AT&T Reports Fourth-Quarter and Full-Year Results

Full Year

• Consolidated revenues of $160.5 billion
• Diluted EPS of $4.76 as reported and $3.05 as adjusted, compared to $2.10 and $2.84 in the prior year
• Cash from operations of $39.2 billion
• Free cash flow of $17.6 billion

Fourth Quarter

• Consolidated revenues of $41.7 billion
• Diluted EPS of $3.08 as reported and $0.78 as adjusted, compared to $0.39 and $0.66 in the year-ago quarter
• Cash from operations of $9.9 billion
• Free cash flow of $4.8 billion

2018 Outlook¹ (inclusive of tax reform and new accounting standard)

• Adjusted EPS in the $3.50 range
• Free cash flow of about $21 billion
• Capital expenditures approaching $25 billion; $23 billion net of expected FirstNet reimbursements
• With the passage of tax reform:
  • $1 billion 2018 incremental capital investment
  • More than $200 million in bonuses paid to frontline employees in fourth quarter
  • $800 million in voluntary funding to medical plans in fourth quarter
  • Additional impacts include a $20.3 billion increase in reported fourth-quarter net income, including a more than $800 million increase in adjusted net income in the fourth quarter

• 4.1 million total wireless net adds for the fourth quarter:
  • 2.7 million in U.S., driven by connected devices, postpaid phones and prepaid
  • 1.3 million in Mexico
• 300,000 total video net adds: 161,000 in U.S. and 139,000 in Latin America
• U.S. wireless results:
  • Operating income margin of 22.1% with EBITDA margin of 32.7% and wireless service margin of 43.8%
  • 329,000 postpaid phone net adds
  • Added nearly 700,000 branded smartphones to base
  • Best-ever fourth-quarter postpaid phone churn of 0.89%
• Entertainment Group results:
  • 95,000 IP broadband net adds; 19,000 total broadband net adds; more than 7 million customer locations passed with fiber
  • 161,000 total video net adds; 368,000 DIRECTV NOW net adds to reach nearly 1.2 million DIRECTV NOW subscribers
• International results:
  • Revenues up 16.0% with strong growth in Mexico wireless and DIRECTV Latin America
  • Improved operating income and EBITDA growth driven by improvements in Mexico and strong gains in Latin America
  • 139,000 DIRECTV Latin America net adds with 13.6 million total subscribers

Note: AT&T’s fourth-quarter earnings conference call will be webcast at 4:30 p.m. ET on Wednesday, January 31, 2018. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.

DALLAS--(BUSINESS WIRE)--AT&T Inc.* (NYSE:T) reported solid wireless, business and international results in the fourth quarter. Highlights include strong postpaid phone gains, record-low fourth-quarter postpaid phone churn and DIRECTV NOW surpassing 1 million subscribers.

“The impact of tax reform and regulatory rationalization will be substantial and positive for the U.S. economy and AT&T,” said Randall Stephenson, AT&T Chairman and CEO. “Our FirstNet win and the opt-in by 100 percent of all states and territories will enable us to put the industry’s most robust spectrum assets to work in building a best-in-class nationwide network for public safety and first responders. On the Time Warner front, we look forward to presenting our case in court and closing the deal.”

Consolidated Financial Results

AT&T’s consolidated revenues for the fourth quarter totaled $41.7 billion versus$41.8 billion in the year-ago quarter, primarily due to declines in legacy wireline services, wireless service revenues and domestic video, which were mostly offset by growth in wireless equipment and International. Compared with results for the fourth quarter of 2016, operating expenses were $41.3 billion versus $37.6 billion primarily due to a write-off of certain network assets and higher wireless equipment costs; operating income was $0.4 billion versus $4.2 billion; and operating income margin was 0.9% versus 10.2%. When adjusting for the write-off of certain network assets, non-cash actuarial loss on benefit plans, amortization, merger- and integration-related expenses and other items, operating income was $6.9 billion versus $7.3 billion in the year-ago quarter and operating income margin was 16.5%, versus 17.5% in the year-ago quarter.

