DALLAS--(BUSINESS WIRE)--AT&T Inc. (NYSE:T) today reported solid first-quarter results with strong wireless net adds, best-ever first-quarter postpaid churn and strong demand for strategic business services.
“The first quarter was a significant step in a transformative year for AT&T” said Randall Stephenson, AT&T chairman and CEO. “The repositioning of our wireless customer base to no-device-subsidy plans drove industry-leading postpaid churn. IP technologies continue to transform our wireline operations, expand our broadband base and drive strong demand for strategic business services. Plus, we established a good foothold in the Mexican wireless market with our acquisition of Iusacell and we are on track to close our acquisition of Nextel’s Mexico operations shortly. This, along with our expectation that we’ll gain final approval of the DIRECTV deal in the second quarter, adds to our confidence that we’re on track to be a very different company uniquely positioned for growth.”
First-Quarter Financial Results
For the quarter ended March 31, 2015, AT&T’s consolidated revenues totaled $32.6 billion, up 0.3 percent versus the year-earlier period. When excluding the divested Connecticut wireline properties, revenues were up 1.2 percent. Compared with results for the first quarter of 2014, operating expenses were $27.1 billion versus $26.2 billion; operating income was $5.5 billion versus $6.3 billion; and operating income margin was 16.7 percent versus 19.3 percent. When adjusting for employee separation and merger and integration-related expenses, operating expenses were $26.6 billion, compared to $26.1 billion in the year-ago quarter; operating income was $6.0 billion versus $6.4 billion a year ago; and operating income margin was 18.5 percent versus 19.6 percent a year ago.
First-quarter 2015 net income attributable to AT&T totaled $3.2 billion, or $0.61 per diluted share, compared to net income of $3.7 billion, or $0.70 per diluted share in the year-ago quarter. Adjusting for $0.03 for voluntary employee separations, $0.04 for merger and integration-related expenses, and a $0.05 gain from a tax item, earnings per share was $0.63 compared to an adjusted $0.71 in the year-ago quarter, which included about 3 cents of EPS from since divested assets.
Cash from operating activities totaled $6.7 billion in the first quarter and capital expenditures totaled $4.0 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $2.8 billion.
DIRECTV Transaction Update
The company still expects the acquisition of DIRECTV to close in the second quarter of this year. The company now expects cost synergies from this transaction to reach at least $2.5 billion on an annual run rate by year three after closing. This is an increase from $1.6 billion that was expected at the time the deal was announced last year.
WIRELESS OPERATIONAL HIGHLIGHTS
In the first quarter, the company continued to reposition its wireless postpaid smartphone base with no-device-subsidy AT&T Next and Mobile Share ValueSM plans while also expanding growth opportunities in areas such as tablets and connected devices. Highlights included:
Equipment Revenues Increase More Than 36 Percent. Total wireless revenues were up 1.8 percent year over year to $18.2 billion. Wireless equipment revenues increased 36.1 percent to $3.4 billion, as more customers chose equipment installment and bring-your-own-device plans versus subsidized devices. Wireless service revenues were down 3.7 percent to $14.8 billion, reflecting continued customer growth of Mobile Share Value plans partially offset by increased revenues from Cricket. First-quarter wireless operating expenses totaled $13.7 billion, up 7.2 percent versus the year-earlier quarter, largely due to higher equipment costs and costs associated with the company’s acquisition of Leap Wireless. Wireless operating income was $4.4 billion, down 12.0 percent year over year largely due to the success of Mobile Share Value plans.
Postpaid Phone with Next ARPU Grows Sequentially for Third Straight Quarter. The continued adoption of AT&T Next and Mobile Share Value plans is reflected in a year-over-year reduction in postpaid service ARPU (average revenues per user). The first quarter marked the one-year anniversary of the introduction of Mobile Share Value plans. Phone-only postpaid ARPU decreased 9.6 percent versus the year-earlier quarter. Phone-only postpaid ARPU with AT&T Next monthly billings decreased 1.9 percent year over year but increased 0.4 percent sequentially, even with pressure from accounting for new RolloverSM Data plans. As customers upgrade on AT&T Next, phone-only ARPU with AT&T Next monthly billings is expected to continue to increase.
Industry-Leading Postpaid Churn. Postpaid churn was AT&T’s best-ever first quarter at 1.02 percent. This compares to 1.07 percent in the year-ago quarter. About 95 percent of AT&T’s total postpaid base is on Mobile Share, AT&T Family Talk® or business plans. Churn for these plans is significantly lower than for other postpaid subscribers.
Connected Cars and Tablets Drive Subscriber Growth. In the first quarter, the company reclassified connected device subscribers to include session-based tablets, which were previously reported as prepaid subscribers. Prepaid subscribers will now essentially include only phone activity. In the first quarter, AT&T posted a net increase in total wireless subscribers of 1.2 million, led by gains in postpaid and connected devices. The company added 441,000 postpaid subscribers and had 945,000 connected device net adds, including 684,000 connected cars. Prepaid gained 98,000 subscribers, primarily due to continued growth in Cricket’s smartphone base. The company also lost 266,000 reseller subscribers, primarily due to losses in low-end subscribers. Total branded smartphone net adds (both postpaid and prepaid) were about 1.2 million. The company had 711,000 postpaid tablet net adds in the quarter.
