9 % Total Video Connections 25,292 25,424 -0.5 % Broadband Connections ` IP 12,752 12,185 4.7 % DSL 1,424 2,137 -33.4 % Total Broadband Connections 14,176 14,322 -1.0 % Voice Connections Retail Consumer Switched Access Lines 6,155 7,675 -19.8 % U-verse Consumer VoIP Connections 5,378 5,216 3.1 % Total Retail Consumer Voice Connections 11,533 12,891 -10.5 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Video Net Additions Satellite 323 26 - % 993 26 - % U-verse (326 ) (92 ) - % (1,099 ) (66 ) - % Total Video Net Additions (3 ) (66 ) 95.5 % (106 ) (40 ) - % Broadband Net Additions IP 156 172 -9.3 % 396 802 -50.6 % DSL (161 ) (278 ) 42.1 % (506 ) (922 ) 45.1 % Total Broadband Net Additions (5 ) (106 ) 95.3 % (110 ) (120 ) 8.3 %CONSUMER MOBILITY
The Consumer Mobility segment provides nationwide wireless service to consumers and wholesale and resale wireless subscribers located in the U.S. or in U.S. territories. We utilize our U.S. wireless network to provide voice and data services, including high-speed internet, video, and home monitoring services.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Segment Operating Revenues Service $ 6,914 $ 7,363 -6.1 % $ 20,805 $ 22,019 -5.5 % Equipment 1,353 1,421 -4.8 % 3,976 4,298 -7.5 % Total Segment Operating Revenues 8,267 8,784 -5.9 % 24,781 26,317 -5.8 % Segment Operating Expenses Operations and support expenses 4,751 5,065 -6.2 % 14,343 15,808 -9.3 % Depreciation and amortization 944 976 -3.3 % 2,798 2,912 -3.9 % Total Segment Operating Expenses 5,695 6,041 -5.7 % 17,141 18,720 -8.4 % Segment Operating Income 2,572 2,743 -6.2 % 7,640 7,597 0.6 % Equity in Net Income of Affiliates - - - % - - - % Segment Contribution $ 2,572 $ 2,743 -6.2 % $ 7,640 $ 7,597 0.6 % Segment Operating Income Margin 31.1 % 31.2 % 30.8 % 28.9 % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change Consumer Mobility Subscribers Postpaid 27,374 29,257 -6.4 % Prepaid 13,035 10,988 18.6 % Branded 40,409 # 40,245 0.4 % Reseller 12,566 13,647 -7.9 % Connected Devices 936 953 -1.8 % Total Consumer Mobility Subscribers 53,911 54,845 -1.7 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Consumer Mobility Net Additions Postpaid 21 23 -8.7 % 89 289 -69.2 % Prepaid 304 466 -34.8 % 1,169 895 30.6 % Branded 325 489 -33.5 % 1,258 1,184 6.3 % Reseller (316) 149 - % (1,140) (218) - % Connected Devices 41 - - % 14 (109) - % Total Consumer Mobility Net Additions 50 638 -92.2 % 132 857 -84.6 % Total Churn 2.11% 1.90% 21 BP 2.06% 1.93% 13 BP Postpaid Churn 1.19% 1.33% -14 BP 1.17% 1.23% -6 BPINTERNATIONAL
The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates.
Segment Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Segment Operating Revenues Video entertainment $ 1,297 $ 945 37.2 % $ 3,649 $ 945 - % Wireless service 484 494 -2.0 % 1,428 1,153 23.9 % Wireless equipment 98 87 12.6 % 297 155 91.6 % Total Segment Operating Revenues 1,879 1,526 23.1 % 5,374 2,253 - % Segment Operating Expenses Operations and support expenses 1,640 1,384 18.5 % 4,951 2,131 - % Depreciation and amortization 293 225 30.2 % 868 346 - % Total Segment Operating Expenses 1,933 1,609 20.1 % 5,819 2,477 - % Segment Operating Income (Loss) (54 ) (83 ) 34.9 % (445 ) (224 ) -98.7 % Equity in Net Income (Loss) of Affiliates 1 (4 ) - % 24 (4 ) - % Segment Contribution $ (53 ) $ (87 ) 39.1 % $ (421 ) $ (228 ) -84.6 % Segment Operating Income Margin (2.9 ) % (5.4 ) % (8.3 ) % (9.9 ) % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change Mexican Wireless Subscribers Postpaid 4,733 4,159 13.8 % Prepaid 5,665 3,487 62.5 % Branded 10,398 7,646 36.0 % Reseller 300 445 -32.6 % Total Mexican Wireless Subscribers 10,698 8,091 32.2 % Latin America Satellite Subscribers PanAmericana 7,139 7,006 1.9 % SKY Brazil 5,337 5,538 -3.6 % Total Latin America Satellite Subscribers 12,476 12,544 -0.5 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Mexican Wireless Net Additions Postpaid 163 15 - % 444 47 - % Prepaid 606 (210 ) - % 1,670 (677 ) - % Branded 769 (195 ) - % 2,114 (630 ) - % Reseller (26 ) (36 ) 27.8 % (100 ) (59 ) -69.5 % Total Mexican Wireless Net Additions 743 (231 ) - % 2,014 (689 ) - % Latin America Satellite Net Additions PanAmericana (36 ) 16 - % 73 16 - % SKY Brazil (12 ) (129 ) 90.7 % (107 ) (129 ) 17.1 % Total Latin America Satellite Net Additions (48 ) (113 ) 57.5 % (34 ) (113 ) 69.9 %SUPPLEMENTAL OPERATING INFORMATION - AT&T MOBILITY
As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined domestic wireless operations (AT&T Mobility).
