REG - AT & T Inc. - 3rd Quarter Results 2018 8-K
RNS Number : 0416LAT & T Inc.19 December 2018
UNITED 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, 2018
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, 2018, its results of operations for the third quarter of 2018. 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, 2018 reporting financial results for the third quarter ended September 30, 2018.
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, 2018
By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Third-Quarter Results
Consolidated Results
●
Diluted EPS of $0.65 as reported compared to $0.49 in the year-ago quarter
●
Adjusted EPS of $0.90 compared to $0.74 in the year-ago quarter
●
Consolidated revenues of $45.7 billion
●
Cash from operations of $12.3 billion, up 14.3%
●
Capital expenditures of $5.9 billion
●
Free cash flow of $6.5 billion, up 16.6%
Company reaffirms 2018 guidance of adjusted EPS at the high end of $3.50 range 1 ,
free cash flow at the high end of the $21 billion range and
net capital expenditures at $22 billion range
Note: AT&T's third-quarter earnings conference call will be webcast at 8:30 a.m. ET on Wednesday, October 24, 2018. The webcast and related materials will be available on AT&T's Investor Relations website at https://investors.att.com .
DALLAS, October 24, 2018 - AT&T Inc. (NYSE:T) reported solid revenue, earnings and free cash flow growth in the third quarter led by gains in Mobility and WarnerMedia. Wireless results in the third quarter included positive postpaid phone net adds, strong prepaid phone gains and growing service revenues. (On a GAAP basis, service revenues declined 3.4%; however, on a comparable basis , service revenues grew 2.3%.)
"I'm pleased with the progress we made on a number of fronts in the third quarter," said Randall Stephenson, AT&T chairman and CEO. "Our U.S. wireless business is growing and it's the single biggest contributor to our earnings and cash flow. WarnerMedia was immediately accretive in its first full quarter, contributing 5 cents to EPS, and our free cash flow grew by double digits.
"We've accomplished all this while staying focused on managing our debt portfolio. We're on track to get to the 2.5x debt-to-EBITDA range by year-end 2019. And as we're nearing completion of our fiber build and making pricing moves on video, we're laying the foundation for stabilizing our Entertainment Group profitability in 2019. Across the business, I like our momentum and feel confident that we're on track to deliver on our plans."
North America wireless:
●
4.3 million total wireless net adds:
o
3.4 million in U.S., driven by connected devices and prepaid
o
907,000 in Mexico
Communications Highlights
●
Mobility:
o
Service revenues up 2.3% on a comparable basis
o
550,000 phone net adds in the U.S.
●
69,000 postpaid phone net adds
●
481,000 prepaid phone net adds
o
Nearly 750,000 branded smartphones added to the base
o
Third-quarter postpaid phone churn of 0.93%
●
Entertainment Group:
o
49,000 DIRECTV NOW net adds with 346,000 net losses in traditional video as company focuses on improving profitability and begins beta test of new streaming video device
o
More than 10 million customer locations passed with fiber
WarnerMedia Highlights
●
Revenues up with gains in all business units
o
Turner and Home Box Office year-over-year subscription revenue growth
o
Strong Warner Bros. television licensing revenue growth; box office releases included the hit films Crazy Rich Asians, The Meg and The Nun
o
37 Primetime Emmy Awards; 12 News and Documentary Emmy Awards
Xandr Highlights
●
Advertising revenues grew 34%; up 22% excluding the AppNexus acquisition
●
AppNexus enhances addressable advertising technology
Consolidated Financial Results 2
AT&T's consolidated revenues for the third quarter totaled $45.7 billion versus $39.7 billion in the year-ago quarter, up 15.3%, primarily due to the Time Warner acquisition partially offset by the impact of ASC 606 and the netting of approximately $920 million of USF revenues with operating expenses. Without the accounting change, revenues were $46.6 billion, an increase of 17.5% primarily due to the Time Warner acquisition. Declines in domestic video, legacy wireline services and Vrio were offset by growth in wireless equipment and services, WarnerMedia and Xandr.
Operating expenses were $38.5 billion versus $33.9 billion in the year-ago quarter, primarily due to the Time Warner acquisition partially offset by the netting of USF and other regulatory fee revenues and the deferral of commissions under ASC 606. Excluding those impacts, operating expenses were $39.9 billion, an increase of about $6.1 billion due to the Time Warner acquisition, higher wireless equipment costs and Entertainment Group content cost pressure, partially offset by cost efficiencies.
Versus results from the third quarter of 2017, operating income was $7.3 billion, up 25.2% primarily due to the Time Warner acquisition; and operating income margin was 15.9% versus 14.6%. On a comparative basis, operating income was $6.7 billion and operating income margin was 14.3%. When adjusting for amortization, merger- and integration-related expenses and other items, operating income was $10.0 billion, or $9.4 billion on a comparative basis, versus $7.5 billion in the year-ago quarter, and operating income margin was 21.9%, or 20.3% on a comparative basis, versus 18.8% in the year-ago quarter.
Third-quarter net income attributable to AT&T was $4.7 billion, or $0.65 per diluted share, versus $3.0 billion, or $0.49 per diluted share, in the year-ago quarter. Adjusting for $0.25 of costs for amortization, merger- and integration-related expenses and other items, earnings per diluted share was $0.90 compared to an adjusted $0.74 in the year-ago quarter, a 21.6% increase.
Cash from operating activities was $12.3 billion, and capital expenditures were $5.9 billion. Capital investment included about $560 million in FirstNet capital costs and reflects no FirstNet reimbursements. Free cash flow - cash from operating activities minus capital expenditures - was $6.5 billion for the quarter. The company is successfully managing near-term maturities and refinancing risk and expects to have retired or refinanced about $28 billion of near-to-intermediate term maturities by the end of 2018.
1 Adjustments include a non-cash mark-to-market benefit plan gain/loss, merger-related interest expense, merger integration and amortization costs and other adjustments. We expect the mark-to-market adjustment which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be the largest of these items. Accordingly, we cannot provide a reconciliation between forecasted adjusted diluted EPS and reported diluted EPS without unreasonable effort.
2 AT&T adopted new U.S. accounting standards that deal with revenue recognition (ASC 606), post-employment benefit costs and certain cash receipts on installment receivables. These changes impact the company's income statements and cash flows. With the adoption of ASC 606, the company made a policy decision to record Universal Service Fees (USF) and other regulatory fees on a net basis. The company is providing comparable results in addition to GAAP to help investors better understand the impact on financials from ASC 606 and the policy decision. Historical income statements and cash flows have been recast to show only the impact of the adoption of the other two accounting standards.
*About AT&T
AT&T Inc. ( NYSE:T ) is a diversified, global leader in telecommunications, media and entertainment, and technology. It executes in the market under four operating units. WarnerMedia's HBO, Turner and Warner Bros. divisions are world leaders in creating premium content, operate one of the world's largest TV and film studios, and own a world-class library of entertainment. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband services. Plus, it serves more than 3 million business customers with high-speed, highly secure connectivity and smart solutions. AT&T Latin America provides pay-TV services across 11 countries and territories in Latin America and the Caribbean, and is the fastest growing wireless provider in Mexico, serving consumers and businesses. Xandr provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its AppNexus platform.
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 is available at about.att.com. © 2018 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 Inc.
