REG - AT & T Inc. - 4Q16 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 1
RNS Number : 7826YAT & T Inc.07 March 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) January 25, 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):
(X)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))
Item 2.02 Results of Operations and Financial Condition.
The registrant announced on January 25, 2017, its results of operations for the fourth quarter of 2016. 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 January 25, 2017 reporting financial results for the fourth quarter ended December 31, 2016.
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: January 25, 2017
By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Fourth-Quarter and Full-Year Results; AT&T Meets Full-Year Guidance
With Strong Customer Growth
Full Year
Consolidated revenues of $163.8 billion
Operating income of $24.3 billion
Net income attributable to AT&T of $13.0 billion
Diluted EPS of $2.10 as reported and $2.84 as adjusted, compared to $2.37 and $2.71 in the prior year
Cash from operations of $39.3 billion
Free cash flow of $16.9 billion, up 6.8%
Fourth Quarter
Consolidated revenues of $41.8 billion
Operating income of $4.2 billion
Net income attributable to AT&T of $2.4 billion
Diluted EPS of $0.39 as reported and $0.66 as adjusted, compared to $0.65 and $0.63 in the year-ago quarter
Cash from operations of $10.1 billion
Free cash flow of $3.7 billion, up 19.2%
Fourth-quarter: 2.8 million wireless net adds
o 1.5 million U.S.
o 1.3 million Mexico
Full-year: 9.5 million wireless net adds
o 6.2 million U.S.
o 3.3 million Mexico
U.S. wireless fourth-quarter results:
o 1.1 million branded smartphones added to subscriber base
o Best-ever postpaid phone churn of 0.98%
o Wireless postpaid churn of 1.16%
o Strong operating margin of 24.7%; best-ever fourth-quarter service EBITDA margin of 45.4%
Strong DIRECTV NOW launch with more than 200,000 paid net adds
235,000 U.S. DIRECTV satellite net adds with stable linear TV subscriber base
149,000 IP broadband net adds with stable total broadband base
Nearly 400 million North American 4G LTE POPs
Note: AT&T's fourth-quarter earnings conference call will be webcast at 4:30 p.m. ET on Wednesday, January 25, 2017. The webcast and related materials will be available on AT&T's Investor Relations website at www.att.com/investor.relations.
dALLAS, January 25, 2017- AT&T Inc. (NYSE:T) today reported 2.8 million North American wireless net adds, strong DIRECTV NOW growth and solid adjusted operating margin and earnings gains, with continued free cash flow growth for the fourth quarter.
"2016 was a transformational year for AT&T, one in which we made tremendous progress toward our goal of becoming the global leader in telecom, media and technology," said Randall Stephenson, AT&T Chairman and CEO. "We launched DIRECTV NOW, our innovative over-the-top streaming service. Our 5G evolution plans and improved spectrum position are paving the way for the next-generation of super-fast mobile and fixed networks. And we shook-up the industry with our landscape-changing deal to acquire Time Warner, the logical next step in our strategy to bring together world-class content with best-in-class distribution which will drive innovation and more choice for consumers.
"At the same time, we performed at a high level in 2016 with growing revenues, expanding adjusted consolidated operating margins and solid adjusted earnings growth, and we hit our $1.5 billion DIRECTV cost-synergy target. We also delivered record cash from operations, which allowed us to return substantial value to investors and invest more in the U.S. economy."
Consolidated Financial Results
AT&T's consolidated revenues for the fourth quarter totaled $41.8 billion versus $42.1 billion in the year-ago quarter. Compared with results for the fourth quarter of 2015, operating expenses were $37.6 billion versus $34.6 billion; operating income was $4.2 billion versus $7.5 billion; and operating income margin was 10.2% versus 17.9%. When adjusting for amortization, merger- and integration-related and other items, operating income was $7.3 billion versus $7.1 billion; and operating income margin was 17.5%, up 70 basis points versus the year-ago quarter.
Fourth-quarter net income attributable to AT&T totaled $2.4 billion, or $0.39 per diluted share, compared to $4.0 billion, or $0.65 per diluted share, in the year-ago quarter. Adjusting for the $0.10 non-cash actuarial loss on benefit plans from the annual remeasurement process and $0.17 of costs for amortization, merger-and integration-related and other items, earnings per diluted share was $0.66 compared to an adjusted $0.63 in the year-ago quarter.
Cash from operating activities was $10.1 billion in the fourth quarter, and capital expenditures were $6.5 billion. Capital investment1 for the quarter totaled $6.7 billion. Free cash flow - cash from operating activities minus capital expenditures - was $3.7 billion for the quarter, up 19.2% versus the year-ago quarter even with higher capital spending.
Full-Year Results
For full-year 2016, compared with 2015 results, AT&T's consolidated revenues totaled $163.8billion versus $146.8billion, up 11.6% for the year, driven by a full year of results from DIRECTV and gains in IP services and video. Operating expenses reflect actuarial gains and losses on benefit plans and were $139.4billion compared with $122.0billion, up 14.3%; net income attributable to AT&T was $13.0billion versus $13.3billion, down 2.8%; and earnings per diluted share was $2.10, compared with $2.37. With adjustments for both years, operating income was $31.8 billion versus $27.7 billion; operating income margin was 19.4% versus 18.8%; and earnings per share totaled $2.84, compared with $2.71, an increase of 4.8%.
