REG - AT & T Inc. - 1st Quarter Results 2018 8-K
RNS Number : 5616QAT & T Inc.06 June 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) April 25, 2018
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
1-8610
43-1301883
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
208 S. Akard St., Dallas, Texas
75202
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code (210) 821-4105
__________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
The registrant announced on April 25, 2018, its results of operations for the first quarter of 2018. The text of the press release and accompanying financial information are attached as exhibits and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished as part of this report:
(d) Exhibits
99.1
Press release dated April 25, 2018 reporting financial results for the first quarter ended March 31, 2018.
99.2
AT&T Inc. selected financial statements and operating data.
99.3
Discussion and reconciliation of non-GAAP measures.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AT&T INC.
Date: April 25, 2018
By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports First-Quarter Results
· Diluted EPS of $0.75 as reported and $0.85 as adjusted, compared to $0.56 and $0.74 in the year-ago quarter
· Consolidated revenues of $38.0 billion
· Cash from operations of $8.9 billion
· Capital expenditures of $6.1 billion
· Free cash flow of $2.8 billion
Company Maintains Full-Year Guidance
· 3.2 million total wireless net adds:
o 2.6 million in U.S., driven by connected devices and prepaid
o 543,000 in Mexico
· U.S. wireless results:
o Strong year-over-year improvement in postpaid phone net adds
o Continued prepaid growth with 192,000 phone net adds
o Nearly 500,000 branded smartphones added to base
o Best-ever first-quarter postpaid phone churn of 0.84%
· Entertainment Group results:
o 312,000 DIRECTV NOW net adds to reach nearly 1.5 million subscribers
o 125,000 total video net adds with DIRECTV NOW stabilizing total video customer base since DIRECTV acquisition
o 154,000 IP broadband net adds; 82,000 total broadband net adds; more than 8 million customer locations passed with fiber
Note: AT&T's first-quarter earnings conference call will be webcast at 4:30 p.m. ET on Wednesday, April 25, 2018. The webcast and related materials will be available on AT&T's Investor Relations website at https://investors.att.com.
dALLAS, April 25, 2018 - AT&T Inc. (NYSE:T) reported solid wireless and international results in the first quarter. Highlights include solid prepaid phone gains, record-low first-quarter postpaid phone churn and continued DIRECTV NOW subscriber growth.
"We're off to a good start in 2018, both in growing our customer base and in building the world's premier gigabit network," said Randall Stephenson, AT&T Chairman and CEO. "Our investment in customer growth and our integrated service offerings helped drive solid first-quarter subscriber gains across our wireless, video and broadband businesses. We also moved quickly to deploy FirstNet, and we expect the buildout to accelerate as we go forward. Our fiber deployments for business and residential customers now pass more than 16 million customer locations. And we're set to launch our next-generation DIRECTV NOW platform, which will offer cloud DVR and an additional video stream."
Consolidated Financial Results
As noted in an 8-K filed last month, AT&T adopted new U.S. accounting standards that deal with revenue recognition (ASC 606), post-employment benefit costs and certain cash receipts on installment receivables. These changes impact the company's income statements and cash flows. With the adoption of ASC 606, the company made a policy decision to record Universal Service Fees (USF) and other regulatory fees on a net basis. The company is providing comparable results in addition to GAAP to help investors better understand the impact on financials from ASC 606 and the policy decision. Historical income statements and cash flows have been recast to show only the impact of the adoption of the other two accounting standards.
AT&T's consolidated revenues for the first quarter totaled $38.0 billion versus $39.4 billion in the year-ago quarter, primarily due to the impact of ASC 606 which included netting of USF with operating expenses. On a comparative basis, declines in legacy wireline services, domestic video, and wireless service revenues, were partially offset by growth in wireless equipment and strategic business services. On a comparative basis, revenues were $38.9 billion, a decrease of 1.1%.
Operating expenses were $31.8 billion versus $33.0 billion primarily due to the netting of USF and other regulatory fee revenues and the deferral of commissions under ASC 606. Excluding those impacts, operating expenses were $33.4 billion, an increase of about $350 million due to higher wireless equipment costs.
Versus results from the first quarter of 2017, operating income was $6.2 billion versus $6.4 billion; and operating income margin was 16.3% versus 16.1%. On a comparative basis, operating income was $5.6 billion and operating income margin was 14.3%. When adjusting for a non-cash actuarial gain on benefit plans, amortization, merger- and integration-related expenses and other items, operating income was $7.5 billion, or $6.9 billion on a comparative basis, versus $7.6 billion in the year-ago quarter and operating income margin was 19.7%, or 17.7% on a comparative basis, versus 19.4% in the year-ago quarter.
First-quarter net income attributable to AT&T was $4.7 billion, or $0.75 per diluted share, versus $3.5 billion, or $0.56 per diluted share, in the year-ago quarter. Adjusting for a $0.12 non-cash actuarial gain on benefit plans and $0.22 of costs for amortization, merger- and integration-related expenses and other items, earnings per diluted share was $0.85 compared to an adjusted $0.74 in the year-ago quarter, a 14.9% increase.
Cash from operating activities was $8.9 billion, and capital expenditures were $6.1 billion. Capital expenditures included about $140 million in FirstNet capital costs and no FirstNet reimbursements. Free cash flow - cash from operating activities minus capital expenditures - was $2.8 billion for the quarter.
*About AT&T
AT&T Inc. (NYSE:T) is a holding company. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information about AT&T Inc. is available at about.att.com.
