AT&T Inc. (T)

Analysis of Income Taxes

Difficulty: Advanced

Income Tax Accounting Policy

AT&T provides deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. AT&T provides valuation allowances against the deferred tax assets (included, together with the deferred income tax assets, as part of the reportable net deferred income tax liabilities on the consolidated balance sheets), for which the realization is uncertain. AT&T reviews these items regularly in light of changes in federal and state tax laws and changes in the business.

AT&T has included the estimated impact of the recently enacted tax reform in the financial results at or for the period ended December 31, 2017. The Securities and Exchange Commission has issued guidance that provides a "measurement period" whereby registrants can provide a reasonable estimate of the tax reform impact in their financial statements but can adjust that amount during the measurement period (expected to be a year or less). AT&T's future results could include additional adjustments, and those adjustments could be material.

As of January 1, 2017, AT&T adopted Accounting Standards Update (ASU) No. 2016-16, "Income Taxes (Topic 740)" (ASU 2016-16), with modified retrospective application, resulting in the recognition of an immaterial adjustment to retained earnings. Under ASU 2016-16, AT&T recognizes the income tax effects of intercompany sales or transfers of assets other than inventory (e.g., intellectual property or property, plant and equipment) during the period of intercompany sale or transfer instead of the period of either sale or transfer to a third party or recognition of depreciation or impairment.

Source: AT&T Inc., Annual Report

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Income Tax Expense (Benefit)

AT&T Inc., income tax expense (benefit), continuing operations

USD $ in millions

	12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Federal
	State and local
	Foreign
	State, local and foreign
	Current
	Federal
	State and local
	Foreign
	State, local and foreign
	Deferred
	Income tax expense (benefit)

Source: Based on data from AT&T Inc. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	AT&T Inc.'s current increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	AT&T Inc.'s deferred declined from 2015 to 2016 and from 2016 to 2017.
Income tax expense (benefit)	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	AT&T Inc.'s income tax expense (benefit) declined from 2015 to 2016 and from 2016 to 2017.

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Effective Income Tax Rate (EITR)

AT&T Inc., effective income tax rate (EITR) reconciliation

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Statutory federal income tax rate	%	%	%	%	%
	Effective tax rate	%	%	%	%	%

Source: Based on data from AT&T Inc. Annual Reports

Item	Description	The company
Effective tax rate	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	AT&T Inc.'s effective tax rate declined from 2015 to 2016 and from 2016 to 2017.

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Components of Deferred Tax Assets and Liabilities

AT&T Inc., components of deferred tax assets and liabilities

USD $ in millions

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Depreciation and amortization
	Licenses and nonamortizable intangibles
	Employee benefits
	Deferred fulfillment costs
	Net operating loss and other carryforwards
	Other, net
	Subtotal
	Deferred tax assets valuation allowance
	Net deferred tax assets (liabilities)

Source: Based on data from AT&T Inc. Annual Reports

Item	Description	The company
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	AT&T Inc.'s net deferred tax assets (liabilities) declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Deferred Tax Assets and Liabilities, Classification

AT&T Inc., deferred tax assets and liabilities, classification

USD $ in millions

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Current deferred tax assets
	Noncurrent deferred tax assets
	Noncurrent deferred tax liabilities

Source: Based on data from AT&T Inc. Annual Reports

Item	Description	The company
Current deferred tax assets	The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Noncurrent deferred tax assets	The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	AT&T Inc.'s noncurrent deferred tax assets increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Noncurrent deferred tax liabilities	Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	AT&T Inc.'s noncurrent deferred tax liabilities increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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Analyst Adjustments: Removal of Deferred Taxes

AT&T Inc., adjustments to financial data

USD $ in millions

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	Adjustment to Current Assets
	Current assets (as reported)
	Less: Current deferred tax assets, net
	Current assets (adjusted)
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Current deferred tax assets, net
	Less: Noncurrent deferred tax assets, net
	Total assets (adjusted)
	Adjustment to Total Liabilities
	Total liabilities (as reported)
	Less: Noncurrent deferred tax liabilities, net
	Total liabilities (adjusted)
	Adjustment to Stockholders' Equity Attributable To AT&T
	Stockholders' equity attributable to AT&T (as reported)
	Less: Net deferred tax assets (liabilities)
	Stockholders' equity attributable to AT&T (adjusted)
	Adjustment to Net Income Attributable To AT&T
	Net income attributable to AT&T (as reported)
	Add: Deferred income tax expense (benefit)
	Net income attributable to AT&T (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