Phone: 214-862-0651
Email: Erin.McGrath@att.com
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Third Quarter
Nine-Month Period
2018
2017
As Adjusted
Percent
Change
2018
2017
As Adjusted
Percent
Change
Operating Revenues
Service
$
41,297
$
36,378
13.5
%
$
109,849
$
109,372
0.4
%
Equipment
4,442
3,290
35.0
%
12,914
9,498
36.0
%
Total Operating Revenues
45,739
39,668
15.3
%
122,763
118,870
3.3
%
Operating Expenses
Cost of revenues
Equipment
4,828
4,191
15.2
%
14,053
12,177
15.4
%
Broadcast, programming and operations
7,227
5,284
36.8
%
17,842
15,156
17.7
%
Other cost of revenues (exclusive of depreciation
and amortization shown separately below)
8,651
9,694
(10.8)
%
24,215
28,551
(15.2)
%
Selling, general and administrative
9,598
8,650
11.0
%
26,179
25,981
0.8
%
Depreciation and amortization
8,166
6,042
35.2
%
20,538
18,316
12.1
%
Total Operating Expenses
38,470
33,861
13.6
%
102,827
100,181
2.6
%
Operating Income
7,269
5,807
25.2
%
19,936
18,689
6.7
%
Interest Expense
(2,051)
(1,686)
21.6
%
(5,845)
(4,374)
33.6
%
Equity in Net Income (Loss) of Affiliates
(64)
11
-
%
(71)
(148)
52.0
%
Other Income (Expense) - Net
1,053
842
25.1
%
5,108
2,255
-
%
Income Before Income Taxes
6,207
4,974
24.8
%
19,128
16,422
16.5
%
Income Tax Expense
1,391
1,851
(24.9)
%
4,305
5,711
(24.6)
%
Net Income
4,816
3,123
54.2
%
14,823
10,711
38.4
%
Less: Net Income Attributable to
Noncontrolling Interest
(98)
(94)
(4.3)
%
(311)
(298)
(4.4)
%
Net Income Attributable to AT&T
$
4,718
$
3,029
55.8
%
$
14,512
$
10,413
39.4
%
Basic Earnings Per Share Attributable to AT&T
$
0.65
$
0.49
32.7
%
$
2.19
$
1.69
29.6
%
Weighted Average Common
Shares Outstanding (000,000)
7,284
6,162
18.2
%
6,603
6,164
7.1
%
Diluted Earnings Per Share Attributable to AT&T
$
0.65
$
0.49
32.7
%
$
2.19
$
1.69
29.6
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
7,320
6,182
18.4
%
6,630
6,184
7.2
%
1
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited
Sep. 30,
Dec. 31,
2018
2017
Assets
Current Assets
Cash and cash equivalents
$
8,657
$
50,498
Accounts receivable - net of allowances for doubtful accounts of $845 and $663
26,312
16,522
Prepaid expenses
1,860
1,369
Other current assets
16,278
10,757
Total current assets
53,107
79,146
Noncurrent Inventories and Theatrical Film and Television Production Costs
7,221
-
Property, Plant and Equipment - Net
130,348
125,222
Goodwill
146,475
105,449
Licenses
96,077
96,136
Trademarks and Trade Names - Net
24,389
7,021
Distribution Networks
16,962
-
Other Intangible Assets - Net
28,673
11,119
Investments in and Advances to Equity Affiliates
6,128
1,560
Other Assets
25,490
18,444
Total Assets
$
534,870
$
444,097
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
14,905
$
38,374
Accounts payable and accrued liabilities
39,375
34,470
Advanced billing and customer deposits
6,045
4,213
Accrued taxes
1,460
1,262
Dividends payable
3,635
3,070
Total current liabilities
65,420
81,389
Long-Term Debt
168,513
125,972
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
60,495
43,207
Postemployment benefit obligation
28,981
31,775
Other noncurrent liabilities
26,490
19,747
Total deferred credits and other noncurrent liabilities
115,966
94,729
Stockholders' Equity
Common stock
7,621
6,495
Additional paid-in capital
125,706
89,563
Retained earnings
57,624
50,500
Treasury stock
(12,486)
(12,714)
Accumulated other comprehensive income
5,383
7,017
Noncontrolling interest
1,123
1,146
Total stockholders' equity
184,971
142,007
Total Liabilities and Stockholders' Equity
$
534,870
$
444,097
2
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited
Nine-Month Period
2018
2017
As Adjusted
Operating Activities
Net income
$
14,823
$
10,711
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
20,538
18,316
Amortization of film and television costs
1,608
-
Undistributed earnings from investments in equity affiliates
312
171
Provision for uncollectible accounts
1,240
1,216
Deferred income tax expense
2,934
3,254
Net (gain) loss from sale of investments, net of impairments
(501)
(114)
Actuarial (gain) loss on pension and postretirement benefits
(2,726)
(259)
Changes in operating assets and liabilities:
Accounts receivable
(1,018)
(652)
Other current assets, inventories and theatrical film and television production costs
(2,729)
(106)
Accounts payable and other accrued liabilities
(1,385)
(1,437)
Equipment installment receivables and related sales
220
451
Deferred customer contract acquisition and fulfillment costs
(2,657)
(1,102)
Retirement benefit funding
(420)
(420)
Other - net
1,283
(1,556)
Total adjustments
16,699
17,762
Net Cash Provided by Operating Activities
31,522
28,473
Investing Activities
Capital expenditures:
Purchase of property and equipment
(16,695)
(15,756)
Interest during construction
(404)
(718)
Acquisitions, net of cash acquired
(43,116)
1,154
Dispositions
983
56
(Purchases) sales of securities, net
(234)
235
Advances to and investments in equity affiliates, net
(1,021)
-
Cash collections of deferred purchase price
500
665
Net Cash Used in Investing Activities
(59,987)
(14,364)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
1
(2)
Issuance of other short-term borrowings
4,852
-
Repayment of other short-term borrowings
(2,147)
-
Issuance of long-term debt
38,325
46,761
Repayment of long-term debt
(43,579)
(10,309)
Purchase of treasury stock
(577)
(460)
Issuance of treasury stock
359
26
Dividends paid
(9,775)
(9,030)
Other
(1,138)
1,716
Net Cash (Used in) Provided by Financing Activities
(13,679)
28,702
Net (decrease) increase in cash and cash equivalents and restricted cash
(42,144)
42,811
Cash and cash equivalents and restricted cash beginning of year
50,932
5,935
Cash and Cash Equivalents and Restricted Cash End of Period
$
8,788
$
48,746
3
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Capital expenditures
Purchase of property and equipment
$
5,736
$
5,006
14.6
%
$
16,695
$
15,756
6.0
%
Interest during construction
137
245
(44.1)
%
404
718
(43.7)
%
Total Capital Expenditures
$
5,873
$
5,251
11.8
%
$
17,099
$
16,474
3.8
%
Dividends Declared per Share
$
0.50
$
0.49
2.0
%
$
1.50
$
1.47
2.0
%
End of Period Common Shares Outstanding (000,000)
7,270
6,139
18.4
%
Debt Ratio
49.8
%
56.4
%
(660)
BP
Total Employees
269,280
256,800
4.9
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Nine-Month Period
Percent
2018
2017
Change
Wireless Subscribers
Domestic
150,252
138,445
8.5
%
Mexico
17,305
13,779
25.6
%
Total Wireless Subscribers
167,557
152,224
10.1
%
Total Branded Wireless Subscribers
110,982
105,717
5.0
%
Video Connections
Domestic
25,176
25,110
0.3
%
Latin America
13,640
13,490
1.1
%
Total Video Connections
38,816
38,600
0.6
%
Broadband Connections
IP
14,744
14,384
2.5
%
DSL
1,002
1,331
(24.7)
%
Total Broadband Connections
15,746
15,715
0.2
%
Voice Connections
Network Access Lines
10,399
12,249
(15.1)
%
U-verse VoIP Connections
5,274
5,774
(8.7)
%
Total Retail Voice Connections
15,673
18,023
(13.0)
%
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Wireless Net Additions
Domestic
3,363
2,341
43.7
%
9,057
6,717
34.8
%
Mexico
907
697
30.1
%
2,206
1,806
22.1
%
Total Wireless Net Additions
4,270
3,038
40.6
%
11,263
8,523
32.1
%
Total Branded Wireless Net Additions
1,213
1,173
3.4
%
3,351
2,812
19.2
%
Video Net Additions
Domestic
(296)
(90)
-
%
(93)
(450)
79.3
%
Latin America
(73)
(132)
44.7
%
52
(97)
-
%
Total Video Net Additions
(369)
(222)
(66.2)
%
(41)
(547)
92.5
%
Broadband Net Additions
IP
35
150
(76.7)
%
257
520
(50.6)
%
DSL
(60)
(121)
50.4
%
(230)
(410)
43.9
%
Total Broadband Net Additions
(25)
29
-
%
27
110
(75.5)
%
4
COMMUNICATIONS SEGMENT
The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. or in U.S. territories and businesses globally. The Communications segment contains three reporting units: Mobility, Entertainment Group, and Business Wireline.