Fourth-quarter net income attributable to AT&T was $19.0 billion, or $3.08 per diluted share, and reflects the impact of the Tax Cuts and Jobs Act, compared to $2.4 billion, or $0.39 per diluted share, in the year-ago quarter. Adjusting for the ($3.16) benefit from the remeasurement of deferred tax liabilities, $0.41 write-off of certain network assets and natural disaster impacts, $0.19 non-cash actuarial loss on benefit plans from the annual remeasurement process and $0.26 of costs for amortization, merger- and integration-related expenses and other items, earnings per diluted share was $0.78 compared to an adjusted $0.66 in the year-ago quarter. (The increase in adjusted diluted earnings per share includes $0.13 impact of the new tax law on the fourth-quarter 2017.)

Cash from operating activities was $9.9 billion in the fourth quarter, and capital expenditures were $5.1 billion. Free cash flow — cash from operating activities minus capital expenditures — was $4.8 billion for the quarter.

Full-Year Results
For full-year 2017, compared with 2016 results, AT&T’s consolidated revenues totaled $160.5 billion versus $163.8 billion, primarily due to declines in legacy wireline services and wireless service revenues, which were partially offset by growth in International and strategic business services. Operating expenses were $139.6 billion compared with$139.4 billion. Excluding a $2.9 billion write-off of certain network assets, operating expenses decreased due to cost efficiencies. Operating income was $20.9 billion versus $24.3 billion; and operating income margin was 13.0% versus 14.9%. Net income attributable to AT&T reflects the impact of the new tax law and was $29.5 billion versus $13.0 billion; and earnings per diluted share was $4.76, compared with $2.10. With adjustments for both years, operating income was $31.8 billion versus $31.8 billion; operating income margin was 19.8% versus 19.4%; and earnings per diluted share totaled $3.05, compared with $2.84, an increase of 7.4%. (The increase in adjusted diluted earnings per share includes $0.13 impact of the new tax law on the fourth-quarter 2017.)

AT&T’s full-year cash from operating activities was $39.2 billion versus $39.3 billion in 2016. Capital expenditures, including capitalized interest, totaled $21.6 billion versus $22.4 billion in 2016. Full-year free cash flow was $17.6 billion compared to $16.9 billion in 2016. The company’s free cash flow dividend payout ratio for the full year was 68%.²

2018 Outlook¹
On a standalone basis, including impacts of tax reform and the new ASC 606 revenue recognition standard, AT&T expects in 2018:

• Adjusted EPS in the $3.50 range
• Free cash flow of about $21 billion
• Capital expenditures approaching $25 billion; $23 billion net of expected FirstNet reimbursements and inclusive of $1 billion incremental tax reform investment

¹Adjustments include a non-cash mark-to-market benefit plan gain/loss, merger-related interest expense, merger integration and amortization costs and other adjustments. We expect the mark-to-market adjustment which is driven by interest rates and investment returns that are not reasonably estimable at this time, to be the largest of these items. Accordingly, we cannot provide a reconciliation between forecasted adjusted diluted EPS and reported diluted EPS without unreasonable effort.

²Free cash flow dividend payout ratio is dividends divided by free cash flow

*About AT&T
AT&T Inc. (NYSE:T) is a holding company. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information about AT&T Inc. is available at about.att.com.

© 2018 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at https://investors.att.com.

Discussion and Reconciliation of Non-GAAP Measures

We believe the following measures are relevant and useful information to investors as they are part of AT&T’s internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors.

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

Free Cash Flow and Free Cash Flow Dividend Payout Ratio
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Net cash provided by operating activities	$	9,877		$	10,142		$	39,151		$	39,344
Less: Capital expenditures		(5,076	)		(6,456	)		(21,550	)		(22,408	)
Free Cash Flow		4,801			3,686			17,601			16,936
Less: Dividends paid		(3,008	)		(2,947	)		(12,038	)		(11,797	)
Free Cash Flow after Dividends	$	1,793		$	739		$	5,563		$	5,139
Free Cash Flow Dividend Payout Ratio		62.7	%		80.0	%		68.4	%		69.7	%

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

EBITDA service margin is calculated as EBITDA divided by service revenues.

When discussing our segment results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from segment contribution. For our supplemental presentation of our combined domestic wireless operations (AT&T Mobility) and our supplemental presentation of the Mexico Wireless and Latin America operations of our International segment, EBITDA excludes depreciation and amortization from operating income.

