REG - AT & T Inc. - 4Q17 Earnings Release

AT&TAnnouncement

09/03/2018 07:05

RNS Number : 1978H
AT & T Inc.
08 March 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) January 31, 2018
AT&T INC.
(Exact Name of Registrant as Specified in Charter)
Delaware
1-8610
43-1301883
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 208 S. Akard St., Dallas, Texas
75202
 (Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code (210) 821-4105
__________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240-14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (240.12b-2 of this chapter).
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Item 2.02 Results of Operations and Financial Condition.
The registrant announced on January 31, 2018, its results of operations for the fourth quarter of 2017. The text of the press release and accompanying financial information are attached as exhibits and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished as part of this report:
(d)Exhibits
99.1
Press release dated January 31, 2018 reporting financial results for the fourth quarter ended December 31, 2017.
99.2
AT&T Inc. selected financial statements and operating data.



99.3

Discussion and reconciliation of non-GAAP measures.


Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

AT&T INC.






Date: January 31, 2018
By: /s/ Debra L. Dial
 Debra L. Dial
Senior Vice President and Controller 



AT&T Reports Fourth-Quarter and Full-Year Results
Full Year
 Consolidated revenues of $160.5 billion
 Diluted EPS of $4.76 as reported and $3.05 as adjusted, compared to $2.10 and $2.84 in the prior year
 Cash from operations of $39.2 billion
 Free cash flow of $17.6 billion
Fourth Quarter
 Consolidated revenues of $41.7 billion
 Diluted EPS of $3.08 as reported and $0.78 as adjusted, compared to $0.39 and $0.66 in the year-ago quarter
 Cash from operations of $9.9 billion
 Free cash flow of $4.8 billion
2018 Outlook1 (inclusive of tax reform and new accounting standard)
 Adjusted EPS in the $3.50 range
 Free cash flow of about $21 billion
 Capital expenditures approaching $25 billion; $23 billion net of expected FirstNet reimbursements
 With the passage of tax reform:
o $1 billion 2018 incremental capital investment
o More than $200 million in bonuses paid to frontline employees in fourth quarter
o $800 million in voluntary funding to medical plans in fourth quarter
o Additional impacts include a $20.3 billion increase in reported fourth-quarter net income, including a more than $800 million increase in adjusted net income in the fourth quarter
 4.1 million total wireless net adds for the fourth quarter:
o 2.7 million in U.S., driven by connected devices, postpaid phones and prepaid
o 1.3 million in Mexico
 300,000 total video net adds: 161,000 in U.S. and 139,000 in Latin America
 U.S. wireless results:
o Operating income margin of 22.1% with EBITDA margin of 32.7% and wireless service margin of 43.8%
o 329,000 postpaid phone net adds
o Added nearly 700,000 branded smartphones to base
o Best-ever fourth-quarter postpaid phone churn of 0.89%
 Entertainment Group results:
o 95,000 IP broadband net adds; 19,000 total broadband net adds; more than 7 million customer locations passed with fiber
o 161,000 total video net adds; 368,000 DIRECTV NOW net adds to reach nearly 1.2 million DIRECTV NOW subscribers
 International results:
o Revenues up 16.0% with strong growth in Mexico wireless and DIRECTV Latin America
o Improved operating income and EBITDA growth driven by improvements in Mexico and strong gains in Latin America
o 139,000 DIRECTV Latin America net adds with 13.6 million total subscribers
Note: AT&T's fourth-quarter earnings conference call will be webcast at 4:30 p.m. ET on Wednesday, January 31, 2018. The webcast and related materials will be available on AT&T's Investor Relations website at https://investors.att.com.
dALLAS, January 31, 2018- AT&T Inc.* (NYSE:T) reported solid wireless, business and international results in the fourth quarter. Highlights include strong postpaid phone gains, record-low fourth-quarter postpaid phone churn and DIRECTV NOW surpassing 1 million subscribers.
"The impact of tax reform and regulatory rationalization will be substantial and positive for the U.S. economy and AT&T," said Randall Stephenson, AT&T Chairman and CEO. "Our FirstNet win and the opt-in by 100 percent of all states and territories will enable us to put the industry's most robust spectrum assets to work in building a best-in-class nationwide network for public safety and first responders. On the Time Warner front, we look forward to presenting our case in court and closing the deal."
Consolidated Financial Results
AT&T's consolidated revenues for the fourth quarter totaled $41.7 billion versus $41.8 billion in the year-ago quarter, primarily due to declines in legacy wireline services, wireless service revenues anddomestic video, which were mostly offset by growth in wireless equipment and International. Compared with results for the fourth quarter of 2016, operating expenses were $41.3 billion versus $37.6 billion primarily due to a write-off of certain network assets and higher wireless equipment costs; operating income was $0.4 billion versus $4.2 billion; and operating income margin was 0.9% versus 10.2%. When adjusting for the write-off of certain network assets, non-cash actuarial loss on benefit plans, amortization, merger- and integration-related expenses and other items, operating income was $6.9 billion versus $7.3 billion in the year-ago quarter and operating income margin was 16.5%, versus 17.5% in the year-ago quarter.
Fourth-quarter net income attributable to AT&T was $19.0 billion, or $3.08 per diluted share, and reflects the impact of the Tax Cuts and Jobs Act, compared to $2.4 billion, or $0.39 per diluted share, in the year-ago quarter. Adjusting for the ($3.16) benefit from the remeasurement of deferred tax liabilities, $0.41 write-off of certain network assets and natural disaster impacts, $0.19 non-cash actuarial loss on benefit plans from the annual remeasurement process and $0.26 of costs for amortization, merger- and integration-related expenses and other items, earnings per diluted share was $0.78 compared to an adjusted $0.66 in the year-ago quarter. (The increase in adjusted diluted earnings per share includes $0.13 impact of the new tax law on the fourth-quarter 2017.)
Cash from operating activities was $9.9 billion in the fourth quarter, and capital expenditures were $5.1 billion. Free cash flow - cash from operating activities minus capital expenditures - was $4.8 billion for the quarter.
Full-Year Results
For full-year 2017, compared with 2016 results, AT&T's consolidated revenues totaled $160.5 billion versus $163.8 billion, primarily due to declines in legacy wireline services and wireless service revenues, which were partially offset by growth in International and strategic business services. Operating expenses were $139.6 billion compared with $139.4 billion. Excluding a $2.9 billion write-off of certain network assets, operating expenses decreased due to cost efficiencies. Operating income was $20.9 billion versus $24.3 billion; and operating income margin was 13.0% versus 14.9%. Net income attributable to AT&T reflects the impact of the new tax law and was $29.5 billion versus $13.0 billion; and earnings per diluted share was $4.76, compared with $2.10. With adjustments for both years, operating income was $31.8 billion versus $31.8 billion; operating income margin was 19.8% versus 19.4%; and earnings per diluted share totaled $3.05, compared with $2.84, an increase of 7.4%. (The increase in adjusted diluted earnings per share includes $0.13 impact of the new tax law on the fourth-quarter 2017.)
AT&T's full-year cash from operating activities was $39.2billion versus $39.3 billion in 2016. Capital expenditures, including capitalized interest, totaled $21.6billion versus $22.4 billion in 2016. Full-year free cash flow was $17.6 billion compared to $16.9 billion in 2016. The company's free cash flow dividend payout ratio for the full year was 68%.2
2018 Outlook1
On a standalone basis, including impacts of tax reform and the new ASC 606 revenue recognition standard, AT&T expects in 2018:
 Adjusted EPS in the $3.50 range
 Free cash flow of about $21 billion
 Capital expenditures approaching $25 billion; $23 billion net of expected FirstNet reimbursements and inclusive of $1 billion incremental tax reform investment
1Adjustments include a non-cash mark-to-market benefit plan gain/loss, merger-related interest expense, merger integration and amortization costs and other adjustments. We expect the mark-to-market adjustment which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be the largest of these items. Accordingly, we cannot provide a reconciliation between forecasted adjusted diluted EPS and reported diluted EPS without unreasonable effort.
2Free cash flow dividend payout ratio is dividends divided by free cash flow
*About AT&T
AT&T Inc. (NYSE:T) is a holding company. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.Additional information about AT&T Inc. is available at about.att.com.
 2018 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.
This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at https://investors.att.com.
For more information, contact:
Erin McGrath - AT&T Global Media Relations
Email: erin.mcgrath@att.com
Phone: (214) 862-0651