Customers Continue Shift to No-Device-Subsidy Model. The company had 6.2 million postpaid smartphone gross adds and upgrades in the quarter. Sales on AT&T Next also increased during the quarter as nearly two-thirds, or 65 percent, of all postpaid smartphone gross adds and upgrades chose AT&T Next. The company also had 313,000 bring-your-own-device gross adds. That means 70 percent of smartphone transactions in the quarter were non-subsidy. AT&T added more than 500,000 postpaid smartphones in the first quarter. More than 30 percent of the postpaid smartphone base is on AT&T Next, with about 62 percent, or 35.4 million, of postpaid smartphone subscribers on no-device-subsidy Mobile Share Value plans. At the end of the quarter, 84 percent, or 57.2 million, of AT&T’s postpaid phone subscribers had smartphones. Smartphones accounted for about 94 percent of phone sales during the quarter. AT&T’s ARPU for smartphones is about twice that of non-smartphone subscribers. At the end of the first quarter, 80 percent of AT&T’s postpaid smartphone customers had an LTE-capable device.
Mobile Share Value Plans Continue to Grow. AT&T continues to reposition the customer experience with attractive Mobile Share Value pricing for customers who choose to transition from the traditional device subsidy model. The number of Mobile Share accounts was up more than 70 percent year over year to reach 19.4 million with an average of about three devices per account. Mobile Share plans, including Mobile Share Value, now represent almost 56 million connections, or more than 70 percent of postpaid subscribers. At the end of the first quarter, about half of Mobile Share accounts had 10 gigabyte or larger data plans. In total, about 87 percent of postpaid smartphone subscribers are on usage-based data plans (tiered data, Mobile Share and other plans).
Cricket Operations Impact Margins. As expected, wireless margins were impacted by strong adoption of Mobile Share Value plans and Cricket operational results. AT&T’s reported first-quarter wireless operating income margin was 24.5 percent, versus 28.3 percent in the year-earlier quarter. Wireless EBITDA margin was 35.8 percent compared to 39.1 percent in the first quarter of 2014. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) When adjusting for wireless integration costs, AT&T’s wireless EBITDA margin was 36.9 percent compared to 39.2 percent in the first quarter of 2014 and wireless EBITDA service margin was 45.3 percent compared to 45.5 percent in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
WIRELINE OPERATIONAL HIGHLIGHTS
Strong demand for strategic business services and continued consumer gains led AT&T’s wireline results. Highlights included:
Wireline Margins Flat. Total first-quarter wireline revenues were $14.1 billion, down 3.1 percent versus the year-earlier quarter. When adjusting for the fourth-quarter 2014 sale of the company’s Connecticut wireline operations, revenues were down 1.2 percent year over year. Total adjusted U-verse revenues grew 20.3 percent year over year. First-quarter wireline operating expenses were $12.7 billion, down 3.1 percent versus the first quarter of 2014. AT&T’s wireline operating income totaled $1.4 billion, down 3.5 percent versus the first quarter of 2014. First-quarter wireline operating income margin was 10.0 percent, the same as the year-earlier quarter with IP revenue growth and cost efficiencies offsetting TV content cost pressure, declines in legacy services and non-cash benefit expenses.
Strategic Business Services Nearly One-Third of Wireline Business Revenues. Total revenues from business customers were $8.3 billion, down 4.4 percent versus the year-earlier quarter. When adjusting for the sale of the company’s Connecticut wireline properties, total revenues declined 3.3 percent year over year. Additionally, when adjusting for exiting select low-margin wholesale businesses and the impact of foreign exchange, total wireline business revenues would have declined 1.7 percent. Overall, declines in legacy products were partially offset by continued double-digit growth in strategic business services. Revenues from these services, the next-generation capabilities that lead AT&T’s most advanced business solutions — including VPNs, Ethernet, cloud, hosting, IP conferencing, voice over IP, MIS over Ethernet, U-verse and security services — grew 14.8 percent versus the year-earlier quarter and grew 15.4 percent when adjusting for the sale of Connecticut wireline properties. These services represent an annualized revenue stream of more than $10 billion and were nearly one-third of wireline business revenues in the first quarter. During the quarter, the company also added 27,000 U-verse IP broadband business subscribers.
U-verse Drives Solid Consumer Revenue Growth. Revenues from residential customers totaled $5.7 billion. When adjusted for the sale of the Connecticut wireline operations, revenue growth was 2.1 percent. Continued strong growth in consumer IP data services in the first quarter more than offset lower revenues from legacy voice and data products. U-verse, which includes high speed Internet, TV and voice over IP, now represents 69 percent of wireline consumer revenues, up from 59 percent in the year-earlier quarter. Adjusted consumer U-verse revenues grew 19 percent year over year.
Broadband Subscribers Increase. U-verse IP Internet had a first-quarter net gain of 440,000 subscribers, for a total of 12.6 million. Overall, total wireline broadband subscribers increased by 69,000 in the quarter. Total U-verse IP broadband subscribers now represent nearly 80 percent of all wireline broadband subscribers. U-verse TV added 50,000 subscribers in the first quarter. More than 97 percent of AT&T’s video customers subscribe to bundled services. ARPU for U-verse triple-play customers continues to be more than $170. At the end of the quarter, U-verse TV penetration was about 22 percent and U-verse broadband penetration was about 21 percent.
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 of people and businesses around the globe stay connected through leading wireless, high-speed Internet, voice and cloud-based services. We’re helping people mobilize their worlds with state-of-the-art communications, entertainment services and amazing innovations like connected cars and devices for homes, offices and points in between. Our U.S. wireless network offers customers the nation’s strongest LTE signal and the nation’s most reliable 4G LTE network. We offer the best global wireless coverage. We’re improving how our customers stay entertained and informed with AT&T U-verse® TV and High Speed Internet services. And businesses worldwide are serving their customers better with AT&T’s 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/att and YouTube at http://www.youtube.com/att.