Segment Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Mobility
$
17,938
$
17,370
3.3
%
$
52,575
$
51,922
1.3
%
Entertainment Group
11,589
12,467
(7.0)
%
34,498
37,435
(7.8)
%
Business Wireline
6,703
7,278
(7.9)
%
20,100
21,911
(8.3)
%
Total Segment Operating Revenues
36,230
37,115
(2.4)
%
107,173
111,268
(3.7)
%
Segment Operating Contribution
Mobility
5,603
5,333
5.1
%
16,267
15,929
2.1
%
Entertainment Group
1,104
1,283
(14.0)
%
3,888
4,470
(13.0)
%
Business Wireline
1,475
1,455
1.4
%
4,468
4,422
1.0
%
Total Segment Operating Contribution
$
8,182
$
8,071
1.4
%
$
24,623
$
24,821
(0.8)
%
Mobility
Mobility provides nationwide wireless service and equipment.
Mobility Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Service
$
13,989
$
14,475
(3.4)
%
$
41,074
$
43,414
(5.4)
%
Equipment
3,949
2,895
36.4
%
11,501
8,508
35.2
%
Total Operating Revenues
17,938
17,370
3.3
%
52,575
51,922
1.3
%
Operating Expenses
Operations and support
10,255
10,029
2.3
%
30,020
30,005
-
%
Depreciation and amortization
2,079
2,008
3.5
%
6,287
5,988
5.0
%
Total Operating Expenses
12,334
12,037
2.5
%
36,307
35,993
0.9
%
Operating Income
5,604
5,333
5.1
%
16,268
15,929
2.1
%
Equity in Net Income (Loss) of Affiliates
(1)
-
-
%
(1)
-
-
%
Operating Contribution
$
5,603
$
5,333
5.1
%
$
16,267
$
15,929
2.1
%
Operating Income Margin
31.2
%
30.7
%
50
BP
30.9
%
30.7
%
20
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Nine-Month Period
Percent
2018
2017
Change
Mobility Subscribers
Postpaid
76,996
77,034
-
%
Prepaid
16,894
15,136
11.6
%
Branded
93,890
92,170
1.9
%
Reseller
8,183
9,877
(17.2)
%
Connected Devices
48,179
36,398
32.4
%
Total Mobility Subscribers
150,252
138,445
8.5
%
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Mobility Net Additions
Postpaid
(232)
134
-
%
(110)
83
-
%
Prepaid
570
324
75.9
%
1,264
873
44.8
%
Branded
338
458
(26.2)
%
1,154
956
20.7
%
Reseller
(434)
(391)
(11.0)
%
(1,266)
(1,341)
5.6
%
Connected Devices
3,459
2,274
52.1
%
9,169
7,102
29.1
%
Total Mobility Net Additions
3,363
2,341
43.7
%
9,057
6,717
34.8
%
Branded Churn
1.70
%
1.70
%
-
BP
1.62
%
1.66
%
(4)
BP
Postpaid Churn
1.17
%
1.06
%
11
BP
1.08
%
1.06
%
2
BP
Postpaid Phone-Only Churn
0.93
%
0.84
%
9
BP
0.87
%
0.84
%
3
BP
5
Entertainment Group
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communication services primarily to residential customers. This business unit also sells advertising on DIRECTV and U-verse distribution platforms.
Entertainment Group Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Video entertainment
$
8,283
$
9,052
(8.5)
%
$
24,681
$
26,967
(8.5)
%
High-speed internet
2,045
1,916
6.7
%
5,904
5,784
2.1
%
Legacy voice and data services
740
913
(18.9)
%
2,317
2,889
(19.8)
%
Other service and equipment
521
586
(11.1)
%
1,596
1,795
(11.1)
%
Total Operating Revenues
11,589
12,467
(7.0)
%
34,498
37,435
(7.8)
%
Operating Expenses
Operations and support
9,155
9,804
(6.6)
%
26,623
28,711
(7.3)
%
Depreciation and amortization
1,331
1,379
(3.5)
%
3,986
4,254
(6.3)
%
Total Operating Expenses
10,486
11,183
(6.2)
%
30,609
32,965
(7.1)
%
Operating Income
1,103
1,284
(14.1)
%
3,889
4,470
(13.0)
%
Equity in Net Income (Loss) of Affiliates
1
(1)
-
%
(1)
-
-
%
Operating Contribution
$
1,104
$
1,283
(14.0)
%
$
3,888
$
4,470
(13.0)
%
Operating Income Margin
9.5
%
10.3
%
(80)
BP
11.3
%
11.9
%
(60)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Nine-Month Period
Percent
2018
2017
Change
Video Connections
Satellite
19,625
20,605
(4.8)
%
U-verse
3,669
3,691
(0.6)
%
DIRECTV NOW
1,858
787
-
%
Total Video Connections
25,152
25,083
0.3
%
Broadband Connections
IP
13,723
13,367
2.7
%
DSL
718
964
(25.5)
%
Total Broadband Connections
14,441
14,331
0.8
%
Voice Connections
Retail Consumer Switched Access Lines
4,144
4,996
(17.1)
%
U-verse Consumer VoIP Connections
4,757
5,337
(10.9)
%
Total Retail Consumer Voice Connections
8,901
10,333
(13.9)
%
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Video Net Additions 1
Satellite
(359)
(251)
(43.0)
%
(833)
(407)
-
%
U-verse
13
(134)
-
%
38
(562)
-
%
DIRECTV NOW
49
296
(83.4)
%
703
520
35.2
%
Total Video Net Additions
(297)
(89)
-
%
(92)
(449)
79.5
%
Broadband Net Additions
IP
31
125
(75.2)
%
261
479
(45.5)
%
DSL
(45)
(96)
53.1
%
(170)
(327)
48.0
%
Total Broadband Net Additions
(14)
29
-
%
91
152
(40.1)
%
1 Includes the impact of customers that migrated to DIRECTV NOW.
6
Business Wireline
Business Wireline unit provides advanced IP-based services, as well as traditional data services to business customers.
Business Wireline Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Strategic services
$
3,059
$
3,018
1.4
%
$
9,168
$
8,880
3.2
%
Legacy voice and data services
2,615
3,343
(21.8)
%
8,176
10,314
(20.7)
%
Other service and equipment
1,029
917
12.2
%
2,756
2,717
1.4
%
Total Operating Revenues
6,703
7,278
(7.9)
%
20,100
21,911
(8.3)
%
Operating Expenses
Operations and support
4,030
4,635
(13.1)
%
12,084
13,906
(13.1)
%
Depreciation and amortization
1,197
1,189
0.7
%
3,547
3,583
(1.0)
%
Total Operating Expenses
5,227
5,824
(10.3)
%
15,631
17,489
(10.6)
%
Operating Income
1,476
1,454
1.5
%
4,469
4,422
1.1
%
Equity in Net Income (Loss) of Affiliates
(1)
1
-
%
(1)
-
-
%
Operating Contribution
$
1,475
$
1,455
1.4
%
$
4,468
$
4,422
1.0
%
Operating Income Margin
22.0
%
20.0
%
200
BP
22.2
%
20.2
%
200
BP
Business Solutions
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship, and underscores the importance of mobile solutions to serving our business customers.
Business Solutions Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Wireless service
$
1,877
$
2,023
(7.2)
%
$
5,497
$
6,030
(8.8)
%
Strategic services
3,059
3,018
1.4
%
9,168
8,880
3.2
%
Legacy voice and data services
2,615
3,343
(21.8)
%
8,176
10,314
(20.7)
%
Other service and equipment
1,029
917
12.2
%
2,756
2,717
1.4
%
Wireless equipment
590
340
73.5
%
1,752
988
77.3
%
Total Operating Revenues
9,170
9,641
(4.9)
%
27,349
28,929
(5.5)
%
Operating Expenses
Operations and support
5,598
6,096
(8.2)
%
16,808
18,147
(7.4)
%
Depreciation and amortization
1,499
1,466
2.3
%
4,444
4,409
0.8
%
Total Operating Expenses
7,097
7,562
(6.1)
%
21,252
22,556
(5.8)
%
Operating Income
2,073
2,079
(0.3)
%
6,097
6,373
(4.3)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
-
%
(1)
-
-
%
Operating Contribution
$
2,072
$
2,079
(0.3)
%
$
6,096
$
6,373
(4.3)
%
Operating Income Margin
22.6
%
21.6
%
100
BP
22.3
%
22.0
%
30
BP
7
WARNERMEDIA SEGMENT
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Results from AT&T's Regional Sports Network (RSN) and Otter Media Holdings are also included in the WarnerMedia segment. The WarnerMedia segment contains three business units: Turner, Home Box Office, and Warner Bros.
