REG - AT & T Inc. - 3rd Quarter Results 2017 8-K <Origin Href="QuoteRef">T.N</Origin> - Part 3
08/12/2017 16:04
- Part 3: For the preceding part double click ID:nRSH8713Yb
163 -20.9 % 351 444 -20.9 %
Prepaid 585 606 -3.5 % 1,504 1,670 -9.9 %
Branded 714 769 -7.2 % 1,855 2,114 -12.3 %
Reseller (17) (26) 34.6 % (49) (100) 51.0 %
Total Mexican Wireless Net 697 743 -6.2 % 1,806 2,014 -10.3 %
Additions
Latin America Satellite Net
Additions
PanAmericana 98 (36) - % 163 73 - %
SKY Brazil (230) (12) - % (260) (107) - %
Total Latin America (132) (48) - % (97) (34) - %
Satellite Net Additions
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 Nine Months Ended
Unaudited September 30, Percent September 30, Percent
2017 2016 Change 2017 2016 Change
Operating Revenues
Service $ 14,541 $ 14,964 -2.8 % $ 43,613 $ 44,673 -2.4 %
Equipment 2,895 3,229 -10.3 % 8,508 9,398 -9.5 %
Total Operating Revenues 17,436 18,193 -4.2 % 52,121 54,071 -3.6 %
Operating Expenses
Operations and support expenses 10,113 10,697 -5.5 % 30,308 31,822 -4.8 %
Depreciation and amortization 2,010 2,107 -4.6 % 5,999 6,244 -3.9 %
Total Operating Expenses 12,123 12,804 -5.3 % 36,307 38,066 -4.6 %
Operating Income $ 5,313 $ 5,389 -1.4 % $ 15,814 $ 16,005 -1.2 %
Operating Income Margin 30.5 % 29.6 % 30.3 % 29.6 %
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited September 30, Percent
2017 2016 Change
AT&T Mobility Subscribers
Postpaid 77,415 77,388 - %
Prepaid 15,136 13,035 16.1 %
Branded 92,551 90,423 2.4 %
Reseller 9,877 12,624 -21.8 %
Connected Devices 36,398 30,291 20.2 %
Total AT&T Mobility Subscribers 138,826 133,338 4.1 %
Domestic Licensed POPs (000,000) 326 323 0.9 %
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
2017 2016 Change 2017 2016 Change
AT&T Mobility Net Additions
Postpaid 117 212 -44.8 % 53 598 -91.1 %
Prepaid1 324 304 6.6 % 873 1,169 -25.3 %
Branded 441 516 -14.5 % 926 1,767 -47.6 %
Reseller (392) (315) -24.4 % (1,342) (1,174) -14.3 %
Connected Devices1 2,274 1,331 70.8 % 7,102 4,081 74.0 %
Total AT&T Mobility Net Additions 2,323 1,532 51.6 % 6,686 4,674 43.0 %
M&A Activity, Partitioned Customers and Other Adjustments 3 1 - % (2,720) 24 - %
Total Churn 1.32 % 1.45 % -13 BP 1.35 % 1.41 % -6 BP
Postpaid Churn 1.07 % 1.05 % 2 BP 1.07 % 1.04 % 3 BP
1Effective July 1, 2017 we prospectively reclassified prepaid internet of things (IoT) connections from connected devices to prepaid.
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
September 30, 2017
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 17,061 $ 10,233 $ 6,828 $ 2,325 $ 4,503 $ - $ 4,503
Entertainment Group 12,648 9,953 2,695 1,379 1,316 (6) 1,310
Consumer Mobility 7,748 4,551 3,197 877 2,320 - 2,320
International 2,099 1,937 162 304 (142) 17 (125)
Segment Total 39,556 26,674 12,882 4,885 7,997 $ 11 $ 8,008
Corporate and Other 201 89 112 21 91
Acquisition-related items - 134 (134) 1,136 (1,270)
Certain Significant items (89) 326 (415) - (415)
AT&T Inc. $ 39,668 $ 27,223 $ 12,445 $ 6,042 $ 6,403
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
Nine Months Ended
Dollars in millions
Unaudited
September 30, 2017
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net Income (Loss) of Affiliates Segment Contribution
Business Solutions $ 51,016 $ 30,722 $ 20,294 $ 6,972 $ 13,322 $ - $ 13,322
Entertainment Group 37,953 29,112 8,841 4,256 4,585 (23) 4,562
Consumer Mobility 23,279 13,599 9,680 2,621 7,059 - 7,059
International 6,054 5,468 586 905 (319) 62 (257)
Segment Total 118,302 78,901 39,401 14,754 24,647 $ 39 $ 24,686
Corporate and Other 657 397 260 54 206
Acquisition-related items - 622 (622) 3,508 (4,130)
Certain Significant items (89) 44 (133) - (133)
AT&T Inc. $ 118,870 $ 79,964 $ 38,906 $ 18,316 $ 20,590
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
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,
2017 2016 2017 2016
Net cash provided by operating activities $ 11,114 $ 10,995 $ 29,274 $ 29,202
Less: Capital expenditures (5,251) (5,813) (16,474) (15,952)
Free Cash Flow 5,863 5,182 12,800 13,250
Less: Dividends paid (3,009) (2,951) (9,030) (8,850)
Free Cash Flow after Dividends $ 2,854 $ 2,231 $ 3,770 $ 4,400
Free Cash Flow Dividend Payout Ratio 51.3% 56.9% 70.5% 66.8%
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 Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net Income $ 3,123 $ 3,418 $ 10,711 $ 10,818
Additions:
Income Tax Expense 1,851 1,775 5,711 5,803