These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T’s ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing segment performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which segment managers are responsible and upon which we evaluate their performance. Management uses Mexico Wireless EBITDA in evaluating profitability trends after our two Mexico wireless acquisitions in 2015, and our investments in building a nationwide LTE network by end of 2018. Management uses Latin America EBITDA in evaluating the ability of our Latin America operations to generate cash to finance its own operations.

We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Consumer Mobility segment operating margin and our supplemental AT&T Mobility operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. Management compensates for these limitations by carefully analyzing how its competitors present performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Net Income	$	19,136		$	2,515		$	29,847		$	13,333
Additions:
Income Tax (Benefit) Expense		(20,419	)		676			(14,708	)		6,479
Interest Expense		1,926			1,221			6,300			4,910
Equity in Net (Income) Loss of Affiliates		(20	)		(41	)		128			(98	)
Other (Income) Expense - Net		(264	)		(123	)		(618	)		(277	)
Depreciation and amortization		6,071			6,129			24,387			25,847
EBITDA		6,430			10,377			45,336			50,194
Total Operating Revenues		41,676			41,841			160,546			163,786
Service Revenues		36,225			37,369			145,597			148,884
EBITDA Margin		15.4	%		24.8	%		28.2	%		30.6	%
EBITDA Service Margin		17.8	%		27.8	%		31.1	%		33.7	%

Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Business Solutions Segment
Segment Contribution	$	3,828		$	4,023		$	17,150		$	16,826
Additions:
Equity in Net (Income) Loss of Affiliates		1			-			1			-
Depreciation and amortization		2,354			2,264			9,326			9,832
EBITDA		6,183			6,287			26,477			26,658
Total Segment Operating Revenues		18,390			18,033			69,406			70,988
Segment Operating Income Margin		20.8	%		22.3	%		24.7	%		23.7	%
EBITDA Margin		33.6	%		34.9	%		38.1	%		37.6	%
Entertainment Group Segment
Segment Contribution	$	1,063		$	1,370		$	5,625		$	6,104
Additions:
Equity in Net (Income) Loss of Affiliates		7			(8	)		30			(9	)
Depreciation and amortization		1,367			1,381			5,623			5,862
EBITDA		2,437			2,743			11,278			11,957
Total Segment Operating Revenues		12,745			13,206			50,698			51,295
Segment Operating Income Margin		8.4	%		10.3	%		11.2	%		11.9	%
EBITDA Margin		19.1	%		20.8	%		22.2	%		23.3	%
Consumer Mobility Segment
Segment Contribution	$	2,020		$	2,185		$	9,079		$	9,825
Additions:
Depreciation and amortization		886			918			3,507			3,716
EBITDA		2,906			3,103			12,586			13,541
Total Segment Operating Revenues		8,273			8,419			31,552			33,200
Service Revenues		6,409			6,731			26,053			27,536
Segment Operating Income Margin		24.4	%		26.0	%		28.8	%		29.6	%
EBITDA Margin		35.1	%		36.9	%		39.9	%		40.8	%
EBITDA Service Margin		45.3	%		46.1	%		48.3	%		49.2	%
International Segment
Segment Contribution	$	(9	)	$	(240	)	$	(266	)	$	(661	)
Additions:
Equity in Net (Income) of Affiliates		(25	)		(28	)		(87	)		(52	)
Depreciation and amortization		313			298			1,218			1,166
EBITDA		279			30			865			453
Total Segment Operating Revenues		2,215			1,909			8,269			7,283
Segment Operating Income Margin		-1.5	%		-14.0	%		-4.3	%		-9.8	%
EBITDA Margin		12.6	%		1.6	%		10.5	%		6.2	%

Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
AT&T Mobility
Operating Income	$	4,253		$	4,638		$	20,067		$	20,643
Add: Depreciation and amortization		2,028			2,048			8,027			8,292
EBITDA		6,281			6,686			28,094			28,935
Total Operating Revenues		19,228			18,750			71,349			72,821
Service Revenues		14,342			14,713			57,955			59,386
Operating Income Margin		22.1	%		24.7	%		28.1	%		28.3	%
EBITDA Margin		32.7	%		35.7	%		39.4	%		39.7	%
EBITDA Service Margin		43.8	%		45.4	%		48.5	%		48.7	%