© 2015 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.
Reliability and signal strength claims based on nationwide carriers’ LTE. Signal strength claim based ONLY on avg. LTE signal strength. LTE not available everywhere. Global coverage claim based on offering voice and data roaming in more countries than any other U.S. based carrier, and offering the most wireless smartphones and tablets that work in the most 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 may 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 or 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. Accompanying financial statements follow.
NOTE: EBITDA is defined as operating income before depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NOTE: Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, 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. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
Financial Data | |||||||||||||||||
AT&T Inc. | |||||||||||||||||
Consolidated Statements of Income | |||||||||||||||||
Dollars in millions except per share amounts | |||||||||||||||||
Unaudited | Three Months Ended | ||||||||||||||||
3/31/2015 | 3/31/2014 | % Chg | |||||||||||||||
Operating Revenues | |||||||||||||||||
Service | $ | 28,962 | $ | 29,776 | -2.7 | % | |||||||||||
Equipment | 3,614 | 2,700 | 33.9 | % | |||||||||||||
Total Operating Revenues | 32,576 | 32,476 | 0.3 | % | |||||||||||||
Operating Expenses | |||||||||||||||||
Cost of services and sales (exclusive of depreciation and amortization shown separately below) |
14,581 | 13,321 | 9.5 | % | |||||||||||||
Selling, general and administrative | 7,961 | 8,260 | -3.6 | % | |||||||||||||
Depreciation and amortization | 4,578 | 4,617 | -0.8 | % | |||||||||||||
Total Operating Expenses | 27,120 | 26,198 | 3.5 | % | |||||||||||||
Operating Income | 5,456 | 6,278 | -13.1 | % | |||||||||||||
Interest Expense | 899 | 860 | 4.5 | % | |||||||||||||
Equity in Net Income of Affiliates | - | 88 | - | ||||||||||||||
Other Income (Expense) - Net | 70 | 145 | -51.7 | % | |||||||||||||
Income Before Income Taxes | 4,627 | 5,651 | -18.1 | % | |||||||||||||
Income Tax Expense | 1,351 | 1,917 | -29.5 | % | |||||||||||||
Net Income | 3,276 | 3,734 | -12.3 | % | |||||||||||||
Less: Net Income Attributable to Noncontrolling Interest | (76 | ) | (82 | ) | 7.3 | % | |||||||||||
Net Income Attributable to AT&T | $ | 3,200 | $ | 3,652 | -12.4 | % | |||||||||||
Basic Earnings Per Share Attributable to AT&T | $ | 0.61 | $ | 0.70 | -12.9 | % | |||||||||||
Weighted Average Common Shares Outstanding (000,000) |
5,203 | 5,222 | -0.4 | % | |||||||||||||
Diluted Earnings Per Share Attributable to AT&T | $ | 0.61 | $ | 0.70 | -12.9 | % | |||||||||||
Weighted Average Common Shares Outstanding with Dilution (000,000) |
5,219 | 5,238 | -0.4 | % | |||||||||||||
Financial Data | |||||||||||||
AT&T Inc. | |||||||||||||
Consolidated Balance Sheets | |||||||||||||
Dollars in millions | |||||||||||||
3/31/15 | 12/31/14 | ||||||||||||
Unaudited | |||||||||||||
|
|||||||||||||
Assets | |||||||||||||
Current Assets | |||||||||||||
Cash and cash equivalents | $ | 4,444 | $ | 8,603 | |||||||||
Accounts receivable - net of allowances for doubtful accounts of $488 and $454 | 13,592 | 14,527 | |||||||||||
Prepaid expenses | 930 | 831 | |||||||||||
Deferred income taxes | 1,538 | 1,142 | |||||||||||
Other current assets | 6,906 | 6,925 | |||||||||||
Total current assets | 27,410 | 32,028 | |||||||||||
Property, Plant and Equipment - Net | 113,198 | 112,898 | |||||||||||
Goodwill | 70,341 | 69,692 | |||||||||||
Licenses | 80,560 | 60,824 | |||||||||||
Other Intangible Assets - Net | 6,423 | 6,139 | |||||||||||
Investments in Equity Affiliates | 266 | 250 | |||||||||||
Other Assets | 9,830 | 10,998 | |||||||||||
Total Assets | $ | 308,028 | $ | 292,829 | |||||||||
Liabilities and Stockholders’ Equity |
|||||||||||||
Current Liabilities | |||||||||||||
Debt maturing within one year | $ | 8,181 | $ | 6,056 | |||||||||
Accounts payable and accrued liabilities | 20,418 | 23,592 | |||||||||||
Advanced billing and customer deposits | 4,221 | 4,105 | |||||||||||
Accrued taxes | 2,390 | 1,091 | |||||||||||
Dividends payable | 2,441 | 2,438 | |||||||||||
Total current liabilities | 37,651 | 37,282 | |||||||||||
Long-Term Debt | 88,272 | 76,011 | |||||||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||||||
Deferred income taxes | 38,019 | 37,544 | |||||||||||
Postemployment benefit obligation | 37,074 | 37,079 | |||||||||||
Other noncurrent liabilities | 19,908 | 17,989 | |||||||||||
Total deferred credits and other noncurrent liabilities | 95,001 | 92,612 | |||||||||||
Stockholders’ Equity |
|||||||||||||
Common stock | 6,495 | 6,495 | |||||||||||
Additional paid-in capital | 90,977 | 91,108 | |||||||||||
Retained earnings | 28,490 | 27,736 | |||||||||||
Treasury stock | (46,804 | ) | (47,029 | ) | |||||||||
Accumulated other comprehensive income | 7,341 | 8,060 | |||||||||||
Noncontrolling interest | 605 | 554 | |||||||||||
