TIDM58KN
RNS Number : 0416L
AT & T Inc.
19 December 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) October 24,
2018
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8610 43-1301883
(State or Other Jurisdiction (Commission File Number) (IRS Employer Identification
of Incorporation) No.)
208 S. Akard St., Dallas,
Texas 75202
(Address of Principal Executive (Zip Code)
Offices)
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 October 24, 2018, its results of
operations for the third 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
Press release dated October 24, 2018 reporting financial results for
99.1 the third quarter ended September 30, 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: October 24, 2018 By: /s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Third-Quarter Results
Consolidated Results
-- Diluted EPS of $0.65 as reported compared to $0.49 in the year-ago
quarter
-- Adjusted EPS of $0.90 compared to $0.74 in the year-ago quarter
-- Consolidated revenues of $45.7 billion
-- Cash from operations of $12.3 billion, up 14.3%
-- Capital expenditures of $5.9 billion
-- Free cash flow of $6.5 billion, up 16.6%
Company reaffirms 2018 guidance of adjusted EPS at the high end
of $3.50 range 1 ,
free cash flow at the high end of the $21 billion range and
net capital expenditures at $22 billion range
Note: AT&T's third-quarter earnings conference call will be
webcast at 8:30 a.m. ET on Wednesday, October 24, 2018. The webcast
and related materials will be available on AT&T's Investor
Relations website at https://investors.att.com .
DALLAS, October 24, 2018 - AT&T Inc. (NYSE:T) reported solid
revenue, earnings and free cash flow growth in the third quarter
led by gains in Mobility and WarnerMedia. Wireless results in the
third quarter included positive postpaid phone net adds, strong
prepaid phone gains and growing service revenues. (On a GAAP basis,
service revenues declined 3.4%; however, on a comparable basis ,
service revenues grew 2.3%.)
"I'm pleased with the progress we made on a number of fronts in
the third quarter," said Randall Stephenson, AT&T chairman and
CEO. "Our U.S. wireless business is growing and it's the single
biggest contributor to our earnings and cash flow. WarnerMedia was
immediately accretive in its first full quarter, contributing 5
cents to EPS, and our free cash flow grew by double digits.
"We've accomplished all this while staying focused on managing
our debt portfolio. We're on track to get to the 2.5x
debt-to-EBITDA range by year-end 2019. And as we're nearing
completion of our fiber build and making pricing moves on video,
we're laying the foundation for stabilizing our Entertainment Group
profitability in 2019. Across the business, I like our momentum and
feel confident that we're on track to deliver on our plans."
North America wireless:
-- 4.3 million total wireless net adds:
o 3.4 million in U.S., driven by connected devices and prepaid
o 907,000 in Mexico
Communications Highlights
-- Mobility:
o Service revenues up 2.3% on a comparable basis
o 550,000 phone net adds in the U.S.
-- 69,000 postpaid phone net adds
-- 481,000 prepaid phone net adds
o Nearly 750,000 branded smartphones added to the base
o Third-quarter postpaid phone churn of 0.93%
-- Entertainment Group:
o 49,000 DIRECTV NOW net adds with 346,000 net losses in traditional
video as company focuses on improving profitability and begins
beta test of new streaming video device
o More than 10 million customer locations passed with fiber
WarnerMedia Highlights
-- Revenues up with gains in all business units
o Turner and Home Box Office year-over-year subscription revenue
growth
o Strong Warner Bros. television licensing revenue growth; box
office releases included the hit films Crazy Rich Asians, The
Meg and The Nun
o 37 Primetime Emmy Awards; 12 News and Documentary Emmy Awards
Xandr Highlights
-- Advertising revenues grew 34%; up 22% excluding the AppNexus acquisition
-- AppNexus enhances addressable advertising technology
Consolidated Financial Results 2
AT&T's consolidated revenues for the third quarter totaled
$45.7 billion versus $39.7 billion in the year-ago quarter, up
15.3%, primarily due to the Time Warner acquisition partially
offset by the impact of ASC 606 and the netting of approximately
$920 million of USF revenues with operating expenses. Without the
accounting change, revenues were $46.6 billion, an increase of
17.5% primarily due to the Time Warner acquisition. Declines in
domestic video, legacy wireline services and Vrio were offset by
growth in wireless equipment and services, WarnerMedia and
Xandr.
Operating expenses were $38.5 billion versus $33.9 billion in
the year-ago quarter, primarily due to the Time Warner acquisition
partially offset by the netting of USF and other regulatory fee
revenues and the deferral of commissions under ASC 606. Excluding
those impacts, operating expenses were $39.9 billion, an increase
of about $6.1 billion due to the Time Warner acquisition, higher
wireless equipment costs and Entertainment Group content cost
pressure, partially offset by cost efficiencies.
Versus results from the third quarter of 2017, operating income
was $7.3 billion, up 25.2% primarily due to the Time Warner
acquisition; and operating income margin was 15.9% versus 14.6%. On
a comparative basis, operating income was $6.7 billion and
operating income margin was 14.3%. When adjusting for amortization,
merger- and integration-related expenses and other items, operating
income was $10.0 billion, or $9.4 billion on a comparative basis,
versus $7.5 billion in the year-ago quarter, and operating income
margin was 21.9%, or 20.3% on a comparative basis, versus 18.8% in
the year-ago quarter.
Third-quarter net income attributable to AT&T was $4.7
billion, or $0.65 per diluted share, versus $3.0 billion, or $0.49
per diluted share, in the year-ago quarter. Adjusting for $0.25 of
costs for amortization, merger- and integration-related expenses
and other items, earnings per diluted share was $0.90 compared to
an adjusted $0.74 in the year-ago quarter, a 21.6% increase.
Cash from operating activities was $12.3 billion, and capital
expenditures were $5.9 billion. Capital investment included about
$560 million in FirstNet capital costs and reflects no FirstNet
reimbursements. Free cash flow - cash from operating activities
minus capital expenditures - was $6.5 billion for the quarter. The
company is successfully managing near-term maturities and
refinancing risk and expects to have retired or refinanced about
$28 billion of near-to-intermediate term maturities by the end of
2018.
1 Adjustments include a non-cash mark-to-market benefit plan
gain/loss, merger-related interest expense, merger integration and
amortization costs and other adjustments. We expect the
mark-to-market adjustment which is driven by interest rates and
investment returns that are not reasonably estimable at this time,
to be the largest of these items. Accordingly, we cannot provide a
reconciliation between forecasted adjusted diluted EPS and reported
diluted EPS without unreasonable effort.
2 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.
*About AT&T
AT&T Inc. ( NYSE:T ) is a diversified, global leader in
telecommunications, media and entertainment, and technology. It
executes in the market under four operating units. WarnerMedia's
HBO, Turner and Warner Bros. divisions are world leaders in
creating premium content, operate one of the world's largest TV and
film studios, and own a world-class library of entertainment.
AT&T Communications provides more than 100 million U.S.
consumers with entertainment and communications experiences across
TV, mobile and broadband services. Plus, it serves more than 3
million business customers with high-speed, highly secure
connectivity and smart solutions. AT&T Latin America provides
pay-TV services across 11 countries and territories in Latin
America and the Caribbean, and is the fastest growing wireless
provider in Mexico, serving consumers and businesses. Xandr
provides marketers with innovative and relevant advertising
solutions for consumers around premium video content and digital
advertising through its AppNexus platform.
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 is available
at about.att.com. (c) 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:
Erin McGrath
AT&T Inc.
