DALLAS--(BUSINESS WIRE)--AT&T Inc. (NYSE:T) today reported solid fourth-quarter results with adjusted consolidated revenues up 4.5 percent, strong wireless net adds, record postpaid gross adds and upgrades and adjusted wireline revenue growth.
“Over the last year, we’ve made several moves to significantly transform our business for the future,” said Randall Stephenson, AT&T chairman and CEO. “Our transactions with DIRECTV and Mexican wireless companies Iusacell and Nextel Mexico will make us a very different company. We’ll be unique in the industry because we’ll be able to offer integrated capabilities across a diversified base of services, customers, geographies and technology platforms. After we close DIRECTV, our largest revenue stream will come from business-related accounts, followed by U.S. TV and broadband, U.S. consumer mobility and then international mobility and TV.
“We ended the year substantially complete with our Project VIP network initiative and with most of our postpaid smartphone customers off of device subsidy plans. As a result, our full-year performance saw record-low postpaid customer churn and best-ever wireless service margins – all in a highly competitive wireless market.”
Fourth-Quarter Financial Results
For the quarter ended December 31, 2014, AT&T’s consolidated revenues totaled $34.4 billion, up 3.8 percent versus the year-earlier period. When excluding the divested Connecticut wireline properties, revenues were up 4.5 percent. Compared with results for the fourth quarter of 2013, operating expenses were $40.0 billion versus $20.9 billion; operating loss was $5.6 billion versus operating income of $12.2 billion; and operating income margin was (16.1) percent versus 36.9 percent. On an adjusted basis, operating expenses were $29.5 billion, compared to $28.0 billion in the year-ago quarter; operating income was $4.9 billion versus $5.2 billion a year ago; and operating income margin was 14.2 percent versus 15.5 percent a year ago.
Fourth-quarter 2014 net loss attributable to AT&T totaled $4.0 billion, or $0.77 per diluted share, compared to net income of $6.9 billion, or $1.31 per diluted share in the year-ago quarter. Adjusting for $(0.94) from the non-cash actuarial loss on benefit plans, $(0.25) non-cash write-off of certain network assets, and $(0.13) for merger and integration-related expenses, the loss on the sale of Connecticut wireline operations, and other asset impairments, earnings per share was $0.55 compared to an adjusted $0.53 in the year-ago quarter.
(The actuarial loss on benefit plans was driven primarily by a reduction in the combined discount rates from 5.0 percent to 4.2 percent. While investment returns were better than assumptions, they were not enough to offset the actuarial losses.)
Cash from operating activities totaled $5.7 billion in the fourth quarter and capital expenditures totaled $4.4 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $1.3 billion. Asset monetization totaled $2.0 billion with free cash flow and asset monetization of $3.3 billion in the fourth quarter.
Full-Year Results
For full-year 2014, compared with 2013 results, AT&T’s consolidated revenues totaled $132.4 billion versus $128.8 billion; when excluding the divested Connecticut wireline properties, revenues were up 3.1 percent for the year. Operating expenses reflect actuarial gains and losses on benefit plans and were $120.7 billion compared with $98.3 billion, up 22.8 percent; net income attributable to AT&T was $6.2 billion versus $18.2 billion; and earnings per diluted share was $1.19, compared with $3.39 in the prior year. With adjustments for both years, earnings per share totaled $2.51, compared with $2.50.
AT&T’s full-year cash from operating activities was $31.3 billion and capital expenditures, including capitalized interest, totaled $21.4 billion. Full-year free cash flow was $9.9 billion including $560 million of impact from pension funding. Asset monetization for the year totaled $8.1 billion with free cash flow and asset monetization of $18.0 billion for the full year.
Outlook
On a business-as-usual basis without the impact of DIRECTV and the Mexico wireless properties, AT&T expects to deliver in 2015:
- Continued consolidated revenue growth
- Adjusted EPS growth in the low single-digit range
- Expanding margins — consolidated, wireless and wireline
- Improving free cash flow and dividend coverage
As previously announced, with the completion of many Project VIP initiatives, AT&T expects capital expenditures to be in the $18 billion range.
The 2015 outlook excludes adjustments such as non-cash mark-to-market benefit plan adjustments.
At this time, AT&T is in the midst of several strategic initiatives and pending acquisitions that will diversify its networks, geographies, products and revenue streams. Including DIRECTV and the Mexico wireless properties, by the end of 2015, AT&T expects its largest revenue streams will be: business (both wireless and wireline); broadband and video; consumer mobility; and international mobility and video. Further, the company expects no dilution to adjusted EPS in 2015 from DIRECTV and the Mexico wireless properties. The company also expects to achieve higher than originally expected multi-year synergies from its acquisition of DIRECTV. The company expects to provide updated 2015 guidance following the expected close of this pending acquisition.
WIRELESS OPERATIONAL HIGHLIGHTS
Repositioning the company’s wireless business model with no-device subsidy AT&T Next and Mobile Share ValueSM plans resulted in solid revenue growth and strong subscriber gains. Highlights included:
Wireless Revenues Grow 7.7 Percent. Total wireless revenues were up 7.7 percent year over year to $19.9 billion. Wireless equipment revenues increased 72.3 percent to $4.8 billion, as more customers chose equipment installment plans versus subsidized devices. Wireless service revenues were down 3.7 percent to $15.1 billion reflecting continued customer growth of Mobile Share Value plans. Fourth-quarter wireless operating expenses totaled $16.6 billion, up 14.8 percent versus the year-earlier quarter, largely due to higher equipment costs from record gross adds and upgrades and costs associated with the company’s acquisition of Leap Wireless. Wireless operating income was $3.2 billion, down 18.1 percent year over year largely due to increased volumes and Leap integration costs. Fourth-quarter 2014 service revenue comparisons included impacts from strong customer adoption of Mobile Share Value plans, partially offset by increased revenues from Leap.
Postpaid Phone with Next ARPU Grows Sequentially. The continued adoption of AT&T Next and Mobile Share Value plans is reflected in a year-over-year reduction in postpaid service ARPU (average revenues per user). Phone-only postpaid ARPU decreased 10.7 percent versus the year-earlier quarter. Phone-only postpaid ARPU with AT&T Next monthly billings decreased 4.1 percent year over year, but increased 0.4 percent sequentially. The strong adoption of Mobile Share Value plans also is impacting service revenues. As customers upgrade on AT&T Next, phone-only ARPU with AT&T Next monthly billings is expected to continue to increase.
Smartphones and Tablets Drive Postpaid Growth. AT&T posted a fourth-quarter net increase in total wireless subscribers of 1.9 million, led by gains in postpaid and connected devices. That’s twice as many as in the year-ago quarter. The company added 854,000 postpaid subscribers, up both year over year and sequentially. Connected device net adds were 1,296,000, including about 800,000 connected cars. Prepaid lost 180,000 subscribers primarily due to declines in GoPhone subscribers and session-based tablets; however, Cricket subscribers increased in the quarter reflecting progress in the integration of its operations. The company also lost 65,000 reseller subscribers, primarily due to losses in low-end subscribers.
Postpaid net adds include 148,000 smartphones. Total branded smartphone net adds (both postpaid and prepaid) were 324,000. The company had 969,000 postpaid tablet net adds in the quarter.
