REG - AT & T Inc. - 3rd Quarter Results 2017 8-K <Origin Href="QuoteRef">T.N</Origin>
RNS Number : 8713YAT & T Inc.08 December 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) October 24, 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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.02 Results of Operations and Financial Condition.
The registrant announced on October 24, 2017, its results of operations for the third 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 October 24, 2017 reporting financial results for the third quarter ended September 30, 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: October 24, 2017
By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Third-Quarter Results
Consolidated revenues of $39.7 billion
Operating income of $6.4 billion
Net income attributable to AT&T of $3.0 billion
Diluted EPS of $0.49 as reported and $0.74 as adjusted, compared to $0.54 and $0.74 in the year-ago quarter
Cash from operations of $11.1 billion
Free cash flow of $5.9 billion
Company Maintains Full-Year Guidance
U.S. wireless results:
o Expanding operating income margin of 30.5% with best-ever EBITDA margins of 42.0% and wireless service margin of 50.4%
o Best-ever third-quarter postpaid phone churn of 0.84%, showing the success of video and wireless bundling strategy
o Continued growth of postpaid smartphone base
3.0 million total wireless net adds
o 2.3 million in U.S., driven by connected devices, prepaid and postpaid
o Nearly 700,000 Mexico net adds
Entertainment Group results:
o 125,000 IP broadband net adds; 29,000 total broadband net adds
o More than 6 million customer locations passed with fiber
o Nearly 300,000 DIRECTV NOW net adds helped offset traditional TV subscriber decline
International revenues up 11.7% with continued strong revenue growth in Mexico
Note: AT&T's third-quarter earnings conference call will be webcast at 4:30 p.m. ET on Tuesday, October 24, 2017. The webcast and related materials will be available on AT&T's Investor Relations website at https://investors.att.com.
dALLAS, October 24, 2017- AT&T Inc. (NYSE:T) reported record wireless EBITDA margins and phone churn and strong wireless and DIRECTV NOW subscriber gains in the third quarter.
"We look forward to closing our acquisition of Time Warner and bringing together premium content with world-class distribution to deliver a better entertainment experience for consumers and more effective targeted advertising," said Randall Stephenson, AT&T Inc. chairman and CEO. "We're also on track to have one of the largest high-speed internet networks in the U.S., reaching more than 50 million customer locations with competitive high speeds. This expansion will make our bundled video, mobile and broadband services even more compelling.
"We continued to operate our business efficiently in the quarter. At a time of transformation in our wireless and video businesses, as well as investment in growth opportunities, we're able to maintain our full-year guidance. Wireless margins and phone churn continue to run at record levels, our fiber deployment is helping drive broadband growth and DIRECTV NOW had another strong quarter. We're also pleased with our FirstNet progress. Already 27 states and territories have opted in, and we're working closely with them as we prepare to deploy the FirstNet network."
Consolidated Financial Results
AT&T's consolidated revenues for the third quarter totaled $39.7 billion versus
$40.9 billion in the year-ago quarter, primarily due to declines in legacy wireline services and consumer mobility. Excluding the impact of hurricanes and earthquakes in the third quarter, revenues would have been $39.8 billion. Compared with results for the third quarter of 2016, operating expenses were $33.3 billion versus $34.5 billion; operating income was flat versus the year-ago quarter at $6.4 billion; and operating income margin was 16.1% versus 15.7%. When adjusting for amortization, merger- and integration-related expenses and other items, operating income was $8.1 billion versus $8.3 billion in the year-ago quarter and operating income margin was 20.3%, the same as in the year-ago quarter.Third-quarter net income attributable to AT&T totaled $3.0 billion, or $0.49 per diluted share, compared with $3.3 billion, or $0.54 per diluted share, in the year-ago quarter. Adjusting for $0.25 of costs for amortization, merger- and integration-related expenses and other items including hurricane and earthquake impacts, earnings per diluted share was $0.74, the same as in the year-ago quarter.
Cash from operating activities was $11.1 billion in the third quarter and $29.3 billion year to date. Capital expenditures were $5.3 billion in the quarter and $16.5 billion year to date.
Free cash flow - cash from operating activities minus capital expenditures - was $5.9 billion for the quarter and $12.8 billion year to date.
*About AT&T
AT&T Inc. (NYSE:T) is a holding company. 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.Additional information about AT&T Inc. is available at about.att.com.
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.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release 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 https://investors.att.com.