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
Unaudited Third Quarter Nine-Month Period
----------------------- -----------------------
2018 2017 Percent 2018 2017 Percent
As Adjusted Change As Adjusted Change
--------------------------- ------- ------------ ---------- ------- ------------ ----------
Operating Revenues
Service $ 41,297 $ 36,378 13.5% $109,849 $ 109,372 0.4%
Equipment 4,442 3,290 35.0% 12,914 9,498 36.0%
Total Operating Revenues 45,739 39,668 15.3% 122,763 118,870 3.3%
------- ------------ ------- ------------
Operating Expenses
Cost of revenues
Equipment 4,828 4,191 15.2% 14,053 12,177 15.4%
Broadcast, programming
and operations 7,227 5,284 36.8% 17,842 15,156 17.7%
Other cost of revenues
(exclusive
of depreciation
and amortization shown
separately
below) 8,651 9,694 (10.8)% 24,215 28,551 (15.2)%
Selling, general and
administrative 9,598 8,650 11.0% 26,179 25,981 0.8%
Depreciation and
amortization 8,166 6,042 35.2% 20,538 18,316 12.1%
---------------------------- ------- ------------ ------- ------------
Total Operating Expenses 38,470 33,861 13.6% 102,827 100,181 2.6%
---------------------------- ------- ------------ ------- ------------
Operating Income 7,269 5,807 25.2% 19,936 18,689 6.7%
---------------------------- ------- ------------ ------- ------------
Interest Expense (2,051) (1,686) 21.6% (5,845) (4,374) 33.6%
Equity in Net Income (Loss)
of
Affiliates (64) 11 -% (71) (148) 52.0%
Other Income (Expense) - Net 1,053 842 25.1% 5,108 2,255 -%
---------------------------- ------- ------------ ------- ------------
Income Before Income Taxes 6,207 4,974 24.8% 19,128 16,422 16.5%
Income Tax Expense 1,391 1,851 (24.9)% 4,305 5,711 (24.6)%
---------------------------- ------- ------------ ------- ------------
Net Income 4,816 3,123 54.2% 14,823 10,711 38.4%
---------------------------- ------- ------------ ------- ------------
Less: Net Income
Attributable
to
Noncontrolling Interest (98) (94) (4.3)% (311) (298) (4.4)%
---------------------------- ------- ------------ ------- ------------
Net Income Attributable to
AT&T $ 4,718 $ 3,029 55.8% $ 14,512 $ 10,413 39.4%
============================ ======= ============ ======= ============
Basic Earnings Per Share
Attributable
to AT&T $ 0.65 $ 0.49 32.7% $ 2.19 $ 1.69 29.6%
Weighted Average Common
Shares Outstanding
(000,000) 7,284 6,162 18.2% 6,603 6,164 7.1%
Diluted Earnings Per Share
Attributable
to AT&T $ 0.65 $ 0.49 32.7% $ 2.19 $ 1.69 29.6%
Weighted Average Common
Shares Outstanding with
Dilution
(000,000) 7,320 6,182 18.4% 6,630 6,184 7.2%
---------------------------- ------- ------------ ------ ------- ------------ ------
1
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited Sep. 30, Dec. 31,
2018 2017
-------------------------------------------------------------- -------- --------
Assets
Current Assets
Cash and cash equivalents $ 8,657 $ 50,498
Accounts receivable - net of allowances for doubtful accounts
of $845 and $663 26,312 16,522
Prepaid expenses 1,860 1,369
Other current assets 16,278 10,757
--------------------------------------------------------------- -------- --------
Total current assets 53,107 79,146
--------------------------------------------------------------- -------- --------
Noncurrent Inventories and Theatrical Film and Television
Production Costs 7,221 -
Property, Plant and Equipment - Net 130,348 125,222
Goodwill 146,475 105,449
Licenses 96,077 96,136
Trademarks and Trade Names - Net 24,389 7,021
Distribution
Networks 16,962 -
Other Intangible Assets - Net 28,673 11,119
Investments in and Advances to Equity Affiliates 6,128 1,560
Other Assets 25,490 18,444
--------------------------------------------------------------- -------- --------
Total Assets $ 534,870 $ 444,097
=============================================================== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 14,905 $ 38,374
Accounts payable and accrued liabilities 39,375 34,470
Advanced billing and customer deposits 6,045 4,213
Accrued taxes 1,460 1,262
Dividends payable 3,635 3,070
--------------------------------------------------------------- -------- --------
Total current liabilities 65,420 81,389
--------------------------------------------------------------- -------- --------
Long-Term Debt 168,513 125,972
--------------------------------------------------------------- -------- --------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 60,495 43,207
Postemployment benefit obligation 28,981 31,775
Other noncurrent liabilities 26,490 19,747
--------------------------------------------------------------- -------- --------
Total deferred credits and other noncurrent liabilities 115,966 94,729
--------------------------------------------------------------- -------- --------
Stockholders' Equity
Common stock 7,621 6,495
Additional paid-in capital 125,706 89,563
Retained earnings 57,624 50,500
Treasury stock (12,486) (12,714)
Accumulated other comprehensive income 5,383 7,017
Noncontrolling interest 1,123 1,146
--------------------------------------------------------------- -------- --------
Total stockholders' equity 184,971 142,007
--------------------------------------------------------------- -------- --------
Total Liabilities and Stockholders' Equity $ 534,870 $ 444,097
=============================================================== ======== ========
2
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited Nine-Month Period
------------------------
2018 2017
As Adjusted
-------------------------------------------------------------------- --------
Operating Activities
Net income $ 14,823 $ 10,711
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,538 18,316
Amortization of film and television costs 1,608 -
Undistributed earnings from investments in equity affiliates 312 171
Provision for uncollectible accounts 1,240 1,216
Deferred income tax expense 2,934 3,254
Net (gain) loss from sale of investments, net of impairments (501) (114)
Actuarial (gain) loss on pension and postretirement benefits (2,726) (259)
Changes in operating assets and liabilities:
Accounts receivable (1,018) (652)
Other current assets, inventories and theatrical film and
television production costs (2,729) (106)
Accounts payable and other accrued liabilities (1,385) (1,437)
Equipment installment receivables and related sales 220 451
Deferred customer contract acquisition and fulfillment costs (2,657) (1,102)
Retirement benefit funding (420) (420)
Other - net 1,283 (1,556)
--------------------------------------------------------------------- -------- ------------
Total adjustments 16,699 17,762
--------------------------------------------------------------------- -------- ------------
Net Cash Provided by Operating Activities 31,522 28,473
--------------------------------------------------------------------- -------- ------------
Investing Activities
Capital expenditures:
Purchase of property and equipment (16,695) (15,756)
Interest during construction (404) (718)
Acquisitions, net of cash acquired (43,116) 1,154
Dispositions 983 56
(Purchases) sales of securities, net (234) 235
Advances to and investments in equity affiliates, net (1,021) -
Cash collections of deferred purchase price 500 665
Net Cash Used in Investing Activities (59,987) (14,364)
--------
Financing Activities
Net change in short-term borrowings with original maturities
of three months or less 1 (2)
Issuance of other short-term borrowings 4,852 -
Repayment of other short-term borrowings (2,147) -
Issuance of long-term debt 38,325 46,761
Repayment of long-term debt (43,579) (10,309)
Purchase of treasury stock (577) (460)
Issuance of treasury stock 359 26
Dividends paid (9,775) (9,030)
Other (1,138) 1,716
--------------------------------------------------------------------- -------- ------------
Net Cash (Used in) Provided by Financing Activities (13,679) 28,702
--------------------------------------------------------------------- -------- ------------
Net (decrease) increase in cash and cash equivalents and restricted
cash (42,144) 42,811
Cash and cash equivalents and restricted cash beginning of
year 50,932 5,935
--------------------------------------------------------------------- -------- ------------
Cash and Cash Equivalents and Restricted Cash End of Period $ 8,788 $ 48,746
===================================================================== ======== ============
3
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per
share amounts
Unaudited Third Quarter Percent Nine-Month Period Percent
----------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------------- ----- ----- ---------- ------- ------- ----------
Capital expenditures
Purchase of property and equipment $ 5,736 $5,006 14.6% $ 16,695$ 15,756 6.0%
Interest during construction 137 245 (44.1)% 404 718 (43.7)%
------------------------------------- ----- ----- ------- -------
Total Capital Expenditures $ 5,873 $5,251 11.8% $ 17,099$ 16,474 3.8%
-------------------------------------- ----- ----- ------- -------
Dividends Declared per Share $ 0.50 $ 0.49 2.0% $ 1.50$ 1.47 2.0%
End of Period Common Shares
Outstanding (000,000) 7,270 6,139 18.4%
Debt Ratio 49.8% 56.4% (660) BP
Total Employees 269,280 256,800 4.9%
-------------------------------------- ----- ----- ------ ------- ------- ------
Supplementary Operating Data
Subscribers and connections
in thousands
Unaudited Nine-Month Period Percent
-------------------------
2018 2017 Change
------------------------------------- ----- ----- ------ ------- ------- ----------
Wireless Subscribers
Domestic 150,252 138,445 8.5%
Mexico 17,305 13,779 25.6%
------------------------------------- ----- ----- ------ ------- -------
Total Wireless Subscribers 167,557 152,224 10.1%
-------------------------------------- ----- ----- ------ ------- -------
Total Branded Wireless Subscribers 110,982 105,717 5.0%
Video Connections
Domestic 25,176 25,110 0.3%
Latin America 13,640 13,490 1.1%
------------------------------------- ----- ----- ------ ------- -------
Total Video Connections 38,816 38,600 0.6%
-------------------------------------- ----- ----- ------ ------- -------
Broadband Connections
IP 14,744 14,384 2.5%
DSL 1,002 1,331 (24.7)%
------------------------------------- ----- ----- ------ ------- -------
Total Broadband Connections 15,746 15,715 0.2%
-------------------------------------- ----- ----- ------ ------- -------
Voice Connections
Network Access Lines 10,399 12,249 (15.1)%
U-verse VoIP Connections 5,274 5,774 (8.7)%
------------------------------------- ----- ----- ------ ------- -------
Total Retail Voice Connections 15,673 18,023 (13.0)%
====================================== ===== ===== ====== ======= ======= ======
Third Quarter Percent Nine-Month Period Percent
----------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------------- ----- ----- ---------- ------- ------- ----------
Wireless Net Additions
Domestic 3,363 2,341 43.7% 9,057 6,717 34.8%
Mexico 907 697 30.1% 2,206 1,806 22.1%
------------------------------------- ----- ----- ------- -------
Total Wireless Net Additions 4,270 3,038 40.6% 11,263 8,523 32.1%
-------------------------------------- ----- ----- ------- -------
Total Branded Wireless Net Additions 1,213 1,173 3.4% 3,351 2,812 19.2%
Video Net Additions
Domestic (296) (90) -% (93) (450) 79.3%
Latin America (73) (132) 44.7% 52 (97) -%
------------------------------------- ----- ----- ------- -------
Total Video Net Additions (369) (222) (66.2)% (41) (547) 92.5%
-------------------------------------- ----- ----- ------- -------
Broadband Net Additions
IP 35 150 (76.7)% 257 520 (50.6)%
DSL (60) (121) 50.4% (230) (410) 43.9%
------------------------------------- ----- ----- ------- -------
Total Broadband Net Additions (25) 29 -% 27 110 (75.5)%
-------------------------------------- ----- ----- ------ ------- ------- ------
4
COMMUNICATIONS SEGMENT
The Communications segment provides wireless and wireline telecom, video and
broadband services to consumers located in the U.S. or in U.S. territories and
businesses globally. The Communications segment contains three reporting units:
Mobility, Entertainment Group, and Business Wireline.
