AT&T Reports Fourth-Quarter and Full-Year Results Highlighted by Robust Wireless Data Growth, Accelerated U-verse TV Ramp, Continued Double-Digit Growth in IP Data Services
Dallas, Texas, January 28, 2009
Note: AT&T's fourth-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Wednesday, Jan. 28, 2009, at www.att.com/investor.relations.
Consolidated Statements of Income
Statements of Segment Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Supplementary Operating and Financial Data
Reconciliation of OIBDA
Reconciliation of Free Cash Flow
Wireline Non-GAAP Consolidated Reconciliations
OIBDA and Free Cash Flow Discussions
AT&T Inc. (NYSE:T) today reported fourth-quarter and full-year results highlighted by strong wireless subscriber gains and continued progress in key growth areas including wireless data services, IP-based services for businesses and AT&T
For the fourth quarter, AT&T's revenues totaled $31.1 billion, net income was $2.4 billion and cash from operating activities totaled $10.9 billion. Full-year revenues totaled $124.0 billion, net income was $12.9 billion and cash from operating activities totaled $33.7 billion.
"Despite the economic environment, we grew revenues in 2008, and I expect 2009 will be another year of overall revenue growth and solid progress for our company," said Randall Stephenson, AT&T chairman and chief executive officer.
"During the past year, we took major steps to improve AT&T's position for 2009 and beyond. The success of our iPhone 3G launch has driven wireless growth and helped redefine the wireless data space. Our AT&T
"I am pleased to say that as we made these advances, we also delivered on our cost initiatives and returned substantial value to shareowners, including our 25th consecutive annual dividend increase, which was announced in December.
"Looking ahead, while we are cautious about the economic environment, AT&T is well positioned with a strong balance sheet and premier operational assets, and I am very confident in our ability to execute."
Fourth-Quarter Reported Results
For the quarter ended Dec. 31, 2008, AT&T's consolidated revenues totaled $31.1 billion, up 2.4 percent versus reported results in the year-earlier quarter and up 2.2 percent compared with fourth-quarter 2007 pro forma revenues, which exclude merger-related accounting impacts on directory revenues.
Consolidated revenue growth was driven by 13.2 percent wireless growth and a 14.2 percent increase in wireline IP data revenues, which include AT&T
Compared with results for the year-earlier quarter, AT&T's reported operating expenses for the fourth quarter of 2008 were $26.2 billion versus $24.9 billion; reported operating income was $4.9 billion versus $5.5 billion; and AT&T's reported operating income margin was 15.8 percent, compared with 18.1 percent.
AT&T's reported fourth-quarter 2008 net income totaled $2.4 billion versus $3.1 billion in the year-earlier quarter, and reported earnings per diluted share totaled $0.41, compared with $0.51 in the fourth quarter of 2007.
Fourth-Quarter Adjusted Results
AT&T's adjusted results for the fourth quarter of 2008 exclude noncash merger-related expenses, a charge for investment losses from a merger-related trust and a previously announced charge for severance costs related to workforce reductions. For the fourth quarter of 2007, adjusted results excluded merger integration costs, merger-related amortization expenses and a merger-related directory accounting effect.
Compared with results for the year-earlier quarter, AT&T's adjusted operating expenses for the fourth quarter of 2008 totaled $24.5 billion versus $23.1 billion; adjusted operating income was $6.6 billion, compared with $7.3 billion; and AT&T's adjusted operating income margin was 21.1 percent versus 24.0 percent. AT&T's adjusted fourth-quarter 2008 net income totaled $3.8 billion versus $4.3 billion in the year-earlier quarter, and adjusted earnings per diluted share totaled $0.64, compared with $0.71 in the fourth quarter of 2007.
AT&T's fourth-quarter 2008 reported and adjusted margins and earnings reflect continued revenue growth and progress with previously outlined cost initiatives, offset by hurricane-related expenses and effects on wireless results from iPhone 3G. Impacts from the company's iPhone 3G initiative reduced pretax fourth-quarter earnings by approximately $450 million or $0.05 per share, and costs related to hurricanes reduced pretax earnings by approximately $120 million or $0.01 per share. In addition, foreign exchange impacts lowered equity income by approximately $90 million or $0.01 per share.
Cash From Operations
AT&T's cash from operating activities for the fourth quarter of 2008 totaled $10.9 billion, capital expenditures totaled $5.5 billion and free cash flow (cash from operations minus capital expenditures) totaled $5.4 billion. For the full year 2008, cash from operating activities totaled $33.7 billion, capital expenditures totaled $20.3 billion and free cash flow totaled $13.3 billion. For the full year, dividends paid totaled $9.5 billion, shares repurchased totaled 164.2 million for $6.1 billion and AT&T ended the year with 5.9 billion shares outstanding.
Wireless Operational Highlights
AT&T's fourth-quarter wireless growth was powered by strong subscriber gains and continued rapid growth in advanced data services, which drove solid improvement in postpaid ARPU. Highlights include the following:
Consistent with previously outlined expectations, the successful ramp of AT&T's iPhone 3G initiative helped drive a substantial sequential improvement in AT&T's wireless OIBDA margins. AT&T's fourth-quarter reported wireless OIBDA service margin was 35.8 percent, up from 33.5 percent in the third quarter of 2008 and 35.3 percent in the year-earlier quarter. In addition to operational improvements, year-over-year margin comparisons reflect approximately $450 million of pressure in the fourth quarter of 2008 associated with iPhone 3G and approximately $30 million of expenses due to hurricanes. Without the iPhone 3G and hurricane impacts, AT&T's fourth-quarter 2008 wireless OIBDA service margin would have been approximately 41 percent. (OIBDA service margin is operating income before depreciation and amortization, divided by total service revenues.)
