REG - AT & T Inc. - 4Q18 Earnings Release
RNS Number : 6504SAT & T Inc.12 March 2019
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 30, 2019
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 30, 2019, its results of operations for the fourth quarter of 2018. 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 30, 2019 reporting financial results for the fourth quarter ended December 31, 2018.
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 30, 2019
By: / s/ Debra L. Dial
Debra L. Dial
Senior Vice President and Controller
AT&T Reports Fourth-Quarter Results
Full-Year Consolidated Results
●
Diluted EPS of $2.85 as reported compared to $4.76 in the prior year (2017 impacted by tax reform)
●
Adjusted EPS of $3.52 compared to $3.05 in the prior year
●
Cash from operations of $43.6 billion, up 15%
●
Capital expenditures of $21.3 billion
●
Free cash flow of $22.4 billion, up 36%
●
Dividend payout ratio of 60% 1
●
Consolidated revenues of $170.8 billion
Fourth-Quarter Consolidated Results
●
Diluted EPS of $0.66 as reported compared to $3.08 in the year-ago quarter (2017 impacted by tax reform)
●
Net income of $4.9 billion compared to $19.0 billion in the year-ago quarter (2017 impacted by tax reform)
●
Adjusted EPS of $0.86 compared to $0.78 in the year-ago quarter
●
Cash from operations of $12.1 billion, up 27%
●
Capital expenditures of $4.2 billion
●
Dividend payout ratio 46% 1
●
Free cash flow of $7.9 billion, up 78%
●
Consolidated revenues of $48.0 billion
As Part of Fourth-Quarter Results, AT&T Reports:
●
Strong Cash from Operations and Record Free Cash Flow
●
Consolidated Pro Forma Adjusted EBITDA Growth
●
Deleveraging Plan on Track
●
2019 Guidance Reaffirmed
Note: AT&T's fourth-quarter earnings conference call will be webcast at 8:30 a.m. ET on Wednesday, January 30, 2019. The webcast and related materials will be available on AT&T's Investor Relations website at https://investors.att.com .
DALLAS, January 30, 2019 - AT&T Inc . ( NYSE:T ) r eported strong Mobility and WarnerMedia results in the fourth quarter, including solid domestic wireless service revenue growth with record fourth-quarter wireless service margins. (On a GAAP basis, domestic service revenues declined 3.0%; however, on a comparable basis, service revenues grew 2.9%.)
"Our top priority for 2018 and 2019 is reducing our debt and I couldn't be more pleased with how we closed the year. In 2018, we generated record free cash flow while investing at near-record levels. Our dividend payout as a percent of free cash flow was 46% for the quarter and 60% for the year, allowing us to increase the dividend for the 35th consecutive year," said Randall Stephenson, AT&T chairman and CEO. "This momentum will carry us into 2019 allowing us to continue reducing our debt while investing in the business and continuing our strong record for paying dividends."
Fourth-Quarter Results
North America Wireless Highlights:
●
3.8 million total wireless net adds:
o
2.8 million in U.S., driven by connected devices and smartphones
o
1.0 million in Mexico
Communications Highlights
●
Operating income up 3.1% on a comparable basis; EBITDA up 1.9%
●
Mobility:
o
Service revenues up 2.9% on a comparable basis; operating income up 18.7% with EBITDA up 13.3% on a comparable basis
o
147,000 phone net adds in the U.S.
●
134,000 postpaid phone net adds
●
13,000 prepaid phone net adds
o
467,000 branded smartphones added to base
●
Entertainment Group:
o
Focus on profitability and reduced promotions leads to losses in video subscribers
o
More than 11 million customer locations passed with fiber
WarnerMedia Highlights
●
Revenues up with operating income gains in all business units
o
Strong Warner Bros. theatrical and television licensing revenue growth
o
Turner subscription revenue growth
o
HBO digital subscriber growth continued
o
11 Academy Award® nominations
Latin America Highlights
●
3.2 million Mexico wireless full-year net adds
●
250,000 full-year Vrio net adds
Xandr Highlights
●
Advertising revenues grew BY 48.6%; up 26.0% excluding the AppNexus acquisition
●
Continued progress in strategic initiatives
Consolidated Financial Results 2
AT&T's consolidated revenues for the fourth quarter totaled $48.0 billion versus $41.7 billion in the year-ago quarter, up 15.2%, primarily due to the Time Warner acquisition partially offset by the impact of ASC 606 which includes the policy election of netting of approximately $980 million of USF revenues with operating expenses. Without the accounting change, revenues were $48.9 billion, an increase of 17.2% primarily due to the Time Warner acquisition. Declines in legacy wireline services, wireless equipment, domestic video and Vrio were more than offset by WarnerMedia and growth in domestic wireless services and Xandr.
Operating expenses were $41.8 billion versus $40.4 billion in the year-ago quarter, primarily due to the Time Warner acquisition, partially offset by the netting of USF and other regulatory fees and the deferral of commissions under ASC 606. Excluding those impacts, operating expenses were $43.3 billion, an increase of about $2.9 billion due to the Time Warner acquisition and Entertainment Group content cost pressure, partially offset by the write-off of certain network assets in the prior year, lower wireless equipment costs and cost efficiencies.
Versus results from the fourth quarter of 2017, operating income was $6.2 billion versus $1.3 billion, primarily due to the Time Warner acquisition and the write-off of certain network assets in the prior year; and operating income margin was 12.8% versus 3.1%. On a comparative basis, operating income was $5.6 billion and operating income margin was 11.4%. When adjusting for amortization, merger- and integration-related expenses and other items, operating income was $9.4 billion, or $8.8 billion on a comparative basis, versus $6.3 billion in the year-ago quarter, and operating income margin was 19.6%, or 18.1% on a comparative basis, versus 15.1% in the year-ago quarter due to the acquisition of Time Warner and impact of ASC 606.
Fourth-quarter net income attributable to AT&T was $4.9 billion, or $0.66 per diluted share, versus $19.0 billion, or $3.08 per diluted share, in the year-ago quarter which reflected the impact of the December 2017 federal Tax Cuts and Jobs Act. Adjusting for $0.20, which includes amortization costs, merger- and integration-related expenses and other items, a true-up of deferred tax liability remeasurement and other tax items and a non-cash actuarial gain on benefit plans from the annual remeasurement process, earnings per diluted share was $0.86 compared to an adjusted $0.78 in the year-ago quarter, a 10% increase.
Cash from operating activities was $12.1 billion, and capital expenditures were $4.2 billion. Capital investment included about $270 million in FirstNet capital costs and $1.1 billion in FirstNet capital reimbursements. Free cash flow - cash from operating activities minus capital expenditures - was $7.9 billion for the quarter.
Full-Year Results
For full-year 2018 when compared with 2017 results, AT&T's consolidated revenues totaled $170.8 billion versus $160.5 billion, up 6.4%, primarily due to the Time Warner acquisition partially offset by the impact of ASC 606 which includes the policy election of netting approximately $3.7 billion of USF revenues with operating expenses. Without the accounting change, revenues were $174.3 billion, an increase of 8.6% primarily due to the Time Warner acquisition.
Operating expenses were $144.7 billion compared with $140.6 billion, primarily due to the Time Warner acquisition partially offset by the netting of USF and other regulatory fees and the deferral of commissions under ASC 606. Excluding those impacts, operating expenses were $150.6 billion, an increase of about $10.0 billion due to the Time Warner acquisition, Entertainment Group content cost pressure and higher wireless equipment costs, partially offset by the write-off of certain network assets in the prior year and cost efficiencies.
Versus results from 2017, operating income was $26.1 billion, up 30.7% primarily due to the Time Warner acquisition and the write-off of certain network assets in the prior year; and operating income margin was 15.3% versus 12.4%. On a comparative basis, operating income was $23.7 billion and operating income margin was 13.6%. With adjustments for both years, operating income was $35.2 billion, or $32.8 billion on a comparable basis, versus $29.5 billion in 2017, and operating income margin was 20.6%, or 18.8% on a comparative basis, versus 18.4% in 2017.
2018 net income attributable to AT&T was $19.4 billion, or $2.85 per diluted share, versus $29.5 billion, or $4.76 per diluted share in 2017. With adjustments for both years, earnings per diluted share was $3.52 compared to an adjusted $3.05 in 2017, up 15% primarily due to lower rates associated with tax reform, the impact of ASC 606 and the acquisition of Time Warner.
