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

AT&T Inc. (NYSE:T) reported that for the full-year, the company met or exceeded its 2019 guidance and delivered record operating and free cash flow.

Solid operating results in the fourth quarter included strong operating and free cash flow and adjusted earnings growth.

“We delivered what we promised in 2019 and we begin this year with strong momentum in wireless, with HBO Max set to launch in May and our share retirement plan well underway,” said Randall Stephenson, AT&T chairman and CEO. “Our 2020 outlook positions us to deliver meaningful progress on our 3-year financial and capital allocation plans as we continue to invest in growth opportunities and create value for our owners, as we did last year.”

Fourth-Quarter Highlights

Communications

• Mobility:
  • Service revenues up 1.8% in 4Q and 1.9% for full year; total wireless revenues (including equipment) up 0.8% in 4Q and for full year
  • Operating income up 1.5% with EBITDA up 0.8%
  • 229,000 postpaid phone net adds; nearly 1 million total phone net adds for full year (483,000 postpaid, 506,000 prepaid)
  • FirstNet coverage more than 75% completed
• Entertainment Group:
  • Full-year EBITDA stable versus prior year
  • Solid video and broadband ARPU gains
  • Video subs impacted by focus on long-term value customer base:
    • 19.5 million premium TV subscribers – 945,000 net loss
    • AT&T TV NOW subscribers – 219,000 net loss
  • 191,000 AT&T Fiber net adds; IP broadband revenue growth of 2.7%
• Business Wireline:
  • Sequential revenue growth of $86 million; down 1.7% in 4Q

 WarnerMedia

• Foregone content licensing revenue in preparation for HBO Max launch impacted revenues and operating income
• Turner revenues up 1.6% with subscription revenue gains
• Home Box Office revenues up 1.9% with gains in digital subscribers
• 6 Golden Globe awards, the most of any media company; 12 Academy Award nominations

Latin America

• Mexico operating loss improves by nearly $200 million; EBITDA positive for the first time since acquisitions

Consolidated Financial Results

AT&T's consolidated revenues for the fourth quarter totaled $46.8 billion (~$48.0 billion excluding HBO Max investment) versus $48.0 billion in the year-ago quarter. Growth in domestic wireless services and strategic and managed business services revenues partially offset declines in revenues from domestic video, legacy wireline services and WarnerMedia. Without the impact of foreign exchange pressures and HBO Max investments in the form of foregone WarnerMedia content licensing revenues, consolidated revenues would have increased in both the fourth quarter and the full year.

Operating expenses were $41.5 billion versus $41.8 billion in the year-ago quarter, down 0.8% due to lower Entertainment Group costs, lower intangible asset amortization and cost efficiencies, partially offset by the write-off of certain copper facilities.

Operating income was $5.3 billion versus $6.2 billion in the year-ago quarter, due to a $1.3 billion write-off of certain copper facilities, with operating income margin of 11.4% versus 12.8%. When adjusting for amortization, merger- and integration-related expenses, write-off of certain copper facilities and other items, operating income was $9.2 billion versus $9.4 billion in the year-ago quarter, and operating income margin was 19.6%, the same as the year-ago quarter.

Fourth-quarter net income attributable to common stock was $2.4 billion, or $0.33 per diluted common share, versus $4.9 billion, or $0.66 per diluted common share, in the year-ago quarter. Adjusting for $0.56, which includes merger-amortization costs, the write-off of certain copper facilities, a non-cash actuarial loss on benefit plans, merger- and integration-related expenses and other items, earnings per diluted common share was $0.89 compared to an adjusted $0.86 in the year-ago quarter.

Cash from operating activities was $11.9 billion, and capital expenditures were $3.8 billion. Capital investment – which consists of capital expenditures plus cash payments for vendor financing – totaled $4.2 billion, which includes about $450 million of cash payments for vendor financing and $900 million of FirstNet reimbursements. Free cash flow – cash from operating activities minus capital expenditures – was $8.2 billion for the quarter.

The company completed or announced about $9 billion in non-core asset monetizations in the fourth quarter. For the full year, the company closed about $18 billion of net asset monetizations, including working capital initiatives. Net debt was reduced by $7.6 billion in the quarter and reduced by $20.3 billion for the full year. Net-debt-to-adjusted EBITDA at the end of the fourth quarter was about 2.5x.

