REG - AT & T Inc. - 1st Quarter Results 2017 8-K <Origin Href="QuoteRef">T.N</Origin> - Part 1
RNS Number : 0137GAT & T Inc.23 May 2017UNITED 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) April 25, 2017
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
1-8610
43-1301883
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
208 S. Akard St., Dallas, Texas
75202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code (210) 821-4105
__________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
The registrant announced on April 25, 2017, its results of operations for the first quarter of 2017. 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 April 25, 2017 reporting financial results for the first quarter ended March 31, 2017.
99.2
AT&T Inc. selected financial statements and operating data.
99.3
Discussion and reconciliation of non-GAAP measures.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AT&T INC.
Date: April 25, 2017
By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports First-Quarter Results
Updates Guidance Following FirstNet Award
Consolidated revenues of $39.4 billion
Operating income of $6.9 billion
Net income attributable to AT&T of $3.5 billion
Diluted EPS of $0.56 as reported and $0.74 as adjusted, compared to $0.61 and $0.72 in the year-ago quarter
Cash from operations of $9.2 billion
Free cash flow of $3.2 billion
2.7 million wireless net adds
o 2.1 million U.S., driven by prepaid and connected devices
o 633,000 Mexico
U.S. wireless first-quarter results:
o Best-ever first-quarter postpaid phone churn of 0.90%
o Wireless postpaid churn of 1.12%, including pressure from tablets
o Strong operating margin of 30.1%; best-ever EBITDA margin of 41.8%; EBITDA wireless service margin of 49.3%
Entertainment Group first-quarter results:
o Strong broadband gains with 242,000 IP broadband net adds; 115,000 total broadband net adds
o 4.6 million AT&T Fiber customer locations with plans to add 2 million in 2017
o DIRECTV NOW gains help offset linear TV subscriber decline
Note: AT&T's first-quarter earnings conference call will be webcast at 4:30 p.m. ET on Tuesday, April 25, 2017. The webcast and related materials will be available on AT&T's Investor Relations website at www.att.com/investor.relations.
dALLAS, April 25, 2017- AT&T Inc. (NYSE:T) today announced continued adjusted margin expansion and solid adjusted earnings growth for the first quarter. The quarter also was marked by several decisive strategic moves that helped broaden the company's spectrum portfolio.
"In a very competitive quarter, we continued to execute on our goals of driving efficiencies in our business while growing adjusted earnings per share. But just as important, the strategic moves we've made over the last few months to expand our wireless capacity and fortify our 5G leadership will be felt for years to come," said Randall Stephenson, AT&T Chairman and CEO. "FirstNet gives us access to 20 megahertz of valuable, low-band spectrum and allows us to deploy our spectrum assets more efficiently as we build a high-quality, mobile broadband network for our first responders. And our planned acquisitions of Fiber Tower and Straight Path will add valuable millimeter wave spectrum assets to our 5G tool kit as we lead the way to the next generation of wireless technology."
Consolidated Financial Results
AT&T's consolidated revenues for the first quarter totaled $39.4 billion versus $40.5 billion in the year-ago quarter, primarily due to record-low equipment sales in wireless. Compared with results for the first quarter of 2016, operating expenses were $32.5 billion versus $33.4 billion; operating income was $6.9 billion versus $7.1 billion; and operating income margin was 17.4% versus 17.6%. When adjusting for amortization, merger- and integration-related and other items, operating income was $8.2 billion versus $8.1 billion; and operating income margin was 20.7%, up 80 basis points versus the year-ago quarter.
First-quarter net income attributable to AT&T totaled $3.5 billion, or $0.56 per diluted share, compared to $3.8 billion, or $0.61 per diluted share, in the year-ago quarter. Adjusting for $0.18 of costs for amortization, merger- and integration-related and other items, earnings per diluted share was $0.74 compared to an adjusted $0.72 in the year-ago quarter.
Cash from operating activities was $9.2 billion in the first quarter, and capital expenditures were $6.0 billion. Free cash flow - cash from operating activities minus capital expenditures - was $3.2 billion for the quarter.
Updated 2017 Outlook
The company is updating its 2017 guidance. On a business as usual basis without the impact of Time Warner, AT&T expects:
Adjusted EPS growth in the mid-single digit range
Adjusted operating margin expansion
Capital expenditures in the $22 billion range
Free cash flow in the $18 billion range
The company is no longer providing consolidated revenue guidance primarily due to the unpredictability of wireless handset sales.