AT&T Inc.















Financial Data
































Consolidated Statements of Income
Dollars in millions except per share amounts
Three Months Ended



Twelve Months Ended


Unaudited
December 31,
Percent

December 31,
Percent



2017

2016

Change


2017

2016

Change
Operating Revenues















 Service

$
36,225
$
37,369

-3.1
%

$
145,597
$
148,884

-2.2
%
 Equipment


5,451

4,472

21.9
%


14,949

14,902

0.3
%
 Total Operating Revenues

41,676

41,841

-0.4
%


160,546

163,786

-2.0
%

















Operating Expenses















 Cost of services and sales















 Equipment

6,532

5,667

15.3
%


18,709

18,757

-0.3
%
 Broadcast, programming and operations

6,003

5,612

7.0
%


21,159

19,851

6.6
%
 Other cost of services (exclusive of depreciation
 and amortization shown separately below)

9,797

9,840

-0.4
%


37,511

38,276

-2.0
%
 Selling, general and administrative

10,000

9,984

0.2
%


34,917

36,347

-3.9
%
 Asset abandonment and impairments

2,914

361

-
%


2,914

361

-
%
 Depreciation and amortization

6,071

6,129

-0.9
%


24,387

25,847

-5.6
%
 Total Operating Expenses

41,317

37,593

9.9
%


139,597

139,439

0.1
%
Operating Income

359

4,248

-91.5
%


20,949

24,347

-14.0
%
Interest Expense

(1,926)

(1,221)

57.7
%


(6,300)

(4,910)

28.3
%
Equity in Net Income (Loss) of Affiliates

20

41

-51.2
%


(128)

98

-
%
Other Income (Expense) - Net

264

123

-
%


618

277

-
%
Income (Loss) Before Income Taxes

(1,283)

3,191

-
%


15,139

19,812

-23.6
%
Income Tax (Benefit) Expense

(20,419)

676

-
%


(14,708)

6,479

-
%
Net Income

19,136

2,515

-
%


29,847

13,333

-
%
Less: Net Income Attributable to
 Noncontrolling Interest

(99)

(78)

26.9
%


(397)

(357)

11.2
%
Net Income Attributable to AT&T
$
19,037
$
2,437

-
%

$
29,450
$
12,976

-
%


































Basic Earnings Per Share Attributable to AT&T
$
3.08
$
0.39

-
%

$
4.77
$
2.10

-
%
 Weighted Average Common
 Shares Outstanding (000,000)

6,163

6,161

-
%


6,164

6,168

-0.1
%

















Diluted Earnings Per Share Attributable to AT&T
$
3.08
$
0.39

-
%

$
4.76
$
2.10

-
%
 Weighted Average Common
 Shares Outstanding with Dilution (000,000)

6,182

6,181

-
%


6,183

6,189

-0.1
%
AT&T Inc.





Financial Data












Consolidated Balance Sheets
Dollars in millions

Unaudited

Dec. 31,


Dec. 31,



2017


2016
Assets





Current Assets





Cash and cash equivalents
$
50,498

$
5,788
Accounts receivable - net of allowances for doubtful accounts of $663 and $661

16,522


16,794
Prepaid expenses

1,369


1,555
Other current assets

10,757


14,232
Total current assets

79,146


38,369
Property, Plant and Equipment - Net

125,222


124,899
Goodwill

105,449


105,207
Licenses

96,136


94,176
Customer Lists and Relationships - Net

10,676


14,243
Other Intangible Assets - Net

7,464


8,441
Investments in Equity Affiliates

1,560


1,674
Other Assets

18,444


16,812
Total Assets
$
444,097

$
403,821







Liabilities and Stockholders' Equity





Current Liabilities





Debt maturing within one year
$
38,374

$
9,832
Accounts payable and accrued liabilities

34,470


31,138
Advanced billing and customer deposits

4,213


4,519
Accrued taxes

1,262


2,079
Dividends payable

3,070


3,008
Total current liabilities

81,389


50,576
Long-Term Debt

125,972


113,681
Deferred Credits and Other Noncurrent Liabilities





Deferred income taxes

43,207


60,128
Postemployment benefit obligation

31,775


33,578
Other noncurrent liabilities

19,747


21,748
Total deferred credits and other noncurrent liabilities

94,729


115,454
Stockholders' Equity





Common stock

6,495


6,495
Additional paid-in capital

89,563


89,604
Retained earnings

52,029


34,734
Treasury stock

(12,714)


(12,659)
Accumulated other comprehensive income

5,488


4,961
Noncontrolling interest

1,146


975
Total stockholders' equity

142,007


124,110
Total Liabilities and Stockholders' Equity
$
444,097

$
403,821
AT&T Inc.