In addition to its investments to further improve and expand operations, AT&T continues to use its cash to return substantial value to shareholders through dividends and share retirements. In the fourth quarter, dividends paid totaled $3.7 billion. During the fourth quarter, AT&T began retiring shares under its outstanding share repurchase authorization. In the quarter, the company repurchased 51 million of its common shares for $2.0 billion.

Full-Year Results

For full-year 2019 when compared with 2018 results, AT&T's consolidated revenues totaled $181.2 billion versus $170.8 billion. The increase in revenues from a full year of Time Warner (which includes lower Warner Bros. theatrical revenues in second half of 2019) and growth in domestic wireless services, strategic and managed services and IP broadband revenues, were partially offset by declines in revenues from legacy wireline services and video. Operating expenses were $153.2 billion compared with $144.7 billion, primarily due to a full year of Time Warner (which includes lower Warner Bros. second-half 2019 costs) and the write-off of certain copper facilities, partially offset by lower Entertainment Group costs, lower domestic wireless equipment costs, lower intangible asset amortization, and cost efficiencies.

Versus results from 2018, operating income was $28.0 billion, up 7.1% primarily due to a full year of Time Warner in 2019, partially offset by the write-off of certain copper facilities; and operating income margin was 15.4% versus 15.3%. With adjustments for both years, operating income was $38.6 billion versus $35.2 billion in 2018, and operating income margin was 21.3% versus 20.6%.

2019 net income attributable to common stock was $13.9 billion, or $1.89 per diluted common share, versus $19.4 billion, or $2.85 per diluted common share in 2018. With adjustments for both years, earnings per diluted common share was $3.57 compared to $3.52 in 2018.

AT&T's full-year cash from operating activities was $48.7 billion versus $43.6 billion in 2018. Gross capital investment – which includes capital expenditures, cash payments for vendor financing and FirstNet spending – was $23.7 billion. Capital investment – which consists of capital expenditures plus cash payments for vendor financing – totaled $22.7 billion, which includes $3 billion of cash payments for vendor financing. Full-year free cash flow was $29.0 billion compared to $22.4 billion in 2018, up 30%. The company’s free cash flow dividend payout ratio for the full year was 51%.³

2020 Outlook⁵

AT&T reaffirms 2020 guidance:

• Revenue growth: of 1% to 2%;
• Adjusted EPS growth: $3.60 to $3.70, including HBO Max investment;
• Adjusted EBITDA margin⁷: Stable with 2019;
• Free cash flow in $28 billion range;
• Dividend payout ratio: In low ‘50s% range³;
• Gross capital investment: In $20 billion range⁴;
• Monetization of assets: net $5 billion to $10 billion

3-Year Financial Guidance and Capital Allocation Plan

• Adjusted EPS growth⁵: $4.50 to $4.80 by 2022; includes HBO Max investment
• Revenue growth every year: 1% to 2% three-year CAGR⁶
• Adjusted EBITDA⁷ margin expansion: By 2022, 200 bps higher than 2019 levels; targeting 35% margins in 2022
• Free cash flow: $30 billion - $32 billion in 2022
• Dividend growth: Continued modest annual increases; dividends as % of free cash flow – less than 50% range³ in 2022
• Capital allocation: 50% - 70% of free cash flow post-dividends for retiring ~70% of shares issued for Time Warner deal
• Debt: Pay off 100% of acquisition debt from Time Warner deal; net-debt-to-adjusted EBITDA¹ ratio of 2.0x to 2.25x in 2022
• No major acquisitions

⁵Adjustments to 2020 and 2022 EPS include merger-related amortization for the three-year period in the range of $17.0 billion ($6.5 billion range for 2020), 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 2022 EPS estimate assumes share retirements of approximately 40 cents, new cost-reduction initiatives and EBITDA growth in our Mexico operations of a combined 25 cents, WarnerMedia synergies of approximately 20 cents and organic growth opportunities, that we expect to be partially offset by dilution from HBO Max. Our EPS, adjusted EBITDA and free cash flow 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.

¹Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA.
² America’s Best Network based on GWS OneScore Sept. 2019; Nation’s fastest network based on analysis by Ookla of Speedtest Intelligence data average download speeds for Q4 2019. Ookla trademarks used under license and reprinted with permission.
³Free cash flow dividend payout ratio is common share dividends divided by free cash flow
⁴Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes expected FirstNet reimbursements; in 2019, gross capital investment included $1.0 billion of FirstNet reimbursements; in 2020, vendor financing is expected to be about $3 billion range and FirstNet reimbursements are expected to be about $1 billion
⁶Compound annual growth rate
⁷EBITDA margin is operating income before depreciation and amortization, divided by total revenues

*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 is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands including: HBO, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim, Turner Classic Movies and others. 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 nearly 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. 2020 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. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).