Supplemental Latin America EBITDA and EBITDA Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
International - Latin America
Operating Income	$	135		$	49		$	435		$	228
Add: Depreciation and amortization		207			215			849			835
EBITDA		342			264			1,284			1,063
Total Operating Revenues		1,391			1,261			5,456			4,910
Operating Income Margin		9.7	%		3.9	%		8.0	%		4.6	%
EBITDA Margin		24.6	%		20.9	%		23.5	%		21.6	%

Supplemental Mexico EBITDA and EBITDA Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
International - Mexico
Operating Income (Loss)	$	(169	)	$	(317	)	$	(788	)	$	(941	)
Add: Depreciation and amortization		106			83			369			331
EBITDA		(63	)		(234	)		(419	)		(610	)
Total Operating Revenues		824			648			2,813			2,373
Operating Income Margin		-20.5	%		-48.9	%		-28.0	%		-39.7	%
EBITDA Margin		-7.6	%		-36.1	%		-14.9	%		-25.7	%

Adjusting Items
Adjusting items include revenues and costs we consider nonoperational in nature, such as items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often significant impact on our fourth-quarter results, unless earlier remeasurement is required (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses.) Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.

The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude can drive a change in the effective tax rate, reflect the actual tax expense or combined marginal rate of approximately 38% for transactions prior to tax reform and 25% for transactions after tax reform. Certain foreign operations with losses, where such losses are not realizable for tax purposes, are not tax effected, resulting in no tax impact for Venezuelan devaluation. For years prior to 2017, adjustments related to Mexico operations were taxed at the 30% marginal rate for Mexico.

Adjusting Items
Dollars in millions	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2017			2016		2017			2016
Operating Revenues
Natural disaster revenue credits	$	154		$	10	$	243		$	23
Adjustments to Operating Revenues		154			10		243			23
Operating Expenses
DIRECTV and other video merger integration costs		95			259		412			754
Mexico merger integration costs		19			78		172			309
Time Warner and other merger costs		63			47		214			47
Wireless merger integration costs		-			1		-			93
Actuarial (gain) loss		1,517			1,024		1,258			1,024
Asset abandonments and impairments		2,914			361		2,914			361
Employee separation costs		177			30		445			344
Tax reform special bonus		220			-		220			-
Natural disaster costs		265			27		384			44
(Gain) loss on transfer of wireless spectrum		-			-		(181	)		(714	)
Venezuela devaluation		-			-		98			-
Adjustments to Operations and Support Expenses		5,270			1,827		5,936			2,262
Amortization of intangible assets		1,100			1,228		4,608			5,177
Impairments		33			29		33			29
Adjustments to Operating Expenses		6,403			3,084		10,577			7,468
Other
Merger-related interest and fees^1		432			-		1,104			16
Debt exchange costs, (gain) loss on sale of assets, impairments and other adjustments		161			28		382			32
Adjustments to Income Before Income Taxes		7,150			3,122		12,306			7,539
Tax impact of adjustments		1,908			1,097		3,625			2,618
Tax reform		19,455			-		19,455			-
Tax-related items		-			359		(146	)		359
Adjustments to Net Income	$	(14,213	)	$	1,666	$	(10,628	)	$	4,562
^1Includes interest expense incurred on debt issued and interest income earned on cash held prior to the close of merger transactions, and fees to exchange DIRECTV notes.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T’s calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA Service Margin
Dollars in millions	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Operating Income	$	359		$	4,248		$	20,949		$	24,347
Adjustments to Operating Revenues		154			10			243			23
Adjustments to Operating Expenses		6,403			3,084			10,577			7,468
Adjusted Operating Income^1		6,916			7,342			31,769			31,838
EBITDA		6,430			10,377			45,336			50,194
Adjustments to Operating Revenues		154			10			243			23
Adjustments to Operations and Support Expenses		5,270			1,827			5,936			2,262
Adjusted EBITDA^1		11,854			12,214			51,515			52,479
Total Operating Revenues		41,676			41,841			160,546			163,786
Adjustments to Operating Revenues		154			10			243			23
Total Adjusted Operating Revenues		41,830			41,851			160,789			163,809
Service Revenues		36,225			37,369			145,597			148,884
Adjustments to Service Revenues		154			10			243			23
Adjusted Service Revenues		36,379			37,379			145,840			148,907
Operating Income Margin		0.9	%		10.2	%		13.0	%		14.9	%
Adjusted Operating Income Margin^1		16.5	%		17.5	%		19.8	%		19.4	%
Adjusted EBITDA Margin^1		28.3	%		29.2	%		32.0	%		32.0	%
Adjusted EBITDA Service Margin^1		32.6	%		32.7	%		35.3	%		35.2	%
^1Adjusted Operating Income, Adjusted EBITDA and associated margins exclude all actuarial gains or losses ($1.3 billion loss for the year end 2017) associated with our postemployment benefit plan, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, Adjusted Operating Income and Margin reflect an expected return on plan assets of $3.5 billion (based on an average expected return on plan assets of 7.75% for our pension trust and 5.75% for our VEBA trusts), rather than the actual return on plan assets of $6.6 billion (actual pension return of 14.6% and VEBA return of 10.7%), included in the GAAP measure of income.