AT&T's full-year cash from operating activities was a record $39.3billion, up from $35.9 billion in 2015. Capital expenditures, including capitalized interest, totaled $22.4billion, versus $20.0 billion in 2015. Capital investment for the full year was $22.9 billion versus $20.7 billion in 2015. Full-year free cash flow was $16.9 billion compared to $15.9 billion in 2015. The company's free cash flow dividend payout ratio for the full year was 70%.2
2017 Outlook
On a business-as-usual basis without the impact of Time Warner, AT&T expects in 2017:
Consolidated revenue growth in the low-single digits
Adjusted EPS growth in the mid-single digit range
Adjusted operating margin expansion
Capital expenditures in the $22 billion range
Free cash flow in the $18 billion range
Adjustments include non-cash mark-to-market benefit plan gain/loss, merger integration and amortization costs and other adjustments. Traditionally, the mark-to-market adjustment is the largest item, which is driven by interest rates and investment returns that are not reasonably estimable at this time. We expect amortization to be lower in 2017 compared to 2016.
14Q16 includes $267 million in capital purchases with favorable vendor payment terms.
2Free cash flow dividend payout ratio is dividends divided by free cash flow
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.
About AT&T
AT&T Inc. (NYSE:T) helps millions around the globe connect with leading entertainment, mobile, high speed internet and voice services. We're one of the world's largest providers of pay TV. We have TV customers in the U.S. and 11 Latin American countries. We offer the best global coverage of any U.S. wireless provider.* And we help businesses worldwide serve their customers better with our mobility and highly secure cloud solutions.
Additional information about AT&T products and services is available at http://about.att.com. Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/attand YouTube athttp://www.youtube.com/att.
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.
*Global coverage claim based on offering discounted voice and data roaming; LTE roaming; and voice roaming in more countries than any other U.S. based carrier. International service required. Coverage not available in all areas. Coverage may vary per country and be limited/restricted in some countries.
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 www.att.com/investor.relations.
The "quiet period" for FCC Spectrum Auction 1000 (also known as the 600 MHz incentive auction) is now in effect. During the quiet period, auction applicants are required to avoid discussions of bids, bidding strategy and post-auction market structure with other auction applicants.
Information set forth in this communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed merger between AT&T and Time Warner, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, and actual results might differ materially from those discussed in, or implied by, the forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of AT&T and Time Warner and are subject to significant risks and uncertainties outside of our control.
Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2) the risk that Time Warner stockholders may not adopt the merger agreement, (3) the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, (4) risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner, (5) risks related to disruption of management time from ongoing business operations due to the proposed merger, (6) failure to realize the benefits expected from the proposed merger and (7) the effect of the announcement of the proposed merger on the ability of Time Warner and AT&T to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally. Discussions of additional risks and uncertainties are and will be contained in AT&T's and Time Warner's filings with the Securities and Exchange Commission. Neither AT&T nor Time Warner is under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this communication are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.
No Offer or Solicitation
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed merger, AT&T has filed a registration statement on Form S-4, containing a proxy statement/prospectus with the Securities and Exchange Commission ("SEC"). AT&T and Time Warner have made the proxy statement/prospectus available to their respective stockholders and AT&T and Time Warner will file other documents regarding the proposed merger with the SEC. This communication is not intended to be, and is not, a substitute for such filings or for any other document that AT&T or Time Warner may file with the SEC in connection with the proposed merger. STOCKHOLDERS OF TIME WARNER ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS, CAREFULLY BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AT&T, TIME WARNER AND THE PROPOSED MERGER. Investors and security holders are able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T and Time Warner, without charge, at the SEC's website, http://www.sec.gov. Copies of documents filed with the SEC by AT&T will be made available free of charge on AT&T's investor relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=113088&p=irol-sec. Copies of documents filed with the SEC by Time Warner will be made available free of charge on Time Warner's investor relations website at http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-sec.
Participants in Solicitation
AT&T, Time Warner and certain of their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the holders of Time Warner common stock in respect to the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T's 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2016. Information about the directors and executive officers of Time Warner is set forth in the proxy statement for Time Warner's 2016 Annual Meeting of Stockholders, which was filed with the SEC on May 19, 2016. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger and other relevant materials filed with the SEC. These documents will be available free of charge from the sources indicated above.
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 change in accounting to capitalize customer set-up and installation costs and amortize them over the expected economic life of the customer relationship.
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.
Capital Investment
Capital Investment is a non-GAAP financial measure that adds to Capital expenditures the amount of vendor financing arrangements for capital improvements. These favorable payment terms are considered vendor financing arrangements and are reported as financing activities instead of Capital expenditures. Management believes that Capital Investment provides relevant and useful information to investors and other users of our financial data in evaluating long-term investment in our business.
EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility), EBITDA excludes depreciation and amortization from Operating Income.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. For the periods covered by this report, we subsidized a portion of some of our wireless handset sales, which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for (1) adjustments related to Mexico operations, which are taxed at the 30% marginal rate for Mexico and (2) adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38%.
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.
Entertainment Group Segment Adjusted Operating Revenues includes the external operating revenues from DIRECTV U.S. as reported in the DIRECTV Form 10-Q/A dated June 30, 2015 adjusted to (1) include operations reported in other DIRECTV operating segments that AT&T has chosen to manage in our Entertainment Group segment, (2) conform DIRECTV's practice of recognizing revenue to be received under contractual commitments on a straight line basis over the minimum contract period to AT&T's method of limiting the revenue recognized to the monthly amounts billed and (3) eliminate intercompany transactions from DIRECTV U.S. and the Entertainment Group segment. Adjusting Entertainment Group segment operating revenues provides for comparability between periods.
Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by annualized Net Debt Adjusted EBITDA. Annualized Net Debt Adjusted EBITDA excludes severance-related adjustments as described in our credit agreements. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Net Debt Adjusted EBITDA.
