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| [April 22, 2009] |
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AT&T's First-Quarter Results Highlighted by Wireless Gains, U-verse TV Growth, Double-Digit Increase in IP Data Revenues
DALLAS --(Business Wire)--
AT&T Inc. (NYSE:T) today reported first-quarter results highlighted by improved postpaid wireless growth with a substantial step up in integrated device penetration, double-digit increases in revenues from IP-based and strategic business services, and further AT&T U-verse TV subscriber gains. Advances in these areas and solid cost management largely offset continuing economic pressures on consumers and businesses.
AT&T's first-quarter revenues totaled $30.6 billion, net income attributable to AT&T was $3.1 billion, diluted earnings per share totaled $0.53 and cash from operating activities totaled $7.9 billion.
"These results demonstrate focused and disciplined execution as we work through a tough economy," said Randall Stephenson, AT&T chairman and chief executive officer. "Our cost-improvement initiatives are on track, earnings and cash flow were solid, our balance sheet and credit metrics continue to be strong.
"Most important, during this down cycle we continue to invest in key growth areas like mobile broadband, more bandwidth to the home through our all-IP AT&T U-verse platform, and advanced global business solutions delivered over AT&T's premier Internet backbone network. We have good momentum in all of these areas.
"I am particularly pleased with the success of our iPhone 3G initiative, which has driven strong high-end customer growth and delivered financial benefits ahead of our original outlook. Business and consumer expectations for mobility are on the rise, wireless innovation is flourishing and the opportunities ahead are substantial. AT&T is strongly positioned to lead in the next generation of wireless growth."
First-Quarter Financial Results
For the quarter ended March 31, 2009, AT&T's consolidated revenues totaled $30.6 billion versus $30.7 billion in the year-earlier quarter, as growth in wireless and wireline data services in large part offset pressures from the macro-environment, including continuing declines in wireline voice access lines and business voice revenues.
Compared with results for the year-earlier quarter, AT&T's operating expenses for the first quarter of 2009 were $24.8 billion versus $24.8 billion; operating income was $5.7 billion versus $6.0 billion; and AT&T's operating income margin was 18.8 percent, compared with 19.5 percent.
First-quarter 2009 net income attributable to AT&T totaled $3.1 billion versus $3.5 billion in the year-earlier quarter, and earnings per diluted share totaled $0.53, compared with $0.57 in the first quarter of 2008.
First-quarter 2009 results included incremental noncash pension and retiree benefit expenses of more than $400 million, or $0.05 per diluted share, consistent with the company's previously provided full-year outlook.
AT&T's cash from operating activities for the first quarter totaled $7.9 billion, capital expenditures totaled $3.4 billion and free cash flow (cash from operations minus capital expenditures) totaled $4.6 billion. Dividends paid totaled $2.4 billion.
Wireless Operational Highlights
AT&T's first-quarter wireless growth was highlighted by postpaid subscriber gains that were up significantly from year-earlier levels, continued rapid adoption of integrated devices (handsets with QWERTY or virtual keyboards in addition to voice functionality) and wireless data services, and substantial sequential margin expansion reflecting operational improvements and iPhone benefits. Highlights include the following:
Strong Postpaid Subscriber Gains. AT&T posted solid organic wireless subscriber gains in the first quarter, driven by a significant step up in retail postpaid net subscriber additions, which were 24.1 percent higher than in the year-earlier quarter. Versus results for the first quarter of 2008, postpaid gross adds totaled 3.0 million, up 9.2 percent; postpaid churn was stable at 1.2 percent; and postpaid net adds totaled 875,000, up from 705,000. This marked AT&T's third consecutive quarter of double-digit year-over-year improvement in postpaid net adds. Total wireless subscribers increased by 1.2 million in the first quarter to reach 78.2 million in service, up 6.9 million over the past year.
38.6 Percent Wireless Data Revenue Growth. Powered by AT&T's premier wireless data network and an attractive device lineup, wireless data revenues increased by $884 million, or 38.6 percent, versus the year-earlier first quarter to $3.2 billion. Data represented 27.2 percent of AT&T's first-quarter wireless service revenues, up from 21.5 percent in the year-earlier quarter and 16.0 percent in the first quarter of 2007. Wireless text messages on the AT&T network totaled more than 94 billion in the first quarter, more than double the total for the year-earlier quarter. Internet access and media bundle revenues also continued their solid growth.
