REG - AT & T Inc. - 4Q15 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 4
01/04/2016 16:03
- Part 4: For the preceding part double click ID:nRSZ3497Qc
$ 1,849
Operating Revenues
Segment Operating - (10 ) (131 ) (83 ) (259 )
Income (Loss)
Segment Operating - -4.2 % -26.7 % -5.4 % -14.0 %
Income Margin
Plus: Depreciation - 28 93 225 309
and amortization
EBITDA1 $ - $ 18 $ (38 ) $ 142 $ 50
EBITDA as a % of - 7.6 % -7.7 % 9.3 % 2.7 %
Revenues
1 For AT&T, EBITDA
is defined as
operating income
before
depreciation and
amortization.
EBITDA differs
from Segment
Operating Income
(Loss), as
calculated in
accordance with
U.S. generally
accepted
accounting
principles (GAAP),
in that it
excludes
depreciation and
amortization.
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
GAAP. Our
calculation of
EBITDA, as
presented, may
differ from
similarly titled
measures reported
by other
companies.
Financial Data
AT&T Inc.
Non-GAAP
Reconciliation -
Supplemental
AT&T Mobility
EBITDA
Dollars in millions
Unaudited
Three Months Ended
12/31/14 3/31/15 6/30/15 9/30/15 12/31/15
Operating Revenues
Service Revenues $ 15,074 $ 14,812 $ 15,115 $ 15,095 $ 14,815
Equipment Revenues 4,785 3,374 3,189 3,234 4,071
Total Operating $ 19,859 $ 18,186 $ 18,304 $ 18,329 $ 18,886
Revenues
Operating Income 3,573 4,710 5,298 5,418 4,376
Operating Income 18.0 % 25.9 % 28.9 % 29.6 % 23.2 %
Margin
Plus: Depreciation 1,959 2,005 2,031 2,046 2,031
and amortization
EBITDA1 $ 5,532 $ 6,715 $ 7,329 $ 7,464 $ 6,407
YoY Growth 15.8 %
EBITDA as a % of 27.9 % 36.9 % 40.0 % 40.7 % 33.9 %
Revenues
EBITDA as a % of 36.7 % 45.3 % 48.5 % 49.4 % 43.2 %
Service Revenues
Mexico EBITDA
Dollars in millions
Unaudited
Three Months Ended
12/31/14 3/31/15 6/30/15 9/30/15 12/31/15
Operating Revenues
Total Operating $ - $ 236 $ 491 $ 581 $ 643
Revenues
Operating Income - (10 ) (131 ) (134 ) (258 )
(Loss)
Operating Income - -4.2 % -26.7 % -23.1 % -40.1 %
Margin
Plus: Depreciation - 28 93 67 89
and amortization
EBITDA1 $ - $ 18 $ (38 ) $ (67 ) $ (169 )
EBITDA as a % of - 7.6 % -7.7 % -11.5 % -26.3 %
Revenues
1For AT&T, EBITDA
is defined as
operating income
before depreciation
and amortization.
EBITDA service
margin is
calculated as
EBITDA divided by
service revenues.
EBITDA differs from
Segment Operating
Income (Loss), as
calculated in
accordance with
U.S. generally
accepted accounting
principles (GAAP),
in that it excludes
depreciation and
amortization.
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
GAAP. Our
calculation of
EBITDA, as
presented, may
differ from
similarly titled
measures reported
by other companies.
Exhibit 99.3
EBITDA DISCUSSION
For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated
as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance
with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. 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 GAAP. Our calculation of EBITDA, as presented, may differ from
similarly titled measures reported by other companies.
We believe these measures are relevant and useful information to our 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 its segments. 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.
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 excludes other income (expense) - net, net income
attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the
operating results of our subscriber base and national footprint that we utilize to obtain and service our customers.
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, our management
excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the
provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax
structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital
investments.
We believe EBITDA as a percentage of service revenues to be a more relevant measure than EBITDA as a percentage of total
revenue for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. For the
periods covered by this report, we subsidized a portion of some of our wireless handset sales, all of which are recognized
in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a
subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use
wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless
competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA 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, which directly affect our segment income. 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 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.
FREE CASH FLOW DISCUSSION
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after
dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield
is defined as cash from continuing operations less construction and capital expenditures as a percentage of market
capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of
period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our
investors because management reviews free cash flow as an important indicator of how much cash is generated by normal
business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure
of cash available to pay debt and return cash to shareowners.
NET DEBT TO EBITDA DISCUSSION
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and
management believes these measures provide relevant and useful information to investors and other users of our financial
data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized 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 EBITDA is calculated by annualizing the year-to-date
EBITDA.
For the year ended December 31, 2015, due to the timing of our acquisition of DIRECTV and the corresponding impact on
annualized EBITDA, we are providing a Net Debt to Pro Forma EBITDA ratio calculated using the combined results of
operations of the combined company based on the historical financial statements of AT&T and DIRECTV, after giving effect to
the merger and certain adjustments, which is intended to reflect the impact of the DIRECTV acquisition on AT&T. Adjustments
to derive Pro Forma Net Income are consistent with the adjustments described in the "Notes to Unaudited Pro Forma Condensed
Combined Financial Statements" included in the Form 8-K/A dated July 24, 2015. Calculations include the historical results
for AT&T for the year ended December 31, 2015 and the results from DIRECTV for the period from January 1, 2015 through July
24, 2015, the date of its acquisition by AT&T.
Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or
losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income
statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted
EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP
measure of income. This measure is consistent with metrics under our existing credit agreements.
ADJUSTING ITEMS DISCUSSION
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, 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.
Capital Investment is a non-GAAP financial measure calculated by including long-term vendor financing arrangements for
capital improvements of the wireless network in Mexico. These favorable payment terms are considered vendor financing
arrangements and are reported as repayments of debt instead of capital expenditures. Management believes that Capital
Investment provides relevant and useful information to investors and other users of our financial data in evaluating the
investment in our business.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA
service margin, Adjusted diluted EPS and Capital Investment should be considered in addition to, but not as a substitute
for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as
presented, may differ from similarly titled measures reported by other companies.
This information is provided by RNS
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