Financial Data












Consolidated Statements of Cash Flows
Dollars in millions
Year Ended
Unaudited
December 31,



2017


2016
Operating Activities





Net income
$
29,847

$
13,333
Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization

24,387


25,847

Undistributed loss (earnings) from investments in equity affiliates

174


(37)

Provision for uncollectible accounts

1,642


1,474

Deferred income tax (benefit) expense

(15,940)


2,947

Net (gain) loss from sale of investments, net of impairments

(282)


(169)

Actuarial loss (gain) on pension and postretirement benefits

1,258


1,024

Asset abandonments and impairments

2,914


361
Changes in operating assets and liabilities:






Accounts receivable

(986)


(1,003)

Other current assets

(777)


1,708

Accounts payable and other accrued liabilities

816


118

Equipment installment receivables and related sales

(263)


(576)

Deferred fulfillment costs

(1,422)


(2,359)
Retirement benefit funding

(1,066)


(910)
Other - net

(1,151)


(2,414)
Total adjustments

9,304


26,011
Net Cash Provided by Operating Activities

39,151


39,344







Investing Activities





Capital expenditures:






Purchase of property and equipment

(20,647)


(21,516)

Interest during construction

(903)


(892)
Acquisitions, net of cash acquired

1,123


(2,959)
Dispositions

59


646
(Purchases) sales of securities, net

(4)


506
Other

1


-
Net Cash Used in Investing Activities

(20,371)


(24,215)







Financing Activities





Issuance of long-term debt

48,793


10,140
Repayment of long-term debt

(12,339)


(10,823)
Purchase of treasury stock

(463)


(512)
Issuance of treasury stock

33


146
Dividends paid

(12,038)


(11,797)
Other

1,944


(1,616)
Net Cash Provided by (Used in) Financing Activities

25,930


(14,462)
Net increase in cash and cash equivalents

44,710


667
Cash and cash equivalents beginning of year

5,788


5,121
Cash and Cash Equivalents End of Year
$
50,498

$
5,788


AT&T Inc.
Consolidated Supplementary Data


































Supplementary Financial Data
Dollars in millions except per share amounts
Three Months Ended



Twelve Months Ended


Unaudited
December 31,
Percent

December 31,
Percent



2017

2016

Change


2017

2016

Change
Capital expenditures
















Purchase of property and equipment
$
4,891
$
6,233

-21.5
%

$
20,647
$
21,516

-4.0
%

Interest during construction
$
185
$
223

-17.0
%

$
903
$
892

1.2
%

















Dividends Declared per Share
$
0.50
$
0.49

2.0
%

$
1.97
$
1.93

2.1
%

















End of Period Common Shares Outstanding (000,000)









6,139

6,139

-
%
Debt Ratio









53.6
%
49.9
%
370
BP
Total Employees









254,000

268,540

-5.4
%


































Supplementary Operating Data
Subscribers and connections in thousands









Unaudited





December 31,
Percent











2017

2016

Change
Wireless Subscribers
















Domestic









141,567

134,859

5.0
%

Mexico









15,099

11,973

26.1
%
Total Wireless Subscribers









156,666

146,832

6.7
%

















Total Branded Wireless Subscribers









108,105

103,011

4.9
%

















Video Connections
















Domestic









25,270

25,560

-1.1
%

PanAmericana









8,270

7,206

14.8
%

Brazil









5,359

5,249

2.1
%
Total Video Connections









38,899

38,015

2.3
%

















Broadband Connections
















IP









14,487

13,864

4.5
%

DSL









1,232

1,741

-29.2
%
Total Broadband Connections









15,719

15,605

0.7
%

















Voice Connections
















Network Access Lines









11,753

13,986

-16.0
%

U-verse VoIP Connections









5,682

5,787

-1.8
%
Total Retail Consumer Voice Connections









17,435

19,773

-11.8
%



































Three Months Ended



Twelve Months Ended




December 31,
Percent

December 31,
Percent



2017

2016

Change


2017

2016

Change
Wireless Net Additions
















Domestic

2,741

1,522

80.1
%


9,427

6,196

52.1
%

Mexico

1,320

1,275

3.5
%


3,126

3,289

-5.0
%
Total Wireless Net Additions

4,061

2,797

45.2
%


12,553

9,485

32.3
%

















Total Branded Wireless Net Additions

2,029

2,221

-8.6
%


4,811

6,102

-21.2
%

















Video Net Additions
















Domestic

160

239

-33.1
%


(291)

136

-
%

PanAmericana

69

67

3.0
%


232

140

65.7
%

Brazil

70

(88)

-
%


(190)

(195)

2.6
%
Total Video Net Additions

299

218

37.2
%


(249)

81

-
%

















Broadband Net Additions
















IP

103

149

-30.9
%


623

596

4.5
%

DSL

(99)

(162)

38.9
%


(509)

(769)

33.8
%
Total Broadband Net Additions

4

(13)

-
%


114

(173)

-
%


BUSINESS SOLUTIONS


































The Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively referred to as strategic business services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as "wired" or "wireline") to provide a complete communications solution to our business customers.





















Segment Results

Dollars in millions
Three Months Ended



Twelve Months Ended



Unaudited
December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Segment Operating Revenues

















Wireless service
$
7,933
$
7,982

-0.6
%

$
31,902
$
31,850

0.2
%


Fixed strategic services

3,138

2,962

5.9
%


12,227

11,431

7.0
%


Legacy voice and data services

3,359

3,793

-11.4
%


13,931

16,370

-14.9
%


Other service and equipment

938

947

-1.0
%


3,451

3,566

-3.2
%


Wireless equipment

3,022

2,349

28.7
%


7,895

7,771

1.6
%

 Total Segment Operating Revenues

18,390

18,033

2.0
%


69,406

70,988

-2.2
%



















Segment Operating Expenses
















Operations and support expenses

12,207

11,746

3.9
%


42,929

44,330

-3.2
%

Depreciation and amortization

2,354

2,264

4.0
%


9,326

9,832

-5.1
%

 Total Segment Operating Expenses

14,561

14,010

3.9
%


52,255

54,162

-3.5
%

Segment Operating Income

3,829

4,023

-4.8
%


17,151

16,826

1.9
%

Equity in Net Income (Loss) of Affiliates

(1)

-

-
%


(1)

-

-
%

Segment Contribution
$
3,828
$
4,023

-4.8
%

$
17,150
$
16,826

1.9
%



















Segment Operating Income Margin

20.8
%
22.3
%




24.7
%
23.7
%







































Supplementary Operating Data

Subscribers and connections in thousands










Unaudited





December 31,
Percent












2017

2016

Change

Business Solutions Wireless Subscribers

















Postpaid/Branded









51,811

50,688

2.2
%


Reseller









87

65

33.8
%


Connected Devices









38,534

30,649

25.7
%

Total Business Solutions Wireless Subscribers









90,432

81,402

11.1
%



















Business Solutions IP Broadband Connections





1,025

977

4.9
%






































Three Months Ended



Twelve Months Ended





December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Business Solutions Wireless Net Additions

















Postpaid/Branded

221

250

-11.6
%


147

759

-80.6
%


Reseller

4

1

-
%


7

(33)

-
%


Connected Devices

2,624

1,263

-
%


9,639

5,330

80.8
%

Total Business Solutions Wireless Net Additions

2,849

1,514

88.2
%


9,793

6,056

61.7
%



















Business Solutions Wireless Postpaid Churn

1.08
%
1.11
%
-3
BP


1.04
%
1.00
%
4
BP



















Business Solutions IP Broadband Net Additions

7

14

-50.0
%


48

66

-27.3
%



ENTERTAINMENT GROUP



















The Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the U.S. or in U.S. territories. We utilize our copper and IP-based wired network and/or our satellite technology.




















