REG - AT & T Inc. - 4Q16 Earnings Release <Origin Href="QuoteRef">T.N</Origin> - Part 3
07/03/2017 16:11
- Part 3: For the preceding part double click ID:nRSG7826Yb
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 1,909 1,849 3.2 % 7,283 4,102 77.5 %
Operating Revenues
Segment Operating
Expenses
Operations and 1,879 1,799 4.4 % 6,830 3,930 73.8 %
support expenses
Depreciation and 298 309 -3.6 % 1,166 655 78.0 %
amortization
Total Segment 2,177 2,108 3.3 % 7,996 4,585 74.4 %
Operating Expenses
Segment Operating (268 ) (259 ) -3.5 % (713 ) (483 ) -47.6 %
Income (Loss)
Equity in Net 28 (1 ) - % 52 (5 ) - %
Income (Loss) of
Affiliates
Segment $ (240 ) $ (260 ) 7.7 % $ (661 ) $ (488 ) -35.5 %
Contribution
Segment Operating (14.0 )% (14.0 )% - BP (9.8 )% (11.8 )% 200 BP
Income Margin
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 11,973 8,684 37.9 %
Wireless
Subscribers
Latin America
Satellite
Subscribers
PanAmericana 7,206 7,066 2.0 %
SKY Brazil 5,249 5,444 -3.6 %
Total Latin America 12,455 12,510 -0.4 %
Satellite
Subscribers
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)
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