AT&T's full-year cash from operating activities was $43.6 billion versus $38.0 billion in 2017. Capital expenditures, including capitalized interest, totaled $21.3 billion versus $21.6 billion in 2017. Capital investment included about $1.2 billion in FirstNet capital costs and $1.4 billion in FirstNet capital reimbursements. Full-year free cash flow was $22.4 billion compared to $16.5 billion in 2017, up 36%. The company's free cash flow dividend payout ratio for the full year was 60%. 1
2019 Outlook 3
AT&T expects in 2019:
●
Free cash flow in the $26 billion range;
●
Low single-digit adjusted EPS growth;
●
Dividend payout ratio in the high 50s% range;
●
End-of-year net debt to adjusted EBITDA in the 2.5x range;
●
Gross capital investment in the $23 billion range 4
3 Adjustments to EPS include merger-related amortization in the range of $7.5 billion, a non-cash mark-to-market benefit plan gain/loss, merger integration 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 a significant item. Our EPS, free cash flow and EBITDA estimates depend on future levels of revenues and expenses which are not reasonably estimable at this time. Accordingly, we cannot provide a reconciliation between our non-GAAP metrics and the reported GAAP metrics without unreasonable effort. (Our 2019 outlook for Net Debt to Adjusted EBITDA ratio excludes the impact of a new accounting standard for leases (ASC 842) that is effective beginning January 1, 2019 to be consistent with our existing multi-year guidance on this debt ratio . )
1 Free cash flow dividend payout ratio is dividends divided by free cash flow .
2 AT&T adopted new U.S. accounting standards that deal with revenue recognition (ASC 606), post-employment benefit costs and certain cash receipts on installment receivables. These changes impact the company's income statements and cash flows. With the adoption of ASC 606, the company made a policy decision to record Universal Service Fees (USF) and other regulatory fees on a net basis. The company is providing comparable results in addition to GAAP to help investors better understand the impact on financials from ASC 606 and the policy decision. Historical income statements and cash flows have been recast to show only the impact of the adoption of the other two accounting standards.
4 Excludes expected FirstNet reimbursements in the $1 billion range; includes potential vendor financing.
*About AT&T
AT&T Inc. ( NYSE:T ) is a diversified, global leader in telecommunications, media and entertainment, and technology. It executes in the market under four operating units. WarnerMedia's HBO, Turner and Warner Bros. divisions are world leaders in creating premium content, operate one of the world's largest TV and film studios, and own a world-class library of entertainment. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband services. Plus, it serves more than 3 million business customers with high-speed, highly secure connectivity and smart solutions. AT&T Latin America provides pay-TV services across 11 countries and territories in Latin America and the Caribbean, and is the fastest growing wireless provider in Mexico, serving consumers and businesses. Xandr provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its AppNexus platform.
AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2019 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:
Name: Erin McGrath
AT&T Inc.
Phone: 214-862-0651
Email: Erin.McGrath@att.com
EXHIBIT 99.2
AT&T Inc.
Financial Data
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Service
$
42,496
$
36,225
17.3
%
$
152,345
$
145,597
4.6
%
Equipment
5,497
5,451
0.8
%
18,411
14,949
23.2
%
Total Operating Revenues
47,993
41,676
15.2
%
170,756
160,546
6.4
%
Operating Expenses
Cost of revenues
Equipment
5,733
6,532
(12.2)
%
19,786
18,709
5.8
%
Broadcast, programming and operations
8,885
6,003
48.0
%
26,727
21,159
26.3
%
Other cost of revenues (exclusive of depreciation
and amortization shown separately below)
8,691
9,391
(7.5)
%
32,906
37,942
(13.3)
%
Selling, general and administrative
10,586
9,484
11.6
%
36,765
35,465
3.7
%
Asset abandonment and impairments
46
2,914
(98.4)
%
46
2,914
(98.4)
%
Depreciation and amortization
7,892
6,071
30.0
%
28,430
24,387
16.6
%
Total Operating Expenses
41,833
40,395
3.6
%
144,660
140,576
2.9
%
Operating Income
6,160
1,281
-
%
26,096
19,970
30.7
%
Interest Expense
(2,112)
(1,926)
9.7
%
(7,957)
(6,300)
26.3
%
Equity in Net Income (Loss) of Affiliates
23
20
15.0
%
(48)
(128)
62.5
%
Other Income (Expense) - Net
1,674
(658)
-
%
6,782
1,597
-
%
Income (Loss) Before Income Taxes
5,745
(1,283)
-
%
24,873
15,139
64.3
%
Income Tax (Benefit) Expense
615
(20,419)
-
%
4,920
(14,708)
-
%
Net Income
5,130
19,136
(73.2)
%
19,953
29,847
(33.1)
%
Less: Net Income Attributable to
Noncontrolling Interest
(272)
(99)
-
%
(583)
(397)
(46.9)
%
Net Income Attributable to AT&T
$
4,858
$
19,037
(74.5)
%
$
19,370
$
29,450
(34.2)
%
Basic Earnings Per Share Attributable to AT&T
$
0.66
$
3.08
(78.6)
%
$
2.85
$
4.77
(40.3)
%
Weighted Average Common
Shares Outstanding (000,000)
7,296
6,163
18.4
%
6,778
6,164
10.0
%
Diluted Earnings Per Share Attributable to AT&T
$
0.66
$
3.08
(78.6)
%
$
2.85
$
4.76
(40.1)
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
7,328
6,182
18.5
%
6,806
6,183
10.1
%
AT&T Inc.
Financial Data
Consolidated Balance Sheets
Dollars in millions
Unaudited
Dec. 31,
Dec. 31,
2018
2017
Assets
Current Assets
Cash and cash equivalents
$
5,204
$
50,498
Accounts receivable - net of allowances for doubtful accounts of $907 and $663
26,472
16,522
Prepaid expenses
2,047
1,369
Other current assets
17,704
10,757
Total current assets
51,427
79,146
Noncurrent Inventories and Theatrical Film and Television Production Costs
7,713
-
Property, Plant and Equipment - Net
131,473
125,222
Goodwill
146,370
105,449
Licenses
96,144
96,136
Trademarks and Trade Names - Net
24,345
7,021
Distribution Networks - Net
17,069
-
Other Intangible Assets - Net
26,269
11,119
Investments in and Advances to Equity Affiliates
6,245
1,560
Other Assets
24,809
18,444
Total Assets
$
531,864
$
444,097
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year
$
10,255
$
38,374
Accounts payable and accrued liabilities
43,184
34,470
Advanced billings and customer deposits
5,948
4,213
Accrued taxes
1,179
1,262
Dividends payable
3,854
3,070
Total current liabilities
64,420
81,389
Long-Term Debt
166,250
125,972
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes
57,859
43,207
Postemployment benefit obligation
19,218
31,775
Other noncurrent liabilities
30,233
19,747
Total deferred credits and other noncurrent liabilities
107,310
94,729
Stockholders' Equity
Common stock
7,621
6,495
Additional paid-in capital
125,525
89,563
Retained earnings
58,753
50,500
Treasury stock
(12,059)
(12,714)
Accumulated other comprehensive income
4,249
7,017
Noncontrolling interest
9,795
1,146
Total stockholders' equity
193,884
142,007
Total Liabilities and Stockholders' Equity
$
531,864
$
444,097
AT&T Inc.
Financial Data
Consolidated Statements of Cash Flows
Dollars in millions
Unaudited
Year Ended
2018
2017
Operating Activities
Net income
$
19,953
$
29,847
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
28,430
24,387
Amortization of film and television costs
3,772
-
Undistributed earnings from investments in equity affiliates
292
174
Provision for uncollectible accounts
1,791
1,642
Deferred income tax expense (benefit)
610
(15,940)
Net (gain) loss from sale of investments, net of impairments
(739)
(282)
Actuarial (gain) loss on pension and postretirement benefits
(3,412)
1,258
Asset abandonments and impairments
46
2,914
Changes in operating assets and liabilities:
Accounts receivable
(1,244)
(986)
Other current assets, inventories and theatrical film and television production costs
(6,442)
(778)
Accounts payable and other accrued liabilities
1,602
816
Equipment installment receivables and related sales
(490)
(1,239)
Deferred customer contract acquisition and fulfillment costs
(3,458)
(1,422)
Retirement benefit funding
(500)
(1,066)
Other - net
3,391
(1,315)
Total adjustments
23,649
8,163
Net Cash Provided by Operating Activities
43,602
38,010
Investing Activities
Capital expenditures:
Purchase of property and equipment
(20,758)
(20,647)
Interest during construction
(493)
(903)
Acquisitions, net of cash acquired
(43,309)
1,123
Dispositions
2,148
59
(Purchases) sales of securities, net
(185)
449
Advances to and investments in equity affiliates, net
(1,050)
-
Cash collections of deferred purchase price
500
976
Other
2
-
Net Cash Used in Investing Activities
(63,145)
(18,943)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less
(821)
(2)
Issuance of other short-term borrowings
4,898
-
Repayment of other short-term borrowings
(2,098)
-
Issuance of long-term debt
41,875
48,793
Repayment of long-term debt
(52,643)
(12,339)
Purchase of treasury stock
(609)
(463)
Issuance of treasury stock
745
33
Dividends paid
(13,410)
(12,038)
Other
(3,926)
1,946
Net Cash (Used in) Provided by Financing Activities
(25,989)
25,930
Net (decrease) increase in cash and cash equivalents and restricted cash
(45,532)
44,997
Cash and cash equivalents and restricted cash beginning of year
50,932
5,935
Cash and Cash Equivalents and Restricted Cash End of Year
$
5,400
$
50,932
AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Capital expenditures
Purchase of property and equipment
$
4,063
$
4,891
(16.9)
%
$
20,758
$
20,647
0.5
%
Interest during construction
89
185
(51.9)
%
493
903
(45.4)
%
Total Capital Expenditures
$
4,152
$
5,076
(18.2)
%
$
21,251
$
21,550
(1.4)
%
Dividends Declared per Share
$
0.51
$
0.50
2.0
%
$
2.01
$
1.97
2.0
%
End of Period Common Shares Outstanding (000,000)
7,282
6,139
18.6
%
Debt Ratio
47.7
%
53.6
%
(590)
BP
Total Employees
268,220
254,000
5.6
%
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Year Ended
Percent
2018
2017
Change
Wireless Subscribers
Domestic
153,006
141,202
8.4
%
Mexico
18,321
15,099
21.3
%
Total Wireless Subscribers
171,327
156,301
9.6
%
Total Branded Wireless Subscribers
111,958
107,740
3.9
%
Video Connections
Domestic
24,517
25,270
(3.0)
%
Latin America
13,838
13,629
1.5
%
Total Video Connections
38,355
38,899
(1.4)
%
Broadband Connections
IP
14,751
14,487
1.8
%
DSL
950
1,232
(22.9)
%
Total Broadband Connections
15,701
15,719
(0.1)
%
Voice Connections
Network Access Lines
10,002
11,753
(14.9)
%
U-verse VoIP Connections
5,114
5,682
(10.0)
%
Total Retail Voice Connections
15,116
17,435
(13.3)
%
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Wireless Net Additions
Domestic
2,753
2,757
(0.1)
%
11,810
9,474
24.7
%
Mexico
1,016
1,320
(23.0)
%
3,222
3,126
3.1
%
Total Wireless Net Additions
3,769
4,077
(7.6)
%
15,032
12,600
19.3
%
Total Branded Wireless Net Additions
1,016
2,046
(50.3)
%
4,367
4,858
(10.1)
%
Video Net Additions
Domestic
(660)
159
-
%
(753)
(291)
-
%
Latin America
198
139
42.4
%
250
42
-
%
Total Video Net Additions
(462)
298
-
%
(503)
(249)
-
%
Broadband Net Additions
IP
7
103
(93.2)
%
264
623
(57.6)
%
DSL
(53)
(99)
46.5
%
(282)
(509)
44.6
%
Total Broadband Net Additions
(46)
4
-
%
(18)
114
-
%
COMMUNICATIONS SEGMENT
The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. or in U.S. territories and businesses globally. The Communications segment contains three reporting units: Mobility, Entertainment Group, and Business Wireline.
