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BUSINESS: AT&T CFO Pascal Desroches Updates Shareholders

By Daniel Webster, dWeb.News Publisher

DALLAS–(BUSINESS WIRE)–Pascal Desroches, senior executive vice president and chief financial officer of AT&T Inc.(NYSE:T), spoke today at the Bank of America Media, Communications & Entertainment Conference, where he provided an update to shareholders. Desroches stated that AT&T continues its success in its market areas of 5G and fiber, as well as HBO Max. AT&T is committed to profitably growing its postpaid customer base, even though the wireless industry continues its benefits from a healthy demand backdrop. Desroches stated that AT&T’s wireless strength has been supported in part by its outstanding network quality which has increased significantly over the past several years. AT&T has the Nation’s Best 5G Network1 and, for the fourth straight year, America’s Best Wireless Network2 overall. In addition, as most recently indicated by AT&T’s second-quarter 2021 results, its revamped go-to-market strategy has enabled the company to both reduce churn and improve industry flow share, yielding materially better postpaid phone subscriber net adds versus those experienced over the last several years.

Desroches stated that the company is confident in its ability achieve its adjusted end of year incremental customer locations. This was in the 2.5 million range. AT&T experienced disruptions in its supply chain, as previously mentioned. However, at this juncture the company believes the issue has been addressed and comfortable in its ability to achieve its long-term for 30 million locations by the end of 2025.

AT&T continues to see a healthy demand for HBO Max, both in domestic and international markets. The company recently announced its plans to expand into six European countries next month with plans to launch in at least 14 additional territories in Europe in 2022. AT&T anticipates that most of its subscriber growth in 2012 will come from outside the United States, as it has made the strategic decision not to offer HBO Max subscriptions on Amazon Channels. This decision is expected to have a significant impact on total HBO Max/ HBO domestic subscribers as well as net additions for the third quarter. However, Desroches reiterated that AT&T’s guidance for 70 million to 73 million global HBO Max and HBO subscribers by the end of 2021 factors in the impact of this decision. 3

AT&T continues to anticipate that its pending WarnerMedia-Discovery transaction will close by mid-2022. After close of that transaction and on a pro-forma basis, AT&T expects annual revenues to grow at a low single digits CAGR4 from 2022 to 2024 with annual adjusted EBITDA5 and adjusted EPS6 growing at a CAGR in the mid-single digit range. After close and subject to AT&T Board approval, the company anticipates annual dividends paid of $8 billion to $9 billion, reflecting a payout ratio of 40% to 43% on projected free cash flow of $20 billion plus in 2023. 7

1 AT&T awarded Best 5G Network by GWS OneScore 2021. GWS pays for AT&T’s driver testing and analyzes the data to determine its OneScore score. AT&T 5G requires a compatible plan and device. 5G is not available in all areas. For more information, visit att.com/5Gforyou.

2 AT&T awarded Best Network by GWS OneScore 2021. GWS pays for AT&T’s driver testing and analyzes the data to determine its OneScore score. AT&T 5G requires a compatible plan and device. 5G is not available in all areas. For more information, visit att.com/5Gforyou.

3 Global HBO Max and HBO subscribers consist of domestic and international HBO Max and HBO subscribers, and exclude free trials, basic and Cinemax subscribers.

4 Compound annual growth rate.

5 EBITDA is operating income before depreciation and amortization.

6 AT&T expects adjustments to 2021-2024 reported diluted EPS to include merger-related amortization ($4.3 billion for 2021 and approximately $1 billion per quarter in 2022 until closing of the WarnerMedia transaction), adjusted equity income, non-cash mark-to-market benefit plan gains/losses, and other items. The mark-to-market adjustments are driven by investment returns and interest rates that aren’t reasonably estimable at the moment. They are expected to be significant items. AT&T’s 2021 EPS depends on future levels of revenues and expenses and performance of our equity investment in DIRECTV which are not reasonably estimable at this time. We are unable to provide a reconciliation of these non-GAAP metrics with the GAAP reported metrics without unreasonable effort.

7 Free cash flow is a non-GAAP financial measure that is frequently used by investors and credit rating agencies to provide relevant and useful information. Free cash flow refers to cash from operating activities less capital expenditures. AT&T will include cash distributions from DIRECTV as part of its Free Cash Flow. The company cannot provide an accurate reconciliation between the projected free cash flow and the most comparable GAAP measurement due to the high variability and difficulty of predicting the impact of capital expenditures and operating activities.