© 2018 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at https://investors.att.com.
For more information, contact:
Name: Erin McGrath
AT&T Corporate Communications
Phone: 214-862-0651
Email: Erin.McGrath@att.com
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended
Unaudited
March 31,
2018
2017
As Adjusted
Percent Change
Operating Revenues
Service
$
33,646
$
36,456
-7.7
%
Equipment
4,392
2,909
51.0
%
Total Operating Revenues
38,038
39,365
-3.4
%
Operating Expenses
Cost of services and sales
Equipment
4,848
3,848
26.0
%
Broadcast, programming and operations
5,166
4,974
3.9
%
Other cost of services (exclusive of depreciation
and amortization shown separately below)
7,932
9,288
-14.6
%
Selling, general and administrative
7,897
8,772
-10.0
%
Depreciation and amortization
5,994
6,127
-2.2
%
Total Operating Expenses
31,837
33,009
-3.6
%
Operating Income
6,201
6,356
-2.4
%
Interest Expense
(1,771)
(1,293)
37.0
%
Equity in Net Income (Loss) of Affiliates
9
(173)
-
%
Other Income (Expense) - Net
1,702
488
-
%
Income Before Income Taxes
6,141
5,378
14.2
%
Income Tax Expense
1,382
1,804
-23.4
%
Net Income
4,759
3,574
33.2
%
Less: Net Income Attributable to
Noncontrolling Interest
(97)
(105)
7.6
%
Net Income Attributable to AT&T
$
4,662
$
3,469
34.4
%
Basic Earnings Per Share Attributable to AT&T
$
0.75
$
0.56
33.9
%
Weighted Average Common
Shares Outstanding (000,000)
6,161
6,166
-0.1
%
Diluted Earnings Per Share Attributable to AT&T
$
0.75
$
0.56
33.9
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,180
6,186
-0.1
%
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited for 2018
Mar. 31,
Dec. 31,
2018
2017
Assets
Current Assets
Cash and cash equivalents
$
48,872
$
50,498
Accounts receivable - net of allowances for doubtful accounts of $642 and $663
16,290
16,522
Prepaid expenses
1,335
1,369
Other current assets
12,008
10,757
Total current assets
78,505
79,146
Property, Plant and Equipment - Net
125,124
125,222
Goodwill
105,482
105,449
Licenses
96,556
96,136
Customer Lists and Relationships - Net
9,878
10,676
Other Intangible Assets - Net
7,201
7,464
Investments in and Advances to Equity Affiliates
2,623
1,560
Other Assets
20,943
18,444
Total Assets
$
446,312
$
444,097
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
29,322
$
38,374
Accounts payable and accrued liabilities
31,569
34,470
Advanced billings and customer deposits
5,081
4,213
Accrued taxes
1,534
1,262
Dividends payable
3,074
3,070
Total current liabilities
70,580
81,389
Long-Term Debt
133,724
125,972
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
45,730
43,207
Postemployment benefit obligation
30,116
31,775
Other noncurrent liabilities
19,117
19,747
Total deferred credits and other noncurrent liabilities
94,963
94,729
Stockholders' Equity
Common stock
6,495
6,495
Additional paid-in capital
89,404
89,563
Retained earnings
55,018
50,500
Treasury stock
(12,432)
(12,714)
Accumulated other comprehensive income
7,404
7,017
Noncontrolling interest
1,156
1,146
Total stockholders' equity
147,045
142,007
Total Liabilities and Stockholders' Equity
$
446,312
$
444,097
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
2017
As Adjusted
Operating Activities
Net income
$
4,759
$
3,574
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
5,994
6,127
Undistributed earnings from investments in equity affiliates
(2)
182
Provision for uncollectible accounts
438
393
Deferred income tax expense
1,222
480
Net (gain) loss from investments, net of impairments
2
61
Actuarial (gain) loss on pension and postretirement benefits
(930)
-
Changes in operating assets and liabilities:
Accounts receivable
(439)
445
Other current assets
614
229
Accounts payable and other accrued liabilities
(1,962)
(1,582)
Equipment installment receivables and related sales
505
394
Deferred customer contract acquisition and fulfillment costs
(826)
(436)
Retirement benefit funding
(140)
(140)
Other - net
(288)
(762)
Total adjustments
4,188
5,391
Net Cash Provided by Operating Activities
8,947
8,965
Investing Activities
Capital expenditures:
Purchase of property and equipment
(5,957)
(5,784)
Interest during construction
(161)
(231)
Acquisitions, net of cash acquired
(234)
(162)
Dispositions
56
6
Sales (purchases) of securities, net
(116)
17
Advances to and investments in equity affiliates, net
(1,007)
-
Cash collections of deferred purchase price
267
185
Net Cash Used in Investing Activities
(7,152)
(5,969)
Financing Activities
Issuance of long-term debt
2,565
12,440
Repayment of long-term debt
(4,911)
(3,053)
Purchase of treasury stock
(145)
(177)
Issuance of treasury stock
11
21
Dividends paid
(3,070)
(3,009)
Other
2,048
(173)
Net Cash (Used in) Provided by Financing Activities
(3,502)
6,049