Segment Results

Dollars in millions
Three Months Ended



Twelve Months Ended



Unaudited
December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Segment Operating Revenues

















Video entertainment
$
9,355
$
9,567

-2.2
%

$
36,728
$
36,460

0.7
%


High-speed internet

1,890

1,910

-1.0
%


7,674

7,472

2.7
%


Legacy voice and data services

910

1,104

-17.6
%


3,920

4,829

-18.8
%


Other service and equipment

590

625

-5.6
%


2,376

2,534

-6.2
%

 Total Segment Operating Revenues

12,745

13,206

-3.5
%


50,698

51,295

-1.2
%



















Segment Operating Expenses
















Operations and support expenses

10,308

10,463

-1.5
%


39,420

39,338

0.2
%

Depreciation and amortization

1,367

1,381

-1.0
%


5,623

5,862

-4.1
%

 Total Segment Operating Expenses

11,675

11,844

-1.4
%


45,043

45,200

-0.3
%

Segment Operating Income

1,070

1,362

-21.4
%


5,655

6,095

-7.2
%

Equity in Net Income (Loss) of Affiliates

(7)

8

-
%


(30)

9

-
%

Segment Contribution
$
1,063
$
1,370

-22.4
%

$
5,625
$
6,104

-7.8
%



















Segment Operating Income Margin

8.4
%
10.3
%




11.2
%
11.9
%





















Supplementary Operating Data

Subscribers and connections in thousands









Unaudited




December 31,
Percent











2017

2016

Change

Video Connections

















Satellite









20,458

21,012

-2.6
%


U-verse









3,631

4,253

-14.6
%


DIRECTV NOW









1,155

267

-
%

Total Video Connections









25,244

25,532

-1.1
%



















Broadband Connections

















IP









13,462

12,888

4.5
%


DSL









888

1,291

-31.2
%

Total Broadband Connections









14,350

14,179

1.2
%



















Voice Connections

















Retail Consumer Switched Access Lines









4,774

5,853

-18.4
%


U-verse Consumer VoIP Connections









5,222

5,425

-3.7
%

Total Retail Consumer Voice Connections









9,996

11,278

-11.4
%






































Three Months Ended



Twelve Months Ended





December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Video Net Additions

















Satellite

(147)

235

-
%


(554)

1,228

-
%


U-verse

(60)

(262)

77.1
%


(622)

(1,361)

54.3
%


DIRECTV NOW

368

267

37.8
%


888

267

-
%

Total Video Net Additions

161

240

-32.9
%


(288)

134

-
%



















Broadband Net Additions

















IP

95

136

-30.1
%


574

532

7.9
%


DSL

(76)

(133)

42.9
%


(403)

(639)

36.9
%

Total Broadband Net Additions

19

3

-
%


171

(107)

-
%






CONSUMER MOBILITY



















The Consumer Mobility segment provides nationwide wireless service to consumers and wholesale and resale wireless subscribers located in the U.S. or in U.S. territories. We utilize our U.S. wireless network to provide voice and data services, including high-speed internet, video, and home monitoring services.




















Segment Results

Dollars in millions
Three Months Ended



Twelve Months Ended



Unaudited
December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Segment Operating Revenues

















Service
$
6,409
$
6,731

-4.8
%

$
26,053
$
27,536

-5.4
%


Equipment

1,864

1,688

10.4
%


5,499

5,664

-2.9
%

 Total Segment Operating Revenues

8,273

8,419

-1.7
%


31,552

33,200

-5.0
%



















Segment Operating Expenses
















Operations and support expenses

5,367

5,316

1.0
%


18,966

19,659

-3.5
%

Depreciation and amortization

886

918

-3.5
%


3,507

3,716

-5.6
%

 Total Segment Operating Expenses

6,253

6,234

0.3
%


22,473

23,375

-3.9
%

Segment Operating Income

2,020

2,185

-7.6
%


9,079

9,825

-7.6
%

Equity in Net Income of Affiliates

-

-

-
%


-

-

-
%

Segment Contribution
$
2,020
$
2,185

-7.6
%

$
9,079
$
9,825

-7.6
%



















Segment Operating Income Margin

24.4
%
26.0
%




28.8
%
29.6
%







































Supplementary Operating Data

Subscribers and connections in thousands










Unaudited





December 31,
Percent












2017

2016

Change

Consumer Mobility Subscribers

















Postpaid









26,064

27,095

-3.8
%


Prepaid









15,335

13,536

13.3
%

Branded









41,399

40,631

1.9
%

Reseller









9,279

11,884

-21.9
%

Connected Devices









457

942

-51.5
%

Total Consumer Mobility Subscribers









51,135

53,457

-4.3
%








































Three Months Ended



Twelve Months Ended





December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Consumer Mobility Net Additions

















Postpaid

320

270

18.5
%


447

359

24.5
%


Prepaid1

140

406

-65.5
%


1,013

1,575

-35.7
%

Branded

460

676

-32.0
%


1,460

1,934

-24.5
%

Reseller

(533)

(673)

20.8
%


(1,878)

(1,813)

-3.6
%

Connected Devices1

(35)

5

-
%


52

19

-
%

Total Consumer Mobility Net Additions

(108)

8

-
%


(366)

140

-
%



















Total Churn

2.48
%
2.43
%
5
BP


2.36
%
2.15
%
21
BP

Postpaid Churn

1.18
%
1.25
%
-7
BP


1.17
%
1.19
%
-2
BP

1Effective July 1, 2017 we prospectively reclassified prepaid internet of things (IoT) connections from connected devices to prepaid.



INTERNATIONAL



















The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates.




