For more information, contact:
Erin McGrath - AT&T Global Media Relations
Email: erin.mcgrath@att.com
Phone: (214) 862-0651
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Operating Revenues
Service
$
36,378
$
37,272
-2.4
%
$
109,372
$
111,515
-1.9
%
Equipment
3,290
3,618
-9.1
%
9,498
10,430
-8.9
%
Total Operating Revenues
39,668
40,890
-3.0
%
118,870
121,945
-2.5
%
Operating Expenses
Cost of services and sales
Equipment
4,191
4,455
-5.9
%
12,177
13,090
-7.0
%
Broadcast, programming and operations
5,284
4,909
7.6
%
15,156
14,239
6.4
%
Other cost of services (exclusive of depreciation
and amortization shown separately below)
9,431
9,526
-1.0
%
27,714
28,436
-2.5
%
Selling, general and administrative
8,317
9,013
-7.7
%
24,917
26,363
-5.5
%
Depreciation and amortization
6,042
6,579
-8.2
%
18,316
19,718
-7.1
%
Total Operating Expenses
33,265
34,482
-3.5
%
98,280
101,846
-3.5
%
Operating Income
6,403
6,408
-0.1
%
20,590
20,099
2.4
%
Interest Expense
(1,686)
(1,224)
37.7
%
(4,374)
(3,689)
18.6
%
Equity in Net Income (Loss) of Affiliates
11
16
-31.3
%
(148)
57
-
%
Other Income (Expense) - Net
246
(7)
-
%
354
154
-
%
Income Before Income Taxes
4,974
5,193
-4.2
%
16,422
16,621
-1.2
%
Income Tax Expense
1,851
1,775
4.3
%
5,711
5,803
-1.6
%
Net Income
3,123
3,418
-8.6
%
10,711
10,818
-1.0
%
Less: Net Income Attributable to
Noncontrolling Interest
(94)
(90)
4.4
%
(298)
(279)
6.8
%
Net Income Attributable to AT&T
$
3,029
$
3,328
-9.0
%
$
10,413
$
10,539
-1.2
%
Basic Earnings Per Share Attributable to AT&T
$
0.49
$
0.54
-9.3
%
$
1.69
$
1.70
-0.6
%
Weighted Average Common
Shares Outstanding (000,000)
6,162
6,168
-0.1
%
6,164
6,171
-0.1
%
Diluted Earnings Per Share Attributable to AT&T
$
0.49
$
0.54
-9.3
%
$
1.69
$
1.70
-0.6
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,182
6,189
-0.1
%
6,184
6,191
-0.1
%
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited
Sep. 30,
Dec. 31,
2017
2016
Assets
Current Assets
Cash and cash equivalents
$
48,499
$
5,788
Accounts receivable - net of allowances for doubtful accounts of $741 and $661
15,876
16,794
Prepaid expenses
1,258
1,555
Other current assets
10,724
14,232
Total current assets
76,357
38,369
Property, Plant and Equipment - Net
126,462
124,899
Goodwill
105,668
105,207
Licenses
96,071
94,176
Customer Lists and Relationships - Net
11,573
14,243
Other Intangible Assets - Net
7,775
8,441
Investments in Equity Affiliates
1,627
1,674
Other Assets
18,332
16,812
Total Assets
$
443,865
$
403,821
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
8,551
$
9,832
Accounts payable and accrued liabilities
28,928
31,138
Advanced billing and customer deposits
4,503
4,519
Accrued taxes
2,703
2,079
Dividends payable
3,008
3,008
Total current liabilities
47,693
50,576
Long-Term Debt
154,728
113,681
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
64,381
60,128
Postemployment benefit obligation
31,231
33,578
Other noncurrent liabilities
19,723
21,748
Total deferred credits and other noncurrent liabilities
115,335
115,454
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
89,527
89,604
Retained earnings
36,074
34,734
Treasury stock
(12,716)
(12,659)
Accumulated other comprehensive income
5,580
4,961
Noncontrolling interest
1,149
975
Total stockholders' equity
126,109
124,110
Total Liabilities and Stockholders' Equity
$
443,865
$
403,821
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Nine Months Ended
Unaudited
September 30,
2017
2016
Operating Activities
Net income
$
10,711
$
10,818
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
18,316
19,718
Undistributed loss (earnings) from investments in equity affiliates
171
(22)
Provision for uncollectible accounts
1,216
1,036