Operating Results Dollars in millions Three Months Ended
Nine Months Ended
Unaudited September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change Operating Revenues Service $ 14,963 $ 15,095 -0.9 % $ 44,673 $ 45,022 -0.8 % Equipment 3,229 3,234 -0.2 % 9,398 9,797 -4.1 % Total Operating Revenues 18,192 18,329 -0.7 % 54,071 54,819 -1.4 % Operating Expenses Operations and support expenses 10,696 10,865 -1.6 % 31,822 33,310 -4.5 % Depreciation and amortization 2,107 2,046 3.0 % 6,244 6,082 2.7 % Total Operating Expenses 12,803 12,911 -0.8 % 38,066 39,392 -3.4 % Operating Income 5,389 5,418 -0.5 % 16,005 15,427 3.7 % Equity in Net Income of Affiliates - - - % - - - % Operating Contribution $ 5,389 $ 5,418 -0.5 % $ 16,005 $ 15,427 3.7 % Operating Income Margin 29.6 % 29.6 % 29.6 % 28.1 % Supplementary Operating Data Subscribers and connections in thousands Unaudited September 30, Percent 2016 2015 Change AT&T Mobility Subscribers Postpaid 77,388 76,671 0.9 % Prepaid 13,035 10,988 18.6 % Branded 90,423 # 87,659 3.2 % Reseller 12,624 13,729 -8.0 % Connected Devices 30,291 25,018 21.1 % Total AT&T Mobility Subscribers 133,338 126,406 5.5 % Domestic Licensed POPs (000,000) 323 321 0.6 % Three Months Ended Nine Months Ended September 30, Percent September 30, Percent 2016 2015 Change 2016 2015 Change AT&T Mobility Net Additions Postpaid 212 289 -26.6 % 598 1,140 -47.5 % Prepaid 304 466 -34.8 % 1,169 895 30.6 % Branded 516 755 -31.7 % 1,767 # 2,035 -13.2 % Reseller (315 ) 156 - % (1,174 ) (205 ) - % Connected Devices 1,331 1,602 -16.9 % 4,081 3,995 2.2 % Total AT&T Mobility Net Additions 1,532 2,513 -39.0 % 4,674 # 5,825 -19.8 %M&A Activity, Partitioned Customers and Other Adjustments
1 (9 ) - % 24 27 -11.1 % Total Churn 1.45 % 1.33 % 12 BP 1.41 % 1.35 % 6 BP Postpaid Churn 1.05 % 1.16 % -11 BP 1.04 % 1.06 % -2 BPSUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended Dollars in millions Unaudited September 30, 2016 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution Business Solutions $ 17,767 $ 10,925 $ 6,842 $ 2,539 $ 4,303 $ - $ 4,303 Entertainment Group 12,720 9,728 2,992 1,504 1,488 - 1,488 Consumer Mobility 8,267 4,751 3,516 944 2,572 - 2,572 International 1,879 1,640 239 293 (54 ) 1 (53 ) Segment Total 40,633 27,044 13,589 5,280 8,309 $ 1 $ 8,310 Corporate and Other 270 270 - 17 (17 ) Acquisition-related items - 290 (290 ) 1,282 (1,572 ) Certain Significant items (13 ) 299 (312 ) - (312 ) AT&T Inc. $ 40,890 $ 27,903 $ 12,987 $ 6,579 $ 6,408 September 30, 2015 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution Business Solutions $ 17,692 $ 10,921 $ 6,771 $ 2,474 $ 4,297 $ - $ 4,297 Entertainment Group 10,858 8,450 2,408 1,389 1,019 2 1,021 Consumer Mobility 8,784 5,065 3,719 976 2,743 - 2,743 International 1,526 1,384 142 225 (83 ) (4 ) (87 ) Segment Total 38,860 25,820 13,040 5,064 7,976 $ (2 ) $ 