Net (decrease) increase in cash and cash equivalents and restricted cash
(1,707)
9,045
Cash and cash equivalents and restricted cash beginning of year
50,932
5,935
Cash and Cash Equivalents and Restricted Cash End of Period
$
49,225
$
14,980
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Three Months Ended
Unaudited
March 31,
Percent
2018
2017
Change
Capital expenditures
Purchase of property and equipment
$
5,957
$
5,784
3.0
%
Interest during construction
161
231
-30.3
%
Total Capital Expenditures
$
6,118
$
6,015
1.7
%
Dividends Declared per Share
$
0.50
$
0.49
2.0
%
End of Period Common Shares Outstanding (000,000)
6,148
6,147
-
%
Debt Ratio
52.6%
51.6%
100
BP
Total Employees
249,240
264,530
-5.8
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
Wireless Subscribers
Domestic
143,832
133,804
7.5
%
Mexico
15,642
12,606
24.1
%
Total Wireless Subscribers
159,474
146,410
8.9
%
Total Branded Wireless Subscribers
108,566
103,118
5.3
%
Video Connections
Domestic
25,394
25,399
-
%
Latin America
13,573
13,678
-0.8
%
Total Video Connections
38,967
39,077
-0.3
%
Broadband Connections
IP
14,637
14,110
3.7
%
DSL
1,138
1,585
-28.2
%
Total Broadband Connections
15,775
15,695
0.5
%
Voice Connections
Network Access Lines
11,288
13,363
-15.5
%
U-verse VoIP Connections
5,585
5,858
-4.7
%
Total Retail Voice Connections
16,873
19,221
-12.2
%
Three Months Ended
March 31,
Percent
2018
2017
Change
Wireless Net Additions
Domestic
2,630
2,078
26.6
%
Mexico
543
633
-14.2
%
Total Wireless Net Additions
3,173
2,711
17.0
%
Total Branded Wireless Net Additions
858
735
16.7
%
Video Net Additions
Domestic
124
(161)
-
%
Latin America
(15)
91
-
%
Total Video Net Additions
109
(70)
-
%
Broadband Net Additions
IP
150
246
-39.0
%
DSL
(94)
(156)
39.7
%
Total Broadband Net Additions
56
90
-37.8
%
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 provide voice and data services, including high-speed internet, and video services.
Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
Percent
2018
2017
Change
Segment Operating Revenues
Service
$
11,612
$
12,465
-6.8
%
Equipment
3,374
2,341
44.1
%
Total Segment Operating Revenues
14,986
14,806
1.2
%
Segment Operating Expenses
Operations and support
8,524
8,560
-0.4
%
Depreciation and amortization
1,807
1,716
5.3
%
Total Segment Operating Expenses
10,331
10,276
0.5
%
Segment Operating Income
4,655
4,530
2.8
%
Equity in Net Income of Affiliates
-
-
-
%
Segment Contribution
$
4,655
$
4,530
2.8
%
Segment Operating Income Margin
31.1
%
30.6
%
50
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
Consumer Mobility Subscribers
Postpaid
65,489
65,692
-0.3
%
Prepaid
14,928
13,844
7.8
%
Branded
80,417
79,536
1.1
%
Reseller
8,910
10,549
-15.5
%
Total Consumer Mobility Subscribers
89,327
90,085
-0.8
%
Three Months Ended
March 31,
Percent
2018
2017
Change
Consumer Mobility Net Additions
Postpaid
(64)
(282)
77.3
%
Prepaid
192
282
-31.9
%
Branded
128
-
-
%
Reseller
(390)
(587)
33.6
%
Total Consumer Mobility Net Additions
(262)
(587)
55.4
%
BUSINESS SOLUTIONS
The Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale customers. 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 provide a complete communications solution to our business customers.
Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
Percent
2018
2017
Change
Segment Operating Revenues
Wireless service
$
1,791
$
2,003
-10.6
%
Strategic services
3,138
2,974
5.5
%
Legacy voice and data services
2,839
3,549
-20.0
%
Other service and equipment
839
878
-4.4
%
Wireless equipment
578
288
-
%
Total Segment Operating Revenues
9,185
9,692
-5.2
%
Segment Operating Expenses
Operations and support
5,638
6,040
-6.7
%
Depreciation and amortization
1,462
1,465
-0.2
%
Total Segment Operating Expenses
7,100
7,505
-5.4
%
Segment Operating Income
2,085
2,187
-4.7
%
Equity in Net Income (Loss) of Affiliates
(1)
-
-
%
Segment Contribution
$
2,084
$
2,187
-4.7
%
Segment Operating Income Margin
22.7
%
22.6
%
10
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
Business Solutions Wireless Subscribers
Postpaid
11,942
11,243
6.2
%
Prepaid
743
-
-
%
Branded
12,685
11,243
12.8
%
Reseller
92
76
21.1
%
Connected Devices
41,728
32,400
28.8
%
Total Business Mobility Subscribers
54,505
43,719
24.7
%
Business Solutions IP Broadband Connections
1,021
980
4.2
%
Three Months Ended
March 31,
Percent
2018
2017
Change
Business Solutions Wireless Net Additions
Postpaid
113
88
28.4
%
Prepaid
49
-
-
%
Branded
162
88
84.1
%
Reseller
2
5
-60.0
%
Connected Devices
2,728
2,572
6.1
%
Total Business Solutions Wireless Net Additions
2,892
2,665
8.5
%
Business Solutions IP Broadband
Net Additions
(4)
4
-
%
ENTERTAINMENT GROUP
The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the U.S. or in U.S. territories.
Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
Percent
2018
2017
Change
Segment Operating Revenues
Video entertainment
$
8,359
$
9,020
-7.3
%
High-speed internet
1,878
1,941
-3.2
%
Legacy voice and data services
819
1,031
-20.6
%
Other service and equipment
521
609
-14.4
%
Total Segment Operating Revenues
11,577
12,601
-8.1
%
Segment Operating Expenses
Operations and support
8,939
9,605
-6.9
%
Depreciation and amortization
1,312
1,420
-7.6
%
Total Segment Operating Expenses
10,251
11,025
-7.0
%
Segment Operating Income
1,326
1,576
-15.9
%
Equity in Net Income (Loss) of Affiliates
9
(6)
-
%
Segment Contribution
$
1,335
$
1,570
-15.0
%
Segment Operating Income Margin
11.5
%
12.5
%
-100
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
Video Connections
Satellite
20,270
21,012
-3.5
%
U-verse
3,632
4,020
-9.7
%
DIRECTV NOW
1,467
339
-
%
Total Video Connections
25,369
25,371
-
%
Broadband Connections
IP
13,616
13,130
3.7
%
DSL
816
1,164
-29.9
%
Total Broadband Connections
14,432
14,294
1.0
%
Voice Connections
Retail Consumer Switched Access Lines
4,535
5,533
-18.0
%
U-verse Consumer VoIP Connections
5,105
5,470
-6.7
%
Total Retail Consumer Voice Connections
9,640
11,003
-12.4
%
Three Months Ended
March 31,
Percent
2018
2017
Change
Video Net Additions1
Satellite
(188)
-
-
%
U-verse
1
(233)
-
%
DIRECTV NOW
312
72
-
%
Total Video Net Additions
125
(161)
-
%
Broadband Net Additions
IP
154
242
-36.4
%
DSL
(72)
(127)
43.3
%
Total Broadband Net Additions
82
115
-28.7
%
1 Includes the impact of customers that migrated to DIRECTV NOW.
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
Unaudited
March 31,
Percent
2018
2017
Change
Segment Operating Revenues
Video entertainment
$
1,354
$
1,341
1.0
%
Wireless service
404
475
-14.9
%
Wireless equipment
267
113
136.3
%
Total Segment Operating Revenues
2,025
1,929
5.0
%
Segment Operating Expenses
Operations and support
1,804
1,759
2.6
%
Depreciation and amortization
332
290
14.5
%
Total Segment Operating Expenses
2,136
2,049
4.2
%
Segment Operating Income (Loss)
(111)
(120)
7.5
%
Equity in Net Income (Loss) of Affiliates
-
20
-
%
Segment Contribution
$
(111)
$
(100)
-11.0
%
Segment Operating Income Margin
(5.5)
%
(6.2)
%
70
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
Mexican Wireless Subscribers
Postpaid
5,607
5,095
10.0
%
Prepaid
9,857
7,244
36.1
%
Branded
15,464
12,339
25.3
%
Reseller
178
267
-33.3
%
Total Mexican Wireless Subscribers
15,642
12,606
24.1
%
Latin America Satellite Subscribers
Total Latin America Satellite Subscribers
13,573
13,678
-0.8
%
Three Months Ended
March 31,
Percent
2018
2017
Change
Mexican Wireless Net Additions
Postpaid
109
130
-16.2
%
Prepaid
459
517
-11.2
%
Branded
568
647
-12.2
%
Reseller
(25)
(14)
-78.6
%
Total Mexican Wireless Net Additions
543
633
-14.2
%
Latin America Satellite Net Additions
Total Latin America Satellite Net Additions
(15)
91
-
%
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
Unaudited
March 31,
Percent
2018
2017
Change
Operating Revenues
Service
$
13,403
$
14,468
-7.4
%
Equipment
3,952
2,629
50.3
%
Total Operating Revenues
17,355
17,097
1.5
%
Operating Expenses
Operations and support
10,102
9,885
2.2
%
Depreciation and amortization
2,095
1,992
5.2
%
Total Operating Expenses
12,197
11,877
2.7
%
Operating Income
$
5,158
$
5,220
-1.2
%
Operating Income Margin
29.7
%
30.5
%
-80
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
March 31,
Percent
2018
2017
Change
AT&T Mobility Subscribers
Postpaid
77,431
76,935
0.6
%
Prepaid
15,671
13,844
13.2
%
Branded
93,102
90,779
2.6
%
Reseller
9,002
10,625
-15.3
%
Connected Devices
41,728
32,400
28.8
%
Total AT&T Mobility Subscribers
143,832
133,804
7.5
%
Domestic Licensed POPs (000,000)
329
325
1.2
%
Three Months Ended
March 31,
Percent
2018
2017
Change
AT&T Mobility Net Additions
Postpaid
49
(194)
-
%
Prepaid
241
282
-14.5
%
Branded
290
88
-
%
Reseller
(388)
(582)
33.3
%
Connected Devices
2,728
2,572
6.1
%
Total AT&T Mobility Net Additions
2,630
2,078
26.6
%
M&A Activity, Partitioned Customers and
Other Adjustments
1
(2,723)
-
%
Branded Churn
1.65%
1.71%
-6
BP
Postpaid Churn
1.06%
1.12%
-6
BP
Postpaid Phone Only Churn
0.84%
0.90%
-6
BP
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
March 31, 2018
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Consumer Mobility
$
14,986
$
8,524
$
6,462
$
1,807
$
4,655
$
-
$
4,655
Business Solutions
9,185
5,638
3,547
1,462
2,085
(1)
2,084
Entertainment Group
11,577
8,939
2,638
1,312
1,326
9
1,335
International
2,025
1,804
221
332
(111)
-
(111)
Segment Total
37,773
24,905
12,868
4,913
7,955
$
8
$
7,963
Corporate and Other
265
691
(426)
19
(445)
Acquisition-related items
-
67
(67)
1,062
(1,129)
Certain Significant items
-
180
(180)
-
(180)
AT&T Inc.