Deferred income tax expense
3,254
3,011
Net loss (gain) from sale of investments, net of impairments
(114)
(88)
Actuarial loss (gain) on pension and postretirement benefits
(259)
-
Changes in operating assets and liabilities:
Accounts receivable
(652)
(1,108)
Other current assets
(106)
1,805
Accounts payable and other accrued liabilities
(1,437)
(1,173)
Equipment installment receivables and related sales
1,116
207
Deferred fulfillment costs
(1,102)
(1,883)
Retirement benefit funding
(420)
(770)
Other - net
(1,420)
(2,349)
Total adjustments
18,563
18,384
Net Cash Provided by Operating Activities
29,274
29,202
Investing Activities
Capital expenditures:
Purchase of property and equipment
(15,756)
(15,283)
Interest during construction
(718)
(669)
Acquisitions, net of cash acquired
1,154
(2,922)
Dispositions
56
184
(Purchases) sales of securities, net
(2)
501
Net Cash Used in Investing Activities
(15,266)
(18,189)
Financing Activities
Issuance of long-term debt
46,761
10,140
Repayment of long-term debt
(10,309)
(10,688)
Purchase of treasury stock
(460)
(444)
Issuance of treasury stock
26
137
Dividends paid
(9,030)
(8,850)
Other
1,715
(534)
Net Cash Provided by (Used in) Financing Activities
28,703
(10,239)
Net increase in cash and cash equivalents
42,711
774
Cash and cash equivalents beginning of year
5,788
5,121
Cash and Cash Equivalents End of Period
$
48,499
$
5,895
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Three Months Ended
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Capital expenditures
Purchase of property and equipment
$
5,006
$
5,581
-10.3
%
$
15,756
$
15,283
3.1
%
Interest during construction
$
245
$
232
5.6
%
$
718
$
669
7.3
%
Dividends Declared per Share
$
0.49
$
0.48
2.1
%
$
1.47
$
1.44
2.1
%
End of Period Common Shares Outstanding (000,000)
6,139
6,141
-
%
Debt Ratio
56.4
%
50.1
%
630
BP
Total Employees
256,800
273,140
-6.0
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
September 30,
Percent
2017
2016
Change
Wireless Subscribers
Domestic
138,826
133,338
4.1
%
Mexico
13,779
10,698
28.8
%
Total Wireless Subscribers
152,605
144,036
5.9
%
Total Branded Wireless Subscribers
106,098
100,821
5.2
%
Video Connections
Domestic
25,110
25,321
-0.8
%
PanAmericana
8,201
7,139
14.9
%
Brazil
5,289
5,337
-0.9
%
Total Video Connections
38,600
37,797
2.1
%
Broadband Connections
IP
14,384
13,715
4.9
%
DSL
1,331
1,903
-30.1
%
Total Broadband Connections
15,715
15,618
0.6
%
Voice Connections
Network Access Lines
12,249
14,603
-16.1
%
U-verse VoIP Connections
5,774
5,707
1.2
%
Total Retail Consumer Voice Connections
18,023
20,310
-11.3
%
Three Months Ended
Nine Months Ended
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Wireless Net Additions
Domestic
2,323
1,532
51.6
%
6,686
4,674
43.0
%
Mexico
697
743
-6.2
%
1,806
2,014
-10.3
%
Total Wireless Net Additions
3,020
2,275
32.7
%
8,492
6,688
27.0
%
Total Branded Wireless Net Additions
1,156
1,285
-10.0
%
2,782
3,881
-28.3
%
Video Net Additions
Domestic
(90)
(2)
-
%
(450)
(103)
-
%
PanAmericana
98
(36)
-
%
163
73
-
%
Brazil
(230)
(12)
-
%
(260)
(107)
-
%
Total Video Net Additions
(222)
(50)
-
%
(547)
(137)
-
%
Broadband Net Additions
IP
150
171
-12.3
%
520
447
16.3
%
DSL
(121)
(194)
37.6
%
(410)
(607)
32.5
%
Total Broadband Net Additions
29
(23)
-
%
110
(160)
-
%
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
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Segment Operating Revenues
Wireless service
$
8,034
$
8,050
-0.2
%
$
23,969
$
23,868
0.4
%
Fixed strategic services
3,087
2,913
6.0
%
9,089
8,469
7.3
%
Legacy voice and data services
3,434
4,042
-15.0
%
10,572
12,577
-15.9
%
Other service and equipment
852
886
-3.8
%
2,513
2,619
-4.0
%
Wireless equipment
