DALLAS--(BUSINESS WIRE)--AT&T Inc.* (NYSE:T) reported record wireless EBITDA margins and phone churn and strong wireless and DIRECTV NOW subscriber gains in the third quarter.

“We look forward to closing our acquisition of Time Warner and bringing together premium content with world-class distribution to deliver a better entertainment experience for consumers and more effective targeted advertising,” said Randall Stephenson, AT&T Inc. chairman and CEO. “We’re also on track to have one of the largest high-speed internet networks in the U.S., reaching more than 50 million customer locations with competitive high speeds. This expansion will make our bundled video, mobile and broadband services even more compelling.

“We continued to operate our business efficiently in the quarter. At a time of transformation in our wireless and video businesses, as well as investment in growth opportunities, we’re able to maintain our full-year guidance. Wireless margins and phone churn continue to run at record levels, our fiber deployment is helping drive broadband growth and DIRECTV NOW had another strong quarter. We’re also pleased with our FirstNet progress. Already 27 states and territories have opted in, and we’re working closely with them as we prepare to deploy the FirstNet network.”

Consolidated Financial Results

AT&T's consolidated revenues for the third quarter totaled $39.7 billion versus $40.9 billion in the year-ago quarter, primarily due to declines in legacy wireline services and consumer mobility. Excluding the impact of hurricanes and earthquakes in the third quarter, revenues would have been $39.8 billion. Compared with results for the third quarter of 2016, operating expenses were $33.3 billion versus $34.5 billion; operating income was flat versus the year-ago quarter at $6.4 billion; and operating income margin was 16.1% versus 15.7%. When adjusting for amortization, merger- and integration-related expenses and other items, operating income was $8.1 billion versus $8.3 billion in the year-ago quarter and operating income margin was 20.3%, the same as in the year-ago quarter.

Third-quarter net income attributable to AT&T totaled $3.0 billion, or $0.49 per diluted share, compared with $3.3 billion, or $0.54 per diluted share, in the year-ago quarter. Adjusting for $0.25 of costs for amortization, merger- and integration-related expenses and other items including hurricane and earthquake impacts, earnings per diluted share was $0.74, the same as in the year-ago quarter.

Cash from operating activities was $11.1 billion in the third quarter and $29.3 billion year to date. Capital expenditures were $5.3 billion in the quarter and $16.5 billion year to date. Free cash flow — cash from operating activities minus capital expenditures — was $5.9 billion for the quarter and $12.8 billion year to date.

*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.

© 2017 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 Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Net cash provided by operating activities $ 11,114 $ 10,995 $ 29,274 $ 29,202 Less: Capital expenditures (5,251 ) (5,813 ) (16,474 ) (15,952 ) Free Cash Flow 5,863 5,182 12,800 13,250 Less: Dividends paid (3,009 ) (2,951 ) (9,030 ) (8,850 ) Free Cash Flow after Dividends $ 2,854 $ 2,231 $ 3,770 $ 4,400 Free Cash Flow Dividend Payout Ratio 51.3 % 56.9 % 70.5 % 66.8 %

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 Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Net Income $ 3,123 $ 3,418 $ 10,711 $ 10,818 Additions: Income Tax Expense 1,851 1,775 5,711 5,803 Interest Expense 1,686 1,224 4,374 3,689 Equity in Net (Income) Loss of Affiliates (11 ) (16 ) 148 (57 ) Other (Income) Expense - Net (246 ) 7 (354 ) (154 ) Depreciation and amortization 6,042 6,579 18,316 19,718 EBITDA 12,445 12,987 38,906 39,817 Total Operating Revenues 39,668 40,890 118,870 121,945 Service Revenues 36,378 37,272 109,372 111,515 EBITDA Margin 31.4 % 31.8 % 32.7 % 32.7 % EBITDA Service Margin 34.2 % 34.8 % 35.6 % 35.7 %

Segment EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Business Solutions Segment Segment Contribution $ 4,503 $ 4,303 $ 13,322 $ 12,803 Additions: Depreciation and amortization 2,325 2,539 6,972 7,568 EBITDA 6,828 6,842 20,294 20,371 Total Segment Operating Revenues 17,061 17,767 51,016 52,955 Segment Operating Income Margin 26.4 % 24.2 % 26.1 % 24.2 % EBITDA Margin 40.0 % 38.5 % 39.8 % 38.5 % Entertainment Group Segment Segment Contribution $ 1,310 $ 1,488 $ 4,562 $ 4,734 Additions: Equity in Net (Income) Loss of Affiliates 6 - 23 (1 ) Depreciation and amortization 1,379 1,504 4,256 4,481 EBITDA 2,695 2,992 8,841 9,214 Total Segment Operating Revenues 12,648 12,720 37,953 38,089 Segment Operating Income Margin 10.4 % 11.7 % 12.1 % 12.4 % EBITDA Margin 21.3 % 23.5 % 23.3 % 24.2 % Consumer Mobility Segment Segment Contribution $ 2,320 $ 2,572 $ 7,059 $ 7,640 Additions: Depreciation and amortization 877 944 2,621 2,798 EBITDA 3,197 3,516 9,680 10,438 Total Segment Operating Revenues 7,748 8,267 23,279 24,781 Service Revenues 6,507 6,914 19,644 20,805 Segment Operating Income Margin 29.9 % 31.1 % 30.3 % 30.8 % EBITDA Margin 41.3 % 42.5 % 41.6 % 42.1 % EBITDA Service Margin 49.1 % 50.9 % 49.3 % 50.2 % International Segment Segment Contribution $ (125 ) $ (53 ) $ (257 ) $ (421 ) Additions: Equity in Net (Income) of Affiliates (17 ) (1 ) (62 ) (24 ) Depreciation and amortization 304 293 905 868 EBITDA 162 239 586 423 Total Segment Operating Revenues 2,099 1,879 6,054 5,374 Segment Operating Income Margin -6.8 % -2.9 % -5.3 % -8.3 % EBITDA Margin 7.7 % 12.7 % 9.7 % 7.9 %