For more information, contact:
Name: Fletcher Cook
AT&T Media Relations
Phone: (214) 757-7629
Email: fletcher.cook@att.com
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Operating Revenues
Service
$
37,369
$
37,635
-0.7
%
$
148,884
$
131,677
13.1
%
Equipment
4,472
4,484
-0.3
%
14,902
15,124
-1.5
%
Total Operating Revenues
41,841
42,119
-0.7
%
163,786
146,801
11.6
%
Operating Expenses
Cost of services and sales
Equipment
5,667
5,868
-3.4
%
18,757
19,268
-2.7
%
Broadcast, programming and operations
5,612
5,645
-0.6
%
19,851
11,996
65.5
%
Other cost of services (exclusive of depreciation
and amortization shown separately below)
9,840
8,178
20.3
%
38,276
35,782
7.0
%
Selling, general and administrative
9,984
8,419
18.6
%
36,347
32,919
10.4
%
Asset abandonments and impairments
361
-
-
%
361
35
-
%
Depreciation and amortization
6,129
6,477
-5.4
%
25,847
22,016
17.4
%
Total Operating Expenses
37,593
34,587
8.7
%
139,439
122,016
14.3
%
Operating Income
4,248
7,532
-43.6
%
24,347
24,785
-1.8
%
Interest Expense
1,221
1,143
6.8
%
4,910
4,120
19.2
%
Equity in Net Income of Affiliates
41
31
32.3
%
98
79
24.1
%
Other Income (Expense) - Net
123
(113
)
-
%
277
(52
)
-
%
Income Before Income Taxes
3,191
6,307
-49.4
%
19,812
20,692
-4.3
%
Income Tax Expense
676
2,221
-69.6
%
6,479
7,005
-7.5
%
Net Income
2,515
4,086
-38.4
%
13,333
13,687
-2.6
%
Less: Net Income Attributable to
Noncontrolling Interest
(78
)
(80
)
2.5
%
(357
)
(342
)
-4.4
%
Net Income Attributable to AT&T
$
2,437
$
4,006
-39.2
%
$
12,976
$
13,345
-2.8
%
Basic Earnings Per Share Attributable to AT&T
$
0.39
$
0.65
-40.0
%
$
2.10
$
2.37
-11.4
%
Weighted Average Common
Shares Outstanding (000,000)
6,161
6,165
-0.1
%
6,168
5,628
9.6
%
Diluted Earnings Per Share Attributable to AT&T
$
0.39
$
0.65
-40.0
%
$
2.10
$
2.37
-11.4
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,181
6,187
-0.1
%
6,189
5,646
9.6
%
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited
Dec. 31,
Dec. 31,
2016
2015
Assets
Current Assets
Cash and cash equivalents
$
5,788
$
5,121
Accounts receivable - net of allowances for doubtful accounts of $661 and $704
16,794
16,532
Prepaid expenses
1,555
1,072
Other current assets
14,232
13,267
Total current assets
38,369
35,992
Property, Plant and Equipment - Net
124,899
124,450
Goodwill
105,207
104,568
Licenses
94,176
93,093
Customer Lists and Relationships - Net
14,243
18,208
Other Intangible Assets - Net
8,441
9,409
Investments in Equity Affiliates
1,674
1,606
Other Assets
16,812
15,346
Total Assets
$
403,821
$
402,672
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
9,832
$
7,636
Accounts payable and accrued liabilities
31,138
30,372
Advanced billing and customer deposits
4,519
4,682
Accrued taxes
2,079
2,176
Dividends payable
3,008
2,950
Total current liabilities
50,576
47,816
Long-Term Debt
113,681
118,515
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
60,128
56,181
Postemployment benefit obligation
33,578
34,262
Other noncurrent liabilities
21,748
22,258
Total deferred credits and other noncurrent liabilities
115,454
112,701
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
89,604
89,763
Retained earnings
34,734
33,671
Treasury stock
(12,659
)
(12,592
)
Accumulated other comprehensive income
4,961
5,334
Noncontrolling interest
975
969
Total stockholders' equity
124,110
123,640
Total Liabilities and Stockholders' Equity
$
403,821
$
402,672
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Twelve Months Ended
Unaudited
December 31,
2016
2015
Operating Activities
Net income
$
13,333
$
13,687
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
25,847
22,016
Undistributed earnings from investments in equity affiliates
(37
)
(49
)
Provision for uncollectible accounts
1,474
1,416
Deferred income tax expense
2,947
4,117
Net (gain) loss from sale of investments, net of impairments
(169
)
91
Actuarial loss (gain) on pension and postretirement benefits
1,024
(2,152
)
Asset abandonments and impairments
361
35
Changes in operating assets and liabilities:
Accounts receivable
(1,003
)
30
Other current assets
1,708
(1,182
)
Accounts payable and accrued liabilities
118
1,354
Equipment installment receivables and related sales
(576
)
(3,023
)
Deferred fulfillment costs
(2,359
)
(1,437
)
Retirement benefit funding
(910
)
(735
)
Other - net
(2,414
)
1,712
Total adjustments
26,011
22,193
Net Cash Provided by Operating Activities
39,344
35,880
Investing Activities
Capital expenditures:
Purchase of property and equipment
(21,516
)
(19,218
)
Interest during construction
(892
)
(797
)
Acquisitions, net of cash acquired
(2,959
)
(30,759
)
Dispositions
646
83
Sales of securities, net