Segment Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
---------------- ---------------------
2018 2017 Change 2018 2017 Change
-------------------------------------- ------ ------ ---------- ------- ------- ----------
Segment Operating Revenues
Mobility $17,938 $17,370 3.3% $ 52,575 $ 51,922 1.3%
Entertainment Group 11,589 12,467 (7.0)% 34,498 37,435 (7.8)%
Business Wireline 6,703 7,278 (7.9)% 20,100 21,911 (8.3)%
-------------------------------------- ------ ------ ------- -------
Total Segment Operating Revenues 36,230 37,115 (2.4)% 107,173 111,268 (3.7)%
======================================= ====== ====== ======= =======
Segment Operating Contribution
Mobility 5,603 5,333 5.1% 16,267 15,929 2.1%
Entertainment Group 1,104 1,283 (14.0)% 3,888 4,470 (13.0)%
Business Wireline 1,475 1,455 1.4% 4,468 4,422 1.0%
-------------------------------------- ------ ------ ------- -------
Total Segment Operating Contribution $ 8,182 $ 8,071 1.4% $ 24,623 $ 24,821 (0.8)%
======================================= ====== ====== ======= =======
Mobility
Mobility provides nationwide wireless service and equipment.
Mobility Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
----------------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------ ------ ------ ---------- ------- ------- ----------
Operating Revenues
Service $13,989$ 14,475 (3.4)% $ 41,074$ 43,414 (5.4)%
Equipment 3,949 2,895 36.4% 11,501 8,508 35.2%
------------------------------ ------ ------ ------- -------
Total Operating Revenues 17,938 17,370 3.3% 52,575 51,922 1.3%
------------------------------- ------ ------ ------- -------
Operating Expenses
Operations and support 10,255 10,029 2.3% 30,020 30,005 -%
Depreciation and amortization 2,079 2,008 3.5% 6,287 5,988 5.0%
------------------------------- ------ ------ ------- -------
Total Operating Expenses 12,334 12,037 2.5% 36,307 35,993 0.9%
------------------------------- ------ ------ ------- -------
Operating Income 5,604 5,333 5.1% 16,268 15,929 2.1%
Equity in Net Income (Loss)
of Affiliates (1) - -% (1) - -%
------------------------------- ------ ------ ------- -------
Operating Contribution $ 5,603$ 5,333 5.1% $ 16,267$ 15,929 2.1%
=============================== ====== ====== ======= =======
Operating Income Margin 31.2% 30.7% 50 BP 30.9% 30.7% 20 BP
------------------------------- ------ ------ ------ ------- ------- ------
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited Nine-Month Period Percent
-------------------------
2018 2017 Change
------------------------------ ------ ------ ------ ------- ------- ----------
Mobility Subscribers
Postpaid 76,996 77,034 -%
Prepaid 16,894 15,136 11.6%
------------------------------ ------ ------ ------ ------- -------
Branded 93,890 92,170 1.9%
Reseller 8,183 9,877 (17.2)%
Connected Devices 48,179 36,398 32.4%
------------------------------- ------ ------ ------ ------- -------
Total Mobility Subscribers 150,252 138,445 8.5%
=============================== ====== ====== ====== ======= ======= ======
Third Quarter Percent Nine-Month Period Percent
----------------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------ ------ ------ ---------- ------- ------- ----------
Mobility Net Additions
Postpaid (232) 134 -% (110) 83 -%
Prepaid 570 324 75.9% 1,264 873 44.8%
------------------------------ ------ ------ ------- -------
Branded 338 458 (26.2)% 1,154 956 20.7%
Reseller (434) (391) (11.0)% (1,266) (1,341) 5.6%
Connected Devices 3,459 2,274 52.1% 9,169 7,102 29.1%
------------------------------- ------ ------ ------- -------
Total Mobility Net Additions 3,363 2,341 43.7% 9,057 6,717 34.8%
------------------------------- ------ ------ ------- -------
Branded Churn 1.70% 1.70% - BP 1.62% 1.66% (4) BP
Postpaid Churn 1.17% 1.06% 11 BP 1.08% 1.06% 2 BP
Postpaid Phone-Only Churn 0.93% 0.84% 9 BP 0.87% 0.84% 3 BP
------------------------------- ------ ------ ------ ------- ------- ------
5
Entertainment Group
Entertainment Group provides video, including over-the-top (OTT) services,
broadband and voice communication services primarily to residential customers.
This business unit also sells advertising on DIRECTV and U-verse distribution
platforms.
Entertainment Group Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
--------------------------- -----------------------
2018 2017 Change 2018 2017 Change
---------------------------- ------- ------ ---------- ------ ------ ----------
Operating Revenues
Video entertainment $ 8,283$ 9,052 (8.5)% $24,681$ 26,967 (8.5)%
High-speed internet 2,045 1,916 6.7% 5,904 5,784 2.1%
Legacy voice and
data services 740 913 (18.9)% 2,317 2,889 (19.8)%
Other service
and equipment 521 586 (11.1)% 1,596 1,795 (11.1)%
---------------------------- ------- ------ ------ ------
Total Operating
Revenues 11,589 12,467 (7.0)% 34,498 37,435 (7.8)%
----------------------------- ------- ------ ------ ------
Operating Expenses
Operations and support 9,155 9,804 (6.6)% 26,623 28,711 (7.3)%
Depreciation and
amortization 1,331 1,379 (3.5)% 3,986 4,254 (6.3)%
----------------------------- ------- ------ ------ ------
Total Operating
Expenses 10,486 11,183 (6.2)% 30,609 32,965 (7.1)%
----------------------------- ------- ------ ------ ------
Operating Income 1,103 1,284 (14.1)% 3,889 4,470 (13.0)%
Equity in Net Income
(Loss) of Affiliates 1 (1) -% (1) - -%
----------------------------- ------- ------ ------ ------
Operating Contribution $ 1,104$ 1,283 (14.0)% $ 3,888$ 4,470 (13.0)%
============================= ======= ====== ====== ======
Operating Income
Margin 9.5% 10.3% (80) BP 11.3% 11.9% (60) BP
----------------------------- ------- ------ ------ ------ ------ ------
Supplementary Operating Data
Subscribers and
connections in thousands
Unaudited Nine-Month Period Percent
-----------------------
2018 2017 Change
---------------------------- ------- ------ ---------- ------ ------ ----------
Video Connections
Satellite 19,625 20,605 (4.8)%
U-verse 3,669 3,691 (0.6)%
DIRECTV NOW 1,858 787 -%
---------------------------- ------- ------ ------ ------ ------
Total Video Connections 25,152 25,083 0.3%
----------------------------- ------- ------ ------ ------ ------
Broadband Connections
IP 13,723 13,367 2.7%
DSL 718 964 (25.5)%
---------------------------- ------- ------ ------ ------ ------
Total Broadband
Connections 14,441 14,331 0.8%
----------------------------- ------- ------ ------ ------ ------
Voice Connections
Retail Consumer
Switched Access
Lines 4,144 4,996 (17.1)%
U-verse Consumer
VoIP Connections 4,757 5,337 (10.9)%
---------------------------- ------- ------ ------ ------ ------
Total Retail Consumer
Voice Connections 8,901 10,333 (13.9)%
============================= ======= ====== ====== ====== ====== ======
Third Quarter Percent Nine-Month Period Percent
--------------------------- -----------------------
2018 2017 Change 2018 2017 Change
---------------------------- ------- ------ ---------- ------ ------ ----------
Video Net Additions
1
Satellite (359) (251) (43.0)% (833) (407) -%
U-verse 13 (134) -% 38 (562) -%
DIRECTV NOW 49 296 (83.4)% 703 520 35.2%
---------------------------- ------- ------ ------ ------
Total Video Net
Additions (297) (89) -% (92) (449) 79.5%
----------------------------- ------- ------ ------ ------
Broadband Net Additions
IP 31 125 (75.2)% 261 479 (45.5)%
DSL (45) (96) 53.1% (170) (327) 48.0%
---------------------------- ------- ------ ------ ------
Total Broadband
Net Additions (14) 29 -% 91 152 (40.1)%
----------------------------- ------- ------ ------ ------
1 Includes the impact of customers
that migrated to DIRECTV NOW.
----------------------------------------------------- ------ ------ ------ ------
6
Business Wireline
Business Wireline unit provides advanced IP-based services, as well as traditional
data services to business customers.
Business Wireline Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
------------------------- -----------------------
2018 2017 Change 2018 2017 Change
---------------------------------- ------ ----- ---------- ------ ------ ----------
Operating Revenues
Strategic services $ 3,059$ 3,018 1.4% $ 9,168$ 8,880 3.2%
Legacy voice and data services 2,615 3,343 (21.8)% 8,176 10,314 (20.7)%
Other service and equipment 1,029 917 12.2% 2,756 2,717 1.4%
--------------------------------- ------ ----- ------ ------
Total Operating Revenues 6,703 7,278 (7.9)% 20,100 21,911 (8.3)%
---------------------------------- ------ ----- ------ ------
Operating Expenses
Operations and support 4,030 4,635 (13.1)% 12,084 13,906 (13.1)%
Depreciation and amortization 1,197 1,189 0.7% 3,547 3,583 (1.0)%
---------------------------------- ------ ----- ------ ------
Total Operating Expenses 5,227 5,824 (10.3)% 15,631 17,489 (10.6)%
---------------------------------- ------ ----- ------ ------
Operating Income 1,476 1,454 1.5% 4,469 4,422 1.1%
Equity in Net Income (Loss)
of Affiliates (1) 1 -% (1) - -%
---------------------------------- ------ ----- ------ ------
Operating Contribution $ 1,475$ 1,455 1.4% $ 4,468$ 4,422 1.0%
================================== ====== ===== ====== ======
Operating Income Margin 22.0% 20.0% 200 BP 22.2% 20.2% 200 BP
---------------------------------- ------ ----- ------ ------ ------ ------
Business Solutions
As a supplemental presentation to our Communications segment operating results,
we are providing a view of our AT&T Business Solutions results which includes
both wireless and fixed operations. This combined view presents a complete
profile of the entire business customer relationship, and underscores the importance
of mobile solutions to serving our business customers.