More Than 1.6 Million Apple iPhone 3G Activations. AT&T's postpaid subscriber growth reflects continued success with iPhone 3G. In the first quarter, AT&T's iPhone 3G activations totaled more than 1.6 million, more than 40 percent of them for customers who were new to the company. AT&T's U.S. iPhone exclusive continues to deliver subscribers with ARPUs (average monthly revenues per subscriber) that are approximately 1.6 times higher and churn rates that are significantly lower than the company's overall postpaid subscriber base.
Strength in Integrated Devices. Including the iPhone, AT&T markets a compelling array of integrated devices ranging from advanced multifunction handsets for business customers to attractive quick messaging devices. In the first quarter, integrated devices accounted for more than 100 percent of the company's postpaid net adds, reflecting strength in new customer sales. Over the past year, the number of integrated devices on AT&T's network more than doubled, and at the end of the first quarter, 31.7 percent of AT&T's 61.0 million postpaid subscribers had integrated devices.
3G Leadership. The number of 3G devices on AT&T's wireless network also more than doubled over the past year, and at the end of the first quarter, 40.8 percent of AT&T's postpaid wireless subscribers had a 3G device, up from 19.5 percent one year earlier. AT&T's 3G network is the nation's fastest, according to data compiled by leading independent wireless research firms. AT&T also offers the broadest global coverage of any U.S. provider, with voice roaming available in more than 200 countries; access to e-mail, the Web and other data applications in more than 170 countries; and access to mobile broadband 3G networks in more than 70 countries.
Continued Retail Postpaid Subscriber ARPU Growth. Driven by strong wireless data growth, AT&T continues to expand postpaid wireless subscriber ARPU. Postpaid data ARPU was $16.48 in the first quarter, up $3.48 or 26.8 percent versus the year-earlier period. Total postpaid ARPU increased 2.1 percent versus the year-earlier first quarter to $59.21. This marked the ninth consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU.
40.9 Percent Wireless OIBDA Service Margin. Wireless operating income growth and wireless margins were also strong. Versus results for the year-earlier first quarter, wireless operating expenses totaled $9.5 billion, up 7.3 percent, and operating income was $3.3 billion, up 13.0 percent. AT&T's wireless operating income margin was 26.0 percent, up from 25.0 percent in the year-earlier quarter and 20.9 percent in the fourth quarter of 2008. AT&T's first-quarter wireless OIBDA service margin was 40.9 percent, compared with 41.7 percent in the year-earlier period, and up 510 basis points from 35.8 percent in the fourth quarter of 2008. In addition to solid revenue growth, sequential margin expansion was driven by the success of AT&T's iPhone strategy, continued operational improvements in network and support functions and typical seasonality. (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
Wireline Operational Highlights
AT&T's first-quarter wireline results were led by further growth in AT&T U-verse subscribers, solid broadband results and a double-digit increase in revenues from IP-based and strategic business services such as Ethernet and VPNs. Highlights include the following:
Strong AT&T U-verse Growth. AT&T U-verse TV subscribers in service increased by 284,000 in the first quarter — up from 148,000 added in the year-earlier first quarter and 264,000 in the fourth quarter of 2008 — to reach 1.3 million in service. This growth reflects the high quality of the AT&T U-verse video experience, which offers a host of advanced features including AT&T U-verse Total Home DVR, integrated voice and broadband service, and at least 100 High Definition channels in all markets in which the service is offered. AT&T U-verse TV continues to reach mid-teens penetration in areas marketed to for at least 18 months, and nearly 50 percent of AT&T U-verse TV subscribers take the largest video package. AT&T's total video subscribers, which combine the company's U-verse and bundled satellite customers, reached 3.5 million at the end of the first quarter, representing 12.6 percent of households served.
Significant Step Up in Broadband Net Adds. AT&T U-verse TV's high broadband attach rate, greater than 90 percent in the first quarter, combined with strong growth in stand-alone broadband bundles to drive a substantial sequential improvement in broadband net adds. Total broadband connections, which include wireline subscribers and wireless customers with 3G LaptopConnect cards, increased by 471,000 in the first quarter to reach 16.7 million in service. AT&T's wired broadband connections increased by 359,000 in the first quarter versus 236,000 in the preceding quarter. In addition to AT&T's high-quality wired and wireless options, broadband subscribers also benefit from access to AT&T's industry-leading Wi-Fi footprint, with more than 20,000 hotspots in the United States and access to more than 80,000 hotspots around the world.