*About AT&T

AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across mobile and broadband. It also offers high-speed, highly secured connectivity and smart solutions for nearly 3 million businesses customers. WarnerMedia is a media and entertainment company. It creates and distributes popular and premium content worldwide through its consumer brands. These include: HBO, HBO Max and Warner Bros., TNT and TBS, Warner Bros. and Warner Bros. Xandr, which is now part of WarnerMedia provides marketers with relevant and innovative advertising solutions for consumers about premium video content and digital advertisement through its platform. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.

AT&T products or services are offered by affiliates and subsidiaries of AT&T Inc. and not AT&T Inc. (c) 2021 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo, and other marks are trademarks or service marks of AT&T Intellectual Property or AT&T affiliated businesses. All other marks mentioned herein belong to 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. AT&T’s filings to the Securities and Exchange Commission contain a discussion of factors that could affect future results. AT&T does not have any obligation to revise or update statements in this news release, whether they are based on new information.

The news release may include certain non-GAAP financial measurements. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at https://investors.att.com.

Cautionary Statement Concerning Forward-Looking Statements

Information set forth in this communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed transaction between AT&T, Magallanes, Inc. (“Spinco”), and Discovery, Inc. (“Discovery”) constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements and estimates are subject to uncertainties and risks. Actual results may differ from those projected. These statements and estimates include statements regarding the potential benefits of the transaction, future financial and operating results, combined Spinco-Discovery company’s plans and objectives, as well as statements about historical facts. These statements are based on the current beliefs and expectations and may not reflect actual results. There are many risks and uncertainties that could lead to actual results being different from those stated in forward-looking statements. These include the possibility that Discovery stockholders will not approve the transaction proposal; the possibility that regulatory approvals for the proposed transactions may not be obtained in a timely fashion; risks associated with potential litigation; risks related with potential litigation; risks regarding the proposed transaction’s tax treatment; risks related the disruption to management time; potential effects on AT&T, Spinco and Discovery’s ability to retain customers, retain key personnel, maintain relationships with suppliers; as well as well as well. The effects of the COVID-19 pandemic may give rise to risks that are currently unknown or amplify the risks associated with the foregoing factors. These and other risks related to the proposed transaction will be discussed in greater detail in the proxy statement/prospectus, which will be included with the SEC’s registration statements. Additional risks and uncertainties can be found in the filings made by AT&T and Discovery with the Securities and Exchange Commission. AT&T and Discovery are not under any obligation to modify, alter or revise any forward looking statements. This is true regardless of whether they were made as a result or future events or new information. These forward-looking statements are only valid as of the date made herein.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the proposed transaction between AT&T, Spinco, and Discovery. AT&T, Spinco, and Discovery will file pertinent materials to the Securities and Exchange Commission (“SEC”) in connection with the proposed transaction. This includes a registration declaration on Form S-4 by Discovery which will include a prospectus by Discovery and Spinco, as well as a proxy statement from Discovery and a registration by Spinco. This communication does not replace the registration statements, proxy/prospectus, or any other documents that AT&T, Spinco, or Discovery may file with SEC. STOCKHOLDERS OF AT&T AND DISCOVERY ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and holders can obtain free copies of the proxy statement/prospectus, as well as other filings that contain information about AT&T and Spinco, at http://www.sec.gov. Copies of documents filed with the SEC by AT&T or Spinco will be made available free of charge on AT&T’s relations website at https://investors.att.com. Copies of documents filed with the SEC by Discovery will be made available free of charge on Discovery’s investor relations website at https://ir.corporate.discovery.com/investor-relations.

No Offer or Solicitation

This communication is for informational purposes only and is not intended to and does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, or a solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in which such offer, sale or solicitation 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, and otherwise in accordance with applicable law.

Participants in Solicitation

AT&T and its directors and executive officers, and Discovery and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Discovery capital stock and/or the offering of Discovery securities in respect of the proposed transaction. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T’s 2021 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2021. Information about the directors and executive officers of Discovery is set forth in the proxy statement for Discovery’s 2021 Annual Meeting of Stockholders, which was filed with the SEC on April 30, 2021. Investors can read the prospectus/proxy statement regarding the proposed transaction to find out more information about such participants.

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