7,974 Corporate and Other 316 315 1 3 (2 ) Acquisition-related items (85 ) 611 (696 ) 1,198 (1,894 ) Certain Significant items - 157 (157 ) - (157 ) AT&T Inc. $ 39,091 $ 26,903 $ 12,188 $ 6,265 $ 5,923 Nine Months Ended Dollars in millions Unaudited September 30, 2016 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution Business Solutions $ 52,955 $ 32,584 $ 20,371 $ 7,568 $ 12,803 $ - $ 12,803 Entertainment Group 38,089 28,875 9,214 4,481 4,733 1 4,734 Consumer Mobility 24,781 14,343 10,438 2,798 7,640 - 7,640 International 5,374 4,951 423 868 (445 ) 24 (421 ) Segment Total 121,199 80,753 40,446 15,715 24,731 $ 25 $ 24,756 Corporate and Other 759 940 (181 ) 54 (235 ) Acquisition-related items - 818 (818 ) 3,949 (4,767 ) Certain Significant items (13 ) (383 ) 370 - 370 AT&T Inc. $ 121,945 $ 82,128 $ 39,817 $ 19,718 $ 20,099 September 30, 2015 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution Business Solutions $ 52,913 $ 32,966 $ 19,947 $ 7,276 $ 12,671 $ - $ 12,671 Entertainment Group 22,300 18,222 4,078 3,519 559 (16 ) 543 Consumer Mobility 26,317 15,808 10,509 2,912 7,597 - 7,597 International 2,253 2,131 122 346 (224 ) (4 ) (228 ) Segment Total 103,783 69,127 34,656 14,053 20,603 $ (20 ) $ 20,583 Corporate and Other 984 785 199 47 152 Acquisition-related items (85 ) 1,604 (1,689 ) 1,439 (3,128 ) Certain Significant items - 374 (374 ) - (374 ) AT&T Inc. $ 104,682 $ 71,890 $ 32,792 $ 15,539 $ 17,253Exhibit 99.3
Discussion and Reconciliation of Non-GAAP Measures
We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors.
Free Cash Flow
Free cash flow is defined as cash from operations minus Capital expenditures. Free cash flow after dividends is defined as cash from operations minus Capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including Capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.
Free Cash Flow and Free Cash Flow Dividend Payout Ratio Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net cash provided by operating activities $ 10,995 $ 10,797 $ 29,202 $ 26,695 Less: Capital expenditures (5,813 ) (5,255 ) (15,952 ) (13,922 ) Free Cash Flow 5,182 5,542 13,250 12,773 Less: Dividends paid (2,951 ) (2,438 ) (8,850 ) (7,311 ) Free Cash Flow after Dividends $ 2,231 $ 3,104 $ 4,400 $ 5,462 Free Cash Flow Dividend Payout Ratio 56.9 % 44.0 % 66.8 % 57.2 %Capital Investment
Capital Investment is a non-GAAP financial measure that adds to Capital expenditures the amount of vendor financing arrangements for capital improvements to our wireless network in Mexico. These favorable payment terms are considered vendor financing arrangements and are reported as repayments of debt instead of Capital expenditures. Management believes that Capital Investment provides relevant and useful information to investors and other users of our financial data in evaluating long-term investment in our business.