Total stockholders’ equity |
87,104 | 86,924 | |||||||||||
Total Liabilities and Stockholders’ Equity |
$ | 308,028 | $ | 292,829 | |||||||||
Financial Data | |||||||||||||
AT&T Inc. | |||||||||||||
Consolidated Statements of Cash Flows | |||||||||||||
Dollars in millions | |||||||||||||
Three months ended March 31, | |||||||||||||
2015 | 2014 | ||||||||||||
Operating Activities | |||||||||||||
Net income | $ | 3,276 | $ | 3,734 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization | 4,578 | 4,617 | |||||||||||
Undistributed earnings from investments in equity affiliates | - | 17 | |||||||||||
Provision for uncollectible accounts | 285 | 241 | |||||||||||
Deferred income tax expense | 214 | 578 | |||||||||||
Net gain from sale of investments, net of impairments | (33 | ) | (122 | ) | |||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | 739 | (498 | ) | ||||||||||
Other current assets | 13 | (340 | ) | ||||||||||
Accounts payable and accrued liabilities | (1,817 | ) | 1,025 | ||||||||||
Retirement benefit funding | (140 | ) | (140 | ) | |||||||||
Other - net | (377 | ) | (313 | ) | |||||||||
Total adjustments | 3,462 | 5,065 | |||||||||||
Net Cash Provided by Operating Activities | 6,738 | 8,799 | |||||||||||
Investing Activities | |||||||||||||
Construction and capital expenditures: | |||||||||||||
Capital expenditures | (3,848 | ) | (5,716 | ) | |||||||||
Interest during construction | (123 | ) | (55 | ) | |||||||||
Acquisitions, net of cash acquired | (19,514 | ) | (662 | ) | |||||||||
Dispositions | 8 | 351 | |||||||||||
Sale of securities | 1,890 | - | |||||||||||
Net Cash Used in Investing Activities | (21,587 | ) | (6,082 | ) | |||||||||
Financing Activities | |||||||||||||
Net change in short-term borrowings with original maturities of three months or less |
- | (17 | ) | ||||||||||
Issuance of long-term debt | 16,572 | 2,987 | |||||||||||
Repayment of long-term debt | (596 | ) | (1,867 | ) | |||||||||
Purchase of treasury stock | - | (1,237 | ) | ||||||||||
Issuance of treasury stock | 8 | 13 | |||||||||||
Dividends paid | (2,434 | ) | (2,398 | ) | |||||||||
Other | (2,860 | ) | 74 | ||||||||||
Net Cash Provided by (Used in) Financing Activities | 10,690 | (2,445 | ) | ||||||||||
Net (decrease) increase in cash and cash equivalents | (4,159 | ) | 272 | ||||||||||
Cash and cash equivalents beginning of year | 8,603 | 3,339 | |||||||||||
Cash and Cash Equivalents End of Period | $ | 4,444 | $ | 3,611 | |||||||||
Financial Data | |||||||||||||||||
AT&T Inc. | |||||||||||||||||
Statements of Segment Income | |||||||||||||||||
Dollars in millions | |||||||||||||||||
Unaudited |
Three Months Ended | ||||||||||||||||
Wireless | 3/31/2015 | 3/31/2014 | % Chg | ||||||||||||||
Segment Operating Revenues | |||||||||||||||||
Service | $ | 14,812 | $ | 15,387 | -3.7 | % | |||||||||||
Equipment | 3,374 | 2,479 | 36.1 | % | |||||||||||||
Total Segment Operating Revenues | 18,186 | 17,866 | 1.8 | % | |||||||||||||
Segment Operating Expenses | |||||||||||||||||
Operations and support | 11,681 | 10,882 | 7.3 | % | |||||||||||||
Depreciation and amortization | 2,058 | 1,931 | 6.6 | % | |||||||||||||
Total Segment Operating Expenses | 13,739 | 12,813 | 7.2 | % | |||||||||||||
Segment Operating Income | 4,447 | 5,053 | -12.0 | % | |||||||||||||
Equity in Net Income (Loss) of Affiliates | (4 | ) | (20 | ) | 80.0 | % | |||||||||||
Segment Income | $ | 4,443 | $ | 5,033 | -11.7 | % | |||||||||||
Segment Operating Income Margin |
24.5 |
% |
28.3 |
% |
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Wireline | |||||||||||||||||
Segment Operating Revenues | |||||||||||||||||
Service | $ | 13,935 | $ | 14,389 | -3.2 | % | |||||||||||
Equipment | 213 | 212 | 0.5 | % | |||||||||||||
Total Segment Operating Revenues | 14,148 | 14,601 | -3.1 | % | |||||||||||||
Segment Operating Expenses | |||||||||||||||||
Operations and support | 10,263 | 10,457 | -1.9 | % | |||||||||||||
Depreciation and amortization | 2,476 | 2,684 | -7.7 | % | |||||||||||||
Total Segment Operating Expenses | 12,739 | 13,141 | -3.1 | % | |||||||||||||
Segment Operating Income | 1,409 | 1,460 | -3.5 | % | |||||||||||||
Equity in Net Income (Loss) of Affiliates | (7 | ) | 1 | - | |||||||||||||
Segment Income | $ | 1,402 | $ | 1,461 | -4.0 | % | |||||||||||
Segment Operating Income Margin |
10.0 |
% |
10.0 |
% |
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International | |||||||||||||||||
Segment Operating Revenues | |||||||||||||||||
Service | $ | 215 | - | ||||||||||||||
Equipment | 21 | - | |||||||||||||||
Total Segment Operating Revenues | 236 | - | |||||||||||||||
Segment Operating Expenses | |||||||||||||||||
Operations and support | 219 | - | |||||||||||||||
Depreciation and amortization | 44 | - | |||||||||||||||
Total Segment Operating Expenses | 263 | - | |||||||||||||||
Segment Operating Income (Loss) | (27 | ) | - | ||||||||||||||
Equity in Net Income of Affiliates | - | - | |||||||||||||||