1,654
1,876
-11.8
%
4,873
5,422
-10.1
%
Total Segment Operating Revenues
17,061
17,767
-4.0
%
51,016
52,955
-3.7
%
Segment Operating Expenses
Operations and support expenses
10,233
10,925
-6.3
%
30,722
32,584
-5.7
%
Depreciation and amortization
2,325
2,539
-8.4
%
6,972
7,568
-7.9
%
Total Segment Operating Expenses
12,558
13,464
-6.7
%
37,694
40,152
-6.1
%
Segment Operating Income
4,503
4,303
4.6
%
13,322
12,803
4.1
%
Equity in Net Income of Affiliates
-
-
-
%
-
-
-
%
Segment Contribution
$
4,503
$
4,303
4.6
%
$
13,322
$
12,803
4.1
%
Segment Operating Income Margin
26.4
%
24.2
%
26.1
%
24.2
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
September 30,
Percent
2017
2016
Change
Business Solutions Wireless Subscribers
Postpaid/Branded
51,412
50,014
2.8
%
Reseller
77
58
32.8
%
Connected Devices
35,909
29,355
22.3
%
Total Business Solutions Wireless Subscribers
87,398
79,427
10.0
%
Business Solutions IP Broadband Connections
1,017
963
5.6
%
Three Months Ended
Nine Months Ended
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Business Solutions Wireless Net Additions
Postpaid/Branded
15
191
-92.1
%
(74)
509
-
%
Reseller
2
1
-
%
3
(34)
-
%
Connected Devices
2,292
1,290
77.7
%
7,015
4,067
72.5
%
Total Business Solutions Wireless Net Additions
2,309
1,482
55.8
%
6,944
4,542
52.9
%
Business Solutions Wireless Postpaid Churn
1.01
%
0.97
%
4
BP
1.02
%
0.97
%
5
BP
Business Solutions IP Broadband
Net Additions
25
15
66.7
%
41
52
-21.2
%
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
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Segment Operating Revenues
Video entertainment
$
9,200
$
9,026
1.9
%
$
27,373
$
26,893
1.8
%
High-speed internet
1,916
1,892
1.3
%
5,784
5,562
4.0
%
Legacy voice and data services
949
1,168
-18.8
%
3,010
3,725
-19.2
%
Other service and equipment
583
634
-8.0
%
1,786
1,909
-6.4
%
Total Segment Operating Revenues
12,648
12,720
-0.6
%
37,953
38,089
-0.4
%
Segment Operating Expenses
Operations and support expenses
9,953
9,728
2.3
%
29,112
28,875
0.8
%
Depreciation and amortization
1,379
1,504
-8.3
%
4,256
4,481
-5.0
%
Total Segment Operating Expenses
11,332
11,232
0.9
%
33,368
33,356
-
%
Segment Operating Income
1,316
1,488
-11.6
%
4,585
4,733
-3.1
%
Equity in Net Income (Loss) of Affiliates
(6)
-
-
%
(23)
1
-
%
Segment Contribution
$
1,310
$
1,488
-12.0
%
$
4,562
$
4,734
-3.6
%
Segment Operating Income Margin
10.4
%
11.7
%
12.1
%
12.4
%
Supplementary Operating Data
Subscribers and connections in thousands
Nine Months Ended
Unaudited
September 30,
Percent
2017
2016
Change
Video Connections
Satellite
20,605
20,777
-0.8
%
U-verse
3,691
4,515
-18.3
%
DIRECTV NOW
787
-
-
%
Total Video Connections
25,083
25,292
-0.8
%
Broadband Connections
IP
13,367
12,752
4.8
%
DSL
964
1,424
-32.3
%
Total Broadband Connections
14,331
14,176
1.1
%
Voice Connections
Retail Consumer Switched Access Lines
4,996
6,155
-18.8
%
U-verse Consumer VoIP Connections
5,337
5,378
-0.8
%
Total Retail Consumer Voice Connections
10,333
11,533
-10.4
%
Three Months Ended
Nine Months Ended
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Video Net Additions
Satellite
(251)
323
-
%
(407)
993
-
%
U-verse
(134)
(326)
58.9
%
(562)
(1,099)
48.9
%
DIRECTV NOW
296
-
-
%
520
-
-
%
Total Video Net Additions
(89)
(3)
-
%
(449)
(106)
-
%
Broadband Net Additions
IP
125
156
-19.9
%
479
396
21.0
%
DSL
(96)
(161)
40.4
%
(327)
(506)
35.4
%
Total Broadband Net Additions
29
(5)
-
%
152
(110)
-
%
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
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Segment Operating Revenues
Service
$
6,507
$
6,914
-5.9
%
$
19,644
$
20,805
-5.6
%
Equipment
1,241
1,353
-8.3
%
3,635
3,976
-8.6
%
Total Segment Operating Revenues