Capital Investment Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Capital Expenditures $ 5,813 $ 5,255 $ 15,952 $ 13,922 Vendor Financing 87 - 225 - Capital Investment $ 5,900 $ 5,255 $ 16,177 $ 13,922EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility), EBITDA excludes depreciation and amortization from Operating Income.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. For the periods covered by this report, we subsidized a portion of some of our wireless handset sales, which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net Income $ 3,418 $ 3,078 $ 10,818 $ 9,601 Additions: Income Tax Expense 1,775 1,657 5,803 4,784 Interest Expense 1,224 1,146 3,689 2,977 Equity in Net (Income) of Affiliates (16 ) (15 ) (57 ) (48 ) Other (Income) Expense - Net 7 57 (154 ) (61 ) Depreciation and amortization 6,579 6,265 19,718 15,539 EBITDA 12,987 12,188 39,817 32,792 Total Operating Revenues 40,890 39,091 121,945 104,682 Service Revenues 37,272 35,539 111,515 94,042 EBITDA Margin 31.8 % 31.2 % 32.7 % 31.3 % EBITDA Service Margin 34.8 % 34.3 % 35.7 % 34.9 % Segment EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Business Solutions Segment Segment Contribution $ 4,303 $ 4,297 $ 12,803 $ 12,671 Additions: Depreciation and amortization 2,539 2,474 7,568 7,276 EBITDA 6,842 6,771 20,371 19,947 Total Segment Operating Revenues 17,767 17,692 52,955 52,913 Segment Operating Income Margin 24.2 % 24.3 % 24.2 % 23.9 % EBITDA Margin 38.5 % 38.3 % 38.5 % 37.7 % Entertainment Group Segment Segment Contribution $ 1,488 $ 1,021 $ 4,734 $ 543 Additions: Equity in Net (Income) of Affiliates - (2 ) (1 ) 16 Depreciation and amortization 1,504 1,389 4,481 3,519 EBITDA 2,992 2,408 9,214 4,078 Total Segment Operating Revenues 12,720 10,858 38,089 22,300 Segment Operating Income Margin 11.7 % 9.4 % 12.4 % 2.5 % EBITDA Margin 23.5 % 22.2 % 24.2 % 18.3 % Consumer Mobility Segment Segment Contribution $ 2,572 $ 2,743 $ 7,640 $ 7,597 Additions: Depreciation and amortization 944 976 2,798 2,912 EBITDA 3,516 3,719 10,438 10,509 Total Segment Operating Revenues 8,267 8,784 24,781 26,317 Service Revenues 6,914 7,363 20,805 22,019 Segment Operating Income Margin 31.1 % 31.2 % 30.8 % 28.9 % EBITDA Margin 42.5 % 42.3 % 42.1 % 39.9 % EBITDA Service Margin 50.9 % 50.5 % 50.2 % 47.7 % International Segment Segment Contribution $ (53 ) $ (87 ) $ (421 ) $ (228 ) Additions: Equity in Net (Income) of Affiliates (1 ) 4 (24 ) 4 Depreciation and amortization 293 225 868 346 EBITDA 239 142 423 122 Total Segment Operating Revenues 1,879 1,526 5,374 2,253 Segment Operating Income Margin -2.9 % -5.4 % -8.3 % -9.9 % EBITDA Margin 12.7 % 9.3 % 7.9 % 5.4 % Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 AT&T Mobility Operating Contribution $ 5,389 $ 5,418 $ 16,005 $ 15,427 Add: Depreciation and amortization 2,107 2,046 6,244 6,082 EBITDA 7,496 7,464 22,249 21,509 Total Segment Operating Revenues 18,192 18,329 54,071 54,819 Service Revenues 14,963 15,095 44,673 45,022 Segment Operating Income Margin 29.6 % 29.6 % 29.6 % 28.1 % EBITDA Margin 41.2 % 40.7 % 41.1 % 39.2 % EBITDA Service Margin 50.1 % 49.4 % 49.8 % 47.8 %Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for (1) adjustments related to Mexico operations, which are taxed at the 30% marginal rate for Mexico and (2) adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38%.
Adjusting Items Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Operating Revenues Merger related deferred revenue $ - $ 85 $ - $ 85 Storm revenue credits 13 - 13 - Adjustments to Operating Revenues 13 85 13 85 Operating Expenses DIRECTV and other video merger integration costs 189 173 495 337 Mexico merger integration costs 84 42 231 83 Wireless merger integration costs 17 146 92 570 Leap network decommissioning - 250 - 614 New cell site abandonment - 35 - 35 Storm costs 17 - 17 - Employee separation costs 260 122 314 339 (Gain) loss on transfer of wireless spectrum 22 - (714 ) - Adjustments to Operations and Support Expenses 589 768 435 1,978 Amortization of intangible assets 1,282 1,171 3,949 1,284 Adjustments to Operating Expenses 1,871 1,939 4,384 3,262 Other DIRECTV-related interest expense and exchange fees 1 - 38 16 142 (Gain) loss on sale of investments 2 - - 4 - Adjustments to Income Before Income Taxes 1,884 2,062 4,417 3,489 Tax impact of adjustments 640 705 1,521 1,202 Tax-related items - (34 ) - 228 Adjustments to Net Income $ 1,244 $ 1,391 $ 2,896 $ 2,0591 Includes interest expense incurred on the debt issued prior to the close of the DIRECTV transaction and fees associated with the exchange of DIRECTV notes for AT&T notes.2 Residual effect of previously adjusted item.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