Segment Income (Loss) | $ | (27 | ) | - | |||||||||||||
Segment Operating Income Margin |
(11.4 |
)% |
|
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Financial Data | |||||||||||||||||
AT&T Inc. | |||||||||||||||||
Supplementary Operating and Financial Data | |||||||||||||||||
Dollars in millions except per share amounts, subscribers and connections in (000s) | |||||||||||||||||
Unaudited | Three Months Ended | ||||||||||||||||
3/31/2015 | 3/31/2014 | % Chg | |||||||||||||||
Wireless | |||||||||||||||||
Subscribers and Connections | |||||||||||||||||
Total |
121,772 | 116,014 | 5.0 | % | |||||||||||||
Postpaid | 76,175 | 73,291 | 3.9 | % | |||||||||||||
Prepaid1 | 10,037 | 10,411 | -3.6 | % | |||||||||||||
Reseller | 13,595 | 13,886 | -2.1 | % | |||||||||||||
Connected Devices1 | 21,965 | 18,426 | 19.2 | % | |||||||||||||
Wireless Net Adds | |||||||||||||||||
Total | 1,218 | 1,062 | 14.7 | % | |||||||||||||
Postpaid | 441 | 625 | -29.4 | % | |||||||||||||
Prepaid1 | 98 | 88 | 11.4 | % | |||||||||||||
Reseller | (266 | ) | (206 | ) | -29.1 | % | |||||||||||
Connected Devices1 | 945 | 555 | 70.3 | % | |||||||||||||
M&A Activity, Partitioned Customers and Other Adjs. | - | 4,576 | - | ||||||||||||||
Wireless Churn | |||||||||||||||||
Postpaid Churn | 1.02 | % | 1.07 | % | -5 BP | ||||||||||||
Total Churn | 1.40 | % | 1.39 | % | 1 BP | ||||||||||||
Other | |||||||||||||||||
Licensed POPs (000,000) | 321 | 321 | - | ||||||||||||||
Wireline | |||||||||||||||||
Voice | |||||||||||||||||
Total Wireline Voice Connections | 24,149 | 27,716 | -12.9 | % | |||||||||||||
Net Change | (629 | ) | (773 | ) | 18.6 | % | |||||||||||
Broadband | |||||||||||||||||
Total Wireline Broadband Connections | 16,097 | 16,503 | -2.5 | % | |||||||||||||
Net Change | 69 | 78 | -11.5 | % | |||||||||||||
Video | |||||||||||||||||
Total U-verse Video Connections | 5,993 | 5,661 | 5.9 | % | |||||||||||||
Net Change | 50 | 201 | -75.1 | % | |||||||||||||
Consumer Revenue Connections | |||||||||||||||||
Broadband2 | 14,537 | 14,807 | -1.8 | % | |||||||||||||
U-verse Video Connections | 5,969 | 5,642 | 5.8 | % | |||||||||||||
Voice3 | 13,669 | 15,775 | -13.4 | % | |||||||||||||
Total Consumer Revenue Connections2 | 34,175 | 36,224 | -5.7 | % | |||||||||||||
Net Change | (191 | ) | (166 | ) | -15.1 | % | |||||||||||
AT&T Inc. | |||||||||||||||||
Construction and capital expenditures: | |||||||||||||||||
Capital expenditures | $ | 3,848 | $ | 5,716 | -32.7 | % | |||||||||||
Interest during construction | $ | 123 | $ | 55 | - | ||||||||||||
Dividends Declared per Share | $ | 0.47 | $ | 0.46 | 2.2 | % | |||||||||||
End of Period Common Shares Outstanding (000,000) | 5,193 | 5,195 | - | ||||||||||||||
Debt Ratio4 | 52.5 | % | 46.6 | % | 590 BP | ||||||||||||
Total Employees | 250,790 | 246,730 | 1.6 | % |
1 | Prior year amounts restated to conform to current period reporting methodology. | |
2 | Consumer wireline broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband. | |
3 | Includes consumer U-verse Voice over Internet Protocol connections of 5,009 as of March 31, 2015. | |
4 |
Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders’ equity. |
|
Note: |
For the end of 1Q15, total switched access lines were 18,949; retail business switched access lines totaled 8,784; and wholesale, national mass markets and coin switched access lines totaled 1,505. |
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Financial Data | ||||||||||||||||||||||||||||
AT&T Inc. | ||||||||||||||||||||||||||||
Non-GAAP Wireless Reconciliation | ||||||||||||||||||||||||||||
Wireless Segment EBITDA | ||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||||||||||||
3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | 3/31/15 | ||||||||||||||||||||||||
Segment Operating Revenues | ||||||||||||||||||||||||||||
Service | $ | 15,387 | $ | 15,148 | $ | 15,423 | $ | 15,074 | $ | 14,812 | ||||||||||||||||||
Equipment | 2,479 | 2,782 | 2,914 | 4,785 | 3,374 | |||||||||||||||||||||||
Total Segment Operating Revenues | $ | 17,866 | $ | 17,930 | $ | 18,337 | $ | 19,859 | $ | 18,186 | ||||||||||||||||||
Segment Operating Expenses | ||||||||||||||||||||||||||||
Operations and support | 10,882 | 11,568 | 11,855 | 14,619 | 11,681 | |||||||||||||||||||||||
Depreciation and amortization | 1,931 | 2,035 | 1,965 | 2,010 | 2,058 | |||||||||||||||||||||||
Total Segment Operating Expenses | 12,813 | 13,603 | 13,820 | 16,629 | 13,739 | |||||||||||||||||||||||
Segment Operating Income | 5,053 | 4,327 | 4,517 | 3,230 | 4,447 | |||||||||||||||||||||||
Segment Operating Income Margin | 28.3 | % | 24.1 | % | 24.6 | % | 16.3 | % | 24.5 | % | ||||||||||||||||||
Plus: Depreciation and amortization | 1,931 | 2,035 | 1,965 | 2,010 | 2,058 | |||||||||||||||||||||||
EBITDA1 | $ | 6,984 | $ | 6,362 | $ | 6,482 | $ | 5,240 | $ | 6,505 | ||||||||||||||||||
EBITDA as a % of Service Revenues2 | 45.4 | % | 42.0 | % | 42.0 | % | 34.8 | % | 43.9 | % | ||||||||||||||||||