Adjustments include non-cash mark-to-market benefit plan gain/loss, merger integration and amortization costs and other adjustments. Traditionally, the mark-to-market adjustment is the largest item, which is driven by interest rates and investment returns that are not reasonably estimable at this time. We expect amortization to be lower in 2017 compared to 2016.
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, business, mobile and high speed internet services. We offer the nation's best data network* and the best global coverage of any U.S. wireless provider.** We're one of the world's largest providers of pay TV. We have TV customers in the U.S. and 11 Latin American countries. Nearly 3.5 million companies, from small to large businesses around the globe, turn to AT&T for our highly secure smart solutions.
Additional information about AT&T products and services is available at about.att.com. Follow our news on Twitter at @ATT, on Facebook at facebook.com/attand YouTube atyoutube.com/att.
2017 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.
*Claim based on the Nielsen Certified Data Network Score. Score includes data reported by wireless consumers in the Nielsen Mobile Insights survey, network measurements from Nielsen Mobile Performance and Nielsen Drive Test Benchmarks for Q3+Q4 2016 across 121 markets.
**Global coverage claim based on offering discounted voice and data roaming; LTE roaming; and voice roaming 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 communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed merger between AT&T Inc. and Straight Path Communications, Inc., constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These estimates and statements are subject to risks and uncertainties, and actual results might differ materially. Such estimates and statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of AT&T Inc. and Straight Path Communications, Inc. and are subject to significant risks and uncertainties outside of our control. 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. Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1)the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2)the risk that Straight Path Communications, Inc. stockholders may not adopt the merger agreement, (3)the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, and (4)risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner. Discussions of additional risks and uncertainties are contained in AT&T Inc.'s and Straight Path Communications, Inc.'s filings with the Securities and Exchange Commission. Neither AT&T Inc. nor Straight Path Communications, Inc. is under any obligation, and each expressly disclaims any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this announcement are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.
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 Straight Path Communications, 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 STRAIGHT PATH COMMUNICATIONS, 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 Straight Path Communications, Inc., without charge, at the SEC's website at 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 Inc.'s investor relations website at http://www.att.com. Copies of documents filed with the SEC by Straight Path Communications, Inc. will be made available free of charge on Straight Path Communications, Inc.'s investor relations website at http://spathinc.com/investors/.
Participants in Solicitation
AT&T Inc. and its directors and executive officers, and Straight Path Communications, Inc. and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Straight Path Communications, Inc. common stock in respect of the proposed merger. Information about the directors and executive officers of AT&T Inc. is set forth in the proxy statement for AT&T Inc.'s 2017 Annual Meeting of Stockholders, which was filed with the SEC on March 10, 2017. Information about the directors and executive officers of Straight Path Communications, Inc. is set forth in the proxy statement for Straight Path Communications, Inc.'s 2017 Annual Meeting of Stockholders, which was filed with the SEC on November 22, 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.
For more information, contact:
Fletcher Cook - AT&T Global Media Relations
Email: fletcher.cook@att.com
Phone: (214) 757-7629
Eric Ryan - AT&T Global Media Relations
Email: eric.ryan.1@att.com
Phone: (929) 273-8434
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended
Unaudited
March 31,