Segment Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Turner
$
2,988
$
107
-
%
$
3,767
$
323
-
%
Home Box Office
1,644
-
-
%
1,925
-
-
%
Warner Bros.
3,720
-
-
%
4,227
-
-
%
Eliminations and other
(148)
-
-
%
(210)
-
-
%
Total Segment Operating Revenues
8,204
107
-
%
9,709
323
-
%
Segment Operating Contribution
Turner
1,449
22
-
%
1,802
79
-
%
Home Box Office
630
-
-
%
734
-
-
%
Warner Bros.
553
-
-
%
642
-
-
%
Eliminations and other
(104)
(20)
-
%
(186)
(58)
-
%
Total Segment Operating Contribution
$
2,528
$
2
-
%
$
2,992
$
21
-
%
Turner
Turner is comprised of the WarnerMedia businesses managed by Turner as well as our RSN. This business unit creates and programs branded news, entertainment, sports and kids multi-platform content that is sold to various distribution affiliates. Turner also sells advertising on its networks and digital properties.
Turner Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Subscription
$
1,855
$
90
-
%
$
2,363
$
271
-
%
Advertising
944
17
-
%
1,181
52
-
%
Content and other
189
-
-
%
223
-
-
%
Total Operating Revenues
2,988
107
-
%
3,767
323
-
%
Operating Expenses
Operations and support
1,487
97
-
%
1,933
273
-
%
Depreciation and amortization
59
1
-
%
71
3
-
%
Total Operating Expenses
1,546
98
-
%
2,004
276
-
%
Operating Income
1,442
9
-
%
1,763
47
-
%
Equity in Net Income of Affiliates
7
13
(46.2)
%
39
32
21.9
%
Operating Contribution
$
1,449
$
22
-
%
$
1,802
$
79
-
%
Operating Income Margin
48.3
%
8.4
%
-
BP
46.8
%
14.6
%
-
BP
8
Home Box Office
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Home Box Office Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Subscription
$
1,517
$
-
-
%
$
1,787
$
-
-
%
Content and other
127
-
-
%
138
-
-
%
Total Operating Revenues
1,644
-
-
%
1,925
-
-
%
Operating Expenses
Operations and support
991
-
-
%
1,162
-
-
%
Depreciation and amortization
25
-
-
%
30
-
-
%
Total Operating Expenses
1,016
-
-
%
1,192
-
-
%
Operating Income
628
-
-
%
733
-
-
%
Equity in Net Income of Affiliates
2
-
-
%
1
-
-
%
Operating Contribution
$
630
$
-
-
%
$
734
$
-
-
%
Operating Income Margin
38.2
%
-
%
-
BP
38.1
%
-
%
-
BP
Warner Bros.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
Warner Bros. Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Theatrical product
$
1,694
$
-
-
%
$
1,917
$
-
-
%
Television product
1,591
-
-
%
1,794
-
-
%
Games and other
435
-
-
%
516
-
-
%
Total Operating Revenues
3,720
-
-
%
4,227
-
-
%
Operating Expenses
Operations and support
3,104
-
-
%
3,507
-
-
%
Depreciation and amortization
40
-
-
%
54
-
-
%
Total Operating Expenses
3,144
-
-
%
3,561
-
-
%
Operating Income
576
-
-
%
666
-
-
%
Equity in Net Income (Loss) of Affiliates
(23)
-
-
%
(24)
-
-
%
Operating Contribution
$
553
$
-
-
%
$
642
$
-
-
%
Operating Income Margin
15.5
%
-
%
-
BP
15.8
%
-
%
-
BP
9
LATIN AMERICA SEGMENT
The Latin America segment provides entertainment and wireless service outside of the U.S. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates. The Latin America segment contains two business units: Vrio and Mexico.
Segment Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Vrio
$
1,102
$
1,363
(19.1)
%
$
3,710
$
4,065
(8.7)
%
Mexico
731
736
(0.7)
%
2,099
1,989
5.5
%
Total Segment Operating Revenues
1,833
2,099
(12.7)
%
5,809
6,054
(4.0)
%
Segment Operating Contribution
Vrio
66
99
(33.3)
%
281
362
(22.4)
%
Mexico
(267)
(224)
(19.2)
%
(743)
(619)
(20.0)
%
Total Segment Operating Contribution
$
(201)
$
(125)
(60.8)
%
$
(462)
$
(257)
(79.8)
%
Vrio
Vrio provides entertainment services to customers utilizing satellite technology in Latin America and the Caribbean.
Vrio Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
$
1,102
$
1,363
(19.1)
%
$
3,710
$
4,065
(8.7)
%
Operating Expenses
Operations and support
877
1,075
(18.4)
%
2,894
3,123
(7.3)
%
Depreciation and amortization
168
206
(18.4)
%
559
642
(12.9)
%
Total Operating Expenses
1,045
1,281
(18.4)
%
3,453
3,765
(8.3)
%
Operating Income
57
82
(30.5)
%
257
300
(14.3)
%
Equity in Net Income of Affiliates
9
17
(47.1)
%
24
62
(61.3)
%
Operating Contribution
$
66
$
99
(33.3)
%
$
281
$
362
(22.4)
%
Operating Income Margin
5.2
%
6.0
%
(80)
BP
6.9
%
7.4
%
(50)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Nine-Month Period
Percent
2018
2017
Change
Vrio Satellite Subscribers
13,640
13,490
1.1
%
Third Quarter
Nine-Month Period
2018
2017
2,018
2,017
Vrio Satellite Net Subscriber Additions
(73)
(132)
44.7
%
52
(97)
-
%
10
Mexico
Mexico provides wireless services and equipment to customers in Mexico.
Mexico Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Wireless service
$
440
$
536
(17.9)
%
$
1,261
$
1,546
(18.4)
%
Wireless equipment
291
200
45.5
%
838
443
89.2
%
Total Operating Revenues
731
736
(0.7)
%
2,099
1,989
5.5
%
Operating Expenses
Operations and support
869
862
0.8
%
2,459
2,345
4.9
%
Depreciation and amortization
129
98
31.6
%
383
263
45.6
%
Total Operating Expenses
998
960
4.0
%
2,842
2,608
9.0
%
Operating Income (Loss)
(267)
(224)
(19.2)
%
(743)
(619)
(20.0)
%
Operating Contribution
$
(267)
$
(224)
(19.2)
%
$
(743)
$
(619)
(20.0)
%
Operating Income Margin
(36.5)
%
(30.4)
%
(610)
BP
(35.4)
%
(31.1)
%
(430)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Nine-Month Period
Percent
2018
2017
Change
Mexico Wireless Subscribers
Postpaid
5,822
5,316
9.5
%
Prepaid
11,270
8,231
36.9
%
Branded
17,092
13,547
26.2
%
Reseller
213
232
(8.2)
%
Total Mexico Wireless Subscribers
17,305
13,779
25.6
%
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Mexico Wireless Net Additions
Postpaid
73
129
(43.4)
%
324
351
(7.7)
%
Prepaid
802
585
37.1
%
1,873
1,504
24.5
%
Branded
875
714
22.5
%
2,197
1,855
18.4
%
Reseller
32
(17)
-
%
9
(49)
-
%
Total Mexico Wireless Net Subscriber Additions
907
697
30.1
%
2,206
1,806
22.1
%
11
XANDR SEGMENT
The Xandr segment provides advertising services. These services utilize data insights to develop higher value targeted advertising. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.