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 on common shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common shares 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
		2019			2018			2019			2018
Net cash provided by operating activities	$	11,943		$	12,080		$	48,668		$	43,602
Less: Capital expenditures		(3,792	)		(4,152	)		(19,635	)		(21,251	)
Free Cash Flow		8,151			7,928			29,033			22,351
Less: Dividends paid on common shares		(3,726	)		(3,635	)		(14,888	)		(13,410	)
Free Cash Flow after Dividends	$	4,425		$	4,293		$	14,145		$	8,941
Free Cash Flow Dividend Payout Ratio		45.7	%		45.9	%		51.3	%		60.0	%

Cash Paid for Capital Investment

In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems.

Cash Paid for Capital Investment
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Capital Expenditures	$	(3,792	)	$	(4,152	)		$	(19,635	)	$	(21,251	)
Cash paid for vendor financing		(449	)		(213	)			(3,050	)		(560	)
Cash paid for Capital Investment1	$	(4,241	)	$	(4,365	)		$	(22,685	)	$	(21,811	)
1 Gross capital investment excludes FirstNet reimbursements of $900 million in the fourth quarter and $1.0 billion for the year ended December 31, 2019.

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. For market comparability, management analyzes 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
		2019			2018				2019			2018
Net Income	$	2,704		$	5,130			$	14,975		$	19,953
Additions:
Income Tax Expense		434			615				3,493			4,920
Interest Expense		2,049			2,112				8,422			7,957
Equity in Net (Income) Loss of Affiliates		30			(23	)			(6	)		48
Other (Income) Expense - Net		104			(1,674	)			1,071			(6,782	)
Depreciation and amortization		6,961			7,892				28,217			28,430
EBITDA		12,282			14,052				56,172			54,526
Total Operating Revenues		46,821			47,993				181,193			170,756
Service Revenues		41,475			42,496				163,499			152,345
EBITDA Margin		26.2	%		29.3	%			31.0	%		31.9	%
EBITDA Service Margin		29.6	%		33.1	%			34.4	%		35.8	%

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Communications Segment
Operating Contribution	$	7,511		$	7,607			$	32,229		$	32,105
Additions:
Equity in Net (Income) Loss of Affiliates		1			-				1			3
Depreciation and amortization		4,589			4,568				18,329			18,292
EBITDA		12,101			12,175				50,559			50,400
Total Operating Revenues		36,522			37,223				142,359			143,721
Operating Income Margin		20.6	%		20.4	%			22.6	%		22.3	%
EBITDA Margin		33.1	%		32.7	%			35.5	%		35.1	%
Mobility
Operating Contribution	$	5,503		$	5,424			$	22,320		$	21,568
Additions:
Equity in Net (Income) of Affiliates		-			-				1			-
Depreciation and amortization		2,027			2,045				8,054			8,263
EBITDA		7,530			7,469				30,375			29,831
Total Operating Revenues		18,700			18,556				71,056			70,521
Service Revenues		13,948			13,700				55,331			54,294
Operating Income Margin		29.4	%		29.2	%			31.4	%		30.6	%
EBITDA Margin		40.3	%		40.3	%			42.7	%		42.3	%
EBITDA Service Margin		54.0	%		54.5	%			54.9	%		54.9	%
Entertainment Group
Operating Contribution	$	745		$	825			$	4,822		$	4,713
Additions:
Equity in Net (Income) Loss of Affiliates		1			1				-			2
Depreciation and amortization		1,298			1,329				5,276			5,315
EBITDA		2,044			2,155				10,098			10,030
Total Operating Revenues		11,233			11,962				45,126			46,460
Operating Income Margin		6.6	%		6.9	%			10.7	%		10.1	%
EBITDA Margin		18.2	%		18.0	%			22.4	%		21.6	%
Business Wireline
Operating Contribution	$	1,263		$	1,358			$	5,087		$	5,824
Additions:
Equity in Net (Income) Loss of Affiliates		-			(1	)			-			1
Depreciation and amortization		1,264			1,194				4,999			4,714
EBITDA		2,527			2,551				10,086			10,539
Total Operating Revenues		6,589			6,705				26,177			26,740
Operating Income Margin		19.2	%		20.2	%			19.4	%		21.8	%
EBITDA Margin		38.4	%		38.0	%			38.5	%		39.4	%