Percent
2017
2016
Change
Operating Revenues
Service
$
36,456
$
37,101
-1.7
%
Equipment
2,909
3,434
-15.3
%
Total Operating Revenues
39,365
40,535
-2.9
%
Operating Expenses
Cost of services and sales
Equipment
3,848
4,375
-12.0
%
Broadcast, programming and operations
4,974
4,629
7.5
%
Other cost of services (exclusive of depreciation
and amortization shown separately below)
9,065
9,396
-3.5
%
Selling, general and administrative
8,487
8,441
0.5
%
Depreciation and amortization
6,127
6,563
-6.6
%
Total Operating Expenses
32,501
33,404
-2.7
%
Operating Income
6,864
7,131
-3.7
%
Interest Expense
(1,293
)
(1,207
)
-7.1
%
Equity in Net Income (Loss) of Affiliates
(173
)
13
-
%
Other Income (Expense) - Net
(20
)
70
-
%
Income Before Income Taxes
5,378
6,007
-10.5
%
Income Tax Expense
1,804
2,122
-15.0
%
Net Income
3,574
3,885
-8.0
%
Less: Net Income Attributable to
Noncontrolling Interest
(105
)
(82
)
-28.0
%
Net Income Attributable to AT&T
$
3,469
$
3,803
-8.8
%
Basic Earnings Per Share Attributable to AT&T
$
0.56
$
0.62
-9.7
%
Weighted Average Common
Shares Outstanding (000,000)
6,166
6,172
-0.1
%
Diluted Earnings Per Share Attributable to AT&T
$
0.56
$
0.61
-8.2
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,186
6,190
-0.1
%
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited
Mar. 31,
Dec. 31,
2017
2016
Assets
Current Assets
Cash and cash equivalents
$
14,884
$
5,788
Accounts receivable - net of allowances for doubtful accounts of $699 and $661
15,078
16,794
Prepaid expenses
1,418
1,555
Other current assets
14,347
14,232
Total current assets
45,727
38,369
Property, Plant and Equipment - Net
125,292
124,899
Goodwill
105,593
105,207
Licenses
94,617
94,176
Customer Lists and Relationships - Net
13,366
14,243
Other Intangible Assets - Net
8,295
8,441
Investments in Equity Affiliates
1,551
1,674
Other Assets
17,462
16,812
Total Assets
$
411,903
$
403,821
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
12,681
$
9,832
Accounts payable and accrued liabilities
27,120
31,138
Advanced billing and customer deposits
4,493
4,519
Accrued taxes
3,384
2,079
Dividends payable
3,012
3,008
Total current liabilities
50,690
50,576
Long-Term Debt
120,568
113,681
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
61,100
60,128
Postemployment benefit obligation
33,404
33,578
Other noncurrent liabilities
21,160
21,748
Total deferred credits and other noncurrent liabilities
115,664
115,454
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
89,411
89,604
Retained earnings
35,175
34,734
Treasury stock
(12,400
)
(12,659
)
Accumulated other comprehensive income
5,160
4,961
Noncontrolling interest
1,140
975
Total stockholders' equity
124,981
124,110
Total Liabilities and Stockholders' Equity
$
411,903
$
403,821
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Three Months Ended
Unaudited
March 31,
2017
2016
Operating Activities
Net income
$
3,574
$
3,885
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
6,127
6,563
Undistributed loss (earnings) from investments in equity affiliates
182
(13
)
Provision for uncollectible accounts
393
374
Deferred income tax expense
480
1,346
Net loss (gain) from sale of investments, net of impairments
61
(44
)
Changes in operating assets and liabilities:
Accounts receivable
445
43
Other current assets
228
1,319
Accounts payable and other accrued liabilities
(1,778
)
(3,990
)
Equipment installment receivables and related sales
579
454
Deferred fulfillment costs
(436
)
(542
)
Retirement benefit funding
(140
)
(140
)
Other - net
(497
)
(1,355
)
Total adjustments
5,644
4,015
Net Cash Provided by Operating Activities
9,218
7,900
Investing Activities
Capital expenditures:
Purchase of property and equipment
(5,784
)
(4,451
)
Interest during construction
(231
)
(218
)
Acquisitions, net of cash acquired
(162
)
(165
)
Dispositions
6
81
Sales of securities, net
-
445
Net Cash Used in Investing Activities
(6,171
)
(4,308
)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
(1
)
-
Issuance of long-term debt
12,440
5,978
Repayment of long-term debt
(3,053
)
(2,296
)
Purchase of treasury stock
(177
)
-
Issuance of treasury stock
21
89
Dividends paid
(3,009
)
(2,947
)
Other
(172
)
471
Net Cash Provided by Financing Activities
6,049
1,295
Net increase in cash and cash equivalents
9,096
4,887
Cash and cash equivalents beginning of year
5,788
5,121
Cash and Cash Equivalents End of Period
$
14,884
$
10,008
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Three Months Ended
Unaudited
March 31,
Percent
2017
2016
