REG - AT & T Inc. - 2Q16 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 3
22/08/2016 09:59
- Part 3: For the preceding part double click ID:nRSV7285Hb
Affiliates SegmentContribution
Business Solutions $ 35,188 $ 21,659 $ 13,529 $ 5,029 $ 8,500 $ - $ 8,500
Entertainment Group 25,369 19,147 6,222 2,977 3,245 1 3,246
Consumer Mobility 16,514 9,592 6,922 1,854 5,068 - 5,068
International 3,495 3,311 184 575 (391 ) 23 (368 )
Segment Total 80,566 53,709 26,857 10,435 16,422 $ 24 $ 16,446
Corporate and Other 489 670 (181 ) 37 (218 )
Acquisition-related items - 528 (528 ) 2,667 (3,195 )
Certain Significant items - (682 ) 682 - 682
AT&T Inc. $ 81,055 $ 54,225 $ 26,830 $ 13,139 $ 13,691
For the six months ended June 30, 2015
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates SegmentContribution
Business Solutions $ 35,221 $ 22,045 $ 13,176 $ 4,802 $ 8,374 $ - $ 8,374
Entertainment Group 11,442 9,772 1,670 2,130 (460 ) (18 ) (478 )
Consumer Mobility 17,533 10,743 6,790 1,936 4,854 - 4,854
International 727 747 (20 ) 121 (141 ) - (141 )
Segment Total 64,923 43,307 21,616 8,989 12,627 $ (18 ) $ 12,609
Corporate and Other 668 470 198 44 154
Acquisition-related items - 993 (993 ) 241 (1,234 )
Certain Significant items - 217 (217 ) - (217 )
AT&T Inc. $ 65,591 $ 44,987 $ 20,604 $ 9,274 $ 11,330
Financial Data
AT&T Inc.
Supplemental AT&T Mobility Results
Dollars in millions
Unaudited
Three Months Ended Six Months Ended
6/30/2016 6/30/2015 % Chg 6/30/2016 6/30/2015 % Chg
AT&T Mobility
Operating Revenues
Service $ 14,912 $ 15,115 -1.3 % $ 29,710 $ 29,927 -0.7 %
Equipment 3,013 3,189 -5.5 % 6,169 6,563 -6.0 %
Total Operating Revenues 17,925 18,304 -2.1 % 35,879 36,490 -1.7 %
Operating Expenses
Operations and support expenses 10,502 10,973 -4.3 % 21,126 22,445 -5.9 %
Depreciation and amortization 2,081 2,031 2.5 % 4,137 4,036 2.5 %
Total Operating Expenses 12,583 13,004 -3.2 % 25,263 26,481 -4.6 %
Operating Income $ 5,342 $ 5,300 0.8 % $ 10,616 $ 10,009 6.1 %
Operating Income Margin 29.8 % 29.0 % 29.6 % 27.4 %
Exhibit 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.
Certain amounts have been conformed to the current period's presentation, including our change in accounting to capitalize
customer set-up and installation costs and amortize them over the expected economic life of the customer relationship.
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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Net cash provided by operating activities $ 10,307 $ 9,160 $ 18,207 $ 15,898
Less: Capital expenditures (5,470 ) (4,696 ) (10,139 ) (8,667 )
Free Cash Flow 4,837 4,464 8,068 7,231
Less: Dividends paid (2,952 ) (2,439 ) (5,899 ) (4,873 )
Free Cash Flow after Dividends $ 1,885 $ 2,025 $ 2,169 $ 2,358
Free Cash Flow Dividend Payout Ratio 61.0 % 54.6 % 73.1 % 67.4 %
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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Capital expenditures $ 5,470 $ 4,696 $ 10,139 $ 8,667
Vendor financing 95 - 138 -
Capital Investment $ 5,565 $ 4,696 $ 10,277 $ 8,667
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), 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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Net Income $ 3,515 $ 3,184 $ 7,400 $ 6,523
Additions:
Income Tax Expense 1,906 1,738 4,028 3,127
Interest Expense 1,258 932 2,465 1,831
Equity in Net (Income) of Affiliates (28 ) (33 ) (41 ) (33 )
Other (Income) Expense - Net (91 ) (48 ) (161 ) (118 )
Depreciation and amortization 6,576 4,696 13,139 9,274
EBITDA 13,136 10,469 26,830 20,604
Total Operating Revenues 40,520 33,015 81,055 65,591
Service Revenues 37,142 29,541 74,243 58,503
EBITDA Margin 32.4 % 31.7 % 33.1 % 31.4 %
EBITDA Service Margin 35.4 % 35.4 % 36.1 % 35.2 %
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Business Solutions Segment
Segment Contribution $ 4,201 $ 4,232 $ 8,500 $ 8,374
Additions:
Equity in Net (Income) Loss of Affiliates - - - -
Depreciation and amortization 2,521 2,460 5,029 4,802
EBITDA 6,722 6,692 13,529 13,176
Total Segment Operating Revenues 17,579 17,664 35,188 35,221
Segment Operating Income Margin 23.9 % 24.0 % 24.2 % 23.8 %
EBITDA Margin 38.2 % 37.9 % 38.4 % 37.4 %
Entertainment Group Segment
Segment Contribution $ 1,651 $ (208 ) $ 3,246 $ (478 )
Additions:
Equity in Net (Income) Loss of Affiliates 2 12 (1 ) 18
Depreciation and amortization 1,489 1,065 2,977 2,130
EBITDA 3,142 869 6,222 1,670
Total Segment Operating Revenues 12,711 5,782 25,369 11,442
Segment Operating Income Margin 13.0 % -3.4 % 12.8 % -4.0 %
EBITDA Margin 24.7 % 15.0 % 24.5 % 14.6 %
Consumer Mobility Segment
Segment Contribution $ 2,574 $ 2,619 $ 5,068 $ 4,854
