Market Overview

AT&T Reports Fourth-Quarter Results

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Full-Year Consolidated Results

  • Diluted EPS of $2.85 as reported compared to $4.76 in the prior
    year (2017 impacted by tax reform)
  • Adjusted EPS of $3.52 compared to $3.05 in the prior year
  • Cash from operations of $43.6 billion, up 15%
  • Capital expenditures of $21.3 billion
  • Free cash flow of $22.4 billion, up 36%
  • Dividend payout ratio of 60%1
  • Consolidated revenues of $170.8 billion

Fourth-Quarter Consolidated Results

  • Diluted EPS of $0.66 as reported compared to $3.08 in the year-ago
    quarter (2017 impacted by tax reform)
  • Net income of $4.9 billion compared to $19.0 billion in the
    year-ago quarter (2017 impacted by tax reform)
  • Adjusted EPS of $0.86 compared to $0.78 in the year-ago quarter
  • Cash from operations of $12.1 billion, up 27%
  • Capital expenditures of $4.2 billion
  • Dividend payout ratio 46%1
  • Free cash flow of $7.9 billion, up 78%
  • Consolidated revenues of $48.0 billion

As Part of Fourth-Quarter Results, AT&T Reports:

  • Strong Cash from Operations and Record Free Cash Flow
  • Consolidated Pro Forma Adjusted EBITDA Growth
  • Deleveraging Plan on Track
  • 2019 Guidance Reaffirmed

Note: AT&T's fourth-quarter earnings conference call will be webcast
at 8:30 a.m. ET on Wednesday, January 30, 2019. The webcast and related
materials will be available on AT&T's Investor Relations website at
https://investors.att.com.

AT&T
Inc.
((T)
reported strong Mobility and WarnerMedia results in the fourth quarter,
including solid domestic wireless service revenue growth with record
fourth-quarter wireless service margins. (On a GAAP basis, domestic
service revenues declined 3.0%; however, on a comparable basis, service
revenues grew 2.9%.)

"Our top priority for 2018 and 2019 is reducing our debt and I couldn't
be more pleased with how we closed the year. In 2018, we generated
record free cash flow while investing at near-record levels. Our
dividend payout as a percent of free cash flow was 46% for the quarter
and 60% for the year, allowing us to increase the dividend for the 35th
consecutive year," said Randall Stephenson, AT&T chairman and CEO. "This
momentum will carry us into 2019 allowing us to continue reducing our
debt while investing in the business and continuing our strong record
for paying dividends."

Fourth-Quarter Results

North America Wireless Highlights:

  • 3.8 million total wireless net adds:
    • 2.8 million in U.S., driven by connected devices and smartphones
    • 1.0 million in Mexico

Communications Highlights

  • Operating income up 3.1% on a comparable basis; EBITDA up 1.9%
  • Mobility:
    • Service revenues up 2.9% on a comparable basis; operating income
      up 18.7% with EBITDA up 13.3% on a comparable basis
    • 147,000 phone net adds in the U.S.
      • 134,000 postpaid phone net adds
      • 13,000 prepaid phone net adds
    • 467,000 branded smartphones added to base
  • Entertainment Group:
    • Focus on profitability and reduced promotions leads to losses in
      video subscribers
    • More than 11 million customer locations passed with fiber

WarnerMedia Highlights

  • Revenues up with operating income gains in all business units
    • Strong Warner Bros. theatrical and television licensing revenue
      growth
    • Turner subscription revenue growth
    • HBO digital subscriber growth continued
    • 11 Academy Award® nominations

Latin America Highlights

  • 3.2 million Mexico wireless full-year net adds
  • 250,000 full-year Vrio net adds

Xandr Highlights

  • Advertising revenues grew by 48.6%; up 26.0% excluding the AppNexus
    acquisition
  • Continued progress in strategic initiatives

Consolidated Financial Results2

AT&T's consolidated revenues for the fourth quarter totaled $48.0
billion versus $41.7 billion in the year-ago quarter, up 15.2%,
primarily due to the Time Warner acquisition partially offset by the
impact of ASC 606 which includes the policy election of netting of
approximately $980 million of USF revenues with operating expenses.
Without the accounting change, revenues were $48.9 billion, an increase
of 17.2% primarily due to the Time Warner acquisition. Declines in
legacy wireline services, wireless equipment, domestic video and Vrio
were more than offset by WarnerMedia and growth in domestic wireless
services and Xandr.