Change
Capital expenditures
Purchase of property and equipment
$
5,784
$
4,451
29.9
%
Interest during construction
231
218
6.0
%
Total Capital Expenditures
$
6,015
$
4,669
28.8
%
Dividends Declared per Share
$
0.49
$
0.48
2.1
%
End of Period Common Shares Outstanding (000,000)
6,147
6,156
-0.1
%
Debt Ratio
51.6
%
51.2
%
40
BP
Total Employees
264,530
280,870
-5.8
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
Wireless Subscribers
Domestic
134,218
130,445
2.9
%
Mexico
12,606
9,213
36.8
%
Total Wireless Subscribers
146,824
139,658
5.1
%
Total Branded Wireless Subscribers
103,532
98,158
5.5
%
Video Connections
Domestic
25,060
25,372
-1.2
%
PanAmericana
8,090
7,094
14.0
%
Brazil
5,588
5,342
4.6
%
Total Video Connections
38,738
37,808
2.5
%
Broadband Connections
IP
14,110
13,470
4.8
%
DSL
1,585
2,294
-30.9
%
Total Broadband Connections
15,695
15,764
-0.4
%
Voice Connections
Network Access Lines
13,363
15,975
-16.4
%
U-verse VoIP Connections
5,858
5,484
6.8
%
Total Retail Consumer Voice Connections
19,221
21,459
-10.4
%
Three Months Ended
March 31,
Percent
2017
2016
Change
Wireless Net Additions
Domestic
2,081
1,781
16.8
%
Mexico
633
529
19.7
%
Total Wireless Net Additions
2,714
2,310
17.5
%
Total Branded Wireless Net Additions
738
1,195
-38.2
%
Video Net Additions
Domestic
(233
)
(52
)
-
%
PanAmericana
52
28
85.7
%
Brazil
39
(101
)
-
%
Total Video Net Additions
(142
)
(125
)
-13.6
%
Broadband Net Additions
IP
246
202
21.8
%
DSL
(156
)
(216
)
27.8
%
Total Broadband Net Additions
90
(14
)
-
%
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
Unaudited
March 31,
Percent
2017
2016
Change
Segment Operating Revenues
Wireless service
$
7,929
$
7,855
0.9
%
Fixed strategic services
2,974
2,751
8.1
%
Legacy voice and data services
3,630
4,373
-17.0
%
Other service and equipment
817
859
-4.9
%
Wireless equipment
1,498
1,771
-15.4
%
Total Segment Operating Revenues
16,848
17,609
-4.3
%
Segment Operating Expenses
Operations and support
10,176
10,802
-5.8
%
Depreciation and amortization
2,312
2,508
-7.8
%
Total Segment Operating Expenses
12,488
13,310
-6.2
%
Segment Operating Income
4,360
4,299
1.4
%
Equity in Net Income of Affiliates
-
-
-
%
Segment Contribution
$
4,360
$
4,299
1.4
%
Segment Operating Income Margin
25.9
%
24.4
%
150
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
Business Solutions Wireless Subscribers
Postpaid/Branded
50,839
48,844
4.1
%
Reseller
76
64
18.8
%
Connected Devices
31,439
26,863
17.0
%
Total Business Solutions Wireless Subscribers
82,354
75,771
8.7
%
Business Solutions IP Broadband Connections
980
928
5.6
%
Three Months Ended
March 31,
Percent
2017
2016
Change
Business Solutions Wireless Net Additions1
Postpaid/Branded
(125
)
133
-
%
Reseller
6
(22
)
-
%
Connected Devices
2,553
1,578
61.8
%
Total Business Solutions Wireless Net Additions
2,434
1,689
44.1
%
Business Solutions Wireless Postpaid Churn1
1.07
%
1.02
%
5
BP
Business Solutions IP Broadband
Net Additions
4
17
-76.5
%
1 2017 excludes the impact of the 2G shutdown, which was reflected in beginning of period subscriber counts.
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
Unaudited
March 31,
Percent
2017
2016
Change
Segment Operating Revenues
Video entertainment
$
9,020
$
8,904
1.3
%
High-speed internet
1,941
1,803
7.7
%
Legacy voice and data services
1,056
1,313
-19.6
%
Other service and equipment
606
638
-5.0
%
Total Segment Operating Revenues
12,623
12,658
-0.3
%
Segment Operating Expenses
Operations and support
9,601
9,578
0.2
%
Depreciation and amortization
1,419
1,488
-4.6
%
Total Segment Operating Expenses
11,020
11,066
-0.4
%
Segment Operating Income
1,603
1,592
0.7
%
Equity in Net Income (Loss) of Affiliates
(6
)
3
-
%
Segment Contribution
$
1,597
$
1,595
0.1
%
Segment Operating Income Margin
12.7
%
12.6
%
10
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
Linear Video Connections
Satellite
21,012
20,112
4.5
%
U-verse
4,020
5,232
-23.2
%
Total Linear Video Connections
25,032
25,344
-1.2
%
Broadband Connections
IP
13,130
12,542
4.7
%
DSL
1,164
1,749
-33.4
%
Total Broadband Connections
14,294
14,291
-
%
Voice Connections
Retail Consumer Switched Access Lines
5,533
6,888
-19.7
%
U-verse Consumer VoIP Connections
5,470
5,225
4.7
%
Total Retail Consumer Voice Connections
11,003
12,113
-9.2
%
Three Months Ended
March 31,
Percent
2017
2016
Change
Linear Video Net Additions1
Satellite
-
328
-
%
U-verse
(233
)
(382
)
39.0
%
Total Linear Video Net Additions
(233
)
(54
)
-
%
Broadband Net Additions
IP
242
186
30.1
%
DSL
(127
)
(181
)