$
38,038
$
25,843
$
12,195
$
5,994
$
6,201
March 31, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Consumer Mobility
$
14,806
$
8,560
$
6,246
$
1,716
$
4,530
$
-
$
4,530
Business Solutions
9,692
6,040
3,652
1,465
2,187
-
2,187
Entertainment Group
12,601
9,605
2,996
1,420
1,576
(6)
1,570
International
1,929
1,759
170
290
(120)
20
(100)
Segment Total
39,028
25,964
13,064
4,891
8,173
$
14
$
8,187
Corporate and Other
337
829
(492)
34
(526)
Acquisition-related items
-
207
(207)
1,202
(1,409)
Certain Significant items
-
(118)
118
-
118
AT&T Inc.
$
39,365
$
26,882
$
12,483
$
6,127
$
6,356
As a supplemental discussion of our operating results, we are providing results under the comparative historical accounting method prior to our adoption of ASC 606.
SUPPLEMENTAL INCOME STATEMENT
Supplemental Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
33,646
$
(1,423)
$
35,069
$
36,456
-3.8
%
Equipment
4,392
531
3,861
2,909
32.7
%
Total Operating Revenues
38,038
(892)
38,930
39,365
-1.1
%
Operating Expenses
Cost of services and sales
Equipment
4,848
-
4,848
3,848
26.0
%
Broadcast, programming and operations
5,166
-
5,166
4,974
3.9
%
Other cost of services (exclusive of depreciation
and amortization shown separately below)
7,932
(929)
8,861
9,288
-4.6
%
Selling, general and administrative
7,897
(600)
8,497
8,772
-3.1
%
Depreciation and amortization
5,994
-
5,994
6,127
-2.2
%
Total Operating Expenses
31,837
(1,529)
33,366
33,009
1.1
%
Operating Income
6,201
637
5,564
6,356
-12.5
%
Interest Expense
(1,771)
-
(1,771)
(1,293)
37.0
%
Equity in Net Income (Loss) of Affiliates
9
-
9
(173)
-
%
Other Income (Expense) - Net
1,702
-
1,702
488
-
%
Income Before Income Taxes
6,141
637
5,504
5,378
2.3
%
Income Tax Expense
1,382
156
1,226
1,804
-32.0
%
Net Income
4,759
481
4,278
3,574
19.7
%
Less: Net Income Attributable to
Noncontrolling Interest
(97)
(6)
(91)
(105)
13.3
%
Net Income Attributable to AT&T
$
4,662
$
475
$
4,187
$
3,469
20.7
%
Basic Earnings Per Share Attributable to AT&T
$
0.75
$
0.07
$
0.68
$
0.56
21.4
%
Weighted Average Common
Shares Outstanding (000,000)
6,161
-
6,161
6,166
-0.1
%
Diluted Earnings Per Share Attributable to AT&T
$
0.75
$
0.07
$
0.68
$
0.56
21.4
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,180
-
6,180
6,186
-0.1
%
SUPPLEMENTAL CONSUMER MOBILITY
Supplemental Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Service
$
11,612
$
(612)
$
12,224
$
12,465
-1.9
%
Equipment
3,374
331
3,043
2,341
30.0
%
Total Segment Operating Revenues
14,986
(281)
15,267
14,806
3.1
%
Segment Operating Expenses
Operations and support
8,524
(650)
9,174
8,560
7.2
%
EBITDA
6,462
369
6,093
6,246
-2.4
%
Depreciation and amortization
1,807
-
1,807
1,716
5.3
%
Total Segment Operating Expenses
10,331
(650)
10,981
10,276
6.9
%
Segment Operating Income
4,655
369
4,286
4,530
-5.4
%
Equity in Net Income of Affiliates
-
-
-
-
-
%
Segment Contribution
$
4,655
$
369
$
4,286
$
4,530
-5.4
%
Operating Income Margin
31.1%
28.1%
30.6%
-250
BP
EBITDA Margin
43.1%
39.9%
42.2%
-230
BP
EBITDA Service Margin
55.6%
49.8%
50.1%
-30
BP
SUPPLEMENTAL BUSINESS SOLUTIONS
Supplemental Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Wireless service
$
1,791
$
(203)
$
1,994
$
2,003
-0.4
%
Fixed strategic services
3,138
(2)
3,140
2,974
5.6
%
Legacy voice and data services
2,839
(267)
3,106
3,549
-12.5
%
Other service and equipment
839
(69)
908
878
3.4
%
Wireless equipment
578
190
388
288
34.7
%
Total Segment Operating Revenues
9,185
(351)
9,536
9,692
-1.6
%
Segment Operating Expenses
Operations and support
5,638
(423)
6,061
6,040
0.3
%
EBITDA
3,547
72
3,475
3,652
-4.8
%
Depreciation and amortization
1,462
-
1,462
1,465
-0.2
%
Total Segment Operating Expenses
7,100
(423)
7,523
7,505
0.2
%
Segment Operating Income
2,085
72
2,013
2,187
-8.0
%
Equity in Net Income of Affiliates
(1)
-
(1)
-
-
%
Segment Contribution
$
2,084
$
72
$
2,012
$
2,187
-8.0
%
Operating Income Margin
