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Name | Symbol | Market | Type |
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At&t Inc 5.500% | LSE:58KN | London | Bond |
Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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0.00 | 0.00% | 121.921 | 0 | 01:00:00 |
TIDM58KN
RNS Number : 6504S
AT & 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 (Commission File Number) (IRS Employer Identification of Incorporation) 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(R) 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. (c) 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 Equity in Net Operations Income and Depreciation Operating (Loss) Support and Income of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates 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 Equity in Net Operations Income and Depreciation Operating (Loss) Support and Income of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates 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 Equity in Net Operations Income and Depreciation Operating (Loss) Support and Income of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates 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 Equity in Net Operations Income and Depreciation Operating (Loss) Support and Income of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Accounting Historical Percent
2018 Impact 2018 2017 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Accounting Historical Percent 2018 Impact 2018 2017 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 Business Adjustments Business Business Adjustments Business Mobility Wireline 1 Solutions Mobility Wireline 1 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 Business Adjustments Business Business Adjustments Business Mobility Wireline 1 Solutions Mobility Wireline 1 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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(END) Dow Jones Newswires
March 12, 2019 12:40 ET (16:40 GMT)
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