506
1,545
Other
-
2
Net Cash Used in Investing Activities
(24,215
)
(49,144
)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
-
(1
)
Issuance of long-term debt
10,140
33,969
Repayment of long-term debt
(10,823
)
(10,042
)
Purchase of treasury stock
(512
)
(269
)
Issuance of treasury stock
146
143
Dividends paid
(11,797
)
(10,200
)
Other
(1,616
)
(3,818
)
Net Cash (Used in) Provided by Financing Activities
(14,462
)
9,782
Net increase (decrease) in cash and cash equivalents
667
(3,482
)
Cash and cash equivalents beginning of year
5,121
8,603
Cash and Cash Equivalents End of Year
$
5,788
$
5,121
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Three Months Ended
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Capital expenditures
Purchase of property and equipment
$
6,233
$
5,862
6.3
%
$
21,516
$
19,218
12.0
%
Interest during construction
223
231
-3.5
%
892
797
11.9
%
Total Capital Expenditures
$
6,456
$
6,093
6.0
%
$
22,408
$
20,015
12.0
%
Dividends Declared per Share
$
0.49
$
0.48
2.1
%
$
1.93
$
1.89
2.1
%
End of Period Common Shares Outstanding (000,000)
6,139
6,145
-0.1
%
Debt Ratio
49.9
%
50.5
%
-60
BP
Total Employees
268,540
281,450
-4.6
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
Wireless Subscribers
Domestic
134,859
128,640
4.8
%
Mexico
11,973
8,684
37.9
%
Total Wireless Subscribers
146,832
137,324
6.9
%
Total Branded Wireless Subscribers
103,011
96,937
6.3
%
Video Connections
Domestic
25,293
25,424
-0.5
%
PanAmericana
7,206
7,066
2.0
%
Brazil
5,249
5,444
-3.6
%
Total Video Connections
37,748
37,934
-0.5
%
Broadband Connections
IP
13,864
13,268
4.5
%
DSL
1,741
2,510
-30.6
%
Total Broadband Connections
15,605
15,778
-1.1
%
Voice Connections
Network Access Lines
13,986
16,670
-16.1
%
U-verse VoIP Connections
5,787
5,453
6.1
%
Total Retail Consumer Voice Connections
19,773
22,123
-10.6
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Wireless Net Additions
Domestic
1,522
2,234
-31.9
%
6,196
8,059
-23.1
%
Mexico
1,275
593
-
%
3,289
(96
)
-
%
Total Wireless Net Additions
2,797
2,827
-1.1
%
9,485
7,963
19.1
%
Total Branded Wireless Net Additions
2,221
1,633
36.0
%
6,102
3,038
-
%
Video Net Additions
Domestic
(28
)
(26
)
-7.7
%
(131
)
(63
)
-
%
PanAmericana
67
60
11.7
%
140
76
84.2
%
Brazil
(88
)
(94
)
6.4
%
(195
)
(223
)
12.6
%
Total Video Net Additions
(49
)
(60
)
18.3
%
(186
)
(210
)
11.4
%
Broadband Net Additions
IP
149
192
-22.4
%
596
1,063
-43.9
%
DSL
(162
)
(246
)
34.1
%
(769
)
(1,313
)
41.4
%
Total Broadband Net Additions
(13
)
(54
)
75.9
%
(173
)
(250
)
30.8
%
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
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Segment Operating Revenues
Wireless service
$
7,983
$
7,684
3.9
%
$
31,850
$
30,687
3.8
%
Fixed strategic services
2,942
2,716
8.3
%
11,389
10,461
8.9
%
Legacy voice and data services
3,797
4,387
-13.4
%
16,364
18,468
-11.4
%
Other service and equipment
963
973
-1.0
%
3,615
3,558
1.6
%
Wireless equipment
2,348
2,454
-4.3
%
7,770
7,953
-2.3
%
Total Segment Operating Revenues
18,033
18,214
-1.0
%
70,988
71,127
-0.2
%
Segment Operating Expenses
Operations and support expenses
11,746
11,980
-2.0
%
44,330
44,946
-1.4
%
Depreciation and amortization
2,264
2,513
-9.9
%
9,832
9,789
0.4
%
Total Segment Operating Expenses
14,010
14,493
-3.3
%
54,162
54,735
-1.0
%
Segment Operating Income
4,023
3,721
8.1
%
16,826
16,392
2.6
%
Equity in Net Income of Affiliates
-
-
-
%
-
-
-
%
Segment Contribution
$
4,023
$
3,721
8.1
%
$
16,826
$
16,392
2.6
%
Segment Operating Income Margin
22.3
%
20.4
%
190
BP
23.7
%
23.0
%
70
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
Business Solutions Wireless Subscribers
Postpaid/Branded
50,688
48,290
5.0
%
Reseller
65
85
-23.5
%
Connected Devices
30,649
25,284
21.2
%
Total Business Solutions Wireless Subscribers
81,402
73,659
10.5
%
Business Solutions IP Broadband Connections
977
911
7.2
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Business Solutions Wireless Net Additions
Postpaid/Branded
250
353
-29.2
%
759
1,203
-36.9
%
Reseller
1
(1
)
-
%
(33
)
13
-
%
Connected Devices
1,263
1,211
4.3
%
5,330
5,315
0.3
%
Total Business Solutions Wireless Net Additions
1,514
1,563
-3.1
%
6,056
6,531
-7.3
%
Business Solutions Wireless Postpaid Churn
1.11
%
1.10
%
1
BP
1.00
%
0.99
%
1
BP
Business Solutions IP Broadband
Net Additions
14
19
-26.3
%
66
89
-25.8
%
ENTERTAINMENTGROUP
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
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Segment Operating Revenues
Video entertainment
$
9,567
$
9,247
3.5
%
$
36,460
$
20,271
79.9
%
High-speed internet
1,910
1,740
9.8
%
7,472
6,601
13.2