Improved Trends in Consumer Revenue Connections. In the first quarter, U-verse TV net adds continued their growth, broadband net adds were up substantially versus the previous three quarters and the net gain in AT&T U-verse Voice connections was up more than 40 percent versus the fourth quarter of 2008. These improvements and the positive impact of AT&T U-verse penetration on access-line retention were reflected in AT&T's smallest sequential decline in consumer connections (retail voice, high speed Internet and video) in three quarters. Combined, wireline consumer broadband and TV connections increased by 673,000 in the first quarter and 1.7 million over the past year. AT&T had 46.8 million total consumer connections at the end of the first quarter of 2009, compared with 49.3 million at the end of the first quarter of 2008 and 47.0 million at the end of the fourth quarter of 2008.
Continued Growth in Revenues Per Household. Driven by increased U-verse and broadband penetration, wireline revenues per household were up 2.0 percent versus the year-earlier quarter. This marked AT&T's fifth consecutive quarter of year-over-year growth in consumer wireline revenues per household. Total first-quarter wireline consumer revenues were $5.4 billion, compared with $5.8 billion in the year-earlier quarter, as declining voice revenues more than offset growth in video and broadband.
16.4 Percent Growth in Wireline IP Data Revenues. AT&T posted its sixth consecutive quarter of mid-teens growth in total wireline IP data revenues, driven by expansion in AT&T U-verse services and growth in business products such as VPNs and managed Internet services. Consumer IP data revenues, from AT&T U-verse and broadband services, grew 23.0 percent, and business IP data revenues grew 10.5 percent. IP services now account for 46.8 percent of AT&T's total wireline data revenues, up from 42.3 percent in the year-earlier first quarter and 37.9 percent in the first quarter of 2007.
19.6 Percent Business Strategic Revenue Growth. Revenues from the new-generation capabilities that lead AT&T's most advanced solutions — including Ethernet, VPNs, hosting, IP conferencing and applications services — grew 19.6 percent year over year, continuing strong trends for this category over recent quarters. Progress in these product areas reflects the strength of AT&T's network and its advanced product sets for business customers. Total first-quarter wireline business revenues — which include results from enterprise, wholesale, government, education, medical and small/midsize customers — were $10.7 billion versus $11.2 billion in the year-earlier quarter, reflecting economic impacts on both retail and wholesale customers, primarily from voice products and CPE.
About AT&T
AT&T Inc. (NYSE:T) is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies, are the providers of AT&T services in the United States and around the world. Among their offerings are the world's most advanced IP-based business communications services, the nation's fastest 3G network and the best wireless coverage worldwide, and the nation's leading high speed Internet access and voice services. In domestic markets, AT&T is known for the directory publishing and advertising sales leadership of its Yellow Pages and YELLOWPAGES.COM organizations, and the AT&T brand is licensed to innovators in such fields as communications equipment. As part of their three-screen integration strategy, AT&T operating companies are expanding their TV entertainment offerings. In 2009, AT&T again ranked No. 1 in the telecommunications industry on FORTUNE® magazine's list of the World's Most Admired Companies. Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com.
© 2009 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.
Note: This AT&T news release and other announcements are available as part of an RSS feed at www.att.com/rss. For more information, please review this announcement in the AT&T newsroom at http://www.att.com/newsroom.
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 Web site at www.att.com/investor.relations. Accompanying financial statements follow.
NOTE: OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from Segment Operating Income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, 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.