29.8
%
Total Broadband Net Additions
115
5
-
%
1 Includes the impact of customers that migrated to DIRECTV NOW.
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
Unaudited
March 31,
Percent
2017
2016
Change
Segment Operating Revenues
Service
$
6,609
$
6,943
-4.8
%
Equipment
1,131
1,385
-18.3
%
Total Segment Operating Revenues
7,740
8,328
-7.1
%
Segment Operating Expenses
Operations and support
4,528
4,912
-7.8
%
Depreciation and amortization
873
922
-5.3
%
Total Segment Operating Expenses
5,401
5,834
-7.4
%
Segment Operating Income
2,339
2,494
-6.2
%
Equity in Net Income of Affiliates
-
-
-
%
Segment Contribution
$
2,339
$
2,494
-6.2
%
Segment Operating Income Margin
30.2
%
29.9
%
30
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
Consumer Mobility Subscribers
Postpaid
26,510
28,294
-6.3
%
Prepaid
13,844
12,171
13.7
%
Branded
40,354
40,465
-0.3
%
Reseller
10,549
13,313
-20.8
%
Connected Devices
961
896
7.3
%
Total Consumer Mobility Subscribers
51,864
54,674
-5.1
%
Three Months Ended
March 31,
Percent
2017
2016
Change
Consumer Mobility Net Additions1
Postpaid
(66
)
(4
)
-
%
Prepaid
282
500
-43.6
%
Branded
216
496
-56.5
%
Reseller
(588
)
(378
)
-55.6
%
Connected Devices
19
(26
)
-
%
Total Consumer Mobility Net Additions
(353
)
92
-
%
Total Churn1
2.42
%
2.11
%
31
BP
Postpaid Churn1
1.22
%
1.24
%
-2
BP
1 2017 excludes the impact of the 2G shutdown, which was reflected in beginning of period subscriber counts.
INTERNATIONAL
The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates.
Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
Percent
2017
2016
Change
Segment Operating Revenues
Video entertainment
$
1,341
$
1,130
18.7
%
Wireless service
475
455
4.4
%
Wireless equipment
113
82
37.8
%
Total Segment Operating Revenues
1,929
1,667
15.7
%
Segment Operating Expenses
Operations and support
1,759
1,588
10.8
%
Depreciation and amortization
290
277
4.7
%
Total Segment Operating Expenses
2,049
1,865
9.9
%
Segment Operating Income (Loss)
(120
)
(198
)
39.4
%
Equity in Net Income (Loss) of Affiliates
20
14
42.9
%
Segment Contribution
$
(100
)
$
(184
)
45.7
%
Segment Operating Income Margin
(6.2
)
%
(11.9
)
%
570
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
Mexican Wireless Subscribers
Postpaid
5,095
4,404
15.7
%
Prepaid
7,244
4,445
63.0
%
Branded
12,339
8,849
39.4
%
Reseller
267
364
-26.6
%
Total Mexican Wireless Subscribers
12,606
9,213
36.8
%
Latin America Satellite Subscribers
PanAmericana
8,090
7,094
14.0
%
SKY Brazil
5,588
5,342
4.6
%
Total Latin America Satellite Subscribers
13,678
12,436
10.0
%
Three Months Ended
March 31,
Percent
2017
2016
Change
Mexican Wireless Net Additions
Postpaid
130
116
12.1
%
Prepaid
517
450
14.9
%
Branded
647
566
14.3
%
Reseller
(14
)
(37
)
62.2
%
Total Mexican Wireless Net Additions
633
529
19.7
%
Latin America Satellite Net Additions1
PanAmericana
52
28
85.7
%
SKY Brazil
39
(101
)
-
%
Total Latin America Satellite Net Additions
91
(73
)
-
%
1 In 2017 we updated the methodology used to account for prepaid video connections. The impact of this change is excluded.