%
Legacy voice and data services
1,104
1,367
-19.2
%
4,829
5,914
-18.3
%
Other service and equipment
625
640
-2.3
%
2,534
2,508
1.0
%
Total Segment Operating Revenues
13,206
12,994
1.6
%
51,295
35,294
45.3
%
Segment Operating Expenses
Operations and support expenses
10,463
10,123
3.4
%
39,338
28,345
38.8
%
Depreciation and amortization
1,381
1,426
-3.2
%
5,862
4,945
18.5
%
Total Segment Operating Expenses
11,844
11,549
2.6
%
45,200
33,290
35.8
%
Segment Operating Income
1,362
1,445
-5.7
%
6,095
2,004
-
%
Equity in Net Income (Loss) of Affiliates
8
12
-33.3
%
9
(4
)
-
%
Segment Contribution
$
1,370
$
1,457
-6.0
%
$
6,104
$
2,000
-
%
Segment Operating Income Margin
10.3
%
11.1
%
-80
BP
11.9
%
5.7
%
620
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
Video Connections
Satellite
21,012
19,784
6.2
%
U-verse
4,253
5,614
-24.2
%
Total Video Connections
25,265
25,398
-0.5
%
Broadband Connections
IP
12,888
12,356
4.3
%
DSL
1,291
1,930
-33.1
%
Total Broadband Connections
14,179
14,286
-0.7
%
Voice Connections
Retail Consumer Switched Access Lines
5,853
7,286
-19.7
%
U-verse Consumer VoIP Connections
5,425
5,212
4.1
%
Total Retail Consumer Voice Connections
11,278
12,498
-9.8
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Video Net Additions1
Satellite
235
214
9.8
%
1,228
240
-
%
U-verse
(262
)
(240
)
-9.2
%
(1,361
)
(306
)
-
%
Total Video Net Additions
(27
)
(26
)
-3.8
%
(133
)
(66
)
-
%
1
Includes customers that migrated to DIRECTV NOW
Broadband Net Additions
IP
136
171
-20.5
%
532
973
-45.3
%
DSL
(133
)
(208
)
36.1
%
(639
)
(1,130
)
43.5
%
Total Broadband Net Additions
3
(37
)
-
%
(107
)
(157
)
31.8
%
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
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Segment Operating Revenues
Service
$
6,731
$
7,131
-5.6
%
$
27,536
$
29,150
-5.5
%
Equipment
1,688
1,618
4.3
%
5,664
5,916
-4.3
%
Total Segment Operating Revenues
8,419
8,749
-3.8
%
33,200
35,066
-5.3
%
Segment Operating Expenses
Operations and support expenses
5,316
5,669
-6.2
%
19,659
21,477
-8.5
%
Depreciation and amortization
918
939
-2.2
%
3,716
3,851
-3.5
%
Total Segment Operating Expenses
6,234
6,608
-5.7
%
23,375
25,328
-7.7
%
Segment Operating Income
2,185
2,141
2.1
%
9,825
9,738
0.9
%
Equity in Net Income of Affiliates
-
-
-
%
-
-
-
%
Segment Contribution
$
2,185
$
2,141
2.1
%
$
9,825
$
9,738
0.9
%
Segment Operating Income Margin
26.0
%
24.5
%
150
BP
29.6
%
27.8
%
180
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
Consumer Mobility Subscribers
Postpaid
27,095
28,814
-6.0
%
Prepaid
13,536
11,548
17.2
%
Branded
40,631
40,362
0.7
%
Reseller
11,884
13,690
-13.2
%
Connected Devices
942
929
1.4
%
Total Consumer Mobility Subscribers
53,457
54,981
-2.8
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Consumer Mobility Net Additions
Postpaid
270
174
55.2
%
359
463
-22.5
%
Prepaid
406
469
-13.4
%
1,575
1,364
15.5
%
Branded
676
643
5.1
%
1,934
1,827
5.9
%
Reseller
(673
)
50
-
%
(1,813
)
(168
)
-
%
Connected Devices
5
(22
)
-
%
19
(131
)
-
%
Total Consumer Mobility Net Additions
8
671
-98.8
%
140
1,528
-90.8
%
Total Churn
2.43
%
1.97
%
46
BP
2.15
%
1.94
%
21
BP
Postpaid Churn
1.25
%
1.31
%
-6
BP
1.19
%
1.25
%
-6
BP
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
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Segment Operating Revenues
Video entertainment
$
1,261
$
1,206
4.6
%
$
4,910
$
2,151
-
%
Wireless service
477
494
-3.4
%
1,905
1,647
15.7
%
Wireless equipment
171
149
14.8
%
468
304
53.9
%
Total Segment Operating Revenues
1,909
1,849
3.2
%
7,283
4,102
77.5
%
Segment Operating Expenses
Operations and support expenses
1,879
1,799
4.4
%
6,830
3,930
73.8
%
Depreciation and amortization
298
309
-3.6
%
1,166
655
78.0
%
Total Segment Operating Expenses
2,177
2,108
3.3
%
7,996
4,585
74.4
%
Segment Operating Income (Loss)
(268
)
(259
)
-3.5
%
(713
)
(483
)
-47.6
%
Equity in Net Income (Loss) of Affiliates
28
(1
)
-
%
52
(5
)
-
%
Segment Contribution
$
(240
)
$
(260
)
7.7
%
$
(661
)
$
(488
)
-35.5
%
Segment Operating Income Margin
(14.0
)%
(14.0
)%
-
BP
(9.8
)%
(11.8
)%
200
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
Mexican Wireless Subscribers
Postpaid
4,965
4,289
15.8
%
Prepaid
6,727
3,995
68.4
%
Branded
11,692
8,284
41.1
%
Reseller
281
400
-29.8
%
Total Mexican Wireless Subscribers
11,973
8,684
37.9
%
Latin America Satellite Subscribers
PanAmericana
7,206
7,066
2.0
%
SKY Brazil
5,249
5,444
-3.6
%
Total Latin America Satellite Subscribers
12,455
12,510
-0.4
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Mexican Wireless Net Additions
Postpaid
233
130
79.2
%
677
177
-
%
Prepaid
1,062
508
-
%
2,732
(169
)