1 EBITDA is defined as Operating Income Before Depreciation and Amortization. 2 Service revenues include Wireless data, voice, text and other service revenues. |
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Financial Data | ||||||||||||||||||
AT&T Inc. | ||||||||||||||||||
Non-GAAP Wireless Reconciliation | ||||||||||||||||||
Wireless Segment Adjusted EBITDA | ||||||||||||||||||
Dollars in millions | ||||||||||||||||||
Unaudited | Three Months Ended | |||||||||||||||||
March 31, | ||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||
Service Revenues | $ | 15,062 | $ | 15,387 | $ | 14,812 | ||||||||||||
EBITDA1 | $ | 6,511 | $ | 6,984 | $ | 6,505 | ||||||||||||
EBITDA as a % of Service Revenues2 | 43.2 | % | 45.4 | % | 43.9 | % | ||||||||||||
Adjustments: | ||||||||||||||||||
Wireless integration expense3 | - | 17 | 209 | |||||||||||||||
Adjusted EBITDA1 | $ | 6,511 | $ | 7,001 | $ | 6,714 | ||||||||||||
Adjusted EBITDA as a % of Adjusted Service Revenues2 | 43.2 | % | 45.5 | % | 45.3 | % | ||||||||||||
1 EBITDA is defined as operating income before
depreciation and amortization.
2 Service revenues include Wireless data, voice, text and other service revenues. 3 Operations and Support expenses for domestic wireless integration costs. |
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Financial Data | |||||||||||||
AT&T Inc. | |||||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||||
Free Cash Flow | |||||||||||||
Dollars in millions | |||||||||||||
Unaudited |
Three Months Ended | ||||||||||||
March 31, | |||||||||||||
2014 | 2015 | ||||||||||||
Net cash provided by operating activities | $ | 8,799 | $ | 6,738 | |||||||||
Less: Construction and capital expenditures | (5,771 | ) | (3,971 | ) | |||||||||
Free Cash Flow | $ | 3,028 | $ | 2,767 | |||||||||
Free Cash Flow after Dividends | |||||||||||||
Dollars in millions | |||||||||||||
Unaudited |
Three Months Ended | ||||||||||||
March 31, | |||||||||||||
2014 | 2015 | ||||||||||||
Net cash provided by operating activities | $ | 8,799 | $ | 6,738 | |||||||||
Less: Construction and capital expenditures | (5,771 | ) | (3,971 | ) | |||||||||
Free Cash Flow | 3,028 | 2,767 | |||||||||||
Less: Dividends paid | (2,398 | ) | (2,434 | ) | |||||||||
Free Cash Flow after Dividends | $ | 630 | $ | 333 | |||||||||
Free cash flow includes reimbursements of certain postretirement benefits paid. |
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Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners. |
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Financial Data | |||||||||||
AT&T Inc. | |||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||
Annualized Net-Debt-to-Adjusted-EBITDA Ratio | |||||||||||
Dollars in millions | |||||||||||
Unaudited |
Three |
||||||||||
3/31/15 | YTD 2015 | ||||||||||
Operating Revenues | $ | 32,576 | $ | 32,576 | |||||||
Operating Expenses | 27,120 | 27,120 | |||||||||
Total Operating Income | 5,456 | 5,456 | |||||||||
Add Back Depreciation and Amortization | 4,578 | 4,578 | |||||||||
Consolidated Reported EBITDA | 10,034 | 10,034 | |||||||||
Add Back: | |||||||||||
Merger and integration costs1 | 298 | 298 | |||||||||
Pension termination charges | 150 | 150 | |||||||||
Total Consolidated Adjusted EBITDA | 10,482 | ||||||||||
Annualized Consolidated Adjusted EBITDA | $ | 41,928 | |||||||||
End-of-period current debt | 8,181 | ||||||||||
End-of-period long-term debt | 88,272 | ||||||||||
Total End-of-Period Debt | 96,453 | ||||||||||
Less Cash and Cash Equivalents | 4,444 | ||||||||||
Net Debt Balance | $ | 92,009 | |||||||||
Annualized Net-Debt-to-Adjusted-EBITDA Ratio | 2.19 | ||||||||||
1 Adjustments include Operations and Support expenses for domestic wireless and Iusacell integration costs and DIRECTV merger costs. |
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Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA. |
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Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. | |||||||||||
Financial Data | ||||||||||||
AT&T Inc. | ||||||||||||
Non-GAAP Consolidated Reconciliation | ||||||||||||
Adjusted Diluted EPS | ||||||||||||
Unaudited |
Three Months Ended | |||||||||||
March 31, | ||||||||||||
2014 | 2015 | |||||||||||
Reported Diluted EPS | $ | 0.70 | $ | 0.61 | ||||||||
Adjustments: | ||||||||||||
Merger and integration costs1 | 0.01 | 0.04 | ||||||||||
Employee separation charges | - | 0.03 | ||||||||||
Tax-related item | - | (0.05 | ) | |||||||||
Adjusted Diluted EPS | $ | 0.71 | $ | 0.63 | ||||||||
Year-over-year growth - Adjusted | -11.3 | % | ||||||||||
Weighted Average Common Shares Outstanding with Dilution (000,000) |
5,238 | 5,219 | ||||||||||
1 Includes domestic wireless and Iusacell integration costs and DIRECTV merger costs. |
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Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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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. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies. |
