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 AT&T Reports Third-Quarter Results
   Wednesday, October 24, 2018 6:51:00 AM ET

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 range1, 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--(BUSINESS WIRE)-- 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:
    • 3.4 million in U.S., driven by connected devices and prepaid
    • 907,000 in Mexico

Communications Highlights

  • Mobility:
    • Service revenues up 2.3% on a comparable basis
    • 550,000 phone net adds in the U.S.
      • 69,000 postpaid phone net adds
      • 481,000 prepaid phone net adds
    • Nearly 750,000 branded smartphones added to base
    • Third-quarter postpaid phone churn of 0.93%
  • Entertainment Group:
    • 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
    • More than 10 million customer locations passed with fiber

WarnerMedia Highlights

  • Revenues up with gains in all business units
    • Turner and Home Box Office year-over-year subscription revenue growth
    • Strong Warner Bros. television licensing revenue growth; box office releases included the hit films Crazy Rich Asians, The Meg and The Nun
    • 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 Results2

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.

1Adjustments 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 . © 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 .

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 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 %
 

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).

EBITDA service margin is calculated as EBITDA divided by service revenues.

When discussing our segment, 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.

 
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 %
 
 
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 %
 
 
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 % -
                           
 
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 %
 

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 revenue 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 fees1 - 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.

 
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 EBITDA1         15,872               46,173  
 
Total Operating Revenues 45,739 39,668 122,763 118,870
Adjustments to Operating Revenues         -         89         -         89  
Total Adjusted 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  
Adjusted 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 Accounting 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.

 
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 items1 0.04 0.06 0.22 0.14

(Gain) loss on sale of assets, impairments and other adjustments2

(0.04

)

0.05 0.02 0.06
Actuarial (gain) loss3 - - (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  

1Includes combined merger integration items and merger-related interest income and expense, and redemption premiums.
2Includes gains on transactions, natural disaster adjustments and charges, and employee-related and other costs.
3Includes 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.

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 EBITDA1 $ 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  

1Includes 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.

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
        Mobility    

Business
Wireline

    Adjustments1    

Business
Solutions

Mobility    

Business
Wireline

    Adjustments1    

Business
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
        Mobility    

Business
Wireline

    Adjustments1    

Business
Solutions

Mobility    

Business
Wireline

    Adjustments1    

Business
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.

AT&T Inc.
Erin McGrath, 214-862-0651
erin.mcgrath@att.com

Source: AT&T Inc.



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