Business Solutions Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
----------------------------- -------------------------
2018 2017 Change 2018 2017 Change
-------------------------- ------- --- ------- ----------- ------- ------- -----------
Operating Revenues
Wireless service $ 1,877$ 2,023 (7.2)% $ 5,497$ 6,030 (8.8)%
Strategic
services 3,059 3,018 1.4% 9,168 8,880 3.2%
Legacy voice
and data services 2,615 3,343 (21.8)% 8,176 10,314 (20.7)%
Other service
and equipment 1,029 917 12.2% 2,756 2,717 1.4%
Wireless equipment 590 340 73.5% 1,752 988 77.3%
------------------------- ------- --- ------- ------- -------
Total Operating
Revenues 9,170 9,641 (4.9)% 27,349 28,929 (5.5)%
-------------------------- ------- --- ------- ------- -------
Operating Expenses
Operations and
support 5,598 6,096 (8.2)% 16,808 18,147 (7.4)%
Depreciation and
amortization 1,499 1,466 2.3% 4,444 4,409 0.8%
-------------------------- ------- --- ------- ------- -------
Total Operating
Expenses 7,097 7,562 (6.1)% 21,252 22,556 (5.8)%
-------------------------- ------- --- ------- ------- -------
Operating Income 2,073 2,079 (0.3)% 6,097 6,373 (4.3)%
Equity in Net
Income (Loss)
of Affiliates (1) - -% (1) - -%
-------------------------- ------- --- ------- ------- -------
Operating Contribution $ 2,072$ 2,079 (0.3)% $ 6,096$ 6,373 (4.3)%
========================== ======= ======= ======= =======
Operating Income
Margin 22.6% 21.6% 100 BP 22.3% 22.0% 30 BP
-------------------------- ------- ------- ------- ------- ------- -------
7
WARNERMEDIA SEGMENT
The WarnerMedia segment develops, produces and distributes feature films, television,
gaming and other content in various physical and digital formats globally. Results
from AT&T's Regional Sports Network (RSN) and Otter Media Holdings are also
included in the WarnerMedia segment. The WarnerMedia segment contains three
business units: Turner, Home Box Office, and Warner Bros.
Segment Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
------------------------ ---------------------
2018 2017 Change 2018 2017 Change
------------------------------------- -------- ------ --------- --- -------- ----- ---------
Segment Operating Revenues
Turner $ 2,988 $ 107 -% $ 3,767 $ 323 -%
Home Box Office 1,644 - -% 1,925 - -%
Warner Bros. 3,720 - -% 4,227 - -%
Eliminations and other (148) - -% (210) - -%
------------------------------------ -------- ------ --- -------- -----
Total Segment Operating
Revenues 8,204 107 -% 9,709 323 -%
===================================== ======== ====== === ======== =====
Segment Operating Contribution
Turner 1,449 22 -% 1,802 79 -%
Home Box Office 630 - -% 734 - -%
Warner Bros. 553 - -% 642 - -%
Eliminations and other (104) (20) -% (186) (58) -%
------------------------------------ -------- ------ --- -------- -----
Total Segment Operating
Contribution $ 2,528 $ 2 -% $ 2,992 $ 21 -%
===================================== ======== ====== === ======== =====
Turner
Turner is comprised of the WarnerMedia businesses managed by Turner as well
as our RSN. This business unit creates and programs branded news, entertainment,
sports and kids multi-platform content that is sold to various distribution
affiliates. Turner also sells advertising on its networks and digital properties.
Turner Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
----------------------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------ ------- --- ------ --- ----------- ------ ----- ---------
Operating Revenues
Subscription $ 1,855$ 90 -% $ 2,363$ 271 -%
Advertising 944 17 -% 1,181 52 -%
Content and
other 189 - -% 223 - -%
----------------------------- ------- --- ------ --- ------ -----
Total Operating
Revenues 2,988 107 -% 3,767 323 -%
------------------------------ ------- --- ------ --- ------ -----
Operating Expenses
Operations and support 1,487 97 -% 1,933 273 -%
Depreciation and
amortization 59 1 -% 71 3 -%
------------------------------ ------- --- ------ --- ------ -----
Total Operating
Expenses 1,546 98 -% 2,004 276 -%
------------------------------ ------- --- ------ --- ------ -----
Operating Income 1,442 9 -% 1,763 47 -%
Equity in Net Income
of Affiliates 7 13 (46.2)% 39 32 21.9%
------------------------------ ------- --- ------ --- ------ -----
Operating Contribution $ 1,449$ 22 -% $ 1,802$ 79 -%
============================== ======= ====== === ====== =====
Operating Income
Margin 48.3% 8.4% - BP 46.8% 14.6% - BP
------------------------------ ------- ------ ------- ------ ----- -----
8
Home Box Office
Home Box Office consists of premium pay television and OTT services domestically
and premium pay, basic tier television and OTT services internationally, as
well as content licensing and home entertainment.
Home Box Office Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
--------------------------- -------------------------
2018 2017 Change 2018 2017 Change
------------------------------ ------ --- ----- --- ----------- ------- ---- -----------
Operating Revenues
Subscription $ 1,517$ - -% $ 1,787$ - -%
Content and other 127 - -% 138 - -%
----------------------------- ------ --- ----- --- ------- ----
Total Operating Revenues 1,644 - -% 1,925 - -%
------------------------------ ------ --- ----- --- ------- ----
Operating Expenses
Operations and support 991 - -% 1,162 - -%
Depreciation and
amortization 25 - -% 30 - -%
------------------------------ ------ --- ----- --- ------- ----
Total Operating
Expenses 1,016 - -% 1,192 - -%
------------------------------ ------ --- ----- --- ------- ----
Operating Income 628 - -% 733 - -%
Equity in Net Income
of Affiliates 2 - -% 1 - -%
------------------------------ ------ --- ----- --- ------- ----
Operating Contribution $ 630$ - -% $ 734$ - -%
============================== ====== ===== === ======= ====
Operating Income
Margin 38.2% -% - BP 38.1% -% - BP
------------------------------ ------ ----- ------- ------- ---- -------
Warner Bros.
Warner Bros. consists of the production, distribution and licensing of television
programming and feature films, the distribution of home entertainment products
and the production and distribution of games.
Warner Bros. Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
---------------------------- -------------------------
2018 2017 Change 2018 2017 Change
---------------------------- ------- --- ----- --- ----------- ------- ---- -----------
Operating Revenues
Theatrical product $ 1,694$ - -% $ 1,917$ - -%
Television product 1,591 - -% 1,794 - -%
Games and other 435 - -% 516 - -%
---------------------------- ------- --- ----- --- ------- ----
Total Operating
Revenues 3,720 - -% 4,227 - -%
----------------------------- ------- --- ----- --- ------- ----
Operating Expenses
Operations and support 3,104 - -% 3,507 - -%
Depreciation and
amortization 40 - -% 54 - -%
----------------------------- ------- --- ----- --- ------- ----
Total Operating
Expenses 3,144 - -% 3,561 - -%
----------------------------- ------- --- ----- --- ------- ----
Operating Income 576 - -% 666 - -%
Equity in Net Income
(Loss) of Affiliates (23) - -% (24) - -%
----------------------------- ------- --- ----- --- ------- ----
Operating Contribution $ 553$ - -% $ 642$ - -%
============================= ======= ===== === ======= ====
Operating Income
Margin 15.5% -% - BP 15.8% -% - BP
----------------------------- ------- ----- ------- ------- ---- -------
9
LATIN AMERICA SEGMENT
The Latin America segment provides entertainment and wireless service outside
of the U.S. Our international subsidiaries conduct business in their local currency
and operating results are converted to U.S. dollars using official exchange
rates. The Latin America segment contains two business units: Vrio and Mexico.
Segment Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
------------------- ---------------------
2018 2017 Change 2018 2017 Change
----------------------------------- ------ ------ ----------- ------- ------- -----------
Segment Operating Revenues
Vrio $ 1,102 $ 1,363 (19.1)% $ 3,710 $ 4,065 (8.7)%
Mexico 731 736 (0.7)% 2,099 1,989 5.5%
----------------------------------- ------ ------ ------- -------
Total Segment Operating
Revenues 1,833 2,099 (12.7)% 5,809 6,054 (4.0)%
==================================== ====== ====== ======= =======
Segment Operating Contribution
Vrio 66 99 (33.3)% 281 362 (22.4)%
Mexico (267) (224) (19.2)% (743) (619) (20.0)%
----------------------------------- ------ ------ ------- -------
Total Segment Operating
Contribution $ (201) $ (125) (60.8)% $ (462) $ (257) (79.8)%
==================================== ====== ====== ======= =======
Vrio
Vrio provides entertainment services to customers utilizing satellite technology
in Latin America and the Caribbean.