AT&T Inc., adjusted ratios

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin	%	%	%	%	%
Adjusted net profit margin	%	%	%	%	%
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE	%	%	%	%	%
Adjusted ROE	%	%	%	%	%
Return on Assets (ROA)
Reported ROA	%	%	%	%	%
Adjusted ROA	%	%	%	%	%

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	AT&T Inc.'s adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	AT&T Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	AT&T Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	AT&T Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	AT&T Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	AT&T Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Current Ratio

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Current assets (USD $ in millions)
	Current liabilities (USD $ in millions)

	Current ratio¹
	Adjusted for Deferred Taxes
	Adjusted current assets (USD $ in millions)

	Adjusted current ratio²

2017 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= ÷ =

² Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	AT&T Inc.'s adjusted current ratio improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Net Profit Margin

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Net income attributable to AT&T (USD $ in millions)
Operating revenues (USD $ in millions)

Net profit margin¹	%	%	%	%	%
Adjusted for Deferred Taxes
Adjusted net income attributable to AT&T (USD $ in millions)

Adjusted net profit margin²	%	%	%	%	%

2017 Calculations

¹ Net profit margin = 100 × Net income attributable to AT&T ÷ Operating revenues
= 100 × ÷ = %

² Adjusted net profit margin = 100 × Adjusted net income attributable to AT&T ÷ Operating revenues
= 100 × ÷ = %

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	AT&T Inc.'s adjusted net profit margin deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Total Asset Turnover

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Operating revenues (USD $ in millions)
	Total assets (USD $ in millions)

	Total asset turnover¹
	Adjusted for Deferred Taxes
	Adjusted total assets (USD $ in millions)

	Adjusted total asset turnover²

2017 Calculations

¹ Total asset turnover = Operating revenues ÷ Total assets
= ÷ =

² Adjusted total asset turnover = Operating revenues ÷ Adjusted total assets
= ÷ =

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	AT&T Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Financial Leverage

		Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
	As Reported
	Total assets (USD $ in millions)
	Stockholders' equity attributable to AT&T (USD $ in millions)

	Financial leverage¹
	Adjusted for Deferred Taxes
	Adjusted total assets (USD $ in millions)
	Adjusted stockholders' equity attributable to AT&T (USD $ in millions)

	Adjusted financial leverage²

2017 Calculations

¹ Financial leverage = Total assets ÷ Stockholders' equity attributable to AT&T
= ÷ =

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity attributable to AT&T
= ÷ =

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	AT&T Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Adjusted Return on Equity (ROE)

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Net income attributable to AT&T (USD $ in millions)
Stockholders' equity attributable to AT&T (USD $ in millions)

ROE¹	%	%	%	%	%
Adjusted for Deferred Taxes
Adjusted net income attributable to AT&T (USD $ in millions)
Adjusted stockholders' equity attributable to AT&T (USD $ in millions)

Adjusted ROE²	%	%	%	%	%

2017 Calculations

¹ ROE = 100 × Net income attributable to AT&T ÷ Stockholders' equity attributable to AT&T
= 100 × ÷ = %

² Adjusted ROE = 100 × Adjusted net income attributable to AT&T ÷ Adjusted stockholders' equity attributable to AT&T
= 100 × ÷ = %

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	AT&T Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

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Adjusted Return on Assets (ROA)

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
As Reported
Net income attributable to AT&T (USD $ in millions)
Total assets (USD $ in millions)

ROA¹	%	%	%	%	%
Adjusted for Deferred Taxes
Adjusted net income attributable to AT&T (USD $ in millions)
Adjusted total assets (USD $ in millions)

Adjusted ROA²	%	%	%	%	%

2017 Calculations

¹ ROA = 100 × Net income attributable to AT&T ÷ Total assets
= 100 × ÷ = %

² Adjusted ROA = 100 × Adjusted net income attributable to AT&T ÷ Adjusted total assets
= 100 × ÷ = %

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	AT&T Inc.'s adjusted ROA deteriorated from 2015 to 2016 and from 2016 to 2017.

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Long-term Trends
Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Analysis
Financial Reporting Quality