Wireline Operational Highlights
AT&T's fourth-quarter wireline results included continued double-digit growth in IP data revenues, a further ramp in AT&T
Full-Year 2008 Results
To simplify its presentation of financial results, and in recognition of the fact that its major merger integration projects are now largely complete, in 2009, AT&T will no longer adjust results for merger-related costs and instead will present reported results accompanied by details on key factors impacting results.
Compared with 2007 full-year results, AT&T's reported 2008 consolidated revenues totaled $124.0 billion, up 4.3 percent; full-year operating expenses were $101.0 billion, up 2.5 percent; net income was $12.9 billion, up 7.7 percent; and diluted earnings per share totaled $2.16, up 11.3 percent.
AT&T's 2008 consolidated revenues were up 3.4 percent versus 2007 revenues adjusted for directory accounting effects. Compared with 2007 full-year adjusted results, 2008 adjusted operating expenses were $95.4 billion, compared with $91.3 billion; adjusted net income was $16.7 billion versus $17.0 billion; and adjusted diluted earnings per share totaled $2.81, compared with $2.76.
In 2009, despite a challenging environment, AT&T expects to deliver solid results. AT&T expects to grow consolidated revenues, make significant progress in its key growth initiatives, keep an aggressive focus on cost management and continue its strong record of returning substantial value to shareowners. Specific expectations for the full year, based on 2008 reported results, include the following:
Additional Background on Adjusted and Pro Forma Results
AT&T's adjusted earnings for the fourth quarter of 2008 exclude noncash, pretax costs related to acquisitions totaling $1.1 billion or $0.12 per diluted share; a charge of $445 million or $0.05 per diluted share for merger-related trust investment losses; and a charge of $617 million or $0.07 per diluted share for severance costs associated with workforce reductions, which is reflected in the Other segment. Adjusted results for the fourth quarter of 2007 excluded pretax, cash merger-related integration costs totaling $381 million or $0.04 per diluted share; noncash, pretax merger-related costs totaling $1.4 billion or $0.15 per diluted share; and a merger-related directory accounting impact of $36 million.
AT&T's reported fourth-quarter wireline operating expenses totaled $14.7 billion, down 0.3 percent from results in the year-earlier quarter, and on an adjusted basis, wireline operating expenses were $14.3 billion versus $14.2 billion in the fourth quarter of 2007. In addition to operational trends and progress on cost initiatives, fourth-quarter wireline cost trends also include expenses of approximately $90 million related to hurricanes.
AT&T's adjusted earnings for the full year 2008 exclude merger-related costs of $4.5 billion or $0.49 per diluted share; a charge of $445 million or $0.05 per diluted share for merger-related trust investment losses; and a charge of $991 million or $0.11 per diluted share for severance costs associated with workforce reductions. Adjusted results for the full year 2007 excluded merger-related costs of $7.5 billion or $0.80 per diluted share; gains from wireless transactions of $409 million or $0.04 per diluted share; and a merger-related directory accounting impact of $656 million or $0.07 per diluted share.
Advertising & Publishing results for 2007 were affected by accounting adjustments following AT&T's late 2006 acquisition of BellSouth. In accordance with purchase accounting rules, deferred revenues and expenses for all BellSouth directories delivered prior to the close of the merger were eliminated from 2007 consolidated results. This elimination of amortizations reduced fourth-quarter 2007 consolidated revenues by $53 million and consolidated operating expenses by $17 million. It reduced full year 2007 consolidated revenues by $964 million and consolidated operating expenses by $308 million.
AT&T manages its print directory business using amortized results. As a result, 2007 amortized results are shown in the Advertising & Publishing segment on AT&T's Statement of Segment Income. In 2008, both consolidated and segment results reflect amortization accounting.
AT&T Inc. (NYSE:T) is a premier communications holding company. Its subsidiaries and affiliates, AT&T operating companies, are the providers of AT&T services in the United States and around the world. Among their offerings are the world's most advanced IP-based business communications services, the nation's fastest 3G network and the best wireless coverage worldwide, and the nation's leading high speed Internet access and voice services. In domestic markets, AT&T is known for the directory publishing and advertising sales leadership of its Yellow Pages and YELLOWPAGES.COM organizations, and the AT&T brand is licensed to innovators in such fields as communications equipment. As part of their three-screen integration strategy, AT&T operating companies are expanding their TV entertainment offerings. In 2008, AT&T again ranked No. 1 in the telecommunications industry on FORTUNE® magazine's lists of the World's Most Admired Companies and America's Most Admired Companies. Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com.
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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 may 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 or 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 Web site at www.att.com/investor.relations. Accompanying financial statements follow.
NOTE: OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from Segment Operating Income (loss), as calculated in accordance with generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. OIBDA 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. OIBDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of OIBDA, as presented, may differ from similarly titled measures reported by other companies.
NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.
NOTE: Wireless service OIBDA margins less the impacts of the iPhone 3G initiative and hurricane-related expenses, adjusted consolidated operating income margins and adjusted wireline operating income margins are intended to provide useful information for investors.
Management views the dilution from the iPhone 3G initiative and hurricane-related costs as having a short-term impact on the business.