Segment Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Mobility
$
18,769
$
19,168
(2.1)
%
$
71,344
$
71,090
0.4
%
Entertainment Group
11,962
12,560
(4.8)
%
46,460
49,995
(7.1)
%
Business Wireline
6,727
7,382
(8.9)
%
26,827
29,293
(8.4)
%
Total Segment Operating Revenues
37,458
39,110
(4.2)
%
144,631
150,378
(3.8)
%
Segment Operating Contribution
Mobility
5,455
4,275
27.6
%
21,722
20,204
7.5
%
Entertainment Group
825
1,001
(17.6)
%
4,713
5,471
(13.9)
%
Business Wireline
1,359
1,588
(14.4)
%
5,827
6,010
(3.0)
%
Total Segment Operating Contribution
$
7,639
$
6,864
11.3
%
$
32,262
$
31,685
1.8
%
Mobility
Mobility provides nationwide wireless service and equipment.
Mobility Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Service
$
13,859
$
14,282
(3.0)
%
$
54,933
$
57,696
(4.8)
%
Equipment
4,910
4,886
0.5
%
16,411
13,394
22.5
%
Total Operating Revenues
18,769
19,168
(2.1)
%
71,344
71,090
0.4
%
Operating Expenses
Operations and support
11,246
12,866
(12.6)
%
41,266
42,871
(3.7)
%
Depreciation and amortization
2,068
2,027
2.0
%
8,355
8,015
4.2
%
Total Operating Expenses
13,314
14,893
(10.6)
%
49,621
50,886
(2.5)
%
Operating Income
5,455
4,275
27.6
%
21,723
20,204
7.5
%
Equity in Net Income (Loss) of Affiliates
-
-
-
%
(1)
-
-
%
Operating Contribution
$
5,455
$
4,275
27.6
%
$
21,722
$
20,204
7.5
%
Operating Income Margin
29.1
%
22.3
%
680
BP
30.4
%
28.4
%
200
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Year Ended
Percent
2018
2017
Change
Mobility Subscribers
Postpaid
76,889
77,510
(0.8)
%
Prepaid
17,000
15,335
10.9
%
Branded
93,889
92,845
1.1
%
Reseller
7,782
9,366
(16.9)
%
Connected Devices
51,335
38,991
31.7
%
Total Mobility Subscribers
153,006
141,202
8.4
%
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Mobility Net Additions
Postpaid
13
558
(97.7)
%
(97)
641
-
%
Prepaid
26
140
(81.4)
%
1,290
1,013
27.3
%
Branded
39
698
(94.4)
%
1,193
1,654
(27.9)
%
Reseller
(438)
(530)
17.4
%
(1,704)
(1,871)
8.9
%
Connected Devices
3,152
2,589
21.7
%
12,321
9,691
27.1
%
Total Mobility Net Additions
2,753
2,757
(0.1)
%
11,810
9,474
24.7
%
Branded Churn
1.82
%
1.75
%
7
BP
1.67
%
1.68
%
(1)
BP
Postpaid Churn
1.24
%
1.11
%
13
BP
1.12
%
1.07
%
5
BP
Postpaid Phone-Only Churn
1.00
%
0.89
%
11
BP
0.90
%
0.85
%
5
BP
Entertainment Group
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communication services primarily to residential customers. This business unit also sells advertising on DIRECTV and U-verse distribution platforms.
Entertainment Group Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Video entertainment
$
8,676
$
9,200
(5.7)
%
$
33,357
$
36,167
(7.8)
%
High-speed internet
2,052
1,890
8.6
%
7,956
7,674
3.7
%
Legacy voice and data services
724
878
(17.5)
%
3,041
3,767
(19.3)
%
Other service and equipment
510
592
(13.9)
%
2,106
2,387
(11.8)
%
Total Operating Revenues
11,962
12,560
(4.8)
%
46,460
49,995
(7.1)
%
Operating Expenses
Operations and support
9,807
10,192
(3.8)
%
36,430
38,903
(6.4)
%
Depreciation and amortization
1,329
1,367
(2.8)
%
5,315
5,621
(5.4)
%
Total Operating Expenses
11,136
11,559
(3.7)
%
41,745
44,524
(6.2)
%
Operating Income
826
1,001
(17.5)
%
4,715
5,471
(13.8)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
-
%
(2)
-
-
%
Operating Contribution
$
825
$
1,001
(17.6)
%
$
4,713
$
5,471
(13.9)
%
Operating Income Margin
6.9
%
8.0
%
(110)
BP
10.1
%
10.9
%
(80)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Year Ended
Percent
2018
2017
Change
Video Connections
Satellite
19,222
20,458
(6.0)
%
U-verse
3,681
3,631
1.4
%
DIRECTV NOW
1,591
1,155
37.7
%
Total Video Connections
24,494
25,244
(3.0)
%
Broadband Connections
IP
13,729
13,462
2.0
%
DSL
680
888
(23.4)
%
Total Broadband Connections
14,409
14,350
0.4
%
Voice Connections
Retail Consumer Switched Access Lines
3,967
4,774
(16.9)
%
U-verse Consumer VoIP Connections
4,582
5,222
(12.3)
%
Total Retail Consumer Voice Connections
8,549
9,996
(14.5)
%
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Video Net Additions 1
Satellite
(403)
(147)
-
%
(1,236)
(554)
-
%
U-verse
12
(60)
-
%
50
(622)
-
%
DIRECTV NOW
(267)
368
-
%
436
888
(50.9)
%
Total Video Net Additions
(658)
161
-
%
(750)
(288)
-
%
Broadband Net Additions
IP
6
95
(93.7)
%
267
574
(53.5)
%
DSL
(38)
(76)
50.0
%
(208)
(403)
48.4
%
Total Broadband Net Additions
(32)
19
-
%
59
171
(65.5)
%
1 Includes the impact of customers that migrated to DIRECTV NOW.
Business Wireline
Business Wireline unit provides advanced IP-based services, as well as traditional data services to business customers.
Business Wireline Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Strategic services
$
3,142
$
3,070
2.3
%
$
12,310
$
11,950
3.0
%
Legacy voice and data services
2,521
3,251
(22.5)
%
10,697
13,565
(21.1)
%
Other service and equipment
1,064
1,061
0.3
%
3,820
3,778
1.1
%
Total Operating Revenues
6,727
7,382
(8.9)
%
26,827
29,293
(8.4)
%
Operating Expenses
Operations and support
4,161
4,586
(9.3)
%
16,245
18,492
(12.2)
%
Depreciation and amortization
1,207
1,206
0.1
%
4,754
4,789
(0.7)
%
Total Operating Expenses
5,368
5,792
(7.3)
%
20,999
23,281
(9.8)
%
Operating Income
1,359
1,590
(14.5)
%
5,828
6,012
(3.1)
%
Equity in Net Income (Loss) of Affiliates
-
(2)
-
%
(1)
(2)
50.0
%
Operating Contribution
$
1,359
$
1,588
(14.4)
%
$
5,827
$
6,010
(3.0)
%
Operating Income Margin
20.2
%
21.5
%
(130)
BP
21.7
%
20.5
%
120
BP
Business Solutions
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers.