-
%
Branded
1,295
638
-
%
3,409
8
-
%
Reseller
(20
)
(45
)
55.6
%
(120
)
(104
)
-15.4
%
Total Mexican Wireless Net Additions
1,275
593
-
%
3,289
(96
)
-
%
Latin America Satellite Net Additions
PanAmericana
67
60
11.7
%
140
76
84.2
%
SKY Brazil
(88
)
(94
)
6.4
%
(195
)
(223
)
12.6
%
Total Latin America Satellite Net Additions
(21
)
(34
)
38.2
%
(55
)
(147
)
62.6
%
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
Twelve Months Ended
Unaudited
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
Operating Revenues
Service
$
14,713
$
14,815
-0.7
%
$
59,386
$
59,837
-0.8
%
Equipment
4,037
4,071
-0.8
%
13,435
13,868
-3.1
%
Total Operating Revenues
18,750
18,886
-0.7
%
72,821
73,705
-1.2
%
Operating Expenses
Operations and support expenses
12,064
12,479
-3.3
%
43,886
45,789
-4.2
%
Depreciation and amortization
2,048
2,031
0.8
%
8,292
8,113
2.2
%
Total Operating Expenses
14,112
14,510
-2.7
%
52,178
53,902
-3.2
%
Operating Income
4,638
4,376
6.0
%
20,643
19,803
4.2
%
Equity in Net Income of Affiliates
-
-
-
%
-
-
-
%
Operating Contribution
$
4,638
$
4,376
6.0
%
$
20,643
$
19,803
4.2
%
Operating Income Margin
24.7
%
23.2
%
150
BP
28.3
%
26.9
%
140
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
December 31,
Percent
2016
2015
Change
AT&T Mobility Subscribers
Postpaid
77,783
77,105
0.9
%
Prepaid
13,536
11,548
17.2
%
Branded
91,319
88,653
3.0
%
Reseller
11,949
13,774
-13.2
%
Connected Devices
31,591
26,213
20.5
%
Total AT&T Mobility Subscribers
134,859
128,640
4.8
%
Domestic Licensed POPs (000,000)
322
321
0.3
%
Three Months Ended
Twelve Months Ended
December 31,
Percent
December 31,
Percent
2016
2015
Change
2016
2015
Change
AT&T Mobility Net Additions
Postpaid
520
526
-1.1
%
1,118
1,666
-32.9
%
Prepaid
406
469
-13.4
%
1,575
1,364
15.5
%
Branded
926
995
-6.9
%
2,693
3,030
-11.1
%
Reseller
(672
)
50
-
%
(1,846
)
(155
)
-
%
Connected Devices
1,268
1,189
6.6
%
5,349
5,184
3.2
%
Total AT&T Mobility Net Additions
1,522
2,234
-31.9
%
6,196
8,059
-23.1
%
M&A Activity, Partitioned Customers and
Other Adjustments
(1
)
-
-
%
23
27
-14.8
%
Total Churn
1.71
%
1.50
%
21
BP
1.48
%
1.39
%
9
BP
Branded Churn
1.74
%
1.72
%
2
BP
1.62
%
1.63
%
-1
BP
Postpaid Churn
1.16
%
1.18
%
-2
BP
1.07
%
1.09
%
-2
BP
Postpaid Phone Only Churn
0.98
%
1.07
%
-9
BP
0.92
%
0.99
%
-7
BP
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
December 31, 2016
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
18,033
$
11,746
$
6,287
$
2,264
$
4,023
$
-
$
4,023
Entertainment Group
13,206
10,463
2,743
1,381
1,362
8
1,370
Consumer Mobility
8,419
5,316
3,103
918
2,185
-
2,185
International
1,909
1,879
30
298
(268
)
28
(240
)
Segment Total
41,567
29,404
12,163
4,861
7,302
$
36
$
7,338
Corporate and Other
284
233
51
11
40
Acquisition-related items
-
385
(385
)
1,228
(1,613
)
Certain Significant items
(10
)
1,442
(1,452
)
29
(1,481
)
AT&T Inc.
$
41,841
$
31,464
$
10,377
$
6,129
$
4,248
December 31, 2015
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
18,214
$
11,980
$
6,234
$
2,513
$
3,721
$
-
$
3,721
Entertainment Group
12,994
10,123
2,871
1,426
1,445
12
1,457
Consumer Mobility
8,749
5,669
3,080
939
2,141
-
2,141
International
1,849
1,799
50
309
(259
)
(1
)
(260
)
Segment Total
41,806
29,571
12,235
5,187
7,048
$
11
$
7,059
Corporate and Other
313
272
41
17
24
Acquisition-related items
-
383
(383
)
1,273
(1,656
)
Certain Significant items
-
(2,116
)
2,116
-
2,116
AT&T Inc.
$
42,119
$
28,110
$
14,009
$
6,477
$
7,532
Twelve Months Ended
Dollars in millions
Unaudited
December 31, 2016
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
70,988
$
44,330
$
26,658
$
9,832
$
16,826
$
-
$
16,826
Entertainment Group
51,295
39,338
11,957
5,862
6,095
9
6,104
Consumer Mobility
33,200
19,659
13,541
3,716
9,825
-
9,825
International
7,283
6,830
453
1,166
(713
)
52
(661
)
Segment Total
162,766
110,157
52,609
20,576
32,033
$
61
$
32,094
Corporate and Other
1,043
1,173
(130
)
65
(195
)
Acquisition-related items
-
1,203
(1,203
)
5,177
(6,380
)
Certain Significant items
(23
)
1,059
(1,082
)
29
(1,111
)
AT&T Inc.
$
163,786
$
113,592
$
50,194
$
25,847
$
24,347
December 31, 2015
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Business Solutions
$
71,127
$
44,946
$
26,181
$
9,789
$
16,392
$
-
$
16,392
Entertainment Group
35,294
28,345
6,949
4,945
2,004
(4
)
2,000
Consumer Mobility
35,066
21,477
13,589
3,851
9,738
-
9,738
International
4,102
3,930
172
655
(483
)
(5
)
(488
)
Segment Total
145,589
98,698
46,891
19,240
27,651
$
(9
)
$
27,642
Corporate and Other
1,297
1,057
240
64
176
Acquisition-related items
(85
)
1,987
(2,072
)
2,712
(4,784
)
Certain Significant items
-
(1,742
)
1,742
-
1,742
AT&T Inc.