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
Unaudited
March 31,
Percent
2017
2016
Change
Operating Revenues
Service
$
14,538
$
14,798
-1.8
%
Equipment
2,629
3,156
-16.7
%
Total Operating Revenues
17,167
17,954
-4.4
%
Operating Expenses
Operations and support
9,998
10,624
-5.9
%
Depreciation and amortization
1,997
2,056
-2.9
%
Total Operating Expenses
11,995
12,680
-5.4
%
Operating Income
5,172
5,274
-1.9
%
Operating Income Margin
30.1
%
29.4
%
70
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2017
2016
Change
AT&T Mobility Subscribers
Postpaid
77,349
77,138
0.3
%
Prepaid
13,844
12,171
13.7
%
Branded
91,193
89,309
2.1
%
Reseller
10,625
13,378
-20.6
%
Connected Devices
32,400
27,758
16.7
%
Total AT&T Mobility Subscribers
134,218
130,445
2.9
%
Domestic Licensed POPs (000,000)
325
322
0.9
%
Three Months Ended
March 31,
Percent
2017
2016
Change
AT&T Mobility Net Additions
Postpaid
(191
)
129
-
%
Prepaid
282
500
-43.6
%
Branded
91
629
-85.5
%
Reseller
(582
)
(400
)
-45.5
%
Connected Devices
2,572
1,552
65.7
%
Total AT&T Mobility Net Additions
2,081
1,781
16.8
%
M&A Activity, Partitioned Customers and
Other Adjustments
(2,723
)
24
-
%
Total Churn1
1.46
%
1.42
%
4
BP
Branded Churn1
1.71
%
1.63
%
8
BP
Postpaid Churn1
1.12
%
1.10
%
2
BP
Postpaid Phone Only Churn1
0.90
%
0.96
%
-6
BP
1 2017 excludes the impact of the 2G shutdown, which was reflected in beginning of period subscriber counts.
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
March 31, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
16,848
$
10,176
$
6,672
$
2,312
$
4,360
$
-
$
4,360
Entertainment Group
12,623
9,601
3,022
1,419
1,603
(6
)
1,597
Consumer Mobility
7,740
4,528
3,212
873
2,339
-
2,339
International
1,929
1,759
170
290
(120
)
20
(100
)
Segment Total
39,140
26,064
13,076
4,894
8,182
$
14
$
8,196
Corporate and Other
225
221
4
31
(27
)
Acquisition-related items
-
207
(207
)
1,202
(1,409
)
Certain Significant items
-
(118
)
118
-
118
AT&T Inc.
$
39,365
$
26,374
$
12,991
$
6,127
$
6,864
March 31, 2016
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
17,609
$
10,802
$
6,807
$
2,508
$
4,299
$
-
$
4,299
Entertainment Group
12,658
9,578
3,080
1,488
1,592
3
1,595
Consumer Mobility
8,328
4,912
3,416
922
2,494
-
2,494
International
1,667
1,588
79
277
(198
)
14
(184
)
Segment Total
40,262
26,880
13,382
5,195
8,187
$
17
$
8,204
Corporate and Other
273
377
(104
)
17
(121
)
Acquisition-related items
-
295
(295
)
1,351
(1,646
)
Certain Significant items
-
(711
)
711
-
711
AT&T Inc
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
March 31,
2017
2016
Net cash provided by operating activities
$
9,218
$
7,900
Less: Capital expenditures
(6,015)
(4,669)
Free Cash Flow
3,203
3,231
Less: Dividends paid
(3,009)
(2,947)
Free Cash Flow after Dividends
$
194
$
284
Free Cash Flow Dividend Payout Ratio
93.9%
91.2%
EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility) and our supplemental presentation of the Mexico Wireless and Latin America operations of our International segment, EBITDA excludes depreciation and amortization from operating income.
1
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. Management uses Mexico Wireless EBITDA in evaluating profitability trends after our two Mexico wireless acquisitions in 2015, and our investments in building a nationwide LTE network by end of 2018. Management uses Latin America EBITDA in evaluating the ability of our Latin America operations to generate cash to finance its own operations.