Record Smartphone Gross Adds and Upgrades. The company had 10.1 million postpaid smartphone gross adds and upgrades, including a record number of upgrades in the quarter. Sales on AT&T Next also increased during the quarter as 58 percent, or 5.9 million, of all postpaid smartphone gross adds and upgrades chose AT&T Next. The company also had 386,000 bring-your-own-device gross adds, up more than three times year over year. AT&T added 1 million postpaid smartphones in the fourth quarter. At the end of the quarter, 83 percent, or 56.8 million, of AT&T’s postpaid phone subscribers had smartphones, up from 77 percent, or 51.9 million, a year earlier. AT&T’s ARPU for smartphones is about twice that of non-smartphone subscribers. At the end of the fourth quarter, 75 percent of AT&T’s postpaid smartphone customers had an LTE-capable device.
Mobile Share Value Plans Continue to Grow. AT&T continues to reposition the customer experience with attractive Mobile Share Value pricing for customers who choose to transition from the traditional device subsidy model. In the fourth quarter, an increasing number of subscribers chose Mobile Share Value plans. The number of Mobile Share accounts more than doubled year over year to reach 18.4 million with an average of about three devices per account. Mobile Share plans, including Mobile Share Value, now represent more than 52 million connections, or almost 70 percent of postpaid subscribers.
At the end of the fourth quarter, half of Mobile Share accounts had 10 gigabyte or larger data plans, up from 27 percent in the year-ago quarter. That helped drive an 18 percent year-over-year increase in wireless data billings. In total, about 85 percent of postpaid smartphone subscribers are on usage-based data plans (tiered data and Mobile Share plans). This compares to 75 percent a year ago.
Postpaid Churn Increases. Postpaid churn was 1.22 percent. This compares to an all-time fourth-quarter best of 1.11 percent in the year-ago quarter. About 95 percent of AT&T’s total postpaid base is on AT&T Family Talk®, Mobile Share or business plans. Churn for these plans is significantly lower than for other postpaid subscribers.
Strong Sales Impact Margins. As expected, wireless margins were impacted by strong seasonal gross adds and upgrades, adoption of Mobile Share Value plans and continued investment in new services. AT&T’s reported fourth-quarter wireless operating income margin was 16.3 percent versus 21.4 percent in the year-earlier quarter. Wireless EBITDA margin was 26.4 percent compared to 31.8 percent in the fourth quarter of 2013. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.)
When adjusting for integration costs, AT&T’s wireless EBITDA margin was 27.9 percent compared to 31.8 percent in the fourth quarter of 2013 and wireless EBITDA service margin was 36.7 percent compared to 37.4 percent in the year-ago quarter. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
WIRELINE OPERATIONAL HIGHLIGHTS
Continued strong wireline consumer and strategic business services growth drove year-over-year adjusted revenue growth. Highlights included:
Adjusted Wireline Revenues Increase. Total fourth-quarter wireline revenues were $14.6 billion, down 1.0 percent versus the year-earlier quarter and down slightly versus the third quarter of 2014. When adjusting for the fourth-quarter sale of the company’s Connecticut wireline operations, revenues were up 0.4 percent year over year. Total adjusted U-verse revenues grew 21.9 percent year over year. Fourth-quarter wireline operating expenses were $13.1 billion, down 1.2 percent versus the fourth quarter of 2013. AT&T’s wireline operating income totaled $1.5 billion, up 0.8 percent versus the fourth quarter of 2013. Fourth-quarter wireline operating income margin was 10.1 percent versus 9.9 percent in the year-earlier quarter and 8.8 percent in the third quarter of 2014.
Strategic Business Services Accounts for Nearly 30 Percent of Wireline Business Revenues. Total revenues from business customers were $8.6 billion, down 2.8 percent versus the year-earlier quarter. When adjusting for the sale of the company’s Connecticut wireline properties, total revenues declined 1.8 percent year over year. Overall, declines in legacy products were partially offset by continued double-digit growth in strategic business services. Revenues from these services, the next-generation capabilities that lead AT&T’s most advanced business solutions — including VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services — grew 13.8 percent versus the year-earlier quarter and grew 14.3 when adjusting for the sale of Connecticut wireline properties. These services represent an annualized revenue stream of more than $10 billion and were nearly 30 percent of wireline business revenues in the fourth quarter. During the quarter, the company also added 31,000 U-verse high speed broadband business subscribers.
U-verse Drives Solid Consumer Revenue Growth. Revenues from residential customers totaled $5.6 billion, an increase of 0.1 percent versus the fourth quarter a year ago. When adjusted for the sale of the Connecticut wireline operations, revenue growth was 2.4 percent. Continued strong growth in consumer IP data services in the fourth quarter more than offset lower revenues from legacy voice and data products. U-verse, which includes high speed Internet, TV and Voice over IP, now represents 67 percent of wireline consumer revenues, up from 57 percent in the year-earlier quarter. Adjusted consumer U-verse revenues grew 21.1 percent year over year.
U-verse Broadband Has More Than 12 Million Subscribers. U-verse high speed Internet had a fourth-quarter net gain of 405,000 subscribers, for a total of 12.2 million. (The Connecticut wireline properties had about 407,000 total broadband subscribers and 298,000 U-verse high speed Internet subscribers.) Overall, total wireline broadband subscribers decreased by 51,000 in the quarter but slightly increased for the full year. Total wireline broadband ARPU was up more than 7 percent year over year. Total U-verse high speed Internet subscribers now represent 76 percent of all wireline broadband subscribers, compared with 63 percent in the year-earlier quarter.
U-verse TV added 73,000 subscribers in the fourth quarter for nearly 6 million in service at the end of the fourth quarter after adjusting for the sale of the Connecticut operations. (The Connecticut wireline properties had about 197,000 U-verse TV subscribers.) More than 97 percent of AT&T’s video customers subscribe to bundled services. Nearly two-thirds of U-verse TV subscribers take three or four services from AT&T. ARPU for U-verse triple-play customers continues to be more than $170. At the end of the quarter, U-verse TV penetration was about 22 percent and U-verse broadband penetration was about 21 percent.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.
About AT&T
AT&T Inc. (NYSE:T) helps millions of people and businesses around the globe stay connected through leading wireless, high-speed Internet, voice and cloud-based services. We’re helping people mobilize their worlds with state-of-the-art communications, entertainment services and amazing innovations like connected cars and devices for homes, offices and points in between. Our U.S. wireless network offers customers the nation’s strongest LTE signal and the nation’s most reliable 4G LTE network. We offer the best global wireless coverage. We’re improving how our customers stay entertained and informed with AT&T U-verse® TV and High Speed Internet services. And businesses worldwide are serving their customers better with AT&T’s mobility and highly secure cloud solutions.
Additional information about AT&T products and services is available at http://about.att.com. Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att and YouTube at http://www.youtube.com/att.
© 2015 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Reliability and signal strength claims based on nationwide carriers’ LTE. Signal strength claim based ONLY on avg. LTE signal strength. LTE not available everywhere. Global coverage claim based on offering voice and data roaming in more countries than any other U.S. based carrier, and offering the most wireless smartphones and tablets that work in the most countries.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at www.att.com/investor.relations.
The ‘quiet period’ for FCC Spectrum Auction 97 (also known as the AWS-3 Auction) is now in effect. During the quiet period, auction applicants are required to avoid discussions of bids, bidding strategy, and post auction market structure with other auction applicants.
NOTE: EBITDA is defined as operating income before depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NOTE: Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.
