Docoh
Loading...

T AT&T

Filed: 22 Jul 21, 6:34am

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. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).

Free Cash Flow

Free cash flow is defined as cash from operations minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends on common and preferred shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common and preferred shares 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 
 Second QuarterSix-Month Period
 2021202020212020
Net cash provided by operating activities$10,910 $12,059 $20,837 $20,925 
Less: Capital expenditures(3,959)(4,466)(7,992)(9,432)
Free Cash Flow6,951 7,593 12,845 11,493 
Less: Dividends paid(3,830)(3,737)(7,571)(7,474)
Free Cash Flow after Dividends$3,121 $3,856 $5,274 $4,019 
Free Cash Flow Dividend Payout Ratio55.1 %49.2 %58.9 %65.0 %

Cash Paid for Capital Investment

In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems. 
Cash Paid for Capital Investment
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Capital Expenditures$(3,959)$(4,466)$(7,992)$(9,432)
Cash paid for vendor financing(1,304)(563)(2,994)(1,354)
Cash paid for Capital Investment$(5,263)$(5,029)$(10,986)$(10,786)
FirstNet reimbursement (72) (79)
Gross Capital Investment$(5,263)$(5,101)$(10,986)$(10,865)




EBITDA

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with 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. For market comparability, management analyzes 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 
 Second QuarterSix-Month Period
 2021202020212020
Net Income$1,874 $1,563 $9,816 $6,526 
Additions:  
Income Tax Expense751 935 2,873 2,237 
Interest Expense1,684 2,041 3,554 4,059 
Equity in Net (Income) Loss of Affiliates(41)10 (93)16 
Other (Income) Expense - Net(999)(1,017)(5,220)(1,820)
Depreciation and amortization5,761 7,285 11,570 14,507 
EBITDA9,030 10,817 22,500 25,525 
Merger costs 211 37 393 
   Employee separation costs and benefit-related (gain) loss 765 57 884 
Impairments4,555 2,319 4,555 2,442 
Gain on spectrum transaction —  (900)
Adjusted EBITDA 1
$13,585 $14,112 $27,149 $28,344 
1 See page 5 for additional discussion and reconciliation of adjusted items.

2


Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Communications Segment
Operating Contribution$7,340 $7,488 $14,705 $14,889 
Additions:  
Depreciation and amortization4,085 4,043 8,139 8,086 
EBITDA11,425 11,531 22,844 22,975 
Total Operating Revenues28,128 26,505 56,306 53,284 
Operating Income Margin26.1 %28.3 %26.1 %27.9 %
EBITDA Margin40.6 %43.5 %40.6 %43.1 %
Mobility
Operating Contribution$6,002 $5,805 $12,004 $11,593 
Additions:  
Depreciation and amortization2,023 2,012 4,037 4,057 
EBITDA8,025 7,817 16,041 15,650 
Total Operating Revenues18,936 17,149 37,970 34,551 
Service Revenues14,346 13,669 28,394 27,637 
Operating Income Margin31.7 %33.9 %31.6 %33.6 %
EBITDA Margin42.4 %45.6 %42.2 %45.3 %
EBITDA Service Margin55.9 %57.2 %56.5 %56.6 %
Business Wireline
Operating Contribution$1,050 $1,290 $2,108 $2,383 
Additions:  
Depreciation and amortization1,293 1,301 2,571 2,587 
EBITDA2,343 2,591 4,679 4,970 
Total Operating Revenues6,052 6,305 12,098 12,571 
Operating Income Margin17.3 %20.5 %17.4 %19.0 %
EBITDA Margin38.7 %41.1 %38.7 %39.5 %
Consumer Wireline
Operating Contribution$288 $393 $593 $913 
Additions:  
Depreciation and amortization769 730 1,531 1,442 
EBITDA1,057 1,123 2,124 2,355 
Total Operating Revenues3,140 3,051 6,238 6,162 
Operating Income Margin9.2 %12.9 %9.5 %14.8 %
EBITDA Margin33.7 %36.8 %34.0 %38.2 %

3


Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
WarnerMedia Segment
Operating Contribution$1,739 $1,912 $3,769 $3,926 
Additions:  
Equity in Net (Income) of Affiliates(47)(4)(117)(19)
Depreciation and amortization165 164 328 325 
EBITDA1,857 2,072 3,980 4,232 
Total Operating Revenues8,791 6,728 17,317 14,493 
Operating Income Margin19.2 %28.4 %21.1 %27.0 %
EBITDA Margin21.1 %30.8 %23.0 %29.2 %

