AT&T Reports Fourth-Quarter and Full-Year Results; AT&T Meets Full-Year Guidance With Strong Customer Growth
Wednesday, January 25, 2017 4:01:03 PM ET
--Consolidated revenues of $163.8 billion
--Operating income of $24.3 billion
--Net income attributable to AT&T of $13.0 billion
--Diluted EPS of $2.10 as reported and $2.84 as adjusted, compared to $2.37 and $2.71 in the prior year
--Cash from operations of $39.3 billion
--Free cash flow of $16.9 billion, up 6.8%
--Consolidated revenues of $41.8 billion
--Operating income of $4.2 billion
--Net income attributable to AT&T of $2.4 billion
--Diluted EPS of $0.39 as reported and $0.66 as adjusted, compared to $0.65 and $0.63 in the year-ago quarter
--Cash from operations of $10.1 billion
--Free cash flow of $3.7 billion, up 19.2%
--Fourth-quarter: 2.8 million wireless net adds 1.5 million U.S.
--1.3 million Mexico
--Full-year: 9.5 million wireless net adds 6.2 million U.S.
--3.3 million Mexico
--U.S. wireless fourth-quarter results: 1.1 million branded smartphones added to subscriber base
--Best-ever postpaid phone churn of 0.98%
--Wireless postpaid churn of 1.16%
--Strong operating margin of 24.7%; best-ever fourth-quarter service EBITDA margin of 45.4%
--Strong DIRECTV NOW launch with more than 200,000 paid net adds
--235,000 U.S. DIRECTV satellite net adds with stable linear TV subscriber base
--149,000 IP broadband net adds with stable total broadband base Nearly 400 million North American 4G LTE POPs
--Note: AT&Ts fourth-quarter earnings conference call will be webcast at 4:30 p.m. ET on Wednesday, January 25, 2017. The webcast and related materials will be available on AT&Ts Investor Relations website at www.att.com/investor.relations.
Inc. (T )
today reported 2.8 million North American wireless net adds, strong
DIRECTV NOW growth and solid adjusted operating margin and earnings
gains, with continued free cash flow growth for the fourth quarter.
"2016 was a transformational year for AT&T, one in which we made
tremendous progress toward our goal of becoming the global leader in
telecom, media and technology," said Randall Stephenson, AT&T Chairman
and CEO. "We launched DIRECTV NOW, our innovative over-the-top streaming
service. Our 5G evolution plans and improved spectrum position are
paving the way for the next-generation of super-fast mobile and fixed
networks. And we shook-up the industry with our landscape-changing deal
to acquire Time Warner, the logical next step in our strategy to bring
together world-class content with best-in-class distribution which will
drive innovation and more choice for consumers.
"At the same time, we performed at a high level in 2016 with growing
revenues, expanding adjusted consolidated operating margins and solid
adjusted earnings growth, and we hit our $1.5 billion DIRECTV
cost-synergy target. We also delivered record cash from operations,
which allowed us to return substantial value to investors and invest
more in the U.S. economy."
Consolidated Financial Results
AT&Ts consolidated revenues for the fourth quarter totaled $41.8
billion versus $42.1 billion in the year-ago quarter. Compared with
results for the fourth quarter of 2015, operating expenses were $37.6
billion versus $34.6 billion; operating income was $4.2 billion versus
$7.5 billion; and operating income margin was 10.2% versus 17.9%. When
adjusting for amortization, merger- and integration-related and other
items, operating income was $7.3 billion versus $7.1 billion; and
operating income margin was 17.5%, up 70 basis points versus the
Fourth-quarter net income attributable to AT&T totaled $2.4 billion, or
$0.39 per diluted share, compared to $4.0 billion, or $0.65 per diluted
share, in the year-ago quarter. Adjusting for the $0.10 non-cash
actuarial loss on benefit plans from the annual remeasurement process
and $0.17 of costs for amortization, merger-and integration-related and
other items, earnings per diluted share was $0.66 compared to an
adjusted $0.63 in the year-ago quarter.