Financial Data
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Three Months Ended
3/31/2009
3/31/2008
% Chg
Operating Revenues
Wireless service
$
11,646
$
10,605
9.8
%
Voice
8,506
9,693
-12.2
%
Data
6,250
5,972
4.7
%
Directory
1,249
1,398
-10.7
%
Other
2,920
3,076
-5.1
%
Total Operating Revenues
30,571
30,744
-0.6
%
Operating Expenses
Cost of services and sales (exclusive of depreciation and amortization shown separately below)
12,242
11,995
2.1
%
Selling, general and administrative
7,706
7,866
-2.0
%
Depreciation and amortization
4,886
4,903
-0.3
%
Total Operating Expenses
24,834
24,764
0.3
%
Operating Income
5,737
5,980
-4.1
%
Interest Expense
849
865
-1.8
%
Equity in Net Income of Affiliates
137
243
-43.6
%
Other Income (Expense) - Net
(15
)
91
-
Income Before Income Taxes
5,010
5,449
-8.1
%
Income Taxes
1,809
1,930
-6.3
%
Net Income
3,201
3,519
-9.0
%
Noncontrolling Interest
(75
)
(58
)
-29.3
%
Net Income Attributable to AT&T
$
3,126
$
3,461
-9.7
%
Basic Earnings Per Share
$
0.53
$
0.58
-8.6
%
Weighted Average Common Shares Outstanding (000,000)
5,896
5,997
-1.7
%
Diluted Earnings Per Share
$
0.53
$
0.57
-7.0
%
Weighted Average Common Shares Outstanding with Dilution (000,000)
5,896
6,033
-2.3
%
Financial Data
AT&T Inc.
Statements of Segment Income
Dollars in millions
Unaudited
Three Months Ended
Wireless
3/31/2009
3/31/2008
% Chg
Segment Operating Revenues
Service
$
11,668
$
10,645
9.6
%
Equipment
1,192
1,180
1.0
%
Total Segment Operating Revenues
12,860
11,825
8.8
%
Segment Operating Expenses
Operations and support
8,085
7,389
9.4
%
Depreciation and amortization
1,434
1,480
-3.1
%
Total Segment Operating Expenses
9,519
8,869
7.3
%
Segment Operating Income
3,341
2,956
13.0
%
Equity in Net Income of Affiliates
-
2
-
Segment Income
$
3,341
$
2,958
12.9
%
Segment Operating Income Margin
26.0
%
25.0
%
Wireline
Segment Operating Revenues
Voice
$
8,708
$
9,919
-12.2
%
Data
6,536
6,205
5.3
%
Other
1,434
1,500
-4.4
%
Total Segment Operating Revenues
16,678
17,624
-5.4
%
Segment Operating Expenses
Operations and support
11,297
11,493
-1.7
%
Depreciation and amortization
3,240
3,181
1.9
%
Total Segment Operating Expenses
14,537
14,674
-0.9
%
Segment Operating Income
2,141
2,950
-27.4
%
Equity in Net Income of Affiliates
4
6
-33.3
%
Segment Income
$
2,145
$
2,956
-27.4
%
Segment Operating Income Margin
12.8
%
16.7
%
Advertising Solutions
Segment Operating Revenues
$
1,269
$
1,417
-10.4
%
Segment Operating Expenses
Operations and support
749
787
-4.8
%
Depreciation and amortization
176
212
-17.0
%
Total Segment Operating Expenses
925
999
-7.4
%
Segment Operating Income
344
418
-17.7
%
Segment Income Margin
27.1
%
29.5
%
Other
Segment Operating Revenues
$
437
$
544
-19.7
%
Segment Operating Expenses
526
888
-40.8
%
Segment Operating Income (Loss)
(89
)
(344
)
-74.1
%
Equity in Net Income of Affiliates
133
235
-43.4
%
Segment Income (Loss)
$
44
$
(109
)
-
Financial Data
AT&T Inc.