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Latin America Segment
Operating Contribution$(152)$(201)$(325)$(385)
Additions:  
Equity in Net (Income) of Affiliates(2)(8)2 (12)
Depreciation and amortization264 242 526 523 
EBITDA110 33 203 126 
Total Operating Revenues1,437 1,232 2,811 2,822 
Operating Income Margin-10.7 %-17.0 %-11.5 %-14.1 %
EBITDA Margin7.7 %2.7 %7.2 %4.5 %
Vrio  
Operating Contribution$(23)$(28)$(62)$(67)
Additions:  
Equity in Net (Income) of Affiliates(2)(8)2 (12)
Depreciation and amortization114 127 231 274 
EBITDA89 91 171 195 
Total Operating Revenues749 752 1,492 1,639 
Operating Income Margin-3.3 %-4.8 %-4.0 %-4.8 %
EBITDA Margin11.9 %12.1 %11.5 %11.9 %
Mexico  
Operating Contribution$(129)$(173)$(263)$(318)
Additions:  
Equity in Net (Income) Loss of Affiliates —  — 
Depreciation and amortization150 115 295 249 
EBITDA21 (58)32 (69)
Total Operating Revenues688 480 1,319 1,183 
Operating Income Margin-18.8 %-36.0 %-19.9 %-26.9 %
EBITDA Margin3.1 %-12.1 %2.4 %-5.8 %

4


Supplemental EBITDA and EBITDA Margin
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Video
Operating Contribution$1,216 $619 $2,117 $1,415 
Additions:  
Equity in Net (Income) of Affiliates —  — 
Depreciation and amortization148 593 312 1,184 
EBITDA1,364 1,212 2,429 2,599 
Total Operating Revenues6,639 7,021 13,364 14,428 
Operating Income Margin18.3 %8.8 %15.8 %9.8 %
EBITDA Margin20.5 %17.3 %18.2 %18.0 %

Adjusting Items

Adjusting items include revenues and costs we consider non-operational 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 results (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, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.   
Adjusting Items
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Operating Expenses  
Merger costs$ $211 $37 $393 
   Employee separation costs and benefit-related (gain) loss1
 765 57 884 
Assets impairments and abandonment4,555 2,319 4,555 2,442 
Gain on spectrum transaction —  (900)
Adjustments to Operations and Support Expenses4,555 3,295 4,649 2,819 
   Amortization of intangible assets1,069 2,145 2,200 4,201 
Adjustments to Operating Expenses5,624 5,440 6,849 7,020 
Other  
   Debt redemption, (gain) loss on sale of assets, impairments
    and other
140 293 81 407 
Actuarial (gain) loss197 — (2,647)— 
   Employee benefit-related (gain) loss1
 (161) 42 
Adjustments to Income Before Income Taxes5,961 5,572 4,283 7,469 
Tax impact of adjustments1,018 749 548 1,143 
Tax-related items — 118 — 
Impairment attributable to noncontrolling interest81 105 81 105 
Adjustments to Net Income$4,862 $4,718 $3,536 $6,221 
1 Mark-to-market gains and losses on benefit-related investments were adjusted in 2020 reflecting more significant market volatility and
   uncertainty experienced as a result of the onset of the COVID-19 pandemic. Benefit-related investment gains were $170 and $259 in the
   second quarter and for the first six months of 2021 and $286 and $2 in the second quarter and for the first six months of 2020.

5


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, actuarial gains and losses, significant abandonments and impairment, severance and other material gains and losses. 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, and Adjusted EBITDA Margin
Dollars in millions 
 Second QuarterSix-Month Period
 2021202020212020
Operating Income$3,269 $3,532 $10,930 $11,018 
Adjustments to Operating Expenses5,624 5,440 6,849 7,020 
Adjusted Operating Income8,893 8,972 17,779 18,038 
EBITDA9,030 10,817 22,500 25,525 
Adjustments to Operations and Support Expenses4,555 3,295 4,649 2,819 
Adjusted EBITDA13,585 14,112 27,149 28,344 
Total Operating Revenues44,045 40,950 87,984 83,729 
Operating Income Margin7.4 %8.6 %12.4 %13.2 %
Adjusted Operating Income Margin20.2 %21.9 %20.2 %21.5 %
Adjusted EBITDA Margin30.8 %34.5 %30.9 %33.9 %

Adjusted Diluted EPS
 Second QuarterSix-Month Period
 2021202020212020
Diluted Earnings Per Share (EPS)$0.21 $0.17 $1.25 $0.81 
Amortization of intangible assets0.12 0.24 0.24 0.46 
Merger integration items 0.02  0.04 
   Employee separation, (gain) loss on sale of assets and other0.02 0.08 0.04 0.02 
Actuarial (gain) loss 1
0.02 — (0.28)— 
Impairments0.52 0.32 0.52 0.34 
Tax-related items — (0.02)— 
Adjusted EPS$0.89 $0.83 $1.75 $1.67 
Year-over-year growth - Adjusted7.2 %4.8 % 
Weighted Average Common Shares Outstanding with Dilution (000,000)7,200 7,170 7,194 7,192 
1Includes adjustments for actuarial gains or losses associated with our pension benefit plan, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. We recorded total net actuarial loss of $0.2 billion in the second quarter of 2021. As a result, adjusted EPS reflects an expected return on plan assets of $0.9 billion (based on an average expected return on plan assets of 6.75% for our pension trust), rather than the actual return on plan assets of $2.1 billion (actual pension return of 4.3%), included in the GAAP measure of income.