Financial Data | |||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||
Consolidated Statements of Income | |||||||||||||||||||||||||||||||||
Dollars in millions except per share amounts | |||||||||||||||||||||||||||||||||
Unaudited | Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||
12/31/2014 | 12/31/2013 | % Chg | 12/31/2014 | 12/31/2013 | % Chg | ||||||||||||||||||||||||||||
Operating Revenues | $ | 34,439 | $ | 33,163 | 3.8 | % | $ | 132,447 | $ | 128,752 | 2.9 | % | |||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||||||||
Cost of services and sales (exclusive of depreciation and amortization shown separately below) |
18,537 | 12,237 | 51.5 | % | 60,611 | 51,464 | 17.8 | % | |||||||||||||||||||||||||
Selling, general and administrative | 14,765 | 4,008 | - | 39,697 | 28,414 | 39.7 | % | ||||||||||||||||||||||||||
Abandonment of network assets | 2,120 | - | - | 2,120 | - | - | |||||||||||||||||||||||||||
Depreciation and amortization | 4,567 | 4,680 | -2.4 | % | 18,273 | 18,395 | -0.7 | % | |||||||||||||||||||||||||
Total Operating Expenses | 39,989 | 20,925 | 91.1 | % | 120,701 | 98,273 | 22.8 | % | |||||||||||||||||||||||||
Operating Income (Loss) | (5,550 | ) | 12,238 | - | 11,746 | 30,479 | -61.5 | % | |||||||||||||||||||||||||
Interest Expense | 856 | 1,459 | -41.3 | % | 3,613 | 3,940 | -8.3 | % | |||||||||||||||||||||||||
Equity in Net Income (Loss) of Affiliates | (13 | ) | 148 | - | 175 | 642 | -72.7 | % | |||||||||||||||||||||||||
Other Income (Expense) - Net | 196 | 226 | -13.3 | % | 1,652 | 596 | - | ||||||||||||||||||||||||||
Income (Loss) Before Income Taxes | (6,223 | ) | 11,153 | - | 9,960 | 27,777 | -64.1 | % | |||||||||||||||||||||||||
Income Tax (Benefit) Expense | (2,327 | ) | 4,158 | - | 3,442 | 9,224 | -62.7 | % | |||||||||||||||||||||||||
Net Income (Loss) | (3,896 | ) | 6,995 | - | 6,518 | 18,553 | -64.9 | % | |||||||||||||||||||||||||
Less: Net Income Attributable to Noncontrolling Interest | (81 | ) | (82 | ) | 1.2 | % | (294 | ) | (304 | ) | 3.3 | % | |||||||||||||||||||||
Net Income (Loss) Attributable to AT&T | $ | (3,977 | ) | $ | 6,913 | - | $ | 6,224 | $ | 18,249 | -65.9 | % | |||||||||||||||||||||
Basic Earnings (Loss) Per Share Attributable to AT&T | $ | (0.77 | ) | $ | 1.31 | - | $ | 1.19 | $ | 3.39 | -64.9 | % | |||||||||||||||||||||
Weighted Average Common Shares Outstanding (000,000) |
5,198 | 5,267 | -1.3 | % | 5,205 | 5,368 | -3.0 | % | |||||||||||||||||||||||||
Diluted Earnings (Loss) Per Share Attributable to AT&T | $ | (0.77 | ) | $ | 1.31 | - | $ | 1.19 | $ | 3.39 | -64.9 | % | |||||||||||||||||||||
Weighted Average Common Shares Outstanding with Dilution (000,000) |
5,214 | 5,283 | -1.3 | % | 5,221 | 5,385 | -3.0 | % | |||||||||||||||||||||||||
Financial Data | |||||||||||||
AT&T Inc. | |||||||||||||
Consolidated Balance Sheets | |||||||||||||
Dollars in millions | |||||||||||||
December 31, | |||||||||||||
2014 | 2013 | ||||||||||||
Unaudited | |||||||||||||
Assets | |||||||||||||
Current Assets | |||||||||||||
Cash and cash equivalents | $ | 8,603 | $ | 3,339 | |||||||||
Accounts receivable - net of allowances for doubtful accounts of $454 and $483 | 14,527 | 12,918 | |||||||||||
Prepaid expenses | 831 | 960 | |||||||||||
Deferred income taxes | 1,142 | 1,199 | |||||||||||
Other current assets | 6,925 | 4,780 | |||||||||||
Total current assets | 32,028 | 23,196 | |||||||||||
Property, Plant and Equipment - Net | 112,898 | 110,968 | |||||||||||
Goodwill | 69,692 | 69,273 | |||||||||||
Licenses | 60,824 | 56,433 | |||||||||||
Other Intangible Assets - Net | 6,139 | 5,779 | |||||||||||
Investments in Equity Affiliates | 250 | 3,860 | |||||||||||
Other Assets | 10,998 | 8,278 | |||||||||||
Total Assets | $ | 292,829 | $ | 277,787 | |||||||||
Liabilities and Stockholders’ Equity |
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Current Liabilities | |||||||||||||
Debt maturing within one year | $ | 6,056 | $ | 5,498 | |||||||||
Accounts payable and accrued liabilities | 23,592 | 21,107 | |||||||||||
Advanced billing and customer deposits | 4,105 | 4,212 | |||||||||||
Accrued taxes | 1,091 | 1,774 | |||||||||||
Dividends payable | 2,438 | 2,404 | |||||||||||
Total current liabilities | 37,282 | 34,995 | |||||||||||
Long-Term Debt | 76,011 | 69,290 | |||||||||||
Deferred Credits and Other Noncurrent Liabilities | |||||||||||||
Deferred income taxes | 37,544 | 36,308 | |||||||||||
Postemployment benefit obligation | 37,079 | 29,946 | |||||||||||
Other noncurrent liabilities | 17,989 | 15,766 | |||||||||||
Total deferred credits and other noncurrent liabilities | 92,612 | 82,020 | |||||||||||
Stockholders’ Equity |
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Common stock | 6,495 | 6,495 | |||||||||||
Additional paid-in capital | 91,108 | 91,091 | |||||||||||
Retained earnings | 27,736 | 31,141 | |||||||||||
Treasury stock | (47,029 | ) | (45,619 | ) | |||||||||
Accumulated other comprehensive income | 8,060 | 7,880 | |||||||||||
Noncontrolling interest | 554 | 494 | |||||||||||
Total stockholders’ equity |
86,924 | 91,482 | |||||||||||
Total Liabilities and Stockholders’ Equity |
$ | 292,829 | $ | 277,787 | |||||||||
Financial Data | |||||||||||||
AT&T Inc. | |||||||||||||
Consolidated Statements of Cash Flows | |||||||||||||
Dollars in millions | |||||||||||||
Unaudited | Twelve Months Ended December 31, | ||||||||||||
2014 | 2013 | ||||||||||||
Operating Activities | |||||||||||||
Net income | $ | 6,518 | $ | 18,553 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization | 18,273 | 18,395 | |||||||||||
Undistributed earnings from investments in equity affiliates | (27 | ) | (324 | ) | |||||||||
Provision for uncollectible accounts | 1,032 | 954 | |||||||||||
Deferred income tax expense | 1,772 | 6,242 | |||||||||||
Net gain from sale of investments, net of impairments | (1,532 | ) | (492 | ) | |||||||||
Actuarial loss (gain) on pension and postretirement benefits | 7,869 | (7,584 | ) | ||||||||||
Abandonment of network assets | 2,120 | - | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | (2,651 | ) | (1,329 | ) | |||||||||
Other current assets | (962 | ) | 412 | ||||||||||
Accounts payable and accrued liabilities | 2,412 | (152 | ) | ||||||||||
Retirement benefit funding | (560 | ) | (209 | ) | |||||||||
Other - net | (2,926 | ) | 330 | ||||||||||
Total adjustments | 24,820 | 16,243 | |||||||||||
Net Cash Provided by Operating Activities | 31,338 | 34,796 | |||||||||||
Investing Activities | |||||||||||||
Construction and capital expenditures: | |||||||||||||
Capital expenditures | (21,199 | ) | (20,944 | ) | |||||||||
Interest during construction | (234 | ) | (284 | ) | |||||||||
Acquisitions, net of cash acquired | (3,141 | ) | (4,113 | ) | |||||||||
Dispositions | 8,123 | 1,923 | |||||||||||