Segment Operating Results
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
$
445
$
333
33.6
%
$
1,174
$
992
18.3
%
Segment Operating Expenses
Operations and support
109
39
-
%
218
118
84.7
%
Depreciation and amortization
3
-
-
%
4
1
-
%
Total Segment Operating Expenses
112
39
-
%
222
119
86.6
%
Operating Income
333
294
13.3
%
952
873
9.0
%
Segment Operating Contribution
$
333
$
294
13.3
%
$
952
$
873
9.0
%
Segment Operating Income Margin
74.8
%
88.3
%
(1,350)
BP
81.1
%
88.0
%
(690)
BP
Supplemental AT&T Advertising Revenues
As a supplemental presentation to our Xandr segment operating results, we are providing a view of total advertising revenues generated by AT&T, which combines the advertising revenues recorded across all operating segments. This combined view presents the entire portfolio of revenues generated from AT&T assets and represents a significant strategic initiative and growth opportunity for AT&T.
Advertising Revenues
Dollars in millions
Unaudited
Third Quarter
Percent
Nine-Month Period
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
WarnerMedia
$
983
$
17
-
%
$
1,222
$
52
-
%
Communications
478
368
29.9
%
1,284
1,093
17.5
%
Xandr
445
333
33.6
%
1,174
992
18.3
%
Eliminations
(401)
(329)
(21.9)
%
(1,122)
(980)
(14.5)
%
Total Advertising Revenues
$
1,505
$
389
-
%
$
2,558
$
1,157
-
%
12
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
September 30, 2018
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
17,938
$
10,255
$
7,683
$
2,079
$
5,604
$
(1)
$
5,603
Entertainment Group
11,589
9,155
2,434
1,331
1,103
1
1,104
Business Wireline
6,703
4,030
2,673
1,197
1,476
(1)
1,475
Total Communications
36,230
23,440
12,790
4,607
8,183
(1)
8,182
WarnerMedia
Turner
2,988
1,487
1,501
59
1,442
7
1,449
Home Box Office
1,644
991
653
25
628
2
630
Warner Bros.
3,720
3,104
616
40
576
(23)
553
Other
(148)
(79)
(69)
10
(79)
(25)
(104)
Total WarnerMedia
8,204
5,503
2,701
134
2,567
(39)
2,528
Latin America
Vrio
1,102
877
225
168
57
9
66
Mexico
731
869
(138)
129
(267)
-
(267)
Total Latin America
1,833
1,746
87
297
(210)
9
(201)
Xandr
445
109
336
3
333
-
333
Segment Total
46,712
30,798
15,914
5,041
10,873
(31)
10,842
Corporate and Other
Corporate
308
(18)
326
797
(471)
Acquisition-related items
-
362
(362)
2,329
(2,691)
Certain significant items
-
75
(75)
-
(75)
Eliminations and consolidations
(1,281)
(913)
(368)
(1)
(367)
AT&T Inc.
$
45,739
$
30,304
$
15,435
$
8,166
$
7,269
September 30, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
17,370
$
10,029
$
7,341
$
2,008
$
5,333
$
-
$
5,333
Entertainment Group
12,467
9,804
2,663
1,379
1,284
(1)
1,283
Business Wireline
7,278
4,635
2,643
1,189
1,454
1
1,455
Total Communications
37,115
24,468
12,647
4,576
8,071
-
8,071
WarnerMedia
Turner
107
97
10
1
9
13
22
Home Box Office
-
-
-
-
-
-
-
Warner Bros.
-
-
-
-
-
-
-
Other
-
1
(1)
-
(1)
(19)
(20)
Total WarnerMedia
107
98
9
1
8
(6)
2
Latin America
Vrio
1,363
1,075
288
206
82
17
99
Mexico
736
862
(126)
98
(224)
-
(224)
Total Latin America
2,099
1,937
162
304
(142)
17
(125)
Xandr
333
39
294
-
294
-
294
Segment Total
39,654
26,542
13,112
4,881
8,231
11
8,242
Corporate and Other
Corporate
382
801
(419)
24
(443)
Acquisition-related items
-
134
(134)
1,136
(1,270)
Certain significant items
(89)
325
(414)
1
(415)
Eliminations and consolidations
(279)
17
(296)
-
(296)
AT&T Inc.
$
39,668
$
27,819
$
11,849
$
6,042
$
5,807
13
SUPPLEMENTAL SEGMENT RECONCILIATION
Nine Months Ended
Dollars in millions
Unaudited
September 30, 2018
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
52,575
$
30,020
$
22,555
$
6,287
$
16,268
$
(1)
$
16,267
Entertainment Group
34,498
26,623
7,875
3,986
3,889
(1)
3,888
Business Wireline
20,100
12,084
8,016
3,547
4,469
(1)
4,468
Total Communications
107,173
68,727
38,446
13,820
24,626
(3)
24,623
WarnerMedia
Turner
3,767
1,933
1,834
71
1,763
39
1,802
Home Box Office
1,925
1,162
763
30
733
1
734
Warner Bros.
4,227
3,507
720
54
666
(24)
642
Other
(210)
(106)
(104)
11
(115)
(71)
(186)
Total WarnerMedia
9,709
6,496
3,213
166
3,047
(55)
2,992
Latin America
Vrio
3,710
2,894
816
559
257
24
281
Mexico
2,099
2,459
(360)
383
(743)
-
(743)
Total Latin America
5,809
5,353
456
942
(486)
24
(462)
Xandr
1,174
218
956
4
952
-
952
Segment Total
123,865
80,794
43,071
14,932
28,139
(34)
28,105
Corporate and Other
Corporate
961
1,378
(417)
938
(1,355)
Acquisition-related items
-
750
(750)
4,669
(5,419)
Certain significant items
-
407
(407)
-
(407)
Eliminations and consolidations
(2,063)
(1,040)
(1,023)
(1)
(1,022)
AT&T Inc.
$
122,763
$
82,289
$
40,474
$
20,538
$
19,936
September 30, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
51,922
$
30,005
$
21,917
$
5,988
$
15,929
$
-
$
15,929
Entertainment Group
37,435
28,711
8,724
4,254
4,470
-
4,470
Business Wireline
21,911
13,906
8,005
3,583
4,422
-
4,422
Total Communications
111,268
72,622
38,646
13,825
24,821
-
24,821
WarnerMedia
Turner
323
273
50
3
47
32
79
Home Box Office
-
-
-
-
-
-
-
Warner Bros.
-
-
-
-
-
-
-
Other
-
3
(3)
-
(3)
(55)
(58)
Total WarnerMedia
323
276
47
3
44
(23)
21
Latin America
Vrio
4,065
3,123
942
642
300
62
362
Mexico
1,989
2,345
(356)
263
(619)
-
(619)
Total Latin America
6,054
5,468
586
905
(319)
62
(257)
Xandr
992
118
874
1
873
-
873
Segment Total
118,637
78,484
40,153
14,734
25,419
39
25,458
Corporate and Other
Corporate
1,182
2,440
(1,258)
73
(1,331)
Acquisition-related items
-
622
(622)
3,508
(4,130)
Certain significant items
(89)
302
(391)
1
(392)
Eliminations and consolidations
(860)
17
(877)
-
(877)
AT&T Inc.
$
118,870
$
81,865
$
37,005
$
18,316
$
18,689
14
As a supplemental discussion of our operating results, we are providing results under the comparative historical accounting method prior to our adoption of ASC 606 and other accounting changes.