Business Solutions Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Wireless service
$
1,900
$
1,979
(4.0)
%
$
7,397
$
8,009
(7.6)
%
Strategic services
3,142
3,070
2.3
%
12,310
11,950
3.0
%
Legacy voice and data services
2,521
3,251
(22.5)
%
10,697
13,565
(21.1)
%
Other service and equipment
1,064
1,061
0.3
%
3,820
3,778
1.1
%
Wireless equipment
780
564
38.3
%
2,532
1,552
63.1
%
Total Operating Revenues
9,407
9,925
(5.2)
%
36,756
38,854
(5.4)
%
Operating Expenses
Operations and support
5,911
6,349
(6.9)
%
22,719
24,496
(7.3)
%
Depreciation and amortization
1,507
1,492
1.0
%
5,951
5,901
0.8
%
Total Operating Expenses
7,418
7,841
(5.4)
%
28,670
30,397
(5.7)
%
Operating Income
1,989
2,084
(4.6)
%
8,086
8,457
(4.4)
%
Equity in Net Income (Loss) of Affiliates
-
(1)
-
%
(1)
(1)
-
%
Operating Contribution
$
1,989
$
2,083
(4.5)
%
$
8,085
$
8,456
(4.4)
%
Operating Income Margin
21.1
%
21.0
%
10
BP
22.0
%
21.8
%
20
BP
W ARNER M EDIA SEGMENT
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Results from AT&T's Regional Sports Network (RSN) and Otter Media Holdings are also included in the WarnerMedia segment. The WarnerMedia segment contains three business units: Turner, Home Box Office and Warner Bros.
Segment Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Turner
$
3,212
$
107
-
%
$
6,979
$
430
-
%
Home Box Office
1,673
-
-
%
3,598
-
-
%
Warner Bros.
4,476
-
-
%
8,703
-
-
%
Eliminations and other
(129)
-
-
%
(339)
-
-
%
Total Segment Operating Revenues
9,232
107
-
%
18,941
430
-
%
Segment Operating Contribution
Turner
1,306
61
-
%
3,108
140
-
%
Home Box Office
650
-
-
%
1,384
-
-
%
Warner Bros.
807
-
-
%
1,449
-
-
%
Eliminations and other
(60)
(20)
-
%
(246)
(78)
-
%
Total Segment Operating Contribution
$
2,703
$
41
-
%
$
5,695
$
62
-
%
Turner
Turner is comprised of the WarnerMedia businesses managed by Turner as well as our RSN. This business unit creates and programs branded news, entertainment, sports and kids multi-platform content that is sold to various distribution affiliates. Turner also sells advertising on its networks and digital properties.
Turner Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Subscription
$
1,844
$
94
-
%
$
4,207
$
365
-
%
Advertising
1,149
13
-
%
2,330
65
-
%
Content and other
219
-
-
%
442
-
-
%
Total Operating Revenues
3,212
107
-
%
6,979
430
-
%
Operating Expenses
Operations and support
1,861
58
-
%
3,794
331
-
%
Depreciation and amortization
60
1
-
%
131
4
-
%
Total Operating Expenses
1,921
59
-
%
3,925
335
-
%
Operating Income
1,291
48
-
%
3,054
95
-
%
Equity in Net Income of Affiliates
15
13
15.4
%
54
45
20.0
%
Operating Contribution
$
1,306
$
61
-
%
$
3,108
$
140
-
%
Operating Income Margin
40.2
%
44.9
%
(470)
BP
43.8
%
22.1
%
2,170
BP
Home Box Office
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment
Home Box Office Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Subscription
$
1,414
$
-
-
%
$
3,201
$
-
-
%
Content and other
259
-
-
%
397
-
-
%
Total Operating Revenues
1,673
-
-
%
3,598
-
-
%
Operating Expenses
Operations and support
1,025
-
-
%
2,187
-
-
%
Depreciation and amortization
26
-
-
%
56
-
-
%
Total Operating Expenses
1,051
-
-
%
2,243
-
-
%
Operating Income
622
-
-
%
1,355
-
-
%
Equity in Net Income of Affiliates
28
-
-
%
29
-
-
%
Operating Contribution
$
650
$
-
-
%
$
1,384
$
-
-
%
Operating Income Margin
37.2
%
-
%
-
BP
37.7
%
-
%
-
BP
Warner Bros.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
Warner Bros. Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Theactrical product
$
2,085
$
-
-
%
$
4,002
$
-
-
%
Television product
1,827
-
-
%
3,621
-
-
%
Video games and other
564
-
-
%
1,080
-
-
%
Total Operating Revenues
4,476
-
-
%
8,703
-
-
%
Operating Expenses
Operations and support
3,623
-
-
%
7,130
-
-
%
Depreciation and amortization
42
-
-
%
96
-
-
%
Total Operating Expenses
3,665
-
-
%
7,226
-
-
%
Operating Income
811
-
-
%
1,477
-
-
%
Equity in Net Income (Loss) of Affiliates
(4)
-
-
%
(28)
-
-
%
Operating Contribution
$
807
$
-
-
%
$
1,449
$
-
-
%
Operating Income Margin
18.1
%
-
%
-
BP
17.0
%
-
%
-
BP
LATIN AMERICA SEGMENT
The Latin America segment provides entertainment and wireless service outside of the U.S. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates. The Latin America segment contains two business units: Vrio and Mexico.
Segment Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
Vrio
$
1,074
$
1,391
(22.8)
%
$
4,784
$
5,456
(12.3)
%
Mexico
769
824
(6.7)
%
2,868
2,813
2.0
%
Total Segment Operating Revenues
1,843
2,215
(16.8)
%
7,652
8,269
(7.5)
%
Segment Operating Contribution
Vrio
66
160
(58.8)
%
347
522
(33.5)
%
Mexico
(314)
(169)
(85.8)
%
(1,057)
(788)
(34.1)
%
Total Segment Operating Contribution
$
(248)
$
(9)
-
%
$
(710)
$
(266)
-
%
Vrio
Vrio provides entertainment services to customers utilizing satellite technology in Latin America and the Caribbean.
Vrio Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
$
1,074
$
1,391
(22.8)
%
$
4,784
$
5,456
(12.3)
%
Operating Expenses
Operations and support
849
1,049
(19.1)
%
3,743
4,172
(10.3)
%
Depreciation and amortization
169
207
(18.4)
%
728
849
(14.3)
%
Total Operating Expenses
1,018
1,256
(18.9)
%
4,471
5,021
(11.0)
%
Operating Income
56
135
(58.5)
%
313
435
(28.0)
%
Equity in Net Income of Affiliates
10
25
(60.0)
%
34
87
(60.9)
%
Operating Contribution
$
66
$
160
(58.8)
%
$
347
$
522
(33.5)
%
Operating Income Margin
5.2
%
9.7
%
(450)
BP
6.5
%
8.0
%
(150)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Year Ended
Percent
2018
2017
Change
Vrio Satellite Subscribers
13,838
13,629
1.5
%
Fourth Quarter
Year Ended
2018
2017
2,018
2,017
Vrio Satellite Net Subscriber Additions
198
139
42.4
%
250
42
-
%
Mexico
Mexico provides wireless services and equipment to customers in Mexico.
Mexico Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
Wireless service
$
440
$
501
(12.2)
%
$
1,701
$
2,047
(16.9)
%
Wireless equipment
329
323
1.9
%
1,167
766
52.3
%
Total Operating Revenues
769
824
(6.7)
%
2,868
2,813
2.0
%
Operating Expenses
Operations and support
956
887
7.8
%
3,415
3,232
5.7
%
Depreciation and amortization
127
106
19.8
%
510
369
38.2
%
Total Operating Expenses
1,083
993
9.1
%
3,925
3,601
9.0
%
Operating Income (Loss)
(314)
(169)
(85.8)
%
(1,057)
(788)
(34.1)
%
Operating Contribution
$
(314)
$
(169)
(85.8)
%
$
(1,057)
$
(788)
(34.1)
%
Operating Income Margin
(40.8)
%
(20.5)
%
(2,030)
BP
(36.9)
%
(28.0)
%
(890)
BP
Supplementary Operating Data
Subscribers and connections in thousands
Unaudited
Year Ended
Percent
2018
2017
Change
Mexico Wireless Subscribers
Postpaid
5,805
5,498
5.6
%
Prepaid
12,264
9,397
30.5
%
Branded
18,069
14,895
21.3
%
Reseller
252
204
23.5
%
Total Mexico Wireless Subscribers
18,321
15,099
21.3
%
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Mexico Wireless Net Additions
Postpaid
(17)
182
-
%
307
533
(42.4)
%
Prepaid
994
1,165
(14.7)
%
2,867
2,670
7.4
%
Branded
977
1,347
(27.5)
%
3,174
3,203
(0.9)
%
Reseller
39
(27)
-
%
48
(77)
-
%
Total Mexico Wireless Net Subscriber Additions
1,016
1,320
(23.0)
%
3,222
3,126
3.1
%
XANDR SEGMENT
The Xandr segment provides advertising services. These services utilize data insights to develop higher value targeted advertising. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.
Segment Operating Results
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Segment Operating Revenues
$
566
$
381
48.6
%
$
1,740
$
1,373
26.7
%
Segment Operating Expenses
Operations and support
180
51
-
%
398
169
-
%
Depreciation and amortization
5
1
-
%
9
2
-
%
Total Segment Operating Expenses
185
52
-
%
407
171
-
%
Operating Income
381
329
15.8
%
1,333
1,202
10.9
%
Segment Operating Contribution
$
381
$
329
15.8
%
$
1,333
$
1,202
10.9
%
Segment Operating Income Margin
67.3
%
86.4
%
(1,910)
BP
76.6
%
87.5
%
(1,090)
BP
Supplemental AT&T Advertising Revenues
As a supplemental presentation to our Xandr segment operating results, we are providing a view of total advertising revenues generated by AT&T, which combines the advertising revenues recorded across all operating segments. This combined view presents the entire portfolio of revenues generated from AT&T assets and represents a significant strategic initiative and growth opportunity for AT&T.