Vrio Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
2018 2017 Change 2018 2017 Change
----- ----- -------- -------
Operating Revenues $1,102$ 1,363 (19.1)% $ 3,710$ 4,065 (8.7)%
----- ----- -------- -------
Operating Expenses
Operations and support 877 1,075 (18.4)% 2,894 3,123 (7.3)%
Depreciation and amortization 168 206 (18.4)% 559 642 (12.9)%
----- ----- -------- -------
Total Operating Expenses 1,045 1,281 (18.4)% 3,453 3,765 (8.3)%
----- ----- -------- -------
Operating Income 57 82 (30.5)% 257 300 (14.3)%
Equity in Net Income of Affiliates 9 17 (47.1)% 24 62 (61.3)%
----- ----- -------- -------
Operating Contribution $ 66$ 99 (33.3)% $ 281$ 362 (22.4)%
===== ===== ======== =======
Operating Income Margin 5.2% 6.0% (80) BP 6.9% 7.4% (50) BP
----- ----- -------- -------
Supplementary Operating Data
Subscribers and connections
in thousands
Unaudited Nine-Month Period Percent
2018 2017 Change
----- -----
Vrio Satellite Subscribers 13,640 13,490 1.1%
----- ----- -------- -------
Third Quarter Nine-Month Period
2018 2017 2,018 2,017
----- --------
Vrio Satellite Net Subscriber
Additions (73) (132) 44.7% 52 (97) -%
----- ----- -------- -------
10
Mexico
Mexico provides wireless services and equipment to customers in Mexico.
Mexico Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
2018 2017 Change 2018 2017 Change
Operating Revenues
Wireless service $ 440$ 536 (17.9)% $ 1,261$ 1,546 (18.4)%
Wireless equipment 291 200 45.5% 838 443 89.2%
------ ------
Total Operating Revenues 731 736 (0.7)% 2,099 1,989 5.5%
Operating Expenses
Operations and support 869 862 0.8% 2,459 2,345 4.9%
Depreciation and amortization 129 98 31.6% 383 263 45.6%
Total Operating Expenses 998 960 4.0% 2,842 2,608 9.0%
------ ------
Operating Income (Loss) (267) (224) (19.2)% (743) (619) (20.0)%
Operating Contribution $ (267)$ (224) (19.2)% $ (743)$ (619) (20.0)%
Operating Income Margin (36.5)% (30.4)% (610) BP (35.4)% (31.1)% (430) BP
------ ------ ------ ------
Supplementary Operating Data
Subscribers and connections
in thousands
Unaudited Nine-Month Period Percent
2018 2017 Change
------ ------ ------
Mexico Wireless Subscribers
Postpaid 5,822 5,316 9.5%
Prepaid 11,270 8,231 36.9%
------ ------ ------
Branded 17,092 13,547 26.2%
Reseller 213 232 (8.2)%
------ ------ ------
Total Mexico Wireless
Subscribers 17,305 13,779 25.6%
Third Quarter Percent Nine-Month Period Percent
2018 2017 Change 2018 2017 Change
Mexico Wireless Net Additions
Postpaid 73 129 (43.4)% 324 351 (7.7)%
Prepaid 802 585 37.1% 1,873 1,504 24.5%
------ ------
Branded 875 714 22.5% 2,197 1,855 18.4%
Reseller 32 (17) -% 9 (49) -%
------ ------
Total Mexico Wireless
Net Subscriber Additions 907 697 30.1% 2,206 1,806 22.1%
11
XANDR SEGMENT
The Xandr segment provides advertising services. These services utilize data
insights to develop higher value targeted advertising. Certain revenues in
this segment are also reported by the Communications segment and are eliminated
upon consolidation.
Segment Operating Results
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
2018 2017 Change 2018 2017 Change
Segment Operating
Revenues $ 445$ 333 33.6% $ 1,174$ 992 18.3%
Segment Operating
Expenses
Operations and
support 109 39 -% 218 118 84.7%
Depreciation and
amortization 3 - -% 4 1 -%
-------
Total Segment
Operating Expenses 112 39 -% 222 119 86.6%
----- -------
Operating Income 333 294 13.3% 952 873 9.0%
Segment Operating
Contribution $ 333$ 294 13.3% $ 952$ 873 9.0%
Segment Operating
Income Margin 74.8% 88.3% (1,350) BP 81.1% 88.0% (690) BP
----- -------
Supplemental AT&T Advertising Revenues
As a supplemental presentation to our Xandr segment operating results, we are
providing a view of total advertising revenues generated by AT&T, which combines
the advertising revenues recorded across all operating segments. This combined
view presents the entire portfolio of revenues generated from AT&T assets and
represents a significant strategic initiative and growth opportunity for AT&T.
Advertising Revenues
Dollars in millions
Unaudited Third Quarter Percent Nine-Month Period Percent
2018 2017 Change 2018 2017 Change
Operating Revenues
WarnerMedia $ 983 $ 17 -% $ 1,222 $ 52 -%
Communications 478 368 29.9% 1,284 1,093 17.5%
Xandr 445 333 33.6% 1,174 992 18.3%
Eliminations (401) (329) (21.9)% (1,122) (980) (14.5)%
Total Advertising
Revenues $ 1,505 $ 389 -% $ 2,558 $ 1,157 -%
12
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
September 30,
2018
--------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------
Communications
Mobility $ 17,938 $ 10,255 $ 7,683 $ 2,079 $ 5,604 $ (1) $ 5,603
Entertainment
Group 11,589 9,155 2,434 1,331 1,103 1 1,104
Business Wireline 6,703 4,030 2,673 1,197 1,476 (1) 1,475
Total Communications 36,230 23,440 12,790 4,607 8,183 (1) 8,182
WarnerMedia
Turner 2,988 1,487 1,501 59 1,442 7 1,449
Home Box Office 1,644 991 653 25 628 2 630
Warner Bros. 3,720 3,104 616 40 576 (23) 553
Other (148) (79) (69) 10 (79) (25) (104)
Total WarnerMedia 8,204 5,503 2,701 134 2,567 (39) 2,528
Latin America
Vrio 1,102 877 225 168 57 9 66
Mexico 731 869 (138) 129 (267) - (267)
Total Latin America 1,833 1,746 87 297 (210) 9 (201)
Xandr 445 109 336 3 333 - 333
Segment Total 46,712 30,798 15,914 5,041 10,873 (31) 10,842
Corporate and
Other
Corporate 308 (18) 326 797 (471)
Acquisition-related
items - 362 (362) 2,329 (2,691)
Certain significant
items - 75 (75) - (75)
Eliminations
and consolidations (1,281) (913) (368) (1) (367)
AT&T Inc. $ 45,739 $ 30,304 $15,435 $ 8,166 $ 7,269
September 30,
2017
--------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------
Communications
Mobility $ 17,370 $ 10,029 $ 7,341 $ 2,008 $ 5,333 $ - $ 5,333
Entertainment
Group 12,467 9,804 2,663 1,379 1,284 (1) 1,283
Business Wireline 7,278 4,635 2,643 1,189 1,454 1 1,455
Total Communications 37,115 24,468 12,647 4,576 8,071 - 8,071
WarnerMedia
Turner 107 97 10 1 9 13 22
Home Box Office - - - - - - -
Warner Bros. - - - - - - -
Other - 1 (1) - (1) (19) (20)
Total WarnerMedia 107 98 9 1 8 (6) 2
Latin America
Vrio 1,363 1,075 288 206 82 17 99
Mexico 736 862 (126) 98 (224) - (224)
Total Latin America 2,099 1,937 162 304 (142) 17 (125)
Xandr 333 39 294 - 294 - 294
Segment Total 39,654 26,542 13,112 4,881 8,231 11 8,242
Corporate and
Other
Corporate 382 801 (419) 24 (443)
Acquisition-related
items - 134 (134) 1,136 (1,270)
Certain significant
items (89) 325 (414) 1 (415)
Eliminations
and consolidations (279) 17 (296) - (296)
AT&T Inc. $ 39,668 $ 27,819 $11,849 $ 6,042 $ 5,807
13
SUPPLEMENTAL SEGMENT RECONCILIATION
Nine Months Ended
Dollars in millions
Unaudited
September 30,
2018
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 52,575 $ 30,020 $ 22,555 $ 6,287 $ 16,268 $ (1) $ 16,267
Entertainment
Group 34,498 26,623 7,875 3,986 3,889 (1) 3,888
Business Wireline 20,100 12,084 8,016 3,547 4,469 (1) 4,468
Total Communications 107,173 68,727 38,446 13,820 24,626 (3) 24,623
WarnerMedia
Turner 3,767 1,933 1,834 71 1,763 39 1,802
Home Box Office 1,925 1,162 763 30 733 1 734
Warner Bros. 4,227 3,507 720 54 666 (24) 642
Other (210) (106) (104) 11 (115) (71) (186)
Total WarnerMedia 9,709 6,496 3,213 166 3,047 (55) 2,992
Latin America
Vrio 3,710 2,894 816 559 257 24 281
Mexico 2,099 2,459 (360) 383 (743) - (743)
Total Latin America 5,809 5,353 456 942 (486) 24 (462)
Xandr 1,174 218 956 4 952 - 952
Segment Total 123,865 80,794 43,071 14,932 28,139 (34) 28,105
Corporate and
Other
Corporate 961 1,378 (417) 938 (1,355)
Acquisition-related
items - 750 (750) 4,669 (5,419)
Certain significant
items - 407 (407) - (407)
Eliminations
and consolidations (2,063) (1,040) (1,023) (1) (1,022)
AT&T Inc. $ 122,763 $ 82,289 $ 40,474 $ 20,538 $ 19,936
September 30,
2017
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 51,922 $ 30,005 $ 21,917 $ 5,988 $ 15,929 $ - $ 15,929
Entertainment
Group 37,435 28,711 8,724 4,254 4,470 - 4,470
Business Wireline 21,911 13,906 8,005 3,583 4,422 - 4,422
Total Communications 111,268 72,622 38,646 13,825 24,821 - 24,821
WarnerMedia
Turner 323 273 50 3 47 32 79
Home Box Office - - - - - - -
Warner Bros. - - - - - - -
Other - 3 (3) - (3) (55) (58)
Total WarnerMedia 323 276 47 3 44 (23) 21
Latin America
Vrio 4,065 3,123 942 642 300 62 362
Mexico 1,989 2,345 (356) 263 (619) - (619)
Total Latin America 6,054 5,468 586 905 (319) 62 (257)
Xandr 992 118 874 1 873 - 873
Segment Total 118,637 78,484 40,153 14,734 25,419 39 25,458
Corporate and
Other
Corporate 1,182 2,440 (1,258) 73 (1,331)
Acquisition-related
items - 622 (622) 3,508 (4,130)
Certain significant
items (89) 302 (391) 1 (392)
Eliminations
and consolidations (860) 17 (877) - (877)
AT&T Inc. $ 118,870 $ 81,865 $ 37,005 $ 18,316 $ 18,689
14
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 and other accounting changes.