Operating expenses were $41.8 billion versus $40.4 billion in the
year-ago quarter, primarily due to the Time Warner acquisition,
partially offset by the netting of USF and other regulatory fees and the
deferral of commissions under ASC 606. Excluding those impacts,
operating expenses were $43.3 billion, an increase of about $2.9 billion
due to the Time Warner acquisition and Entertainment Group content cost
pressure, partially offset by the write-off of certain network assets in
the prior year, lower wireless equipment costs and cost efficiencies.

Versus results from the fourth quarter of 2017, operating income was
$6.2 billion versus $1.3 billion, primarily due to the Time Warner
acquisition and the write-off of certain network assets in the prior
year; and operating income margin was 12.8% versus 3.1%. On a
comparative basis, operating income was $5.6 billion and operating
income margin was 11.4%. When adjusting for amortization, merger- and
integration-related expenses and other items, operating income was $9.4
billion, or $8.8 billion on a comparative basis, versus $6.3 billion in
the year-ago quarter, and operating income margin was 19.6%, or 18.1% on
a comparative basis, versus 15.1% in the year-ago quarter due to the
acquisition of Time Warner and impact of ASC 606.

Fourth-quarter net income attributable to AT&T was $4.9 billion, or
$0.66 per diluted share, versus $19.0 billion, or $3.08 per diluted
share, in the year-ago quarter which reflected the impact of the
December 2017 federal Tax Cuts and Jobs Act. Adjusting for $0.20, which
includes amortization costs, merger- and integration-related expenses
and other items, a true-up of deferred tax liability remeasurement and
other tax items and a non-cash actuarial gain on benefit plans from the
annual remeasurement process, earnings per diluted share was $0.86
compared to an adjusted $0.78 in the year-ago quarter, a 10% increase.

Cash from operating activities was $12.1 billion, and capital
expenditures were $4.2 billion. Capital investment included about $270
million in FirstNet capital costs and $1.1 billion in FirstNet capital
reimbursements. Free cash flow — cash from operating activities minus
capital expenditures — was $7.9 billion for the quarter.

Full-Year Results

For full-year 2018 when compared with 2017 results, AT&T's consolidated
revenues totaled $170.8 billion versus $160.5 billion, up 6.4%,
primarily due to the Time Warner acquisition partially offset by the
impact of ASC 606 which includes the policy election of netting
approximately $3.7 billion of USF revenues with operating expenses.
Without the accounting change, revenues were $174.3 billion, an increase
of 8.6% primarily due to the Time Warner acquisition.

Operating expenses were $144.7 billion compared with $140.6 billion,
primarily due to the Time Warner acquisition partially offset by the
netting of USF and other regulatory fees and the deferral of commissions
under ASC 606. Excluding those impacts, operating expenses were $150.6
billion, an increase of about $10.0 billion due to the Time Warner
acquisition, Entertainment Group content cost pressure and higher
wireless equipment costs, partially offset by the write-off of certain
network assets in the prior year and cost efficiencies.

Versus results from 2017, operating income was $26.1 billion, up 30.7%
primarily due to the Time Warner acquisition and the write-off of
certain network assets in the prior year; and operating income margin
was 15.3% versus 12.4%. On a comparative basis, operating income was
$23.7 billion and operating income margin was 13.6%. With adjustments
for both years, operating income was $35.2 billion, or $32.8 billion on
a comparable basis, versus $29.5 billion in 2017, and operating income
margin was 20.6%, or 18.8% on a comparative basis, versus 18.4% in 2017.

2018 net income attributable to AT&T was $19.4 billion, or $2.85 per
diluted share, versus $29.5 billion, or $4.76 per diluted share in 2017.
With adjustments for both years, earnings per diluted share was $3.52
compared to an adjusted $3.05 in 2017, up 15% primarily due to lower
rates associated with tax reform, the impact of ASC 606 and the
acquisition of Time Warner.