22.7%
21.1%
22.6%
-150
BP
EBITDA Margin
38.6%
36.4%
37.7%
-130
BP
SUPPLEMENTAL ENTERTAINMENT GROUP
Supplemental Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Video entertainment
$
8,359
$
(106)
$
8,465
$
9,020
-6.2
%
High-speed internet
1,878
-
1,878
1,941
-3.2
%
Legacy voice and data services
819
(35)
854
1,031
-17.2
%
Other service and equipment
521
(72)
593
609
-2.6
%
Total Segment Operating Revenues
11,577
(213)
11,790
12,601
-6.4
%
Segment Operating Expenses
Operations and support
8,939
(414)
9,353
9,605
-2.6
%
EBITDA
2,638
201
2,437
2,996
-18.7
%
Depreciation and amortization
1,312
-
1,312
1,420
-7.6
%
Total Segment Operating Expenses
10,251
(414)
10,665
11,025
-3.3
%
Segment Operating Income
1,326
201
1,125
1,576
-28.6
%
Equity in Net Income (Loss) of Affiliates
9
-
9
(6)
-
%
Segment Contribution
$
1,335
$
201
$
1,134
$
1,570
-27.8
%
Operating Income Margin
11.5%
9.5%
12.5%
-300
BP
EBITDA Margin
22.8%
20.7%
23.8%
-310
BP
SUPPLEMENTAL INTERNATIONAL
Supplemental Segment Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Video entertainment
$
1,354
$
-
$
1,354
$
1,341
1.0
%
Wireless service
404
(50)
454
475
-4.4
%
Wireless equipment
267
10
257
113
-
%
Total Segment Operating Revenues
2,025
(40)
2,065
1,929
7.1
%
Segment Operating Expenses
Operations and support
1,804
(35)
1,839
1,759
4.5
%
EBITDA
221
(5)
226
170
32.9
%
Depreciation and amortization
332
-
332
290
14.5
%
Total Segment Operating Expenses
2,136
(35)
2,171
2,049
6.0
%
Segment Operating Income (Loss)
(111)
(5)
(106)
(120)
11.7
%
Equity in Net Income (Loss) of Affiliates
-
-
-
20
-
%
Segment Contribution
$
(111)
$
(5)
$
(106)
$
(100)
-6.0
%
Operating Income Margin
-5.5%
-5.1%
-6.2%
110
BP
EBITDA Margin
10.9%
10.9%
8.8%
210
BP
SUPPLEMENTAL AT&T MOBILITY
Supplemental Operating Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
13,403
$
(814)
$
14,217
$
14,468
-1.7
%
Equipment
3,952
521
3,431
2,629
30.5
%
Total Operating Revenues
17,355
(293)
17,648
17,097
3.2
%
Operating Expenses
Operations and support
10,102
(712)
10,814
9,885
9.4
%
EBITDA
7,253
419
6,834
7,212
-5.2
%
Depreciation and amortization
2,095
-
2,095
1,992
5.2
%
Total Operating Expenses
12,197
(712)
12,909
11,877
8.7
%
Operating Income
$
5,158
$
419
$
4,739
$
5,220
-9.2
%
Operating Income Margin
29.7%
26.9%
30.5%
-360
BP
EBITDA Margin
41.8%
38.7%
42.2%
-350
BP
EBITDA Service Margin
54.1%
48.1%
49.8%
-170
BP
SUPPLEMENTAL LATIN AMERICA
Supplemental Latin America Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Operating Revenues
Video entertainment
$
1,354
$
-
$
1,354
$
1,341
1.0
%
Total Operating Revenues
1,354
-
1,354
1,341
1.0
%
Operating Expenses
Operations and support
1,001
(31)
1,032
1,050
-1.7
%
EBITDA
353
31
322
291
10.7
%
Depreciation and amortization
205
-
205
214
-4.2
%
Total Operating Expenses
1,206
(31)
1,237
1,264
-2.1
%
Operating Income (Loss)
148
31
117
77
51.9
%
Equity in Net Income (Loss) of Affiliates
-
-
-
20
-
%
Operating Contribution
$
148
$
31
$
117
$
97
20.6
%
Operating Income Margin
10.9%
8.6%
5.7%
290
BP
EBITDA Margin
26.1%
23.8%
21.7%
210
BP
SUPPLEMENTAL MEXICO
Supplemental Mexico Results
Dollars in millions
Three Months Ended
Unaudited
March 31,
2018
Impact of ASC 606
Historical
2018
2017
Percent
Change
Operating Revenues
Wireless service
$
404
$
(50)
$
454
$
475
-4.4
%
Wireless equipment
267
10
257
113
-
%
Total Operating Revenues
671
(40)
711
588
20.9
%
Operating Expenses
Operations and support
803
(4)
807
709
13.8
%
EBITDA
(132)
(36)
(96)
(121)
20.7
%
Depreciation and amortization
127
-
127
76
67.1
%
Total Operating Expenses
930
(4)
934
785
19.0
%
Operating Income (Loss)
(259)
(36)
(223)
(197)
-13.2
%
Operating Contribution
$
(259)
$
(36)
$
(223)
$
(197)
-13.2
%
Operating Income Margin
-38.6%
-31.4%
-33.5%
210
BP
EBITDA Margin
-19.7%
-13.5%
-20.6%
710
BP
Discussion and Reconciliation of Non-GAAP Measures
We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors.