Segment Results

Dollars in millions
Three Months Ended



Twelve Months Ended



Unaudited
December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Segment Operating Revenues















Video entertainment
$
1,391
$
1,261

10.3
%

$
5,456
$
4,910

11.1
%


Wireless service

501

477

5.0
%


2,047

1,905

7.5
%


Wireless equipment

323

171

88.9
%


766

468

63.7
%

 Total Segment Operating Revenues

2,215

1,909

16.0
%


8,269

7,283

13.5
%



















Segment Operating Expenses
















Operations and support expenses

1,936

1,879

3.0
%


7,404

6,830

8.4
%

Depreciation and amortization

313

298

5.0
%


1,218

1,166

4.5
%

 Total Segment Operating Expenses

2,249

2,177

3.3
%


8,622

7,996

7.8
%

Segment Operating Income (Loss)

(34)

(268)

87.3
%


(353)

(713)

50.5
%

Equity in Net Income of Affiliates

25

28

-10.7
%


87

52

67.3
%

Segment Contribution
$
(9)
$
(240)

96.3
%

$
(266)
$
(661)

59.8
%



















Segment Operating Income Margin

(1.5)
%
(14.0)
%




(4.3)
%
(9.8)
%







































Supplementary Operating Data

Subscribers and connections in thousands










Unaudited





December 31,
Percent












2017

2016

Change

Mexican Wireless Subscribers

















Postpaid









5,498

4,965

10.7
%


Prepaid









9,397

6,727

39.7
%

Branded









14,895

11,692

27.4
%

Reseller









204

281

-27.4
%

Total Mexican Wireless Subscribers









15,099

11,973

26.1
%



















Latin America Satellite Subscribers

















PanAmericana









8,270

7,206

14.8
%


SKY Brazil









5,359

5,249

2.1
%

Total Latin America Satellite Subscribers









13,629

12,455

9.4
%






































Three Months Ended



Twelve Months Ended





December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

Mexican Wireless Net Additions

















Postpaid

182

233

-21.9
%


533

677

-21.3
%


Prepaid

1,166

1,062

9.8
%


2,670

2,732

-2.3
%

Branded

1,348

1,295

4.1
%


3,203

3,409

-6.0
%

Reseller

(28)

(20)

-40.0
%


(77)

(120)

35.8
%

Total Mexican Wireless Net Additions

1,320

1,275

3.5
%


3,126

3,289

-5.0
%



















Latin America Satellite Net Additions

















PanAmericana

69

67

3.0
%


232

140

65.7
%


SKY Brazil

70

(88)

-
%


(190)

(195)

2.6
%

Total Latin America Satellite Net Additions

139

(21)

-
%


42

(55)

-
%



SUPPLEMENTAL OPERATING INFORMATION - AT&T MOBILITY



















As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined domestic wireless operations (AT&T Mobility).




















Operating Results

Dollars in millions
Three Months Ended



Twelve Months Ended



Unaudited
December 31,
Percent

December 31,
Percent



2017

2016

Change


2017

2016

Change

Operating Revenues

















Service
$
14,342
$
14,713

-2.5
%

$
57,955
$
59,386

-2.4
%


Equipment

4,886

4,037

21.0
%


13,394

13,435

-0.3
%

 Total Operating Revenues

19,228

18,750

2.5
%


71,349

72,821

-2.0
%



















Operating Expenses
















Operations and support expenses

12,947

12,064

7.3
%


43,255

43,886

-1.4
%

Depreciation and amortization

2,028

2,048

-1.0
%


8,027

8,292

-3.2
%

 Total Operating Expenses

14,975

14,112

6.1
%


51,282

52,178

-1.7
%

Operating Income
$
4,253
$
4,638

-8.3
%

$
20,067
$
20,643

-2.8
%



















Operating Income Margin

22.1
%
24.7
%




28.1
%
28.3
%







































Supplementary Operating Data

Subscribers and connections in thousands










Unaudited





December 31,
Percent












2017

2016

Change

AT&T Mobility Subscribers

















Postpaid









77,875

77,783

0.1
%


Prepaid









15,335

13,536

13.3
%

Branded









93,210

91,319

2.1
%

Reseller









9,366

11,949

-21.6
%

Connected Devices









38,991

31,591

23.4
%

Total AT&T Mobility Subscribers









141,567

134,859

5.0
%



















Domestic Licensed POPs (000,000)









326

322

1.2
%








































Three Months Ended



Twelve Months Ended





December 31,
Percent

December 31,
Percent




2017

2016

Change


2017

2016

Change

AT&T Mobility Net Additions

















Postpaid

541

520

4.0
%


594

1,118

-46.9
%


Prepaid1

140

406

-65.5
%


1,013

1,575

-35.7
%

Branded

681

926

-26.5
%


1,607

2,693

-40.3
%

Reseller

(529)

(672)

21.3
%


(1,871)

(1,846)

-1.4
%

Connected Devices1

2,589

1,268

-
%


9,691

5,349

81.2
%

Total AT&T Mobility Net Additions

2,741

1,522

80.1
%


9,427

6,196

52.1
%

M&A Activity, Partitioned Customers and
 Other Adjustments

-

(1)

-
%


(2,719)

23

-
%



















Total Churn

1.38
%
1.71
%
-33
BP


1.36
%
1.48
%
-12
BP

Postpaid Churn

1.12
%
1.16
%
-4
BP


1.08
%
1.07
%
1
BP

1Effective July 1, 2017 we prospectively reclassified prepaid internet of things (IoT) connections from connected devices to prepaid.



SUPPLEMENTAL SEGMENT RECONCILIATION










































Three Months Ended
Dollars in millions
Unaudited


December 31, 2017






















Revenues


Operations and Support Expenses


EBITDA


Depreciation and Amortization


Operating Income (Loss)


Equity in Net Income (Loss) of Affiliates


Segment Contribution
Business Solutions
$
18,390

$
12,207

$
6,183

$
2,354

$
3,829

$
(1)

$
3,828
Entertainment Group

12,745


10,308


2,437


1,367


1,070


(7)


1,063
Consumer Mobility

8,273


5,367


2,906


886


2,020


-


2,020
International

2,215


1,936


279


313


(34)


25


(9)
Segment Total

41,623


29,818


11,805


4,920


6,885

$
17

$
6,902
Corporate and Other

207


157


50


18


32






Acquisition-related items

-


176


(176)


1,100


(1,276)






Certain Significant items

(154)


5,095


(5,249)


33


(5,282)






AT&T Inc.
$
41,676

$
35,246

$
6,430

$
6,071

$
359
















































December 31, 2016






















Revenues


Operations and Support Expenses


EBITDA


Depreciation and Amortization


Operating Income (Loss)


Equity in Net Income (Loss) of Affiliates


Segment Contribution
Business Solutions
$
18,033

$
11,746

$
6,287

$
2,264

$
4,023

$
-

$
4,023
Entertainment Group

13,206


10,463


2,743


1,381


1,362


8


1,370
Consumer Mobility

8,419


5,316


3,103


918


2,185


-


2,185
International

1,909


1,879


30


298


(268)


28


(240)
Segment Total

41,567


29,404


12,163


4,861


7,302

$
36

$
7,338
Corporate and Other

284


233


51


11


40






Acquisition-related items

-


385


(385)


1,228


(1,613)






Certain Significant items

(10)