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. 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
March 31,
2017
2016
Net Income
$
3,574
$
3,885
Additions:
Income Tax Expense
1,804
2,122
Interest Expense
1,293
1,207
Equity in Net (Income) Loss of Affiliates
173
(13)
Other (Income) Expense - Net
20
(70)
Depreciation and amortization
6,127
6,563
EBITDA
12,991
13,694
Total Operating Revenues
39,365
40,535
Service Revenues
36,456
37,101
EBITDA Margin
33.0%
33.8%
EBITDA Service Margin
35.6%
36.9%
2
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
March 31,
2017
2016
Business Solutions Segment
Segment Contribution
$
4,360
$
4,299
Additions:
Depreciation and amortization
2,312
2,508
EBITDA
6,672
6,807
Total Segment Operating Revenues
16,848
17,609
Segment Operating Income Margin
25.9%
24.4%
EBITDA Margin
39.6%
38.7%
Entertainment Group Segment
Segment Contribution
$
1,597
$
1,595
Additions:
Equity in Net (Income) Loss of Affiliates
6
(3)
Depreciation and amortization
1,419
1,488
EBITDA
3,022
3,080
Total Segment Operating Revenues
12,623
12,658
Segment Operating Income Margin
12.7%
12.6%
EBITDA Margin
23.9%
24.3%
Consumer Mobility Segment
Segment Contribution
$
2,339
$
2,494
Additions:
Depreciation and amortization
873
922
EBITDA
3,212
3,416
Total Segment Operating Revenues
7,740
8,328
Service Revenues
6,609
6,943
Segment Operating Income Margin
30.2%
29.9%
EBITDA Margin
41.5%
41.0%
EBITDA Service Margin
48.6%
49.2%
International Segment
Segment Contribution
$
(100)
$
(184)
Additions:
Equity in Net (Income) of Affiliates
(20)
(14)
Depreciation and amortization
290
277
EBITDA
170
79
Total Segment Operating Revenues
1,929
1,667
Segment Operating Income Margin
-6.2%
-11.9%
EBITDA Margin
8.8%
4.7%
3
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
March 31,
2017
2016
AT&T Mobility
Operating Income
$
5,172
$
5,274
Add: Depreciation and amortization
1,997
2,056
EBITDA
7,169
7,330
Total Operating Revenues
17,167
17,954
Service Revenues
14,538
14,798
Operating Income Margin
30.1%
29.4%
EBITDA Margin
41.8%
40.8%
EBITDA Service Margin
49.3%
49.5%
Supplemental Latin America EBITDA and EBITDA Margin
Dollars in millions
Three Months Ended
March 31,
2017
2016
International - Latin America
Operating Income
$
77
$
53
Add: Depreciation and amortization
214
196
EBITDA
291
249
Total Operating Revenues
1,341
1,130
Operating Income Margin
5.7%
4.7%
EBITDA Margin
21.7%
22.0%
Supplemental Mexico EBITDA and EBITDA Margin
Dollars in millions
Three Months Ended
March 31,
2017
2016
International - Mexico
Operating Income
$
(197)
$
(251)
Add: Depreciation and amortization
76
81
EBITDA
(121)
(170)
Total Operating Revenues
588
537
Operating Income Margin
-33.5%
-46.7%
EBITDA Margin
-20.6%
-31.7%
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.
4
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for 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%. For years prior to 2017, adjustments related to Mexico operations were taxed at the 30% marginal rate for Mexico.
Adjusting Items
Dollars in millions
Three Months Ended
March 31,
2017
2016
Operating Expenses
DIRECTV and other video merger integration costs
$
127
$
173
Mexico merger integration costs
39
81
Time Warner merger costs
41
-
Wireless merger integration costs
-
42
Employee separation costs
-
25
(Gain) loss on transfer of wireless spectrum
(118)
(736)
Adjustments to Operations and Support Expenses
89
(415)
Amortization of intangible assets
1,202
1,351
Adjustments to Operating Expenses
1,291
936
Other
Merger related interest expense and exchange fees 1
109
16
(Gain) loss on sale of assets, impairments and other adjustments
257
4
Adjustments to Income Before Income Taxes
1,657
956
Tax impact of adjustments
556
331
Adjustments to Net Income
$
1,101
$
625
1 Includes interest expense incurred on the debt issued prior to the close of merger transactions and fees
associated with the exchange of DIRECTV notes for AT&T notes.