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Sum of components may not tie due to rounding. | ||||||||||||
Financial Data | ||||||||||||||||||
AT&T Inc. | ||||||||||||||||||
Non-GAAP Consolidated Reconciliation | ||||||||||||||||||
Adjusted Operating Income and Margin | ||||||||||||||||||
Dollars in millions | ||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||
March 31, | ||||||||||||||||||
2013 | 2014 | 2015 | ||||||||||||||||
Operating Revenues | $ | 31,356 | $ | 32,476 | $ | 32,576 | ||||||||||||
Reported Operating Income | $ | 5,940 | $ | 6,278 | $ | 5,456 | ||||||||||||
Adjustments: | ||||||||||||||||||
Merger and integration costs1 | - | 92 | 348 | |||||||||||||||
Employee separation charges2 | - | - | 217 | |||||||||||||||
Adjusted Operating Income | $ | 5,940 | $ | 6,370 | $ | 6,021 | ||||||||||||
Year-over-year growth - Adjusted | 7.2 | % | -5.5 | % | ||||||||||||||
Adjusted Operating Income Margin* | 18.9 | % |
19.6 |
% | 18.5 | % | ||||||||||||
1 Includes domestic wireless and Iusacell integration costs and DIRECTV merger costs. |
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2 Includes $150M of pension termination charges and $67M severance and other charges. |
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Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. 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. |
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Adjusted Operating Income and Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies. |
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*Adjusted Operating Income Margin is calculated by dividing Adjusted Operating Income by Operating Revenues. |
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Financial Data | ||||||||||||||||||
AT&T Inc. | ||||||||||||||||||
Non-GAAP Wireline Reconciliation | ||||||||||||||||||
Wireline Segment EBITDA | ||||||||||||||||||
Dollars in millions | ||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||
3/31/14 | 12/31/14 | 3/31/15 | ||||||||||||||||
Segment Operating Revenues | ||||||||||||||||||
Service | $ | 14,389 | $ | 14,240 | $ | 13,935 | ||||||||||||
Equipment | 212 | 332 | 213 | |||||||||||||||
Total Segment Operating Revenues | $ | 14,601 | $ | 14,572 | $ | 14,148 | ||||||||||||
Segment Operating Expenses | ||||||||||||||||||
Operations and support | 10,457 | 10,553 | 10,263 | |||||||||||||||
Depreciation and amortization | 2,684 | 2,554 | 2,476 | |||||||||||||||
Total Segment Operating Expenses | 13,141 | 13,107 | 12,739 | |||||||||||||||
Segment Operating Income | 1,460 | 1,465 | 1,409 | |||||||||||||||
Segment Operating Income Margin | 10.0 | % | 10.1 | % | 10.0 | % | ||||||||||||
Plus: Depreciation and amortization | 2,684 | 2,554 | 2,476 | |||||||||||||||
EBITDA1 | $ | 4,144 | $ | 4,019 | $ | 3,885 | ||||||||||||
EBITDA Margin | 28.4 | % | 27.6 | % | 27.5 | % | ||||||||||||
1 EBITDA is defined as Operating Income Before Depreciation and Amortization. |
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Financial Data | |||||||||||||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||||||||||
Non-GAAP Wireline Reconciliation | |||||||||||||||||||||||||||||||||||||||||||
Adjusted Operating Revenues to Exclude Connecticut Wireline Properties1 | |||||||||||||||||||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||||||||||||||||||
Unaudited | Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||
6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | 3/31/15 | ||||||||||||||||||||||||||||||||||||
Connecticut Wireline Operating Revenues | |||||||||||||||||||||||||||||||||||||||||||
Consumer Markets | $ | 169 | $ | 169 | $ | 169 | $ | 174 | $ | 173 | $ | 170 | $ | 43 | $ | - | |||||||||||||||||||||||||||
AT&T Business Solutions | 111 | 109 | 107 | 101 | 99 | 101 | 24 | - | |||||||||||||||||||||||||||||||||||
Other | 1 | 1 | (1 | ) | - | 2 | 1 | - | - | ||||||||||||||||||||||||||||||||||
Connecticut Wireline Operating Revenues | $ | 281 | $ | 279 | $ | 275 | $ | 275 | $ | 274 | $ | 272 | $ | 67 | $ | - | |||||||||||||||||||||||||||
Total AT&T Operating Revenues | $ | 32,075 | $ | 32,158 | $ | 33,163 | $ | 32,476 | $ | 32,575 | $ | 32,957 | $ | 34,439 | $ | 32,576 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (281 | ) | (279 | ) | (275 | ) | (275 | ) | (274 | ) | (272 | ) | (67 | ) | - | ||||||||||||||||||||||||||||
Adjusted AT&T Operating Revenues | $ | 31,794 | $ | 31,879 | $ | 32,888 | $ | 32,201 | $ | 32,301 | $ | 32,685 | $ | 34,372 | $ | 32,576 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | 1.6 | % | 2.5 | % | 4.5 | % | 1.2 | % | |||||||||||||||||||||||||||||||||||
Wireline Operating Revenues | $ | 14,773 | $ | 14,670 | $ | 14,716 | $ | 14,601 | $ | 14,637 | $ | 14,615 | $ | 14,572 | $ | 14,148 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (281 | ) | (279 | ) | (275 | ) | (275 | ) | (274 | ) | (272 | ) | (67 | ) | - | ||||||||||||||||||||||||||||