1,442


(1,452)


29


(1,481)






AT&T Inc.
$
41,841

$
31,464

$
10,377

$
6,129

$
4,248







































































Twelve Months Ended
Dollars in millions
Unaudited


December 31, 2017






















Revenues


Operations and Support Expenses


EBITDA


Depreciation and Amortization


Operating Income (Loss)


Equity in Net Income (Loss) of Affiliates


Segment Contribution
Business Solutions
$
69,406

$
42,929

$
26,477

$
9,326

$
17,151

$
(1)

$
17,150
Entertainment Group

50,698


39,420


11,278


5,623


5,655


(30)


5,625
Consumer Mobility

31,552


18,966


12,586


3,507


9,079


-


9,079
International

8,269


7,404


865


1,218


(353)


87


(266)
Segment Total

159,925


108,719


51,206


19,674


31,532

$
56

$
31,588
Corporate and Other

864


554


310


72


238






Acquisition-related items

-


798


(798)


4,608


(5,406)






Certain Significant items

(243)


5,139


(5,382)


33


(5,415)






AT&T Inc.
$
160,546

$
115,210

$
45,336

$
24,387

$
20,949
















































December 31, 2016






















Revenues


Operations and Support Expenses


EBITDA


Depreciation and Amortization


Operating Income (Loss)


Equity in Net Income (Loss) of Affiliates


Segment Contribution
Business Solutions
$
70,988

$
44,330

$
26,658

$
9,832

$
16,826

$
-

$
16,826
Entertainment Group

51,295


39,338


11,957


5,862


6,095


9


6,104
Consumer Mobility

33,200


19,659


13,541


3,716


9,825


-


9,825
International

7,283


6,830


453


1,166


(713)


52


(661)
Segment Total

162,766


110,157


52,609


20,576


32,033

$
61

$
32,094
Corporate and Other

1,043


1,173


(130)


65


(195)






Acquisition-related items

-


1,203


(1,203)


5,177


(6,380)






Certain Significant items

(23)


1,059


(1,082)


29


(1,111)






AT&T Inc.
$
163,786

$
113,592

$
50,194

$
25,847

$
24,347




























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.
Free Cash Flow
Free cash flow is defined as cash from operations minus Capital expenditures. Free cash flow after dividends is defined as cash from operations minus Capital expenditures and dividends. Free cash flow dividend payout ratio is defined as the percentage of dividends paid to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including Capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.
Free Cash Flow and Free Cash Flow Dividend Payout Ratio
Dollars in millions

Three Months Ended

Twelve Months Ended


December 31,


December 31,


2017

2016


2017

2016

Net cash provided by operating activities
$
9,877
$
10,142

$
39,151
$
39,344

Less: Capital expenditures

(5,076)

(6,456)


(21,550)

(22,408)

Free Cash Flow

4,801

3,686


17,601

16,936












Less: Dividends paid

(3,008)

(2,947)


(12,038)

(11,797)

Free Cash Flow after Dividends
$
1,793
$
739

$
5,563
$
5,139

Free Cash Flow Dividend Payout Ratio

62.7%

80.0%


68.4%

69.7%

EBITDA
Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) - net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with U.S. generally accepted accounting principles (GAAP).
EBITDA service margin is calculated as EBITDA divided by service revenues.
When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility) and our supplemental presentation of the Mexico Wireless and Latin America operations of our International segment, EBITDA excludes depreciation and amortization from operating income.
1


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 segment 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 segment managers are responsible and upon which we evaluate their performance. Management uses Mexico Wireless EBITDA in evaluating profitability trends after our two Mexico wireless acquisitions in 2015, and our investments in building a nationwide LTE network by end of 2018. Management uses Latin America EBITDA in evaluating the ability of our Latin America operations to generate cash to finance its own operations.
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 Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions

Three Months Ended
Twelve Months Ended


December 31,

December 31,


2017

2016


2017

2016

Net Income
$
19,136
$
2,515

$
29,847
$
13,333

Additions:










 Income Tax (Benefit) Expense

(20,419)

676


(14,708)

6,479

 Interest Expense

1,926

1,221


6,300

4,910

 Equity in Net (Income) Loss of Affiliates

(20)

(41)


128

(98)

 Other (Income) Expense - Net

(264)

(123)


(618)

(277)

 Depreciation and amortization

6,071

6,129


24,387

25,847

EBITDA

6,430

10,377


45,336

50,194












Total Operating Revenues

41,676

41,841


160,546

163,786

Service Revenues

36,225

37,369


145,597

148,884












EBITDA Margin

15.4%

24.8%


28.2%

30.6%

EBITDA Service Margin

17.8%

27.8%


31.1%

33.7%

2


Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions

Three Months Ended

Twelve Months Ended



December 31,


December 31,



2017

2016


2017

2016

Business Solutions Segment










Segment Contribution
$
3,828
$
4,023

$
17,150
$
16,826

Additions:










Equity in Net (Income) Loss of Affiliates

1

-


1

-

Depreciation and amortization

2,354

2,264


9,326

9,832

EBITDA

6,183

6,287


26,477

26,658












Total Segment Operating Revenues

18,390

18,033


69,406

70,988












Segment Operating Income Margin

20.8%

22.3%


24.7%

23.7%

EBITDA Margin

33.6%

34.9%


38.1%

37.6%












Entertainment Group Segment










Segment Contribution
$
1,063
$
1,370

$
5,625
$
6,104

Additions:










Equity in Net (Income) Loss of Affiliates

7

(8)


30

(9)

Depreciation and amortization

1,367

1,381


5,623

5,862

EBITDA

2,437

2,743


11,278

11,957












Total Segment Operating Revenues

12,745

13,206


50,698

51,295












Segment Operating Income Margin

8.4%

10.3%


11.2%

11.9%

EBITDA Margin

19.1%

20.8%


22.2%

23.3%












Consumer Mobility Segment










Segment Contribution
$
2,020
$
2,185

$
9,079
$
9,825

Additions:










Depreciation and amortization

886

918


3,507

3,716

EBITDA

2,906

3,103


12,586

13,541












Total Segment Operating Revenues

8,273

8,419


31,552

33,200

Service Revenues

6,409

6,731


26,053

27,536












Segment Operating Income Margin

24.4%

26.0%


28.8%

29.6%

EBITDA Margin

35.1%

36.9%


39.9%

40.8%

EBITDA Service Margin

45.3%

46.1%


48.3%

49.2%












International Segment










Segment Contribution
$
(9)
$
(240)

$
(266)
$
(661)

Additions:










Equity in Net (Income) of Affiliates

(25)

(28)


(87)

(52)