Advertising Revenues
Dollars in millions
Unaudited
Fourth Quarter
Percent
Year Ended
Percent
2018
2017
Change
2018
2017
Change
Operating Revenues
WarnerMedia
$
1,239
$
13
-
%
$
2,461
$
65
-
%
Communications
543
420
29.3
%
1,827
1,513
20.8
%
Xandr
566
381
48.6
%
1,740
1,373
26.7
%
Eliminations
(473)
(377)
(25.5)
%
(1,595)
(1,357)
(17.5)
%
Total Advertising Revenues
$
1,875
$
437
-
%
$
4,433
$
1,594
-
%
SUPPLEMENTAL SEGMENT RECONCILIATION
Three Months Ended
Dollars in millions
Unaudited
December 31, 2018
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
18,769
$
11,246
$
7,523
$
2,068
$
5,455
$
-
$
5,455
Entertainment Group
11,962
9,807
2,155
1,329
826
(1)
825
Business Wireline
6,727
4,161
2,566
1,207
1,359
-
1,359
Total Communications
37,458
25,214
12,244
4,604
7,640
(1)
7,639
WarnerMedia
Turner
3,212
1,861
1,351
60
1,291
15
1,306
Home Box Office
1,673
1,025
648
26
622
28
650
Warner Bros.
4,476
3,623
853
42
811
(4)
807
Other
(129)
(39)
(90)
11
(101)
41
(60)
Total WarnerMedia
9,232
6,470
2,762
139
2,623
80
2,703
Latin America
Vrio
1,074
849
225
169
56
10
66
Mexico
769
956
(187)
127
(314)
-
(314)
Total Latin America
1,843
1,805
38
296
(258)
10
(248)
Xandr
566
180
386
5
381
-
381
Segment Total
49,099
33,669
15,430
5,044
10,386
89
10,475
Corporate and Other
Corporate
279
252
27
560
(533)
Acquisition-related items
(49)
435
(484)
2,262
(2,746)
Certain significant items
-
492
(492)
26
(518)
Eliminations and consolidations
(1,336)
(907)
(429)
-
(429)
AT&T Inc.
$
47,993
$
33,941
$
14,052
$
7,892
$
6,160
December 31, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
19,168
$
12,866
$
6,302
$
2,027
$
4,275
$
-
$
4,275
Entertainment Group
12,560
10,192
2,368
1,367
1,001
-
1,001
Business Wireline
7,382
4,586
2,796
1,206
1,590
(2)
1,588
Total Communications
39,110
27,644
11,466
4,600
6,866
(2)
6,864
WarnerMedia
Turner
107
58
49
1
48
13
61
Home Box Office
-
-
-
-
-
-
-
Warner Bros.
-
-
-
-
-
-
-
Other
-
1
(1)
-
(1)
(19)
(20)
Total WarnerMedia
107
59
48
1
47
(6)
41
Latin America
Vrio
1,391
1,049
342
207
135
25
160
Mexico
824
887
(63)
106
(169)
-
(169)
Total Latin America
2,215
1,936
279
313
(34)
25
(9)
Xandr
381
51
330
1
329
-
329
Segment Total
41,813
29,690
12,123
4,915
7,208
17
7,225
Corporate and Other
Corporate
340
866
(526)
24
(550)
Acquisition-related items
-
176
(176)
1,100
(1,276)
Certain significant items
(154)
3,578
(3,732)
32
(3,764)
Eliminations and consolidations
(323)
14
(337)
-
(337)
AT&T Inc.
$
41,676
$
34,324
$
7,352
$
6,071
$
1,281
SUPPLEMENTAL SEGMENT RECONCILIATION
Twelve Months Ended
Dollars in millions
Unaudited
December 31, 2018
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
71,344
$
41,266
$
30,078
$
8,355
$
21,723
$
(1)
$
21,722
Entertainment Group
46,460
36,430
10,030
5,315
4,715
(2)
4,713
Business Wireline
26,827
16,245
10,582
4,754
5,828
(1)
5,827
Total Communications
144,631
93,941
50,690
18,424
32,266
(4)
32,262
WarnerMedia
Turner
6,979
3,794
3,185
131
3,054
54
3,108
Home Box Office
3,598
2,187
1,411
56
1,355
29
1,384
Warner Bros.
8,703
7,130
1,573
96
1,477
(28)
1,449
Other
(339)
(145)
(194)
22
(216)
(30)
(246)
Total WarnerMedia
18,941
12,966
5,975
305
5,670
25
5,695
Latin America
Vrio
4,784
3,743
1,041
728
313
34
347
Mexico
2,868
3,415
(547)
510
(1,057)
-
(1,057)
Total Latin America
7,652
7,158
494
1,238
(744)
34
(710)
Xandr
1,740
398
1,342
9
1,333
-
1,333
Segment Total
172,964
114,463
58,501
19,976
38,525
55
38,580
Corporate and Other
Corporate
1,240
1,630
(390)
1,498
(1,888)
Acquisition-related items
(49)
1,185
(1,234)
6,931
(8,165)
Certain significant items
-
899
(899)
26
(925)
Eliminations and consolidations
(3,399)
(1,947)
(1,452)
(1)
(1,451)
AT&T Inc.
$
170,756
$
116,230
$
54,526
$
28,430
$
26,096
December 31, 2017
Revenues
Operations and Support Expenses
EBITDA
Depreciation and Amortization
Operating Income (Loss)
Equity in Net Income (Loss) of Affiliates
Segment Contribution
Communications
Mobility
$
71,090
$
42,871
$
28,219
$
8,015
$
20,204
$
-
$
20,204
Entertainment Group
49,995
38,903
11,092
5,621
5,471
-
5,471
Business Wireline
29,293
18,492
10,801
4,789
6,012
(2)
6,010
Total Communications
150,378
100,266
50,112
18,425
31,687
(2)
31,685
WarnerMedia
Turner
430
331
99
4
95
45
140
Home Box Office
-
-
-
-
-
-
-
Warner Bros.
-
-
-
-
-
-
-
Other
-
4
(4)
-
(4)
(74)
(78)
Total WarnerMedia
430
335
95
4
91
(29)
62
Latin America
Vrio
5,456
4,172
1,284
849
435
87
522
Mexico
2,813
3,232
(419)
369
(788)
-
(788)
Total Latin America
8,269
7,404
865
1,218
(353)
87
(266)
Xandr
1,373
169
1,204
2
1,202
-
1,202
Segment Total
160,450
108,174
52,276
19,649
32,627
56
32,683
Corporate and Other
Corporate
1,522
3,306
(1,784)
97
(1,881)
Acquisition-related items
-
798
(798)
4,608
(5,406)
Certain significant items
(243)
3,880
(4,123)
33
(4,156)
Eliminations and consolidations
(1,183)
31
(1,214)
-
(1,214)
AT&T Inc.
$
160,546
$
116,189
$
44,357
$
24,387
$
19,970
As a supplemental discussion of our operating results, we are providing results under the comparative historical accounting method prior to our adoption of ASC 606 and other accounting changes.