Certain amounts have been conformed to the current period's presentation, including our adoption of new accounting standards; ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash; and our realignment of certain responsibilities and operations within our segments, the most significant of which is to report wireless accounts with employer discounts in our Consumer Mobility segment.
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
March 31,
2018
2017
Net cash provided by operating activities
$
8,947
$
8,965
Less: Capital expenditures
(6,118)
(6,015)
Free Cash Flow
2,829
2,950
Less: Dividends paid
(3,070)
(3,009)
Free Cash Flow after Dividends
$
(241)
$
(59)
Free Cash Flow Dividend Payout Ratio
108.5%
102.0%
EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility) and our supplemental presentation of the Mexico Wireless and Latin America operations of our International segment, EBITDA excludes depreciation and amortization from operating income.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance. Management uses Mexico Wireless EBITDA in evaluating profitability trends after our two Mexico wireless acquisitions in 2015, and our investments in building a nationwide LTE network by end of 2018. Management uses Latin America EBITDA in evaluating the ability of our Latin America operations to generate cash to finance its own operations.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
March 31,
2018
2017
Net Income
$
4,759
$
3,574
Additions:
Income Tax (Benefit) Expense
1,382
1,804
Interest Expense
1,771
1,293
Equity in Net (Income) Loss of Affiliates
(9)
173
Other (Income) Expense - Net
(1,702)
(488)
Depreciation and amortization
5,994
6,127
EBITDA
12,195
12,483
Total Operating Revenues
38,038
39,365
Service Revenues
33,646
36,456
EBITDA Margin
32.1%
31.7%
EBITDA Service Margin
36.2%
34.2%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
March 31,
2018
2017
Consumer Mobility Segment
Segment Contribution
$
4,655
$
4,530
Additions:
Depreciation and amortization
1,807
1,716
EBITDA
6,462
6,246
Total Segment Operating Revenues
14,986
14,806
Service Revenues
11,612
12,465
Segment Operating Income Margin
31.1%
30.6%
EBITDA Margin
43.1%
42.2%
EBITDA Service Margin
55.6%
50.1%
Business Solutions Segment
Segment Contribution
$
2,084
$
2,187
Additions:
Equity in Net (Income) Loss of Affiliates
1
-
Depreciation and amortization
1,462
1,465
EBITDA
3,547
3,652
Total Segment Operating Revenues
9,185
9,692
Segment Operating Income Margin
22.7%
22.6%
EBITDA Margin
38.6%
37.7%
Entertainment Group Segment
Segment Contribution
$
1,335
$
1,570
Additions:
Equity in Net (Income) Loss of Affiliates
(9)
6
Depreciation and amortization
1,312
1,420
EBITDA
2,638
2,996
Total Segment Operating Revenues
11,577
12,601
Segment Operating Income Margin
11.5%
12.5%
EBITDA Margin
22.8%
23.8%
International Segment
Segment Contribution
$
(111)
$
(100)
Additions:
Equity in Net (Income) of Affiliates
-
(20)
Depreciation and amortization
332
290
EBITDA
221
170
Total Segment Operating Revenues
2,025
1,929
Segment Operating Income Margin
-5.5%
-6.2%
EBITDA Margin
10.9%
8.8%
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Three Months Ended
March 31,
2018
2017
AT&T Mobility
Operating Income
$
5,158
$
5,220
Add: Depreciation and amortization
2,095
1,992
EBITDA
7,253
7,212
Total Operating Revenues
17,355
17,097
Service Revenues
13,403
14,468
Operating Income Margin
29.7%
30.5%
EBITDA Margin
41.8%
42.2%
EBITDA Service Margin
54.1%
49.8%
Supplemental Latin America EBITDA and EBITDA Margin
Dollars in millions
Three Months Ended
March 31,
2018
2017
International - Latin America
Operating Income
$
148
$
77
Add: Depreciation and amortization
205
214
EBITDA
353
291
Total Operating Revenues
1,354
1,341
Operating Income Margin
10.9%
5.7%
EBITDA Margin
26.1%
21.7%
Supplemental Mexico EBITDA and EBITDA Margin
Dollars in millions
Three Months Ended
March 31,
2018
2017
International - Mexico
Operating Income (Loss)
$
(259)
$
(197)
Add: Depreciation and amortization
127
76
EBITDA
(132)
(121)
Total Operating Revenues
671
588
Operating Income Margin
-38.6%
-33.5%
EBITDA Margin
-19.7%
-20.6%
Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results, unless earlier remeasurement is required (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38% for transactions prior to tax reform and 25% for transactions after tax reform.
