REG - AT & T Inc. - 3Q16 Earnings 8K <Origin Href="QuoteRef">T.N</Origin> - Part 4
17/11/2016 17:40
- Part 4: For the preceding part double click ID:nRSQ5102Pc
1.06 % -2 BP
SUPPLEMENTAL SEGMENT RECONCILIATION
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 $ 17,253
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.
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 $ 13,922
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 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 $ 2,059
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 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 5,463
1Includes 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
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