Purchases of securities | (1,890 | ) | - | ||||||||||
Return of advances to and investments in equity affiliates | 4 | 301 | |||||||||||
Other | - | (7 | ) | ||||||||||
Net Cash Used in Investing Activities | (18,337 | ) | (23,124 | ) | |||||||||
Financing Activities | |||||||||||||
Net change in short-term borrowings with | |||||||||||||
original maturities of three months or less | (16 | ) | 20 | ||||||||||
Issuance of other short-term borrowings | - | 1,476 | |||||||||||
Repayment of other short-term borrowings | - | (1,476 | ) | ||||||||||
Issuance of long-term debt | 15,926 | 12,040 | |||||||||||
Repayment of long-term debt | (10,400 | ) | (7,698 | ) | |||||||||
Issuance of other long-term financing obligations | 107 | 4,796 | |||||||||||
Purchase of treasury stock | (1,617 | ) | (13,028 | ) | |||||||||
Issuance of treasury stock | 39 | 114 | |||||||||||
Dividends paid | (9,552 | ) | (9,696 | ) | |||||||||
Other | (2,224 | ) | 251 | ||||||||||
Net Cash Used in Financing Activities | (7,737 | ) | (13,201 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 5,264 | (1,529 | ) | ||||||||||
Cash and cash equivalents beginning of year | 3,339 | 4,868 | |||||||||||
Cash and Cash Equivalents End of Year | $ | 8,603 | $ | 3,339 | |||||||||
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AT&T Inc. | |||||||||||||||||||||||||||||||||
Statements of Segment Income | |||||||||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||
Wireless | 12/31/2014 | 12/31/2013 | % Chg | 12/31/2014 | 12/31/2013 | % Chg | |||||||||||||||||||||||||||
Segment Operating Revenues | |||||||||||||||||||||||||||||||||
Service | $ | 15,074 | $ | 15,660 | -3.7 | % | $ | 61,032 | $ | 61,552 | -0.8 | % | |||||||||||||||||||||
Equipment | 4,785 | 2,777 | 72.3 | % | 12,960 | 8,347 | 55.3 | % | |||||||||||||||||||||||||
Total Segment Operating Revenues | 19,859 | 18,437 | 7.7 | % | 73,992 | 69,899 | 5.9 | % | |||||||||||||||||||||||||
Segment Operating Expenses | |||||||||||||||||||||||||||||||||
Operations and support | 14,619 | 12,576 | 16.2 | % | 48,924 | 44,508 | 9.9 | % | |||||||||||||||||||||||||
Depreciation and amortization | 2,010 | 1,915 | 5.0 | % | 7,941 | 7,468 | 6.3 | % | |||||||||||||||||||||||||
Total Segment Operating Expenses | 16,629 | 14,491 | 14.8 | % | 56,865 | 51,976 | 9.4 | % | |||||||||||||||||||||||||
Segment Operating Income | 3,230 | 3,946 | -18.1 | % | 17,127 | 17,923 | -4.4 | % | |||||||||||||||||||||||||
Equity in Net Income (Loss) of Affiliates | (37 | ) | (20 | ) | -85.0 | % | (112 | ) | (75 | ) | -49.3 | % | |||||||||||||||||||||
Segment Income | $ | 3,193 | $ | 3,926 | -18.7 | % | $ | 17,015 | $ | 17,848 | -4.7 | % | |||||||||||||||||||||
Segment Operating Income Margin |
16.3 |
% |
21.4 |
% |
23.1 |
% |
25.6 |
% |
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Wireline | |||||||||||||||||||||||||||||||||
Segment Operating Revenues | |||||||||||||||||||||||||||||||||
Service | $ | 14,240 | $ | 14,434 | -1.3 | % | $ | 57,405 | $ | 57,700 | -0.5 | % | |||||||||||||||||||||
Equipment | 332 | 282 | 17.7 | % | 1,020 | 1,114 | -8.4 | % | |||||||||||||||||||||||||
Total Segment Operating Revenues | 14,572 | 14,716 | -1.0 | % | 58,425 | 58,814 | -0.7 | % | |||||||||||||||||||||||||
Segment Operating Expenses | |||||||||||||||||||||||||||||||||
Operations and support | 10,553 | 10,501 | 0.5 | % | 42,471 | 41,638 | 2.0 | % | |||||||||||||||||||||||||
Depreciation and amortization | 2,554 | 2,761 | -7.5 | % | 10,323 | 10,907 | -5.4 | % | |||||||||||||||||||||||||
Total Segment Operating Expenses | 13,107 | 13,262 | -1.2 | % | 52,794 | 52,545 | 0.5 | % | |||||||||||||||||||||||||
Segment Operating Income | 1,465 | 1,454 | 0.8 | % | 5,631 | 6,269 | -10.2 | % | |||||||||||||||||||||||||
Equity in Net Income (Loss) of Affiliates | (2 | ) | 1 | - | - | 2 | - | ||||||||||||||||||||||||||
Segment Income | $ | 1,463 | $ | 1,455 | 0.5 | % | $ | 5,631 | $ | 6,271 | -10.2 | % | |||||||||||||||||||||
Segment Operating Income Margin |
10.1 |
% |
9.9 |
% |
9.6 |
% |
10.7 |
% |
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Financial Data | |||||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||
Supplementary Operating and Financial Data | |||||||||||||||||||||||||||||||||||
Dollars in millions except per share amounts, subscribers and connections in (000s) | |||||||||||||||||||||||||||||||||||
Unaudited | Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||
12/31/2014 | 12/31/2013 | % Chg | 12/31/2014 | 12/31/2013 | % Chg | ||||||||||||||||||||||||||||||
Wireless | |||||||||||||||||||||||||||||||||||
Subscribers and Connections | |||||||||||||||||||||||||||||||||||
Total | 120,554 | 110,376 | 9.2 | % | |||||||||||||||||||||||||||||||
Postpaid | 75,931 | 72,638 | 4.5 | % | |||||||||||||||||||||||||||||||
Prepaid | 10,986 | 7,384 | 48.8 | % | |||||||||||||||||||||||||||||||
Reseller | 13,855 | 14,028 | -1.2 | % | |||||||||||||||||||||||||||||||
Connected Devices | 19,782 | 16,326 | 21.2 | % | |||||||||||||||||||||||||||||||
Wireless Net Adds | |||||||||||||||||||||||||||||||||||
Total | 1,905 | 809 | - | 5,608 | 2,721 | - | |||||||||||||||||||||||||||||
Postpaid | 854 | 566 | 50.9 | % | 3,290 | 1,776 | 85.2 | % | |||||||||||||||||||||||||||
Prepaid | (180 | ) | (32 | ) | - | (775 | ) | (13 | ) | - | |||||||||||||||||||||||||
Reseller | (65 | ) | (123 | ) | 47.2 | % | (346 | ) | (1,074 | ) | 67.8 | % | |||||||||||||||||||||||
Connected Devices | 1,296 | 398 | - | 3,439 | 2,032 | 69.2 | % | ||||||||||||||||||||||||||||
M&A Activity, Partitioned Customers and Other Adjs. | (1 | ) | 107 | - | 4,570 | 698 | - | ||||||||||||||||||||||||||||
Wireless Churn | |||||||||||||||||||||||||||||||||||
Postpaid Churn | 1.22 | % | 1.11 | % | 11 BP | 1.04 | % | 1.06 | % | -2 BP | |||||||||||||||||||||||||
Total Churn | 1.59 | % | 1.43 | % | 16 BP | 1.45 | % | 1.37 | % | 8 BP | |||||||||||||||||||||||||
Other | |||||||||||||||||||||||||||||||||||
Licensed POPs (000,000) | 321 | 317 | 1.3 | % | |||||||||||||||||||||||||||||||
Wireline | |||||||||||||||||||||||||||||||||||
Voice | |||||||||||||||||||||||||||||||||||
Total Wireline Voice Connections | 24,778 | 28,489 | -13.0 | % | |||||||||||||||||||||||||||||||
Net Change | (1,442 | ) | (807 | ) | -78.7 | % | (3,711 | ) | (3,695 | ) | -0.4 | % | |||||||||||||||||||||||
Broadband | |||||||||||||||||||||||||||||||||||
Total Wireline Broadband Connections | 16,028 | 16,425 | -2.4 | % | |||||||||||||||||||||||||||||||
Net Change | (458 | ) | (2 | ) | - | (397 | ) | 35 | - | ||||||||||||||||||||||||||
Video | |||||||||||||||||||||||||||||||||||
Total U-verse Video Connections | 5,943 | 5,460 | 8.8 | % | |||||||||||||||||||||||||||||||
Net Change | (124 | ) | 194 | - | 483 | 924 | -47.7 | % | |||||||||||||||||||||||||||
Consumer Revenue Connections | |||||||||||||||||||||||||||||||||||