SUPPLEMENTAL INCOME STATEMENT
Supplemental Consolidated Statements of Income
Dollars in millions except per share
amounts
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
Operating Revenues
Service $ 41,297 $ (1,384) $ 42,681 $ 36,378 17.3%
Equipment 4,442 516 3,926 3,290 19.3%
Total Operating Revenues 45,739 (868) 46,607 39,668 17.5%
Operating Expenses
Cost of revenues
Equipment 4,828 - 4,828 4,191 15.2%
Broadcast, programming and
operations 7,227 - 7,227 5,284 36.8%
Other cost of revenues (exclusive
of depreciation
and amortization shown separately
below) 8,651 (917) 9,568 9,694 (1.3)%
Selling, general and administrative 9,598 (547) 10,145 8,650 17.3%
Depreciation and amortization 8,166 - 8,166 6,042 35.2%
Total Operating Expenses 38,470 (1,464) 39,934 33,861 17.9%
Operating Income 7,269 596 6,673 5,807 14.9%
Interest Expense (2,051) - (2,051) (1,686) 21.6%
Equity in Net Income (Loss) of Affiliates (64) - (64) 11 -%
Other Income (Expense) - Net 1,053 - 1,053 842 25.1%
Income Before Income Taxes 6,207 596 5,611 4,974 12.8%
Income Tax Expense 1,391 146 1,245 1,851 (32.7)%
Net Income 4,816 450 4,366 3,123 39.8%
Less: Net Income Attributable to
Noncontrolling Interest (98) (5) (93) (94) 1.1%
Net Income Attributable to AT&T $ 4,718 $ 445 $ 4,273 $ 3,029 41.1%
Basic Earnings Per Share Attributable
to AT&T $ 0.65 $ 0.06 $ 0.59 $ 0.49 20.4%
Weighted Average Common
Shares Outstanding (000,000) 7,284 - 7,284 6,162 18.2%
Diluted Earnings Per Share Attributable
to AT&T $ 0.65 $ 0.06 $ 0.59 $ 0.49 20.4%
Weighted Average Common
Shares Outstanding with Dilution
(000,000) 7,320 - 7,320 6,182 18.4%
15
Supplemental Mobility
Supplemental Results
Dollars in millions
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
Operating Revenues
Service $13,989$ (821) $ 14,810$ 14,475 2.3%
Equipment 3,949 505 3,444 2,895 19.0%
Total Operating Revenues 17,938 (316) 18,254 17,370 5.1%
Operating Expenses
Operations and support 10,255 (650) 10,905 10,029 8.7%
EBITDA 7,683 334 7,349 7,341 0.1%
Depreciation and amortization 2,079 - 2,079 2,008 3.5%
Total Operating Expenses 12,334 (650) 12,984 12,037 7.9%
Operating Income 5,604 334 5,270 5,333 (1.2)%
Equity in Net Income (Loss) of Affiliates (1) - (1) - -%
Operating Contribution $ 5,603$ 334 $ 5,269$ 5,333 (1.2)%
Operating Income Margin 31.2% 28.9% 30.7% (180) BP
EBITDA Margin 42.8% 40.3% 42.3% (200) BP
EBITDA Service Margin 54.9% 49.6% 50.7% (110) BP
Supplemental Entertainment Group
Supplemental Entertainment Group Results
Dollars in millions
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
------
Operating Revenues
Video entertainment $ 8,283$ (113) $ 8,396$ 9,052 (7.2)%
High-speed internet 2,045 - 2,045 1,916 6.7%
Legacy voice and data services 740 (29) 769 913 (15.8)%
Other service and equipment 521 (64) 585 586 (0.2)%
------
Total Operating Revenues 11,589 (206) 11,795 12,467 (5.4)%
------
Operating Expenses
Operations and support 9,155 (431) 9,586 9,804 (2.2)%
------
EBITDA 2,434 225 2,209 2,663 (17.0)%
------
Depreciation and amortization 1,331 - 1,331 1,379 (3.5)%
------
Total Operating Expenses 10,486 (431) 10,917 11,183 (2.4)%
------
Operating Income 1,103 225 878 1,284 (31.6)%
Equity in Net Income (Loss) of Affiliates 1 - 1 (1) -%
------
Contribution $ 1,104$ 225 $ 879$ 1,283 (31.5)%
======
Operating Income Margin 9.5% 7.4% 10.3% (290) BP
EBITDA Margin 21.0% 18.7% 21.4% (270) BP
16
Supplemental Business Wireline
Supplemental Business Wireline Results
Dollars in millions
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
-----
Operating Revenues
Strategic services $3,059$ (3) $ 3,062$ 3,018 1.5%
Legacy voice and data services 2,615 (242) 2,857 3,343 (14.5)%
Other service and equipment 1,029 (69) 1,098 917 19.7%
-----
Total Operating Revenues 6,703 (314) 7,017 7,278 (3.6)%
-----
Operating Expenses
Operations and support 4,030 (339) 4,369 4,635 (5.7)%
-----
EBITDA 2,673 25 2,648 2,643 0.2%
-----
Depreciation and amortization 1,197 - 1,197 1,189 0.7%
-----
Total Operating Expenses 5,227 (339) 5,566 5,824 (4.4)%
-----
Operating Income 1,476 25 1,451 1,454 (0.2)%
Equity in Net Income (Loss) of
Affiliates (1) - (1) 1 -%
-----
Operating Contribution $1,475$ 25 $ 1,450$ 1,455 (0.3)%
=====
Operating Income Margin 22.0% 20.7% 20.0% 70 BP
EBITDA Margin 39.9% 37.7% 36.3% 140 BP
Supplemental Latin America
Supplemental Segment Results
Dollars in millions
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
Segment Operating Revenues
Vrio $ 1,102$ - $ 1,102$ 1,363 (19.1)%
Mexico 731 (24) 755 736 2.6%
Total Segment Operating Revenues 1,833 (24) 1,857 2,099 (11.5)%
Segment Operating Expenses
Operations and support 1,746 (38) 1,784 1,937 (7.9)%
EBITDA 87 14 73 162 (54.9)%
Depreciation and amortization 297 - 297 304 (2.3)%
Total Segment Operating Expenses 2,043 (38) 2,081 2,241 (7.1)%
Segment Operating Income (Loss) (210) 14 (224) (142) (57.7)%
Equity in Net Income of Affiliates 9 - 9 17 (47.1)%
Segment Contribution $ (201)$ 14 $ (215)$ (125) (72.0)%
Operating Income Margin (11.5)% (12.1)% (6.8)% (530) BP
EBITDA Margin 4.7% 3.9% 7.7% (380) BP
17
Supplemental Business Solutions
As a supplemental presentation to our Communications segment operating results,
we are providing a view of our AT&T Business Solutions results which includes
both wireless and fixed operations. This combined view presents a complete profile
of the entire business customer relationship, and underscores the importance
of mobile solutions to serving our business customers.
Supplemental Operating Results
Dollars in millions
Unaudited Third Quarter
Accounting Historical Percent
2018 Impact 2018 2017 Change
Operating Revenues
Wireless service $ 1,877$ (206) $ 2,083$ 2,023 3.0%
Strategic services 3,059 (3) 3,062 3,018 1.5%
Legacy voice and data services 2,615 (242) 2,857 3,343 (14.5)%
Other service and equipment 1,029 (69) 1,098 917 19.7%
Wireless equipment 590 167 423 340 24.4%
---
Total Operating Revenues 9,170 (353) 9,523 9,641 (1.2)%
---
Operating Expenses
Operations and support 5,598 (404) 6,002 6,096 (1.5)%
---
EBITDA 3,572 51 3,521 3,545 (0.7)%
---
Depreciation and amortization 1,499 - 1,499 1,466 2.3%
---
Total Operating Expenses 7,097 (404) 7,501 7,562 (0.8)%
---
Operating Income 2,073 51 2,022 2,079 (2.7)%
Equity in Net Income (Loss) of
Affiliates (1) - (1) - -%
---
Operating Contribution $ 2,072$ 51 $ 2,021$ 2,079 (2.8)%
Operating Income Margin 22.6% 21.2% 21.6% (40) BP
EBITDA Margin 39.0% 37.0% 36.8% 20 BP
18
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 revised operating
segments.