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
WarnerMedia Segment
Operating Contribution	$	2,447		$	2,703			$	9,326		$	5,695
Additions:
Equity in Net (Income) of Affiliates		(25	)		(80	)			(162	)		(25	)
Depreciation and amortization		154			139				538			305
EBITDA		2,576			2,762				9,702			5,975
Total Operating Revenues		8,924			9,232				33,499			18,941
Operating Income Margin		27.1	%		28.4	%			27.4	%		29.9	%
EBITDA Margin		28.9	%		29.9	%			29.0	%		31.5	%

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Latin America Segment
Operating Contribution	$	(87	)	$	(248	)		$	(635	)	$	(710	)
Additions:
Equity in Net (Income) of Affiliates		(2	)		(10	)			(27	)		(34	)
Depreciation and amortization		294			296				1,162			1,238
EBITDA		205			38				500			494
Total Operating Revenues		1,758			1,843				6,963			7,652
Operating Income Margin		-5.1	%		-14.0	%			-9.5	%		-9.7	%
EBITDA Margin		11.7	%		2.1	%			7.2	%		6.5	%
Vrio
Operating Contribution	$	40		$	66			$	83		$	347
Additions:
Equity in Net (Income) of Affiliates		(2	)		(10	)			(27	)		(34	)
Depreciation and amortization		164			169				660			728
EBITDA		202			225				716			1,041
Total Operating Revenues		982			1,074				4,094			4,784
Operating Income Margin		3.9	%		5.2	%			1.4	%		6.5	%
EBITDA Margin		20.6	%		20.9	%			17.5	%		21.8	%
Mexico
Operating Contribution	$	(127	)	$	(314	)		$	(718	)	$	(1,057	)
Additions:
Equity in Net (Income) Loss of Affiliates		-			-				-			-
Depreciation and amortization		130			127				502			510
EBITDA		3			(187	)			(216	)		(547	)
Total Operating Revenues		776			769				2,869			2,868
Operating Income Margin		-16.4	%		-40.8	%			-25.0	%		-36.9	%
EBITDA Margin		0.4	%		-24.3	%			-7.5	%		-19.1	%

Segment EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Xandr
Operating Contribution	$	413		$	381			$	1,318		$	1,333
Additions:
Equity in Net (Income) of Affiliates		-			-				-			-
Depreciation and amortization		17			5				58			9
EBITDA		430			386				1,376			1,342
Total Operating Revenues		607			566				2,022			1,740
Operating Income Margin		68.0	%		67.3	%			65.2	%		76.6	%
EBITDA Margin		70.8	%		68.2	%			68.1	%		77.1	%

Adjusting Items

Adjusting items include revenues and costs we consider non-operational 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 results (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, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.

Adjusting Items
Dollars in millions
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Operating Revenues
Time Warner merger adjustment	$	-		$	49			$	72		$	49
Adjustments to Operating Revenues		-			49				72			49
Operating Expenses
Time Warner and other merger costs		382			436				961			1,228
Employee separation costs		243			327				624			587
Asset abandonments and impairments		1,458			46				1,458			46
Natural disaster costs		-			77				-			181
Holding losses on benefit-related investments		-			42				-			42
Adjustments to Operations and Support Expenses		2,083			928				3,043			2,084
Amortization of intangible assets		1,741			2,261				7,460			6,930
Impairments		43			26				43			26
Adjustments to Operating Expenses		3,867			3,215				10,546			9,040
Other
Merger-related interest and fees1		-			-				-			1,029
(Gains) losses on sale of investments		(69	)		(451	)			(707	)		(808	)
Special termination charges, debt redemption costs and other adjustments		331			307				693			385
Actuarial (gain) loss		1,123			(686	)			5,171			(3,412	)
Adjustments to Income Before Income Taxes		5,252			2,434				15,775			6,283
Tax impact of adjustments		1,119			412				3,302			1,177
Tax-related items		-			601				141			505
Adjustments to Net Income	$	4,133		$	1,421			$	12,332		$	4,601
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
		2019			2018				2019			2018
Operating Income	$	5,321		$	6,160			$	27,955		$	26,096
Adjustments to Operating Revenues		-			49				72			49
Adjustments to Operating Expenses		3,867			3,215				10,546			9,040
Adjusted Operating Income		9,188			9,424				38,573			35,185
EBITDA		12,282			14,052				56,172			54,526
Adjustments to Operating Revenues		-			49				72			49
Adjustments to Operations and Support Expenses		2,083			928				3,043			2,084
Adjusted EBITDA		14,365			15,029				59,287			56,659
Total Operating Revenues		46,821			47,993				181,193			170,756
Adjustments to Operating Revenues		-			49				72			49
Total Adjusted Operating Revenue		46,821			48,042				181,265			170,805
Service Revenues		41,475			42,496				163,499			152,345
Adjustments to Service Revenues		-			49				72			49
Adjusted Service Revenue		41,475			42,545				163,571			152,394
Operating Income Margin		11.4	%		12.8	%			15.4	%		15.3	%
Adjusted Operating Income Margin		19.6	%		19.6	%			21.3	%		20.6	%
Adjusted EBITDA Margin		30.7	%		31.3	%			32.7	%		33.2	%
Adjusted EBITDA Service Margin		34.6	%		35.3	%			36.2	%		37.2	%