AT&T's full-year cash from operating activities was $43.6 billion versus
$38.0 billion in 2017. Capital expenditures, including capitalized
interest, totaled $21.3 billion versus $21.6 billion in 2017. Capital
investment included about $1.2 billion in FirstNet capital costs and
$1.4 billion in FirstNet capital reimbursements. Full-year free cash
flow was $22.4 billion compared to $16.5 billion in 2017, up 36%. The
company's free cash flow dividend payout ratio for the full year was 60%.1

2019 Outlook3

AT&T expects in 2019:

  • Free cash flow in the $26 billion range;
  • Low single-digit adjusted EPS growth;
  • Dividend payout ratio in the high 50s% range;
  • End-of-year net debt to adjusted EBITDA in the 2.5x range;
  • Gross capital investment in the $23 billion range4

3Adjustments to EPS include merger-related
amortization in the range of $7.5 billion, a non-cash mark-to-market
benefit plan gain/loss, merger integration and other adjustments. We
expect the mark-to-market adjustment which is driven by interest rates
and investment returns that are not reasonably estimable at this time,
to be a significant item.
Our EPS, free cash flow and EBITDA
estimates depend on future levels of revenues and expenses which are not
reasonably estimable at this time.
Accordingly, we cannot provide
a reconciliation between our non-GAAP metrics and the reported GAAP
metrics without unreasonable effort. (Our 2019 outlook for Net Debt to
Adjusted EBITDA ratio excludes the impact of a new accounting standard
for leases (ASC 842) that is effective beginning January 1, 2019 to be
consistent with our existing multi-year guidance on this debt ratio.)

1Free cash flow dividend payout ratio is dividends
divided by free cash flow.

2 AT&T adopted new U.S. accounting standards that
deal with revenue recognition (ASC 606), post-employment benefit costs
and certain cash receipts on installment receivables. These changes
impact the company's income statements and cash flows. With the adoption
of ASC 606, the company made a policy decision to record Universal
Service Fees (USF) and other regulatory fees on a net basis. The company
is providing comparable results in addition to GAAP to help investors
better understand the impact on financials from ASC 606 and the policy
decision. Historical income statements and cash flows have been recast
to show only the impact of the adoption of the other two accounting
standards.

4Excludes expected FirstNet reimbursements in the
$1 billion range; includes potential vendor financing.

*About AT&T

AT&T Inc. ((T)
is a diversified, global leader in telecommunications, media and
entertainment, and technology. It executes in the market under four
operating units. WarnerMedia's HBO, Turner and Warner Bros. divisions
are world leaders in creating premium content, operate one of the
world's largest TV and film studios, and own a world-class library of
entertainment. AT&T Communications provides more than 100 million U.S.
consumers with entertainment and communications experiences across TV,
mobile and broadband services. Plus, it serves more than 3 million
business customers with high-speed, highly secure connectivity and smart
solutions. AT&T Latin America provides pay-TV services across 11
countries and territories in Latin America and the Caribbean, and is the
fastest growing wireless provider in Mexico, serving consumers and
businesses. Xandr provides marketers with innovative and relevant
advertising solutions for consumers around premium video content and
digital advertising through its AppNexus platform.

AT&T products and services are provided or offered by subsidiaries and
affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.
Additional information is available at about.att.com. © 2019 AT&T
Intellectual Property. All rights reserved. AT&T, the Globe logo and
other marks are trademarks and service marks of AT&T Intellectual
Property and/or AT&T affiliated companies. All other marks contained
herein are the property of their respective owners.

Cautionary Language Concerning Forward-Looking Statements

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

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

Discussion and Reconciliation of Non-GAAP Measures

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

Certain amounts have been conformed to the current period's
presentation, including our adoption of new accounting standards; ASU
No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost," ASU No. 2016-15, "Statement of Cash Flows
(Topic 230): Classification of Certain Cash Receipts and Cash Payments,"
and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash; and our revised operating segments.

Free Cash Flow

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

 
Free Cash Flow and Free Cash Flow Dividend Payout Ratio
Dollars in millions    
Fourth Quarter Year Ended
      2018       2017       2018       2017  
Net cash provided by operating activities  
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