Interest Expense 1,686 1,224 4,374 3,689
Equity in Net (Income) Loss of Affiliates (11) (16) 148 (57)
Other (Income) Expense - Net (246) 7 (354) (154)
Depreciation and amortization 6,042 6,579 18,316 19,718
EBITDA 12,445 12,987 38,906 39,817
Total Operating Revenues 39,668 40,890 118,870 121,945
Service Revenues 36,378 37,272 109,372 111,515
EBITDA Margin 31.4% 31.8% 32.7% 32.7%
EBITDA Service Margin 34.2% 34.8% 35.6% 35.7%
2
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Business Solutions Segment
Segment Contribution $ 4,503 $ 4,303 $ 13,322 $ 12,803
Additions:
Depreciation and amortization 2,325 2,539 6,972 7,568
EBITDA 6,828 6,842 20,294 20,371
Total Segment Operating Revenues 17,061 17,767 51,016 52,955
Segment Operating Income Margin 26.4% 24.2% 26.1% 24.2%
EBITDA Margin 40.0% 38.5% 39.8% 38.5%
Entertainment Group Segment
Segment Contribution $ 1,310 $ 1,488 $ 4,562 $ 4,734
Additions:
Equity in Net (Income) Loss of Affiliates 6 - 23 (1)
Depreciation and amortization 1,379 1,504 4,256 4,481
EBITDA 2,695 2,992 8,841 9,214
Total Segment Operating Revenues 12,648 12,720 37,953 38,089
Segment Operating Income Margin 10.4% 11.7% 12.1% 12.4%
EBITDA Margin 21.3% 23.5% 23.3% 24.2%
Consumer Mobility Segment
Segment Contribution $ 2,320 $ 2,572 $ 7,059 $ 7,640
Additions:
Depreciation and amortization 877 944 2,621 2,798
EBITDA 3,197 3,516 9,680 10,438
Total Segment Operating Revenues 7,748 8,267 23,279 24,781
Service Revenues 6,507 6,914 19,644 20,805
Segment Operating Income Margin 29.9% 31.1% 30.3% 30.8%
EBITDA Margin 41.3% 42.5% 41.6% 42.1%
EBITDA Service Margin 49.1% 50.9% 49.3% 50.2%
International Segment
Segment Contribution $ (125) $ (53) $ (257) $ (421)
Additions:
Equity in Net (Income) of Affiliates (17) (1) (62) (24)
Depreciation and amortization 304 293 905 868
EBITDA 162 239 586 423
Total Segment Operating Revenues 2,099 1,879 6,054 5,374
Segment Operating Income Margin -6.8% -2.9% -5.3% -8.3%
EBITDA Margin 7.7% 12.7% 9.7% 7.9%
3
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
AT&T Mobility
Operating Income $ 5,313 $ 5,389 $ 15,814 $ 16,005
Add: Depreciation and amortization 2,010 2,107 5,999 6,244
EBITDA 7,323 7,496 21,813 22,249
Total Operating Revenues 17,436 18,193 52,121 54,071
Service Revenues 14,541 14,964 43,613 44,673
Operating Income Margin 30.5% 29.6% 30.3% 29.6%
EBITDA Margin 42.0% 41.2% 41.9% 41.1%
EBITDA Service Margin 50.4% 50.1% 50.0% 49.8%
Supplemental Latin America EBITDA and EBITDA Margin
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
International - Latin America
Operating Income $ 82 $ 94 $ 300 $ 179
Add: Depreciation and amortization 206 212 642 620
EBITDA 288 306 942 799
Total Operating Revenues 1,363 1,297 4,065 3,649
Operating Income Margin 6.0% 7.2% 7.4% 4.9%
EBITDA Margin 21.1% 23.6% 23.2% 21.9%
Supplemental Mexico EBITDA and EBITDA Margin
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
International - Mexico
Operating Income $ (224) $ (148) $ (619) $ (624)
Add: Depreciation and amortization 98 81 263 248
EBITDA (126) (67) (356) (376)
Total Operating Revenues 736 582 1,989 1,725
Operating Income Margin -30.4% -25.4% -31.1% -36.2%
EBITDA Margin -17.1% -11.5% -17.9% -21.8%
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, unless earlier
remeasurement is required (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 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%. Certain foreign operations with losses, where such losses are not realizable for tax
purposes, are not tax effected, resulting in no tax impact for Venezuelan devaluation. For years prior to 2017, adjustments
related to Mexico operations were taxed at the 30% marginal rate for Mexico.
4
Adjusting Items
Dollars in millions Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Operating Revenues
Natural disaster revenue credits $ 89 $ 13 $ 89 $ 13
Adjustments to Operating Revenues 89 13 89 13
Operating Expenses
DIRECTV and other video merger integration costs 67 189 317 495
Mexico merger integration costs 34 84 153 231
Time Warner merger costs 33 - 152 -
Wireless merger integration costs - 17 - 92
Actuarial (gain) loss - - (259) -
Employee separation costs 208 260 268 314
Natural disaster costs 118 17 118 17
(Gain) loss on transfer of wireless spectrum - 22 (181) (714)
Venezuela devaluation - - 98 -
Adjustments to Operations and Support Expenses 460 589 666 435
Amortization of intangible assets
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