Adjusted Wireline Operating Revenues | $ | 14,492 | $ | 14,391 | $ | 14,441 | $ | 14,326 | $ | 14,363 | $ | 14,343 | $ | 14,505 | $ | 14,148 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | -0.9 | % | -0.3 | % | 0.4 | % | -1.2 | % | |||||||||||||||||||||||||||||||||||
Wireline Consumer Operating Revenues | $ | 5,579 | $ | 5,567 | $ | 5,638 | $ | 5,715 | $ | 5,748 | $ | 5,735 | $ | 5,643 | $ | 5,658 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (169 | ) | (169 | ) | (169 | ) | (174 | ) | (173 | ) | (170 | ) | (43 | ) | - | ||||||||||||||||||||||||||||
Adjusted Wireline Consumer Operating Revenues | $ | 5,410 | $ | 5,398 | $ | 5,469 | $ | 5,541 | $ | 5,575 | $ | 5,565 | $ | 5,600 | $ | 5,658 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | 3.0 | % | 3.1 | % | 2.4 | % | 2.1 | % | |||||||||||||||||||||||||||||||||||
Wireline Business Solutions Operating Revenues | $ | 8,927 | $ | 8,849 | $ | 8,839 | $ | 8,670 | $ | 8,672 | $ | 8,669 | $ | 8,596 | $ | 8,288 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (111 | ) | (109 | ) | (107 | ) | (101 | ) | (99 | ) | (101 | ) | (24 | ) | - | ||||||||||||||||||||||||||||
Adjusted Wireline Business Solutions Operating Revenues | $ | 8,816 | $ | 8,739 | $ | 8,733 | $ | 8,569 | $ | 8,572 | $ | 8,568 | $ | 8,572 | $ | 8,288 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | -2.8 | % | -2.0 | % | -1.8 | % | -3.3 | % | |||||||||||||||||||||||||||||||||||
Wireline Strategic Business Services Revenues2 | $ | 2,095 | $ | 2,154 | $ | 2,251 | $ | 2,289 | $ | 2,382 | $ | 2,467 | $ | 2,565 | $ | 2,628 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (9 | ) | (9 | ) | (10 | ) | (11 | ) | (11 | ) | (13 | ) | (2 | ) | - | ||||||||||||||||||||||||||||
Adjusted Wireline Business Operating Revenues | $ | 2,086 | $ | 2,145 | $ | 2,240 | $ | 2,278 | $ | 2,370 | $ | 2,454 | $ | 2,563 | $ | 2,628 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | 13.6 | % | 14.4 | % | 14.4 | % | 15.4 | % | |||||||||||||||||||||||||||||||||||
Wireline U-verse Services Revenue | $ | 2,931 | $ | 3,061 | $ | 3,276 | $ | 3,470 | $ | 3,657 | $ | 3,791 | $ | 3,898 | $ | 4,047 | |||||||||||||||||||||||||||
Less Connecticut Wireline | (91 | ) | (95 | ) | (100 | ) | (105 | ) | (109 | ) | (111 | ) | (28 | ) | - | ||||||||||||||||||||||||||||
Adjusted U-verse Services Revenues | $ | 2,840 | $ | 2,966 | $ | 3,176 | $ | 3,365 | $ | 3,548 | $ | 3,680 | $ | 3,870 | $ | 4,047 | |||||||||||||||||||||||||||
Year-over-Year growth - Adjusted | 24.9 | % | 24.1 | % | 21.9 | % | 20.3 | % | |||||||||||||||||||||||||||||||||||
1 Prior-period amounts restated to conform to current-period reporting methodology and divestiture of Connecticut Wireline Properties. Sum of segments’ revenues within a quarter might not tie to total revenues due to rounding. |
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2 Strategic business services are AT&T’s most advanced business solutions, including VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services. |
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Adjusted Operating Revenues is a non-GAAP financial measure calculated by excluding the operating revenues of Connecticut Wireline Properties sold in October 2014. Management believes that these measures provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies. |
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EBITDA DISCUSSION
For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
We believe these measures are relevant and useful information to our investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless 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 our Wireless segment’s 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 AT&T Mobility’s operating managers are responsible and upon which we evaluate their performance.
EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) – net, net income attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the operating results of our wireless subscriber base and national footprint that we utilize to obtain and service our customers. Equity in net income (loss) of affiliates represents AT&T Mobility’s proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.
We believe EBITDA as a percentage of service revenues to be a more relevant measure of our Wireless segment operating margin than EBITDA as a percentage of total revenue. We generally subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates, which directly affect our Wireless segment income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
FREE CASH FLOW DISCUSSION
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NET DEBT TO EBITDA DISCUSSION
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.
Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. This measure is consistent with metrics under our existing credit agreements.
ADJUSTING ITEMS DISCUSSION
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, 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. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.