Adjusted Diluted EPS
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2017			2016			2017			2016
Diluted Earnings Per Share (EPS)	$	3.08		$	0.39		$	4.76		$	2.10
Amortization of intangible assets		0.12			0.13			0.50			0.55
Merger integration items^1		0.07			0.04			0.21			0.13
Asset abandonments, impairments and natural disasters		0.41			0.05			0.45			0.05
Actuarial (gain) loss		0.19			0.10			0.16			0.10
(Gain) loss on transfer of wireless spectrum		-			-			(0.02	)		(0.07	)
Other^2		0.07			0.01			0.13			0.04
Tax reform		(3.16	)		-			(3.16	)		-
Tax-related items		-			(0.06	)		0.02			(0.06	)
Adjusted EPS	$	0.78		$	0.66		$	3.05		$	2.84
Year-over-year growth - Adjusted		18.2	%					7.4	%
Weighted Average Common Shares Outstanding with Dilution (000,000)		6,182			6,181			6,183			6,189
^1Includes combined merger integration items and merger-related interest income and expense.
^2Includes employee-related charges, Venezuela devaluation, debt exchange costs.

Net Debt to Adjusted EBITDA
Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by Annualized Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt. Annualized Adjusted EBITDA is calculated by annualizing the year-to-date Adjusted EBITDA.

Net Debt to Adjusted EBITDA
Dollars in millions
	Three Months Ended
	Mar. 31,		Jun. 30,			Sep. 30,			Dec. 31,			YTD
	2017		2017			2017			2017			2017
Adjusted EBITDA	$	13,080	$	13,587		$	12,994		$	11,854		$	51,515
Add back severance		-		(60	)		(208	)		(177	)		(445	)
Net Debt Adjusted EBITDA		13,080		13,527			12,786			11,677			51,070
Annualized Adjusted EBITDA													51,070
End-of-period current debt													38,374
End-of-period long-term debt													125,972
Total End-of-Period Debt													164,346
Less: Cash and Cash Equivalents													50,498
Net Debt Balance													113,848
Annualized Net Debt to Adjusted EBITDA Ratio													2.23