Broadband1 | 14,444 | 14,697 | -1.7 | % | |||||||||||||||||||||||||||||||
U-verse Video Connections | 5,920 | 5,442 | 8.8 | % | |||||||||||||||||||||||||||||||
Voice2 | 14,002 | 16,251 | -13.8 | % | |||||||||||||||||||||||||||||||
Total Consumer Revenue Connections1 | 34,366 | 36,390 | -5.6 | % | |||||||||||||||||||||||||||||||
Net Change | (1,403 | ) | (273 | ) | - | (2,024 | ) | (1,277 | ) | -58.5 | % | ||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||
Construction and capital expenditures: | |||||||||||||||||||||||||||||||||||
Capital expenditures | $ | 4,370 | $ | 5,379 | -18.8 | % | $ | 21,199 | $ | 20,944 | 1.2 | % | |||||||||||||||||||||||
Interest during construction | $ | 56 | $ | 71 | -21.1 | % | $ | 234 | $ | 284 | -17.6 | % | |||||||||||||||||||||||
Dividends Declared per Share | $ | 0.47 | $ | 0.46 | 2.2 | % | $ | 1.85 | $ | 1.81 | 2.2 | % | |||||||||||||||||||||||
End of Period Common Shares Outstanding (000,000) | 5,187 | 5,226 | -0.7 | % | |||||||||||||||||||||||||||||||
Debt Ratio3 | 48.6 | % | 45.0 | % | 360 BP | ||||||||||||||||||||||||||||||
Total Employees | 243,620 | 243,360 | 0.1 | % | |||||||||||||||||||||||||||||||
1Consumer wireline broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband. |
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2Includes consumer U-verse Voice over Internet Protocol connections of 4,759 as of December 31, 2014. |
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3Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders’ equity. |
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Note: For the end of 4Q14, total switched access lines were 19,896; retail business switched access lines totaled 8,939; and wholesale, national mass markets and coin switched access lines totaled 1,714. Restated switched access lines do not include ISDN lines. |
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Financial Data | ||||||||||||||||||||||||||||||||||||||||
AT&T Inc. | ||||||||||||||||||||||||||||||||||||||||
Non-GAAP Wireless Reconciliation | ||||||||||||||||||||||||||||||||||||||||
Wireless Segment EBITDA | ||||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||||||||||||||||
12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | 12/31/13 | 12/31/14 | ||||||||||||||||||||||||||||||||||
Segment Operating Revenues | ||||||||||||||||||||||||||||||||||||||||
Service | $ | 15,660 | $ | 15,387 | $ | 15,148 | $ | 15,423 | $ | 15,074 | $ | 61,552 | $ | 61,032 | ||||||||||||||||||||||||||
Equipment | 2,777 | 2,479 | 2,782 | 2,914 | 4,785 | 8,347 | 12,960 | |||||||||||||||||||||||||||||||||
Total Segment Operating Revenues | $ | 18,437 | $ | 17,866 | $ | 17,930 | $ | 18,337 | $ | 19,859 | $ | 69,899 | $ | 73,992 | ||||||||||||||||||||||||||
Segment Operating Expenses | ||||||||||||||||||||||||||||||||||||||||
Operations and support | 12,576 | 10,882 | 11,568 | 11,855 | 14,619 | 44,508 | 48,924 | |||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,915 | 1,931 | 2,035 | 1,965 | 2,010 | 7,468 | 7,941 | |||||||||||||||||||||||||||||||||
Total Segment Operating Expenses | 14,491 | 12,813 | 13,603 | 13,820 | 16,629 | 51,976 | 56,865 | |||||||||||||||||||||||||||||||||
Segment Operating Income | 3,946 | 5,053 | 4,327 | 4,517 | 3,230 | 17,923 | 17,127 | |||||||||||||||||||||||||||||||||
Segment Operating Income Margin | 21.4 | % | 28.3 | % | 24.1 | % | 24.6 | % | 16.3 | % | 25.6 | % | 23.1 | % | ||||||||||||||||||||||||||
Plus: Depreciation and amortization | 1,915 | 1,931 | 2,035 | 1,965 | 2,010 | 7,468 | 7,941 | |||||||||||||||||||||||||||||||||
EBITDA1 | $ | 5,861 | $ | 6,984 | $ | 6,362 | $ | 6,482 | $ | 5,240 | $ | 25,391 | $ | 25,068 | ||||||||||||||||||||||||||
EBITDA as a % of Service Revenues2 | 37.4 | % | 45.4 | % | 42.0 | % | 42.0 | % | 34.8 | % | 41.3 | % | 41.1 | % | ||||||||||||||||||||||||||
1EBITDA is defined as Operating Income Before Depreciation and Amortization. |
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2Service revenues include Wireless data, voice, text and other service revenues. |
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Financial Data | |||||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||
Non-GAAP Wireless Reconciliation | |||||||||||||||||||||||||||||||||||
Wireless Segment Adjusted EBITDA | |||||||||||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||||||||||
Unaudited | Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||
Reported Service Revenues | $ | 14,949 | $ | 15,660 | $ | 15,074 | $ | 59,186 | $ | 61,552 | $ | 61,032 | |||||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||||
Storm Impacts | 22 | - | - | 22 | - | - | |||||||||||||||||||||||||||||
Adjusted Service Revenues | $ | 14,971 | $ | 15,660 | $ | 15,074 | $ | 59,208 | $ | 61,552 | $ | 61,032 | |||||||||||||||||||||||
EBITDA1 | $ | 4,346 | $ | 5,861 | $ | 5,240 | $ | 23,467 | $ | 25,391 | $ | 25,068 | |||||||||||||||||||||||
EBITDA as a % of Service Revenues2 | 29.1 | % | 37.4 | % | 34.8 | % | 39.6 | % | 41.3 | % | 41.1 | % | |||||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||||
Wireless integration expense3 |
- | - | 293 | - | - | 577 | |||||||||||||||||||||||||||||
Storm impact | 128 | - | - | 128 | - | - | |||||||||||||||||||||||||||||
Adjusted EBITDA1 | $ | 4,474 | $ | 5,861 | $ | 5,533 | $ | 23,595 | $ | 25,391 | $ | 25,645 | |||||||||||||||||||||||
Adjusted EBITDA as a % of Adjusted Service Revenues2 | 29.9 | % | 37.4 | % | 36.7 | % | 39.9 | % | 41.3 | % | 42.0 | % | |||||||||||||||||||||||
1EBITDA is defined as operating income before depreciation and amortization. |
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2Service revenues include Wireless data, voice, text and other service revenues. |
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3Operations and Support expenses for Leap and Alltel wireless integration costs. |
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Financial Data | |||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||||||||||||||
Free Cash Flow | |||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||
2013 | 2014 | 2013 | 2014 | ||||||||||||||||||||
Net cash provided by operating activities | $ | 7,917 | $ | 5,745 | $ | 34,796 | $ | 31,338 | |||||||||||||||
Less: Construction and capital expenditures | (5,450 | ) | (4,426 | ) | (21,228 | ) | (21,433 | ) | |||||||||||||||
Free Cash Flow | $ | 2,467 | $ | 1,319 | $ | 13,568 | $ | 9,905 | |||||||||||||||
Free Cash Flow after Dividends | |||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||
2013 | 2014 | 2013 | 2014 | ||||||||||||||||||||
Net cash provided by operating activities | $ | 7,917 | $ | 5,745 | $ | 34,796 | $ | 31,338 | |||||||||||||||
Less: Construction and capital expenditures | (5,450 | ) | (4,426 | ) | (21,228 | ) | (21,433 | ) | |||||||||||||||