SUPPLEMENTAL INCOME STATEMENT
Supplemental Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
42,496
$
(1,435)
$
43,931
$
36,225
21.3
%
Equipment
5,497
571
4,926
5,451
(9.6)
%
Total Operating Revenues
47,993
(864)
48,857
41,676
17.2
%
Operating Expenses
Cost of revenues
Equipment
5,733
-
5,733
6,532
(12.2)
%
Broadcast, programming and operations
8,885
-
8,885
6,003
48.0
%
Other cost of revenues (exclusive of depreciation
and amortization shown separately below)
8,691
(981)
9,672
9,391
3.0
%
Selling, general and administrative
10,586
(466)
11,052
9,484
16.5
%
Asset abandonments and impairments
46
-
46
2,914
(98.4)
%
Depreciation and amortization
7,892
-
7,892
6,071
30.0
%
Total Operating Expenses
41,833
(1,447)
43,280
40,395
7.1
%
Operating Income
6,160
583
5,577
1,281
-
%
Interest Expense
(2,112)
-
(2,112)
(1,926)
9.7
%
Equity in Net Income (Loss) of Affiliates
23
-
23
20
15.0
%
Other Income (Expense) - Net
1,674
-
1,674
(658)
-
%
Income Before Income Taxes
5,745
583
5,162
(1,283)
-
%
Income Tax Expense (Benefit)
615
143
472
(20,419)
-
%
Net Income
5,130
440
4,690
19,136
(75.5)
%
Less: Net Income Attributable to
Noncontrolling Interest
(272)
(6)
(266)
(99)
-
%
Net Income Attributable to AT&T
$
4,858
$
434
$
4,424
$
19,037
(76.8)
%
Basic Earnings Per Share Attributable to AT&T
$
0.66
$
0.05
$
0.61
$
3.08
(80.2)
%
Weighted Average Common
Shares Outstanding (000,000)
7,296
-
7,296
6,163
18.4
%
Diluted Earnings Per Share Attributable to AT&T
$
0.66
$
0.05
$
0.61
$
3.08
(80.2)
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
7,328
-
7,328
6,182
18.5
%
Supplemental Mobility
Supplemental Results
Dollars in millions
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
13,859
$
(840)
$
14,699
$
14,282
2.9
%
Equipment
4,910
555
4,355
4,886
(10.9)
%
Total Operating Revenues
18,769
(285)
19,054
19,168
(0.6)
%
Operating Expenses
Operations and support
11,246
(667)
11,913
12,866
(7.4)
%
EBITDA
7,523
382
7,141
6,302
13.3
%
Depreciation and amortization
2,068
-
2,068
2,027
2.0
%
Total Operating Expenses
13,314
(667)
13,981
14,893
(6.1)
%
Operating Income
5,455
382
5,073
4,275
18.7
%
Equity in Net Income (Loss) of Affiliates
-
-
-
-
-
%
Operating Contribution
$
5,455
$
382
$
5,073
$
4,275
18.7
%
Operating Income Margin
29.1
%
26.6
%
22.3
%
430
BP
EBITDA Margin
40.1
%
37.5
%
32.9
%
460
BP
EBITDA Service Margin
54.3
%
48.6
%
44.1
%
450
BP
Supplemental Entertainment Group
Supplemental Entertainment Group Results
Dollars in millions
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Video entertainment
$
8,676
$
(117)
$
8,793
$
9,200
(4.4)
%
High-speed internet
2,052
-
2,052
1,890
8.6
%
Legacy voice and data services
724
(34)
758
878
(13.7)
%
Other service and equipment
510
(66)
576
592
(2.7)
%
Total Operating Revenues
11,962
(217)
12,179
12,560
(3.0)
%
Operating Expenses
Operations and support
9,807
(374)
10,181
10,192
(0.1)
%
EBITDA
2,155
157
1,998
2,368
(15.6)
%
Depreciation and amortization
1,329
-
1,329
1,367
(2.8)
%
Total Operating Expenses
11,136
(374)
11,510
11,559
(0.4)
%
Operating Income
826
157
669
1,001
(33.2)
%
Equity in Net Income (Loss) of Affiliates
(1)
-
(1)
-
-
%
Contribution
$
825
$
157
$
668
$
1,001
(33.3)
%
Operating Income Margin
6.9
%
5.5
%
8.0
%
(250)
BP
EBITDA Margin
18.0
%
16.4
%
18.9
%
(250)
BP
Supplemental Business Wireline
Supplemental Business Wireline Results
Dollars in millions
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent Change
Operating Revenues
Strategic services
$
3,142
$
(3)
$
3,145
$
3,070
2.4
%
Legacy voice and data services
2,521
(267)
2,788
3,251
(14.2)
%
Other service and equipment
1,064
(76)
1,140
1,061
7.4
%
Total Operating Revenues
6,727
(346)
7,073
7,382
(4.2)
%
Operating Expenses
Operations and support
4,161
(368)
4,529
4,586
(1.2)
%
EBITDA
2,566
22
2,544
2,796
(9.0)
%
Depreciation and amortization
1,207
-
1,207
1,206
0.1
%
Total Operating Expenses
5,368
(368)
5,736
5,792
(1.0)
%
Operating Income
1,359
22
1,337
1,590
(15.9)
%
Equity in Net Income of Affiliates
-
-
-
(2)
-
%
Operating Contribution
$
1,359
$
22
$
1,337
$
1,588
(15.8)
%
Operating Income Margin
20.2
%
18.9
%
21.5
%
(260)
BP
EBITDA Margin
38.1
%
36.0
%
37.9
%
(190)
BP
Supplemental Latin America
Supplemental Segment Results
Dollars in millions
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Segment Operating Revenues
Vrio
$
1,074
$
-
$
1,074
$
1,391
(22.8)
%
Mexico
769
(9)
778
824
(5.6)
%
Total Segment Operating Revenues
1,843
(9)
1,852
2,215
(16.4)
%
Segment Operating Expenses
Operations and support
1,805
(30)
1,835
1,936
(5.2)
%
EBITDA
38
21
17
279
(93.9)
%
Depreciation and amortization
296
-
296
313
(5.4)
%
Total Segment Operating Expenses
2,101
(30)
2,131
2,249
(5.2)
%
Segment Operating Income (Loss)
(258)
21
(279)
(34)
-
%
Equity in Net Income of Affiliates
10
-
10
25
(60.0)
%
Segment Contribution
$
(248)
$
21
$
(269)
$
(9)
-
%
Operating Income Margin
(14.0)
%
(15.1)
%
(1.5)
%
(1,360)
BP
EBITDA Margin
2.1
%
0.9
%
12.6
%
(1,170)
BP
Supplemental Business Solutions
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship, and underscores the importance of mobile solutions to serving our business customers.
Supplemental Operating Results
Dollars in millions
Unaudited
Fourth Quarter
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Wireless service
$
1,900
$
(209)
$
2,109
$
1,979
6.6
%
Strategic services
3,142
(3)
3,145
3,070
2.4
%
Legacy voice and data services
2,521
(267)
2,788
3,251
(14.2)
%
Other service and equipment
1,064
(76)
1,140
1,061
7.4
%
Wireless equipment
780
210
570
564
1.1
%
Total Operating Revenues
9,407
(345)
9,752
9,925
(1.7)
%
Operating Expenses
Operations and support
5,911
(470)
6,381
6,349
0.5
%
EBITDA
3,496
125
3,371
3,576
(5.7)
%
Depreciation and amortization
1,507
-
1,507
1,492
1.0
%
Total Operating Expenses
7,418
(470)
7,888
7,841
0.6
%
Operating Income
1,989
125
1,864
2,084
(10.6)
%
Equity in Net Income (Loss) of Affiliates
-
-
-
(1)
-
%
Operating Contribution
$
1,989
$
125
$
1,864
$
2,083
(10.5)
%
Operating Income Margin
21.1
%
19.1
%
21.0
%
(190)
BP
EBITDA Margin
37.2
%
34.6
%
36.0
%
(140)
BP
As a supplemental discussion of our operating results, we are providing results under the comparative historical accounting method prior to our adoption of ASC 606 and other accounting changes.
SUPPLEMENTAL INCOME STATEMENT
Supplemental Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited
Year Ended
2018
Accounting Impact
Historical
2018
2017
Percent
Change
Operating Revenues
Service
$
152,345
$
(5,634)
$
157,979
$
145,597
8.5
%
Equipment
18,411
2,087
16,324
14,949
9.2
%
Total Operating Revenues
170,756
(3,547)
174,303
160,546
8.6
%
Operating Expenses
Cost of revenues
Equipment
19,786
-
19,786
18,709
5.8
%
Broadcast, programming and operations
26,727
-
26,727
21,159
26.3
%
Other cost of revenues (exclusive of depreciation
and amortization shown separately below)
32,906
(3,730)
36,636
37,942
(3.4)
%
Selling, general and administrative
36,765
(2,196)
38,961
35,465
9.9
%
Asset abandonments and impairments
46
-
46
2,914
(98.4)
%
Depreciation and amortization
28,430
-
28,430
24,387
16.6
%
Total Operating Expenses
144,660
(5,926)
150,586
140,576
7.1
%
Operating Income
26,096
2,379
23,717
19,970
18.8
%
Interest Expense
(7,957)
-
(7,957)
(6,300)
26.3
%
Equity in Net Income (Loss) of Affiliates
(48)
-
(48)
(128)
62.5
%
Other Income (Expense) - Net
6,782
-
6,782
1,597
-
%
Income Before Income Taxes
24,873
2,379
22,494
15,139
48.6
%
Income Tax Expense (Benefit)
4,920
583
4,337
(14,708)
-
%
Net Income
19,953
1,796
18,157
29,847
(39.2)
%
Less: Net Income Attributable to
Noncontrolling Interest
(583)
(23)
(560)
(397)
(41.1)
%
Net Income Attributable to AT&T
$
19,370
$
1,773
$
17,597
$
29,450
(40.2)
%
Basic Earnings Per Share Attributable to AT&T
$
2.85
$
0.26
$
2.59
$
4.77
(45.7)
%
Weighted Average Common
Shares Outstanding (000,000)
6,778
-
6,778
6,164
10.0
%
Diluted Earnings Per Share Attributable to AT&T
$
2.85
$
0.26
$
2.59
$
4.76
(45.6)
%
Weighted Average Common
Shares Outstanding with Dilution (000,000)
6,806
-
6,806
6,183
10.1
%
EXHIBIT 99.3
Discussion and Reconciliation of Non-GAAP Measures
We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors.
Certain amounts have been conformed to the current period's presentation, including our adoption of new accounting standards; ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash; and our revised operating segments.
Free Cash Flow
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
Fourth Quarter
Year Ended
2018
2017
2018
2017
Net cash provided by operating activities
$
12,080
$
9,537
$
43,602
$
38,010
Less: Capital expenditures
(4,152)
(5,076)
(21,251)
(21,550)
Free Cash Flow
7,928
4,461
22,351
16,460
Less: Dividends paid
(3,635)
(3,008)
(13,410)
(12,038)
Free Cash Flow after Dividends
$
4,293
$
1,453
$
8,941
$
4,422
Free Cash Flow Dividend Payout Ratio
45.9%
67.4%
60.0%
73.1%
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, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.
These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing operating performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which management is responsible and upon which we evaluate performance.
We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Mobility business unit operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.