Consolidated Balance Sheets
Dollars in millions except per share amounts
3/31/09
12/31/08
Unaudited
Assets
Current Assets
Cash and cash equivalents
$
3,812
$
1,792
Accounts receivable - net of allowances for uncollectibles of $1,271 and $1,270
14,965
16,047
Prepaid expenses
1,704
1,538
Deferred income taxes
957
1,014
Other current assets
2,083
2,165
Total current assets
23,521
22,556
Property, Plant and Equipment - Net
98,339
99,088
Goodwill
71,694
71,829
Licenses
47,461
47,306
Customer Lists and Relationships - Net
9,605
10,582
Other Intangible Assets - Net
5,797
5,824
Investments in Equity Affiliates
2,413
2,332
Other Assets
5,528
5,728
Total Assets
$
264,358
$
265,245
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
10,790
$
14,119
Accounts payable and accrued liabilities
17,359
20,032
Advanced billing and customer deposits
4,065
3,849
Accrued taxes
2,399
1,874
Dividends payable
2,419
2,416
Total current liabilities
37,032
42,290
Long-Term Debt
63,560
60,872
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
19,376
19,196
Postemployment benefit obligation
32,032
31,930
Other noncurrent liabilities
14,663
14,207
Total deferred credits and other noncurrent liabilities
66,071
65,333
Stockholders' Equity
Common shares issued ($1 par value)
6,495
6,495
Capital in excess of par value
91,638
91,728
Retained earnings
37,296
36,591
Treasury shares (at cost)
(21,283
)
(21,410
)
Noncontrolling interest
404
403
Accumulated other comprehensive income (loss)
(16,855
)
(17,057
)
Total stockholders' equity
97,695
96,750
Total Liabilities and Stockholders' Equity
$
264,358
$
265,245
Financial Data
AT&T Inc.
Consolidated Statements of Cash Flows
Dollars in millions, increase (decrease) in cash and cash equivalents
Unaudited
Three months ended
March 31,
2009
2008
Operating Activities
Net income
$
3,126
$
3,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
4,886
4,903
Undistributed earnings from investments in equity affiliates
(137
)
(220
)
Provision for uncollectible accounts
509
480
Deferred income tax expense (benefit)
126
569
Net (gain) loss from impairment and sale of investments
82
(46
)
Changes in operating assets and liabilities:
Accounts receivable
573
(150
)
Other current assets
(108
)
159
Accounts payable and accrued liabilities
(1,347
)
(4,654
)
Stock-based compensation tax benefit
-
(7
)
Other - net
205
462
Total adjustments
4,789
1,496
Net Cash Provided by Operating Activities
7,915
4,957
Investing Activities
Construction and capital expenditures
Capital expenditures
(3,173
)
(4,178
)
Interest during construction
(185
)
(70
)
Acquisitions, net of cash acquired
-
(3,662
)
Dispositions
181
47
Proceeds from sale of securities, net of investments
(10
)
131
Sale of other investments
-
-
Other
30
33
Net Cash Used in Investing Activities
(3,157
)
(7,699
)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
(3,909
)
5,786
Issuance of long-term debt
5,450
3,972
Repayment of long-term debt
(1,261
)
(613
)
Purchase of treasury shares
-
(4,071
)
Issuance of treasury shares
1
103
Dividends paid
(2,416
)
(2,422
)
Stock-based compensation tax benefit
-
7
Other
(603
)
(27
)
Net Cash Used in Financing Activities
(2,738
)
2,735
Net increase (decrease) in cash and cash equivalents
2,020
(7
)
Cash and cash equivalents beginning of year
1,792
1,970
Cash and Cash Equivalents End of Period
$
3,812
$
1,963
Financial Data
AT&T Inc.
Supplementary Operating and Financial Data
Dollars in millions except per share amounts
Unaudited
Three Months Ended
3/31/2009
3/31/2008
% Chg
Wireless
Wireless Customers (000)
78,232
71,367
9.6%
Net Customer Additions (000)
1,223
1,295
-5.6%
M&A Activity, Partitioned Customers and Other Adjs. (000)
-
20
Postpaid Customers (000)
60,957
56,016
8.8%
Net Postpaid Customer Additions (000)
875
705
24.1%
Postpaid Churn
1.2
%
1.2
%
0 BP
Licensed POPs (000,000)
306
304
0.7%
In-Region Wireline 1
Total Consumer Revenue Connections (000)
Retail Consumer Voice Connections 2
26,780
30,316
-11.7%
Retail Consumer Additional Voice Connections 2
3,189
3,866
-17.5%
Consumer Wired Broadband Connections 3
13,344
12,547
6.4%
Video Connections: 4
Satellite Connections
2,205
2,232
-1.2%
U-verse Video Connections
1,329
379
Total Consumer Revenue Connections (000)
46,847
49,340
-5.1%
Net Consumer Revenue Connection Changes (000)
(196
)
(98
)
Broadband and Video
Total Broadband Connections (000) 5
16,736
15,419
8.5%
Net Broadband Connection Changes (000) 5
471
617
-23.7%
Total Video Connections (000) 4
3,534
2,611
35.4%
Net Video Connection Changes (000) 4
299
264
13.3%
AT&T Inc.