Free Cash Flow | 2,467 | 1,319 | 13,568 | 9,905 | |||||||||||||||||||
Less: Dividends paid | (2,371 | ) | (2,382 | ) | (9,696 | ) | (9,552 | ) | |||||||||||||||
Free Cash Flow after Dividends | $ | 96 | $ | (1,063 | ) | $ | 3,872 | $ | 353 | ||||||||||||||
Free cash flow includes reimbursements of certain postretirement benefits paid. |
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Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners. |
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Financial Data | ||||||||||||||||||
AT&T Inc. | ||||||||||||||||||
Non-GAAP Consolidated Reconciliation | ||||||||||||||||||
Annualized Net-Debt-to-Adjusted-EBITDA Ratio | ||||||||||||||||||
Dollars in millions | ||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||
3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | 2014 | ||||||||||||||
Operating Revenues | $ 32,476 | $ 32,575 | $ 32,957 | $ 34,439 | $ 132,447 | |||||||||||||
Operating Expenses | 26,198 | 26,959 | 27,555 | 39,989 | 120,701 | |||||||||||||
Total Operating Income (Loss) | 6,278 | 5,616 | 5,402 | (5,550) | 11,746 | |||||||||||||
Add Back Depreciation and Amortization | 4,617 | 4,550 | 4,539 | 4,567 | 18,273 | |||||||||||||
Consolidated Reported EBITDA | 10,895 | 10,166 | 9,941 | (983) | 30,019 | |||||||||||||
Add Back: | ||||||||||||||||||
Actuarial loss on benefit plans | - | - | - | 7,869 | 7,869 | |||||||||||||
Abandonment of network assets | - | - | - | 2,120 | 2,120 | |||||||||||||
Merger, wireless integration, and other costs1 | 81 | 97 | 213 | 396 | 787 | |||||||||||||
Total Consolidated Adjusted EBITDA | 10,976 | 10,263 | 10,154 | 9,402 | 40,795 | |||||||||||||
Annualized Consolidated Adjusted EBITDA | 40,795 | |||||||||||||||||
End-of-period current debt | 6,056 | |||||||||||||||||
End-of-period long-term debt | 76,011 | |||||||||||||||||
Total End-of-Period Debt | 82,067 | |||||||||||||||||
Less Cash and Cash Equivalents | 8,603 | |||||||||||||||||
Less Bank Securities - Certificates of Deposit & Time Deposits2 | 1,890 | |||||||||||||||||
Net Debt Balance | 71,574 | |||||||||||||||||
Annualized Net-Debt-to-Adjusted-EBITDA Ratio | 1.75 | |||||||||||||||||
1Adjustments include Operations and Support expenses for Leap and Alltel wireless integration costs, DIRECTV merger costs and other asset write-off costs. |
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2Bank Securities are included in “Other current assets” on the Consolidated Balance Sheets. |
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Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA. |
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Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. |
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Financial Data | |||||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||||||||||||||||||||||||||
Adjusted Operating Revenues, Operating Income and Margin | |||||||||||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||
Reported Operating Revenues | $ | 32,578 | $ | 33,163 | $ | 34,439 | $ | 127,434 | $ | 128,752 | $ | 132,447 | |||||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||||
Removal of Advertising Solutions | - | - | - | (1,049 | ) | - | - | ||||||||||||||||||||||||||||
Storm Impacts | 27 | - | - | 27 | - | - | |||||||||||||||||||||||||||||
Adjusted Operating Revenues | $ | 32,605 | $ | 33,163 | $ | 34,439 | $ | 126,412 | $ | 128,752 | $ | 132,447 | |||||||||||||||||||||||
Year-over-year growth - Adjusted | 1.7 | % | 3.8 | % | 1.9 | % | 2.9 | % | |||||||||||||||||||||||||||
Adjusted Operating Revenues is a non-GAAP financial measure calculated by excluding from operating revenues significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies. |
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Adjusted Operating Income and Margin | |||||||||||||||||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||
Reported Operating Income | $ | (5,958 | ) | $ | 12,238 | $ | (5,550 | ) | $ | 12,997 | $ | 30,479 | $ | 11,746 | |||||||||||||||||||||
Adjustments: | |||||||||||||||||||||||||||||||||||
Actuarial (gain) / loss on benefit plans | 9,994 | (7,584 | ) | 7,869 | 9,994 | (7,584 | ) | 7,869 | |||||||||||||||||||||||||||
Abandonment of network assets | - | - | 2,120 | - | - | 2,120 | |||||||||||||||||||||||||||||
Other significant adjustments1 | 176 | - | 460 | 176 | (229 | ) | 948 | ||||||||||||||||||||||||||||
Employee separation charges | - | 501 | - | - | 501 | - | |||||||||||||||||||||||||||||
Removal of Advertising Solutions | - | - | - | (170 | ) | - | - | ||||||||||||||||||||||||||||
Adjusted Operating Income | $ | 4,212 | $ | 5,155 | $ | 4,899 | $ | 22,997 | $ | 23,167 | $ | 22,683 | |||||||||||||||||||||||
Year-over-year growth - Adjusted | 22.4 | % | -5.0 | % | 0.7 | % | -2.1 | % | |||||||||||||||||||||||||||
Adjusted Operating Income Margin* | 12.9 | % | 15.5 | % | 14.2 | % | 18.2 | % | 18.0 | % | 17.1 | % | |||||||||||||||||||||||
1Other significant adjustments include 2014 costs related to the Leap and Alltel wireless integrations, DIRECTV merger, and other asset write-offs; 2013 costs related to spectrum transfer; and 2012 costs related to a storm impact. | |||||||||||||||||||||||||||||||||||
Adjusted Operating Income and Margin are non-GAAP financial measures calculated by excluding from operating revenues and operating expenses significant items that are non-operational or non-recurring in nature. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Income and Margin exclude all actuarial gains or losses ($7.9 billion loss in 2014) associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, Adjusted Operating Income and Margin reflect an expected return on plan assets of $4.1 billion (based on an average expected return on plan assets of 7.75%), rather than the actual return on plan assets excluding international pension of $4.6 billion (actual return of 8.8%), as included in the GAAP measure of income. |
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Adjusted Operating Income and Margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Operating Income and Margin, as presented, may differ from similarly titled measures reported by other companies. |
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*Adjusted Operating Income Margin is calculated by dividing Adjusted Operating Income by Adjusted Operating Revenues. |
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Financial Data | |||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||||||||||||||
Adjusted Diluted EPS | |||||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||
2013 | 2014 | 2013 | 2014 | ||||||||||||||||||||
Reported Diluted EPS | $ | 1.31 | $ | (0.77 | ) | $ | 3.39 | $ | 1.19 | ||||||||||||||
Adjustments: | |||||||||||||||||||||||