Depreciation and amortization

313

298


1,218

1,166

EBITDA

279

30


865

453












Total Segment Operating Revenues

2,215

1,909


8,269

7,283












Segment Operating Income Margin

-1.5%

-14.0%


-4.3%

-9.8%

EBITDA Margin

12.6%

1.6%


10.5%

6.2%

3
Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions

Three Months Ended
Twelve Months Ended



December 31,

December 31,



2017

2016


2017

2016

AT&T Mobility










Operating Income
$
4,253
$
4,638

$
20,067
$
20,643

 Add: Depreciation and amortization

2,028

2,048


8,027

8,292

EBITDA

6,281

6,686


28,094

28,935












Total Operating Revenues

19,228

18,750


71,349

72,821

Service Revenues

14,342

14,713


57,955

59,386












Operating Income Margin

22.1%

24.7%


28.1%

28.3%

EBITDA Margin

32.7%

35.7%


39.4%

39.7%

EBITDA Service Margin

43.8%

45.4%


48.5%

48.7%

Supplemental Latin America EBITDA and EBITDA Margin
Dollars in millions

Three Months Ended
Twelve Months Ended



December 31,

December 31,



2017

2016


2017

2016

International - Latin America










Operating Income
$
135
$
49

$
435
$
228

 Add: Depreciation and amortization

207

215


849

835

EBITDA

342

264


1,284

1,063












Total Operating Revenues

1,391

1,261


5,456

4,910












Operating Income Margin

9.7%

3.9%


8.0%

4.6%

EBITDA Margin

24.6%

20.9%


23.5%

21.6%

Supplemental Mexico EBITDA and EBITDA Margin
Dollars in millions

Three Months Ended
Twelve Months Ended



December 31,

December 31,



2017

2016


2017

2016

International - Mexico










Operating Income (Loss)
$
(169)
$
(317)

$
(788)
$
(941)

 Add: Depreciation and amortization

106

83


369

331

EBITDA

(63)

(234)


(419)

(610)












Total Operating Revenues

824

648


2,813

2,373












Operating Income Margin

-20.5%

-48.9%


-28.0%

-39.7%

EBITDA Margin

-7.6%

-36.1%


-14.9%

-25.7%

4
Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results, unless earlier remeasurement is required (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.
The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38% for transactions prior to tax reform and 25% for transactions after tax reform. Certain foreign operations with losses, where such losses are not realizable for tax purposes, are not tax effected, resulting in no tax impact for Venezuelan devaluation. For years prior to 2017, adjustments related to Mexico operations were taxed at the 30% marginal rate for Mexico.
Adjusting Items
Dollars in millions

Three Months Ended
Twelve Months Ended



December 31,

December 31,



2017

2016


2017

2016

Operating Revenues










 Natural disaster revenue credits
$
154
$
10

$
243
$
23

Adjustments to Operating Revenues

154

10


243

23

Operating Expenses










 DIRECTV and other video merger integration costs

95

259


412

754

 Mexico merger integration costs

19

78


172

309

 Time Warner and other merger costs

63

47


214

47

 Wireless merger integration costs

-

1


-

93

 Actuarial (gain) loss

1,517

1,024


1,258

1,024

 Asset abandonments and impairments

2,914

361


2,914

361

 Employee separation costs

177

30


445

344

 Tax reform special bonus

220

-


220

-

 Natural disaster costs

265

27


384

44

 (Gain) loss on transfer of wireless spectrum

-

-


(181)

(714)

 Venezuela devaluation

-

-


98

-

Adjustments to Operations and Support Expenses

5,270

1,827


5,936

2,262

 Amortization of intangible assets

1,100

1,228


4,608

5,177

 Impairments

33

29


33

29

Adjustments to Operating Expenses

6,403

3,084


10,577

7,468

Other










 Merger-related interest and fees1

432

-


1,104

16

 Debt exchange costs, (gain) loss on sale of assets,
 impairments and other adjustments

161

28


382

32

Adjustments to Income Before Income Taxes

7,150

3,122


12,306

7,539

 Tax impact of adjustments

1,908

1,097


3,625

2,618

 Tax reform

19,455

-


19,455

-

 Tax-related items

-

359


(146)

359

Adjustments to Net Income
$
(14,213)
$
1,666

$
(10,628)
$
4,562

1 Includes interest expense incurred on debt issued and interest income earned on cash held prior to the close of merger transactions, and fees to exchange DIRECTV notes.



Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
5
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions

Three Months Ended
Twelve Months Ended



December 31,

December 31,



2017

2016


2017

2016

Operating Income
$
359
$
4,248

$
20,949
$
24,347

Adjustments to Operating Revenues

154

10


243

23

Adjustments to Operating Expenses

6,403

3,084


10,577

7,468

Adjusted Operating Income1

6,916

7,342


31,769

31,838












EBITDA

6,430

10,377


45,336

50,194

Adjustments to Operating Revenues

154

10


243

23

Adjustments to Operations and Support Expenses

5,270

1,827


5,936

2,262

Adjusted EBITDA1

11,854

12,214


51,515

52,479












Total Operating Revenues

41,676

41,841


160,546

163,786

Adjustments to Operating Revenues

154

10


243

23

Total Adjusted Operating Revenues

41,830

41,851


160,789

163,809

Service Revenues

36,225

37,369


145,597

148,884

Adjustments to Service Revenues

154

10


243

23

Adjusted Service Revenues

36,379

37,379


145,840

148,907























Operating Income Margin

0.9%

10.2%


13.0%

14.9%

Adjusted Operating Income Margin1

16.5%

17.5%


19.8%

19.4%

Adjusted EBITDA Margin1

28.3%

29.2%


32.0%

32.0%

Adjusted EBITDA Service Margin1

32.6%

32.7%


35.3%

35.2%

1 Adjusted Operating Income, Adjusted EBITDA and associated margins exclude all actuarial gains or losses ($1.3 billion loss for the year end 2017) associated with our postemployment benefit plan, 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 $3.5 billion (based on an average expected return on plan assets of 7.75% for our pension trust and 5.75% for our VEBA trusts), rather than the actual return on plan assets of $6.6 billion (actual pension return of 14.6% and VEBA return of 10.7%), included in the GAAP measure of income.
Adjusted Diluted EPS


Three Months Ended

Twelve Months Ended



December 31,


December 31,



2017

2016


2017

2016

Diluted Earnings Per Share (EPS)
$
3.08
$
0.39

$
4.76
$
2.10

 Amortization of intangible assets

0.12

0.13


0.50

0.55

 Merger integration items1

0.07

0.04


0.21

0.13

 Asset abandonments, impairments and natural disasters

0.41

0.05


0.45

0.05

 Actuarial (gain) loss

0.19

0.10


0.16

0.10

 (Gain) loss on transfer of wireless spectrum

-

-


(0.02)

(0.07)

 Other2

0.07

0.01


0.13

0.04

 Tax reform

(3.16)