SUPPLEMENTAL INCOME STATEMENT
Supplemental Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
41,297
$
(1,384)
$
42,681
$
36,378
17.3
%
Equipment
4,442
516
3,926
3,290
19.3
%
Total Operating Revenues
45,739
(868)
46,607
39,668
17.5
%
Operating Expenses
Cost of revenues
Equipment
4,828
-
4,828
4,191
15.2
%
Broadcast, programming and operations
7,227
-
7,227
5,284
36.8
%
Other cost of revenues (exclusive of depreciation
and amortization shown separately below)
8,651
(917)
9,568
9,694
(1.3)
%
Selling, general and administrative
9,598
(547)
10,145
8,650
17.3
%
Depreciation and amortization
8,166
-
8,166
6,042
35.2
%
Total Operating Expenses
38,470
(1,464)
39,934
33,861
17.9
%
Operating Income
7,269
596
6,673
5,807
14.9
%
Interest Expense
(2,051)
-
(2,051)
(1,686)
21.6
%
Equity in Net Income (Loss) of Affiliates
(64)
-
(64)
11
-
%
Other Income (Expense) - Net
1,053
-
1,053
842
25.1
%
Income Before Income Taxes
6,207
596
5,611
4,974
12.8
%
Income Tax Expense
1,391
146
1,245
1,851
(32.7)
%
Net Income
4,816
450
4,366
3,123
39.8
%
Less: Net Income Attributable to
Noncontrolling Interest
(98)
(5)
(93)
(94)
1.1
%
Net Income Attributable to AT&T
$
4,718
$
445
$
4,273
$
3,029
41.1
%
Basic Earnings Per Share Attributable to AT&T
$
0.65
$
0.06
$
0.59
$
0.49
20.4
%
Weighted Average Common
Shares Outstanding (000,000)
7,284
-
7,284
6,162
18.2
%
Diluted Earnings Per Share Attributable to AT&T
$
0.65
$
0.06
$
0.59
$
0.49
20.4
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
7,320
-
7,320
6,182
18.4
%
15
Supplemental Mobility
Supplemental Results
Dollars in millions
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
13,989
$
(821)
$
14,810
$
14,475
2.3
%
Equipment
3,949
505
3,444
2,895
19.0
%
Total Operating Revenues
17,938
(316)
18,254
17,370
5.1
%
Operating Expenses
Operations and support
10,255
(650)
10,905
10,029
8.7
%
EBITDA
7,683
334
7,349
7,341
0.1
%
Depreciation and amortization
2,079
-
2,079
2,008
3.5
%
Total Operating Expenses
12,334
(650)
12,984
12,037
7.9
%
Operating Income
5,604
334
5,270
5,333
(1.2)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
(1)
-
-
%
Operating Contribution
$
5,603
$
334
$
5,269
$
5,333
(1.2)
%
Operating Income Margin
31.2
%
28.9
%
30.7
%
(180)
BP
EBITDA Margin
42.8
%
40.3
%
42.3
%
(200)
BP
EBITDA Service Margin
54.9
%
49.6
%
50.7
%
(110)
BP
Supplemental Entertainment Group
Supplemental Entertainment Group Results
Dollars in millions
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Video entertainment
$
8,283
$
(113)
$
8,396
$
9,052
(7.2)
%
High-speed internet
2,045
-
2,045
1,916
6.7
%
Legacy voice and data services
740
(29)
769
913
(15.8)
%
Other service and equipment
521
(64)
585
586
(0.2)
%
Total Operating Revenues
11,589
(206)
11,795
12,467
(5.4)
%
Operating Expenses
Operations and support
9,155
(431)
9,586
9,804
(2.2)
%
EBITDA
2,434
225
2,209
2,663
(17.0)
%
Depreciation and amortization
1,331
-
1,331
1,379
(3.5)
%
Total Operating Expenses
10,486
(431)
10,917
11,183
(2.4)
%
Operating Income
1,103
225
878
1,284
(31.6)
%
Equity in Net Income (Loss) of Affiliates
1
-
1
(1)
-
%
Contribution
$
1,104
$
225
$
879
$
1,283
(31.5)
%
Operating Income Margin
9.5
%
7.4
%
10.3
%
(290)
BP
EBITDA Margin
21.0
%
18.7
%
21.4
%
(270)
BP
16
Supplemental Business Wireline
Supplemental Business Wireline Results
Dollars in millions
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent Change
Operating Revenues
Strategic services
$
3,059
$
(3)
$
3,062
$
3,018
1.5
%
Legacy voice and data services
2,615
(242)
2,857
3,343
(14.5)
%
Other service and equipment
1,029
(69)
1,098
917
19.7
%
Total Operating Revenues
6,703
(314)
7,017
7,278
(3.6)
%
Operating Expenses
Operations and support
4,030
(339)
4,369
4,635
(5.7)
%
EBITDA
2,673
25
2,648
2,643
0.2
%
Depreciation and amortization
1,197
-
1,197
1,189
0.7
%
Total Operating Expenses
5,227
(339)
5,566
5,824
(4.4)
%
Operating Income
1,476
25
1,451
1,454
(0.2)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
(1)
1
-
%
Operating Contribution
$
1,475
$
25
$
1,450
$
1,455
(0.3)
%
Operating Income Margin
22.0
%
20.7
%
20.0
%
70
BP
EBITDA Margin
39.9
%
37.7
%
36.3
%
140
BP
Supplemental Latin America
Supplemental Segment Results
Dollars in millions
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Vrio
$
1,102
$
-
$
1,102
$
1,363
(19.1)
%
Mexico
731
(24)
755
736
2.6
%
Total Segment Operating Revenues
1,833
(24)
1,857
2,099
(11.5)
%
Segment Operating Expenses
Operations and support
1,746
(38)
1,784
1,937
(7.9)
%
EBITDA
87
14
73
162
(54.9)
%
Depreciation and amortization
297
-
297
304
(2.3)
%
Total Segment Operating Expenses
2,043
(38)
2,081
2,241
(7.1)
%
Segment Operating Income (Loss)
(210)
14
(224)
(142)
(57.7)
%
Equity in Net Income of Affiliates
9
-
9
17
(47.1)
%
Segment Contribution
$
(201)
$
14
$
(215)
$
(125)
(72.0)
%
Operating Income Margin
(11.5)
%
(12.1)
%
(6.8)
%
(530)
BP
EBITDA Margin
4.7
%
3.9
%
7.7
%
(380)
BP
17
Supplemental Business Solutions
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship, and underscores the importance of mobile solutions to serving our business customers.
Supplemental Operating Results
Dollars in millions
Unaudited
Third Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Wireless service
$
1,877
$
(206)
$
2,083
$
2,023
3.0
%
Strategic services
3,059
(3)
3,062
3,018
1.5
%
Legacy voice and data services
2,615
(242)
2,857
3,343
(14.5)
%
Other service and equipment
1,029
(69)
1,098
917
19.7
%
Wireless equipment
590
167
423
340
24.4
%
Total Operating Revenues
9,170
(353)
9,523
9,641
(1.2)
%
Operating Expenses
Operations and support
5,598
(404)
6,002
6,096
(1.5)
%
EBITDA
3,572
51
3,521
3,545
(0.7)
%
Depreciation and amortization
1,499
-
1,499
1,466
2.3
%
Total Operating Expenses
7,097
(404)
7,501
7,562
(0.8)
%
Operating Income
2,073
51
2,022
2,079
(2.7)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
(1)
-
-
%
Operating Contribution
$
2,072
$
51
$
2,021
$
2,079
(2.8)
%
Operating Income Margin
22.6
%
21.2
%
21.6
%
(40)
BP
EBITDA Margin
39.0
%
37.0
%
36.8
%
20
BP
18
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 adoption of new accounting standards; ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash; and our revised operating segments.
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
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Net cash provided by operating activities
$
12,346
$
10,803
$
31,522
$
28,473
Less: Capital expenditures
(5,873)
(5,251)
(17,099)
(16,474)
Free Cash Flow
6,473
5,552
14,423
11,999
Less: Dividends paid
(3,631)
(3,009)
(9,775)
(9,030)
Free Cash Flow after Dividends
$
2,842
$
2,543
$
4,648
$
2,969
Free Cash Flow Dividend Payout Ratio
56.1%
54.2%
67.8%
75.3%
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).
1
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.
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 operating 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 management is responsible and upon which we evaluate 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 Mobility business unit 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.