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
Third Quarter Nine-Month Period
2018 2017 2018 2017
Net cash provided by operating activities $ 12,346 $ 10,803 $ 31,522 $ 28,473
Less: Capital expenditures (5,873) (5,251) (17,099) (16,474)
Free Cash Flow 6,473 5,552 14,423 11,999
Less: Dividends paid (3,631) (3,009) (9,775) (9,030)
Free Cash Flow after Dividends $ 2,842 $ 2,543 $ 4,648 $ 2,969
Free Cash Flow Dividend Payout Ratio 56.1% 54.2% 67.8% 75.3%
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).
1
EBITDA service margin is calculated as EBITDA divided by service
revenues.
When discussing our segment, business unit and supplemental
results, EBITDA excludes equity in net income (loss) of affiliates,
and depreciation and amortization from operating contribution.
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 operating 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 management is responsible and upon which we evaluate
performance.
We believe EBITDA Service Margin (EBITDA as a percentage of
service revenues) to be a more relevant measure than EBITDA Margin
(EBITDA as a percentage of total revenue) for our Mobility business
unit 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.
2
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
Net Income $ 4,816 $ 3,123 $ 14,823 $ 10,711
Additions:
Income Tax (Benefit) Expense 1,391 1,851 4,305 5,711
Interest Expense 2,051 1,686 5,845 4,374
Equity in Net (Income) Loss of Affiliates 64 (11) 71 148
Other (Income) Expense - Net (1,053) (842) (5,108) (2,255)
Depreciation and amortization 8,166 6,042 20,538 18,316
EBITDA 15,435 11,849 40,474 37,005
Total Operating Revenues 45,739 39,668 122,763 118,870
Service Revenues 41,297 36,378 109,849 109,372
EBITDA Margin 33.7% 29.9% 33.0% 31.1%
EBITDA Service Margin 37.4% 32.6% 36.8% 33.8%
Supplemental Historical EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions Third Quarter
2018
Net Income $ 4,366
Additions:
Income Tax (Benefit) Expense 1,245
Interest Expense 2,051
Equity in Net (Income) Loss of Affiliates 64
Other (Income) Expense - Net (1,053)
Depreciation and amortization 8,166
EBITDA 14,839
Total Operating Revenues 46,607
Service Revenues 42,681
EBITDA Margin 31.8%
EBITDA Service Margin 34.8%
3
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
Communications Segment
Operating Contribution $ 8,182 $ 8,071 $ 24,623 $ 24,821
Additions:
Equity in Net (Income) Loss of Affiliates 1 - 3 -
Depreciation and amortization 4,607 4,576 13,820 13,825
EBITDA 12,790 12,647 38,446 38,646
Total Operating Revenues 36,230 37,115 107,173 111,268
Operating Income Margin 22.6% 21.7% 23.0% 22.3%
EBITDA Margin 35.3% 34.1% 35.9% 34.7%
Mobility
Operating Contribution $ 5,603 $ 5,333 $ 16,267 $ 15,929
Additions:
Equity in Net (Income) of Affiliates 1 - 1 -
Depreciation and amortization 2,079 2,008 6,287 5,988
EBITDA 7,683 7,341 22,555 21,917
Total Operating Revenues 17,938 17,370 52,575 51,922
Service Revenues 13,989 14,475 41,074 43,414
Operating Income Margin 31.2% 30.7% 30.9% 30.7%
EBITDA Margin 42.8% 42.3% 42.9% 42.2%
EBITDA Service Margin 54.9% 50.7% 54.9% 50.5%
Entertainment Group
Operating Contribution $ 1,104 $ 1,283 $ 3,888 $ 4,470
Additions:
Equity in Net (Income) Loss of Affiliates (1) 1 1 -
Depreciation and amortization 1,331 1,379 3,986 4,254
EBITDA 2,434 2,663 7,875 8,724
Total Operating Revenues 11,589 12,467 34,498 37,435
Operating Income Margin 9.5% 10.3% 11.3% 11.9%
EBITDA Margin 21.0% 21.4% 22.8% 23.3%
Business Wireline
Operating Contribution $ 1,475 $ 1,455 $ 4,468 $ 4,422
Additions:
Equity in Net (Income) Loss of Affiliates 1 (1) 1 -
Depreciation and amortization 1,197 1,189 3,547 3,583
EBITDA 2,673 2,643 8,016 8,005
Total Operating Revenues 6,703 7,278 20,100 21,911
Operating Income Margin 22.0% 20.0% 22.2% 20.2%
EBITDA Margin 39.9% 36.3% 39.9% 36.5%
4
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
WarnerMedia Segment
Operating Contribution $ 2,528 $ 2 $ 2,992 $ 21
Additions:
Equity in Net (Income) of Affiliates 39 6 55 23
Depreciation and amortization 134 1 166 3
EBITDA 2,701 9 3,213 47
Total Operating Revenues 8,204 107 9,709 323
Operating Income Margin 31.3% 7.5% 31.4% 13.6%
EBITDA Margin 32.9% 8.4% 33.1% 14.6%
Turner
Operating Contribution $ 1,449 $ 22 $ 1,802 $ 79
Additions:
Equity in Net (Income) of Affiliates (7) (13) (39) (32)
Depreciation and amortization 59 1 71 3
EBITDA 1,501 10 1,834 50
Total Operating Revenues 2,988 107 3,767 323
Operating Income Margin 48.3% 8.4% 46.8% 14.6%
EBITDA Margin 50.2% 9.3% 48.7% 15.5%
Home Box Office
Operating Contribution $ 630 $ - $ 734 $ -
Additions:
Equity in Net (Income) Loss of Affiliates (2) - (1) -
Depreciation and amortization 25 - 30 -
EBITDA 653 - 763 -
Total Operating Revenues 1,644 - 1,925 -
Operating Income Margin 38.2% - 38.1% -
EBITDA Margin 39.7% - 39.6% -
Warner Bros.
Operating Contribution $ 553 $ - $ 642 $ -
Additions:
Equity in Net (Income) Loss of Affiliates 23 - 24 -
Depreciation and amortization 40 - 54 -
EBITDA 616 - 720 -
Total Operating Revenues 3,720 - 4,227 -
Operating Income Margin 15.5% - 15.8% -
EBITDA Margin 16.6% - 17.0% -
5
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
Latin America Segment
Operating Contribution $ (201) $ (125) $ (462) $ (257)
Additions:
Equity in Net (Income) of Affiliates (9) (17) (24) (62)
Depreciation and amortization 297 304 942 905
EBITDA 87 162 456 586
Total Operating Revenues 1,833 2,099 5,809 6,054
Operating Income Margin -11.5% -6.8% -8.4% -5.3%
EBITDA Margin 4.7% 7.7% 7.8% 9.7%
Vrio
Operating Contribution $ 66 $ 99 $ 281 $ 362
Additions:
Equity in Net (Income) of Affiliates (9) (17) (24) (62)
Depreciation and amortization 168 206 559 642
EBITDA 225 288 816 942
Total Operating Revenues 1,102 1,363 3,710 4,065
Operating Income Margin 5.2% 6.0% 6.9% 7.4%
EBITDA Margin 20.4% 21.1% 22.0% 23.2%
Mexico
Operating Contribution $ (267) $ (224) $ (743) $ (619)
Additions:
Depreciation and amortization 129 98 383 263
EBITDA (138) (126) (360) (356)
Total Operating Revenues 731 736 2,099 1,989
Operating Income Margin -36.5% -30.4% -35.4% -31.1%
EBITDA Margin -18.9% -17.1% -17.2% -17.9%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
Xandr
Operating Contribution $ 333 $ 294 $ 952 $ 873
Additions:
Depreciation and amortization 3 - 4 1
EBITDA 336 294 956 874
Total Operating Revenues 445 333 1,174 992
Operating Income Margin 74.8% 88.3% 81.1% 88.0%
EBITDA Margin 75.5% 88.3% 81.4% 88.1%
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
Third Quarter Nine-Month Period
2018 2017 2018 2017
Operating Revenues
Natural disaster reveneue credits $ - $ 89 $ - $ 89
Adjustments to Operating Revenues - 89 - 89
Operating Expenses
Time Warner and other merger costs 361 33 749 152
Employee separation costs 76 208 260 268
Natural disaster costs - 118 104 118
DIRECTV merger integration costs - 67 - 317
Mexico merger integration costs - 34 - 153
(Gain) loss on transfer of wireless
spectrum - - - (181)
Foreign currency exchange - - 43 98
Adjustments to Operations and Support
Expenses 437 460 1,156 925
Amortization of intangible assets 2,329 1,136 4,669 3,508
Adjustments to Operating Expenses 2,766 1,596 5,825 4,433
Other
Merger-related interest and fees 1 - 485 1,029 752
Actuarial (gain) loss - - (2,726) (259)
(Gain) loss on sale of assets,
impairments and other adjustments (327) (81) (279) 140
Adjustments to Income Before Income Taxes 2,439 2,089 3,849 5,155
Tax impact of adjustments 548 716 765 1,717
Tax Related Items - (146) (96) (146)
Adjustments to Net Income $ 1,891 $ 1,519 $ 3,180 $ 3,584
1 Includes interest expense incurred on debt issued, redemption premiums 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.