Adjusted Diluted EPS
		Fourth Quarter							Year Ended
		2019			2018				2019			2018
Diluted Earnings Per Share (EPS)	$	0.33		$	0.66			$	1.89		$	2.85
Amortization of intangible assets		0.19			0.25				0.81			0.81
Merger integration items1		0.04			0.06				0.13			0.26
(Gain) loss on sale of assets, impairments and other adjustments2		0.21			0.04				0.20			0.05
Actuarial (gain) loss3		0.12			(0.07	)			0.56			(0.38	)
Tax-related items		-			(0.08	)			(0.02	)		(0.07	)
Adjusted EPS	$	0.89		$	0.86			$	3.57		$	3.52
Year-over-year growth - Adjusted		3.5	%						1.4	%
Weighted Average Common Shares Outstanding with Dilution (000,000)		7,341			7,328				7,348			6,806
1Includes combined merger integration items and merger-related interest income and expense, and redemption premiums.
2Includes abandonment and impairments, gains on transactions, and employee-related and other costs.
3Includes 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 losses of $5.1 billion in 2019. As a result, adjusted EPS reflects an expected return on plan assets of $3.8 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 $8.8 billion gain (actual pension return of 16.9% and VEBA return of 15.6%), included in the GAAP measure of income.

Constant Currency

Constant Currency is a non-GAAP financial measure that management uses to evaluate the operating performance of certain international subsidiaries by excluding or otherwise adjusting for the impact of changes in foreign currency exchange rates between comparative periods. We believe constant currency enhances comparison and is useful to investors to evaluate the performance of our business without taking into account the impact of changes to the foreign exchange rates to which our business is subject. To compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates. In calculating amounts on a constant currency basis, for our Vrio business unit, we exclude our Venezuela subsidiary in light of the hyperinflationary conditions in Venezuela, which we do not believe are representative of the macroeconomics of the rest of the region in which we operate.

Constant Currency
Dollars in millions
		Fourth Quarter
		2019			2018
AT&T Inc.
Total Operating Revenues	$	46,821		$	47,993
Exclude Venezuela		(6	)		(8	)
Impact of foreign exchange translation		220			-
Operating Revenues on Constant Currency Basis		47,035			47,985
Year-over-year growth		-2.0	%
Adjusted EBITDA		14,365			15,029
Exclude Venezuela		(38	)		(38	)
Impact of foreign exchange translation		109			-
Adjusted EBITDA on Constant Currency Basis		14,436			14,991
Year-over-year growth		-3.7	%
WarnerMedia Segment
Total Operating Revenues	$	8,924		$	9,232
Impact of foreign exchange translation		58			-
WarnerMedia Operating Revenues on Constant Currency Basis		8,982			9,232
Year-over-year growth		-2.7	%
EBITDA		2,576			2,762
Impact of foreign exchange translation		31			-
WarnerMedia EBITDA on Constant Currency Basis		2,607			2,762
Year-over-year growth		-5.6	%
Latin America Segment
Total Operating Revenues	$	1,758		$	1,843
Exclude Venezuela		(6	)		(8	)
Impact of foreign exchange translation		162			-
Latin America Operating Revenues on Constant Currency Basis		1,914			1,835
Year-over-year growth		4.3	%
EBITDA		205			38
Exclude Venezuela		(38	)		(38	)
Impact of foreign exchange translation		78			-
Latin America EBITDA on Constant Currency Basis		245			-
Year-over-year growth		-

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 Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters 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.