Additions:
Equity in Net (Income) Loss of Affiliates - - - -
Depreciation and amortization 932 934 1,854 1,936
EBITDA 3,506 3,553 6,922 6,790
Total Segment Operating Revenues 8,186 8,755 16,514 17,533
Service Revenues 6,948 7,359 13,891 14,656
Segment Operating Income Margin 31.4 % 29.9 % 30.7 % 27.7 %
EBITDA Margin 42.8 % 40.6 % 41.9 % 38.7 %
EBITDA Service Margin 50.5 % 48.3 % 49.8 % 46.3 %
International Segment
Segment Contribution $ (184 ) $ (131 ) $ (368 ) $ (141 )
Additions:
Equity in Net (Income) Loss of Affiliates (9 ) - (23 ) -
Depreciation and amortization 298 93 575 121
EBITDA 105 (38 ) 184 (20 )
Total Segment Operating Revenues 1,828 491 3,495 727
Segment Operating Income Margin -10.6 % -26.7 % -11.2 % -19.4 %
EBITDA Margin 5.7 % -7.7 % 5.3 % -2.8 %
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
AT&T Mobility
Operating Income $ 5,342 $ 5,300 $ 10,616 $ 10,009
Add: Depreciation and amortization 2,081 2,031 4,137 4,036
EBITDA 7,423 7,331 14,753 14,045
Total Operating Revenues 17,925 18,304 35,879 36,490
Service Revenues 14,912 15,115 29,710 29,927
Operating Income Margin 29.8 % 29.0 % 29.6 % 27.4 %
EBITDA Margin 41.4 % 40.1 % 41.1 % 38.5 %
EBITDA Service Margin 49.8 % 48.5 % 49.7 % 46.9 %
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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Operating Expenses
DIRECTV and other video merger integration costs $ 133 $ 92 $ 306 $ 164
Mexico merger integration costs 66 24 147 41
Wireless merger integration costs 33 215 75 424
Leap network decommissioning - 364 - 364
Employee separation costs 29 - 54 217
Gain on transfer of wireless spectrum - - (736 ) -
Adjustments to Operations and Support Expenses 261 695 (154 ) 1,210
Amortization of intangible assets 1,316 63 2,667 113
Adjustments to Operating Expenses 1,577 758 2,513 1,323
Other
DIRECTV-related interest expense and exchange fees1 - 104 16 104
(Gain) loss on sale of investments2 - - 4 -
Adjustments to Income Before Income Taxes 1,577 862 2,533 1,427
Tax impact of adjustments 550 301 881 497
Tax-related items - - - 262
Adjustments to Net Income $ 1,027 $ 561 $ 1,652 $ 668
1 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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Operating Income $ 6,560 $ 5,773 $ 13,691 $ 11,330
Adjustments to Operating Expenses 1,577 758 2,513 1,323
Adjusted Operating Income 8,137 6,531 16,204 12,653
EBITDA 13,136 10,469 26,830 20,604
Adjustments to Operations and Support Expenses 261 695 (154 ) 1,210
Adjusted EBITDA 13,397 11,164 26,676 21,814
Total Operating Revenues 40,520 33,015 81,055 65,591
Service Revenues 37,142 29,541 74,243 58,503
Operating Income Margin 16.2 % 17.5 % 16.9 % 17.3 %
Adjusted Operating Income Margin 20.1 % 19.8 % 20.0 % 19.3 %
Adjusted EBITDA Margin 33.1 % 33.8 % 32.9 % 33.3 %
Adjusted EBITDA Service Margin 36.1 % 37.8 % 35.9 % 37.3 %
%
Adjusted Diluted EPS
Three Months EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Diluted Earnings Per Share (EPS) $ 0.55 $ 0.59 $ 1.17 $ 1.22
Amortization of intangible assets 0.14 0.01 0.28 0.01
Merger integration and other costs 1 0.03 0.10 0.06 0.16
Gain on transfer of wireless spectrum - - (0.08 ) -
Tax-related items - - - (0.05 )
Adjusted EPS $ 0.72 $ 0.70 $ 1.43 $ 1.34
Year-over-year growth - Adjusted 2.9 % 6.7 %
Weighted Average Common Shares Outstanding with Dilution (000,000) 6,195 5,220 6,193 5,220
1 Includes combined merger and integration costs, Leap network decommissioning, DIRECTV-related interest expense and
exchange fees, employee separation charges 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 EndedJune 30, Six Months EndedJune 30,
2016 2015 2016 2015
Segment Operating Revenues $ 12,711 $ 5,782 $ 25,369 $ 11,442
DIRECTV Operating Revenues 6,708 13,164
Adjustments:
Other DIRECTV operations 94 182
Revenue recognition 99 194
Intercompany eliminations (18 ) (34 )
Adjusted Segment Operating Revenues $ 12,711 $ 12,665 $ 25,369 $ 24,948
Year-over-year growth - Adjusted 0.4 % 1.7 %
Net Debt to Adjusted 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 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, 2016 Jun. 30, 2016 YTD 2016
Adjusted EBITDA $ 13,279 $ 13,397 $ 26,676
Add back severance (25 ) (29 ) (54 )
Net Debt Adjusted EBITDA 13,254 13,368 26,622
Annualized Net Debt Adjusted EBITDA 53,244
End-of-period current debt 9,528
End-of-period long-term debt 117,308
Total End-of-Period Debt 126,836
Less Cash and Cash Equivalents 7,208
Net Debt Balance 119,628
Annualized Net Debt to Adjusted EBITDA Ratio 2.25
This information is provided by RNS
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