7,748
8,267
-6.3
%
23,279
24,781
-6.1
%
Segment Operating Expenses
Operations and support expenses
4,551
4,751
-4.2
%
13,599
14,343
-5.2
%
Depreciation and amortization
877
944
-7.1
%
2,621
2,798
-6.3
%
Total Segment Operating Expenses
5,428
5,695
-4.7
%
16,220
17,141
-5.4
%
Segment Operating Income
2,320
2,572
-9.8
%
7,059
7,640
-7.6
%
Equity in Net Income of Affiliates
-
-
-
%
-
-
-
%
Segment Contribution
$
2,320
$
2,572
-9.8
%
$
7,059
$
7,640
-7.6
%
Segment Operating Income Margin
29.9
%
31.1
%
30.3
%
30.8
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
September 30,
Percent
2017
2016
Change
Consumer Mobility Subscribers
Postpaid
26,003
27,374
-5.0
%
Prepaid
15,136
13,035
16.1
%
Branded
41,139
40,409
1.8
%
Reseller
9,800
12,566
-22.0
%
Connected Devices
489
936
-47.8
%
Total Consumer Mobility Subscribers
51,428
53,911
-4.6
%
Three Months Ended
Nine Months Ended
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Consumer Mobility Net Additions
Postpaid
102
21
-
%
127
89
42.7
%
Prepaid1
324
304
6.6
%
873
1,169
-25.3
%
Branded
426
325
31.1
%
1,000
1,258
-20.5
%
Reseller
(394)
(316)
-24.7
%
(1,345)
(1,140)
-18.0
%
Connected Devices1
(18)
41
-
%
87
14
-
%
Total Consumer Mobility Net Additions
14
50
-72.0
%
(258)
132
-
%
Total Churn
2.37
%
2.11
%
26
BP
2.32
%
2.06
%
26
BP
Postpaid Churn
1.17
%
1.19
%
-2
BP
1.16
%
1.17
%
-1
BP
1Effective July 1, 2017 we prospectively reclassified prepaid internet of things (IoT) connections from connected devices to prepaid.
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
Nine Months Ended
Unaudited
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Segment Operating Revenues
Video entertainment
$
1,363
$
1,297
5.1
%
$
4,065
$
3,649
11.4
%
Wireless service
536
484
10.7
%
1,546
1,428
8.3
%
Wireless equipment
200
98
-
%
443
297
49.2
%
Total Segment Operating Revenues
2,099
1,879
11.7
%
6,054
5,374
12.7
%
Segment Operating Expenses
Operations and support expenses
1,937
1,640
18.1
%
5,468
4,951
10.4
%
Depreciation and amortization
304
293
3.8
%
905
868
4.3
%
Total Segment Operating Expenses
2,241
1,933
15.9
%
6,373
5,819
9.5
%
Segment Operating Income (Loss)
(142)
(54)
-
%
(319)
(445)
28.3
%
Equity in Net Income (Loss) of Affiliates
17
1
-
%
62
24
-
%
Segment Contribution
$
(125)
$
(53)
-
%
$
(257)
$
(421)
39.0
%
Segment Operating Income Margin
(6.8)
%
(2.9)
%
(5.3)
%
(8.3)
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
September 30,
Percent
2017
2016
Change
Mexican Wireless Subscribers
Postpaid
5,316
4,733
12.3
%
Prepaid
8,231
5,665
45.3
%
Branded
13,547
10,398
30.3
%
Reseller
232
300
-22.7
%
Total Mexican Wireless Subscribers
13,779
10,698
28.8
%
Latin America Satellite Subscribers
PanAmericana
8,201
7,139
14.9
%
SKY Brazil
5,289
5,337
-0.9
%
Total Latin America Satellite Subscribers
13,490
12,476
8.1
%
Three Months Ended
Nine Months Ended
September 30,
Percent
September 30,
Percent
2017
2016
Change
2017
2016
Change
Mexican Wireless Net Additions
Postpaid
129
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 Additions
697
743
-6.2
%
1,806
2,014
-10.3
%
Latin America Satellite Net Additions
PanAmericana
98
(36)
-
%
163
73
-
%
SKY Brazil
(230)
(12)
-
%
(260)
(107)
-
%
Total Latin America Satellite Net Additions
(132)
(48)
-
%
(97)
(34)
-
%
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
1,136
1,282
3,508
3,949
Adjustments to Operating Expenses
1,596
1,871
4,174
4,384
Other
Merger related interest expense and exchange fees1
485
-
752
16
(Gain) loss on sale of assets, impairments
and other adjustments2
(81)
-
140
4
Adjustments to Income Before Income Taxes
2,089
1,884
5,155
4,417
Tax impact of adjustments
716
640
1,717
1,521
Tax-related items
(146)
-
(146)