$
146,801
$
100,000
$
46,801
$
22,016
$
24,785
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 change in accounting to capitalize customer set-up and installation costs and amortize them over the expected economic life of the customer relationship.
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
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Net cash provided by operating activities
$
10,142
$
9,185
$
39,344
$
35,880
Less: Capital expenditures
(6,456)
(6,093)
(22,408)
(20,015)
Free Cash Flow
3,686
3,092
16,936
15,865
Less: Dividends paid
(2,947)
(2,889)
(11,797)
(10,200)
Free Cash Flow after Dividends
$
739
$
203
$
5,139
$
5,665
Free Cash Flow Dividend Payout Ratio
80.0%
93.4%
69.7%
64.3%
Capital Investment
Capital Investment is a non-GAAP financial measure that adds to Capital expenditures the amount of vendor financing arrangements for capital improvements. These favorable payment terms are considered vendor financing arrangements and are reported as financing activities instead of Capital expenditures. Management believes that Capital Investment provides relevant and useful information to investors and other users of our financial data in evaluating long-term investment in our business.
Capital Investment
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Capital Expenditures
$
6,456
$
6,093
$
22,408
$
20,015
Vendor Financing
267
684
492
684
Capital Investment
$
6,723
$
6,777
$
22,900
$
20,699
EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility), EBITDA excludes depreciation and amortization from Operating Income.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. For the periods covered by this report, we subsidized a portion of some of our wireless handset sales, which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Net Income
$
2,515
$
4,086
$
13,333
$
13,687
Additions:
Income Tax Expense
676
2,221
6,479
7,005
Interest Expense
1,221
1,143
4,910
4,120
Equity in Net (Income) of Affiliates
(41)
(31)
(98)
(79)
Other (Income) Expense - Net
(123)
113
(277)
52
Depreciation and amortization
6,129
6,477
25,847
22,016
EBITDA
10,377
14,009
50,194
46,801
Total Operating Revenues
41,841
42,119
163,786
146,801
Service Revenues
37,369
37,635
148,884
131,677
EBITDA Margin
24.8%
33.3%
30.6%
31.9%
EBITDA Service Margin
27.8%
37.2%
33.7%
35.5%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Business Solutions Segment
Segment Contribution
$
4,023
$
3,721
$
16,826
$
16,392
Additions:
Depreciation and amortization
2,264
2,513
9,832
9,789
EBITDA
6,287
6,234
26,658
26,181
Total Segment Operating Revenues
18,033
18,214
70,988
71,127
Segment Operating Income Margin
22.3%
20.4%
23.7%
23.0%
EBITDA Margin
34.9%
34.2%
37.6%
36.8%
Entertainment Group Segment
Segment Contribution
$
1,370
$
1,457
$
6,104
$
2,000
Additions:
Equity in Net (Income) of Affiliates
(8)
(12)
(9)
4
Depreciation and amortization
1,381
1,426
5,862
4,945
EBITDA
2,743
2,871
11,957
6,949
Total Segment Operating Revenues
13,206
12,994
51,295
35,294
Segment Operating Income Margin
10.3%
11.1%
11.9%
5.7%
EBITDA Margin
20.8%
22.1%
23.3%
19.7%
Consumer Mobility Segment
Segment Contribution
$
2,185
$
2,141
$
9,825
$
9,738
Additions:
Depreciation and amortization
918
939
3,716
3,851
EBITDA
3,103
3,080
13,541
13,589
Total Segment Operating Revenues
8,419
8,749
33,200
35,066
Service Revenues
6,731
7,131
27,536
29,150
Segment Operating Income Margin
26.0%
24.5%
29.6%
27.8%
EBITDA Margin
36.9%
35.2%
40.8%
38.8%
EBITDA Service Margin
46.1%
43.2%
49.2%
46.6%
International Segment
Segment Contribution
$
(240)
$
(260)
$
(661)
$
(488)
Additions:
Equity in Net (Income) of Affiliates
(28)
1
(52)
5
Depreciation and amortization
298
309
1,166
655
EBITDA
30
50
453
172
Total Segment Operating Revenues
1,909
1,849
7,283
4,102
Segment Operating Income Margin
-14.0%
-14.0%
-9.8%
-11.8%
EBITDA Margin
1.6%
2.7%
6.2%
4.2%
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
AT&T Mobility
Operating Contribution
$
4,638
$
4,376
$
20,643
$
19,803
Add: Depreciation and amortization
2,048
2,031
8,292
8,113
EBITDA
6,686
6,407
28,935
27,916
Total Segment Operating Revenues
18,750
18,886
72,821
73,705
Service Revenues
14,713
14,815
59,386
59,837
Segment Operating Income Margin
24.7%
23.2%
28.3%
26.9%
EBITDA Margin
35.7%
33.9%
39.7%
37.9%
EBITDA Service Margin
45.4%
43.2%
48.7%
46.7%
Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for (1) adjustments related to Mexico operations, which are taxed at the 30% marginal rate for Mexico and (2) adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38%.