Cash from operating activities was $10.1 billion in the fourth quarter,
and capital expenditures were $6.5 billion. Capital investment(1)
for the quarter totaled $6.7 billion. Free cash flow -- cash from
operating activities minus capital expenditures -- was $3.7 billion for
the quarter, up 19.2% versus the year-ago quarter even with higher
For full-year 2016, compared with 2015 results, AT&Ts consolidated
revenues totaled $163.8 billion versus $146.8 billion, up 11.6% for the
year, driven by a full year of results from DIRECTV and gains in IP
services and video. Operating expenses reflect actuarial gains and
losses on benefit plans and were $139.4 billion compared with
$122.0 billion, up 14.3%; net income attributable to AT&T was
$13.0 billion versus $13.3 billion, down 2.8%; and earnings per diluted
share was $2.10, compared with $2.37. With adjustments for both years,
operating income was $31.8 billion versus $27.7 billion; operating
income margin was 19.4% versus 18.8%; and earnings per share totaled
$2.84, compared with $2.71, an increase of 4.8%.
AT&Ts full-year cash from operating activities was a record
$39.3 billion, up from $35.9 billion in 2015. Capital expenditures,
including capitalized interest, totaled $22.4 billion, versus $20.0
billion in 2015. Capital investment for the full year was $22.9 billion
versus $20.7 billion in 2015. Full-year free cash flow was $16.9 billion
compared to $15.9 billion in 2015. The companys free cash flow dividend
payout ratio for the full year was 70%.(2)
On a business-as-usual basis without the impact of Time Warner, AT&T
expects in 2017:
Consolidated revenue growth in the low-single digits
Adjusted EPS growth in the mid-single digit range
Adjusted operating margin expansion
Capital expenditures in the $22 billion range
Free cash flow in the $18 billion range
Adjustments include non-cash mark-to-market benefit plan gain/loss,
merger integration and amortization costs and other adjustments.
Traditionally, the mark-to-market adjustment is the largest item, which
is driven by interest rates and investment returns that are not
reasonably estimable at this time. We expect amortization to be
lower in 2017 compared to 2016.
(1)4Q16 includes $267 million in capital purchases
with favorable vendor payment terms.
(2)Free cash flow dividend payout ratio is dividends
divided by free cash flow
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.
AT&T Inc. (T )
helps millions around the globe connect with leading entertainment,
mobile, high speed internet and voice services. Were one of the worlds
largest providers of pay TV. We have TV customers in the U.S. and 11
Latin American countries. We offer the best global coverage of any U.S.
wireless provider.* And we help businesses worldwide serve their
customers better with our mobility and highly secure cloud solutions.
Additional information about AT&T products and services is available at http://about.att.com .
Follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att
and YouTube at http://www.youtube.com/att .
(C) 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.
*Global coverage claim based on offering discounted voice and data
roaming; LTE roaming; and voice roaming in more countries than any other
U.S. based carrier. International service required. Coverage not
available in all areas. Coverage may vary per country and be
limited/restricted in some countries.
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&Ts 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 companys website at www.att.com/investor.relations.
The "quiet period" for FCC Spectrum Auction 1000 (also known as the 600
MHz incentive auction) is now in effect. During the quiet period,
auction applicants are required to avoid discussions of bids, bidding
strategy and post-auction market structure with other auction applicants.
Information set forth in this communication, including financial
estimates and statements as to the expected timing, completion and
effects of the proposed merger between AT&T and Time Warner, constitute
forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and
the rules, regulations and releases of the Securities and Exchange
Commission. These forward-looking statements are subject to risks and
uncertainties, and actual results might differ materially from those
discussed in, or implied by, the forward-looking statements. Such
forward-looking statements include, but are not limited to, statements
about the benefits of the merger, including future financial and
operating results, the combined companys plans, objectives,
expectations and intentions, and other statements that are not
historical facts. Such statements are based upon the current beliefs and
expectations of the management of AT&T and Time Warner and are subject
to significant risks and uncertainties outside of our control.
Among the risks and uncertainties that could cause actual results to
differ from those described in the forward-looking statements are the
following: (1) the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement, (2) the risk that Time Warner stockholders may not adopt the
merger agreement, (3) the risk that the necessary regulatory approvals
may not be obtained or may be obtained subject to conditions that are
not anticipated, (4) risks that any of the closing conditions to the
proposed merger may not be satisfied in a timely manner, (5) risks
related to disruption of management time from ongoing business
operations due to the proposed merger, (6) failure to realize the
benefits expected from the proposed merger and (7) the effect of the
announcement of the proposed merger on the ability of Time Warner and
AT&T to retain customers and retain and hire key personnel and maintain
relationships with their suppliers, and on their operating results and
businesses generally. Discussions of additional risks and uncertainties
are and will be contained in AT&Ts and Time Warners filings with the
Securities and Exchange Commission. Neither AT&T nor Time Warner is
under any obligation, and each expressly disclaim any obligation, to
update, alter, or otherwise revise any forward-looking statements,
whether written or oral, that may be made from time to time, whether as
a result of new information, future events, or otherwise. Persons
reading this communication are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof.