2
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Net Income
$
4,816
$
3,123
$
14,823
$
10,711
Additions:
Income Tax (Benefit) Expense
1,391
1,851
4,305
5,711
Interest Expense
2,051
1,686
5,845
4,374
Equity in Net (Income) Loss of Affiliates
64
(11)
71
148
Other (Income) Expense - Net
(1,053)
(842)
(5,108)
(2,255)
Depreciation and amortization
8,166
6,042
20,538
18,316
EBITDA
15,435
11,849
40,474
37,005
Total Operating Revenues
45,739
39,668
122,763
118,870
Service Revenues
41,297
36,378
109,849
109,372
EBITDA Margin
33.7%
29.9%
33.0%
31.1%
EBITDA Service Margin
37.4%
32.6%
36.8%
33.8%
Supplemental Historical EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
2018
Net Income
$
4,366
Additions:
Income Tax (Benefit) Expense
1,245
Interest Expense
2,051
Equity in Net (Income) Loss of Affiliates
64
Other (Income) Expense - Net
(1,053)
Depreciation and amortization
8,166
EBITDA
14,839
Total Operating Revenues
46,607
Service Revenues
42,681
EBITDA Margin
31.8%
EBITDA Service Margin
34.8%
3
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Communications Segment
Operating Contribution
$
8,182
$
8,071
$
24,623
$
24,821
Additions:
Equity in Net (Income) Loss of Affiliates
1
-
3
-
Depreciation and amortization
4,607
4,576
13,820
13,825
EBITDA
12,790
12,647
38,446
38,646
Total Operating Revenues
36,230
37,115
107,173
111,268
Operating Income Margin
22.6%
21.7%
23.0%
22.3%
EBITDA Margin
35.3%
34.1%
35.9%
34.7%
Mobility
Operating Contribution
$
5,603
$
5,333
$
16,267
$
15,929
Additions:
Equity in Net (Income) of Affiliates
1
-
1
-
Depreciation and amortization
2,079
2,008
6,287
5,988
EBITDA
7,683
7,341
22,555
21,917
Total Operating Revenues
17,938
17,370
52,575
51,922
Service Revenues
13,989
14,475
41,074
43,414
Operating Income Margin
31.2%
30.7%
30.9%
30.7%
EBITDA Margin
42.8%
42.3%
42.9%
42.2%
EBITDA Service Margin
54.9%
50.7%
54.9%
50.5%
Entertainment Group
Operating Contribution
$
1,104
$
1,283
$
3,888
$
4,470
Additions:
Equity in Net (Income) Loss of Affiliates
(1)
1
1
-
Depreciation and amortization
1,331
1,379
3,986
4,254
EBITDA
2,434
2,663
7,875
8,724
Total Operating Revenues
11,589
12,467
34,498
37,435
Operating Income Margin
9.5%
10.3%
11.3%
11.9%
EBITDA Margin
21.0%
21.4%
22.8%
23.3%
Business Wireline
Operating Contribution
$
1,475
$
1,455
$
4,468
$
4,422
Additions:
Equity in Net (Income) Loss of Affiliates
1
(1)
1
-
Depreciation and amortization
1,197
1,189
3,547
3,583
EBITDA
2,673
2,643
8,016
8,005
Total Operating Revenues
6,703
7,278
20,100
21,911
Operating Income Margin
22.0%
20.0%
22.2%
20.2%
EBITDA Margin
39.9%
36.3%
39.9%
36.5%
4
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
WarnerMedia Segment
Operating Contribution
$
2,528
$
2
$
2,992
$
21
Additions:
Equity in Net (Income) of Affiliates
39
6
55
23
Depreciation and amortization
134
1
166
3
EBITDA
2,701
9
3,213
47
Total Operating Revenues
8,204
107
9,709
323
Operating Income Margin
31.3%
7.5%
31.4%
13.6%
EBITDA Margin
32.9%
8.4%
33.1%
14.6%
Turner
Operating Contribution
$
1,449
$
22
$
1,802
$
79
Additions:
Equity in Net (Income) of Affiliates
(7)
(13)
(39)
(32)
Depreciation and amortization
59
1
71
3
EBITDA
1,501
10
1,834
50
Total Operating Revenues
2,988
107
3,767
323
Operating Income Margin
48.3%
8.4%
46.8%
14.6%
EBITDA Margin
50.2%
9.3%
48.7%
15.5%
Home Box Office
Operating Contribution
$
630
$
-
$
734
$
-
Additions:
Equity in Net (Income) Loss of Affiliates
(2)
-
(1)
-
Depreciation and amortization
25
-
30
-
EBITDA
653
-
763
-
Total Operating Revenues
1,644
-
1,925
-
Operating Income Margin
38.2%
-
38.1%
-
EBITDA Margin
39.7%
-
39.6%
-
Warner Bros.
Operating Contribution
$
553
$
-
$
642
$
-
Additions:
Equity in Net (Income) Loss of Affiliates
23
-
24
-
Depreciation and amortization
40
-
54
-
EBITDA
616
-
720
-
Total Operating Revenues
3,720
-
4,227
-
Operating Income Margin
15.5%
-
15.8%
-
EBITDA Margin
16.6%
-
17.0%
-
5
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Latin America Segment
Operating Contribution
$
(201)
$
(125)
$
(462)
$
(257)
Additions:
Equity in Net (Income) of Affiliates
(9)
(17)
(24)
(62)
Depreciation and amortization
297
304
942
905
EBITDA
87
162
456
586
Total Operating Revenues
1,833
2,099
5,809
6,054
Operating Income Margin
-11.5%
-6.8%
-8.4%
-5.3%
EBITDA Margin
4.7%
7.7%
7.8%
9.7%
Vrio
Operating Contribution
$
66
$
99
$
281
$
362
Additions:
Equity in Net (Income) of Affiliates
(9)
(17)
(24)
(62)
Depreciation and amortization
168
206
559
642
EBITDA
225
288
816
942
Total Operating Revenues
1,102
1,363
3,710
4,065
Operating Income Margin
5.2%
6.0%
6.9%
7.4%
EBITDA Margin
20.4%
21.1%
22.0%
23.2%
Mexico
Operating Contribution
$
(267)
$
(224)
$
(743)
$
(619)
Additions:
Depreciation and amortization
129
98
383
263
EBITDA
(138)
(126)
(360)
(356)
Total Operating Revenues
731
736
2,099
1,989
Operating Income Margin
-36.5%
-30.4%
-35.4%
-31.1%
EBITDA Margin
-18.9%
-17.1%
-17.2%
-17.9%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Xandr
Operating Contribution
$
333
$
294
$
952
$
873
Additions:
Depreciation and amortization
3
-
4
1
EBITDA
336
294
956
874
Total Operating Revenues
445
333
1,174
992
Operating Income Margin
74.8%
88.3%
81.1%
88.0%
EBITDA Margin
75.5%
88.3%
81.4%
88.1%
6
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% for transactions prior to tax reform and 25% for transactions after tax reform.
Adjusting Items
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Operating Revenues
Natural disaster reveneue credits
$
-
$
89
$
-
$
89
Adjustments to Operating Revenues
-
89
-
89
Operating Expenses
Time Warner and other merger costs
361
33
749
152
Employee separation costs
76
208
260
268
Natural disaster costs
-
118
104
118
DIRECTV merger integration costs
-
67
-
317
Mexico merger integration costs
-
34
-
153
(Gain) loss on transfer of wireless spectrum
-
-
-
(181)
Foreign currency exchange
-
-
43
98
Adjustments to Operations and Support Expenses
437
460
1,156
925
Amortization of intangible assets
2,329
1,136
4,669
3,508
Adjustments to Operating Expenses
2,766
1,596
5,825
4,433
Other
Merger-related interest and fees 1
-
485
1,029
752
Actuarial (gain) loss
-
-
(2,726)
(259)
(Gain) loss on sale of assets,
impairments and other adjustments
(327)
(81)
(279)
140
Adjustments to Income Before Income Taxes
2,439
2,089
3,849
5,155
Tax impact of adjustments
548
716
765
1,717
Tax Related Items
-
(146)
(96)
(146)
Adjustments to Net Income
$
1,891
$
1,519
$
3,180
$
3,584
1 Includes interest expense incurred on debt issued, redemption premiums and 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.