Adjusting Items
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Operating Revenues
Merger related deferred revenue
$
-
$
-
$
-
$
85
Storm revenue credits
10
-
23
-
Adjustments to Operating Revenues
10
-
23
85
Operating Expenses
DIRECTV and other video merger integration costs
259
165
754
502
Mexico merger integration costs
78
84
309
167
Time Warner merger costs
47
-
47
-
Wireless merger integration costs
1
79
93
649
Leap network decommissioning
-
55
-
669
Asset abandonments and impairments
361
-
361
35
Storm costs
27
-
44
-
Employee separation costs
30
36
344
375
Actuarial (gain) loss
1,024
(2,152)
1,024
(2,152)
(Gain) loss on transfer of wireless spectrum
-
-
(714)
-
Adjustments to Operations and Support Expenses
1,827
(1,733)
2,262
245
Amortization of intangible assets
1,228
1,272
5,177
2,556
Impairments
29
-
29
-
Adjustments to Operating Expenses
3,084
(461)
7,468
2,801
Other
DIRECTV-related interest expense and exchange fees 1
-
-
16
142
(Gain) loss on sale of investments and impairments
28
132
32
132
Adjustments to Income Before Income Taxes
3,122
(329)
7,539
3,160
Tax impact of adjustments
1,097
(206)
2,618
996
Tax-related benefits2
359
-
359
228
Adjustments to Net Income
$
1,666
$
(123)
$
4,562
$
1,936
1 Includes interest expense incurred on the debt issued prior to the close of the DIRECTV transaction and feesassociated with the exchange of DIRECTV notes for AT&T notes.
22016 includes merger-related restructuring of investment in Mexico.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Operating Income
$
4,248
$
7,532
$
24,347
$
24,785
Adjustments to Operating Revenues
10
-
23
85
Adjustments to Operating Expenses
3,084
(461)
7,468
2,801
Adjusted Operating Income1
7,342
7,071
31,838
27,671
EBITDA
10,377
14,009
50,194
46,801
Adjustments to Operating Revenues
10
-
23
85
Adjustments to Operations and Support Expenses
1,827
(1,733)
2,262
245
Adjusted EBITDA1
12,214
12,276
52,479
47,131
Total Operating Revenues
41,841
42,119
163,786
146,801
Adjustments to Operating Revenues
10
-
23
85
Total Adjusted Operating Revenue
41,851
42,119
163,809
146,886
Service Revenues
37,369
37,635
148,884
131,677
Adjustments to Operating Revenues
10
-
23
85
Adjusted Service Revenues
37,379
37,635
148,907
131,762
Operating Income Margin
10.2%
17.9%
14.9%
16.9%
Adjusted Operating Income Margin1
17.5%
16.8%
19.4%
18.8%
Adjusted EBITDA Margin1
29.2%
29.1%
32.0%
32.1%
Adjusted EBITDA Service Margin1
32.7%
32.6%
35.2%
35.8%
1 Adjusted Operating Income, Adjusted EBITDA and associated margins exclude all actuarial gains or losses ($1.0 billion loss in 2016) 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, Adjusted Operating Income and Margin reflect an expected return on plan assets of $3.5 billion (based on an average expected return on plan assets of 7.75% for our pension trust and 5.75% for our VEBA trusts), rather than the actual return on plan assets of $3.5 billion (actual pension return of 7.8% and VEBA return of 6.7%), as included in the GAAP measure of income.
Adjusted Diluted EPS
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Diluted Earnings Per Share (EPS)
$
0.39
$
0.65
$
2.10
$
2.37
Amortization of intangible assets
0.13
0.14
0.55
0.30
Merger integration and other items1
0.04
0.06
0.13
0.28
Employee separation costs
-
-
0.04
0.04
Asset abandonments and impairments
0.05
-
0.04
-
Actuarial (gain) loss
0.10
(0.22)
0.10
(0.24)
Storm related and other items
0.01
-
0.01
-
Gain (loss) on transfer of wireless spectrum
-
-
(0.07)
-
Tax-related benefits
(0.06)
-
(0.06)
(0.04)
Adjusted EPS
$
0.66
$
0.63
$
2.84
$
2.71
Year-over-year growth - Adjusted
4.8%
4.8%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,181
6,187
6,189
5,646
1Includes combined merger integration items, Leap network decommissioning, and DIRECTV-related interestexpense and exchange fees.
Entertainment Group Segment Adjusted Operating Revenues includes the external operating revenues from DIRECTV U.S. as reported in the DIRECTV Form 10-Q/A dated June 30, 2015 adjusted to (1) include operations reported in other DIRECTV operating segments that AT&T has chosen to manage in our Entertainment Group segment, (2) conform DIRECTV's practice of recognizing revenue to be received under contractual commitments on a straight line basis over the minimum contract period to AT&T's method of limiting the revenue recognized to the monthly amounts billed and (3) eliminate intercompany transactions from DIRECTV U.S. and the Entertainment Group segment. Adjusting Entertainment Group segment operating revenues provides for comparability between periods.
Entertainment Group Adjusted Operating Revenues
Dollars in millions
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2016
2015
2016
2015
Segment Operating Revenues
$
13,206
$
12,994
$
51,295
$
35,294
DIRECTV Operating Revenues1
-
14,864
Adjustments:
Other DIRECTV operations
-
182
Revenue recognition
-
229
Intercompany eliminations
-
(40)
Adjusted Segment Operating Revenues
$
13,206
$
12,994
$
51,295
$
50,529
Year-over-year growth - Adjusted
1.6%
1.5%
1Includes results from July 1, 2015 through July 24, 2015 acquisition date.
Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by annualized Net Debt Adjusted EBITDA. Annualized Net Debt Adjusted EBITDA excludes severance-related adjustments as described in our credit agreements. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Net Debt Adjusted EBITDA.
Net Debt to Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31,
Jun. 30
Sep. 30
Dec. 31
YTD 2016
2016
2016
2016
2016
Adjusted EBITDA
$
13,279
$
13,397
$
13,589
$
12,214
$
52,479
Add back severance
(25)
(29)
(260)
(30)
(344)
Net Debt Adjusted EBITDA
13,254
13,368
13,329
12,184
52,135
Annualized Net Debt Adjusted EBITDA
52,135
End-of-period current debt
9,832
End-of-period long-term debt
113,681
Total End-of-Period Debt
123,513
Less: Cash and Cash Equivalents
5,788
Net Debt Balance
117,725
Annualized Net Debt to Adjusted EBITDA Ratio
2.26
This information is provided by RNSThe company news service from the London Stock ExchangeENDACSOKODPPBKDBNK
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