Supplemental AT&T Mobility EBITDA, EBITDA Margin and EBITDA Service Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 AT&T Mobility Operating Income $ 5,313 $ 5,389 $ 15,814 $ 16,005 Add: Depreciation and amortization 2,010 2,107 5,999 6,244 EBITDA 7,323 7,496 21,813 22,249 Total Operating Revenues 17,436 18,193 52,121 54,071 Service Revenues 14,541 14,964 43,613 44,673 Operating Income Margin 30.5 % 29.6 % 30.3 % 29.6 % EBITDA Margin 42.0 % 41.2 % 41.9 % 41.1 % EBITDA Service Margin 50.4 % 50.1 % 50.0 % 49.8 %

Supplemental Latin America EBITDA and EBITDA Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 International - Latin America Operating Income $ 82 $ 94 $ 300 $ 179 Add: Depreciation and amortization 206 212 642 620 EBITDA 288 306 942 799 Total Operating Revenues 1,363 1,297 4,065 3,649 Operating Income Margin 6.0 % 7.2 % 7.4 % 4.9 % EBITDA Margin 21.1 % 23.6 % 23.2 % 21.9 %

Supplemental Mexico EBITDA and EBITDA Margin Dollars in millions Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 International - Mexico Operating Income $ (224 ) $ (148 ) $ (619 ) $ (624 ) Add: Depreciation and amortization 98 81 263 248 EBITDA (126 ) (67 ) (356 ) (376 ) Total Operating Revenues 736 582 1,989 1,725 Operating Income Margin -30.4 % -25.4 % -31.1 % -36.2 % EBITDA Margin -17.1 % -11.5 % -17.9 % -21.8 %

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%. 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 Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Operating Revenues Natural disaster revenue credits $ 89 $ 13 $ 89 $ 13 Adjustments to Operating Revenues 89 13 89 13 Operating Expenses DIRECTV and other video merger integration costs 67 189 317 495 Mexico merger integration costs 34 84 153 231 Time Warner merger costs 33 - 152 - Wireless merger integration costs - 17 - 92 Actuarial (gain) loss - - (259 ) - Employee separation costs 208 260 268 314 Natural disaster costs 118 17 118 17 (Gain) loss on transfer of wireless spectrum - 22 (181 ) (714 ) Venezuela devaluation - - 98 - Adjustments to Operations and Support Expenses 460 589 666 435 Amortization of intangible assets 1,136 1,282 3,508 3,949 Adjustments to Operating Expenses 1,596 1,871 4,174 4,384 Other Merger related interest expense and exchange fees1 485 - 752 16 (Gain) loss on sale of assets, impairments and other adjustments2 (81 ) - 140 4 Adjustments to Income Before Income Taxes 2,089 1,884 5,155 4,417 Tax impact of adjustments 716 640 1,717 1,521 Tax-related items (146 ) - (146 ) - Adjustments to Net Income $ 1,519 $ 1,244 $ 3,584 $ 2,896 1 Includes interest expense incurred on the debt issued prior to the close of merger transactions. 2 Includes 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 Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Operating Income $ 6,403 $ 6,408 $ 20,590 $ 20,099 Adjustments to Operating Revenues 89 13 89 13 Adjustments to Operating Expenses 1,596 1,871 4,174 4,384 Adjusted Operating Income1 8,088 8,292 24,853 24,496 EBITDA 12,445 12,987 38,906 39,817 Adjustments to Operating Revenues 89 13 89 13 Adjustments to Operations and Support Expenses 460 589 666 435 Adjusted EBITDA1 12,994 13,589 39,661 40,265 Total Operating Revenues 39,668 40,890 118,870 121,945 Adjustments to Operating Revenues 89 13 89 13 Total Adjusted Operating Revenues 39,757 40,903 118,959 121,958 Service Revenues 36,378 37,272 109,372 111,515 Adjustments to Service Revenues 89 13 89 13 Adjusted Service Revenues 36,467 37,285 109,461 111,528 Operating Income Margin 16.1 % 15.7 % 17.3 % 16.5 % Adjusted Operating Income Margin1 20.3 % 20.3 % 20.9 % 20.1 % Adjusted EBITDA Margin1 32.7 % 33.2 % 33.3 % 33.0 % Adjusted EBITDA Service Margin1 35.6 % 36.4 % 36.2 % 36.1 % 1 Adjusted Operating Income, Adjusted EBITDA and associated margins exclude all actuarial gains or losses ($259 million gain for the first nine months of 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.