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
March 31,
2017
2016
Operating Income
$
6,864
$
7,131
Adjustments to Operating Expenses
1,291
936
Adjusted Operating Income
8,155
8,067
EBITDA
12,991
13,694
Adjustments to Operations and Support Expenses
89
(415)
Adjusted EBITDA
13,080
13,279
Total Operating Revenues
39,365
40,535
Service Revenues
36,456
37,101
Operating Income Margin
17.4%
17.6%
Adjusted Operating Income Margin
20.7%
19.9%
Adjusted EBITDA Margin
33.2%
32.8%
Adjusted EBITDA Service Margin
35.9%
35.8%
5
Adjusted Diluted EPS
Three Months Ended
March 31,
2017
2016
Diluted Earnings Per Share (EPS)
$
0.56
$
0.61
Amortization of intangible assets
0.13
0.14
Merger integration and other items1
0.03
0.03
Asset abandonments, impairments and other adjustments
0.03
0.02
(Gain) loss on transfer of wireless spectrum
(0.01)
(0.08)
Adjusted EPS
$
0.74
$
0.72
Year-over-year growth - Adjusted
2.8%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,186
6,190
1Includes combined merger integration items, merger-related interest expense and DIRECTV exchange fees.
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 Adjusted 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 Adjusted EBITDA is calculated by annualizing the year-to-date Adjusted EBITDA.
Net Debt to Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31,
YTD
2017
2017
Adjusted EBITDA
$
13,080
$
13,080
Annualized Adjusted EBITDA
52,320
End-of-period current debt
12,681
End-of-period long-term debt
120,568
Total End-of-Period Debt
133,249
Less: Cash and Cash Equivalents
14,884
Net Debt Balance
118,365
Annualized Net Debt to Adjusted EBITDA Ratio
2.26
6
Supplemental Operational Measures
We provide a supplemental discussion of our domestic wireless operations that is calculated by combining our Consumer Mobility and Business Solutions segments, and then adjusting to remove non-wireless operations. The following table presents a reconciliation of our supplemental AT&T Mobility results.
Supplemental Operational Measure
Three Months Ended
March 31, 2017
March 31, 2016
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Operating Revenues
Wireless service
$
6,609
$
7,929
$
-
$
14,538
$
6,943
$
7,855
$
-
$
14,798
Fixed strategic services
-
2,974
(2,974)
-
-
2,751
(2,751)
-
Legacy voice and data services
-
3,630
(3,630)
-
-
4,373
(4,373)
-
Other service and equipment
-
817
(817)
-
-
859
(859)
-
Wireless equipment
1,131
1,498
-
2,629
1,385
1,771
-
3,156
Total Operating Revenues
7,740
16,848
(7,421)
17,167
8,328
17,609
(7,983)
17,954
Operating Expenses
Operations and support
4,528
10,176
(4,706)
9,998
4,912
10,802
(5,090)
10,624
EBITDA
3,212
6,672
(2,715)
7,169
3,416
6,807
(2,893)
7,330
Depreciation and amortization
873
2,312
(1,188)
1,997
922
2,508
(1,374)
2,056
Total Operating Expense
5,401
12,488
(5,894)
11,995
5,834
13,310
(6,464)
12,680
Operating Income
$
2,339
$
4,360
$
(1,527)
$
5,172
$
2,494
$
4,299
$
(1,519)
$
5,274
1 Non-wireless (fixed) operations reported in Business Solutions segment.
We provide a supplemental presentation of the Latin America and Mexico Wireless operations within our International segment. The following table presents a reconciliation of our International segment.
Supplemental International
Three Months Ended
March 31, 2017
March 31, 2016
Latin America
Mexico
International
Latin America
Mexico
International
Operating Revenues
Video Service
$
1,341
$
-
$
1,341
$
1,130
$
-
$
1,130
Wireless Service
-
475
475
-
455
455
Wireless Equipment
-
113
113
-
82
82
Total Operating Revenues
1,341
588
1,929
1,130
537
1,667
Operating Expenses
Operations and support
1,050
709
1,759
881
707
1,588
Depreciation and amortization
214
76
290
196
81
277
Total Operating Expense
1,264
785
2,049
1,077
788
1,865
Operating Income
77
(197)
(120)
53
(251)
(198)
Equity in Net Income of Affiliates
20
-
20
14
-
14
Segment Contribution
$
97
$
(197)
$
(100)
$
67
$
(251)
$
(184)
7
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