6


Net Debt to Adjusted EBITDA

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters 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.
Net Debt to Adjusted EBITDA - 2021
Dollars in millions   
 Three Months Ended 
 Sept. 30,Dec. 31,March. 31June 30,Four Quarters
 
2020 1
2020 1
2021 1
2021
Adjusted EBITDA$13,313 $12,889 $13,564 $13,585 $53,351 
End-of-period current debt    24,016 
End-of-period long-term debt    155,767 
Total End-of-Period Debt    179,783 
Less: Cash and Cash Equivalents    11,869 
Net Debt Balance    167,914 
Annualized Net Debt to Adjusted EBITDA Ratio  3.15 
1As reported in AT&T's Form 8-K filed October 22, 2020, January 27, 2021 and April 22, 2021.


Net Debt to Adjusted EBITDA - 2020
Dollars in millions   
 Three Months Ended 
 Sept. 30,Dec. 31,March. 31June 30,Four Quarters
 
2019 1
2019 1
2020 1
2020 1
Adjusted EBITDA$15,079 $14,365 $14,232 $14,112 $57,788 
End-of-period current debt    15,576 
End-of-period long-term debt    153,388 
Total End-of-Period Debt    168,964 
Less: Cash and Cash Equivalents    16,941 
Net Debt Balance    152,023 
Annualized Net Debt to Adjusted EBITDA Ratio  2.63 
1As reported in AT&T's Form 8-K filed October 28, 2019, January 29, 2020, April 22, 2020, and July 23, 2020.





















7


Supplemental Operational Measures

We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
      
Supplemental Operational Measure
 Second Quarter
 June 30, 2021June 30, 2020
 MobilityBusiness
Wireline
Adjustments1
Business
Solutions
MobilityBusiness
Wireline
Adjustments1
Business
Solutions
Operating Revenues        
Wireless service$14,346 $ $(12,321)$2,025 $13,669 $— $(11,784)$1,885 
Wireline service 5,860  5,860 — 6,101 — 6,101 
Wireless equipment4,590  (3,809)781 3,480 — (2,895)585 
Wireline equipment 192  192 — 204 — 204 
Total Operating Revenues18,936 6,052 (16,130)8,858 17,149 6,305 (14,679)8,775 
Operating Expenses        
Operations and support10,911 3,709 (8,957)5,663 9,332 3,714 (7,686)5,360 
EBITDA8,025 2,343 (7,173)3,195 7,817 2,591 (6,993)3,415 
Depreciation and amortization2,023 1,293 (1,678)1,638 2,012 1,301 (1,692)1,621 
Total Operating Expenses12,934 5,002 (10,635)7,301 11,344 5,015 (9,378)6,981 
Operating Income6,002 1,050 (5,495)1,557 5,805 1,290 (5,301)1,794 
Equity in Net Income (Loss) of Affiliates    — — — — 
Operating Contribution$6,002 $1,050 $(5,495)$1,557 $5,805 $1,290 $(5,301)$1,794 
1Non-business wireless reported in the Communication segment under the Mobility business unit.
Results have been recast to conform to the current period's classification.    

Supplemental Operational Measure
 Six-Month Period
 June 30, 2021June 30, 2020
 MobilityBusiness
Wireline
Adjustments1
Business
Solutions
MobilityBusiness
Wireline
Adjustments1
Business
Solutions
Operating Revenues        
Wireless service$28,394 $ $(24,400)$3,994 $27,637 $— $(23,803)$3,834 
Wireline service 11,732  11,732 — 12,192 — 12,192 
Wireless equipment9,576  (8,005)1,571 6,914 — (5,619)1,295 
Wireline equipment 366  366 — 379 — 379 
Total Operating Revenues37,970 12,098 (32,405)17,663 34,551 12,571 (29,422)17,700 
Operating Expenses        
Operations and support21,929 7,419 (18,136)11,212 18,901 7,601 (15,496)11,006 
EBITDA16,041 4,679 (14,269)6,451 15,650 4,970 (13,926)6,694 
Depreciation and amortization4,037 2,571 (3,356)3,252 4,057 2,587 (3,414)3,230 
Total Operating Expenses25,966 9,990 (21,492)14,464 22,958 10,188 (18,910)14,236 
Operating Income12,004 2,108 (10,913)3,199 11,593 2,383 (10,512)3,464 
Equity in Net Income (Loss) of Affiliates    — — — — 
Operating Contribution$12,004 $2,108 $(10,913)$3,199 $11,593 $2,383 $(10,512)$3,464 
1Non-business wireless reported in the Communication segment under the Mobility business unit.
Results have been recast to conform to the current period's classification.    
8