There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Net Income
$
5,130
$
19,136
$
19,953
$
29,847
Additions:
Income Tax (Benefit) Expense
615
(20,419)
4,920
(14,708)
Interest Expense
2,112
1,926
7,957
6,300
Equity in Net (Income) Loss of Affiliates
(23)
(20)
48
128
Other (Income) Expense - Net
(1,674)
658
(6,782)
(1,597)
Depreciation and amortization
7,892
6,071
28,430
24,387
EBITDA
14,052
7,352
54,526
44,357
Total Operating Revenues
47,993
41,676
170,756
160,546
Service Revenues
42,496
36,225
152,345
145,597
EBITDA Margin
29.3%
17.6%
31.9%
27.6%
EBITDA Service Margin
33.1%
20.3%
35.8%
30.5%
Supplemental Historical EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2018
Net Income
$
4,690
$
18,157
Additions:
Income Tax (Benefit) Expense
472
4,337
Interest Expense
2,112
7,957
Equity in Net (Income) Loss of Affiliates
(23)
48
Other (Income) Expense - Net
(1,674)
(6,782)
Depreciation and amortization
7,892
28,430
EBITDA
13,469
52,147
Total Operating Revenues
48,857
174,303
Service Revenues
43,931
157,979
EBITDA Margin
27.6%
29.9%
EBITDA Service Margin
30.7%
33.0%
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Communications Segment
Operating Contribution
$
7,639
$
6,864
$
32,262
$
31,685
Additions:
Equity in Net (Income) Loss of Affiliates
1
2
4
2
Depreciation and amortization
4,604
4,600
18,424
18,425
EBITDA
12,244
11,466
50,690
50,112
Total Operating Revenues
37,458
39,110
144,631
150,378
Operating Income Margin
20.4%
17.6%
22.3%
21.1%
EBITDA Margin
32.7%
29.3%
35.0%
33.3%
Mobility
Operating Contribution
$
5,455
$
4,275
$
21,722
$
20,204
Additions:
Equity in Net (Income) of Affiliates
-
-
1
-
Depreciation and amortization
2,068
2,027
8,355
8,015
EBITDA
7,523
6,302
30,078
28,219
Total Operating Revenues
18,769
19,168
71,344
71,090
Service Revenues
13,859
14,282
54,933
57,696
Operating Income Margin
29.1%
22.3%
30.4%
28.4%
EBITDA Margin
40.1%
32.9%
42.2%
39.7%
EBITDA Service Margin
54.3%
44.1%
54.8%
48.9%
Entertainment Group
Operating Contribution
$
825
$
1,001
$
4,713
$
5,471
Additions:
Equity in Net (Income) Loss of Affiliates
1
-
2
-
Depreciation and amortization
1,329
1,367
5,315
5,621
EBITDA
2,155
2,368
10,030
11,092
Total Operating Revenues
11,962
12,560
46,460
49,995
Operating Income Margin
6.9%
8.0%
10.1%
10.9%
EBITDA Margin
18.0%
18.9%
21.6%
22.2%
Business Wireline
Operating Contribution
$
1,359
$
1,588
$
5,827
$
6,010
Additions:
Equity in Net (Income) Loss of Affiliates
-
2
1
2
Depreciation and amortization
1,207
1,206
4,754
4,789
EBITDA
2,566
2,796
10,582
10,801
Total Operating Revenues
6,727
7,382
26,827
29,293
Operating Income Margin
20.2%
21.5%
21.7%
20.5%
EBITDA Margin
38.1%
37.9%
39.4%
36.9%
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
WarnerMedia Segment
Operating Contribution
$
2,703
$
41
$
5,695
$
62
Additions:
Equity in Net (Income) of Affiliates
(80)
6
(25)
29
Depreciation and amortization
139
1
305
4
EBITDA
2,762
48
5,975
95
Total Operating Revenues
9,232
107
18,941
430
Operating Income Margin
28.4%
43.9%
29.9%
21.2%
EBITDA Margin
29.9%
44.9%
31.5%
22.1%
Turner
Operating Contribution
$
1,306
$
61
$
3,108
$
140
Additions:
Equity in Net (Income) of Affiliates
(15)
(13)
(54)
(45)
Depreciation and amortization
60
1
131
4
EBITDA
1,351
49
3,185
99
Total Operating Revenues
3,212
107
6,979
430
Operating Income Margin
40.2%
44.9%
43.8%
22.1%
EBITDA Margin
42.1%
45.8%
45.6%
23.0%
Home Box Office
Operating Contribution
$
650
$
-
$
1,384
$
-
Additions:
Equity in Net (Income) Loss of Affiliates
(28)
-
(29)
-
Depreciation and amortization
26
-
56
-
EBITDA
648
-
1,411
-
Total Operating Revenues
1,673
-
3,598
-
Operating Income Margin
37.2%
-
37.7%
-
EBITDA Margin
38.7%
-
39.2%
-
Warner Bros.
Operating Contribution
$
807
$
-
$
1,449
$
-
Additions:
Equity in Net (Income) Loss of Affiliates
4
-
28
-
Depreciation and amortization
42
-
96
-
EBITDA
853
-
1,573
-
Total Operating Revenues
4,476
-
8,703
-
Operating Income Margin
18.1%
-
17.0%
-
EBITDA Margin
19.1%
-
18.1%
-
Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Latin America Segment
Operating Contribution
$
(248)
$
(9)
$
(710)
$
(266)
Additions:
Equity in Net (Income) of Affiliates
(10)
(25)
(34)
(87)
Depreciation and amortization
296
313
1,238
1,218
EBITDA
38
279
494
865
Total Operating Revenues
1,843
2,215
7,652
8,269
Operating Income Margin
-14.0%
-1.5%
-9.7%
-4.3%
EBITDA Margin
2.1%
12.6%
6.5%
10.5%
Vrio
Operating Contribution
$
66
$
160
$
347
$
522
Additions:
Equity in Net (Income) of Affiliates
(10)
(25)
(34)
(87)
Depreciation and amortization
169
207
728
849
EBITDA
225
342
1,041
1,284
Total Operating Revenues
1,074
1,391
4,784
5,456
Operating Income Margin
5.2%
9.7%
6.5%
8.0%
EBITDA Margin
20.9%
24.6%
21.8%
23.5%
Mexico
Operating Contribution
$
(314)
$
(169)
$
(1,057)
$
(788)
Additions:
Depreciation and amortization
127
106
510
369
EBITDA
(187)
(63)
(547)
(419)
Total Operating Revenues
769
824
2,868
2,813
Operating Income Margin
-40.8%
-20.5%
-36.9%
-28.0%
EBITDA Margin
-24.3%
-7.6%
-19.1%
-14.9%
Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Xandr
Operating Contribution
$
381
$
329
$
1,333
$
1,202
Additions:
Depreciation and amortization
5
1
9
2
EBITDA
386
330
1,342
1,204
Total Operating Revenues
566
381
1,740
1,373
Operating Income Margin
67.3%
86.4%
76.6%
87.5%
EBITDA Margin
68.2%
86.6%
77.1%
87.7%
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.
Adjusting Items
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Operating Revenues
Time Warner deferred revenue
$
49
$
-
$
49
$
-
Natural disaster revenue credits
-
154
-
243
Adjustments to Operating Revenues
49
154
49
243
Operating Expenses
Time Warner and other merger costs
436
63
1,185
214
Employee separation costs
327
177
587
445
Natural disaster costs
77
265
181
384
Asset abandonments and impairments
46
2,914
46
2,914
Holding losses on benefit-related investments
42
-
42
-
DIRECTV merger integration costs
-
95
-
412
Mexico merger integration costs
-
19
-
172
Tax reform special bonus
-
220
-
220
(Gain) loss on transfer of wireless spectrum
-
-
-
(181)
Foreign currency exchange
-
-
43
98
Adjustments to Operations and Support Expenses
928
3,753
2,084
4,678
Amortization of intangible assets
2,261
1,100
6,930
4,608
Impairments
26
33
26
33
Adjustments to Operating Expenses
3,215
4,886
9,040
9,319
Other
Merger-related interest and fees 1
-
432
1,029
1,104
Actuarial (gain) loss
(686)
1,517
(3,412)
1,258
Holding losses on benefit-related investments
208
-
208
-
(Gain) loss on sale of assets,
impairments and other adjustments
(352)
161
(631)
382
Adjustments to Income Before Income Taxes
2,434
7,150
6,283
12,306
Tax impact of adjustments
412
1,908
1,177
3,625
Tax-related items
601
19,455
505
19,309
Adjustments to Net Income
$
1,421
$
(14,213)
$
4,601
$
(10,628)
1 Includes interest expense incurred on debt issued, redemption premiums and interest income earned on cash held prior to the close of merger transactions.
Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.
Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.