7
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions
Third Quarter Nine-Month Period
2018 2017 2018 2017
Operating Income $ 7,269 $ 5,807 $ 19,936 $ 18,689
Adjustments to Operating Revenues - 89 - 89
Adjustments to Operating Expenses 2,766 1,596 5,825 4,433
Adjusted Operating Income 10,035 7,492 25,761 23,211
EBITDA 15,435 11,849 40,474 37,005
Adjustments to Operating Revenues - 89 - 89
Adjustments to Operations and Support
Expenses 437 460 1,156 925
Adjusted EBITDA 15,872 12,398 41,630 38,019
Pro forma as of June 30, 2018
WarnerMedia Operating Income - 3,047
Additions:
Depreciation and amortization - 339
Merger costs - 694
WarnerMedia Adjusted EBITDA - 4,080
WarnerMedia segment income (post acquisition) - (451)
WarnerMedia segment depreciation and
amortization (post acquisition) - (30)
WarnerMedia merger costs (post acquisition) - (159)
Film and television cost amortization
(release prior to June 14) - 1,103
Pro Forma Adjusted EBITDA 1 15,872 46,173
Total Operating Revenues 45,739 39,668 122,763 118,870
Adjustments to Operating Revenues - 89 - 89
Total Adusted Operating Revenue 45,739 39,757 122,763 118,959
Service Revenues 41,297 36,378 109,849 109,372
Adjustments to Service Revenues - 89 - 89
Adusted Service Revenue 41,297 36,467 109,849 109,461
Operating Income Margin 15.9% 14.6% 16.2% 15.7%
Adjusted Operating Income Margin 21.9% 18.8% 21.0% 19.5%
Adjusted EBITDA Margin 34.7% 31.2% 33.9% 32.0%
Adjusted EBITDA Service Margin 38.4% 34.0% 37.9% 34.7%
Supplemental Results under Historical
Accouning Method
Operating Income 6,673
Adjustments to Operating Expenses 2,766
Adjusted Supplemental Operating Income 9,439
EBITDA 14,839
Adjustments to Operations and Support
Expenses 437
Adjusted Supplemental EBITDA 15,276
Supplemental Operating Revenues 46,607
Adjusted Supplemental Operating Income
Margin 20.3%
Adjusted Supplemental EBITDA margin 32.8%
1 Pro Forma Adjusted EBITDA reflects the combined results of operations of the
combined company based on the historical financial statements of AT&T and Time
Warner, after giving effect to the merger and certain adjustments, and is intended
to reflect the impact of the Time Warner acquisition on AT&T. WarnerMedia operating
income, depreciation and amortization expense and merger costs are provided
on Item 7.01 Form 8-K filed by AT&T on July 24, 2018. Pro Forma adjustments
are to (1) remove the duplication of operating results for the 16-period in
which AT&T also reported Time Warner results and (2) to recognize the purchase
accounting classification of released content as intangible assets and accordingly
reclassify associated content amortization from operating expense to amortization
expense. Intercompany revenue and expense eliminations net and do not impact
EBITDA.
8
Adjusted Diluted EPS
Third Quarter Nine-Month Period
2018 2017 2018 2017
Diluted Earnings Per Share (EPS) $ 0.65 $ 0.49 $ 2.19 $ 1.69
Amortization of intangible assets 0.25 0.12 0.55 0.38
Merger integration items 1 0.04 0.06 0.22 0.14
(Gain) loss on sale of assets, impairments
and other adjustments 2 (0.04) 0.05 0.02 0.06
Actuarial (gain) loss 3 - - (0.31) (0.03)
Tax-related items - 0.02 - 0.02
Adjusted EPS $ 0.90 $ 0.74 $ 2.67 $ 2.26
Year-over-year growth - Adjusted 21.6% 18.1%
Weighted Average Common Shares Outstanding
with Dilution (000,000) 7,320 6,182 6,630 6,184
1 Includes combined merger integration items and merger-related interest income
and expense, and redemption premiums.
2 Includes gains on transactions, natural disaster adjustments and charges,
and employee-related and other costs.
3 Includes adjustments for actuarial gains or losses associated with our postemployment
benefit plans, which we immediately recognize in the income statement, pursuant
to our accounting policy for the recognition of actuarial gains/losses. We recorded
an actuarial gain of $930 million in the first quarter of 2018 associated with
our postretirement plan and a gain of $1,796 million in the second quarter associated
with our pension plan. As a result, adjusted EPS reflects (1) in the first quarter
and for the first nine months, 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%) and (2) in the second quarter and for the first nine months, an expected
return on plan assets of $754 million (based on an average expected return on
plan assets of 7.00% for our Pension trusts), rather than the actual return
on plan assets of $186 million loss (Pension return of -0.56%), both of which
are included in the GAAP measure of income.
Pro Forma 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. Our
Net Debt to Pro Forma Adjusted EBITDA ratio is calculated by
dividing the Net Debt by Annualized Pro Forma 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 Pro Forma Adjusted EBITDA is calculated by
annualizing the year-to-date Pro Forma Adjusted EBITDA.
Net Debt to Pro Forma Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31, Jun. 30, Sep. 30, YTD 2018
2018 2018 2018
Pro Forma Adjusted EBITDA 1 $ 15,182 $ 15,119 $ 15,872 $ 46,173
Add back severance (51) (133) (76) (260)
Net Debt Pro Forma Adjusted EBITDA 15,131 14,986 15,796 45,913
Annualized Pro Forma Adjusted EBITDA 61,217
End-of-period current debt 14,905
End-of-period long-term debt 168,513
Total End-of-Period Debt 183,418
Less: Cash and Cash Equivalents 8,657
Net Debt Balance 174,761
Annualized Net Debt to Pro Forma Adjusted
EBITDA Ratio 2.85
1 Includes the purchase accounting reclassification of released content amortization
of $612 million pro forma in the first quarter, $491 million pro forma and $98
million reported by AT&T in the second quarter and $772 million reported by
AT&T in the third quarter of 2018.
9
Supplemental Operational Measures
We provide a supplemental discussion of our business solutions
operations that is calculated by combining our Mobility and
Business Wireline operating units, and then adjusting to remove
non-business operations. The following table presents a
reconciliation of our supplemental Business Solutions results.
Supplemental Operational Measure
Three Months Ended
September 30, 2018 September 30, 2017
Business Adjustments Business Business Adjustments Business
Mobility Wireline 1 Solutions Mobility Wireline 1 Solutions
Operating
Revenues
Wireless
service $ 13,989 $ - $ (12,112) $ 1,877 $ 14,475 $ - $ (12,452) $ 2,023
Strategic
services - 3,059 - 3,059 - 3,018 - 3,018
Legacy voice
and
data
services - 2,615 - 2,615 - 3,343 - 3,343
Other
services
and
equipment - 1,029 - 1,029 - 917 - 917
Wireless
equipment 3,949 - (3,359) 590 2,895 - (2,555) 340
Total
Operating
Revenues 17,938 6,703 (15,471) 9,170 17,370 7,278 (15,007) 9,641
Operations
and
support 10,255 4,030 (8,687) 5,598 10,029 4,635 (8,568) 6,096
EBITDA 7,683 2,673 (6,784) 3,572 7,341 2,643 (6,439) 3,545
Depreciation
and
amortization 2,079 1,197 (1,777) 1,499 2,008 1,189 (1,731) 1,466
Total
Operating
Expenses 12,334 5,227 (10,464) 7,097 12,037 5,824 (10,299) 7,562
Operating
Income $ 5,604 $ 1,476 $ (5,007) $ 2,073 $ 5,333 $ 1,454 $ (4,708) $ 2,079
Equity in net
Income
of Affiliates (1) (1) 1 (1) - 1 (1) -
Contribution 5,603 1,475 (5,006) 2,072 5,333 1,455 (4,709) 2,079
1 Non-business wireless reported in the Communication segment under the Mobility
business unit.
Supplemental Operational Measure
Nine Months Ended
September 30, 2018 September 30, 2017
Business Adjustments Business Business Adjustments Business
Mobility Wireline 1 Solutions Mobility Wireline 1 Solutions
Operating
Revenues
Wireless
service $ 41,074 $ - $ (35,577) $ 5,497 $ 43,414 $ - $ (37,384) $ 6,030
Strategic
services - 9,168 - 9,168 - 8,880 - 8,880
Legacy voice
and
data
services - 8,176 - 8,176 - 10,314 - 10,314
Other
services
and
equipment - 2,756 - 2,756 - 2,717 - 2,717
Wireless
equipment 11,501 - (9,749) 1,752 8,508 - (7,520) 988
Total
Operating
Revenues 52,575 20,100 (45,326) 27,349 51,922 21,911 (44,904) 28,929
Operating
Expenses
Operations
and
support 30,020 12,084 (25,296) 16,808 30,005 13,906 (25,764) 18,147
EBITDA 22,555 8,016 (20,030) 10,541 21,917 8,005 (19,140) 10,782
Depreciation
and
amortization 6,287 3,547 (5,390) 4,444 5,988 3,583 (5,162) 4,409
Total
Operating
Expenses 36,307 15,631 (30,686) 21,252 35,993 17,489 (30,926) 22,556
Operating
Income $ 16,268 $ 4,469 $ (14,640) $ 6,097 $ 15,929 $ 4,422 $ (13,978) $ 6,373
Equity in net
Income
of Affiliates (1) (1) 1 (1) - - - -
Contribution 16,267 4,468 (14,639) 6,096 15,929 4,422 (13,978) 6,373
1 Non-business wireless reported in the Communication segment under the Mobility
business unit.
10
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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.
END
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