Actuarial (gain) / loss on benefit plans | (0.89 | ) | 0.94 | (0.88 | ) | 0.94 | |||||||||||||||||
Abandonment of network assets | - | 0.25 | - | 0.25 | |||||||||||||||||||
Other significant adjustments1 | - | 0.13 | - | 0.19 | |||||||||||||||||||
Early debt redemption costs | 0.07 | - | 0.07 | 0.02 | |||||||||||||||||||
Employee separation charges | 0.06 | - | 0.06 | - | |||||||||||||||||||
Tax and spectrum transfer | - | - | (0.08 | ) | - | ||||||||||||||||||
América Móvil - Gain on AMX shares sale | (0.02 | ) | - | (0.06 | ) | (0.08 | ) | ||||||||||||||||
Adjusted Diluted EPS | $ | 0.53 | $ | 0.55 | $ | 2.50 | $ | 2.51 | |||||||||||||||
Year-over-year growth - Adjusted | 3.8 | % | 0.4 | % | |||||||||||||||||||
Weighted Average Common Shares Outstanding with Dilution (000,000) |
5,283 | 5,214 | 5,385 | 5,221 | |||||||||||||||||||
1Includes a loss from the divestiture of Connecticut Wireline Properties, Leap and Alltel wireless integration costs, DIRECTV merger costs, and other asset write-off costs. | |||||||||||||||||||||||
Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies. |
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Sum of components may not tie due to rounding. |
Financial Data | |||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||
Non-GAAP Consolidated Reconciliation | |||||||||||||||||||||
Adjusted Operating Revenues Excluding Connecticut Wireline Properties | |||||||||||||||||||||
Dollars in millions | |||||||||||||||||||||
Unaudited |
Three Months Ended | Twelve Months Ended | |||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||
2013 | 2014 | 2013 | 2014 | ||||||||||||||||||
Reported Operating Revenues | $ | 33,163 | $ | 34,439 | $ | 128,752 | $ | 132,447 | |||||||||||||
Adjustments: | |||||||||||||||||||||
Operating Revenues of Connecticut Wireline Properties | 275 | 67 | 1,108 | 888 | |||||||||||||||||
Adjusted Operating Revenues Excluding Connecticut Wireline Properties | $ | 32,888 | $ | 34,372 | $ | 127,644 | $ | 131,559 | |||||||||||||
Year-over-year growth - Adjusted | 4.5 | % | 3.1 | % | |||||||||||||||||
Adjusted Operating Revenues is a non-GAAP financial measure calculated by excluding the operating revenues of Connecticut Wireline Properties sold in October 2014. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies. |
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Financial Data | ||||||||||||||||||
AT&T Inc. | ||||||||||||||||||
Non-GAAP Wireline Reconciliation | ||||||||||||||||||
Wireline Segment EBITDA | ||||||||||||||||||
Dollars in millions | ||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||
12/31/13 | 9/30/14 | 12/31/14 | ||||||||||||||||
Segment Operating Revenues | ||||||||||||||||||
Service | $ | 14,434 | $ | 14,368 | $ | 14,240 | ||||||||||||
Equipment | 282 | 247 | 332 | |||||||||||||||
Total Segment Operating Revenues | $ | 14,716 | $ | 14,615 | $ | 14,572 | ||||||||||||
Segment Operating Expenses | ||||||||||||||||||
Operations and support | 10,501 | 10,761 | 10,553 | |||||||||||||||
Depreciation and amortization | 2,761 | 2,571 | 2,554 | |||||||||||||||
Total Segment Operating Expenses | 13,262 | 13,332 | 13,107 | |||||||||||||||
Segment Operating Income | 1,454 | 1,283 | 1,465 | |||||||||||||||
Segment Operating Income Margin | 9.9 | % | 8.8 | % | 10.1 | % | ||||||||||||
Plus: Depreciation and amortization | 2,761 | 2,571 | 2,554 | |||||||||||||||
EBITDA1 | $ | 4,215 | $ | 3,854 | $ | 4,019 | ||||||||||||
EBITDA Margin | 28.6 | % | 26.4 | % | 27.6 | % | ||||||||||||
1EBITDA is defined as Operating Income Before Depreciation and Amortization. | ||||||||||||||||||
Financial Data | ||||||||||||||||||||||||||||||||||||||
AT&T Inc. | ||||||||||||||||||||||||||||||||||||||
Non-GAAP Wireline Reconciliation | ||||||||||||||||||||||||||||||||||||||
Adjusted Operating Revenues Excluding Connecticut Wireline Properties | ||||||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||||||||||||||||||||||
12/31/13 | 09/30/14 | 12/31/14 | ||||||||||||||||||||||||||||||||||||
Reported Operating Revenues1 | $ | 14,716 | $ | 14,615 | $ | 14,572 | ||||||||||||||||||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||||||||||||||
Operating Revenues of Divested Connecticut Wireline Properties | 275 | 272 | 67 | |||||||||||||||||||||||||||||||||||
Adjusted Operating Revenues | $ | 14,441 | $ | 14,343 | $ | 14,505 | ||||||||||||||||||||||||||||||||
Year-over-year growth - Adjusted | 0.4 | % | ||||||||||||||||||||||||||||||||||||
1The period ended 12/31/14 includes the revenues of Connecticut Wireline Properties through the date of divestiture on October 24, 2014. | ||||||||||||||||||||||||||||||||||||||
Adjusted Revenues by Customer Type Excluding Connecticut Wireline Properties1 | ||||||||||||||||||||||||||||||||||||||
Wireline | ||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||||||||||||||||||||||
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||||||
Adjusted Operating Revenues | ||||||||||||||||||||||||||||||||||||||
Consumer Markets | $ | 5,315 | $ | 5,410 | $ | 5,398 | $ | 5,469 | $ | 5,541 | $ | 5,575 | $ | 5,565 | $ | 5,600 | ||||||||||||||||||||||
AT&T Business Solutions | 8,796 | 8,812 | 8,736 | 8,729 | 8,566 | 8,569 | 8,565 | 8,569 | ||||||||||||||||||||||||||||||
National Mass Markets | 176 | 161 | 153 | 145 | 138 | 131 | 126 | 119 | ||||||||||||||||||||||||||||||
Other | 95 | 109 | 104 | 98 | 81 | 88 | 87 | 217 | ||||||||||||||||||||||||||||||
Total Adjusted Operating Revenues | $ | 14,382 | $ | 14,492 | $ | 14,391 | $ | 14,441 | $ | 14,326 | $ | 14,363 | $ | 14,343 | $ | 14,505 | ||||||||||||||||||||||
Connecticut Wireline Properties Revenues by Customer Type1 | ||||||||||||||||||||||||||||||||||||||
Wireline | ||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||
Unaudited |
Three Months Ended | |||||||||||||||||||||||||||||||||||||
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||||||||
Consumer Markets | $ | 165 | $ | 169 | $ | 169 | $ | 169 | $ | 174 | $ | 173 | $ | 170 | $ | 43 | ||||||||||||||||||||||
AT&T Business Solutions | 110 | 111 | 109 | 107 | 101 | 99 | 101 | 24 | ||||||||||||||||||||||||||||||
National Mass Markets | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other | (2 | ) | 1 | 1 | (1 | ) | - | 2 | 1 | - | ||||||||||||||||||||||||||||
Operating Revenues | $ | 273 | $ | 281 | $ | 279 | $ | 275 | $ | 275 | $ | 274 | $ | 272 | $ | 67 | ||||||||||||||||||||||
1Prior-period amounts restated to conform to current-period reporting methodology and divestiture of Connecticut Wireline Properties. | ||||||||||||||||||||||||||||||||||||||
Adjusted Operating Revenues is a non-GAAP financial measure calculated by excluding the operating revenues of Connecticut wireline properties sold in October 2014. Management believes that this measures provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies. |