-
Adjustments to Net Income
$
1,519
$
1,244
$
3,584
$
2,896
1 Includes interest expense incurred on the debt issued prior to the close of merger transactions.
2 Includes interest income earned on cash held prior to the close of merger transactions.
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.
5
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,
2017
2016
2017
2016
Operating Income
$
6,403
$
6,408
$
20,590
$
20,099
Adjustments to Operating Revenues
89
13
89
13
Adjustments to Operating Expenses
1,596
1,871
4,174
4,384
Adjusted Operating Income1
8,088
8,292
24,853
24,496
EBITDA
12,445
12,987
38,906
39,817
Adjustments to Operating Revenues
89
13
89
13
Adjustments to Operations and Support Expenses
460
589
666
435
Adjusted EBITDA1
12,994
13,589
39,661
40,265
Total Operating Revenues
39,668
40,890
118,870
121,945
Adjustments to Operating Revenues
89
13
89
13
Total Adjusted Operating Revenues
39,757
40,903
118,959
121,958
Service Revenues
36,378
37,272
109,372
111,515
Adjustments to Service Revenues
89
13
89
13
Adjusted Service Revenues
36,467
37,285
109,461
111,528
Operating Income Margin
16.1%
15.7%
17.3%
16.5%
Adjusted Operating Income Margin1
20.3%
20.3%
20.9%
20.1%
Adjusted EBITDA Margin1
32.7%
33.2%
33.3%
33.0%
Adjusted EBITDA Service Margin1
35.6%
36.4%
36.2%
36.1%
1 Adjusted Operating Income, Adjusted EBITDA and associated margins exclude all actuarial gains or losses ($259 million gain for the first nine months of 2017) associated with our postemployment benefit plan, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses.
Adjusted Diluted EPS
Three Months Ended
Nine Months Ended
September 30,
September 30,
2017
2016
2017
2016
Diluted Earnings Per Share (EPS)
$
0.49
$
0.54
$
1.69
$
1.70
Amortization of intangible assets
0.12
0.14
0.38
0.42
Merger integration and other items1
0.06
0.03
0.14
0.09
Asset abandonments, impairments and other adjustments
0.05
0.03
0.06
0.03
Actuarial (gain) loss
-
-
(0.03)
-
(Gain) loss on transfer of wireless spectrum
-
-
(0.02)
(0.07)
Venezuela devaluation
-
-
0.02
-
Tax-related items
0.02
-
0.02
-
Adjusted EPS
$
0.74
$
0.74
$
2.26
$
2.17
Year-over-year growth - Adjusted
0.0%
4.1%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,182
6,189
6,184
6,191
1Includes combined merger integration items, merger-related interest income and expense.