No Offer or Solicitation
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of any
vote or approval, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any
such jurisdiction. No offer of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed merger, AT&T has filed a registration
statement on Form S-4, containing a proxy statement/prospectus with the
Securities and Exchange Commission ("SEC"). AT&T and Time Warner have
made the proxy statement/prospectus available to their respective
stockholders and AT&T and Time Warner will file other documents
regarding the proposed merger with the SEC. This communication is not
intended to be, and is not, a substitute for such filings or for any
other document that AT&T or Time Warner may file with the SEC in
connection with the proposed merger. STOCKHOLDERS OF TIME WARNER ARE
URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE
REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS, CAREFULLY
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AT&T, TIME WARNER
AND THE PROPOSED MERGER. Investors and security holders are able to
obtain copies of the proxy statement/prospectus as well as other filings
containing information about AT&T and Time Warner, without charge, at
the SECs website, http://www.sec.gov .
Copies of documents filed with the SEC by AT&T will be made available
free of charge on AT&Ts investor relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=113088&p=irol-sec .
Copies of documents filed with the SEC by Time Warner will be made
available free of charge on Time Warners investor relations website at http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-sec .
Participants in Solicitation
AT&T, Time Warner and certain of their respective directors and
executive officers and other members of management and employees may be
deemed to be participants in the solicitation of proxies from the
holders of Time Warner common stock in respect to the proposed merger.
Information about the directors and executive officers of AT&T is set
forth in the proxy statement for AT&Ts 2016 Annual Meeting of
Stockholders, which was filed with the SEC on March 11, 2016.
Information about the directors and executive officers of Time Warner is
set forth in the proxy statement for Time Warners 2016 Annual Meeting
of Stockholders, which was filed with the SEC on May 19, 2016. Investors
may obtain additional information regarding the interest of such
participants by reading the proxy statement/prospectus regarding the
proposed merger and other relevant materials filed with the SEC. These
documents will be available free of charge from the sources indicated
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&Ts 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 periods
presentation, including our change in accounting to capitalize customer
set-up and installation costs and amortize them over the expected
economic life of the customer relationship.
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.
Capital Investment is a non-GAAP financial measure that adds to Capital
expenditures the amount of vendor financing arrangements for capital
improvements. These favorable payment terms are considered vendor
financing arrangements and are reported as financing activities instead
of Capital expenditures. Management believes that Capital Investment
provides relevant and useful information to investors and other users of
our financial data in evaluating long-term investment in our business.
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
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), 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&Ts 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.
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. For the
periods covered by this report, we subsidized a portion of some of our
wireless handset sales, which are recognized in the period in which we
sell the handset. Management views this equipment subsidy as a cost to
acquire or retain a subscriber, which is recovered through the ongoing
service revenue that is generated by the subscriber. 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.
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 (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
The tax impact of adjusting items is calculated using the effective tax
rate during the quarter except for (1) adjustments related to Mexico
operations, which are taxed at the 30% marginal rate for Mexico and (2)
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%.
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&Ts
calculation of Adjusted items, as presented, may differ from similarly
titled measures reported by other companies.
Entertainment Group Segment Adjusted Operating Revenues includes the
external operating revenues from DIRECTV U.S. as reported in the DIRECTV
Form 10-Q/A dated June 30, 2015 adjusted to (1) include operations
reported in other DIRECTV operating segments that AT&T has chosen to
manage in our Entertainment Group segment, (2) conform DIRECTVs
practice of recognizing revenue to be received under contractual
commitments on a straight line basis over the minimum contract period to
AT&Ts method of limiting the revenue recognized to the monthly amounts
billed and (3) eliminate intercompany transactions from DIRECTV U.S. and
the Entertainment Group segment. Adjusting Entertainment Group segment
operating revenues provides for comparability between periods.
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 Net Debt Adjusted
EBITDA. Annualized Net Debt Adjusted EBITDA excludes severance-related
adjustments as described in our credit agreements. 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 Net Debt Adjusted
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SOURCE: AT&T Inc.
AT&T Media Relations
Fletcher Cook, 214-757-7629