Adjusting Items
Dollars in millions
Three Months Ended
March 31,
2018
2017
Operating Expenses
Time Warner and other merger costs
$
67
$
41
Employee separation costs
51
-
Natural disaster costs
104
-
DIRECTV merger integration costs
-
127
Mexico merger integration costs
-
39
(Gain) loss on transfer of wireless spectrum
-
(118)
Venezuela devaluation
25
-
Adjustments to Operations and Support Expenses
247
89
Amortization of intangible assets
1,062
1,202
Adjustments to Operating Expenses
1,309
1,291
Other
Merger-related interest and fees1
393
109
Actuarial (gain) loss
(930)
-
(Gain) loss on sale of assets, impairments and other adjustments
-
257
Adjustments to Income Before Income Taxes
772
1,657
Tax impact of adjustments
173
556
Adjustments to Net Income
$
599
$
1,101
1 Includes interest expense incurred on debt issued and interest income earned on cash held prior to the close of
merger transactions.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
Adjusted Operating Income, Adjusted Operating Income Margin,
Dollars in millions
Three Months Ended
March 31,
2018
2017
Operating Income
$
6,201
$
6,356
Adjustments to Operating Expenses
1,309
1,291
Adjusted Operating Income
7,510
7,647
EBITDA
12,195
12,483
Adjustments to Operations and Support Expenses
247
89
Adjusted EBITDA
12,442
12,572
Total Operating Revenues
38,038
39,365
Service Revenues
33,646
36,456
Operating Income Margin
16.3%
16.1%
Adjusted Operating Income Margin
19.7%
19.4%
Adjusted EBITDA Margin
32.7%
31.9%
Adjusted EBITDA Service Margin
37.0%
34.5%
Supplemental Operating Income under Historical Accounting Method
5,564
Adjustments to Operating Expenses
1,309
Adjusted Supplemental Operating Income under Historical Accounting Method
6,873
Supplmental Operating Revenues under Historical Accounting Method
38,930
Adjusted Supplemental Operating Income Margin under Historical
Accounting Method
17.7%
Adjusted Diluted EPS
Three Months Ended
March 31,
2018
2017
Diluted Earnings Per Share (EPS)
$
0.75
$
0.56
Amortization of intangible assets
0.13
0.13
Merger integration items1
0.06
0.03
(Gain) loss of sale of assets, impairments and other adjustments2
0.03
0.02
Actuarial (gain) loss3
(0.12)
-
Adjusted EPS
$
0.85
$
0.74
Year-over-year growth - Adjusted
14.9%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
6,180
6,186
1Includes combined merger integration items and merger-related interest income and expense.
2Includes natural disaster, employee-related and other costs.
3Includes adjustments for actuarial gains or losses ($930 million in the first quarter of 2018) associated with our postemployment benefit plan, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, adjusted EPS reflects an expected return on plan assets of $77 million (based on an average expected return on plan assets of 5.75% for our VEBA trusts), rather than the actual return on plan assets of $31 million loss (VEBA return of (3.08)%), included in the GAAP measure of income.
Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by Annualized Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Adjusted EBITDA.
Net Debt to Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31,
YTD
2018
2018
Adjusted EBITDA
$
12,442
$
12,442
Add back severance
(51)
(51)
Net Debt Adjusted EBITDA
12,391
12,391
Annualized Adjusted EBITDA
49,564
End-of-period current debt
29,322
End-of-period long-term debt
133,724
Total End-of-Period Debt
163,046
Less: Cash and Cash Equivalents
48,872
Net Debt Balance
114,174
Annualized Net Debt to Adjusted EBITDA Ratio
2.30
Supplemental Operational Measures
We provide a supplemental discussion of our domestic wireless operations that is calculated by combining our Consumer Mobility and Business Solutions segments, and then adjusting to remove non-wireless operations. The following table presents a reconciliation of our supplemental AT&T Mobility results.
Supplemental Operational Measure
Three Months Ended
March 31, 2018
March 31, 2017
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Consumer Mobility
Business Solutions
Adjustments1
AT&T Mobility
Operating Revenues
Wireless service
$
11,612
$
1,791
$
-
$
13,403
$
12,465
$
2,003
$
-
$
14,468
Strategic services
-
3,138
(3,138)
-
-
2,974
(2,974)
-
Legacy voice and data services
-
2,839
(2,839)
-
-
3,549
(3,549)
-
Other service and equipment
-
839
(839)
-
-
878
(878)
-
Wireless equipment
3,374
578
-
3,952
2,341
288
-
2,629
Total Operating Revenues
14,986
9,185
(6,816)
17,355
14,806
9,692
(7,401)
17,097
Operating Expenses
Operations and support
8,524
5,638
(4,060)
10,102
8,560
6,040
(4,715)
9,885
EBITDA
6,462
3,547
(2,756)
7,253
6,246
3,652
(2,686)
7,212
Depreciation and amortization
1,807
1,462
(1,174)
2,095
1,716
1,465
(1,189)
1,992
Total Operating Expenses
10,331
7,100
(5,234)
12,197
10,276
7,505
(5,904)
11,877
Operating Income
$
4,655
$
2,085
$
(1,582)
$
5,158
$
4,530
$
2,187
$
(1,497)
$
5,220
1 Business wireline operations reported in Business Solutions segment.
Supplemental International
We provide a supplemental presentation of the Mexico Wireless and Latin America operations within our International segment. The following table presents a reconciliation of our International segment.
Supplemental International
Three Months Ended
March 31, 2018
March 31, 2017
Latin America
Mexico
International
Latin America
Mexico
International
Operating Revenues
Video service
$
1,354
$
-
$
1,354
$
1,341
$
-
$
1,341
Wireless service
-
404
404
-
475
475
Wireless equipment
-
267
267
-
113
113
Total Operating Revenues
1,354
671
2,025
1,341
588
1,929
Operating Expenses
Operations and support
1,001
803
1,804
1,050
709
1,759
Depreciation and amortization
205
127
332
214
76
290
Total Operating Expenses
1,206
930
2,136
1,264
785
2,049
Operating Income (Loss)
148
(259)
(111)
77
(197)
(120)
Equity in Net Income of Affiliates
-
-
-
20
-
20
Segment Contribution
$
148
$
(259)
$
(111)
$
97
$
(197)
$
(100)
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDQRFEAKKKEFFPEFF
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