-


(3.16)

-

 Tax-related items

-

(0.06)


0.02

(0.06)

Adjusted EPS
$
0.78
$
0.66

$
3.05
$
2.84

Year-over-year growth - Adjusted

18.2%




7.4%



Weighted Average Common Shares Outstanding
 with Dilution (000,000)

6,182

6,181


6,183

6,189

1Includes combined merger integration items and merger-related interest income and expense.
2Includes employee-related charges, Venezeula devaluation and debt exchange costs.
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. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by Annualized Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Adjusted EBITDA.
Net Debt to Adjusted EBITDA
Dollars in millions









Three Months Ended





Mar. 31,

Jun. 30,

Sep. 30,

Dec. 31,

YTD



2017

2017

2017

2017

2017

Adjusted EBITDA
$
13,080
$
13,587
$
12,994
$
11,854
$
51,515

 Add back severance

-

(60)

(208)

(177)

(445)

Net Debt Adjusted EBITDA

13,080

13,527

12,786

11,677

51,070

Annualized Adjusted EBITDA









51,070

 End-of-period current debt









38,374

 End-of-period long-term debt









125,972

Total End-of-Period Debt









164,346

 Less: Cash and Cash Equivalents









50,498

Net Debt Balance









113,848

Annualized Net Debt to Adjusted EBITDA Ratio









2.23

7


Supplemental Operational Measures
We provide a supplemental discussion of our domestic wireless operations that is calculated by combining our Consumer Mobility and Business Solutions segments, and then adjusting to remove non-wireless operations. The following table presents a reconciliation of our supplemental AT&T Mobility results.
Supplemental Operational Measure


Three Months Ended


December 31, 2017


December 31, 2016


Consumer Mobility

Business Solutions

Adjustments1

AT&T Mobility


Consumer Mobility

Business Solutions

Adjustments1

AT&T Mobility
Operating Revenues

















 Wireless service
$
6,409
$
7,933
$
-
$
14,342

$
6,731
$
7,982
$
-
$
14,713
 Fixed strategic services

-

3,138

(3,138)

-


-

2,962

(2,962)

-
 Legacy voice and data services

-

3,359

(3,359)

-


-

3,793

(3,793)

-
 Other services and equipment

-

938

(938)

-


-

947

(947)

-
 Wireless equipment

1,864

3,022

-

4,886


1,688

2,349

-

4,037
Total Operating Revenues

8,273

18,390

(7,435)

19,228


8,419

18,033

(7,702)

18,750


















Operating Expenses

















 Operations and support

5,367

12,207

(4,627)

12,947


5,316

11,746

(4,998)

12,064
EBITDA

2,906

6,183

(2,808)

6,281


3,103

6,287

(2,704)

6,686
 Depreciation and amortization

886

2,354

(1,212)

2,028


918

2,264

(1,134)

2,048
Total Operating Expense

6,253

14,561

(5,839)

14,975


6,234

14,010

(6,132)

14,112
Operating Income
$
2,020
$
3,829
$
(1,596)
$
4,253

$
2,185
$
4,023
$
(1,570)
$
4,638
1 Business wireline operations reported in Business Solutions segment.


















Supplemental Operational Measure


Twelve Months Ended


December 31, 2017


December 31, 2016


Consumer Mobility

Business Solutions

Adjustments1

AT&T Mobility


Consumer Mobility

Business Solutions

Adjustments1

AT&T Mobility
Operating Revenues

















 Wireless service
$
26,053
$
31,902
$
-
$
57,955

$
27,536
$
31,850
$
-
$
59,386
 Fixed strategic services

-

12,227

(12,227)

-


-

11,431

(11,431)

-
 Legacy voice and data services

-

13,931

(13,931)

-


-

16,370

(16,370)

-
 Other services and equipment

-

3,451

(3,451)

-


-

3,566

(3,566)

-
 Wireless equipment

5,499

7,895

-

13,394


5,664

7,771

-

13,435
Total Operating Revenues

31,552

69,406

(29,609)

71,349


33,200

70,988

(31,367)

72,821


















Operating Expenses

















 Operations and support

18,966

42,929

(18,640)

43,255


19,659

44,330

(20,103)

43,886
EBITDA

12,586

26,477

(10,969)

28,094


13,541

26,658

(11,264)

28,935
 Depreciation and amortization

3,507

9,326

(4,806)

8,027


3,716

9,832

(5,256)

8,292
Total Operating Expense

22,473

52,255

(23,446)

51,282


23,375

54,162

(25,359)

52,178
Operating Income
$
9,079
$
17,151
$
(6,163)
$
20,067

$
9,825
$
16,826
$
(6,008)
$
20,643
1Businesswireline operations reported in Business Solutions segment.
8
Supplemental International
We provide a supplemental presentation of the Latin America and Mexico Wireless operations within our International segment. The following table presents a reconciliation of our International segment.
Supplemental International


Three Months Ended


December 31, 2017


December 31, 2016


Latin America

Mexico

International



Latin America

Mexico

International
Operating Revenues














 Video service
$
1,391
$
-
$
1,391


$
1,261
$
-
$
1,261
 Wireless service

-

501

501



-

477

477
 Wireless equipment

-

323

323



-

171

171
Total Operating Revenues

1,391

824

2,215



1,261

648

1,909















Operating Expenses














 Operations and support

1,049

887

1,936



997

882

1,879
 Depreciation and amortization

207

106

313



215

83

298
Total Operating Expenses

1,256

993

2,249



1,212

965

2,177
Operating Income (Loss)

135

(169)

(34)



49

(317)

(268)
Equity in Net Income of Affiliates

25

-

25



28

-

28
Segment Contribution
$
160
$
(169)
$
(9)


$
77
$
(317)
$
(240)






























Supplemental International


Twelve Months Ended


December 31, 2017


December 31, 2016


Latin America

Mexico

International



Latin America

Mexico

International
Operating Revenues














 Video service
$
5,456
$
-
$
5,456


$
4,910
$
-
$
4,910
 Wireless service

-

2,047

2,047



-

1,905

1,905
 Wireless equipment

-

766

766



-

468

468
Total Operating Revenues

5,456

2,813

8,269



4,910

2,373

7,283















Operating Expenses














 Operations and support

4,172

3,232

7,404



3,847

2,983

6,830
 Depreciation and amortization

849

369

1,218



835

331

1,166
Total Operating Expenses

5,021

3,601

8,622



4,682

3,314

7,996
Operating Income (Loss)

435

(788)

(353)



228

(941)

(713)
Equity in Net Income of Affiliates

87

-

87



52

-

52
Segment Contribution
$
522
$
(788)
$
(266)


$
280
$
(941)
$
(661)
9

This information is provided by RNS
The company news service from the London Stock Exchange
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FR FKFDKBBKBPNK