7
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Operating Income
$
7,269
$
5,807
$
19,936
$
18,689
Adjustments to Operating Revenues
-
89
-
89
Adjustments to Operating Expenses
2,766
1,596
5,825
4,433
Adjusted Operating Income
10,035
7,492
25,761
23,211
EBITDA
15,435
11,849
40,474
37,005
Adjustments to Operating Revenues
-
89
-
89
Adjustments to Operations and Support Expenses
437
460
1,156
925
Adjusted EBITDA
15,872
12,398
41,630
38,019
Pro forma as of June 30, 2018
WarnerMedia Operating Income
-
3,047
Additions:
Depreciation and amortization
-
339
Merger costs
-
694
WarnerMedia Adjusted EBITDA
-
4,080
WarnerMedia segment income (post acquisition)
-
(451)
WarnerMedia segment depreciation and
amortization (post acquisition)
-
(30)
WarnerMedia merger costs (post acquisition)
-
(159)
Film and television cost amortization (release prior to June 14)
-
1,103
Pro Forma Adjusted EBITDA 1
15,872
46,173
Total Operating Revenues
45,739
39,668
122,763
118,870
Adjustments to Operating Revenues
-
89
-
89
Total Adusted Operating Revenue
45,739
39,757
122,763
118,959
Service Revenues
41,297
36,378
109,849
109,372
Adjustments to Service Revenues
-
89
-
89
Adusted Service Revenue
41,297
36,467
109,849
109,461
Operating Income Margin
15.9%
14.6%
16.2%
15.7%
Adjusted Operating Income Margin
21.9%
18.8%
21.0%
19.5%
Adjusted EBITDA Margin
34.7%
31.2%
33.9%
32.0%
Adjusted EBITDA Service Margin
38.4%
34.0%
37.9%
34.7%
Supplemental Results under Historical Accouning Method
Operating Income
6,673
Adjustments to Operating Expenses
2,766
Adjusted Supplemental Operating Income
9,439
EBITDA
14,839
Adjustments to Operations and Support Expenses
437
Adjusted Supplemental EBITDA
15,276
Supplemental Operating Revenues
46,607
Adjusted Supplemental Operating Income Margin
20.3%
Adjusted Supplemental EBITDA margin
32.8%
1 Pro Forma Adjusted EBITDA reflects the combined results of operations of the combined company based on the historical financial statements of AT&T and Time Warner, after giving effect to the merger and certain adjustments, and is intended to reflect the impact of the Time Warner acquisition on AT&T. WarnerMedia operating income, depreciation and amortization expense and merger costs are provided on Item 7.01 Form 8-K filed by AT&T on July 24, 2018. Pro Forma adjustments are to (1) remove the duplication of operating results for the 16-period in which AT&T also reported Time Warner results and (2) to recognize the purchase accounting classification of released content as intangible assets and accordingly reclassify associated content amortization from operating expense to amortization expense. Intercompany revenue and expense eliminations net and do not impact EBITDA.
8
Adjusted Diluted EPS
Third Quarter
Nine-Month Period
2018
2017
2018
2017
Diluted Earnings Per Share (EPS)
$
0.65
$
0.49
$
2.19
$
1.69
Amortization of intangible assets
0.25
0.12
0.55
0.38
Merger integration items 1
0.04
0.06
0.22
0.14
(Gain) loss on sale of assets, impairments
and other adjustments 2
(0.04)
0.05
0.02
0.06
Actuarial (gain) loss 3
-
-
(0.31)
(0.03)
Tax-related items
-
0.02
-
0.02
Adjusted EPS
$
0.90
$
0.74
$
2.67
$
2.26
Year-over-year growth - Adjusted
21.6%
18.1%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
7,320
6,182
6,630
6,184
1 Includes combined merger integration items and merger-related interest income and expense, and redemption premiums.
2 Includes gains on transactions, natural disaster adjustments and charges, and employee-related and other costs.
3 Includes adjustments for actuarial gains or losses associated with our postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. We recorded an actuarial gain of $930 million in the first quarter of 2018 associated with our postretirement plan and a gain of $1,796 million in the second quarter associated with our pension plan. As a result, adjusted EPS reflects (1) in the first quarter and for the first nine months, an expected return on plan assets of $77 million (based on an average expected return on plan assets of 5.75% for our VEBA trusts), rather than the actual return on plan assets of $31 million loss (VEBA return of -3.08%) and (2) in the second quarter and for the first nine months, an expected return on plan assets of $754 million (based on an average expected return on plan assets of 7.00% for our Pension trusts), rather than the actual return on plan assets of $186 million loss (Pension return of -0.56%), both of which are included in the GAAP measure of income.
Pro Forma 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. Our Net Debt to Pro Forma Adjusted EBITDA ratio is calculated by dividing the Net Debt by Annualized Pro Forma 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 Pro Forma Adjusted EBITDA is calculated by annualizing the year-to-date Pro Forma Adjusted EBITDA.
Net Debt to Pro Forma Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31,
Jun. 30,
Sep. 30,
YTD 2018
2018
2018
2018
Pro Forma Adjusted EBITDA 1
$
15,182
$
15,119
$
15,872
$
46,173
Add back severance
(51)
(133)
(76)
(260)
Net Debt Pro Forma Adjusted EBITDA
15,131
14,986
15,796
45,913
Annualized Pro Forma Adjusted EBITDA
61,217
End-of-period current debt
14,905
End-of-period long-term debt
168,513
Total End-of-Period Debt
183,418
Less: Cash and Cash Equivalents
8,657
Net Debt Balance
174,761
Annualized Net Debt to Pro Forma Adjusted EBITDA Ratio
2.85
1 Includes the purchase accounting reclassification of released content amortization of $612 million pro forma in the first quarter, $491 million pro forma and $98 million reported by AT&T in the second quarter and $772 million reported by AT&T in the third quarter of 2018.
9
Supplemental Operational Measures
We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
Supplemental Operational Measure
Three Months Ended
September 30, 2018
September 30, 2017
Mobility
Business Wireline
Adjustments 1
Business Solutions
Mobility
Business
Wireline
Adjustments 1
Business Solutions
Operating Revenues
Wireless service
$
13,989
$
-
$
(12,112)
$
1,877
$
14,475
$
-
$
(12,452)
$
2,023
Strategic services
-
3,059
-
3,059
-
3,018
-
3,018
Legacy voice and data services
-
2,615
-
2,615
-
3,343
-
3,343
Other services and equipment
-
1,029
-
1,029
-
917
-
917
Wireless equipment
3,949
-
(3,359)
590
2,895
-
(2,555)
340
Total Operating Revenues
17,938
6,703
(15,471)
9,170
17,370
7,278
(15,007)
9,641
Operations and support
10,255
4,030
(8,687)
5,598
10,029
4,635
(8,568)
6,096
EBITDA
7,683
2,673
(6,784)
3,572
7,341
2,643
(6,439)
3,545
Depreciation and amortization
2,079
1,197
(1,777)
1,499
2,008
1,189
(1,731)
1,466
Total Operating Expenses
12,334
5,227
(10,464)
7,097
12,037
5,824
(10,299)
7,562
Operating Income
$
5,604
$
1,476
$
(5,007)
$
2,073
$
5,333
$
1,454
$
(4,708)
$
2,079
Equity in net Income of Affiliates
(1)
(1)
1
(1)
-
1
(1)
-
Contribution
5,603
1,475
(5,006)
2,072
5,333
1,455
(4,709)
2,079
1 Non-business wireless reported in the Communication segment under the Mobility business unit.
Supplemental Operational Measure
Nine Months Ended
September 30, 2018
September 30, 2017
Mobility
Business Wireline
Adjustments 1
Business Solutions
Mobility
Business
Wireline
Adjustments 1
Business Solutions
Operating Revenues
Wireless service
$
41,074
$
-
$
(35,577)
$
5,497
$
43,414
$
-
$
(37,384)
$
6,030
Strategic services
-
9,168
-
9,168
-
8,880
-
8,880
Legacy voice and data services
-
8,176
-
8,176
-
10,314
-
10,314
Other services and equipment
-
2,756
-
2,756
-
2,717
-
2,717
Wireless equipment
11,501
-
(9,749)
1,752
8,508
-
(7,520)
988
Total Operating Revenues
52,575
20,100
(45,326)
27,349
51,922
21,911
(44,904)
28,929
Operating Expenses
Operations and support
30,020
12,084
(25,296)
16,808
30,005
13,906
(25,764)
18,147
EBITDA
22,555
8,016
(20,030)
10,541
21,917
8,005
(19,140)
10,782
Depreciation and amortization
6,287
3,547
(5,390)
4,444
5,988
3,583
(5,162)
4,409
Total Operating Expenses
36,307
15,631
(30,686)
21,252
35,993
17,489
(30,926)
22,556
Operating Income
$
16,268
$
4,469
$
(14,640)
$
6,097
$
15,929
$
4,422
$
(13,978)
$
6,373
Equity in net Income of Affiliates
(1)
(1)
1
(1)
-
-
-
-
Contribution
16,267
4,468
(14,639)
6,096
15,929
4,422
(13,978)
6,373
1 Non-business wireless reported in the Communication segment under the Mobility business unit.
10
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