REG - AT & T Inc. - 1st Quarter Results - 8k <Origin Href="QuoteRef">T.N</Origin> - Part 3
16/05/2016 15:40
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Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Annualized Net-Debt-to-Adjusted-EBITDA Ratio
Dollars in millions
Unaudited
Three Months Ended
3/31/16 YTD 2016
Operating Revenues 40,535 40,535
Operating Expenses 33,404 33,404
Total Operating Income 7,131 7,131
Add Back Depreciation and Amortization 6,563 6,563
Consolidated EBITDA 13,694 13,694
Add Back:
Wireless merger integration costs1 42 42
DIRECTV/Mexico merger integration costs2 254 254
Gain on transfer of wireless spectrum (736 ) (736 )
Total Adjusted Consolidated EBITDA 13,254 13,254
Annualized Adjusted Consolidated EBITDA $ 53,016
End-of-period current debt 8,399
End-of-period long-term debt 122,104
Total End-of-Period Debt 130,503
Less Cash and Cash Equivalents 10,008
Net Debt Balance $ 120,495
Annualized Net-Debt-to-Adjusted-EBITDA Ratio 2.27
1 Adjustments include Operations and Support
expenses for domestic wireless integration
costs. 2 Adjustments include DIRECTV merger
and integration costs and Operations and
Support expenses for international wireless
integration costs. Net-Debt-to-EBITDA ratios
are non-GAAP financial measures frequently
used by investors and credit rating agencies.
Management believes these measures provide
relevant and useful information to investors
and other users of our financial data. Net
debt is calculated by subtracting cash and
cash equivalents 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. The Net-Debt-to
-EBITDA ratio is calculated by dividing the
Net Debt by annualized EBITDA. Annualized
EBITDA is calculated by annualizing the year
-to-date EBITDA. Our calculation of EBITDA, as
presented, may differ from similarly titled
measures reported by other companies.
Financial Data
AT&T Inc.
Non-GAAP Consolidated Reconciliation
Adjusted Operating Income and Margin1
Dollars in millions
Unaudited
Three Months Ended
March 31,
2015 2016
Operating Revenues $ 32,576 $ 40,535
Reported Operating Income $ 5,557 $ 7,131
Adjustments:
Amortization of intangible assets 50 1,351
Wireless merger integration costs2 209 42
DIRECTV/Mexico merger integration 89 254
costs3
Employee separation costs 217 25
Gain on transfer of wireless spectrum - (736 )
Adjusted Operating Income $ 6,122 $ 8,067
Adjusted Operating Income Margin* 18.8 % 19.9 %
1 2015 Adjusted Operating Income and
Margin have been restated to reflect
the change in accounting for customer
set-up and installation costs.2
Adjustments include Operations and
Support expenses for domestic wireless
integration costs.3 Adjustments include
DIRECTV merger integration costs and
Operations and Support expenses for
international wireless integration
costs.
Adjusted Operating Income and Margin
are non-GAAP financial measures
calculated by excluding from operating
revenues and operating expenses
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 Income and
Margin should be considered in addition
to, but not as a substitute for, other
measures of financial performance
reported in accordance with GAAP. Our
calculation of Adjusted Operating
Income and Margin, as presented, may
differ from similarly titled measures
reported by other companies. *Adjusted
Operating Income Margin is calculated
by dividing Adjusted Operating Income
by Operating Revenues.
Exhibit 99.3
EBITDA DISCUSSION
For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated
as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance
with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does
not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions,
reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash
flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from
similarly titled measures reported by other companies.
We believe these measures are relevant and useful information to our investors as they are part of AT&T's internal
management reporting and planning processes and are important metrics that management uses to evaluate the operating
performance of its segments. 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.
EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) - net, net income
attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the
operating results of our subscriber base and national footprint that we utilize to obtain and service our customers.
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, our management
excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the
provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax
structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital
investments.
We believe EBITDA as a percentage of service revenues to be a more relevant measure than 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, all of which are recognized
in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a
subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use
wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless
competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service margin, as we have
defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these
performance measures do not take into account certain significant items, including depreciation and amortization, interest
expense, tax expense and equity in net income (loss) of affiliates, which directly affect our segment income. Management
compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar
in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as
well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA and EBITDA service
margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported
in accordance with GAAP.
FREE CASH FLOW DISCUSSION
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after
dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield
is defined as cash from continuing operations less construction and capital expenditures as a percentage of market
capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of
period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our
investors because management reviews free cash flow as an important indicator of how much cash is generated by normal
business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure
of cash available to pay debt and return cash to shareowners.
NET DEBT TO EBITDA DISCUSSION
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and
management believes these measures provide relevant and useful information to investors and other users of our financial
data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by
subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the
sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date
EBITDA.
Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or
losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income
statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted
EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP
measure of income. This measure is consistent with metrics under our existing credit agreements.
ADJUSTING ITEMS DISCUSSION
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, 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.
Capital Investment is a non-GAAP financial measure calculated by including vendor financing arrangements for capital
improvements of the 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 the investment in
our business.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA
margin, Adjusted EBITDA service margin, Adjusted diluted EPS and Capital Investment should be considered in addition to,
but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of
Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
Entertainment Group Segment Adjusted Operating Revenues includes the external operating revenues from DIRECTV U.S. as
reported in the DIRECTV Form 10-Q dated March 31, 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) to eliminate intercompany
transactions from DIRECTV U.S. and the Entertainment Group segment. Adjusting Entertainment Group segment operating
revenues provides for comparability between periods.
This information is provided by RNS
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