Adjusted Operating Income, Adjusted Operating Income Margin,Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Operating Income $ 6,408 $ 5,923 $ 20,099 $ 17,253 Adjustments to Operating Revenues 13 85 13 85 Adjustments to Operating Expenses 1,871 1,939 4,384 3,262 Adjusted Operating Income 8,292 7,947 24,496 20,600 EBITDA 12,987 12,188 39,817 32,792 Adjustments to Operating Revenues 13 85 13 85 Adjustments to Operations and Support Expenses 589 768 435 1,978 Adjusted EBITDA 13,589 13,041 40,265 34,855 Total Operating Revenues 40,890 39,091 121,945 104,682 Adjustments to Operating Revenues 13 85 13 85 Total Adjusted Operating Revenues 40,903 39,176 121,958 104,767 Service Revenues 37,272 35,539 111,515 94,042 Adjustments to Operating Revenues 13 85 13 85 Adjusted Service Revenues 37,285 35,624 111,528 94,127 Operating Income Margin 15.7 % 15.2 % 16.5 % 16.5 % Adjusted Operating Income Margin 20.3 % 20.3 % 20.1 % 19.7 % Adjusted EBITDA Margin 33.2 % 33.3 % 33.0 % 33.3 % Adjusted EBITDA Service Margin 36.4 % 36.6 % 36.1 % 37.0 % Adjusted Diluted EPS Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Diluted Earnings Per Share (EPS) $ 0.54 $ 0.50 $ 1.70 $ 1.71 Amortization of intangible assets 0.14 0.13 0.42 0.16 Merger integration and other costs1 0.03 0.09 0.09 0.22 Employee separations 0.03 0.01 0.03 0.04 Gain (loss) on transfer of wireless spectrum - - (0.07 ) - Tax-related items - 0.01 - (0.04 ) Adjusted EPS $ 0.74 $ 0.74 $ 2.17 $ 2.09 Year-over-year growth - Adjusted 0.0 % 3.8 %Weighted Average Common Shares Outstanding with Dilution (000,000)
6,189 5,943 6,191 5,4631Includes combined merger integration costs, Leap network decommissioning, DIRECTV-related interest expense and exchange fees, abandonments and other costs.
Entertainment Group Segment
Adjusted Operating Revenues includes the external operating revenues from DIRECTV U.S. as reported in the DIRECTV Form 10-Q/A dated June 30, 2015 adjusted to (1) include operations reported in other DIRECTV operating segments that AT&T has chosen to manage in our Entertainment Group segment, (2) conform DIRECTV's practice of recognizing revenue to be received under contractual commitments on a straight line basis over the minimum contract period to AT&T's method of limiting the revenue recognized to the monthly amounts billed and (3) eliminate intercompany transactions from DIRECTV U.S. and the Entertainment Group segment. Adjusting Entertainment Group segment operating revenues provides for comparability between periods.
Entertainment Group Adjusted Operating Revenues Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Segment Operating Revenues $ 12,720 $ 10,858 $ 38,089 $ 22,300 DIRECTV Operating Revenues1 1,700 14,864 Adjustments: Other DIRECTV operations - 182 Revenue recognition 35 229 Intercompany eliminations (6 ) (40 ) Adjusted Segment Operating Revenues $ 12,720 $ 12,587 $ 38,089 $ 37,535 Year-over-year growth - Adjusted 1.1 % 1.5 % 1Includes results from July 1, 2015 through July 24, 2015 acquisition date.Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by annualized Net Debt Adjusted EBITDA. Annualized Net Debt Adjusted EBITDA excludes severance-related adjustments as described in our credit agreements. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Net Debt Adjusted EBITDA.
Net Debt to Adjusted EBITDA Dollars in millions Three Months Ended Mar. 31, Jun. 30 Sep. 30 YTD 2016 2016 2016 2016 Adjusted EBITDA $ 13,279 $ 13,397 $ 13,589 $ 40,265 Add back severance (25 ) (29 ) (260 ) (314 ) Net Debt Adjusted EBITDA 13,254 13,368 13,329 39,951 Annualized Net Debt Adjusted EBITDA 53,268 End-of-period current debt 7,982 End-of-period long-term debt 117,239 Total End-of-Period Debt 125,221 Less: Cash and Cash Equivalents 5,895 Net Debt Balance 119,326 Annualized Net Debt Adjusted EBITDA Ratio 2.24
View source version on businesswire.com: http://www.businesswire.com/news/home/20161022005016/en/
AT&T Corporate CommunicationsFletcher Cook, 214-757-7629fletcher.cook@att.com
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