10-QPeriod: Q3 FY2015

AT&T INC. Quarterly Report for Q3 Ended Oct 28, 2015

Filed November 6, 2015For Securities:TT-PCTBBT-PA

Summary

AT&T Inc.'s third quarter and year-to-date 2015 performance reflects the significant impact of the DIRECTV acquisition, which closed on July 24, 2015. Consolidated operating revenues saw substantial increases, driven by the inclusion of DIRECTV's results and growth in Mexico's wireless operations, though legacy product declines persisted. Net income attributable to AT&T decreased compared to the prior year periods, impacted by increased operating expenses, including broadcast/programming costs and amortization from recent acquisitions. Financially, the company saw an increase in debt, with the debt ratio rising significantly, primarily due to the financing of the DIRECTV acquisition. Cash flow from operations remained strong, but investing activities showed a significant outflow due to acquisitions and capital expenditures. The company is prioritizing debt reduction with its free cash flow following the DIRECTV merger. Overall, AT&T is navigating a dynamic market with strategic acquisitions and ongoing investments in its network infrastructure, while managing the integration of a major new business segment.

Financial Highlights

47 data points
Beta

Revenue

$39.09B

Net Income

$2.99B

7.7% Net Margin

EPS (Diluted)

$0.50

Total Assets

$399.99B

Cash & Equivalents

$6.20B

Free Cash Flow

$10.80B

Financial Statements
Beta
Revenue$39.09B
SG&A Expenses$9.11B
Operating Expenses$33.17B
Operating Income$5.92B
Interest Expense$1.15B
Net Income$2.99B
EPS (Basic)$0.50
EPS (Diluted)$0.50
Shares Outstanding (Basic)5.92B
Shares Outstanding (Diluted)5.94B

Key Highlights

  • 1Consolidated operating revenues increased by 18.6% for the third quarter and 6.8% for the nine months ended September 30, 2015, largely driven by the acquisition of DIRECTV and growth in Mexican wireless operations.
  • 2Net income attributable to AT&T decreased by 4.3% for the third quarter and 10.6% for the nine months ended September 30, 2015, compared to the prior year.
  • 3The company significantly increased its long-term debt, with the debt ratio rising to 50.8% as of September 30, 2015, up from 43.9% at the end of 2014, primarily to finance the DIRECTV acquisition.
  • 4Cash flow provided by operating activities increased to $26.7 billion for the first nine months of 2015, up from $25.6 billion in the prior year, supported by the DIRECTV acquisition's contribution.
  • 5Investing activities showed a substantial net cash used of $43.0 billion for the first nine months of 2015, heavily influenced by acquisitions (including DIRECTV, Nextel Mexico, and GSF Telecom) and spectrum license purchases.
  • 6The company reported a new segment, 'Entertainment and Internet Services,' significantly boosted by the DIRECTV acquisition, contributing $10.9 billion in revenue for the third quarter.
  • 7Depreciation and amortization expense increased by 38.0% for the third quarter, driven by amortization of intangibles from recent acquisitions and increased depreciation from new assets, including those from DIRECTV.

Frequently Asked Questions

The acquisition of DIRECTV, completed on July 24, 2015, had a significant impact. It substantially increased consolidated operating revenues, particularly in the 'Entertainment and Internet Services' segment. However, it also led to higher operating expenses, including broadcast, programming, and amortization costs, which contributed to a decrease in net income attributable to AT&T for the period. The acquisition also significantly increased AT&T's debt levels.

AT&T's debt levels increased significantly, with its debt ratio rising to 50.8% as of September 30, 2015, up from 43.9% at the end of 2014. This increase is primarily attributed to the financing of the DIRECTV acquisition. The company's stated priority following the DIRECTV merger is to use free cash flow to pay down debt.

The 'Business Solutions' segment showed steady revenue growth driven by wireless and strategic services. The newly integrated 'Entertainment and Internet Services' segment, bolstered by DIRECTV, saw a massive revenue increase. The 'Consumer Mobility' segment experienced a revenue decline, influenced by shifts to no-device-subsidy plans and customer migrations to the business segment. The 'International' segment, comprising recent acquisitions in Mexico and Latin America, is in its early stages and reported an operating loss.

AT&T expects its 2015 capital expenditures to be around $21 billion and anticipates them to remain at 15% or lower of service revenues from 2016 through 2018. The company continues to invest in its wireless and wireline networks, video services, and aims to secure additional spectrum to meet growing data demands. Significant capital was used for spectrum licenses, including payments for AWS-3 auction licenses.