Construction and capital expenditures
Capital expenditures
$ 3,173
$ 4,178
-24.1%
Interest during construction
$ 185
$ 70
Dividends Declared per Share
$ 0.4100
$ 0.4000
2.5%
End of Period Common Shares Outstanding (000,000)
5,900
5,939
-0.7%
Debt Ratio 6
43.2
%
39.5
%
370 BP
Total Employees
294,600
310,070
-5.0%
1
In-region wireline represents access lines served by AT&T's incumbent local exchange companies.
2
Includes consumer U-verse Voice over IP connections.
3
Wireline consumer broadband connections include DSL lines, U-verse high speed Internet access and satellite broadband.
4
Video connections include sales under agency agreements with EchoStar and DirecTV customers and U-verse connections.
5
Total broadband connections include DSL lines, U-verse high speed Internet access, satellite broadband and 3G LaptopConnect cards.
6
Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.
Note: For the end of 1Q09, total switched access lines were 53,992, retail business switched access lines totaled 21,364, and wholesale and coin switched access lines totaled 3,053.
Financial Data
AT&T Inc.
Non-GAAP Wireless Reconciliations
Wireless Segment OIBDA
Dollars in millions
Unaudited
Three Months Ended
3/31/2008
6/30/2008
9/30/2008
12/31/2008
3/31/2009
Service Revenues
$
10,645
$
10,951
$
11,273
$
11,541
$
11,668
Equipment Revenues
1,180
1,082
1,345
1,318
1,192
Total Operating Revenues
11,825
12,033
12,618
12,859
12,860
Operating Expenses
Operations and Support
7,389
7,523
8,838
8,731
8,085
Depreciation and Amortization
1,480
1,446
1,401
1,443
1,434
Total Operating Expenses
8,869
8,969
10,239
10,174
9,519
Operating Income
2,956
3,064
2,379
2,685
3,341
Plus: Depreciation and Amortization
1,480
1,446
1,401
1,443
1,434
OIBDA
4,436
4,510
3,780
4,128
4,775
OIBDA as a % of Service Revenue
41.7
%
41.2
%
33.5
%
35.8
%
40.9
%
OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from segment operating income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.
Financial Data
AT&T Inc.
Non-GAAP Financial Reconciliations
Free Cash Flow
Dollars in millions
Unaudited
March 31, 2009
Three Months Ended
Net cash provided by operating activities
$
7,915
Less: Construction and capital expenditures
(3,358
)
Free Cash Flow
$
4,557
Free cash flow is defined as cash from operations minus capital expenditures. 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.
OIBDA DISCUSSION
OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA margin is calculated as OIBDA divided by service revenues. OIBDA differs from Segment Operating Income (Loss), as calculated in accordance with GAAP, in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with generally accepted accounting principles. Our calculation of OIBDA, 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 Mobility's internal management reporting and planning processes and are important metrics that AT&T Mobility's management uses to evaluate the operating performance of its regional operations. These measures are used by management as a gauge of AT&T Mobility's success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T Mobility'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 AT&T Mobility's performance with that of many of its competitors. The financial and operating metrics which affect OIBDA include the key revenue and expense drivers for which AT&T Mobility's operating managers are responsible and upon which we evaluate their performance.
OIBDA 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. OIBDA excludes other, net, minority interest in earnings of consolidated entities and equity in net income (loss) of affiliates, as these do not reflect the operating results of AT&T Mobility's subscriber base and its national footprint that AT&T Mobility utilizes to obtain and service its 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. OIBDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, OIBDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.
We believe OIBDA as a percentage of service revenues to be a more relevant measure of AT&T Mobility's operating margin than OIBDA as a percentage of total revenue. AT&T Mobility generally subsidizes a portion of its handset sales, all of which are recognized in the period in which AT&T Mobility sells the handset. This results in a disproportionate impact on its margin in that period. 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. AT&T Mobility also uses service revenues to calculate margin to facilitate comparison, both internally and externally with its competitors, as they calculate their margins using services revenue as well.
There are material limitations to using these non-GAAP financial measures. OIBDA and OIBDA 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 AT&T Mobility's net income. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to OIBDA 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. OIBDA and OIBDA 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 capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less 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 monthly 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.
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