Adjusted Diluted EPS Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Diluted Earnings Per Share (EPS) $ 0.49 $ 0.54 $ 1.69 $ 1.70 Amortization of intangible assets 0.12 0.14 0.38 0.42 Merger integration and other items1 0.06 0.03 0.14 0.09 Asset abandonments, impairments and other adjustments 0.05 0.03 0.06 0.03 Actuarial (gain) loss - - (0.03 ) - (Gain) loss on transfer of wireless spectrum - - (0.02 ) (0.07 ) Venezuela devaluation - - 0.02 - Tax-related items 0.02 - 0.02 - Adjusted EPS $ 0.74 $ 0.74 $ 2.26 $ 2.17 Year-over-year growth - Adjusted 0.0 % 4.1 % Weighted Average Common Shares Outstanding with Dilution (000,000) 6,182 6,189 6,184 6,191 1Includes combined merger integration items, merger-related interest income and expense.

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, YTD 2017 2017 2017 2017 Adjusted EBITDA $ 13,080 $ 13,587 $ 12,994 $ 39,661 Add back severance - (60 ) (208 ) (268 ) Net Debt Adjusted EBITDA 13,080 13,527 12,786 39,393 Annualized Adjusted EBITDA 52,524 End-of-period current debt 8,551 End-of-period long-term debt 154,728 Total End-of-Period Debt 163,279 Less: Cash and Cash Equivalents 48,499 Net Debt Balance 114,780 Annualized Net Debt to Adjusted EBITDA Ratio 2.19

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 September 30, 2017 September 30, 2016 Consumer

Mobility Business

Solutions Adjustments1 AT&T Mobility Consumer

Mobility Business

Solutions Adjustments1 AT&T Mobility Operating Revenues Wireless service $ 6,507 $ 8,034 $ - $ 14,541 $ 6,914 $ 8,050 $ - $ 14,964 Fixed strategic services - 3,087 (3,087 ) - - 2,913 (2,913 ) - Legacy voice and data services - 3,434 (3,434 ) - - 4,042 (4,042 ) - Other services and equipment - 852 (852 ) - - 886 (886 ) - Wireless equipment 1,241 1,654 - 2,895 1,353 1,876 - 3,229 Total Operating Revenues 7,748 17,061 (7,373 ) 17,436 8,267 17,767 (7,841 ) 18,193 Operating Expenses Operations and support 4,551 10,233 (4,671 ) 10,113 4,751 10,925 (4,979 ) 10,697 EBITDA 3,197 6,828 (2,702 ) 7,323 3,516 6,842 (2,862 ) 7,496 Depreciation and amortization 877 2,325 (1,192 ) 2,010 944 2,539 (1,376 ) 2,107 Total Operating Expense 5,428 12,558 (5,863 ) 12,123 5,695 13,464 (6,355 ) 12,804 Operating Income $ 2,320 $ 4,503 $ (1,510 ) $ 5,313 $ 2,572 $ 4,303 $ (1,486 ) $ 5,389 1 Non-wireless (fixed) operations reported in Business Solutions segment. Supplemental Operational Measure Nine Months Ended September 30, 2017 September 30, 2016 Consumer

Mobility Business

Solutions Adjustments1 AT&T Mobility Consumer

Mobility Business

Solutions Adjustments1 AT&T Mobility Operating Revenues Wireless service $ 19,644 $ 23,969 $ - $ 43,613 $ 20,805 $ 23,868 $ - $ 44,673 Fixed strategic services - 9,089 (9,089 ) - - 8,469 (8,469 ) - Legacy voice and data services - 10,572 (10,572 ) - - 12,577 (12,577 ) - Other services and equipment - 2,513 (2,513 ) - - 2,619 (2,619 ) - Wireless equipment 3,635 4,873 - 8,508 3,976 5,422 - 9,398 Total Operating Revenues 23,279 51,016 (22,174 ) 52,121 24,781 52,955 (23,665 ) 54,071 Operating Expenses Operations and support 13,599 30,722 (14,013 ) 30,308 14,343 32,584 (15,105 ) 31,822 EBITDA 9,680 20,294 (8,161 ) 21,813 10,438 20,371 (8,560 ) 22,249 Depreciation and amortization 2,621 6,972 (3,594 ) 5,999 2,798 7,568 (4,122 ) 6,244 Total Operating Expense 16,220 37,694 (17,607 ) 36,307 17,141 40,152 (19,227 ) 38,066 Operating Income $ 7,059 $ 13,322 $ (4,567 ) $ 15,814 $ 7,640 $ 12,803 $ (4,438 ) $ 16,005 1 Non-wireless (fixed) 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.