Adjusted Operating Income, Adjusted Operating Income Margin,
Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions
Fourth Quarter
Year Ended
2018
2017
2018
2017
Operating Income
$
6,160
$
1,281
$
26,096
$
19,970
Adjustments to Operating Revenues
49
154
49
243
Adjustments to Operating Expenses
3,215
4,886
9,040
9,319
Adjusted Operating Income
9,424
6,321
35,185
29,532
EBITDA
14,052
7,352
54,526
44,357
Adjustments to Operating Revenues
49
154
49
243
Adjustments to Operations and Support Expenses
928
3,753
2,084
4,678
Adjusted EBITDA
15,029
11,259
56,659
49,278
Pro forma as of June 30, 2018
WarnerMedia Operating Income
-
3,047
Additions:
Depreciation and amortization
-
339
Merger costs
-
694
WarnerMedia Adjusted EBITDA
-
4,080
WarnerMedia segment income (post acquisition)
-
(451)
WarnerMedia segment depreciation and
amortization (post acquisition)
-
(30)
WarnerMedia merger costs (post acquisition)
-
(159)
Film and television cost amortization (release prior to June 14)
-
1,103
Pro Forma Adjusted EBITDA 1
15,029
61,202
Total Operating Revenues
47,993
41,676
170,756
160,546
Adjustments to Operating Revenues
49
154
49
243
Total Adjusted Operating Revenue
48,042
41,830
170,805
160,789
Service Revenues
42,496
36,225
152,345
145,597
Adjustments to Service Revenues
49
154
49
243
Adjusted Service Revenue
42,545
36,379
152,394
145,840
Operating Income Margin
12.8%
3.1%
15.3%
12.4%
Adjusted Operating Income Margin
19.6%
15.1%
20.6%
18.4%
Adjusted EBITDA Margin
31.3%
26.9%
33.2%
30.6%
Adjusted EBITDA Service Margin
35.3%
30.9%
37.2%
33.8%
Supplemental Results under Historical Accounting Method
Operating Income
5,577
23,717
Adjustments to Operating Revenues
49
49
Adjustments to Operating Expenses
3,215
9,040
Adjusted Supplemental Operating Income
8,841
32,806
EBITDA
13,469
52,147
Adjustments to Operating Revenues
49
49
Adjustments to Operations and Support Expenses
928
2,084
Adjusted Supplemental EBITDA
14,446
54,280
Supplemental Operating Revenues
48,857
174,303
Adjusted Supplemental Operating Income Margin
18.1%
18.8%
Adjusted Supplemental EBITDA margin
29.6%
31.1%
1 Pro Forma Adjusted EBITDA reflects the combined results operations of the combined company based on the historical financial statements of AT&T and Time Warner, after giving effect to the merger and certain adjustments, and is intended to reflect the impact of the Time Warner acquisition on AT&T. WarnerMedia operating income, depreciation and amortization expense and merger costs are provided on Item 7.01 Form 8-K filed by AT&T on July 24, 2018. Pro Forma adjustments are to (1) remove the duplication of operating results for the 16-period in which AT&T also reported Time Warner results and (2) to recognize the purchase accounting classification of released content as intangible assets and accordingly reclassify associated content amortization from operating expense to amortization expense. Intercompany revenue and expense eliminations net and do not impact EBITDA.
Adjusted Diluted EPS
Fourth Quarter
Year Ended
2018
2017
2018
2017
Diluted Earnings Per Share (EPS)
$
0.66
$
3.08
$
2.85
$
4.76
Amortization of intangible assets
0.25
0.12
0.81
0.50
Merger integration items 1
0.06
0.07
0.26
0.21
(Gain) loss on sale of assets, impairments
and other adjustments 2
0.04
0.48
0.05
0.58
Actuarial (gain) loss 3
(0.07)
0.19
(0.38)
0.16
Tax-related items
(0.08)
(3.16)
(0.07)
(3.16)
Adjusted EPS
$
0.86
$
0.78
$
3.52
$
3.05
Year-over-year growth - Adjusted
10.3%
15.4%
Weighted Average Common Shares Outstanding
with Dilution (000,000)
7,328
6,182
6,806
6,183
1 Includes combined merger integration items and merger-related interest income and expense, and redemption premiums.
2 Includes gains on transactions, natural disaster adjustments and charges, and employee-related and other costs.
3 Includes adjustments for actuarial gains or losses associated with our postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. We recorded total net actuarial gains of $3.4 billion in 2018. As a result, adjusted EPS reflects an expected return on plan assets of $3.5 billion (based on an average expected return on plan assets of 7.00% for our pension trust and 5.75% for our VEBA trusts), rather than the actual return on plan assets of $1.2 billion loss (actual pension return of -1.4% and VEBA return of -4.2%), included in the GAAP measure of income.
Pro Forma Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. Our Net Debt to Pro Forma Adjusted EBITDA ratio is calculated by dividing the Net Debt by Annualized Pro Forma Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Pro Forma Adjusted EBITDA is calculated by annualizing the year-to-date Pro Forma Adjusted EBITDA.
Our Annualized Net Debt to Pro Forma Adjusted EBITDA ratio for the year ended December 31, 2018 reflects the benefit of amortization of prior service credits of $1,754 in Other Income (Expense) - net rather than EBITDA, consistent with treatment for consolidated reported results. Segment results continue to show this benefit as a reduction in their operating expenses, consistent with treatment prior to adoption of accounting rules in first-quarter 2018. If we had used the historical method of accounting for prior service credits, our 2018 Annualized Net Debt to Pro Forma Adjusted EBITDA Ratio would be 2.75 .
Net Debt to Pro Forma Adjusted EBITDA
Dollars in millions
Three Months Ended
Mar. 31,
Jun. 30,
Sep. 30,
Dec. 31,
YTD 2018
2018
2018
2018
2018
Pro Forma Adjusted EBITDA 1
$
15,182
$
15,119
$
15,872
$
15,029
$
61,202
Add back severance
(51)
(133)
(76)
(327)
(587)
Net Debt Pro Forma Adjusted EBITDA
15,131
14,986
15,796
14,702
60,615
Annualized Pro Forma Adjusted EBITDA
60,615
End-of-period current debt
10,255
End-of-period long-term debt
166,250
Total End-of-Period Debt
176,505
Less: Cash and Cash Equivalents
5,204
Net Debt Balance
171,301
Annualized Net Debt to Pro Forma Adjusted EBITDA Ratio
2.83
1 Includes the purchase accounting reclassification of released content amortization of $612 million pro forma in the first quarter, $491 million pro forma and $98 million reported by AT&T in the second quarter and $772 million reported and $545 million reported by AT&T in the third and fourth quarters of 2018, respectively.
Supplemental Operational Measures
We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
Supplemental Operational Measure
Three Months Ended
December 31, 2018
December 31, 2017
Mobility
Business Wireline
Adjustments 1
Business Solutions
Mobility
Business Wireline
Adjustments 1
Business Solutions
Operating Revenues
Wireless service
$
13,859
$
-
$
(11,959)
$
1,900
$
14,282
$
-
$
(12,303)
$
1,979
Strategic services
-
3,142
-
3,142
-
3,070
-
3,070
Legacy voice and data services
-
2,521
-
2,521
-
3,251
-
3,251
Other services and equipment
-
1,064
-
1,064
-
1,061
-
1,061
Wireless equipment
4,910
-
(4,130)
780
4,886
-
(4,322)
564
Total Operating Revenues
18,769
6,727
(16,089)
9,407
19,168
7,382
(16,625)
9,925
Operations and support
11,246
4,161
(9,496)
5,911
12,866
4,586
(11,103)
6,349
EBITDA
7,523
2,566
(6,593)
3,496
6,302
2,796
(5,522)
3,576
Depreciation and amortization
2,068
1,207
(1,768)
1,507
2,027
1,206
(1,741)
1,492
Total Operating Expenses
13,314
5,368
(11,264)
7,418
14,893
5,792
(12,844)
7,841
Operating Income
5,455
1,359
(4,825)
1,989
4,275
1,590
(3,781)
2,084
Equity in net Income of Affiliates
-
-
-
-
-
(2)
1
(1)
Contribution
$
5,455
$
1,359
$
(4,825)
$
1,989
$
4,275
$
1,588
$
(3,780)
$
2,083
1 Non-business wireless reported in the Communication segment under the Mobility business unit.
Supplemental Operational Measure
Year Ended
December 31, 2018
December 31, 2017
Mobility
Business Wireline
Adjustments 1
Business Solutions
Mobility
Business Wireline
Adjustments 1
Business Solutions
Operating Revenues
Wireless service
$
54,933
$
-
$
(47,536)
$
7,397
$
57,696
$
-
$
(49,687)
$
8,009
Strategic services
-
12,310
-
12,310
-
11,950
-
11,950
Legacy voice and data services
-
10,697
-
10,697
-
13,565
-
13,565
Other services and equipment
-
3,820
-
3,820
-
3,778
-
3,778
Wireless equipment
16,411
-
(13,879)
2,532
13,394
-
(11,842)
1,552
Total Operating Revenues
71,344
26,827
(61,415)
36,756
71,090
29,293
(61,529)
38,854
Operating Expenses
Operations and support
41,266
16,245
(34,792)
22,719
42,871
18,492
(36,867)
24,496
EBITDA
30,078
10,582
(26,623)
14,037
28,219
10,801
(24,662)
14,358
Depreciation and amortization
8,355
4,754
(7,158)
5,951
8,015
4,789
(6,903)
5,901
Total Operating Expenses
49,621
20,999
(41,950)
28,670
50,886
23,281
(43,770)
30,397
Operating Income
21,723
5,828
(19,465)
8,086
20,204
6,012
(17,759)
8,457
Equity in net Income of Affiliates
(1)
(1)
1
(1)
-
(2)
1
(1)
Contribution
$
21,722
$
5,827
$
(19,464)
$
8,085
$
20,204
$
6,010
$
(17,758)
$
8,456
1 Non-business wireless reported in the Communication segment under the Mobility business unit.
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