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Financial Data | |||||||||||||||||||||||||||||||||||
AT&T Inc. | |||||||||||||||||||||||||||||||||||
Non-GAAP Wireline Reconciliation | |||||||||||||||||||||||||||||||||||
Adjusted AT&T Business Solutions Revenues Excluding Connecticut Wireline Properties1 | |||||||||||||||||||||||||||||||||||
Dollars in millions |
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Unaudited |
Three Months Ended | ||||||||||||||||||||||||||||||||||
|
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||
Adjusted Operating Revenues | |||||||||||||||||||||||||||||||||||
Global Business Solutions2 | $ | 3,390 | $ | 3,405 | $ | 3,361 | $ | 3,397 | $ | 3,377 | $ | 3,379 | $ | 3,420 | $ | 3,417 | |||||||||||||||||||
Small Business & Alternate Channels | 1,703 | 1,704 | 1,669 | 1,656 | 1,654 | 1,648 | 1,631 | 1,605 | |||||||||||||||||||||||||||
Wholesale & GEM Solutions3 | 3,702 | 3,702 | 3,707 | 3,676 | 3,535 | 3,542 | 3,514 | 3,547 | |||||||||||||||||||||||||||
Adjusted AT&T Business Solutions Operating Revenues | $ | 8,796 | $ | 8,812 | $ | 8,736 | $ | 8,729 | $ | 8,566 | $ | 8,569 | $ | 8,565 | $ | 8,569 | |||||||||||||||||||
Adjusted AT&T Business Solutions Data Revenues Excluding Connecticut Wireline Properties1 | |||||||||||||||||||||||||||||||||||
Dollars in millions |
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Unaudited |
Three Months Ended | ||||||||||||||||||||||||||||||||||
|
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||
Data Revenues | |||||||||||||||||||||||||||||||||||
Transport (excluding Ethernet) | $ | 2,110 | $ | 2,058 | $ | 1,998 | $ | 1,926 | $ | 1,854 | $ | 1,779 | $ | 1,759 | $ | 1,700 | |||||||||||||||||||
Packet Switched | 137 | 127 | 110 | 100 | 85 | 84 | 71 | 55 | |||||||||||||||||||||||||||
Strategic Business Services4 | 1,970 | 2,090 | 2,148 | 2,238 | 2,285 | 2,371 | 2,452 | 2,557 | |||||||||||||||||||||||||||
IP Data (non-Strategic) | 502 | 484 | 473 | 432 | 455 | 441 | 424 | 430 | |||||||||||||||||||||||||||
Total Data Revenues | $ | 4,719 | $ | 4,758 | $ | 4,730 | $ | 4,695 | $ | 4,679 | $ | 4,674 | $ | 4,706 | $ | 4,742 | |||||||||||||||||||
Connecticut Wireline Properties Business Solutions Revenues1 | |||||||||||||||||||||||||||||||||||
Dollars in millions |
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Unaudited |
Three Months Ended | ||||||||||||||||||||||||||||||||||
|
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||||||||||||||
Global Business Solutions2 | $ | 19 | $ | 20 | $ | 19 | $ | 21 | $ | 20 | $ | 19 | $ | 18 | $ | 5 | |||||||||||||||||||
Small Business & Alternate Channels | 33 | 32 | 31 | 31 | 29 | 29 | 28 | 8 | |||||||||||||||||||||||||||
Wholesale & GEM Solutions3 | 59 | 60 | 58 | 55 | 52 | 51 | 55 | 11 | |||||||||||||||||||||||||||
Connecticut Wireline Properties Operating Revenues | $ | 110 | $ | 111 | $ | 109 | $ | 107 | $ | 101 | $ | 99 | $ | 101 | $ | 24 | |||||||||||||||||||
Connecticut Wireline Properties Business Solutions Data Revenues1 | |||||||||||||||||||||||||||||||||||
Dollars in millions |
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Unaudited |
Three Months Ended | ||||||||||||||||||||||||||||||||||
|
3/31/13 | 6/30/13 | 9/30/13 | 12/31/13 | 3/31/14 | 6/30/14 | 9/30/14 | 12/31/14 | |||||||||||||||||||||||||||
Data Revenues | |||||||||||||||||||||||||||||||||||
Transport (excluding Ethernet) | $ | 38 | $ | 38 | $ | 37 | $ | 38 | $ | 31 | $ | 31 | $ | 32 | $ | 10 | |||||||||||||||||||
Packet Switched | 2 | 2 | 3 | 2 | 2 | 2 | 2 | - | |||||||||||||||||||||||||||
Strategic Business Services4 | 8 | 9 | 9 | 10 | 11 | 11 | 13 | 2 | |||||||||||||||||||||||||||
IP Data (non-Strategic) | 5 | 5 | 5 | 3 | 3 | 3 | 3 | 1 | |||||||||||||||||||||||||||
Total Data Revenues | $ | 53 | $ | 55 | $ | 53 | $ | 54 | $ | 47 | $ | 48 | $ | 50 | $ | 13 | |||||||||||||||||||
1Prior-period amounts restated to conform to current-period reporting methodology and divestiture of Connecticut Wireline Properties. Sum of segments’ revenues within a quarter might not tie to total revenues due to rounding. |
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2Global Business Solutions was previously reported as “Global Enterprise Solutions.” |
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3GEM = Government, Education & Medical |
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4Strategic business services are AT&T’s most advanced business solutions, including VPNs, Ethernet, cloud, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services. |
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Adjusted Operating Revenues is a non-GAAP financial measure calculated by excluding the operating revenues of Connecticut wireline properties sold in October 2014. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. |
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Adjusted Operating Revenues should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Revenues may differ from similarly titled measures reported by other companies. |
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EBITDA DISCUSSION
For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.
We believe these measures are relevant and useful information to our investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless subscribers because we believe these measures reflect AT&T’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing our Wireless segment’s performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which AT&T Mobility’s operating managers are responsible and upon which we evaluate their performance.
EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) – net, net income attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the operating results of our wireless subscriber base and national footprint that we utilize to obtain and service our customers. Equity in net income (loss) of affiliates represents AT&T Mobility’s proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.
We believe EBITDA as a percentage of service revenues to be a more relevant measure of our Wireless segment operating margin than EBITDA as a percentage of total revenue. We generally subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates, which directly affect our Wireless segment income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
FREE CASH FLOW DISCUSSION
Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NET DEBT TO EBITDA DISCUSSION
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.
Adjusted EBITDA excludes costs which are non-recurring in nature. Adjusted EBITDA also excludes net actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. This measure is consistent with metrics under our existing credit agreements.
ADJUSTING ITEMS DISCUSSION
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.