Net Debt to Adjusted EBITDA
Dollars in millions
		Three Months Ended
		Mar. 31		June 30,		Sept. 30,		Dec. 31,		Four Quarters
		20191		20191		20191		2019
Adjusted EBITDA2	$	14,802	$	15,041	$	15,079	$	14,365	$	59,287
End-of-period current debt										11,438
End-of-period long-term debt										151,709
Total End-of-Period Debt										163,147
Less: Cash and Cash Equivalents										12,130
Net Debt Balance										151,017
Annualized Net Debt to Adjusted EBITDA Ratio										2.547
1 As reported in AT&T's Form 8-K filed April 24, 2019, July 24, 2019 and October 28, 2019.
2 Includes the purchase accounting reclassification of released content amortization of $150 million, $112 million, $108 million and $102 million in the four quarters of 2019, 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
		Fourth Quarter
		December 31, 2019									December 31, 2018
		Mobility		Business Wireline		Adjustments1		Business Solutions			Mobility		Business Wireline		Adjustments1		Business Solutions
Operating Revenues
Wireless service	$	13,948	$	-	$	(11,924)	$	2,024		$	13,700	$	-	$	(11,817)	$	1,883
Strategic and managed services		-		3,927		-		3,927			-		3,811		-		3,811
Legacy voice and data services		-		2,207		-		2,207			-		2,498		-		2,498
Other services and equipment		-		455		-		455			-		396		-		396
Wireless equipment		4,752		-		(3,897)		855			4,856		-		(4,083)		773
Total Operating Revenues		18,700		6,589		(15,821)		9,468			18,556		6,705		(15,900)		9,361
Operating Expenses
Operations and support		11,170		4,062		(9,267)		5,965			11,087		4,154		(9,357)		5,884
EBITDA		7,530		2,527		(6,554)		3,503			7,469		2,551		(6,543)		3,477
Depreciation and amortization		2,027		1,264		(1,721)		1,570			2,045		1,194		(1,747)		1,492
Total Operating Expenses		13,197		5,326		(10,988)		7,535			13,132		5,348		(11,104)		7,376
Operating Income		5,503		1,263		(4,833)		1,933			5,424		1,357		(4,796)		1,985
Equity in Net Income (Loss) of Affiliates		-		-		-		-			-		1		-		1
Operating Contribution	$	5,503	$	1,263	$	(4,833)	$	1,933		$	5,424	$	1,358	$	(4,796)	$	1,986
1 Non-business wireless reported in the Communication segment under the Mobility business unit.
Supplemental Operational Measure
		Year Ended
		December 31, 2019									December 31, 2018
		Mobility		Business Wireline		Adjustments1		Business Solutions			Mobility		Business Wireline		Adjustments1		Business Solutions
Operating Revenues
Wireless service	$	55,331	$	-	$	(47,406)	$	7,925		$	54,294	$	-	$	(46,971)	$	7,323
Strategic and managed services		-		15,440		-		15,440			-		14,660		-		14,660
Legacy voice and data services		-		9,180		-		9,180			-		10,674		-		10,674
Other services and equipment		-		1,557		-		1,557			-		1,406		-		1,406
Wireless equipment		15,725		-		(12,968)		2,757			16,227		-		(13,717)		2,510
Total Operating Revenues		71,056		26,177		(60,374)		36,859			70,521		26,740		(60,688)		36,573
Operating Expenses
Operations and support		40,681		16,091		(34,037)		22,735			40,690		16,201		(34,283)		22,608
EBITDA		30,375		10,086		(26,337)		14,124			29,831		10,539		(26,405)		13,965
Depreciation and amortization		8,054		4,999		(6,840)		6,213			8,263		4,714		(7,077)		5,900
Total Operating Expenses		48,735		21,090		(40,877)		28,948			48,953		20,915		(41,360)		28,508
Operating Income		22,321		5,087		(19,497)		7,911			21,568		5,825		(19,328)		8,065
Equity in Net Income (Loss) of Affiliates		(1)		-		1		-			-		(1)		-		(1)
Operating Contribution	$	22,320	$	5,087	$	(19,496)	$	7,911		$	21,568	$	5,824	$	(19,328)	$	8,064
1 Non-business wireless reported in the Communication segment under the Mobility business unit.

 

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