6
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,
Jun. 30,
Sep. 30,
YTD 2017
2017
2017
2017
Adjusted EBITDA
$
13,080
$
13,587
$
12,994
$
39,661
Add back severance
-
(60)
(208)
(268)
Net Debt Adjusted EBITDA
13,080
13,527
12,786
39,393
Annualized Adjusted EBITDA
52,524
End-of-period current debt
8,551
End-of-period long-term debt
154,728
Total End-of-Period Debt
163,279
Less: Cash and Cash Equivalents
48,499
Net Debt Balance
114,780
Annualized Net Debt to Adjusted EBITDA Ratio
2.19
7
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
September 30, 2017
September 30, 2016
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Operating Revenues
Wireless service
$
6,507
$
8,034
$
-
$
14,541
$
6,914
$
8,050
$
-
$
14,964
Fixed strategic services
-
3,087
(3,087)
-
-
2,913
(2,913)
-
Legacy voice and data services
-
3,434
(3,434)
-
-
4,042
(4,042)
-
Other services and equipment
-
852
(852)
-
-
886
(886)
-
Wireless equipment
1,241
1,654
-
2,895
1,353
1,876
-
3,229
Total Operating Revenues
7,748
17,061
(7,373)
17,436
8,267
17,767
(7,841)
18,193
Operating Expenses
Operations and support
4,551
10,233
(4,671)
10,113
4,751
10,925
(4,979)
10,697
EBITDA
3,197
6,828
(2,702)
7,323
3,516
6,842
(2,862)
7,496
Depreciation and amortization
877
2,325
(1,192)
2,010
944
2,539
(1,376)
2,107
Total Operating Expense
5,428
12,558
(5,863)
12,123
5,695
13,464
(6,355)
12,804
Operating Income
$
2,320
$
4,503
$
(1,510)
$
5,313
$
2,572
$
4,303
$
(1,486)
$
5,389
1 Non-wireless (fixed) operations reported in Business Solutions segment.
Supplemental Operational Measure
Nine Months Ended
September 30, 2017
September 30, 2016
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Operating Revenues
Wireless service
$
19,644
$
23,969
$
-
$
43,613
$
20,805
$
23,868
$
-
$
44,673
Fixed strategic services
-
9,089
(9,089)
-
-
8,469
(8,469)
-
Legacy voice and data services
-
10,572
(10,572)
-
-
12,577
(12,577)
-
Other services and equipment
-
2,513
(2,513)
-
-
2,619
(2,619)
-
Wireless equipment
3,635
4,873
-
8,508
3,976
5,422
-
9,398
Total Operating Revenues
23,279
51,016
(22,174)
52,121
24,781
52,955
(23,665)
54,071
Operating Expenses
Operations and support
13,599
30,722
(14,013)
30,308
14,343
32,584
(15,105)
31,822
EBITDA
9,680
20,294
(8,161)
21,813
10,438
20,371
(8,560)
22,249
Depreciation and amortization
2,621
6,972
(3,594)
5,999
2,798
7,568
(4,122)
6,244
Total Operating Expense
16,220
37,694
(17,607)
36,307
17,141
40,152
(19,227)
38,066
Operating Income
$
7,059
$
13,322
$
(4,567)
$
15,814
$
7,640
$
12,803
$
(4,438)
$
16,005
1 Non-wireless (fixed) operations reported in Business Solutions segment.
8
Supplemental International
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
September 30, 2017
September 30, 2016
Latin America
Mexico
International
Latin America
Mexico
International
Operating Revenues
Video service
$
1,363
$
-
$
1,363
$
1,297
$
-
$
1,297
Wireless service
-
536
536
-
484
484
Wireless equipment
-
200
200
-
98
98
Total Operating Revenues
1,363
736
2,099
1,297
582
1,879
Operating Expenses
Operations and support
1,075
862
1,937
991
649
1,640
Depreciation and amortization
206
98
304
212
81
293
Total Operating Expenses
1,281
960
2,241
1,203
730
1,933
Operating Income (Loss)
82
(224)
(142)
94
(148)
(54)
Equity in Net Income of Affiliates
17
-
17
1
-
1
Segment Contribution
$
99
$
(224)
$
(125)
$
95
$
(148)
$
(53)
Supplemental International
Nine Months Ended
September 30, 2017
September 30, 2016
Latin America
Mexico
International
Latin America
Mexico
International
Operating Revenues
Video service
$
4,065
$
-
$
4,065
$
3,649
$
-
$
3,649
Wireless service
-
1,546
1,546
-
1,428
1,428
Wireless equipment
-
443
443
-
297
297
Total Operating Revenues
4,065
1,989
6,054
3,649
1,725
5,374
Operating Expenses
Operations and support
3,123
2,345
5,468
2,850
2,101
4,951
Depreciation and amortization
642
263
905
620
248
868
Total Operating Expenses
3,765
2,608
6,373
3,470
2,349
5,819
Operating Income (Loss)
300
(619)
(319)
179
(624)
(445)
Equity in Net Income of Affiliates
62
-
62
24
-
24
Segment Contribution
$
362
$
(619)
$
(257)
$
203
$
(624)
$
(421)
9
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