Supplemental Operational Measures

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

Supplemental Operational Measure
	Three Months Ended
	December 31, 2017									December 31, 2016
	Consumer Mobility		Business Solutions		Adjustments^1			AT&T Mobility		Consumer Mobility		Business Solutions		Adjustments^1			AT&T Mobility
Operating Revenues
Wireless service	$	6,409	$	7,933	$	-		$	14,342	$	6,731	$	7,982	$	-		$	14,713
Fixed strategic services		-		3,138		(3,138	)		-		-		2,962		(2,962	)		-
Legacy voice and data services		-		3,359		(3,359	)		-		-		3,793		(3,793	)		-
Other services and equipment		-		938		(938	)		-		-		947		(947	)		-
Wireless equipment		1,864		3,022		-			4,886		1,688		2,349		-			4,037
Total Operating Revenues		8,273		18,390		(7,435	)		19,228		8,419		18,033		(7,702	)		18,750
Operating Expenses
Operations and support		5,367		12,207		(4,627	)		12,947		5,316		11,746		(4,998	)		12,064
EBITDA		2,906		6,183		(2,808	)		6,281		3,103		6,287		(2,704	)		6,686
Depreciation and amortization		886		2,354		(1,212	)		2,028		918		2,264		(1,134	)		2,048
Total Operating Expense		6,253		14,561		(5,839	)		14,975		6,234		14,010		(6,132	)		14,112
Operating Income	$	2,020	$	3,829	$	(1,596	)	$	4,253	$	2,185	$	4,023	$	(1,570	)	$	4,638
^1 Business wireline operations reported in Business Solutions segment.
Supplemental Operational Measure
	Twelve Months Ended
	December 31, 2017									December 31, 2016
	Consumer Mobility		Business Solutions		Adjustments^1			AT&T Mobility		Consumer Mobility		Business Solutions		Adjustments^1			AT&T Mobility
Operating Revenues
Wireless service	$	26,053	$	31,902	$	-		$	57,955	$	27,536	$	31,850	$	-		$	59,386
Fixed strategic services		-		12,227		(12,227	)		-		-		11,431		(11,431	)		-
Legacy voice and data services		-		13,931		(13,931	)		-		-		16,370		(16,370	)		-
Other services and equipment		-		3,451		(3,451	)		-		-		3,566		(3,566	)		-
Wireless equipment		5,499		7,895		-			13,394		5,664		7,771		-			13,435
Total Operating Revenues		31,552		69,406		(29,609	)		71,349		33,200		70,988		(31,367	)		72,821
Operating Expenses
Operations and support		18,966		42,929		(18,640	)		43,255		19,659		44,330		(20,103	)		43,886
EBITDA		12,586		26,477		(10,969	)		28,094		13,541		26,658		(11,264	)		28,935
Depreciation and amortization		3,507		9,326		(4,806	)		8,027		3,716		9,832		(5,256	)		8,292
Total Operating Expense		22,473		52,255		(23,446	)		51,282		23,375		54,162		(25,359	)		52,178
Operating Income	$	9,079	$	17,151	$	(6,163	)	$	20,067	$	9,825	$	16,826	$	(6,008	)	$	20,643
^1 Business wireline operations reported in Business Solutions segment.

Supplemental International

We provide a supplemental presentation of the Latin America and Mexico Wireless operations within our International segment. The following table presents a reconciliation of our International segment.

Supplemental International
	Three Months Ended
	December 31, 2017								December 31, 2016
	Latin America		Mexico			International			Latin America		Mexico			International
Operating Revenues
Video service	$	1,391	$	-		$	1,391		$	1,261	$	-		$	1,261
Wireless service		-		501			501			-		477			477
Wireless equipment		-		323			323			-		171			171
Total Operating Revenues		1,391		824			2,215			1,261		648			1,909
Operating Expenses
Operations and support		1,049		887			1,936			997		882			1,879
Depreciation and amortization		207		106			313			215		83			298
Total Operating Expenses		1,256		993			2,249			1,212		965			2,177
Operating Income (Loss)		135		(169	)		(34	)		49		(317	)		(268	)
Equity in Net Income of Affiliates		25		-			25			28		-			28
Segment Contribution	$	160	$	(169	)	$	(9	)	$	77	$	(317	)	$	(240	)
Supplemental International
	Twelve Months Ended
	December 31, 2017								December 31, 2016
	Latin America		Mexico			International			Latin America		Mexico			International
Operating Revenues
Video service	$	5,456	$	-		$	5,456		$	4,910	$	-		$	4,910
Wireless service		-		2,047			2,047			-		1,905			1,905
Wireless equipment		-		766			766			-		468			468
Total Operating Revenues		5,456		2,813			8,269			4,910		2,373			7,283
Operating Expenses
Operations and support		4,172		3,232			7,404			3,847		2,983			6,830
Depreciation and amortization		849		369			1,218			835		331			1,166
Total Operating Expenses		5,021		3,601			8,622			4,682		3,314			7,996
Operating Income (Loss)		435		(788	)		(353	)		228		(941	)		(713	)
Equity in Net Income of Affiliates		87		-			87			52		-			52
Segment Contribution	$	522	$	(788	)	$	(266	)	$	280	$	(941	)	$	(661	)